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UWHARRIE CAPITAL CORP - Quarter Report: 2011 March (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 March 31, 2011

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 May 6, 2011.

 

 

 


Table of Contents

Table of Contents

 

         Page No.  

Part I.

 

FINANCIAL INFORMATION

  

Item 1 -

 

Financial Statements (Unaudited)

  
 

Consolidated Balance Sheets March 31, 2011 and December 31, 2010

     3   
 

Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010

     4   
 

Consolidated Statements of Changes in Shareholders’ Equity Three Months Ended March 31, 2011

     5   
 

Consolidated Statements of Cash Flows Three Months Ended March 31, 2011 and 2010

     6   
 

Notes to Consolidated Financial Statements

     7   

Item 2 -

 

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

     23   

Item 3 -

 

Quantitative and Qualitative Disclosures about Market Risk

     29   

Item 4 -

 

Controls and Procedures

     30   

Part II.

 

OTHER INFORMATION

  

Item 1 -

 

Legal Proceedings

     30   

Item 1A -

 

Risk Factors

     30   

Item 2 -

 

Unregistered Sales of Equity Securities and Use of Proceeds

     30   

Item 3 -

 

Defaults Upon Senior Securities

     31   

Item 4 -

 

Reserved

     31   

Item 5 -

 

Other Information

     31   

Item 6 -

 

Exhibits

     32   
 

Exhibit Index

     34   

 

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Table of Contents

Uwharrie Capital Corp and Subsidiaries

Consolidated Balance Sheets

 

Part I. FINANCIAL INFORMATION

Item 1 - Financial Statements

 

     March 31,
2011
(Unaudited)
    December 31,
2010*
 
     (dollars in thousands)  

ASSETS

    

Cash and due from banks

   $ 7,231      $ 4,948   

Interest-earning deposits with banks

     29,519        8,676   

Securities available for sale, at fair value

     79,548        96,395   

Loans held for sale

     1,017        6,286   

Loans:

    

Loans held for investment

     378,463        387,769   

Less allowance for loan losses

     (9,030     (9,067
                

Net loans held for investment

     369,433        378,702   
                

Premises and equipment, net

     14,608        14,554   

Interest receivable

     1,940        2,408   

Federal Home Loan Bank stock

     3,281        3,252   

Bank owned life insurance

     6,026        5,975   

Goodwill

     987        987   

Other real estate owned

     2,103        2,022   

Prepaid assets

     1,933        2,088   

Other assets

     10,581        9,133   
                

Total assets

   $ 528,207      $ 535,426   
                

LIABILITIES

    

Deposits:

    

Demand noninterest-bearing

   $ 58,220      $ 54,837   

Interest checking and money market accounts

     178,371        187,493   

Savings deposits

     39,560        37,624   

Time deposits, $100,000 and over

     59,993        59,431   

Other time deposits

     94,230        94,648   
                

Total deposits

     430,374        434,033   
                

Short-term borrowed funds

     26,570        20,482   

Long-term debt

     25,118        34,061   

Interest payable

     330        342   

Other liabilities

     2,884        3,015   
                

Total liabilities

     485,276        491,933   
                

Off balance sheet items, commitments and contingencies (Note 7)

    

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

     (275     (300

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

     9,492        9,492   

Additional paid-in capital plus stock option surplus

     14,035        14,034   

Unearned ESOP compensation

     (672     (692

Undivided profits

     10,172        10,124   

Accumulated other comprehensive income

     (321     335   
                

Total shareholders’ equity

     42,931        43,493   
                

Total liabilities and shareholders’ equity

   $ 528,207      $ 535,426   
                

 

(*) Derived from audited consolidated financial statements

See accompanying notes

 

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Table of Contents

Uwharrie Capital Corp and Subsidiaries

Consolidated Statements of Operations (Unaudited)

 

 

     Three Months Ended
March 31,
 
     2011     2010  
     (in thousands, except share
and per share data)
 

Interest Income

    

Loans, including fees

   $ 5,342      $ 5,302   

Investment securities

    

US Treasury

     279        28   

US Government agencies and corporations

     224        624   

State and political subdivisions

     94        92   

Other

     —          —     

Interest-earning deposits with banks and federal funds sold

     7        8   
                

Total Interest income

     5,946        6,054   
                

Interest Expense

    

Interest checking and money market accounts

     232        237   

Savings deposits

     83        70   

Time deposits, $100,000 and over

     278        309   

Other time deposits

     306        468   

Short-term borrowed funds

     103        141   

Long-term debt

     276        267   
                

Total interest expense

     1,278        1,492   
                

Net interest income

     4,668        4,562   

Provision for loan losses

     1,369        213   
                

Net interest income after provision for loan losses

     3,299        4,349   
                

Noninterest Income

    

Service charges on deposit accounts

     444        566   

Other service fees and commissions

     857        661   

Gain (loss) on sale of securities

     576        (98

Income from mortgage loan sales

     383        346   

Other income

     117        128   
                

Total noninterest income

     2,377        1,603   
                

Noninterest Expense

    

Salaries and employee benefits

     3,045        2,828   

Net occupancy expense

     301        266   

Equipment expense

     206        182   

Data processing costs

     209        202   

Office supplies and printing

     73        88   

Foreclosed real estate expense

     43        73   

Professional fees and services

     262        348   

Marketing and donations

     144        186   

Electronic banking expense

     201        184   

Software amortization and maintenance

     136        107   

FDIC insurance

     227        173   

Other noninterest expense

     592        535   
                

Total noninterest expenses

     5,439        5,172   
                

Income before income taxes

     237        780   

Income taxes

     28        241   
                

Net income

   $ 209      $ 539   
                

Net income

   $ 209      $ 539   

Dividends on preferred stock

     (161     (161
                

Net income available to common shareholders

   $ 48      $ 378   
                

Net income per common share

    

Basic

   $ 0.01      $ 0.05   

Diluted

     0.01        0.05   

Weighted average common shares outstanding

    

Basic

     7,478,231        7,484,586   

Diluted

     7,478,231        7,484,586   

See accompanying notes

 

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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, 2010

     7,593,929       $ 10,000       $ 500       $ (300   $ 9,492       $ 14,034       $ (692   $ 10,124      $ 335      $ 43,493   

Net income

     —           —           —           —          —           —           —          209        —          209   

Other comprehensive income

     —           —           —           —          —           —           —          —          (656     (656

Release of ESOP shares

     —           —           —           —          —           —           20        —          —          20   

Increase in ESOP notes receivable

     —           —           —           —          —           —           —          —          —          —     

Stock compensation expense

     —           —           —           —          —           1         —          —          —          1   

Record preferred stock dividend and discount accretion

     —           —           —           25        —           —           —          (161     —          (136
                                                                                     

Balance, March 31, 2011

     7,593,929       $ 10,000       $ 500       $ (275   $ 9,492       $ 14,035       $ (672   $ 10,172      $ (321   $ 42,931   
                                                                                     

 

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Table of Contents

Uwharrie Capital Corp and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

 

 

     Three Months Ended
March 31,
 
     2011     2010  
     (dollars in thousands)  

Cash flows from operating activities

  

Net income

   $ 209      $ 539   

Adjustments to reconcile net income to net cash

    

Provided by operating activities:

    

Depreciation

     207        192   

Net amortization of security premiums/discounts

     185        72   

Net amortization of mortgage servicing rights

     171        169   

Provision for loan losses

     1,369        213   

Stock compensation

     1        1   

Net realized (gain) loss on sales / calls available for sales securities

     (576     98   

Income from mortgage loan sales

     (383     (346

Proceeds from sales of loans held for sale

     14,499        14,371   

Origination of loans held for sale

     (8,847     (13,007

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

     1        9   

Increase in cash surrender value of life insurance

     (51     (48

Release of ESOP shares

     20        19   

Net change in interest receivable

     468        (9

Net change in other assets

     (891     (1,188

Net change in interest payable

     (12     15   

Net change in other liabilities

     (131     (499
                

Net cash provided by operating activities

     6,239        601   
                

Cash flows from investing activities

    

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

     16,233        13,814   

Purchase of securities available for sale

     —          (13,084

Net (increase) decrease in loans

     7,383        (9,372

Purchase of premises and equipment

     (261     (440

Proceeds from sales of foreclosed real estate

     438        —     

Investment in other assets

     (227     (294

Net increase in Federal Home Loan Bank stock

     (29     (20
                

Net cash provided by (used in) investing activities

     23,537        (9,396
                

Cash flows from financing activities

    

Net increase (decrease) in deposit accounts

     (3,659     3,506   

Net increase (decrease) in short-term borrowed funds

     6,088        (4,118

Net increase (decrease) in long-term debt

     (10,000     8,998   

Proceeds from issuance of new junior subordinated debt

     1,787        —     

Repayments of existing junior subordinated debt

     (730     —     

Dividends on preferred stock

     (136     (136
                

Net cash provided by (used in) financing activities

     (6,650     8,250   
                

Increase (decrease) in cash and cash equivalents

     23,126        (545

Cash and cash equivalents, beginning of period

     13,624        10,859   
                

Cash and cash equivalents, end of period

   $ 36,750      $ 10,314   
                

Supplemental Schedule of Non-Cash Investing and Financing Activities

    

Loans transferred to foreclosured real estate

     517        475   

See accompanying notes

 

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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 2010 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
March 31,
 
     2011     2010  
     (in thousands)  

Net Income

   $ 209      $ 539   
                

Other comprehensive income

    

Unrealized gain (loss) on available for sale securities

     (429     157   

Related tax effect

     127        (53

Reclassification of (gain) loss recognized in net income

     (576     98   

Related tax effect

     222        (38
                

Total other comprehensive income

     (656     164   
                

Comprehensive income (loss)

   $ (447   $ 703   
                

 

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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 months ended March 31, 2011 the Company’s 123,570 stock options outstanding did not have a dilutive effect on per share results because the exercise prices exceeded the average share values for each period. The Company had 213,190 stock options outstanding at March 31, 2010 and they did not have a dilutive effect.

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

March 31,

 
     2011     2010  

Weighted average number of common shares outstanding

     7,593,929        7,593,929   

Effect of ESOP shares

     (115,698     (109,343
                

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

     7,478,231        7,484,586   

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

     7,478,231        7,484,586   
                

 

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Note 4 – Investment Securities

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

 

March 31, 2011

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

U.S. Treasury

   $ 43,572       $ 348       $ 1,358       $ 42,562   

U.S. Government agencies

     20,106         420         170         20,356   

GSE - Mortgage-backed securities and CMO’s

     5,988         124         65         6,047   

State and political subdivisions

     10,354         303         74         10,583   
                                   

Total securities available for sale

   $ 80,020       $ 1,195       $ 1,667       $ 79,548   
                                   

December 31, 2010

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

U.S. Treasury

   $ 51,622       $ 746       $ 1,220       $ 51,148   

U.S. Government agencies

     24,862         766         165         25,463   

GSE - Mortgage-backed securities and CMO’s

     8,655         294         49         8,900   

State and political subdivisions

     10,725         267         108         10,884   
                                   

Total securities available for sale

   $ 95,864       $ 2,073       $ 1,542       $ 96,395   
                                   

At March 31, 2011 and December 31, 2010, the Company owned Federal Reserve stock reported at cost of $778,850 and is included in other assets. Also, at March 31, 2011 and December 31, 2010, the Company owned Federal Home Loan Bank Stock (FHLB) of $3.3 million. The investments in Federal Reserve stock and FHLB stock are required investments related to the Company’s membership with and borrowings from 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 March 31, 2011.

Results from sales of securities available for sale for the three month period ended March 31, 2011 and March 31, 2010 are as follows:

 

     Three Months Ended
March 31,
 
     2011      2010  
     (dollars in thousands)  

Gross proceeds from sales

   $ 15,064       $ 9,461   
                 

Realized gains from sales

   $ 576       $ 9   

Realized losses from sales

     —           (107
                 

Net realized losses

   $ 576       $ (98
                 

At March 31, 2011 and December 31, 2010, securities available for sale with a carrying amount of $36.4 million and $40.7 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 March 31, 2011 and December 31, 2010. 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 are in no way a reflection of the quality of the investments. At March 31, 2011, the unrealized losses related to two U.S. Treasury notes, one U.S. Government agency, one GSE mortgage backed security and four North Carolina municipal bonds. At December 31, 2010, the unrealized losses related to six U.S. Treasury Notes, two U.S. Government Agencies, three GSE mortgage backed securities and eight North Carolina municipal bonds.

 

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

March 31, 2011

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

Securities available for sale temporary impairment

                 

U.S. Treasury

   $ 25,911       $ 1,358       $ —         $ —         $ 25,911       $ 1,358   

U.S. Gov’t agencies

     5,691         170         —           —           5,691         170   

GSE - Mortgage-backed securities and CMO’s

     2,828         65         —           —           2,828         65   

State and political subdivisions

     3,712         74         —           —           3,712         74   
                                                     
   $ 38,142       $ 1,667       $ —         $ —         $ 38,142       $ 1,667   
                                                     
     Less than 12 Months      12 Months or More      Total  

December 31, 2010

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

Securities available for sale temporary impairment

                 

U.S. Treasury

   $ 26,138       $ 1,220       $ —         $ —         $ 26,138       $ 1,220   

U.S. Gov’t agencies

     5,736         165         —           —           5,736         165   

GSE - Mortgage-backed securities and CMO’s

     2,900         49         —           —           2,900         49   

State and political subdivisions

     4,522         108         —           —           4,522         108   
                                                     
   $ 39,296       $ 1,542       $ —         $ —         $ 39,296       $ 1,542   
                                                     

Declines in the fair value of the investment portfolio are believed by management to be temporary in nature. When evaluating an investment for other-than-temporary impairment losses, management considers among other things, the length of time and the extent to which the fair value has been in a loss position, the financial condition of the issuer and the intent and the ability the Company has to hold the investment until the loss position is recovered.

Any unrealized losses were largely due to increases in market interest rates over the yields available at the time of purchase. The fair value is expected to recover as the bonds approach their maturity date or market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of quality and that the losses are temporary in nature. At March 31, 2011, the Company had no intent to sell and is not more likely than not to be required to sell the available for sale securities that were in a loss position.

 

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The aggregate amortized cost and fair value of the available for sale securities portfolio at March 31, 2011 and December 31, 2010 by remaining contractual maturity are as follows:

 

     March 31, 2011  
     Amortized
Cost
     Estimated
Fair Value
     Book
Yield (1)
 

Securities available for sale

        

U. S. Treasury

        

Due within one year

     1,000         1,004         1.00

Due after one but within five years

     2,016         2,056         1.71

Due after five but within ten years

     40,556         39,502         2.12
                          
     43,572         42,562         2.08
                          

U.S. Government agencies

        

Due within one year

     503         514         3.96

Due after one but within five years

     13,742         14,151         2.78

Due after five but within ten years

     5,861         5,691         1.84
                          
     20,106         20,356         2.53
                          

GSE Mortgage-backed securities

        

Due after five but within ten year

     850         878         3.42

Due after ten years

     5,138         5,169         4.00
                          
     5,988         6,047         3.91
                          

State and political

        

Due within one year

     350         351         3.45

Due after one but within five years

     3,651         3,811         4.12

Due after five but within ten year

     4,350         4,362         2.95

Due after ten years

     2,003         2,059         4.18
                          
     10,354         10,583         3.62
                          

Total Securities available for sale

        

Due within one year

     1,853         1,869         2.27

Due after one but within five years

     19,409         20,018         2.92

Due after five but within ten year

     51,617         50,433         2.18

Due after ten years

     7,141         7,228         4.05
                          
   $ 80,020       $ 79,548         2.53
                          
     December 31, 2010  
     Amortized
Cost
     Estimated
Fair Value
     Book
Yield (1)
 

Securities available for sale

        

U. S. Treasury

        

Due within one year

     1,000         1,006         0.90

Due after one but within five years

     2,018         2,066         1.70

Due after five but within ten years

     48,604         48,076         2.28
                          
     51,622         51,148         2.23
                          

U.S. Government agencies

        

Due within one year

     504         519         3.96

Due after one but within five years

     18,457         19,208         2.84

Due after five but within ten years

     5,901         5,736         1.84
                          
     24,862         25,463         2.62
                          

GSE Mortgage-backed securities

        

Due after five but within ten year

     2,498         2,633         3.97

Due after ten years

     6,157         6,267         4.22
                          
     8,655         8,900         4.15
                          

State and political

        

Due within one year

     576         577         2.36

Due after one but within five years

     3,286         3,437         4.21

Due after five but within ten year

     4,860         4,859         3.03

Due after ten years

     2,003         2,011         4.18
                          
     10,725         10,884         3.57
                          

Total Securities available for sale

        

Due within one year

     2,080         2,102         2.05

Due after one but within five years

     23,761         24,711         2.93

Due after five but within ten year

     61,863         61,304         2.37

Due after ten years

     8,160         8,278         4.21
                          
   $ 95,864       $ 96,395         2.66
                          

 

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1) Yields on securities and investments exempt from federal and/or state income taxes are stated on a fully tax- equivalent basis, assuming a 38.55% tax rate.

Note 5 – Loans Held for Investment

The composition of net loans held for investment by class as of March 31, 2011 and December 31, 2010 are as follows:

 

     March 31,
2011
    December 31,
2010
 
     (dollars in thousands)  

Commercial

    

Commercial

   $ 41,839      $ 51,679   

Real estate - commercial

     108,208        105,123   

Other real estate construction loans

     51,776        52,270   

Noncommercial

    

Real estate 1 - 4 family construction

     3,731        4,332   

Real estate - residential

     102,599        103,781   

Home equity

     52,863        52,034   

Consumer loans

     16,689        17,721   

Other loans

     646        739   
                
     378,351        387,679   

Less:

    

Allowance for loan losses

     (9,030     (9,067

Deferred loan (fees) costs, net

     112        90   
                

Loans held for investment, net

   $ 369,433      $ 378,702   
                

Note 6 – Allowance for Loan Losses

Changes in the allowance for loan losses for the period ended March 31, 2011 and December 31, 2010 are presented below:

 

     March 31,
2011
    December 31,
2010
 
     (dollars in thousands)  

Balance, beginning of year

   $ 9,067      $ 5,276   

Charge-offs

     (1,440     (1,189

Recoveries

     32        44   

Other

     2        17   

Provision charged against income

     1,369        4,919   
                

Balance, end of year

   $ 9,030      $ 9,067   
                

The following table shows the allowance for loss by loan class at March 31, 2011:

March 31, 2011

 

     Beginning
Balance
     Provisions     Other      Chargeoffs     Recoveries      Ending
Balance
 
            (dollars in thousands)               

Commercial

   $ 966       $ (101   $ 1       $ (158   $ 1       $ 709   

Real estate - commercial

     2,240         (258     1         (567     —           1,416   

other real estate construction

     2,157         791        —           (376     —           2,572   

Real estate construction

     33         (1     —           (15     —           17   

Real estate - residential

     1,658         416        —           (220     —           1,854   

Home equity

     971         248        —           —          —           1,219   

Consumer loan

     984         279        —           (104     31         1,190   

Other loans

     58         (5     —           —          —           53   
                                                   

Total

   $ 9,067       $ 1,369      $ 2       $ (1,440   $ 32       $ 9,030   
                                                   

 

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The following tables show period-end loans and reserve balances by loan class evaluated both individually and collectively for impairment at March 31, 2011 and December 31, 2010:

March 31, 2011

 

     Individually Evaluated      Collectively Evaluated      Total  
     Reserve      Loans      Reserve      Loans      Reserve      Loans  
            (dollars in thousands)                

Commercial

   $ 224       $ 852       $ 485       $ 40,987       $ 709       $ 41,839   

Real estate - commercial

     436         19,336         980         88,872         1,416         108,208   

other real estate construction

     2,326         9,969         246         41,807         2,572         51,776   

Real estate construction

     —           1,459         17         2,272         17         3,731   

Real estate - residential

     726         9,863         1,128         92,736         1,854         102,599   

Home equity

     376         1,453         843         51,410         1,219         52,863   

Consumer loan

     138         306         1,052         16,383         1,190         16,689   

Other loans

     —           —           53         646         53         646   
                                                     

Total

   $ 4,226       $ 43,238       $ 4,804       $ 335,113       $ 9,030       $ 378,351   
                                                     

December 31, 2010

 

     Individually Evaluated      Collectively Evaluated      Total  
     Reserve      Loans      Reserve      Loans      Reserve      Loans  
            (dollars in thousands)                

Commercial

   $ 399       $ 1,439       $ 567       $ 50,240       $ 966       $ 51,679   

Real estate - commercial

     1,384         20,321         856         84,802         2,240         105,123   

other real estate construction

     1,818         10,355         339         41,915         2,157         52,270   

Real estate construction

     —           950         33         3,382         33         4,332   

Real estate - residential

     762         8,884         896         94,897         1,658         103,781   

Home equity

     136         1,065         835         50,969         971         52,034   

Consumer loan

     132         241         852         17,480         984         17,721   

Other loans

     —           —           58         739         58         739   
                                                     

Total

   $ 4,631       $ 43,255       $ 4,436       $ 344,424       $ 9,067       $ 387,679   
                                                     

Past due loan information is used by management when assessing the adequacy of the allowance for loan loss. The following table summarizes the past due information of the loan portfolio by class:

March 31, 2011

 

     Loans
30-89 Days
Past Due
     Loans
90 Days
or More
Past due
     Total Past
Due Loans
     Current
Loans
     Total
Loans
     Accruing
Loans 90 or
More Days
Past Due
 
            (dollars in thousands)                

Commercial

   $ 285       $ 215       $ 500       $ 41,339       $ 41,839       $ —     

Real estate - commercial

     501         8,535         9,036         99,172         108,208         —     

Other real estate construction

     —           8,171         8,171         43,605         51,776         —     

Real estate 1 - 4 family construction

     —           —           —           3,731         3,731         —     

Real estate - residential

     2,019         2,354         4,373         98,226         102,599         601   

Home equity

     120         446         566         52,297         52,863         —     

Consumer loans

     195         62         257         16,432         16,689         44   

Other loans

     —           —           —           646         646         —     
                                                     

Total

   $ 3,120       $ 19,783       $ 22,903       $ 355,448       $ 378,351       $ 645   
                                                     

 

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December 31, 2010

 

     Loans
30-89 Days
Past Due
     Loans
90 Days
or More
Past due
     Total Past
Due Loans
     Current
Loans
     Total
Loans
     Accruing
Loans 90 or
More Days
Past Due
 
            (dollars in thousands)                

Commercial

   $ 666       $ 501       $ 1,167       $ 50,512       $ 51,679       $ —     

Real estate - commercial

     1,728         8,702         10,430         94,693         105,123         —     

Other real estate construction

     206         7,975         8,181         44,089         52,270         —     

Real estate 1 - 4 family construction

     —           500         500         3,832         4,332         —     

Real estate - residential

     1,648         2,337         3,985         99,796         103,781         397   

Home equity

     110         75         185         51,849         52,034         —     

Consumer loans

     267         46         313         17,408         17,721         10   

Other loans

     —           —           —           739         739         —     
                                                     

Total

   $ 4,625       $ 20,136       $ 24,761       $ 362,918       $ 387,679       $ 407   
                                                     

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

The composition of nonaccrual loans by class as of March 31, 2011 and December 31, 2010 is as follows:

 

     March 31,
2011
     December 31,
2010
 
     (dollars in thousands)  

Commercial

   $ 215       $ 501   

Real estate - commercial

     8,535         8,702   

Other real estate construction

     8,171         7,975   

Real estate 1 - 4 family construction

     —           500   

Real estate - residential

     1,753         1,940   

Home equity

     446         75   

Consumer loans

     18         36   

Other loans

     —           —     
                 

Total

   $ 19,138       $ 19,729   
                 

Management uses a risk-grading program to facilitate the evaluation of probable inherent loan losses and to measure the adequacy of the allowance for loan losses. In this program, risk grades are initially assigned by the loan officers and reviewed and monitored by the lenders and credit administration. The program has eight risk grades summarized in five categories as follows:

Pass: Loans that are pass grade credits include loans that are fundamentally sound and risk factors are reasonable and acceptable. They generally conform to policy with only minor exceptions and any major exceptions are clearly mitigated by other economic factors.

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

Substandard: Loans that are considered substandard are loans that are inadequately protected by current sound net worth, paying capacity of the obligor or the value of the collateral pledged. All nonaccrual loans are graded as substandard.

Doubtful: Loans that are considered to be doubtful have all weaknesses inherent in loans classified substandard, plus the added characteristic that the weaknesses make the collection or liquidation in full on the basis of current existing facts, conditions and values highly questionable and improbable.

 

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Loss: Loans that are considered to be a loss are considered to be uncollectible and of such little value that their continuance as bankable assets is not warranted.

The tables below summarize risk grades of the loan portfolio by class at March 31, 2011 and December 31 2010:

March 31, 2011

 

     Pass      Watch      Sub-
standard
     Doubtful      Total  
              
     (dollars in thousands)         

Commercial

   $ 39,810       $ 770       $ 1,259       $ —         $ 41,839   

Real estate - commercial

     84,887         4,595         17,988         738         108,208   

other real estate construction

     41,219         94         10,463         —           51,776   

Real estate 1 - 4 family construction

     2,780         —           951         —           3,731   

Real estate - residential

     91,792         2,453         8,354         —           102,599   

Home equity

     50,910         484         1,469         —           52,863   

Consumer loans

     16,216         129         333         11         16,689   

Other loans

     646         —           —           —           646   
                                            

Total

   $ 328,260       $ 8,525       $ 40,817       $ 749       $ 378,351   
                                            

December 31, 2010

 

     Pass      Watch      Sub-
standard
     Doubtful      Total  
              
     (dollars in thousands)         

Commercial

   $ 50,108       $ 185       $ 1,386       $ —         $ 51,679   

Real estate - commercial

     81,410         4,520         18,455         738         105,123   

other real estate construction

     41,709         301         10,260         —           52,270   

Real estate 1 - 4 family construction

     3,381         —           951         —           4,332   

Real estate - residential

     94,077         1,787         7,917         —           103,781   

Home equity

     50,902         158         974         —           52,034   

Consumer loans

     17,458         102         129         32         17,721   

Other loans

     739         —           —           —           739   
                                            

Total

   $ 339,784       $ 7,053       $ 40,072       $ 770       $ 387,679   
                                            

Loans that are in nonaccrual status or 90 days past due and still accruing are considered to be nonperforming. The following tables show performing and nonperforming loans by class at March 31, 2011 and December 31, 2010:

March 31, 2011

 

     Performing      Non-
Performing
     Total  
        
     (dollars in thousands)  

Commercial

   $ 41,624       $ 215       $ 41,839   

Real estate - commercial

     99,673         8,535         108,208   

Other real estate construction

     43,605         8,171         51,776   

Real estate 1 - 4 family construction

     3,731         —           3,731   

Real estate - residential

     100,245         2,354         102,599   

Home equity

     52,417         446         52,863   

Consumer loans

     16,627         62         16,689   

Other loans

     646         —           646   
                          

Total

   $ 358,568       $ 19,783       $ 378,351   
                          

 

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December 31, 2010

 

     Performing      Non-
Performing
     Total  
        
     (dollars in thousands)  

Commercial

   $ 51,178       $ 501       $ 51,679   

Real estate - commercial

     96,421         8,702         105,123   

Other real estate construction

     44,295         7,975         52,270   

Real estate 1 - 4 family construction

     3,832         500         4,332   

Real estate - residential

     101,444         2,337         103,781   

Home equity

     51,959         75         52,034   

Consumer loans

     17,675         46         17,721   

Other loans

     739         —           739   
                          

Total

   $ 367,543       $ 20,136       $ 387,679   
                          

Loans are considered impaired when, based on current information and events; it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement. If a loan is deemed impaired a specific calculation is performed and a specific reserve is allocated, if necessary. The tables below summarizes the loans deemed impaired and the amount of specific reserves allocated by class at March 31, 2011 and December 31, 2010:

March 31, 2011

 

     Unpaid
Principal
Balance
     Recorded
Investment
With No
Allowance
     Recorded
Investment
With
Allowance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
 
                 
                 
                 
   (dollars in thousands)         

Commercial

   $ 852       $ 535       $ 317       $ 224       $ 1,146       $ 14   

Real estate - commercial

     21,313         13,265         6,071         436         19,829         170   

Other real estate construction

     10,347         2,540         7,429         2,326         10,490         4   

Real estate 1 - 4 family construction

     1,459         1,459         —           —           876         22   

Real estate - residential

     9,863         6,274         3,589         726         9,373         115   

Home equity

     1,454         715         738         376         1,259         12   

Consumer loans

     306         79         227         138         274         3   

Other loans

     —           —           —           —           —           —     
                                                     

Total

   $ 45,594       $ 24,867       $ 18,371       $ 4,226       $ 43,247       $ 340   
                                                     

December 31, 2010

 

     Unpaid
Principal
Balance
     Recorded
Investment
With No
Allowance
     Recorded
Investment
With
Allowance
     Related
Allowance
 
           
           
           
     (dollars in thousands)  

Commercial

   $ 1,439       $ 918       $ 521       $ 399   

Real estate - commercial

     21,985         16,088         4,233         1,384   

Other real estate construction

     10,357         2,585         7,770         1,818   

Real estate 1 - 4 family construction

     950         950         —           —     

Real estate - residential

     8,884         5,118         3,766         762   

Home Equity loans

     1,066         677         388         136   

Consumer loans

     241         23         218         132   

Other loans

     —           —           —           —     
                                   

Total

   $ 44,922       $ 26,359       $ 16,896       $ 4,631   
                                   

 

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Note 7 – 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 March 31, 2011, outstanding financial instruments whose contract amounts represent credit risk were approximately:

 

(in thousands)       

Commitments to extend credit

   $ 69,699   

Credit card commitments

     8,571   

Standby letters of credit

     1,639   
        

Total commitments

   $ 79,909   
        

Note 8 – 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 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 impaired loans, loans held for sale, which are carried at the lower of cost or market, other real estate owned and loan servicing rights, where fair value is determined using similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions; 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.

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

 

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‘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 the transfer 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 by using one of several methods including collateral value, fair value of similar debt and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the present value of the expected repayments or fair value of collateral exceed the recorded investments in such loans. At March 31, 2011, substantially all of the total impaired loans were evaluated based on the fair value of the underlying 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 underlying collateral is further impaired below the appraised value 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.

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.

 

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The following table provides fair value information for assets and liabilities measured at fair value on a recurring basis as of March 31, 2011 and December 31, 2010:

 

     March 31, 2011  
     (dollars in thousands)  
     Total      Level 1      Level 2      Level 3  

Securities available for sale:

           

US Treasury

   $ 42,562       $ 42,562       $ —         $ —     

US Government Agencies

     20,356         20,356         —           —     

GSE - Mortgage-backed securities and CMO’s

     6,047         —           6,047         —     

State and political subdivisions

     10,583         —           10,583         —     
                                   

Total assets at fair value

   $ 79,548       $ 62,918       $ 16,630       $ —     
                                   

Total liabilities at fair value

   $ —         $ —         $ —         $ —     
                                   
     December 31, 2010  
     (dollars in thousands)  
     Total      Level 1      Level 2      Level 3  

Securities available for sale:

           

US Treasury

   $ 51,148       $ 51,148       $ —         $ —     

US Government Agencies

     25,463         25,463         —           —     

GSE - Mortgage-backed securities and CMO’s

     8,900         —           8,900         —     

State and political subdivisions

     10,884         —           10,884         —     
                                   

Total assets at fair value

   $ 96,395       $ 76,611       $ 19,784       $ —     
                                   

Total liabilities at fair value

   $ —         $ —         $ —         $ —     
                                   

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below as of March 31, 2011 and December 31, 2010:

 

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     March 31, 2011  
     (dollars in thousands)  
     Total      Level 1      Level 2      Level 3  

Impaired loans

   $ 14,145       $ —         $ —         $ 14,145   

Loans held for sale

     1,017         —           1,017         —     

Other real estate owned

     276         —           —           276   

Mortgage servicing rights

     2,590         —           —           2,590   
                                   

Total assets at fair value

   $ 18,028       $ —         $ 1,017       $ 17,011   
                                   

Total liabilities at fair value

   $ —         $ —         $ —         $ —     
                                   
     December 31, 2010  
     (dollars in thousands)  
     Total      Level 1      Level 2      Level 3  

Impaired loans

   $ 12,265       $ —         $ —         $ 12,265   

Loans held for sale

     6,286         —           6,286         —     

Other real estate owned

     275         —           —           275   

Mortgage servicing rights

     2,522         —           —           2,522   
                                   

Total assets at fair value

   $ 21,348       $ —         $ 6,286       $ 15,062   
                                   

Total liabilities at fair value

   $ —         $ —         $ —         $ —     
                                   

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

Note 9 – 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 March 31, 2011 and December 31, 2010, are based on relevant market information and information about the financial instruments. Fair value estimates are intended to represent the price at which an asset could be sold or a liability could be settled. However, given there is no active market or observable market transactions for many of the Company’s financial instruments, the Company has made estimates of many of these fair values which are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimated values. The estimated fair values disclosed in the following table do not represent market values of all assets and liabilities of the Company and should not be interpreted to represent the underlying value of the Company. The following table reflects a comparison of carrying amounts and the estimated fair value of the financial instruments as of March 31, 2011 and December 31, 2010:

 

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     2011      2010  
     Carrying
Amount
     Estimated
Fair Value
     Carrying
Amount
     Estimated
Fair Value
 
     (dollars in thousands)  

Financial Assets

           

Cash and cash equivalents

   $ 36,750       $ 36,750       $ 13,624       $ 13,630   

Securities available for sale

     79,548         74,248         96,395         96,395   

Loans held for investment, net

     369,433         382,292         378,702         392,017   

Loans held for sale

     1,017         1,017         6,286         6,286   

FHLB Stock and FRB Stock

     4,060         4,060         4,031         4,031   

Bank-owned life insurance

     6,026         6,026         5,975         5,975   

Mortgage servicing rights

     2,145         2,590         2,134         2,522   

Accrued interest receivables

     1,940         1,940         2,408         2,408   

Financial Liabilities

           

Deposits

   $ 430,374       $ 428,929       $ 434,033       $ 439,298   

Short-term borrowings

     26,570         26,570         20,482         20,482   

Long-term debt

     25,118         26,543         34,061         35,625   

Accrued interest payable

     330         330         342         342   

The carrying amount of cash and cash equivalents and accrued interest approximate their fair values due to the short period of time until their expected realization. Securities available for sale are carried at fair value based on quoted market prices. The carrying amount of bank-owned life insurance is the current cash surrender value. 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 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.

 

   

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 March 31, 2011, 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 7.

 

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Note 10 – Recent Accounting Pronouncements

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 adopted the level 3 disclosure requirements in the first quarter of 2011 and it had no impact on its financial position, results of operations, and EPS.

In July 2010, the FASB issued ASU 2010-20, an update to ASC 310 “Receivables”. The update to ASU 310 requires entities to provide disclosures designed to facilitate financial statement users’ evaluation of (i) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowance for credit losses. Disclosures must be disaggregated by portfolio segment, the level at which an entity develops and documents a systematic method for determining its allowance for credit losses, and class of financing receivable, which is generally a disaggregation of portfolio segment. The required disclosures include, among other things, a roll forward of the allowance for credit losses as well as information about modified, impaired, non-accrual and past due loans and credit quality indicators. ASU 2010-20 became effective for the Corporation’s financial statements as of December 31, 2010, as it relates to disclosures required as of the end of a reporting period. Disclosures that relate to activity during a reporting period became effective for the Corporation’s financial statements beginning on January 1, 2011. The Company has adopted this update and included the disclosure in the notes to the financial statements.

In April 2011, the FASB issued ASU No. 2011-02, an update to ASC 310 “Receivables. The update to ASU 310 clarifies which loan modifications constitute troubled debt restructurings and is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude, under the guidance clarified by ASU 2011-02, that both of the following exist: (a) the restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties. ASU 2011-02 will be effective for the Corporation on July 1, 2011, and applies retrospectively to restructurings occurring on or after January 1, 2011. Adoption of ASU 2011-02 is not expected have a significant impact on the Corporation’s 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 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.

 

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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 March 31, 2011 and December 31, 2010.

During the three months ended March 31, 2011, the Company’s total assets decreased $7.2 million, from $535.4 million to $528.2 million. During the same period, loans held for investment also decreased $9.3 million to $378.5 million.

Cash and cash equivalents increased $23.1 million during the three months ended March 31, 2011. Cash and due from banks increased $2.3 million, while interest-earning deposits with banks increased $20.8 million.

Investment securities decreased $16.8 million to $79.5 million for the quarter ended March 31, 2011. During the quarter in an effort to improve our interest rate risk position, management made the decision to shorten the duration of our investment portfolio by selling $14.5 million, including $12.5 million of bullet US Treasuries and government agency bonds and $2.0 million of small mortgage backed securities. The Company realized a gain of $576,000 on these transactions. The proceeds from these sales are being reinvested in defensive duration mortgage backed securities which will provide a shorter maturity and a monthly cash flow and protection in a rising rate environment. At March 31, 2011, the proceeds from these sales were included in interest-earning deposits with banks and attributed to the increase mentioned above. On March 31, 2011, the Company had net unrealized losses of $472,000.

Loans held for investment decreased from $387.8 million to $378.5 million, a decrease of $9.3 million. Attributing to this decrease was a significant pay down of $4.5 million with one customer relationship. The Company did experience positive growth trends in its commercial real estate and one to four family residential real estate areas of the loan portfolio. Commercial real estate experienced the largest growth, increasing 2.9% or $3.1 million. All of the remaining areas of the loan portfolio decreased during the first quarter. Loans held for sale decreased 83.8% or $5.3 million during the period. The decrease was attributed to an increase in mortgage rates and a decrease in demand. The allowance for loan losses was $9.0 million at March 31, 2011, which represents 2.39% of the loan portfolio.

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, bank owned life insurance and other real estate owned increased $54,000, $51,000 and $81,000, respectively. Accrued interest receivable and prepaid assets declined $468,000 and $155,000. Federal Home Loan Bank stock increased $29,000 because member institutions are required to increase their ownership as they increase their utilization of FHLB borrowings. The Company’s required ownership in Federal Reserve Bank stock remained at $779,000 during the first quarter. Other assets increased $1.4 million driven primarily by increases in required ATM and credit card clearing balances and deferred tax assets.

 

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Customer deposits, our primary funding source, experienced a $3.6 million decrease during the quarter ended March 31, 2011, decreasing from $434.0 million to $430.4 million. Demand noninterest bearing checking increased $3.4 million, while savings deposits increased $1.9 million for the period. Time deposits over $100,000 experienced positive growth of $562,000, while other time deposits declined $418,000 during the first quarter of 2011. Interest checking and money market decreased $9.1 million.

Total borrowings which consist of both short-term and long-term borrowed funds decreased $2.8 million for the period. The Company utilizes both short-term and long-term advances from the Federal Home Loan Bank. At March 31, 2011, $31.6 million of the total borrowings of $51.7 million were comprised of Federal Home Loan Bank advances.

Other liabilities decreased from $3.0 million at December 31, 2010 to $2.9 million at March 31, 2011, a decrease of $131,000.

At March 31, 2011, total shareholders’ equity was $42.9 million, a decrease of $562,000 from December 31, 2010. Net income for the period was $209,000. Net income was offset by a decline in unrealized gains and losses on investment securities, net of tax of $656,000. The Company also recorded $136,000 in dividends on the series A and B preferred stock for the three month period. At March 31, 2011, the Company and its subsidiary banks exceeded all applicable regulatory capital requirements.

Comparison of Results of Operations For the Three Months Ended March 31, 2011 and 2010.

Net Income and Net Income Available to Common Shareholders

Uwharrie Capital Corp reported net income of $209,000 for the three months ended March 31, 2011, as compared to $539,000 for the three months ended March 31, 2010, a decrease of $330,000. Net income available to common shareholders was $48,000 or $0.01 per common share at March 31, 2011, compared at $378,000 or $0.05 per common share at March 31, 2010. 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 March 31, 2011 was $4.7 million as compared with $4.6 million during the quarter ending March 31, 2010, resulting in an increase of $106,000, or 2.3%. During the current quarter our growth in the volume of interest-earning assets outpaced the growth in interest-bearing liabilities by $432,000. The average yield on our interest–earning assets decreased 68 basis points to 5.02%, while the average rate we paid for our interest-bearing liabilities decreased 36 basis points. The Company’s assets that are

 

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interest rate sensitive adjust at the time the Federal Reserve adjusts interest rates, while interest-bearing time deposits adjust at the time of maturity. The aforementioned decreases resulted in a decrease of 32 basis points in our interest rate spread, from 4.12% in 2010 to 3.80% in 2011. Our net interest margin was 3.95% and 4.31% for the comparable periods in 2011 and 2010, respectively.

The following table presents average balance sheets and a net interest income analysis for the three months ended March 31, 2011 and 2010:

Average Balance Sheet and Net Interest Income Analysis

For the Three Months Ended March 31,

(in thousands)

 

     Average Balance      Income/Expenses      Rate/Yield  
Interest-earning assets:    2011      2010      2011      2010      2011     2010  

Taxable securities

   $ 84,835       $ 65,848       $ 503       $ 653         2.40     4.02

Nontaxable securities (1)

     10,692         9,213         94         91         5.83     6.53

Short-term investments

     5,882         2,846         7         8         0.48     1.14

Taxable loans

     379,761         352,712         5,276         5,241         5.63     6.03

Non-taxable loans (1)

     7,132         6,544         66         61         6.13     6.18
                                                    

Total interest-earning assets

     488,302         437,163         5,946         6,054         5.02     5.70

Interest-bearing liabilities:

                

Interest-bearing deposits

     373,397         329,152         899         1,084         0.98     1.34

Short-term borrowed funds

     20,902         27,755         103         141         2.00     2.06

Long-term debt

     31,389         27,142         276         267         3.57     3.99
                                                    

Total interest bearing liabilities

     425,688         384,049         1,278         1,492         1.22     1.58
                                                    

Net interest spread

   $ 62,614       $ 53,114       $ 4,668       $ 4,562         3.80     4.12
                                                    

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

                 3.95     4.31
                            

 

(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 $1.4 million for the three months ending March 31, 2011 compared to $213,000 for the same period in 2010. There were net loan charge-offs of $1.4 million for the three months ended March 31, 2011 as compared with net loan charge-offs of $88,000 during the same period of 2010. Refer to the Asset Quality discussion on page 27 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 to our long term success. Total noninterest income increased $774,000 for the three month period ending March 31, 2011 as compared to the same period in 2010. The Company realized gains on the sale of investments in the amount of $576,000 in the first quarter of 2011, as compared to realized losses of $98,000 for the same period in 2010. Income from mortgage loan sales increased $37,000 from $346,000 for the quarter ended March 31, 2010 to $383,000 for the same period in 2011. Service charges on deposit accounts produced earnings of $444,000, a decrease of $122,000 for the three months ended March 31, 2011. The primary factor leading to this decrease was a decrease in NSF fees for the comparable periods. Other service fees and commissions experienced a 29.7% increase for the comparable three month period, generated mainly from brokerage commissions and asset management fees which increased $92,000.

 

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Noninterest Expense

Noninterest expense for the quarter ended March 31, 2011 was $5.4 million compared to $5.2 million for the same period of 2010, an increase of $267,000. Salaries and employee benefits, the largest component of noninterest expense, increased $217,000 for the quarter ending March 31, 2011. Net occupancy expense and equipment expense had a combined increase of $59,000. FDIC assessment costs increased $54,000 due to an increase in the assessment rate charged by FDIC to all FDIC-insured financial institutions. Other noninterest expense increased $57,000 for the comparable three month periods. The table below reflects the composition of other noninterest expense.

Other noninterest expense

 

     Three Months Ended
March 31,
 
     2011      2010  
     (in thousands)  

Postage

   $ 54       $ 52   

Telephone and data lines

     41         62   

Loan collection expense

     59         35   

Shareholder relations expense

     40         50   

Dues and subscriptions

     50         49   

Other

     348         287   
                 

Total

   $ 592       $ 535   
                 

Income Tax Expense

The Company had income tax expense of $28,000 for the three months ended March 31, 2011 resulting in an effective tax rate of 11.81% compared to income tax expense of $241,000 and an effective rate of 30.90% in the 2010 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 decrease in the effective tax rate resulted primarily from the increase in the level of such tax free income as a percentage of income before income taxes in the current year quarter compared to the 2010 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.

 

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

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

The provision for loan losses was $1.4 million for the quarter ended March 31, 2011 as compared to $213,000 for the same period in 2010. At March 31, 2011 the levels of our impaired loans, which includes all loans in nonaccrual status and other loans deemed by management to be impaired, were $43.2 million compared to $43.3 million at December 31, 2010, a decrease of $17,000. Total nonaccrual loans, which are a component of impaired loans, decreased from $19.7 million at December 31, 2010 to $19.1 million at March 31, 2011. The Company had net loan charge-offs for the first quarter of 2011 of $1.4 million compared to net loan charge-offs of $88,000 for the same period in 2010.

The allowance expressed as a percentage of gross loans held for investment increased 5 basis points from 2.34% at December 31, 2010 to 2.39% at March 31, 2011. The collectively evaluated reserve allowance as a percentage of collectively evaluated loans increased from 1.29% at December 31, 2010 to 1.43% at March 31, 2011, an increase of 14 basis points, while individually evaluated allowance as a percentage of individually evaluated loans decreased from 10.71% to 9.77%, a decrease of 94 basis points. During the first quarter of 2011, the Company had several partial charge-offs attributing to the decrease. Given the continued declines in the credit quality metrics relating to nonperforming loans since December 31, 2009, the increase in the reserve was warranted. During third quarter of 2010 we upgraded our allowance for loan loss model to capture not only the mean loss of individual loans but also the rare event of severe loss that can occur within the loan portfolio. The changes were made in the part of the model used to compute the general reserves. Specifically, the Company began calculating probable losses on loans by computing a probability of loss and expected loss scenario by call

 

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codes. Together, these components created from Ordinary Least Squares (OLS) Regression of historical losses against multiple Macro-Economic factors make up the basis of the new allowance model. The loans that are impaired and included in the specific reserve are excluded from these calculations. During the first quarter of 2011 the Company added an additional section to its loan loss model to account for qualitative and/or environmental factors. This new section accounted for $44,000 in increased reserves during the quarter. Nonperforming loans, which consist of nonaccrual loans and loans past due 90 days and still accruing, to total loans increased from 5.19% at December 31, 2010, to 5.23% at March 31, 2011. During the period the Company had a net increase in other real estate owned of $81,000. Management believes the current level of the allowance for loan losses is appropriate in light of the risk inherent in the loan portfolio.

Restructured loans at March 31, 2011 totaled $5.8million of which $4.9million are included in impaired loans above. Restructured loans at December 31, 2010 totaled $5.1 million of which $4.6 million are included in impaired loans above.

The following nonperforming loan table shows the comparison for the three months ended March 31, 2011 to December 31, 2010:

Nonperforming Assets

(dollars in thousands)

 

     March 31,
2011
    December 31,
2010
 

Nonperforming assets:

    

Nonaccrual loans past due 90 days or more

   $ 645      $ 407   

Nonaccrual loans

     19,138        19,730   

Other real estate owned

     2,103        2,022   
                

Total nonperforming assets

   $ 21,886      $ 22,159   
                

Allowance for loans losses

   $ 9,030      $ 9,067   

Nonperforming loans to total loans

     5.23     5.19

Allowance for loan losses to total loans

     2.39     2.34

Nonperforming assets to total assets

     4.14     4.14

Allowance for loan losses to nonperforming loans

     45.65     45.03

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 $14.3 million at March 31, 2011, with available credit of $14.3 million, established borrowing

 

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relationships with the Federal Home Loan Bank, with available credit of $26.7 million, access to borrowings from the Federal Reserve Bank discount window, with available credit of $12.0 million and the issuance of commercial paper. The Company has also secured long-term debt from other sources. Total debt from these sources aggregated $38.7 million at March 31, 2011, compared to $34.0 million at December 31, 2010.

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. The Company expects to continue to exceed minimum capital requirements without altering current operations or strategy. The Company completed a second private placement of junior subordinated debt securities that had a rate of 5.75 percent and an eight year maturity that qualifies as regulatory capital during the first quarter of 2011. For the first three years, the entire amount is included in regulatory capital and then is reduced by 20 percent per year until its maturity. On March 31, 2010, the Company called the private placement of junior subordinated debt completed during 2008 that qualified as regulatory capital. At March 31, 2011, the Company had $11.0 million in subordinated debt and $10.0 million in preferred stock issued to the United States Department of the Treasury.

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.

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 with those of its interest-bearing 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, 2010.

 

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

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

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 first quarter of 2011. 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.

 

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

Item 3. Defaults Upon Senior Securities

None

Item 4. Reserved

Item 5. Other Information

None

 

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Item 6. Exhibits

 

Exhibit
Number

 

Description of Exhibit

  3.1   Registrant’s Articles of Incorporation *
  3.2   Registrant’s By-laws *****
  4   Form of stock certificate *
10.1   Incentive Stock Option Plan, as amended *
10.2   Employee Stock Ownership Plan and Trust **
10.3   2006 Incentive Stock Option Plan ***
10.4   2006 Employee Stock Purchase Plan ***
10.5   Amendment to the Employee Stock Ownership Plan and Trust ****
31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2   Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32   Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
*   Incorporated by reference from exhibits to Registrant’s Registration Statement on Form S-4 (Reg. No. 33-58882).
**   Incorporated by reference to Registrant’s Annual Report on Form 10-KSB for the Fiscal year ended 1999.
***   Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2007.
****   Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2008.
*****   Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2009.

 

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Signatures

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

 

    UWHARRIE CAPITAL CORP
    (Registrant)
Date: May 10, 2011   By:  

/s/ Roger L. Dick

    Roger L. Dick
    President and Chief Executive Officer
Date: May 10, 2011     By:  

/s/ Robert O. Bratton

    Robert O. Bratton
    Principal Financial Officer

 

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EXHIBIT INDEX

 

Exhibit
Number

  

Description of Exhibit

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

 

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