UWHARRIE CAPITAL CORP - FORM 10-Q

UWHARRIE CAPITAL CORP - FORM 10-Q - May 10, 2011

Attached files

Attached files

UWHARRIE CAPITAL CORP Reports

file	filename
EX-32 - SECTION 906 CEO AND CFO CERTIFICATION - UWHARRIE CAPITAL CORP	dex32.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - UWHARRIE CAPITAL CORP	dex311.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - UWHARRIE CAPITAL CORP	dex312.htm

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

¨	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.

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


		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

-2-

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

-3-

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

-4-

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

-5-

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

-6-

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

-7-

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

-8-

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.

-9-


	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.

-10-

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	%

-11-

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

-12-

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

-13-

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.

-14-

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
	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
	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
	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

-15-

December 31, 2010


	Performing		Non- Performing		Total
	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

-16-

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

-17-

‘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.

-18-

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:

-19-


	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:

-20-


	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.

-21-

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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Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company