Exhibit 13

Uwharrie Capital Corp

2010

ANNUAL REPORT TO SHAREHOLDERS



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Description of Business

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

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

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

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

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

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

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

The Strategic Alliance Corporation. Member FINRA/SIPC.

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

Bank of Stanly, Member FDIC, Equal Housing
Lender.

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

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



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Financial Highlights



|                                                     |  |      |           |   |      |   |           |                           |  |  |       |   
|---------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ------------------------- |  |  | ----- | --
|(Dollars in thousands except per share amounts)      |  | 2010 |           |   | 2009 |   |           | PercentIncrease(Decrease) | 
|                                                     |  |      |          
|For the year:                                        |  |      |           |   |      |   |           |                           |  |  |       |   
|Net income                                           |  | $    | 713       |   |      | $ | 690       |                           |  |  | 3.33  | % 
|Net income available to common shareholders          |  | $    | 68        |   |      | $ | 48        |                           |  |  | 41.67 | % 
|Basic net income per common share                    |  | $    | 0.01      |   |      | $ | 0.01      |                           |  |  | 0.00  | % 
|Diluted net income per common share                  |  | $    | 0.01      |   |      | $ | 0.01      |                           |  |  | 0.00  | % 
|                                                     |  |      |          
|Weighted average common shares outstanding (diluted) |  |      | 7,485,373 |   |      |   | 7,474,140 |                           |  |  | 0.15  | % 
|                                                     |  |      |          
|At year-end:                                         |  |      |           |   |      |   |           |                           |  |  |       |   
|Total assets                                         |  | $    | 535,426   |   |      | $ | 477,846   |                           |  |  | 12.05 | % 
|Total earning assets                                 |  |      | 499,126   |   |      |   | 436,012   |                           |  |  | 14.48 | % 
|Loans held for investment                            |  |      | 387,769   |   |      |   | 353,729   |                           |  |  | 9.62  | % 
|Total interest-bearing liabilities                   |  |      | 433,739   |   |      |   | 385,433   |                           |  |  | 12.53 | % 
|Shareholders equity                                 |  |      | 43,493    |   |      |   | 44,024    |                           |  |  | (1.21 | )%
|Book value per common share                          |  | $    | 4.38      |   |      | $ | 4.47      |                           |  |  | (2.01 | )%
|                                                     |  |      |          
|Averages for the year:                               |  |      |           |   |      |   |           |                           |  |  |       |   
|Total assets                                         |  | $    | 514,425   |   |      | $ | 471,729   |                           |  |  | 9.05  | % 
|Total earning assets                                 |  |      | 473,306   |   |      |   | 434,218   |                           |  |  | 9.00  | % 
|Loans held for investment                            |  |      | 375,381   |   |      |   | 346,976   |                           |  |  | 8.19  | % 
|Total interest-bearing liabilities                   |  |      | 414,373   |   |      |   | 378,411   |                           |  |  | 9.50  | % 
|Shareholders equity                                 |  |      | 45,425    |   |      |   | 43,182    |                           |  |  | 5.19  | % 
|                                                     |  |      |          
|Financial ratios (in percentage):                    |  |      |           |   |      |   |           |                           |  |  |       |   
|Return on average assets                             |  |      | 0.14      | % |      |   | 0.15      | %                         |  |  |       |   
|Return on average shareholders equity               |  |      | 1.57      | % |      |   | 1.60      | %                         |  |  |       |   
|Average equity to average assets                     |  |      | 8.83      | % |      |   | 9.15      | %                         |  |  |       |   
|Net interest margin (fully tax equivalent basis)     |  |      | 3.99      | % |      |   | 4.12      | %                         |  |  |       |   
|Allowance as % of loans at year-end                  |  |      | 2.34      | % |      |   | 1.49      | %                         |  |  |       |   
|Allowance as % of nonperforming loans                |  |      | 45.03     | % |      |   | 93.71     | %                         |  |  |       |   
|Nonperforming loans to total loans                   |  |      | 5.19      | % |      |   | 1.59      | %                         |  |  |       |   
|Nonperforming assets to total assets                 |  |      | 4.14      | % |      |   | 1.89      | %                         |  |  |       |   
|Net loan charge-offs (recoveries) to average loans   |  |      | 0.31      | % |      |   | 0.24      | %                         |  |  |       |   

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

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

The Board
of Directors adopts a dividend policy on an annual basis. For 2010 and 2009, Uwharrie Capital Corp did not declare a dividend. The Board of Directors will determine an appropriate dividend, if any, on an annual basis, consistent with the capital
needs of the Company.



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

The following graph compares (i) the yearly change in the cumulative total shareholder return on the Companys common stock with (ii) the
cumulative return of The Carson Medlin Company Independent Bank Index, and (iii) the Nasdaq Composite. The graph assumes that the value of an investment in the Companys common stock and in each index was $100 on December 31, 2005,
and that all dividends were reinvested. The performance shown in the graph represents past performance and should not be considered the indication of future performance.

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

LOGO



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LOGO

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors

Uwharrie Capital Corp

Albemarle, North Carolina

We have audited the accompanying consolidated balance sheets of Uwharrie Capital Corp and Subsidiaries (the Company) as of
December 31, 2010 and 2009, and the related consolidated statements of income, comprehensive income, changes in shareholders equity and cash flows for each of the years in the three-year period ended December 31, 2010. These
consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Uwharrie Capital Corp and Subsidiaries as of December 31,
2010 and 2009, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

/s/ Dixon Hughes PLLC

Asheville, North Carolina

March 31, 2011



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2010 and 2009







|                                                                                                     |  |                        |         |   |      |   |         |  
|---------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                     |  | 2010                   |         |   | 2009 |  
|                                                                                                     |  | (dollars in thousands) |        
|                                                                                                     |  |                       
|ASSETS                                                                                               |  |                        |         |   |      |   |         |  
|Cash and due from banks                                                                              |  | $                      | 4,948   |   |      | $ | 7,521   |  
|Interest-earning deposits with banks                                                                 |  |                        | 8,676   |   |      |   | 3,338   |  
|Securities available for sale, at fair value                                                         |  |                        | 96,395  |   |      |   | 76,317  |  
|Loans held for sale                                                                                  |  |                        | 6,286   |   |      |   | 2,628   |  
|Loans:                                                                                               |  |                        |         |   |      |   |         |  
|Loans held for investment                                                                            |  |                        | 387,769 |   |      |   | 353,729 |  
|Less allowance for loan losses                                                                       |  |                        | (9,067  | ) |      |   | (5,276  | )
|                                                                                                     |  |                        |         |   |      |   |         |  
|Net loans held for investment                                                                        |  |                        | 378,702 |   |      |   | 348,453 |  
|                                                                                                     |  |                        |         |   |      |   |         |  
|Premises and equipment, net                                                                          |  |                        | 14,554  |   |      |   | 13,646  |  
|Interest receivable                                                                                  |  |                        | 2,408   |   |      |   | 2,077   |  
|Federal Home Loan Bank stock                                                                         |  |                        | 3,252   |   |      |   | 3,201   |  
|Bank owned life insurance                                                                            |  |                        | 5,975   |   |      |   | 5,714   |  
|Goodwill                                                                                             |  |                        | 987     |   |      |   | 987     |  
|Other real estate owned                                                                              |  |                        | 2,022   |   |      |   | 3,419   |  
|Prepaid assets                                                                                       |  |                        | 2,088   |   |      |   | 2,617   |  
|Other assets                                                                                         |  |                        | 9,133   |   |      |   | 7,928   |  
|                                                                                                     |  |                        |         |   |      |   |         |  
|Total assets                                                                                         |  | $                      | 535,426 |   |      | $ | 477,846 |  
|                                                                                                     |  |                        |         |   |      |   |         |  
|                                                                                                     |  |                       
|LIABILITIES                                                                                          |  |                        |         |   |      |   |         |  
|Deposits:                                                                                            |  |                        |         |   |      |   |         |  
|Demand noninterest-bearing                                                                           |  | $                      | 54,837  |   |      | $ | 44,924  |  
|Interest checking and money market accounts                                                          |  |                        | 187,493 |   |      |   | 137,708 |  
|Savings deposits                                                                                     |  |                        | 37,624  |   |      |   | 32,120  |  
|Time deposits, $100,000 and over                                                                     |  |                        | 59,431  |   |      |   | 64,736  |  
|Other time deposits                                                                                  |  |                        | 94,648  |   |      |   | 97,286  |  
|                                                                                                     |  |                        |         |   |      |   |         |  
|Total deposits                                                                                       |  |                        | 434,033 |   |      |   | 376,774 |  
|                                                                                                     |  |                        |         |   |      |   |         |  
|Short-term borrowed funds                                                                            |  |                        | 20,482  |   |      |   | 26,940  |  
|Long-term debt                                                                                       |  |                        | 34,061  |   |      |   | 26,643  |  
|Interest payable                                                                                     |  |                        | 342     |   |      |   | 396     |  
|Other liabilities                                                                                    |  |                        | 3,015   |   |      |   | 3,069   |  
|                                                                                                     |  |                        |         |   |      |   |         |  
|Total liabilities                                                                                    |  |                        | 491,933 |   |      |   | 433,822 |  
|                                                                                                     |  |                        |         |   |      |   |         |  
|                                                                                                     |  |                       
|Off balance sheet items, commitments and contingencies (Note 12)                                     |  |                        |         |   |      |   |         |  
|                                                                                                     |  |                       
|SHAREHOLDERS EQUITY                                                                                 |  |                        |         |   |      |   |         |  
|Preferred stock, no par value: 10,000,000 shares authorized;                                         |  |                        |         |   |      |   |         |  
|10,000 shares of series A issued and outstanding                                                     |  |                        | 10,000  |   |      |   | 10,000  |  
|500 shares of series B issued and outstanding                                                        |  |                        | 500     |   |      |   | 500     |  
|Discount on preferred stock                                                                          |  |                        | (300    | ) |      |   | (400    | )
|Common stock, $1.25 par value: 20,000,000 shares authorized; 7,593,929 shares issued and outstanding |  |                        | 9,492   |   |      |   | 9,492   |  
|Additional paid-in capital plus stock option surplus                                                 |  |                        | 14,034  |   |      |   | 14,030  |  
|Unearned ESOP compensation                                                                           |  |                        | (692    | ) |      |   | (667    | )
|Undivided profits                                                                                    |  |                        | 10,124  |   |      |   | 10,056  |  
|Accumulated other comprehensive income                                                               |  |                        | 335     |   |      |   | 1,013   |  
|                                                                                                     |  |                        |         |   |      |   |         |  
|Total shareholders equity                                                                           |  |                        | 43,493  |   |      |   | 44,024  |  
|                                                                                                     |  |                        |         |   |      |   |         |  
|Total liabilities and shareholders equity                                                           |  | $                      | 535,426 |   |      | $ | 477,846 |  
|                                                                                                     |  |                        |         |   |      |   |         |  

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



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31, 2010, 2009 and 2008







|                                                            |  |                                                 |           |   |      |   |           |      |  |   |           |  
|----------------------------------------------------------- |  | ----------------------------------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                            |  | 2010                                            |           |   | 2009 |   |           | 2008 | 
|                                                            |  | (in thousands, except share and per share data) |          
|                                                            |  |                                                 |          
|Interest Income                                             |  |                                                 |           |   |      |   |           |      |  |   |           |  
|Loans, including fees                                       |  | $                                               | 21,616    |   |      | $ | 21,246    |      |  | $ | 22,780    |  
|Investment securities:                                      |  |                                                 |           |   |      |   |           |      |  |   |           |  
|US Treasury                                                 |  |                                                 | 612       |   |      |   | 12        |      |  |   | 73        |  
|US Government agencies and corporations                     |  |                                                 | 1,896     |   |      |   | 3,106     |      |  |   | 1,853     |  
|State and political subdivisions                            |  |                                                 | 319       |   |      |   | 632       |      |  |   | 689       |  
|Other                                                       |  |                                                 |          |   |      |   |          |      |  |   | 84        |  
|Interest-earning deposits with banks and federal funds sold |  |                                                 | 44        |   |      |   | 66        |      |  |   | 85        |  
|                                                            |  |                                                 |           |   |      |   |           |      |  |   |           |  
|Total interest income                                       |  |                                                 | 24,487    |   |      |   | 25,062    |      |  |   | 25,564    |  
|                                                            |  |                                                 |           |   |      |   |           |      |  |   |           |  
|Interest Expense                                            |  |                                                 |           |   |      |   |           |      |  |   |           |  
|Interest checking and money market accounts                 |  |                                                 | 971       |   |      |   | 838       |      |  |   | 1,357     |  
|Savings deposits                                            |  |                                                 | 327       |   |      |   | 255       |      |  |   | 301       |  
|Time deposits $100,000 and over                             |  |                                                 | 1,192     |   |      |   | 1,980     |      |  |   | 2,453     |  
|Other time deposits                                         |  |                                                 | 1,684     |   |      |   | 2,836     |      |  |   | 3,828     |  
|Short-term borrowed funds                                   |  |                                                 | 693       |   |      |   | 316       |      |  |   | 529       |  
|Long-term debt                                              |  |                                                 | 1,084     |   |      |   | 1,472     |      |  |   | 1,360     |  
|                                                            |  |                                                 |           |   |      |   |           |      |  |   |           |  
|Total interest expense                                      |  |                                                 | 5,951     |   |      |   | 7,697     |      |  |   | 9,828     |  
|                                                            |  |                                                 |           |   |      |   |           |      |  |   |           |  
|Net interest income                                         |  |                                                 | 18,536    |   |      |   | 17,365    |      |  |   | 15,736    |  
|Provision for loan losses                                   |  |                                                 | 4,919     |   |      |   | 1,732     |      |  |   | 969       |  
|                                                            |  |                                                 |           |   |      |   |           |      |  |   |           |  
|                                                            |  |                                                 |          
|Net interest income after provision for loan losses         |  |                                                 | 13,617    |   |      |   | 15,633    |      |  |   | 14,767    |  
|                                                            |  |                                                 |           |   |      |   |           |      |  |   |           |  
|Noninterest Income                                          |  |                                                 |           |   |      |   |           |      |  |   |           |  
|Service charges on deposit accounts                         |  |                                                 | 2,219     |   |      |   | 2,360     |      |  |   | 2,238     |  
|Other service fees and commissions                          |  |                                                 | 2,883     |   |      |   | 2,273     |      |  |   | 2,777     |  
|Gain (loss) on sale of securities                           |  |                                                 | 1,484     |   |      |   | (711      | )    |  |   |          |  
|Loss on nonmarketable securities                            |  |                                                 |          |   |      |   | (172      | )    |  |   |          |  
|Loss on securities with other-than-temporary impairment     |  |                                                 |          |   |      |   | (1,807    | )    |  |   | (158      | )
|Portion of loss recognized in other comprehensive income    |  |                                                 |          |   |      |   |          |      |  |   |          |  
|                                                            |  |                                                 |           |   |      |   |           |      |  |   |           |  
|Net impairment recognized in income                         |  |                                                 |          |   |      |   | (1,807    | )    |  |   | (158      | )
|Income from mortgage loan sales                             |  |                                                 | 3,172     |   |      |   | 3,436     |      |  |   | 1,208     |  
|Other income                                                |  |                                                 | 140       |   |      |   | 445       |      |  |   | 532       |  
|                                                            |  |                                                 |           |   |      |   |           |      |  |   |           |  
|Total noninterest income                                    |  |                                                 | 9,898     |   |      |   | 5,824     |      |  |   | 6,597     |  
|                                                            |  |                                                 |           |   |      |   |           |      |  |   |           |  
|Noninterest Expense                                         |  |                                                 |           |   |      |   |           |      |  |   |           |  
|Salaries and employee benefits                              |  |                                                 | 11,648    |   |      |   | 11,527    |      |  |   | 10,637    |  
|Net occupancy expense                                       |  |                                                 | 1,193     |   |      |   | 1,071     |      |  |   | 987       |  
|Equipment expense                                           |  |                                                 | 769       |   |      |   | 702       |      |  |   | 645       |  
|Data processing costs                                       |  |                                                 | 853       |   |      |   | 792       |      |  |   | 789       |  
|Office supplies and printing                                |  |                                                 | 384       |   |      |   | 335       |      |  |   | 286       |  
|Foreclosed real estate expense                              |  |                                                 | 387       |   |      |   | 219       |      |  |   | 55        |  
|Professional fees and services                              |  |                                                 | 1,230     |   |      |   | 968       |      |  |   | 687       |  
|Marketing and donations                                     |  |                                                 | 1,291     |   |      |   | 746       |      |  |   | 682       |  
|Electronic banking expense                                  |  |                                                 | 811       |   |      |   | 728       |      |  |   | 792       |  
|Software amortization and maintenance                       |  |                                                 | 542       |   |      |   | 470       |      |  |   | 455       |  
|FDIC insurance                                              |  |                                                 | 795       |   |      |   | 958       |      |  |   | 128       |  
|Other noninterest expense                                   |  |                                                 | 2,748     |   |      |   | 2,414     |      |  |   | 2,388     |  
|                                                            |  |                                                 |           |   |      |   |           |      |  |   |           |  
|Total noninterest expense                                   |  |                                                 | 22,651    |   |      |   | 20,930    |      |  |   | 18,531    |  
|                                                            |  |                                                 |           |   |      |   |           |      |  |   |           |  
|Income before income taxes                                  |  |                                                 | 864       |   |      |   | 527       |      |  |   | 2,833     |  
|Income taxes                                                |  |                                                 | 151       |   |      |   | (163      | )    |  |   | 804       |  
|                                                            |  |                                                 |           |   |      |   |           |      |  |   |           |  
|                                                            |  |                                                 |          
|Net income                                                  |  | $                                               | 713       |   |      | $ | 690       |      |  | $ | 2,029     |  
|                                                            |  |                                                 |           |   |      |   |           |      |  |   |           |  
|                                                            |  |                                                 |          
|Net income                                                  |  | $                                               | 713       |   |      | $ | 690       |      |  | $ | 2,029     |  
|Dividends on preferred stock                                |  |                                                 | (645      | ) |      |   | (642      | )    |  |   | (13       | )
|                                                            |  |                                                 |           |   |      |   |           |      |  |   |           |  
|Net Income available to common shareholders                 |  | $                                               | 68        |   |      | $ | 48        |      |  | $ | 2,016     |  
|                                                            |  |                                                 |           |   |      |   |           |      |  |   |           |  
|Net income per common share                                 |  |                                                 |           |   |      |   |           |      |  |   |           |  
|Basic                                                       |  | $                                               | 0.01      |   |      | $ | 0.01      |      |  | $ | 0.27      |  
|                                                            |  |                                                 |           |   |      |   |           |      |  |   |           |  
|Diluted                                                     |  | $                                               | 0.01      |   |      | $ | 0.01      |      |  | $ | 0.27      |  
|                                                            |  |                                                 |           |   |      |   |           |      |  |   |           |  
|Weighted average common shares outstanding                  |  |                                                 |           |   |      |   |           |      |  |   |           |  
|Basic                                                       |  |                                                 | 7,485,373 |   |      |   | 7,474,140 |      |  |   | 7,482,488 |  
|Diluted                                                     |  |                                                 | 7,485,373 |   |      |   | 7,474,140 |      |  |   | 7,520,484 |  

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



9



---

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31, 2010, 2009 and 2008







|                                                                                                                         |  |                |        |   |      |   |       |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------ |  | -------------- | ------ | - | ---- | - | ----- | ---- |  | - | ------ | -
|                                                                                                                         |  | 2010           |        |   | 2009 |   |       | 2008 | 
|                                                                                                                         |  | (in thousands) |       
|                                                                                                                         |  |                |       
|Net Income                                                                                                               |  | $              | 713    |   |      | $ | 690   |      |  | $ | 2,029  |  
|                                                                                                                         |  |                |        |   |      |   |       |      |  |   |        |  
|                                                                                                                         |  |                |       
|Other comprehensive income (loss):                                                                                       |  |                |        |   |      |   |       |      |  |   |        |  
|Unrealized gains (losses) on available for sale securities                                                               |  |                | 390    |   |      |   | 1,637 |      |  |   | (3,315 | )
|Related tax effect                                                                                                       |  |                | (156   | ) |      |   | (621  | )    |  |   | 1,281  |  
|                                                                                                                         |  |                |       
|Reclassification of losses (gains) recognized in net income                                                              |  |                | (1,484 | ) |      |   | 711   |      |  |   |       |  
|Related tax effect                                                                                                       |  |                | 572    |   |      |   | (274  | )    |  |   |       |  
|                                                                                                                         |  |                |       
|Reclassification of losses for which credit-related portion other-than-temporary impairment was recognized in net
income |  |                |       |   |      |   | 1,807 |      |  |   | 158    |  
|Related tax effect                                                                                                       |  |                |       |   |      |   | (697  | )    |  |   | (61    | )
|                                                                                                                         |  |                |        |   |      |   |       |      |  |   |        |  
|                                                                                                                         |  |                |       
|Total other comprehensive income (loss)                                                                                  |  |                | (678   | ) |      |   | 2,563 |      |  |   | (1,937 | )
|                                                                                                                         |  |                |        |   |      |   |       |      |  |   |        |  
|                                                                                                                         |  |                |       
|Comprehensive income                                                                                                     |  | $              | 35     |   |      | $ | 3,253 |      |  | $ | 92     |  
|                                                                                                                         |  |                |        |   |      |   |       |      |  |   |        |  

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



10



---

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

Years Ended December 31, 2010, 2009 and 2008







|                                                       |  |                                   |           |   |                        |   |        |                        |  |   |                           |  |  |             |      |   |                          |   |       |                          |  |   |                  |   |  |                                           |      |   |       |   |        |   |  |   |        |   |  |   |        |  
|------------------------------------------------------ |  | --------------------------------- | --------- | - | ---------------------- | - | ------ | ---------------------- |  | - | ------------------------- |  |  | ----------- | ---- | - | ------------------------ | - | ----- | ------------------------ |  | - | ---------------- | - |  | ----------------------------------------- | ---- | - | ----- | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                                       |  | NumberCommonSharesIssued          |           |   | PreferredStockSeries A |   |        | PreferredStockSeries B |  |   | Discount onPreferredStock |  |  | CommonStock |      |   | AdditionalPaid-inCapital |   |       | UnearnedESOPCompensation |  |   | UndividedProfits |   |  | AccumulatedOtherComprehensiveIncome(Loss) |      |   | Total |  
|                                                       |  | (in thousands, except share data) |          
|                                                       |  |                                   |           |   |                        |   |        |                        |  |  
|Balance, December 31, 2007                             |  |                                   | 7,414,707 |   |                        | $ |       |                        |  | $ |                          |  |  | $           |     |   |                          | $ | 9,268 |                          |  | $ | 13,453           |   |  | $                                         | (800 | ) |       | $ | 9,266  |   |  | $ | 387    |   |  | $ | 31,574 |  
|Net income                                             |  |                                   |          |   |                        |   |       |                        |  |   |                          |  |  |             |     |   |                          |   |      |                          |  |   |                 |   |  |                                           |     |   |       |   | 2,029  |   |  |   |       |   |  |   | 2,029  |  
|Other comprehensive income                             |  |                                   |          |   |                        |   |       |                        |  |   |                          |  |  |             |     |   |                          |   |      |                          |  |   |                 |   |  |                                           |     |   |       |   |       |   |  |   | (1,937 | ) |  |   | (1,937 | )
|Release of ESOP shares                                 |  |                                   |          |   |                        |   |       |                        |  |   |                          |  |  |             |     |   |                          |   |      |                          |  |   | 14               |   |  |                                           | 64   |   |       |   |       |   |  |   |       |   |  |   | 78     |  
|Common stock issued pursuant to:                       |  |                                   |           |   |                        |   |        |                        |  |   |                           |  |  |             |      |   |                          |   |       |                          |  |   |                  |   |  |                                           |      |   |       |   |        |   |  |   |        |   |  |   |        |  
|3% stock dividend                                      |  |                                   | 220,738   |   |                        |   |       |                        |  |   |                          |  |  |             |     |   |                          |   | 276   |                          |  |   | 718              |   |  |                                           |     |   |       |   | (994   | ) |  |   |       |   |  |   |       |  
|Stock options exercised                                |  |                                   | 69,742    |   |                        |   |       |                        |  |   |                          |  |  |             |     |   |                          |   | 87    |                          |  |   | 214              |   |  |                                           |     |   |       |   |       |   |  |   |       |   |  |   | 301    |  
|Tax benefit of stock options exercised                 |  |                                   |          |   |                        |   |       |                        |  |   |                          |  |  |             |     |   |                          |   |      |                          |  |   | 26               |   |  |                                           |     |   |       |   |       |   |  |   |       |   |  |   | 26     |  
|Repurchase of common stock                             |  |                                   | (111,258  | ) |                        |   |       |                        |  |   |                          |  |  |             |     |   |                          |   | (139  | )                        |  |   | (432             | ) |  |                                           |     |   |       |   |       |   |  |   |       |   |  |   | (571   | )
|Cash paid fractional shares                            |  |                                   |          |   |                        |   |       |                        |  |   |                          |  |  |             |     |   |                          |   |      |                          |  |   |                 |   |  |                                           |     |   |       |   | (7     | ) |  |   |       |   |  |   | (7     | )
|Stock compensation expense                             |  |                                   |          |   |                        |   |       |                        |  |   |                          |  |  |             |     |   |                          |   |      |                          |  |   | 26               |   |  |                                           |     |   |       |   |       |   |  |   |       |   |  |   | 26     |  
|Adjustment to initially apply ASC 715-60               |  |                                   |          |   |                        |   |       |                        |  |   |                          |  |  |             |     |   |                          |   |      |                          |  |   |                 |   |  |                                           |     |   |       |   | (273   | ) |  |   |       |   |  |   | (273   | )
|Issue series A preferred stock to the Treasury         |  |                                   |          |   |                        |   | 10,000 |                        |  |   |                          |  |  |             |     |   |                          |   |      |                          |  |   |                 |   |  |                                           |     |   |       |   |       |   |  |   |       |   |  |   | 10,000 |  
|Issue series B preferred stock to the Treasury         |  |                                   |          |   |                        |   |       |                        |  |   | 500                       |  |  |             |     |   |                          |   |      |                          |  |   |                 |   |  |                                           |     |   |       |   |       |   |  |   |       |   |  |   | 500    |  
|Record Series B warrant expense                        |  |                                   |          |   |                        |   |       |                        |  |   |                          |  |  |             | (500 | ) |                          |   |      |                          |  |   |                 |   |  |                                           |     |   |       |   |       |   |  |   |       |   |  |   | (500   | )
|Record preferred stock dividend                        |  |                                   |          |   |                        |   |       |                        |  |   |                          |  |  |             |     |   |                          |   |      |                          |  |   |                 |   |  |                                           |     |   |       |   | (13    | ) |  |   |       |   |  |   | (13    | )
|                                                       |  |                                   |           |   |                        |   |        |                        |  |   |                           |  |  |             |      |   |                          |   |       |                          |  |   |                  |   |  |                                           |      |   |       |   |        |   |  |   |        |   |  |   |        |  
|Balance, December 31, 2008                             |  |                                   | 7,593,929 |   |                        |   | 10,000 |                        |  |   | 500                       |  |  |             | (500 | ) |                          |   | 9,492 |                          |  |   | 14,019           |   |  |                                           | (736 | ) |       |   | 10,008 |   |  |   | (1,550 | ) |  |   | 41,233 |  
|                                                       |  |                                   |           |   |                        |   |        |                        |  |   |                           |  |  |             |      |   |                          |   |       |                          |  |   |                  |   |  |                                           |      |   |       |   |        |   |  |   |        |   |  |   |        |  
|Net income                                             |  |                                   |          |   |                        |   |       |                        |  |   |                          |  |  |             |     |   |                          |   |      |                          |  |   |                 |   |  |                                           |     |   |       |   | 690    |   |  |   |       |   |  |   | 690    |  
|Other comprehensive income                             |  |                                   |          |   |                        |   |       |                        |  |   |                          |  |  |             |     |   |                          |   |      |                          |  |   |                 |   |  |                                           |     |   |       |   |       |   |  |   | 2,563  |   |  |   | 2,563  |  
|Release of ESOP shares                                 |  |                                   |          |   |                        |   |       |                        |  |   |                          |  |  |             |     |   |                          |   |      |                          |  |   |                 |   |  |                                           | 69   |   |       |   |       |   |  |   |       |   |  |   | 69     |  
|Stock compensation expense                             |  |                                   |          |   |                        |   |       |                        |  |   |                          |  |  |             |     |   |                          |   |      |                          |  |   | 11               |   |  |                                           |     |   |       |   |       |   |  |   |       |   |  |   | 11     |  
|Record preferred stock dividend and discount accretion |  |                                   |          |   |                        |   |       |                        |  |   |                          |  |  |             | 100  |   |                          |   |      |                          |  |   |                 |   |  |                                           |     |   |       |   | (642   | ) |  |   |       |   |  |   | (542   | )
|                                                       |  |                                   |           |   |                        |   |        |                        |  |   |                           |  |  |             |      |   |                          |   |       |                          |  |   |                  |   |  |                                           |      |   |       |   |        |   |  |   |        |   |  |   |        |  
|                                                       |  |                                   |           |   |                        |   |        |                        |  |  
|Balance, December 31, 2009                             |  |                                   | 7,593,929 |   |                        | $ | 10,000 |                        |  | $ | 500                       |  |  | $           | (400 | ) |                          | $ | 9,492 |                          |  | $ | 14,030           |   |  | $                                         | (667 | ) |       | $ | 10,056 |   |  | $ | 1,013  |   |  | $ | 44,024 |  
|                                                       |  |                                   |           |   |                        |   |        |                        |  |   |                           |  |  |             |      |   |                          |   |       |                          |  |   |                  |   |  |                                           |      |   |       |   |        |   |  |   |        |   |  |   |        |  



11



---

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Continued)

Years Ended December 31, 2010, 2009 and 2008







|                                                       |  |                                   |           |  |                        |   |        |                        |  |   |                           |  |  |             |      |   |                          |   |       |                          |  |   |                  |  |  |                                           |      |   |       |   |        |   |  |   |       |   |  |   |        |  
|------------------------------------------------------ |  | --------------------------------- | --------- |  | ---------------------- | - | ------ | ---------------------- |  | - | ------------------------- |  |  | ----------- | ---- | - | ------------------------ | - | ----- | ------------------------ |  | - | ---------------- |  |  | ----------------------------------------- | ---- | - | ----- | - | ------ | - |  | - | ----- | - |  | - | ------ | -
|                                                       |  | NumberCommonSharesIssued          |           |  | PreferredStockSeries A |   |        | PreferredStockSeries B |  |   | Discount onPreferredStock |  |  | CommonStock |      |   | AdditionalPaid-inCapital |   |       | UnearnedESOPCompensation |  |   | UndividedProfits |  |  | AccumulatedOtherComprehensiveIncome(Loss) |      |   | Total |  
|                                                       |  | (in thousands, except share data) |          
|                                                       |  |                                   |           |  |                        |   |        |                        |  |  
|Balance, December 31, 2009                             |  |                                   | 7,593,929 |  |                        | $ | 10,000 |                        |  | $ | 500                       |  |  | $           | (400 | ) |                          | $ | 9,492 |                          |  | $ | 14,030           |  |  | $                                         | (667 | ) |       | $ | 10,056 |   |  | $ | 1,013 |   |  | $ | 44,024 |  
|Net income                                             |  |                                   |          |  |                        |   |       |                        |  |   |                          |  |  |             |     |   |                          |   |      |                          |  |   |                 |  |  |                                           |     |   |       |   | 713    |   |  |   |      |   |  |   | 713    |  
|Other comprehensive income                             |  |                                   |          |  |                        |   |       |                        |  |   |                          |  |  |             |     |   |                          |   |      |                          |  |   |                 |  |  |                                           |     |   |       |   |       |   |  |   | (678  | ) |  |   | (678   | )
|Release of ESOP shares                                 |  |                                   |          |  |                        |   |       |                        |  |   |                          |  |  |             |     |   |                          |   |      |                          |  |   |                 |  |  |                                           | 75   |   |       |   |       |   |  |   |      |   |  |   | 75     |  
|Increase in ESOP notes receivable                      |  |                                   |          |  |                        |   |       |                        |  |   |                          |  |  |             |     |   |                          |   |      |                          |  |   |                 |  |  |                                           | (100 | ) |       |   |       |   |  |   |      |   |  |   | (100   | )
|Stock compensation expense                             |  |                                   |          |  |                        |   |       |                        |  |   |                          |  |  |             |     |   |                          |   |      |                          |  |   | 4                |  |  |                                           |     |   |       |   |       |   |  |   |      |   |  |   | 4      |  
|Record preferred stock dividend and discount accretion |  |                                   |          |  |                        |   |       |                        |  |   |                          |  |  |             | 100  |   |                          |   |      |                          |  |   |                 |  |  |                                           |     |   |       |   | (645   | ) |  |   |      |   |  |   | (545   | )
|                                                       |  |                                   |           |  |                        |   |        |                        |  |   |                           |  |  |             |      |   |                          |   |       |                          |  |   |                  |  |  |                                           |      |   |       |   |        |   |  |   |       |   |  |   |        |  
|                                                       |  |                                   |           |  |                        |   |        |                        |  |  
|Balance, December 31, 2010                             |  |                                   | 7,593,929 |  |                        | $ | 10,000 |                        |  | $ | 500                       |  |  | $           | (300 | ) |                          | $ | 9,492 |                          |  | $ | 14,034           |  |  | $                                         | (692 | ) |       | $ | 10,124 |   |  | $ | 335   |   |  | $ | 43,493 |  
|                                                       |  |                                   |           |  |                        |   |        |                        |  |   |                           |  |  |             |      |   |                          |   |       |                          |  |   |                  |  |  |                                           |      |   |       |   |        |   |  |   |       |   |  |   |        |  

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



12



---

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2010, 2009 and 2008







|                                                                                         |  |      |          |   |      |   |          |      |  |   |         |  
|---------------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | ---- |  | - | ------- | -
|                                                                                         |  | 2010 |          |   | 2009 |   |          | 2008 | 
|Cash flows from operating activities                                                     |  |      |          |   |      |   |          |      |  |   |         |  
|Net income                                                                               |  | $    | 713      |   |      | $ | 690      |      |  | $ | 2,029   |  
|Adjustments to reconcile net income to net cash Provided (used) by operating activities: |  |      |          |   |      |   |          |      |  |   |         |  
|Depreciation                                                                             |  |      | 815      |   |      |   | 780      |      |  |   | 676     |  
|Net amortization of security premiums/discounts                                          |  |      | 412      |   |      |   | 134      |      |  |   | (202    | )
|Impairment of securities available for sale                                              |  |      |         |   |      |   | 1,807    |      |  |   | 158     |  
|Net amortization of mortgage servicing rights                                            |  |      | 869      |   |      |   | 868      |      |  |   | 471     |  
|Impairment of foreclosed real estate                                                     |  |      | 125      |   |      |   | 78       |      |  |   | 28      |  
|Provision for loan losses                                                                |  |      | 4,919    |   |      |   | 1,732    |      |  |   | 969     |  
|Deferred income taxes                                                                    |  |      | (1,091   | ) |      |   | (737     | )    |  |   | (728    | )
|Stock compensation                                                                       |  |      | 4        |   |      |   | 11       |      |  |   | 26      |  
|Net realized loss on sales / calls available for sale securities                         |  |      | (1,484   | ) |      |   | 711      |      |  |   |        |  
|Income from mortgage loan sales                                                          |  |      | (3,172   | ) |      |   | (3,436   | )    |  |   | (1,208  | )
|Proceeds from sales of loans held for sale                                               |  |      | 110,374  |   |      |   | 144,761  |      |  |   | 55,198  |  
|Origination of loans held for sale                                                       |  |      | (111,973 | ) |      |   | (142,727 | )    |  |   | (54,328 | )
|(Gain) loss on sale of premises, equipment and other assets                              |  |      | 71       |   |      |   | (1       | )    |  |   | 5       |  
|Loss on nonmarketable securities                                                         |  |      |         |   |      |   | 172      |      |  |   |        |  
|Increase in cash surrender value of life insurance                                       |  |      | (261     | ) |      |   | (203     | )    |  |   | (193    | )
|Loss on sales of foreclosed real estate                                                  |  |      | 332      |   |      |   | 36       |      |  |   | 41      |  
|Release of ESOP Shares                                                                   |  |      | 75       |   |      |   | 69       |      |  |   | 78      |  
|Net change in interest receivable                                                        |  |      | (331     | ) |      |   | (50      | )    |  |   | 28      |  
|Net change in other assets                                                               |  |      | (532     | ) |      |   | (3,652   | )    |  |   | 83      |  
|Net change in interest payable                                                           |  |      | (54      | ) |      |   | (106     | )    |  |   | (94     | )
|Net change in other liabilities                                                          |  |      | (54      | ) |      |   | 714      |      |  |   | 584     |  
|                                                                                         |  |      |          |   |      |   |          |      |  |   |         |  
|Net cash provided (used) by operating activities                                         |  |      | (243     | ) |      |   | 1,651    |      |  |   | 3,621   |  
|                                                                                         |  |      |          |   |      |   |          |      |  |   |         |  
|Cash flows from investing activities                                                     |  |      |          |   |      |   |          |      |  |   |         |  
|Proceeds from sales, maturities and calls of securities available for sale               |  |      | 53,013   |   |      |   | 30,353   |      |  |   | 14,386  |  
|Purchase of securities available for sale                                                |  |      | (71,430  | ) |      |   | (36,208  | )    |  |   | (35,329 | )
|Net increase in loans                                                                    |  |      | (34,866  | ) |      |   | (15,598  | )    |  |   | (21,837 | )
|Proceeds from sale of premises, equipment and other assets                               |  |      |         |   |      |   | 1        |      |  |   |        |  
|Purchase of premises and equipment                                                       |  |      | (1,725   | ) |      |   | (3,298   | )    |  |   | (3,058  | )
|Proceeds from sales of foreclosed real estate                                            |  |      | 733      |   |      |   | 1,243    |      |  |   | 182     |  
|Investment in other assets                                                               |  |      | (240     | ) |      |   | (1,089   | )    |  |   | (569    | )
|Net increase in Federal Home Loan Bank stock                                             |  |      | (51      | ) |      |   | (917     | )    |  |   | (147    | )
|                                                                                         |  |      |          |   |      |   |          |      |  |   |         |  
|Net cash used by investing activities                                                    |  |      | (54,566  | ) |      |   | (25,513  | )    |  |   | (46,372 | )
|                                                                                         |  |      |          |   |      |   |          |      |  |   |         |  
|Cash flows from financing activities                                                     |  |      |          |   |      |   |          |      |  |   |         |  
|Net increase in deposit accounts                                                         |  |      | 57,259   |   |      |   | 23,147   |      |  |   | 28,970  |  
|Net increase (decrease) in short-term borrowed funds                                     |  |      | (6,458   | ) |      |   | 4,691    |      |  |   | (9,679  | )
|Net increase (decrease) in long-term debt                                                |  |      | 4,942    |   |      |   | (5,859   | )    |  |   | 3,392   |  
|Net proceeds from issuance of junior subordinated debt                                   |  |      | 2,476    |   |      |   |         |      |  |   | 7,419   |  
|Repurchases of common stock                                                              |  |      |         |   |      |   |         |      |  |   | (571    | )
|Net proceeds from issuance of preferred stock                                            |  |      |         |   |      |   |         |      |  |   | 10,000  |  
|Net proceeds from issuance of common stock                                               |  |      |         |   |      |   |         |      |  |   | 301     |  
|Tax benefit of stock options exercised                                                   |  |      |         |   |      |   |         |      |  |   | 26      |  
|Increase in unearned ESOP compensation                                                   |  |      | (100     | ) |      |   |         |      |  |   |        |  
|Dividend on preferred stock                                                              |  |      | (545     | ) |      |   | (542     | )    |  |   | (13     | )
|Cash paid for fractional shares                                                          |  |      |         |   |      |   |         |      |  |   | (7      | )
|                                                                                         |  |      |          |   |      |   |          |      |  |   |         |  
|Net cash provided by financing activities                                                |  |      | 57,574   |   |      |   | 21,437   |      |  |   | 39,838  |  
|                                                                                         |  |      |          |   |      |   |          |      |  |   |         |  
|                                                                                         |  |      |         
|Increase (decrease) in cash and cash equivalents                                         |  |      | 2,765    |   |      |   | (2,425   | )    |  |   | (2,913  | )
|Cash and cash equivalents, beginning of period                                           |  |      | 10,859   |   |      |   | 13,284   |      |  |   | 16,197  |  
|                                                                                         |  |      |          |   |      |   |          |      |  |   |         |  
|Cash and cash equivalents, end of period                                                 |  | $    | 13,624   |   |      | $ | 10,859   |      |  | $ | 13,284  |  
|                                                                                         |  |      |          |   |      |   |          |      |  |   |         |  
|                                                                                         |  |      |         
|Supplemental disclosures of cash flow information                                        |  |      |          |   |      |   |          |      |  |   |         |  
|Interest paid                                                                            |  | $    | 6,005    |   |      | $ | 7,802    |      |  | $ | 9,922   |  
|Income taxes paid                                                                        |  |      | 1,274    |   |      |   | 1,558    |      |  |   | 1,596   |  
|Supplemental schedule of non-cash activities                                             |  |      |          |   |      |   |          |      |  |   |         |  
|Net change in fair value of securities available for sale, net of tax                    |  |      | (1,094   | ) |      |   | 2,563    |      |  |   | (1,937  | )
|Loans transferred to foreclosed real estate                                              |  |      | 2,148    |   |      |   | 1,882    |      |  |   | 2,876   |  
|Company financed sales of other real estate owned                                        |  |      | 2,450    |   |      |   |         |      |  |   |        |  
|Mortgage servicing rights capitalized                                                    |  |      | 1,113    |   |      |   | 1,465    |      |  |   | 563     |  
|Preferred stock dividend accrued                                                         |  |      | (68      | ) |      |   | (68      | )    |  |   | (13     | )
|ASC 715-60 charged to retained earnings                                                  |  |      |         |   |      |   |         |      |  |   | (273    | )

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



13



---

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements





Note 1 - Significant Accounting Policies

Nature of Business

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

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

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

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

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

On August 4, 2000, Stanly acquired another subsidiary, Gateway Mortgage, Inc.
(Gateway), a mortgage origination company. This company is currently inactive and does not affect the consolidated financials.

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

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

Principles of Consolidation

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



14



---

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 1 - Significant Accounting Policies (Continued)



Use of Estimates

The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses.

Cash and Cash Equivalents

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

Investment Securities Available for Sale

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

Loans Held for Sale

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

Loans

The Company divides the loans it
grants into two segments, commercial and noncommercial loans. Commercial loans are broken down into the following classes, commercial loans, real estate commercial loans and other real estate construction loans. Noncommercial loans are divided into
the following classes, real estate 1-4 family construction, real estate 1-4 family residential loans, home equity loans, consumer loans and other loans. The ability of the Companys borrowers to honor their contracts is largely dependent upon
the real estate and general economic conditions in the Companys market area. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding unpaid principal
balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized
as an adjustment of the related loan yield using the interest method.



15



---

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 1 - Significant Accounting Policies (Continued)



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

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

Allowance for Loan
Losses

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

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

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

Smaller balances of homogeneous loans are collectively evaluated by loan class for impairment. Accordingly, the Company does not separately identify
individual consumer, residential and other loans for impairment disclosures.



16



---

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 1 - Significant Accounting Policies (Continued)



In the third quarter, the Company 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 codes. Together, these components created from Ordinary Least Squares (OLS) Regression of historical losses against multiple Macro-Economic factors make up the
basis of the new allowance model. The loans that are impaired and included in the specific reserve are excluded from these new calculations.

In the third quarter, our allowance for loan losses increased approximately $2.1 million, of which approximately $300,000 was related to a net increase
in allowance on impaired loans.

Servicing Rights

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

Transfers of Financial Assets

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

Foreclosed Real Estate

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

Premises and Equipment

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



17



---

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 1 - Significant Accounting Policies (Continued)



accumulated depreciation are removed from the accounts and any gains or losses are reflected in income.

Federal Home Loan Bank Stock

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

Goodwill

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

Stock-Based Compensation

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

Income Taxes

The Company and its subsidiaries file a consolidated Federal income tax return and separate North Carolina income tax returns. The provision for income
taxes in the accompanying consolidated financial statements is provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
The tax returns for the Company are subject to audit for the 2007 fiscal year and thereafter. The Company records penalties and interest related to income taxes as a component of income tax expense.

Fair Value of Financial Instruments

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



18



---

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 1 - Significant Accounting Policies (Continued)



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 fairvalue 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 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 December 31, 2010,
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



19



---

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 1 - Significant Accounting Policies (Continued)



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.

Comprehensive Income

The Company
reports as comprehensive income all changes in shareholders equity during the year from sources other than shareholders. Other comprehensive income refers to all components (revenues, expenses, gains, and losses) of comprehensive income that
are excluded from net income. The Companys only component of other comprehensive income is unrealized gains and losses, net of income tax, on investment securities available for sale.

As of December 31, 2010 and December 31, 2009, total accumulated other comprehensive income was $335,000 and $1.0 million, respectively, consisting of $334,512 and $1,012,648 of unrealized gains
and temporary unrealized losses net of tax.

Earnings per Common Share

The Company issued 3% stock dividends in 2008. There was not a stock dividend in 2010 or 2009. All references in these consolidated financial statements to earnings per common share and weighted average
common and common equivalent shares outstanding have been adjusted for the effect of these stock dividends. In 2010, 2009 and 2008 there were 180,571, 280,715 and 189,866 options outstanding that were anti-dilutive, respectively.

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



20



---

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 1 - Significant Accounting Policies (Continued)



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



|                                                                                                                                    |  |      |           |   |      |  |           |      |  |  |           |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | - | ---- |  | --------- | ---- |  |  | --------- | -
|                                                                                                                                    |  | 2010 |           |   | 2009 |  |           | 2008 | 
|                                                                                                                                    |  |      |          
|Weighted average number of common shares used in computing basic net income per common share                                        |  |      | 7,593,969 |   |      |  | 7,593,969 |      |  |  | 7,618,913 |  
|                                                                                                                                    |  |      |          
|Effect of ESOP shares                                                                                                               |  |      | (108,596  | ) |      |  | (119,829  | )    |  |  | (136,425  | )
|                                                                                                                                    |  |      |           |   |      |  |           |      |  |  |           |  
|                                                                                                                                    |  |      |          
|Adjusted weighted average number of common shares used in computing basic net income per common share                               |  |      | 7,485,373 |   |      |  | 7,474,140 |      |  |  | 7,482,488 |  
|                                                                                                                                    |  |      |          
|Effect of dilutive stock options                                                                                                    |  |      |          |   |      |  |          |      |  |  | 37,996    |  
|                                                                                                                                    |  |      |           |   |      |  |           |      |  |  |           |  
|                                                                                                                                    |  |      |          
|Weighted average number of common shares and dilutive potential common shares used in computing diluted net income per common
share |  |      | 7,485,373 |   |      |  | 7,474,140 |      |  |  | 7,520,484 |  
|                                                                                                                                    |  |      |           |   |      |  |           |      |  |  |           |  

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 does not expect the adoption of the Level 3 disclosure requirements to have an impact on its financial position, results of
operations, and EPS.

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

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.



21



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 1 - Significant Accounting Policies (Continued)



Reclassification

Certain amounts in the 2009 and 2008 financial statements have been reclassified to conform to the 2010 presentation. The reclassifications had no effect on net income or shareholders equity as
previously reported.

Note 2 - Investment Securities

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



|                                     |  |                        |        |  |                      |   |       |                       |  |   |           |  |  |   |        | 
|------------------------------------ |  | ---------------------- | ------ |  | -------------------- | - | ----- | --------------------- |  | - | --------- |  |  | - | ------ | 
|December 31, 2010                    |  | AmortizedCost          |        |  | GrossUnrealizedGains |   |       | GrossUnrealizedLosses |  |   | FairValue | 
|                                     |  | (dollars in thousands) |       
|U.S. Treasury                        |  | $                      | 51,622 |  |                      | $ | 746   |                       |  | $ | 1,220     |  |  | $ | 51,148 | 
|U.S. Government agencies             |  |                        | 24,862 |  |                      |   | 766   |                       |  |   | 165       |  |  |   | 25,463 | 
|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 | 
|                                     |  |                        |        |  |                      |   |       |                       |  |   |           |  |  |   |        | 
|                                     |  |                        |        | 
|December 31, 2009                    |  | AmortizedCost          |        |  | GrossUnrealizedGains |   |       | GrossUnrealizedLosses |  |   | FairValue | 
|                                     |  | (dollars in thousands) |       
|U.S. Treasury                        |  | $                      | 3,024  |  |                      | $ |      |                       |  | $ | 5         |  |  | $ | 3,019  | 
|U.S. Government agencies             |  |                        | 20,736 |  |                      |   | 246   |                       |  |   | 11        |  |  |   | 20,971 | 
|Mortgage-backed securities and CMOs |  |                        | 34,186 |  |                      |   | 1,056 |                       |  |   |          |  |  |   | 35,242 | 
|Private label CMOs                  |  |                        | 7,468  |  |                      |   | 117   |                       |  |   | 85        |  |  |   | 7,500  | 
|State and political subdivisions     |  |                        | 9,276  |  |                      |   | 309   |                       |  |   |          |  |  |   | 9,585  | 
|                                     |  |                        |        |  |                      |   |       |                       |  |   |           |  |  |   |        | 
|Total securities available for sale  |  | $                      | 74,690 |  |                      | $ | 1,728 |                       |  | $ | 101       |  |  | $ | 76,317 | 
|                                     |  |                        |        |  |                      |   |       |                       |  |   |           |  |  |   |        | 

At both December 31, 2010 and 2009, the Company owned Federal Reserve stock reported at cost of $778,850 and is
included in other assets. Also at December 31, 2010 and 2009, the Company owned Federal Home Loan Bank Stock (FHLB) of $3.3 million and $3.2 million, respectively. The investments in Federal Reserve stock and FHLB stock are required investments
related to the Companys membership and borrowings with these banks.

Results from sales and calls of securities available for
sale for the years ended December 31, 2010, 2009 and 2008 are as follows:



|                                    |  |                        |        |   |      |   |       |      |  |   |   | 
|----------------------------------- |  | ---------------------- | ------ | - | ---- | - | ----- | ---- |  | - | - | 
|                                    |  | 2010                   |        |   | 2009 |   |       | 2008 | 
|                                    |  | (dollars in thousands) |       
|Gross proceeds from sales and calls |  | $                      | 40,623 |   |      | $ | 9,535 |      |  | $ |  | 
|                                    |  |                        |        |   |      |   |       |      |  |   |   | 
|                                    |  |                        |       
|Realized gains from sales           |  | $                      | 1,960  |   |      | $ | 219   |      |  | $ |  | 
|Realized losses from sales          |  |                        | (476   | ) |      |   | (930  | )    |  |   |  | 
|                                    |  |                        |        |   |      |   |       |      |  |   |   | 
|Net realized gains (losses)         |  | $                      | 1,484  |   |      | $ | (711  | )    |  | $ |  | 
|                                    |  |                        |        |   |      |   |       |      |  |   |   | 



22



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 2 - Investment Securities (Continued)



At December 31, 2010, 2009 and 2008 securities available for sale with a carrying amount of $40.7
million, $11.4 million and $13.2 million, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.

The following tables show the gross unrealized losses and fair value of investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized
loss position, at December 31, 2010 and 2009. These unrealized losses on investment securities are a result of temporary fluctuations in the market prices due to a rise in interest rates, which will adjust if rates decline in a volatile market
and are in no way a reflection of the credit quality of the investments. At December 31, 2010, the unrealized losses related to six U.S. Treasury Notes, two U.S. Government Agencies, three mortgage backed securities and eight North Carolina
municipal bonds.



|                                                   |  |                        |        |  |                   |   |       |            |  |   |                  |  |  |            |    |  |                  |   |        |  |  |   |       | 
|-------------------------------------------------- |  | ---------------------- | ------ |  | ----------------- | - | ----- | ---------- |  | - | ---------------- |  |  | ---------- | -- |  | ---------------- | - | ------ |  |  | - | ----- | 
|                                                   |  | Less than 12 Months    |        |  | 12 Months or More |   |       | Total      | 
|December 31, 2010                                  |  | Fair Value             |        |  | UnrealizedLosses  |   |       | Fair Value |  |   | UnrealizedLosses |  |  | Fair Value |    |  | UnrealizedLosses |  
|                                                   |  | (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   | 
|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 | 
|                                                   |  |                        |        |  |                   |   |       |            |  |   |                  |  |  |            |    |  |                  |   |        |  |  |   |       | 
|                                                   |  |                        |       
|                                                   |  | Less than 12 Months    |        |  | 12 Months or More |   |       | Total      | 
|December 31, 2009                                  |  | Fair Value             |        |  | UnrealizedLosses  |   |       | Fair Value |  |   | UnrealizedLosses |  |  | Fair Value |    |  | UnrealizedLosses |  
|                                                   |  | (dollars in thousands) |        |  |                   |   |       |            | 
|Securities available for sale temporary impairment |  |                        |        |  |                   |   |       |            |  |   |                  |  |  |            |    |  |                  |   |        |  |  |   |       | 
|U.S. Treasury                                      |  | $                      | 3,019  |  |                   | $ | 5     |            |  | $ |                 |  |  | $          |   |  |                  | $ | 3,019  |  |  | $ | 5     | 
|U.S. Govt agencies                                |  |                        | 10,327 |  |                   |   | 11    |            |  |   |                 |  |  |            |   |  |                  |   | 10,327 |  |  |   | 11    | 
|Mortgage-backed securities and CMOs               |  |                        |       |  |                   |   |      |            |  |   | 134              |  |  |            |   |  |                  |   | 134    |  |  |   |      | 
|Private label CMOs                                |  |                        |       |  |                   |   |      |            |  |   | 1,625            |  |  |            | 85 |  |                  |   | 1,625  |  |  |   | 85    | 
|State and political subdivisions                   |  |                        |       |  |                   |   |      |            |  |   |                 |  |  |            |   |  |                  |   |       |  |  |   |      | 
|                                                   |  |                        |        |  |                   |   |       |            |  |   |                  |  |  |            |    |  |                  |   |        |  |  |   |       | 
|                                                   |  | $                      | 13,346 |  |                   | $ | 16    |            |  | $ | 1,759            |  |  | $          | 85 |  |                  | $ | 15,105 |  |  | $ | 101   | 
|                                                   |  |                        |        |  |                   |   |       |            |  |   |                  |  |  |            |    |  |                  |   |        |  |  |   |       | 
|                                                   |  |                        |        |  |                   |  
|Other than Temporary Impairment                    |  |                        |        |  |                   |   |       |            |  |   |                  |  |  |            |    |  |                  |   |        |  |  |   |       | 
|Private label CMOs                                |  | $                      |       |  |                   | $ |      |            |  | $ | 3,667            |  |  | $          |   |  |                  | $ | 3,667  |  |  | $ |      | 
|                                                   |  |                        |        |  |                   |   |       |            |  |   |                  |  |  |            |    |  |                  |   |        |  |  |   |       | 
|                                                   |  | $                      |       |  |                   | $ |      |            |  | $ | 3,667            |  |  | $          |   |  |                  | $ | 3,667  |  |  | $ |      | 
|                                                   |  |                        |        |  |                   |   |       |            |  |   |                  |  |  |            |    |  |                  |   |        |  |  |   |       | 

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



23



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 2 - Investment Securities (Continued)



The following table shows contractual maturities of the investment portfolio as of December 31,
2010:



|                                    |  |                        |        |  |                     |   |        | 
|----------------------------------- |  | ---------------------- | ------ |  | ------------------- | - | ------ | 
|                                    |  | AmortizedCost          |        |  | EstimatedFair Value |  
|                                    |  | (dollars in thousands) |       
|                                    |  |                       
|Due within one year                 |  | $                      | 2,080  |  |                     | $ | 2,102  | 
|Due after one but within five years |  |                        | 23,761 |  |                     |   | 24,711 | 
|Due after five but within ten years |  |                        | 59,365 |  |                     |   | 58,671 | 
|Due after ten years                 |  |                        | 2,003  |  |                     |   | 2,011  | 
|Mortgage backed securities          |  |                        | 8,655  |  |                     |   | 8,900  | 
|                                    |  |                        |        |  |                     |   |        | 
|                                    |  | $                      | 95,864 |  |                     | $ | 96,395 | 
|                                    |  |                        |        |  |                     |   |        | 

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



|                                             |  |                        |        |   |      |   |       | 
|-------------------------------------------- |  | ---------------------- | ------ | - | ---- | - | ----- | 
|                                             |  | 2010                   |        |   | 2009 |  
|                                             |  | (dollars in thousands) |       
|                                             |  |                       
|Balance, beginning of the period             |  | $                      | 1,807  |   |      | $ |      | 
|Impairment losses recognized during the year |  |                        |       |   |      |   | 1,807 | 
|Realized losses from sales                   |  |                        | (1,807 | ) |      |   |      | 
|                                             |  |                        |        |   |      |   |       | 
|                                             |  |                       
|Balance, end of year                         |  | $                      |       |   |      | $ | 1,807 | 
|                                             |  |                        |        |   |      |   |       | 

Note 3 - Loans Held for Investment

The composition of net loans held for investment by class as of December 31, 2010 and 2009 is as follows:



|                                     |  |                        |         |   |      |   |         |  
|------------------------------------ |  | ---------------------- | ------- | - | ---- | - | ------- | -
|                                     |  | 2010                   |         |   | 2009 |  
|                                     |  | (dollars in thousands) |        
|Commercial                           |  |                        |         |   |      |   |         |  
|Commercial                           |  | $                      | 51,679  |   |      | $ | 51,723  |  
|Real estate - commercial             |  |                        | 105,123 |   |      |   | 95,938  |  
|Other real estate construction loans |  |                        | 52,270  |   |      |   | 40,327  |  
|Noncommercial                        |  |                        |         |   |      |   |         |  
|Real estate 1-4 family construction  |  |                        | 4,332   |   |      |   | 4,649   |  
|Real estate - residential            |  |                        | 103,781 |   |      |   | 97,852  |  
|Home equity                          |  |                        | 52,034  |   |      |   | 46,303  |  
|Consumer loans                       |  |                        | 17,721  |   |      |   | 16,627  |  
|Other loans                          |  |                        | 739     |   |      |   | 172     |  
|                                     |  |                        |         |   |      |   |         |  
|                                     |  |                        | 387,679 |   |      |   | 353,591 |  
|Less:                                |  |                        |         |   |      |   |         |  
|Allowance for loan losses            |  |                        | (9,067  | ) |      |   | (5,276  | )
|Deferred loan (fees) costs, net      |  |                        | 90      |   |      |   | 138     |  
|                                     |  |                        |         |   |      |   |         |  
|                                     |  |                       
|Loans held for investment, net       |  | $                      | 378,702 |   |      | $ | 348,453 |  
|                                     |  |                        |         |   |      |   |         |  

Although the subsidiary banks loan portfolios are diversified, there is a concentration of mortgage real estate loans,
primarily one to four family residential mortgage loans, which represent 40.19% of total loans. Additionally, there is concentration in commercial loans secured primarily by real estate, shopping center locations, commercial land development,



24



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 3 - Loans Held for Investment (Continued)



commercial buildings and equipment that comprise 27.12% of total loans. There is not a concentration of a particular type of credit in this group of commercial loans.

Total impaired loans, which consisted of nonaccrual loans and other loans identified by management as impaired, totaled $43.3 million and $24.1 million
at December 31, 2010 and 2009, respectively. The nonaccrual status of these loans had the effect of reducing net income by $646,078 in 2010 and $246,395 in 2009. Of the $43.3 million in impaired loans at December 31, 2010, $12.5 million
were in the commercial segment and carried allowances totaling $3.6 million while $4.4 million were in the noncommercial segment and carried allowances totaling $1.0 million. The commercial segment had $19.5 million evaluated and required no
specific allowance while the noncommercial segment had $6.8 million evaluated and required no specific allowance. Of the $24.1 million in impaired loans at December 31, 2009, $16.5 million carried allowances totaling $3.0 million while $7.6
million required no specific allowance. There were loans 90 days past due and still accruing of $407,223 and $298,635 at December 31, 2010 and 2009, respectively.

Restructured loans at December 31, 2010 totaled $5.1 million of which $4.6 million are included in impaired loans above. The carrying value of foreclosed properties held as other real estate was $2.0
million and $3.4 million at December 31, 2010 and 2009, respectively.

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

Note 4 - Allowance for Loan Losses

Changes in the allowance for loan losses for the years ended December 31, 2010, 2009 and 2008 are presented below:



|                                 |  |                        |        |   |      |   |       |      |  |   |       |  
|-------------------------------- |  | ---------------------- | ------ | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                 |  | 2010                   |        |   | 2009 |   |       | 2008 | 
|                                 |  | (dollars in thousands) |       
|Balance, beginning of year       |  | $                      | 5,276  |   |      | $ | 4,361 |      |  | $ | 3,510 |  
|Charge-offs                      |  |                        | (1,189 | ) |      |   | (871  | )    |  |   | (288  | )
|Recoveries                       |  |                        | 44     |   |      |   | 54    |      |  |   | 170   |  
|Other                            |  |                        | 17     |   |      |   |      |      |  |   |      |  
|Provision charged against income |  |                        | 4,919  |   |      |   | 1,732 |      |  |   | 969   |  
|                                 |  |                        |        |   |      |   |       |      |  |   |       |  
|                                 |  |                        |       
|Balance, end of year             |  | $                      | 9,067  |   |      | $ | 5,276 |      |  | $ | 4,361 |  
|                                 |  |                        |        |   |      |   |       |      |  |   |       |  

The following table is the breakout of allowance for loss by loan class at December 31, 2010:



|                               |  |                        |       |  |            |   |       |       |  |   |            |  |  |            |        |   |               |   |    |  |  |   |       | 
|------------------------------ |  | ---------------------- | ----- |  | ---------- | - | ----- | ----- |  | - | ---------- |  |  | ---------- | ------ | - | ------------- | - | -- |  |  | - | ----- | 
|                               |  | BeginningBalance       |       |  | Provisions |   |       | Other |  |   | Chargeoffs |  |  | Recoveries |        |   | EndingBalance |  
|                               |  | (dollars in thousands) |       |  |            |  
|                               |  |                        |       |  |            |  
|Commercial                     |  | $                      | 449   |  |            | $ | 569   |       |  | $ | 4          |  |  | $          | (59    | ) |               | $ | 3  |  |  | $ | 966   | 
|Real estate - commercial       |  |                        | 1,541 |  |            |   | 1,216 |       |  |   | 10         |  |  |            | (527   | ) |               |   |   |  |  |   | 2,240 | 
|Other real estate construction |  |                        | 1,205 |  |            |   | 952   |       |  |   |           |  |  |            |       |   |               |   |   |  |  |   | 2,157 | 
|Real estate construction       |  |                        | 168   |  |            |   | (58   | )     |  |   |           |  |  |            | (78    | ) |               |   | 1  |  |  |   | 33    | 
|Real estate - residential      |  |                        | 1,264 |  |            |   | 614   |       |  |   |           |  |  |            | (222   | ) |               |   | 2  |  |  |   | 1,658 | 
|Home equity                    |  |                        | 213   |  |            |   | 854   |       |  |   |           |  |  |            | (97    | ) |               |   | 1  |  |  |   | 971   | 
|Consumer loan                  |  |                        | 436   |  |            |   | 714   |       |  |   | 3          |  |  |            | (206   | ) |               |   | 37 |  |  |   | 984   | 
|Other loans                    |  |                        |      |  |            |   | 58    |       |  |   |           |  |  |            |       |   |               |   |   |  |  |   | 58    | 
|                               |  |                        |       |  |            |   |       |       |  |   |            |  |  |            |        |   |               |   |    |  |  |   |       | 
|                               |  |                        |       |  |            |  
|Total                          |  | $                      | 5,276 |  |            | $ | 4,919 |       |  | $ | 17         |  |  | $          | (1,189 | ) |               | $ | 44 |  |  | $ | 9,067 | 
|                               |  |                        |       |  |            |   |       |       |  |   |            |  |  |            |        |   |               |   |    |  |  |   |       | 



25



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 4 - Allowance for Loan Losses (Continued)



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



|                               |  |                        |       |  |                        |   |        |         |  |   |       |  |  |         |         |  |       |   |       |  |  |   |         | 
|------------------------------ |  | ---------------------- | ----- |  | ---------------------- | - | ------ | ------- |  | - | ----- |  |  | ------- | ------- |  | ----- | - | ----- |  |  | - | ------- | 
|                               |  | Individually Evaluated |       |  | Collectively Evaluated |   |        | Total   | 
|                               |  | Reserve                |       |  | EndingLoans            |   |        | 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:



|                                      |  |                         |       |  |                             |   |        |                     |  |   |              |  |  |            |         |  |                                      |   |         |  |  |   |     | 
|------------------------------------- |  | ----------------------- | ----- |  | --------------------------- | - | ------ | ------------------- |  | - | ------------ |  |  | ---------- | ------- |  | ------------------------------------ | - | ------- |  |  | - | --- | 
|                                      |  | Loans30-89 DaysPast Due |       |  | Loans90 Daysor MorePast due |   |        | Total PastDue Loans |  |   | CurrentLoans |  |  | TotalLoans |         |  | AccruingLoans 90 orMore DaysPast 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     |  |  |   |    | 
|Deferred cost / fees                  |  |                         |      |  |                             |   |       |                     |  |   |             |  |  |            | 90      |  |                                      |   | 90      |  |  |   |    | 
|                                      |  |                         |       |  |                             |   |        |                     |  |   |              |  |  |            |         |  |                                      |   |         |  |  |   |     | 
|                                      |  |                         |       |  |                             |  
|Total                                 |  | $                       | 4,625 |  |                             | $ | 20,136 |                     |  | $ | 24,761       |  |  | $          | 363,008 |  |                                      | $ | 387,769 |  |  | $ | 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.



26



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 4 - Allowance for Loan Losses (Continued)



The composition of nonaccrual loans by class as of December 31, 2010 and 2009 is as follows:



|                                      |  |                        |        |  |      |   |       | 
|------------------------------------- |  | ---------------------- | ------ |  | ---- | - | ----- | 
|                                      |  | 2010                   |        |  | 2009 |  
|                                      |  | (dollars in thousands) |       
|                                      |  |                       
|Commercial                            |  | $                      | 501    |  |      | $ | 25    | 
|Real estate - commercial              |  |                        | 8,702  |  |      |   | 58    | 
|Other real estate construction        |  |                        | 7,975  |  |      |   | 4,461 | 
|Real estate 1 - 4 family construction |  |                        | 500    |  |      |   | 85    | 
|Real estate - residential             |  |                        | 1,940  |  |      |   | 760   | 
|Home equity                           |  |                        | 75     |  |      |   | 115   | 
|Consumer loans                        |  |                        | 36     |  |      |   | 125   | 
|Other loans                           |  |                        |       |  |      |   |      | 
|                                      |  |                        |        |  |      |   |       | 
|                                      |  | $                      | 19,729 |  |      | $ | 5,629 | 
|                                      |  |                        |        |  |      |   |       | 

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.

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.



27



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 4 - Allowance for Loan Losses (Continued)



The table below summarizes risk grades of the loan portfolio by class:



|                                      |  |                        |         |  |       |   |       |              |  |   |          |  |  |       |     |  |  |   |         | 
|------------------------------------- |  | ---------------------- | ------- |  | ----- | - | ----- | ------------ |  | - | -------- |  |  | ----- | --- |  |  | - | ------- | 
|                                      |  | 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
table shows the breakdown between performing and nonperforming loans by class:



|                                      |  |                        |         |  |                |   |        |       |  |   |         | 
|------------------------------------- |  | ---------------------- | ------- |  | -------------- | - | ------ | ----- |  | - | ------- | 
|                                      |  | 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 valuation is done and a specific reserve is allocated if necessary. The table below summarizes the loans deemed
impaired and the amount of specific reserves allocated by class:



|                                      |  |                        |        |  |                                    |   |        |                                 |  |   |                  |  |  |                           |       |  |  |   |        | 
|------------------------------------- |  | ---------------------- | ------ |  | ---------------------------------- | - | ------ | ------------------------------- |  | - | ---------------- |  |  | ------------------------- | ----- |  |  | - | ------ | 
|                                      |  | UnpaidPrincipalBalance |        |  | RecordedInvestmentWith NoAllowance |   |        | RecordedInvestmentWithAllowance |  |   | RelatedAllowance |  |  | AverageRecordedInvestment |      
|                                      |  | (dollars in thousands) |        |  |                                    |  
|                                      |  |                        |        |  |                                   
|Commercial                            |  | $                      | 1,439  |  |                                    | $ | 918    |                                 |  | $ | 521              |  |  | $                         | 399   |  |  | $ | 1,485  | 
|Real estate - commercial              |  |                        | 21,985 |  |                                    |   | 16,088 |                                 |  |   | 4,233            |  |  |                           | 1,384 |  |  |   | 13,279 | 
|Other real estate construction        |  |                        | 10,357 |  |                                    |   | 2,585  |                                 |  |   | 7,770            |  |  |                           | 1,818 |  |  |   | 9,380  | 
|Real estate 1 - 4 family construction |  |                        | 950    |  |                                    |   | 950    |                                 |  |   |                 |  |  |                           |      |  |  |   | 1,100  | 
|Real estate - residential             |  |                        | 8,884  |  |                                    |   | 5,118  |                                 |  |   | 3,766            |  |  |                           | 762   |  |  |   | 7,257  | 
|Home Equity loans                     |  |                        | 1,066  |  |                                    |   | 677    |                                 |  |   | 388              |  |  |                           | 136   |  |  |   | 821    | 
|Consumer loans                        |  |                        | 241    |  |                                    |   | 23     |                                 |  |   | 218              |  |  |                           | 132   |  |  |   | 367    | 
|Other loans                           |  |                        |       |  |                                    |   |       |                                 |  |   |                 |  |  |                           |      |  |  |   |       | 
|                                      |  |                        |        |  |                                    |   |        |                                 |  |   |                  |  |  |                           |       |  |  |   |        | 
|                                      |  |                        |        |  |                                   
|Total                                 |  | $                      | 44,922 |  |                                    | $ | 26,359 |                                 |  | $ | 16,896           |  |  | $                         | 4,631 |  |  | $ | 33,689 | 
|                                      |  |                        |        |  |                                    |   |        |                                 |  |   |                  |  |  |                           |       |  |  |   |        | 



28



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 5 - Servicing Assets



Loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid
principal balances of mortgage and other loans serviced for others were approximately $327 million and $289 million at December 31, 2010 and 2009, respectively. The carrying value of capitalized servicing rights, net of valuation allowances, is
included in other assets. A summary of mortgage servicing rights follows:



|                                             |  |                        |       |   |      |   |       |      |  |   |       |  
|-------------------------------------------- |  | ---------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                             |  | 2010                   |       |   | 2009 |   |       | 2008 | 
|                                             |  | (dollars in thousands) |      
|                                             |  |                        |      
|Beginning of year mortgage servicing rights: |  | $                      | 1,890 |   |      | $ | 1,293 |      |  | $ | 1,321 |  
|Amounts capitalized                          |  |                        | 1,113 |   |      |   | 1,465 |      |  |   | 563   |  
|Amortization                                 |  |                        | (869  | ) |      |   | (868  | )    |  |   | (471  | )
|Impairment                                   |  |                        |      |   |      |   |      |      |  |   | (120  | )
|                                             |  |                        |       |   |      |   |       |      |  |   |       |  
|                                             |  |                        |      
|End of year                                  |  | $                      | 2,134 |   |      | $ | 1,890 |      |  | $ | 1,293 |  
|                                             |  |                        |       |   |      |   |       |      |  |   |       |  

Amortization expense is estimated as follows:



|                         |  |   |       | 
|------------------------ |  | - | ----- | 
|Year ending
December 31, | 
|(dollars in thousands)   | 
|2011                     |  | $ | 504   | 
|2012                     |  |   | 436   | 
|2013                     |  |   | 369   | 
|2014                     |  |   | 301   | 
|2015                     |  |   | 233   | 
|Thereafter               |  |   | 291   | 
|                         |  |   |       | 
|Total                    |  | $ | 2,134 | 
|                         |  |   |       | 

The amortization does not anticipate or pro-forma loan prepayments.

Note 6 - Premises and Equipment

The
major classes of premises and equipment and the total accumulated depreciation at December 31, 2010 and 2009 are listed below:



|                              |  |                        |        |  |      |   |        | 
|----------------------------- |  | ---------------------- | ------ |  | ---- | - | ------ | 
|                              |  | 2010                   |        |  | 2009 |  
|                              |  | (dollars in thousands) |       
|                              |  |                       
|Land                          |  | $                      | 4,081  |  |      | $ | 4,081  | 
|Building and improvements     |  |                        | 11,205 |  |      |   | 10,012 | 
|Furniture and equipment       |  |                        | 6,128  |  |      |   | 5,598  | 
|                              |  |                        |        |  |      |   |        | 
|                              |  |                        | 21,414 |  |      |   | 19,691 | 
|Less accumulated depreciation |  |                        | 6,860  |  |      |   | 6,045  | 
|                              |  |                        |        |  |      |   |        | 
|Total                         |  | $                      | 14,554 |  |      | $ | 13,646 | 
|                              |  |                        |        |  |      |   |        | 



29



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 7 - Leases

The Companys subsidiary, Bank of Stanly, had a noncancelable operating lease for a branch location in Albemarle that expired in 2008, with annual rental payments of $18,575. The lease had one five
year renewal option at the expiration of the initial term. Bank of Stanly elected to go into a month to month lease and entered into an agreement to purchase the building for $300,000 in 2009. The lease payment remained the same during the
finalization of the purchase. Bank of Stanly entered into a month to month lease in 2009 with annual lease payments of $600. Bank of Stanly had also entered into a noncancelable operating lease for a branch location in Locust that expired in 2010
with annual rental payments of $41,856. Bank of Stanly terminated the Locust lease in the third quarter of 2010 when the branch moved into a new building Stanly had constructed. The Companys subsidiary, Cabarrus Bank and Trust has entered into
a noncancelable operating lease for an administrative office location in Concord that expires in 2017 with annual rental payments of $59,850. The lease has two five-year renewal options at the expiration of the initial term.

Future minimum lease payments under these leases for years subsequent to December 31, 2010 are as follows:



|                         |  |   |     | 
|------------------------ |  | - | --- | 
|Year ending
December 31, | 
|(dollars in thousands)   | 
|                         | 
|2011                     |  | $ | 60  | 
|2012                     |  |   | 60  | 
|2013                     |  |   | 60  | 
|2014                     |  |   | 60  | 
|2015                     |  |   | 60  | 
|Thereafter               |  |   | 100 | 
|                         |  |   |     | 
|Total                    |  | $ | 400 | 
|                         |  |   |     | 

Total rental expense related to the operating leases was $85,538, $106,350, and $120,281 for the years ended
December 31, 2010, 2009 and 2008, respectively, and is included in occupancy expense.

Note 8 - Deposits

The composition of deposits at December 31, 2010 and 2009 is as follows:



|                                   |  |                        |         |  |                    |  |     |        |  |   |                    |  |  |  |     |  
|---------------------------------- |  | ---------------------- | ------- |  | ------------------ |  | --- | ------ |  | - | ------------------ |  |  |  | --- | -
|                                   |  | 2010                   |         |  | 2009               | 
|                                   |  | Amount                 |         |  | Percentageof Total |  |     | Amount |  |   | Percentageof Total | 
|                                   |  | (dollars in thousands) |        
|                                   |  |                        |         | 
|Demand deposits                    |  | $                      | 54,837  |  |                    |  | 13  | %      |  | $ | 44,924             |  |  |  | 12  | %
|Interest checking and money market |  |                        | 187,493 |  |                    |  | 43  | %      |  |   | 137,708            |  |  |  | 37  | %
|Savings                            |  |                        | 37,624  |  |                    |  | 8   | %      |  |   | 32,120             |  |  |  | 8   | %
|Time deposits $100,000 and over    |  |                        | 59,431  |  |                    |  | 14  | %      |  |   | 64,736             |  |  |  | 17  | %
|Other time deposits                |  |                        | 94,648  |  |                    |  | 22  | %      |  |   | 97,286             |  |  |  | 26  | %
|                                   |  |                        |         |  |                    |  |     |        |  |   |                    |  |  |  |     |  
|Total                              |  | $                      | 434,033 |  |                    |  | 100 | %      |  | $ | 376,774            |  |  |  | 100 | %
|                                   |  |                        |         |  |                    |  |     |        |  |   |                    |  |  |  |     |  



30



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 8 - Deposits (Continued)



The maturities of fixed-rate time deposits at December 31, 2010 are reflected in the table below:



|                         |  |                              |        |  |                   |   |        | 
|------------------------ |  | ---------------------------- | ------ |  | ----------------- | - | ------ | 
|Year ending December 31, |  | TimeDeposits$100,000and Over |        |  | OtherTimeDeposits |  
|                         |  | (dollars in thousands)       |       
|                         |  |                             
|2011                     |  | $                            | 39,225 |  |                   | $ | 62,597 | 
|2012                     |  |                              | 6,788  |  |                   |   | 9,698  | 
|2013                     |  |                              | 7,755  |  |                   |   | 12,595 | 
|2014                     |  |                              | 748    |  |                   |   | 3,363  | 
|2015                     |  |                              | 4,915  |  |                   |   | 6,395  | 
|Thereafter               |  |                              |       |  |                   |   |       | 
|                         |  |                              |        |  |                   |   |        | 
|Total                    |  | $                            | 59,431 |  |                   | $ | 94,648 | 
|                         |  |                              |        |  |                   |   |        | 



31



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 9 - Short-Term Borrowed Funds

The following tables set forth certain information regarding the amounts, year-end weighted average rates, average balances, weighted average rate, and maximum month-end balances for short-term borrowed
funds, at and during 2010 and 2009:



|                                            |  |                        |        |  |      |  |      |        |  |   |        |  |  |  |      |  
|------------------------------------------- |  | ---------------------- | ------ |  | ---- |  | ---- | ------ |  | - | ------ |  |  |  | ---- | -
|                                            |  | 2010                   |        |  | 2009 | 
|                                            |  | Amount                 |        |  | Rate |  |      | Amount |  |   | Rate   | 
|                                            |  | (dollars in thousands) |       
|At year-end                                 |  |                        |        |  |      |  |      |        |  |   |        |  |  |  |      |  
|Federal funds purchased                     |  | $                      |       |  |      |  | 0.00 | %      |  | $ |       |  |  |  | 0.00 | %
|Securities sold under repurchase agreements |  |                        |       |  |      |  | 0.00 | %      |  |   |       |  |  |  | 0.00 | %
|Master notes and other short term borrowing |  |                        | 10,423 |  |      |  | 0.94 | %      |  |   | 11,482 |  |  |  | 0.50 | %
|Notes payable                               |  |                        | 59     |  |      |  | 3.82 | %      |  |   | 58     |  |  |  | 3.80 | %
|Short-term line of credit                   |  |                        |       |  |      |  | 0.00 | %      |  |   |       |  |  |  | 0.00 | %
|Short-term advances from FHLB               |  |                        | 10,000 |  |      |  | 4.42 | %      |  |   | 15,400 |  |  |  | 0.36 | %
|                                            |  |                        |        |  |      |  |      |        |  |   |        |  |  |  |      |  
|                                            |  | $                      | 20,482 |  |      |  | 2.64 | %      |  | $ | 26,940 |  |  |  | 0.42 | %
|                                            |  |                        |        |  |      |  |      |        |  |   |        |  |  |  |      |  
|                                            |  |                       
|                                            |  | 2010                   |        |  | 2009 | 
|                                            |  | Amount                 |        |  | Rate |  |      | Amount |  |   | Rate   | 
|                                            |  | (dollars in thousands) |       
|Average for the year                        |  |                        |        |  |      |  |      |        |  |   |        |  |  |  |      |  
|Federal funds purchased                     |  | $                      | 7      |  |      |  | 1.17 | %      |  | $ | 273    |  |  |  | 1.05 | %
|Securities sold under repurchase agreements |  |                        |       |  |      |  | 0.00 | %      |  |   | 669    |  |  |  | 0.89 | %
|Master notes and other short term borrowing |  |                        | 11,174 |  |      |  | 0.95 | %      |  |   | 11,298 |  |  |  | 0.83 | %
|Notes payable                               |  |                        | 58     |  |      |  | 3.76 | %      |  |   | 56     |  |  |  | 3.25 | %
|Short-term line of credit                   |  |                        |       |  |      |  | 0.00 | %      |  |   | 724    |  |  |  | 1.68 | %
|Short-term advances from FHLB               |  |                        | 15,272 |  |      |  | 3.83 | %      |  |   | 11,401 |  |  |  | 1.70 | %
|                                            |  |                        |        |  |      |  |      |        |  |   |        |  |  |  |      |  
|                                            |  | $                      | 26,511 |  |      |  | 2.62 | %      |  | $ | 24,421 |  |  |  | 1.29 | %
|                                            |  |                        |        |  |      |  |      |        |  |   |        |  |  |  |      |  



|                                            |  |                        |        |  |      |   |        | 
|------------------------------------------- |  | ---------------------- | ------ |  | ---- | - | ------ | 
|                                            |  | 2010                   |        |  | 2009 |  
|                                            |  | (dollars in thousands) |       
|Maximum month-end balance                   |  |                        |        |  |      |   |        | 
|Federal funds purchased                     |  | $                      | 300    |  |      | $ | 1,250  | 
|Securities sold under repurchase agreements |  |                        |       |  |      |   | 1,740  | 
|Master notes and other short term borrowing |  |                        | 13,454 |  |      |   | 12,559 | 
|Notes payable                               |  |                        | 58     |  |      |   | 58     | 
|Short-term line of credit                   |  |                        |       |  |      |   | 2,600  | 
|Short-term advances from FHLB               |  |                        | 23,920 |  |      |   | 24,275 | 

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

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



32



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 9 - Short-Term Borrowed Funds (Continued)



The subsidiary banks have combined available lines of credit for federal funds in the amount of $27.5
million at December 31, 2010.

Note 10 - Long-Term Debt

The Company has a line of credit with the Federal Home Loan Bank secured by qualifying first lien and second mortgage loans, commercial real estate loans and investment securities with eligible collateral
value of $72.9 million at December 31, 2010. The long-term advances under this line amounted to $24.0 million and $19.0 million at December 31, 2010 and 2009, respectively. Interest rates ranged from 1.15% to 4.46% in 2010 and from 1.57%
to 5.50% in 2009. The subsidiary banks also have standby letters of credit issued by the Federal Home Loan Bank to be used as collateral for public funds deposits. The amount of the letters of credit was $7.2 million at December 31, 2010.

During the second and third quarters of 2008, the Company began a private placement of up to 7,500 fixed rate junior subordinated debt
securities at $1,000 per security with a required minimum investment of $50,000. These securities have a final maturity date of June 30, 2015 and may be redeemed by the Company after June 30, 2010. The junior subordinated debt pays
interest quarterly at an annual fixed rate of 5.75%. The proceeds of this private placement qualify and are included in the calculation of Tier 2 capital. At the end of the offering period the Company had raised $7.4 million that was outstanding at
December 31, 2010. Once the final maturity drops under five years, the Company must impose a twenty percent reduction per year of the amount of the proceeds from the sale of these securities that is eligible to be counted as Tier 2 capital. At
December 31, 2010 $1.5 million of the $7.4 million was excluded as Tier 2 capital. These securities will be redeemed on March 31, 2011 and replaced with a new issue for subordinated debt securities discussed below.

During the third quarter of 2010, the Company began a private placement of up to 10,000 fixed rate junior subordinated debt securities at $1,000 per
security with a required minimum investment of $50,000. These securities may be redeemed by the Company after December 31, 2013 and have a final maturity date is December 31, 2018. The junior subordinated debt securities pay interest
quarterly at an annual fixed rate of 5.75%. The proceeds of this private placement qualify and are included in the calculation of Tier 2 capital. At December 31, 2010 the Company had raised and had outstanding $2.5 million of this private
placement.

On November 19, 2002, the Company executed a mortgage in the amount of $129,000 for the purchase of property for branch
expansion. This loan bears interest at 6.00% and is to be paid in 60 quarterly installments of $3,277. The outstanding principal balance on this note was $74,456 at December 31, 2010.

On May 13, 2009, the Company executed a note payable in the amount of $200,000 for the purchase of existing leased office space. The note bears interest at 3.43% and is to be paid in four equal
annual payments of $50,000. The outstanding balance of this note was $150,000 at December 31, 2010.



33



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 10 - Long-Term Debt (Continued)



As of December 31, 2010, the scheduled maturities of these advances and notes payable are as
follows:



|                         |  |   |        | 
|------------------------ |  | - | ------ | 
|Year ending
December 31, | 
|(dollars in thousands)   | 
|2012                     |  | $ | 13,059 | 
|2013                     |  |   | 9,560  | 
|2014                     |  |   | 1,511  | 
|2015                     |  |   | 7,430  | 
|2016                     |  |   | 2,501  | 
|Thereafter               |  |   |       | 
|                         |  |   |        | 
|Total                    |  | $ | 34,061 | 
|                         |  |   |        | 

Note 11 - Income Tax Matters

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



|                                |  |                        |        |   |      |   |      |      |  |   |       |  
|------------------------------- |  | ---------------------- | ------ | - | ---- | - | ---- | ---- |  | - | ----- | -
|                                |  | 2010                   |        |   | 2009 |   |      | 2008 | 
|                                |  | (dollars in thousands) |       
|Current tax expense:            |  |                        |        |   |      |   |      |      |  |   |       |  
|Federal                         |  | $                      | 1,021  |   |      | $ | 428  |      |  | $ | 1,225 |  
|State                           |  |                        | 221    |   |      |   | 146  |      |  |   | 307   |  
|                                |  |                        |        |   |      |   |      |      |  |   |       |  
|Total                           |  |                        | 1,242  |   |      |   | 574  |      |  |   | 1,532 |  
|                                |  |                        |        |   |      |   |      |      |  |   |       |  
|                                |  |                        |       
|Deferred tax expense (benefit): |  |                        |        |   |      |   |      |      |  |   |       |  
|Federal                         |  |                        | (891   | ) |      |   | (620 | )    |  |   | (607  | )
|State                           |  |                        | (200   | ) |      |   | (117 | )    |  |   | (121  | )
|                                |  |                        |        |   |      |   |      |      |  |   |       |  
|Total                           |  |                        | (1,091 | ) |      |   | (737 | )    |  |   | (728  | )
|                                |  |                        |        |   |      |   |      |      |  |   |       |  
|                                |  |                        |       
|Net provision for income taxes  |  | $                      | 151    |   |      | $ | (163 | )    |  | $ | 804   |  
|                                |  |                        |        |   |      |   |      |      |  |   |       |  

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



|                                           |  |                        |      |   |      |   |      |      |  |   |      |  
|------------------------------------------ |  | ---------------------- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                           |  | 2010                   |      |   | 2009 |   |      | 2008 | 
|                                           |  | (dollars in thousands) |     
|                                           |  |                        |     
|Tax computed at the statutory federal rate |  | $                      | 294  |   |      | $ | 179  |      |  | $ | 963  |  
|Increases (decrease) resulting from:       |  |                        |      |   |      |   |      |      |  |   |      |  
|Tax exempt interest, net                   |  |                        | (179 | ) |      |   | (269 | )    |  |   | (267 | )
|State income taxes, net of federal benefit |  |                        | 14   |   |      |   | 19   |      |  |   | 123  |  
|Other                                      |  |                        | 22   |   |      |   | (92  | )    |  |   | (15  | )
|                                           |  |                        |      |   |      |   |      |      |  |   |      |  
|Provision for income taxes                 |  | $                      | 151  |   |      | $ | (163 | )    |  | $ | 804  |  
|                                           |  |                        |      |   |      |   |      |      |  |   |      |  

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



34



---

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 11 - Income Tax Matters (Continued)



|                                                     |  |                        |        |   |      |   |        |      |  |   |       |  
|---------------------------------------------------- |  | ---------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ----- | -
|                                                     |  | 2010                   |        |   | 2009 |   |        | 2008 | 
|                                                     |  | (dollars in thousands) |       
|Deferred tax assets relating to:                     |  |                        |        |   |      |   |        |      |  |   |       |  
|Net unrealized loss on securities available for sale |  | $                      |       |   |      | $ |       |      |  | $ | 979   |  
|Allowance for loan losses                            |  |                        | 3,253  |   |      |   | 1,772  |      |  |   | 1,305 |  
|Deferred compensation                                |  |                        | 518    |   |      |   | 635    |      |  |   | 494   |  
|Other                                                |  |                        | 198    |   |      |   | 462    |      |  |   | 126   |  
|                                                     |  |                        |        |   |      |   |        |      |  |   |       |  
|                                                     |  |                        |       
|Total deferred tax assets                            |  |                        | 3,969  |   |      |   | 2,869  |      |  |   | 2,904 |  
|                                                     |  |                        |       
|Deferred tax liabilities relating to:                |  |                        |        |   |      |   |        |      |  |   |       |  
|Net unrealized gain on securities available for sale |  |                        | (197   | ) |      |   | (613   | )    |  |   |      |  
|Premises and equipment                               |  |                        | (381   | ) |      |   | (371   | )    |  |   | (301  | )
|Deferred loans fees and costs                        |  |                        | (212   | ) |      |   | (214   | )    |  |   | (213  | )
|Loan servicing                                       |  |                        | (186   | ) |      |   | (158   | )    |  |   | (41   | )
|Prepaid expenses                                     |  |                        | (130   | ) |      |   | (157   | )    |  |   | (138  | )
|Other                                                |  |                        |       |   |      |   |       |      |  |   |      |  
|                                                     |  |                        |        |   |      |   |        |      |  |   |       |  
|Total deferred tax liabilities                       |  |                        | (1,106 | ) |      |   | (1,513 | )    |  |   | (693  | )
|                                                     |  |                        |        |   |      |   |        |      |  |   |       |  
|Net recorded deferred tax asset                      |  | $                      | 2,863  |   |      | $ | 1,356  |      |  | $ | 2,211 |  
|                                                     |  |                        |        |   |      |   |        |      |  |   |       |  

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

Note 12 - Commitments and Contingencies

Financial Instruments with Off-Balance Sheet Risk

The subsidiary banks are parties to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of their customers. These financial instruments include
commitments to extend credit, lines of credit and standby letters of credit. These instruments involve elements of credit risk in excess of amounts recognized in the accompanying financial statements.

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

As of December 31, 2010 and 2009,
outstanding financial instruments whose contract amounts represent credit risk were as follows:



|                             |  |                        |        |  |      |   |         | 
|---------------------------- |  | ---------------------- | ------ |  | ---- | - | ------- | 
|                             |  | 2010                   |        |  | 2009 |  
|                             |  | (dollars in thousands) |       
|                             |  |                       
|Commitments to extend credit |  | $                      | 82,455 |  |      | $ | 91,648  | 
|Credit card commitments      |  |                        | 8,790  |  |      |   | 8,697   | 
|Standby letters of credit    |  |                        | 1,626  |  |      |   | 881     | 
|                             |  |                        |        |  |      |   |         | 
|                             |  | $                      | 92,871 |  |      | $ | 101,226 | 
|                             |  |                        |        |  |      |   |         | 



35



---

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 12 - Commitments and Contingencies (Continued)



Contingencies

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

Financial Instruments with Concentration of Credit Risk

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

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

Note 13 - Related Party Transactions

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

(dollars in thousands)



|                              |  |   |        |  
|----------------------------- |  | - | ------ | -
|Balance at December 31, 2009  |  | $ | 14,789 |  
|Disbursements during the year |  |   | 11,091 |  
|Collections during the year   |  |   | (7,648 | )
|                              |  |   |        |  
|                              | 
|Balance at December 31, 2010  |  | $ | 18,232 |  
|                              |  |   |        |  

At December 31, 2010, the Company had approved, but unused lines of credit, totaling $5.0 million to executive officers
and directors, and their related interests.



36



---

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 14 - Shareholders Equity and Regulatory Matters

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

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



|                        |  |                        |        |  |                               |  |      |                                                                       |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|----------------------- |  | ---------------------- | ------ |  | ----------------------------- |  | ---- | --------------------------------------------------------------------- |  | - | ------ |  |  | ------ | --- | - | ----- | - | ------ |  |  |  | ---- | -
|                        |  | Actual                 |        |  | MinimumFor CapitalRequirement |  |      | Minimum to Be WellCapitalized UnderPrompt CorrectiveAction Provisions | 
|                        |  | Amount                 |        |  | Ratio                         |  |      | Amount                                                                |  |   | Ratio  |  |  | Amount |     |   | Ratio |  
|                        |  | (Dollars in thousands) |        |  |                               |  |      |                                                                       | 
|December 31, 2010       |  |                        |        |  |                               |  |      |                                                                       |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|                        |  |                        |        |  |                               | 
|Total Capital to Risk   |  |                        |        |  |                               |  |      |                                                                       |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|Weighted Assets:        |  |                        |        |  |                               |  |      |                                                                       |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|Consolidated            |  | $                      | 55,534 |  |                               |  | 14.4 | %                                                                     |  | $ | 30,793 |  |  |        | 8.0 | % |       | $ | N/A    |  |  |  |     | %
|Bank of Stanly          |  |                        | 32,520 |  |                               |  | 12.6 | %                                                                     |  |   | 20,590 |  |  |        | 8.0 | % |       |   | 25,738 |  |  |  | 10.0 | %
|Anson Bank and Trust    |  |                        | 5,276  |  |                               |  | 13.8 | %                                                                     |  |   | 3,050  |  |  |        | 8.0 | % |       |   | 3,812  |  |  |  | 10.0 | %
|Cabarrus Bank and Trust |  |                        | 12,697 |  |                               |  | 13.3 | %                                                                     |  |   | 7,623  |  |  |        | 8.0 | % |       |   | 9,529  |  |  |  | 10.0 | %
|                        |  |                        |        |  |                               | 
|Tier I Capital to Risk  |  |                        |        |  |                               |  |      |                                                                       |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|Weighted Assets:        |  |                        |        |  |                               |  |      |                                                                       |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|Consolidated            |  |                        | 42,171 |  |                               |  | 11.0 | %                                                                     |  |   | 15,396 |  |  |        | 4.0 | % |       |   | N/A    |  |  |  |     | %
|Bank of Stanly          |  |                        | 29,263 |  |                               |  | 11.4 | %                                                                     |  |   | 10,295 |  |  |        | 4.0 | % |       |   | 15,443 |  |  |  | 6.0  | %
|Anson Bank and Trust    |  |                        | 4,793  |  |                               |  | 12.6 | %                                                                     |  |   | 1,525  |  |  |        | 4.0 | % |       |   | 2,287  |  |  |  | 6.0  | %
|Cabarrus Bank and Trust |  |                        | 11,500 |  |                               |  | 12.1 | %                                                                     |  |   | 3,811  |  |  |        | 4.0 | % |       |   | 5,717  |  |  |  | 6.0  | %
|                        |  |                        |        |  |                               | 
|Tier I Capital to       |  |                        |        |  |                               |  |      |                                                                       |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|Average Assets:         |  |                        |        |  |                               |  |      |                                                                       |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|Consolidated            |  |                        | 42,171 |  |                               |  | 7.8  | %                                                                     |  |   | 21,615 |  |  |        | 4.0 | % |       |   | N/A    |  |  |  |     | %
|Bank of Stanly          |  |                        | 29,263 |  |                               |  | 8.4  | %                                                                     |  |   | 13,956 |  |  |        | 4.0 | % |       |   | 17,445 |  |  |  | 5.0  | %
|Anson Bank and Trust    |  |                        | 4,793  |  |                               |  | 8.4  | %                                                                     |  |   | 2,274  |  |  |        | 4.0 | % |       |   | 2,842  |  |  |  | 5.0  | %
|Cabarrus Bank and Trust |  |                        | 11,500 |  |                               |  | 8.9  | %                                                                     |  |   | 5,184  |  |  |        | 4.0 | % |       |   | 6,480  |  |  |  | 5.0  | %



37



---

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 14 - Shareholders Equity and Regulatory Matters (Continued)



|                        |  |                        |        |  |                               |  |      |                                                                       |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|----------------------- |  | ---------------------- | ------ |  | ----------------------------- |  | ---- | --------------------------------------------------------------------- |  | - | ------ |  |  | ------ | --- | - | ----- | - | ------ |  |  |  | ---- | -
|                        |  | Actual                 |        |  | MinimumFor CapitalRequirement |  |      | Minimum to Be WellCapitalized UnderPrompt CorrectiveAction Provisions | 
|                        |  | Amount                 |        |  | Ratio                         |  |      | Amount                                                                |  |   | Ratio  |  |  | Amount |     |   | Ratio |  
|                        |  | (Dollars in thousands) |        |  |                               |  |      |                                                                       | 
|December 31, 2009       |  |                        |        |  |                               |  |      |                                                                       |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|                        |  |                        |        |  |                               | 
|Total Capital to Risk   |  |                        |        |  |                               |  |      |                                                                       |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|Weighted Assets:        |  |                        |        |  |                               |  |      |                                                                       |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|Consolidated            |  | $                      | 54,052 |  |                               |  | 14.0 | %                                                                     |  | $ | 30,908 |  |  |        | 8.0 | % |       | $ | N/A    |  |  |  |     | %
|Bank of Stanly          |  |                        | 32,980 |  |                               |  | 12.9 | %                                                                     |  |   | 20,413 |  |  |        | 8.0 | % |       |   | 25,516 |  |  |  | 10.0 | %
|Anson Bank and Trust    |  |                        | 5,278  |  |                               |  | 13.3 | %                                                                     |  |   | 3,165  |  |  |        | 8.0 | % |       |   | 3,956  |  |  |  | 10.0 | %
|Cabarrus Bank and Trust |  |                        | 12,260 |  |                               |  | 13.8 | %                                                                     |  |   | 7,120  |  |  |        | 8.0 | % |       |   | 8,901  |  |  |  | 10.0 | %
|                        |  |                        |        |  |                               | 
|Tier I Capital to Risk  |  |                        |        |  |                               |  |      |                                                                       |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|Weighted Assets:        |  |                        |        |  |                               |  |      |                                                                       |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|Consolidated            |  |                        | 42,024 |  |                               |  | 10.9 | %                                                                     |  |   | 15,454 |  |  |        | 4.0 | % |       |   | N/A    |  |  |  |     | %
|Bank of Stanly          |  |                        | 29,782 |  |                               |  | 11.7 | %                                                                     |  |   | 10,206 |  |  |        | 4.0 | % |       |   | 15,310 |  |  |  | 6.0  | %
|Anson Bank and Trust    |  |                        | 4,795  |  |                               |  | 12.1 | %                                                                     |  |   | 1,582  |  |  |        | 4.0 | % |       |   | 2,374  |  |  |  | 6.0  | %
|Cabarrus Bank and Trust |  |                        | 11,332 |  |                               |  | 12.7 | %                                                                     |  |   | 3,560  |  |  |        | 4.0 | % |       |   | 5,340  |  |  |  | 6.0  | %
|                        |  |                        |        |  |                               | 
|Tier I Capital to       |  |                        |        |  |                               |  |      |                                                                       |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|Average Assets:         |  |                        |        |  |                               |  |      |                                                                       |  |   |        |  |  |        |     |   |       |   |        |  |  |  |      |  
|Consolidated            |  |                        | 42,204 |  |                               |  | 8.8  | %                                                                     |  |   | 19,086 |  |  |        | 4.0 | % |       |   | N/A    |  |  |  |     | %
|Bank of Stanly          |  |                        | 29,782 |  |                               |  | 9.4  | %                                                                     |  |   | 12,709 |  |  |        | 4.0 | % |       |   | 15,887 |  |  |  | 5.0  | %
|Anson Bank and Trust    |  |                        | 4,795  |  |                               |  | 8.8  | %                                                                     |  |   | 2,171  |  |  |        | 4.0 | % |       |   | 2,714  |  |  |  | 5.0  | %
|Cabarrus Bank and Trust |  |                        | 11,322 |  |                               |  | 10.9 | %                                                                     |  |   | 4,161  |  |  |        | 4.0 | % |       |   | 5,201  |  |  |  | 5.0  | %

As of December 31, 2010, the most
recent notification from the Federal Deposit Insurance Corporation categorized all of the Companys subsidiary banks as being well capitalized under the regulatory framework for prompt corrective action. There have been no conditions or events
since such notification that management believes would have changed the categorizations.

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

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

The Warrant Preferred also qualifies as Tier 1 capital and will pay
cumulative dividends at a rate of 9% per year. Under the terms of the agreement, the Warrant Preferred may be redeemed after the Senior Preferred has been completely redeemed, at par value plus accrued and unpaid



38



---

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 14 - Shareholders Equity and Regulatory Matters (Continued)



dividends. It is the Companys intention to redeem both issues of preferred stock no later than the fifth anniversary of their issuance. Accordingly, the net discount of $500,000 is going to
be amortized over five years. At December 31, 2010 the remaining discount was $300,000.

On December 31, 2008, the Company entered
into agreements with its subsidiary banks to sell Fixed Rate Noncumulative Perpetual Preferred Stock to the Company to provide an avenue for pushing portions of the funds received from Companys issuance of preferred stock down to the
subsidiary bank level. At December 31, 2010, Uwharrie Capital Corp had invested $3.0 million in Stanly, $1.0 million in Anson and $3.0 million in Cabarrus.

The Company and its subsidiaries must receive Federal Reserve approval before paying common and preferred stock dividends.

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

For the reserve maintenance period in effect at December 31, 2010, the subsidiary banks were required to maintain reserve balances in cash or on
deposit with the Federal Reserve Bank in the aggregate amount of $2.9 million as reserves on deposit liabilities.

Stock Repurchase Program

On February 21, 1995, the Companys Board of Directors authorized and approved a Stock Repurchase Program, to be reaffirmed
annually, pursuant to which the Company may repurchase shares of the Companys common stock for the primary purpose of providing liquidity to its shareholders. Pursuant to stock repurchase authorizations and limitations, the Company purchased
111,258 shares during 2008 at an aggregate purchase price of $570,839. There were no shares repurchased during 2009 or 2010.

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.

Note 15 - Stock Based
Compensation

During 1996, the Company adopted the 1996 Incentive Stock Option Plan (SOP) and the Employee Stock Purchase Plan
(SPP), under which options to purchase shares of the Companys common stock may be granted to officers and eligible employees. Options granted under the SOP are exercisable in established increments according to vesting schedules,
generally three to five years, and will expire if not exercised within ten years of the date of grant. Options granted under the SPP are fully vested at the date of grant and expire if not exercised within two years of the grant date. Both of these
plans expired in 2006. At December 31, 2010, the SOP had 168,211 shares still outstanding and the SPP had no options outstanding.

During
2006, the Company adopted the 2006 Incentive Stock Option Plan (SOP II) and the Employee Stock Purchase Plan (SPP II), under which options to purchase shares of the Companys common stock may be granted to officers and
eligible employees. Options granted under the SOP II are exercisable in established increments according to vesting schedules, generally three to five years, and will expire if not exercised within ten years of the date of grant. Options granted
under the SPP II are fully vested at the date of grant and expire if not exercised



39



---

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 15 - Stock Based Compensation (Continued)



within two years of the grant date. At December 31, 2010, the SOP II had 12,360 shares outstanding and the SPP II had no options outstanding.

Employee Stock Plans

The following is a
summary of stock option activity for the year ended December 31, 2010:



|                                                 |  |        |          |   |                              |   |      |                                        |  |   |   | 
|------------------------------------------------ |  | ------ | -------- | - | ---------------------------- | - | ---- | -------------------------------------- |  | - | - | 
|                                                 |  | Shares |          |   | WeightedAverageExercisePrice |   |      | AggregateIntrinsic Value(in thousands) | 
|                                                 |  |        |         
|Options outstanding at the beginning of the year |  |        | 280,715  |   |                              | $ | 4.75 |                                        |  | $ |  | 
|                                                 |  |        |          |   |                              |   |      |                                        |  |   |   | 
|Options granted                                  |  |        |         |   |                              |   |     |                                        |  |   |   | 
|Options exercised                                |  |        |         |   |                              |   |     |                                        |  |   |   | 
|Forfeitures                                      |  |        | (100,144 | ) |                              |   | 4.48 |                                        |  |   |   | 
|                                                 |  |        |          |   |                              |   |      |                                        |  |   |   | 
|                                                 |  |        |         
|Options outstanding at the end of the year       |  |        | 180,571  |   |                              | $ | 4.90 |                                        |  | $ |  | 
|                                                 |  |        |          |   |                              |   |      |                                        |  |   |   | 
|                                                 |  |        |         
|Options exercisable at the end of the year       |  |        | 173,155  |   |                              | $ | 4.88 |                                        |  | $ |  | 
|                                                 |  |        |          |   |                              |   |      |                                        |  |   |   | 

Total options outstanding at December 31, 2010 were 180,571 at an exercise price range of $4.00 to $5.60 per share with
a weighted average expected term of 2.35 years. Exercisable options at December 31, 2010 were 173,155 options at an exercise price range of $4.00 to $5.60 per share. At December 31, 2010, authorized shares of common stock reserved for
future grants of options totaled 154,971 under the SOP II, and 103,234 under the SPP II.

The fair market value of each option award is
estimated on the date of grant using the Black-Scholes option pricing model. There were no shares granted during the years ended December 31, 2010 and 2009 under the SOP II. There were 12,360 shares granted in 2008.

A summary of the status of the Companys non-vested stock options as of December 31, 2010, and changes during the year then ended is presented
below:



|                             |  |        |        |   |                                     |   |      | 
|---------------------------- |  | ------ | ------ | - | ----------------------------------- | - | ---- | 
|                             |  | Shares |        |   | WeightedAverageGrant DateFair Value |  
|Non-vested December 31, 2009 |  |        | 9,888  |   |                                     | $ | 1.60 | 
|Granted                      |  |        |       |   |                                     |   |     | 
|Vested                       |  |        | (2,472 | ) |                                     |   | 1.60 | 
|Forfeited                    |  |        |       |   |                                     |   |     | 
|                             |  |        |        |   |                                     |   |      | 
|Non-vested December 31, 2010 |  |        | 7,416  |   |                                     |   | 1.60 | 
|                             |  |        |        |   |                                     |   |      | 

The grant date fair value of stock options vested over the years ended December 31, 2010, 2009 and 2008 was
$3,960, $26,438 and $22,478 respectively.

As of December 31, 2010, there was $8,328 of total unrecognized compensation cost related to
non-vested share-based compensation arrangements granted under all of the Companys stock benefit plans. That cost is expected to be recognized over a weighted-average period of 2.3 years.

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



40



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 15 - Stock Based Compensation (Continued)



For the twelve months ended December 31, 2008 the intrinsic value of options exercised was $74,409.
There were no options exercised in 2009 or 2010.

Note 16 - Employee and Director Benefit Plans

Employees Savings Plus and Profit Sharing Plan

The Company has established an associate tax deferred savings plan under Section 401(k) of the Internal Revenue Code of 1986. All associates are eligible to make elective deferrals on the first day
if calendar month coincident or next following the date the associate attains the age of 18, completes one year of eligibility service and completes at least 1,000 hours of service and is 100% vested in the plan once they enroll.

The Companys annual contribution to the plan was $296,466 in 2010, $210,884 in 2009 and $206,478 in 2008, determined as follows:



| |  |  | The Company will contribute a safe harbor matching contribution in an amount equal to :(i) 100% of the matched employee contributions that are not in
excess of 3% of compensation, plus (ii) 50% of the amount of the matched employee contributions that exceed 3% of compensation, but do not exceed 5% of compensation.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

Directors Deferred Compensation Plan

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

Employee Stock Ownership Plan

The Company established an Employee Stock Ownership Plan
(ESOP) to benefit all qualified employees. The ESOP purchased 293,216 dividend adjusted shares of common stock in 1999 with proceeds received from a loan of $1.2 million from the Company. The loan is to be repaid over eighteen years with
interest at 8%. The loan may be prepaid without penalty. The unallocated shares of stock held by the ESOP are pledged as collateral for the loan. The ESOP is funded by contributions made by the Company and its subsidiaries in amounts sufficient to
retire the debt. At December 31, 2010, the outstanding balance of the loan is $591,925 and is presented as a reduction of shareholders equity.

At the debt payments are made on the loans, shares associated with those debt payments are released to the ESOP and allocated among active participants on the basis of compensation in the year of
allocation. Benefits vest 100% as they are allocated to participants. Dividends on



41



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 16 - Employee and Director Benefit Plans (Continued)



unallocated shares may be used by the ESOP to repay the loan to the Company and are not reported as dividends in the financial statements. Dividends on allocated or committed to be allocated
shares are credited to the accounts of the participants and reported as dividends in the consolidated financial statements.

The Company
established a $500,000 line of credit to the ESOP in the third quarter of 2010 for the purpose of purchasing shares for the ESOP plan. An advance of $100,000 was made under this line of credit, and a total of 18,906 unallocated shares were purchased
from the open market from the advance proceeds and pledged as collateral. The remaining amount under this advance available to purchase shares was $35,414 at December 31, 2010. The unused balance of the line of credit at December 31, 2010
was $400,000. This amount is available for future advances to purchase stock for the ESOP plan. At December 31, 2010, the outstanding balance of the loan is $100,000 and is presented as a reduction of shareholders equity.

During 2010 the Company expensed approximately 2% of salaries as a contribution to the ESOP Plan compared to 3% contributed in 2009 and 2008. The
reduction in the percentage contributed was due to an increase in contributions to the Employees Savings Plus and Profit Sharing Plan which was increased from a maximum match of 3% to a maximum match of 4% of associate contributions. Expenses
of $229,011, $350,068 and $326,633 during the years ended December 31, 2010, 2009 and 2008, respectively, were incurred in connection with the ESOP.

At December 31, 2010, 369,602 shares held by the ESOP, including additional shares purchased, have been released or committed to be released to the ESOPs participants for purposes of computing
earnings per share. There were 116,642 shares unallocated with a fair value of approximately $416,412 at December 31, 2010.

Supplemental Executive Retirement Plan

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

Effective December 31, 2008, this plan was amended and restated to comply with Section 409A of the Internal Revenue Code. The participants account liability balances as of
December 31, 2008 could be transferred into a trust fund, where investments will be participant-directed.

The plan is structured as a
defined contribution plan and the Companys expected annual funding contribution for the participants has been calculated through the participants expected retirement date. Under terms of the agreement, the Company has reserved the
absolute right, at its sole discretion, to either fund or refrain from funding the plan. The plan also provides for payment of death benefits and for payment of disability benefits in the event the officer becomes permanently disabled prior to
attainment of retirement age.

During 2010, 2009 and 2008 a provision of $266,800, $500,800 and $383,800, respectively, was expensed for
future benefits to be provided under the plan. The liability accrued for compensation deferred under the plan amounts to $1.7 million and $2.0 million at December 31, 2010 and 2009, respectively.



42



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 16 - Employee and Director Benefit Plans (Continued)



Split-Dollar Life Insurance

The Company has entered into Life Insurance Endorsement Method Split-Dollar Agreements with certain officers. Under these agreements, upon death of the officer, the Company first recovers the cash
surrender value of the contract and then shares the remaining death benefits from insurance contracts, which are written with different carriers, with the designated beneficiaries of the officers. The death benefit to the officers
beneficiaries is a multiple of base salary at the time of the agreements. The Company, as owner of the policies, retains an interest in the life insurance proceeds and a 100% interest in the cash surrender value of the policies. During 2010 and
2009, the expense associated with these policies was $(12,322) and $35,829, respectively.

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

ASC 825, Disclosures about Fair Value of Financial Instruments, requires disclosure of the fair value
of financial assets and financial liabilities, including those that are not measured and reported at fair value on a recurring basis or non-recurring basis.

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



|                               |  |                        |         |  |                     |   |         |                |  |   |                     |  |  |   |         | 
|------------------------------ |  | ---------------------- | ------- |  | ------------------- | - | ------- | -------------- |  | - | ------------------- |  |  | - | ------- | 
|                               |  | 2010                   |         |  | 2009                |  
|                               |  | CarryingAmount         |         |  | EstimatedFair Value |   |         | CarryingAmount |  |   | EstimatedFair Value | 
|                               |  | (dollars in thousands) |        
|Financial Assets               |  |                        |         |  |                     |   |         |                |  |   |                     |  |  |   |         | 
|Cash and cash equivalents      |  | $                      | 13,624  |  |                     | $ | 13,630  |                |  | $ | 10,859              |  |  | $ | 10,896  | 
|Securities available for sale  |  |                        | 96,395  |  |                     |   | 96,395  |                |  |   | 76,317              |  |  |   | 76,317  | 
|Loans held for investment, net |  |                        | 387,769 |  |                     |   | 392,017 |                |  |   | 348,453             |  |  |   | 363,619 | 
|Loans held for sale            |  |                        | 6,286   |  |                     |   | 6,286   |                |  |   | 2,628               |  |  |   | 2,628   | 
|FHLB Stock and FRB Stock       |  |                        | 4,031   |  |                     |   | 4,031   |                |  |   | 3,980               |  |  |   | 3,980   | 
|Bank-owned life insurance      |  |                        | 5,975   |  |                     |   | 5,975   |                |  |   | 5,714               |  |  |   | 5,714   | 
|Mortgage servicing rights      |  |                        | 2,134   |  |                     |   | 2,522   |                |  |   | 1,890               |  |  |   | 2,193   | 
|Accrued interest receivables   |  |                        | 2,408   |  |                     |   | 2,408   |                |  |   | 2,077               |  |  |   | 2,077   | 
|                               |  |                        |         | 
|Financial Liabilities          |  |                        |         |  |                     |   |         |                |  |   |                     |  |  |   |         | 
|Deposits                       |  | $                      | 434,033 |  |                     | $ | 439,298 |                |  | $ | 376,774             |  |  | $ | 400,997 | 
|Short-term borrowings          |  |                        | 20,482  |  |                     |   | 20,482  |                |  |   | 26,940              |  |  |   | 26,940  | 
|Long-term debt                 |  |                        | 34,061  |  |                     |   | 35,625  |                |  |   | 26,643              |  |  |   | 28,173  | 
|Accrued interest payable       |  |                        | 342     |  |                     |   | 342     |                |  |   | 396                 |  |  |   | 396     | 



43



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







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



The carrying amount of cash and cash equivalents, which includes $750,000 in time deposits with other
institutions and accrued interest, approximate their fair values due to the short period of time until their expected realization. Securities available for sale are carried at fair value based on quoted market prices. It is not practicable to
determine fair value of Federal Home Loan Bank and Federal Reserve Bank stock due to restrictions placed on its transferability so it is presented at its carrying value. The carrying amount of bank-owned life insurance is the current cash surrender
value. Fair value for mortgage servicing assets is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions.

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



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



| |  |  | 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 analysis 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 analysis using offered market rates. The fair value of the unsecured debt does not consider the lack of
liquidity and uncertainty in the market that would affect the valuation.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

At December 31, 2010, the subsidiary banks
had outstanding standby letters of credit and commitments to extend credit. These off-balance sheet financial instruments are generally exercisable at the market rate prevailing at the date the underlying transaction will be completed; therefore,
they were deemed to have no current fair value. See Note 12.



44



---

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







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



The following table provides fair value information for assets and liabilities measured at fair value on
a recurring basis as of December 31, 2010 and 2009:



|                                     |  |                        |        |  |         |   |        |         |  |   |         |  |  |   |   | 
|------------------------------------ |  | ---------------------- | ------ |  | ------- | - | ------ | ------- |  | - | ------- |  |  | - | - | 
|                                     |  | December 31, 2010      |       
|                                     |  | (dollars in thousands) |       
|                                     |  | Total                  |        |  | Level 1 |   |        | Level 2 |  |   | Level 3 | 
|                                     |  |                        |        | 
|Securities available for sale:       |  |                        |        |  |         |   |        |         |  |   |         |  |  |   |   | 
|US Treasury                          |  | $                      | 51,148 |  |         | $ | 51,148 |         |  | $ |        |  |  | $ |  | 
|US Govt                             |  |                        | 25,463 |  |         |   | 25,463 |         |  |   |        |  |  |   |  | 
|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      |  | $                      |       |  |         | $ |       |         |  | $ |        |  |  | $ |  | 
|                                     |  |                        |        |  |         |   |        |         |  |   |         |  |  |   |   | 
|                                     | 
|                                     |  | December 31, 2009      |       
|                                     |  | (dollars in thousands) |       
|                                     |  | Total                  |        |  | Level 1 |   |        | Level 2 |  |   | Level 3 | 
|                                     |  |                        |        | 
|Securities available for sale:       |  |                        |        |  |         |   |        |         |  |   |         |  |  |   |   | 
|US Treasury                          |  | $                      | 3,019  |  |         | $ | 3,019  |         |  | $ |        |  |  | $ |  | 
|US Govt                             |  |                        | 20,971 |  |         |   | 20,971 |         |  |   |        |  |  |   |  | 
|Mortgage-backed securities and CMOs |  |                        | 35,242 |  |         |   |       |         |  |   | 35,242  |  |  |   |  | 
|Private label CMOs                  |  |                        | 7,500  |  |         |   |       |         |  |   | 7,500   |  |  |   |  | 
|State and political subdivisions     |  |                        | 9,585  |  |         |   |       |         |  |   | 9,585   |  |  |   |  | 
|                                     |  |                        |        |  |         |   |        |         |  |   |         |  |  |   |   | 
|                                     |  |                        |        | 
|Total assets at fair value           |  | $                      | 76,317 |  |         | $ | 23,990 |         |  | $ | 52,327  |  |  | $ |  | 
|                                     |  |                        |        |  |         |   |        |         |  |   |         |  |  |   |   | 
|                                     |  |                        |        | 
|Total liabilities at fair value      |  | $                      |       |  |         | $ |       |         |  | $ |        |  |  | $ |  | 
|                                     |  |                        |        |  |         |   |        |         |  |   |         |  |  |   |   | 



45



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







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



Prices for US Treasury and government agency securities are readily available in the active markets in
which those securities are traded, and the resulting fair values are shown in the Level 1 input column. Prices for mortgage-backed securities and for state, county and municipal securities are obtained for similar securities, and the
resulting fair values are shown in the Level 2 input column. Prices for non-marketable investments are determined based on various assumptions that are not observable. The fair values for these investment securities are shown in the
Level 3 input column. Non-marketable investment securities, which are carried at their purchase price, include those that may only be redeemed by the issuer.

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that
are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below as of December 31, 2010 and
December 31, 2009:



|                                |  |                        |        |  |         |   |   |         |  |   |         |  |  |   |        | 
|------------------------------- |  | ---------------------- | ------ |  | ------- | - | - | ------- |  | - | ------- |  |  | - | ------ | 
|                                |  | 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 |  | $                      |       |  |         | $ |  |         |  | $ |        |  |  | $ |       | 
|                                |  |                        |        |  |         |   |   |         |  |   |         |  |  |   |        | 



|                                |  |                        |        |  |         |   |   |         |  |   |         |  |  |   |        | 
|------------------------------- |  | ---------------------- | ------ |  | ------- | - | - | ------- |  | - | ------- |  |  | - | ------ | 
|                                |  | December 31, 2009      |       
|                                |  | (dollars in thousands) |       
|                                |  | Total                  |        |  | Level 1 |   |   | Level 2 |  |   | Level 3 | 
|                                |  |                        |        | 
|Impaired loans                  |  | $                      | 13,519 |  |         | $ |  |         |  | $ |        |  |  | $ | 13,519 | 
|Loans held for sale             |  |                        | 2,628  |  |         |   |  |         |  |   | 2,628   |  |  |   |       | 
|Other real estate owned         |  |                        | 3,419  |  |         |   |  |         |  |   |        |  |  |   | 3,419  | 
|Mortgage servicing rights       |  |                        | 2,193  |  |         |   |  |         |  |   |        |  |  |   | 2,193  | 
|                                |  |                        |        |  |         |   |   |         |  |   |         |  |  |   |        | 
|                                |  |                        |        | 
|Total assets at fair value      |  | $                      | 21,759 |  |         | $ |  |         |  | $ | 2,628   |  |  | $ | 19,131 | 
|                                |  |                        |        |  |         |   |   |         |  |   |         |  |  |   |        | 
|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.



46



---

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







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



Interest Rate Risk

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



47



---

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 18 - Parent Company Financial Data

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

Condensed Balance Sheets



|                                                 |  |                        |        |  |      |   |        | 
|------------------------------------------------ |  | ---------------------- | ------ |  | ---- | - | ------ | 
|                                                 |  | December 31,           |       
|                                                 |  | 2010                   |        |  | 2009 |  
|                                                 |  | (dollars in thousands) |       
|Assets                                           |  |                        |        |  |      |   |        | 
|Cash and demand deposits with bank subsidiaries  |  | $                      | 859    |  |      | $ | 408    | 
|Interest-earning deposits with bank subsidiaries |  |                        | 11,271 |  |      |   | 12,030 | 
|Investments in:                                  |  |                        |        |  |      |   |        | 
|Bank subsidiaries                                |  |                        | 46,878 |  |      |   | 47,908 | 
|Nonbank subsidiaries                             |  |                        | 704    |  |      |   | 358    | 
|Other assets                                     |  |                        | 2,612  |  |      |   | 2,556  | 
|                                                 |  |                        |        |  |      |   |        | 
|Total assets                                     |  | $                      | 62,324 |  |      | $ | 63,260 | 
|                                                 |  |                        |        |  |      |   |        | 
|                                                 |  |                       
|Liabilities and shareholders equity             |  |                        |        |  |      |   |        | 
|Master notes                                     |  | $                      | 8,594  |  |      | $ | 11,482 | 
|Junior subordinated debentures                   |  |                        | 9,895  |  |      |   | 7,419  | 
|Other liabilities                                |  |                        | 342    |  |      |   | 335    | 
|Shareholders equity                             |  |                        | 43,493 |  |      |   | 44,024 | 
|                                                 |  |                        |        |  |      |   |        | 
|Total liabilities and shareholders equity       |  | $                      | 62,324 |  |      | $ | 63,260 | 
|                                                 |  |                        |        |  |      |   |        | 

Condensed Statement of Operations



|                                            |  |                        |           |   |      |   |           |      |  |   |           |  
|------------------------------------------- |  | ---------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                            |  | 2010                   |           |   | 2009 |   |           | 2008 | 
|                                            |  | (dollars in thousands) |          
|                                            |  |                        |          
|Equity in earnings of subsidiaries          |  | $                      | 1,445     |   |      | $ | 1,260     |      |  | $ | 2,738     |  
|Interest income                             |  |                        | 50        |   |      |   | 113       |      |  |   | 133       |  
|Management and service fees                 |  |                        | 6,407     |   |      |   | 5,468     |      |  |   | 4,464     |  
|Other income                                |  |                        | 26        |   |      |   | 91        |      |  |   | 94        |  
|Interest expense                            |  |                        | (479      | ) |      |   | (533      | )    |  |   | (535      | )
|Other operating expense                     |  |                        | (7,003    | ) |      |   | (6,122    | )    |  |   | (5,230    | )
|Income tax benefit                          |  |                        | 267       |   |      |   | 413       |      |  |   | 365       |  
|                                            |  |                        |           |   |      |   |           |      |  |   |           |  
|                                            |  |                        |          
|Net income                                  |  | $                      | 713       |   |      | $ | 690       |      |  | $ | 2,029     |  
|                                            |  |                        |           |   |      |   |           |      |  |   |           |  
|                                            |  |                        |          
|Net income                                  |  | $                      | 713       |   |      | $ | 690       |      |  | $ | 2,029     |  
|Dividends  preferred stock                 |  |                        | (645      | ) |      |   | (642      | )    |  |   | (13       | )
|                                            |  |                        |           |   |      |   |           |      |  |   |           |  
|Net Income available to common shareholders |  | $                      | 68        |   |      | $ | 48        |      |  | $ | 2,016     |  
|                                            |  |                        |           |   |      |   |           |      |  |   |           |  
|                                            |  |                        |          
|Net income per common share                 |  |                        |           |   |      |   |           |      |  |   |           |  
|Basic                                       |  | $                      | 0.01      |   |      | $ | 0.01      |      |  | $ | 0.27      |  
|                                            |  |                        |           |   |      |   |           |      |  |   |           |  
|Diluted                                     |  | $                      | 0.01      |   |      | $ | 0.01      |      |  | $ | 0.27      |  
|                                            |  |                        |           |   |      |   |           |      |  |   |           |  
|                                            |  |                        |          
|Weighted average shares outstanding         |  |                        |           |   |      |   |           |      |  |   |           |  
|Basic                                       |  |                        | 7,485,373 |   |      |   | 7,474,140 |      |  |   | 7,482,488 |  
|Diluted                                     |  |                        | 7,485,373 |   |      |   | 7,474,140 |      |  |   | 7,520,484 |  



48



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements







Note 18 - Parent Company Financial Data (Continued)



Condensed Statements of Cash Flows



|                                                             |  |                        |        |   |      |   |        |      |  |   |        |  
|------------------------------------------------------------ |  | ---------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                             |  | 2010                   |        |   | 2009 |   |        | 2008 | 
|                                                             |  | (dollars in thousands) |       
|Cash flows from operating activities                         |  |                        |        |   |      |   |        |      |  |   |        |  
|Net income                                                   |  | $                      | 713    |   |      | $ | 690    |      |  | $ | 2,029  |  
|Adjustments to reconcile net income to net cash              |  |                        |        |   |      |   |        |      |  |   |        |  
|Provided (used) by operating activities:                     |  |                        |        |   |      |   |        |      |  |   |        |  
|Equity in earnings of subsidiaries                           |  |                        | (1,445 | ) |      |   | (1,260 | )    |  |   | (2,738 | )
|(Increase) decrease in other assets                          |  |                        | 74     |   |      |   | (753   | )    |  |   | (2,012 | )
|Increase (decrease) in other liabilities                     |  |                        | 7      |   |      |   | (30    | )    |  |   | (72    | )
|                                                             |  |                        |        |   |      |   |        |      |  |   |        |  
|Net cash provided (used) by operating activities             |  |                        | (651   | ) |      |   | (1,353 | )    |  |   | (2,793 | )
|                                                             |  |                        |        |   |      |   |        |      |  |   |        |  
|                                                             |  |                        |       
|Cash flows from investing activities                         |  |                        |        |   |      |   |        |      |  |   |        |  
|Dividends received from subsidiaries                         |  |                        | 1,300  |   |      |   | 900    |      |  |   | 200    |  
|                                                             |  |                        |        |   |      |   |        |      |  |   |        |  
|Net cash provided by investing activities                    |  |                        | 1,300  |   |      |   | 900    |      |  |   | 200    |  
|                                                             |  |                        |        |   |      |   |        |      |  |   |        |  
|                                                             |  |                        |       
|Cash flows from financing activities                         |  |                        |        |   |      |   |        |      |  |   |        |  
|Net increase (decrease) in master notes                      |  |                        | (2,888 | ) |      |   | 2,579  |      |  |   | (727   | )
|Net increase (decrease) in long-term debt                    |  |                        |       |   |      |   | (2,600 | )    |  |   | (4,000 | )
|Net proceeds from issuance of junior subordinated debentures |  |                        | 2,476  |   |      |   |       |      |  |   | 7,419  |  
|Repurchase of common stock                                   |  |                        |       |   |      |   |       |      |  |   | (571   | )
|Net proceeds from issuance of preferred stock                |  |                        |       |   |      |   |       |      |  |   | 10,500 |  
|Proceeds from issuance of common stock                       |  |                        |       |   |      |   |       |      |  |   | 301    |  
|Preferred stock purchased from bank subsidiaries             |  |                        |       |   |      |   |       |      |  |   | (7,000 | )
|Dividends on preferred stock                                 |  |                        | (545   | ) |      |   | (542   | )    |  |   | (13    | )
|Tax benefit of stock options exercised                       |  |                        |       |   |      |   |       |      |  |   | 26     |  
|Cash paid for fractional shares                              |  |                        |       |   |      |   |       |      |  |   | (7     | )
|                                                             |  |                        |        |   |      |   |        |      |  |   |        |  
|Net cash provided (used) by financing activities             |  |                        | (957   | ) |      |   | (563   | )    |  |   | 5,928  |  
|                                                             |  |                        |        |   |      |   |        |      |  |   |        |  
|                                                             |  |                        |       
|Net increase (decrease) in cash and cash equivalents         |  |                        | (308   | ) |      |   | (1,016 | )    |  |   | 3,335  |  
|Cash and cash equivalents at beginning of period             |  |                        | 12,438 |   |      |   | 13,454 |      |  |   | 10,119 |  
|                                                             |  |                        |        |   |      |   |        |      |  |   |        |  
|Cash and cash equivalents at end of period                   |  | $                      | 12,130 |   |      | $ | 12,438 |      |  | $ | 13,454 |  
|                                                             |  |                        |        |   |      |   |        |      |  |   |        |  



49



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Selected Financial Data





Selected Financial Data

(in thousands except per share and shares outstanding information)



|                                 |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|-------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - |  | - | --------- | -
|                                 |  | 2010 |           |   | 2009 |   |           | 2008 |  |   | 2007      |   |  | 2006 |          
|Summary of Operations            |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Interest income                  |  | $    | 24,487    |   |      | $ | 25,062    |      |  | $ | 25,564    |   |  | $    | 26,909    |   |  | $ | 24,353    |  
|Interest expense                 |  |      | 5,951     |   |      |   | 7,697     |      |  |   | 9,828     |   |  |      | 11,876    |   |  |   | 10,702    |  
|                                 |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net interest income              |  |      | 18,536    |   |      |   | 17,365    |      |  |   | 15,736    |   |  |      | 15,033    |   |  |   | 13,651    |  
|Provision for loan losses        |  |      | 4,919     |   |      |   | 1,732     |      |  |   | 969       |   |  |      | 15        |   |  |   | 298       |  
|Noninterest income               |  |      | 9,898     |   |      |   | 5,824     |      |  |   | 6,597     |   |  |      | 6,590     |   |  |   | 5,469     |  
|Noninterest expense              |  |      | 22,651    |   |      |   | 20,930    |      |  |   | 18,531    |   |  |      | 17,362    |   |  |   | 15,918    |  
|Income tax expense(benefit)      |  |      | 151       |   |      |   | (163      | )    |  |   | 804       |   |  |      | 1,287     |   |  |   | 833       |  
|                                 |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net income                       |  | $    | 713       |   |      | $ | 690       |      |  | $ | 2,029     |   |  | $    | 2,959     |   |  | $ | 2,071     |  
|                                 |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|                                 |  |      |           |   |     
|Per Common Share                 |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net income  basic (1)           |  | $    | 0.01      |   |      | $ | 0.01      |      |  | $ | 0.27      |   |  | $    | 0.39      |   |  | $ | 0.27      |  
|Net income  diluted (1)         |  |      | 0.01      |   |      |   | 0.01      |      |  |   | 0.27      |   |  |      | 0.39      |   |  |   | 0.26      |  
|Book value (1)                   |  |      | 4.38      |   |      |   | 4.47      |      |  |   | 4.11      |   |  |      | 4.14      |   |  |   | 3.76      |  
|                                 |  |      |           |   |     
|Weighted Average Shares          |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Outstanding:                     |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Basic (1)                        |  |      | 7,485,373 |   |      |   | 7,474,140 |      |  |   | 7,482,488 |   |  |      | 7,603,494 |   |  |   | 7,685,978 |  
|Diluted (1)                      |  |      | 7,485,373 |   |      |   | 7,474,140 |      |  |   | 7,520,484 |   |  |      | 7,706,832 |   |  |   | 7,802,102 |  
|Ratios                           |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Return on average assets         |  |      | 0.14      | % |      |   | 0.15      | %    |  |   | 0.48      | % |  |      | 0.75      | % |  |   | 0.56      | %
|Return on average equity         |  |      | 1.57      | % |      |   | 1.60      | %    |  |   | 6.29      | % |  |      | 9.73      | % |  |   | 7.32      | %
|Average equity to average assets |  |      | 8.83      | % |      |   | 9.15      | %    |  |   | 7.63      | % |  |      | 7.73      | % |  |   | 7.67      | %
|                                 |  |      |           |   |     
|Selected Year-end Balances       |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Assets                           |  | $    | 535,426   |   |      | $ | 477,846   |      |  | $ | 452,468   |   |  | $    | 411,944   |   |  | $ | 383,261   |  
|Loans held for investment        |  |      | 387,769   |   |      |   | 353,729   |      |  |   | 340,830   |   |  |      | 321,987   |   |  |   | 288,135   |  
|Securities                       |  |      | 96,395    |   |      |   | 76,317    |      |  |   | 68,835    |   |  |      | 51,005    |   |  |   | 37,150    |  
|Deposits                         |  |      | 434,033   |   |      |   | 376,774   |      |  |   | 353,627   |   |  |      | 324,657   |   |  |   | 309,600   |  
|Borrowed funds                   |  |      | 54,543    |   |      |   | 53,583    |      |  |   | 54,751    |   |  |      | 53,619    |   |  |   | 42,329    |  
|Shareholders equity             |  |      | 43,493    |   |      |   | 44,024    |      |  |   | 41,233    |   |  |      | 31,574    |   |  |   | 29,633    |  
|                                 |  |      |           |   |     
|Selected Average Balances        |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Assets                           |  | $    | 514,425   |   |      | $ | 471,729   |      |  | $ | 422,857   |   |  | $    | 393,188   |   |  | $ | 368,781   |  
|Loans held for investment        |  |      | 375,381   |   |      |   | 346,976   |      |  |   | 335,791   |   |  |      | 308,149   |   |  |   | 293,394   |  
|Securities                       |  |      | 86,780    |   |      |   | 78,049    |      |  |   | 48,926    |   |  |      | 41,188    |   |  |   | 35,227    |  
|Deposits                         |  |      | 406,304   |   |      |   | 369,957   |      |  |   | 337,384   |   |  |      | 312,261   |   |  |   | 289,742   |  
|Borrowed funds                   |  |      | 58,291    |   |      |   | 55,084    |      |  |   | 50,643    |   |  |      | 48,075    |   |  |   | 48,510    |  
|Shareholders equity             |  |      | 45,425    |   |      |   | 43,182    |      |  |   | 32,245    |   |  |      | 30,402    |   |  |   | 28,299    |  



|(1) | Net income per share, book value per share, weighted average shares outstanding and shares outstanding at year-end for 2006 through 2008 have been adjusted to reflect
3% stock dividends issued in 2008, 2007 and 2006. There was not a stock dividend issued in 2010 or 2009.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



50



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Managements Discussion And Analysis of Financial Condition

And Results of Operations





A discussion and analysis of the Companys
operating results and financial condition are presented in the following narrative and financial tables. The comments are intended to supplement and should be reviewed in conjunction with the consolidated financial statements and notes thereto
appearing on pages 8  49 of this Annual Report. References to changes in assets and liabilities represent end of period balances unless otherwise noted. All references in this Annual Report to net income per share and weighted average common
and common equivalent shares outstanding have been adjusted to reflect 3% stock dividends in 2008 and 2007. Statements contained in this Annual Report, which are not historical facts, are forward-looking statements, as that term is defined in the
Private Securities Litigation Reform Act of 1995. Amounts herein could vary as a result of market and other factors. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from
those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents filed by the Company with the Securities and Exchange Commission from time to time. Such forward-looking statements may be
identified by the use of such words as believe, expect, anticipate, should, might, planned, estimated, and potential. Examples of forward-looking
statements include, but are not limited to, estimates with respect to the financial condition, expected or anticipated revenue, 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.

Financial Condition at December 31, 2010 and December 31, 2009

The Companys total assets increased $57.6 million or 12.1% from $477.8 million at December 31, 2009 to $535.4 million at December 31, 2010. This increase resulted primarily from a $34.1
million increase in loans held for investment and a $20.1 million increase in securities available for sale.

Cash and cash equivalents
increased $2.8 million during the year ended December 31, 2010. Cash and due from banks declined $2.6 million, while interest-earning deposits with banks increased $5.3 million.

Investment securities increased $20.1 million or 26.3%, from $76.3 million at December 31, 2009 to $96.4 million at December 31, 2010. At December 31, 2009 the Company owned $7.5 million in
private label CMOs. With the continued erosion in the underlying collateral, management made the decision to sell the entire private label CMO portfolio during the first quarter of 2010 resulting in a realized loss of $107,000. During the year as
the Companys loan demand continued to grow along with the need to fund outstanding construction loan commitments, the Company recognized the need to increase its liquidity. The Company made the decision to sell $32.0 million in investments
realizing gains of $1.5 million. The Company also had calls on state and political subdivision securities totaling $1.5 million and generating net gains of $25,000. During the year, the Company purchased $71.4 million in new securities, reinvesting
the proceeds from the aforementioned sales and calls and the influx of cash from the increase in deposits during the period. The Company evaluated its entire investment portfolio for other than temporary impairments. Management believes that all of
the unrealized losses totaling $1.5 million are only temporary. All other investments in the portfolio reflect gains of $2.1 million. At December 31, 2010, the Company had net unrealized gains of $531,000.



51



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Managements Discussion And Analysis of Financial Condition

And Results of Operations







Loans held for investment increased $34.1 million from $353.7 million at December 31, 2009 to
$387.8 million at December 31, 2010. The Company experienced positive growth trends in all areas of the loan portfolio except commercial and real estate 1-4 family construction, which decreased $44,000 and $317,000, respectively. Commercial
real estate, other real estate construction and residential real estate increased at a growth rate of 9.6%, 29.6% and 6.1%, respectively. A portion of the increase in other real estate construction lending was related to funding on existing
commitments. Loans held for sale increased 139.2% or $3.7 million compared to the prior year. The allowance for loan losses was $9.1 million at December 31, 2010, which represents 2.34% of the loan portfolio, an increase from $5.3 million or
1.49% at December 31, 2009.

Premises and equipment increased $908,000 or 6.7% during 2010. The Company completed the construction of a
new branch in Locust during 2010.

Other changes in our consolidated assets are related to interest receivable, Federal Home Loan Bank stock,
bank owned life insurance, other real estate owned and other assets. Bank owned life insurance and interest receivable increased $261,000 and $331,000 respectively, while other real estate owned decreased $1.4 million. The Company was able to sell
several foreclosed properties held in other real estate owned during 2010, realizing net losses of $332,000 from these sales. Federal Home Loan Bank stock increased $51,000 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 year. Other assets increased $1.2 million for the year, primarily related to an increase in deferred
tax assets.

Customer deposits continued to be our principal funding source in 2010, allowing us to fund the growth in assets discussed above.
At December 31, 2010, deposits from our customers totaled $434.0 million, an increase of $57.2 million, or 15.2%, from $376.8 million at December 31, 2009. Demand noninterest bearing checking increased $9.9 million, while interest checking
and money market accounts increased $49.8 million for the period. A portion of this increase is attributed to approximately $18.0 million in new public funds from one relationship and also from a shift from time deposits to money market accounts.
Savings deposits grew $5.5 million. Time deposits over $100,000 and other time deposits declined $5.3 million and $2.6 million respectively during 2010, primarily from a shift to other deposit accounts.

During 2010 the Companys net borrowings increased by $960,000. Borrowings consist of both short-term and long-term borrowed funds. The Company
utilizes both short-term and long-term advances from the Federal Home Loan Bank. At December 31, 2010, $34.0 million of the total borrowings of $54.5 million were attributed to Federal Home Loan Bank advances. During the fourth quarter of 2010,
the Company began a second junior subordinated debt offering. At December 31, 2010 an additional $2.5 million had been raised. See note 10 for additional information on the new offering.

At December 31, 2010, total shareholders equity was $43.5 million, a decrease of $531,000 from December 31, 2009. Net income for the period was $713,000. Net income was offset by a net
increase in unearned ESOP compensation of $25,000. The ESOP trust set up a new line of credit with the Company to be used to purchase shares for the ESOP.Net income was also offset as the Company recorded $545,000 in dividends on its series A and B
preferred stock for the twelve month period. Unrealized gains on investment securities also declined $678,000 during the year as a result of the realized gains taken on the aforementioned investment sales. At December 31, 2010, the Company and
its subsidiary banks exceeded all applicable regulatory capital requirements.



52



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Managements Discussion And Analysis of Financial Condition

And Results of Operations







Results of Operations for the Years Ended December 31, 2010 and 2009

Earnings

Uwharrie Capital Corp reported
net income of $713,000 for the twelve months ended December 31, 2010, as compared to $690,000 for the twelve months ended December 31, 2009, an increase of $23,000. Net income available to common shareholders was $68,000 or $0.01 per
common share at December 31, 2010, compared to $48,000 or $0.01 per common share at December 31, 2009. Net income available to common shareholders is net income less any dividends and discount accretions on preferred stock related to the
$10 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 increased $1.2 million to $18.5 million for 2010 compared to the $17.4
million earned in 2009. During the year ended December 31, 2010 our growth in the volume of interest-earning assets outpaced the growth in interest-bearing liabilities by $1.9 million. The average yield on our interest-earning assets decreased
64 basis points to 5.25%, while the average rate we paid for our interest-bearing liabilities decreased 59 basis points. The Companys assets that are interest rate sensitive adjust at the time the Federal Reserve Open Market Committee adjusts
interest rates while interest-bearing time deposits adjust at the time of maturity. These decreases resulted in a decrease of five basis points in our interest rate spread, from 3.86% in 2009 to 3.81% in 2010. Our net interest margin for 2010 was
3.99%, compared to 4.12% in 2009. Financial Table 1 on page 62 presents a detailed analysis of the components of the Companys net interest income while Financial Table 2 on page 63 summarizes the effects on net interest income from changes in
interest rates and in the dollar volume of the components of interest-earning assets and interest bearing liabilities.

Provision for Loan
Losses

The provision for loan losses was $4.9 million and $1.7 million for the twelve months ended December 31, 2010 and 2009
respectively. There were net loan charge-offs of $1.1 million for the twelve months ended December 31, 2010 as compared with net loan charge-offs of $817,000 during the same period of 2009. Refer to the Asset Quality discussion beginning on
page 56 for further information.

Noninterest Income

The Company generates most of its revenue from net interest income; however, diversification of our earnings base is of major importance to our long term success. Noninterest income



53



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Managements Discussion And Analysis of Financial Condition

And Results of Operations







increased 70.0%, from $5.8 million in 2009 to $9.9 million in 2010, an increase of $4.1 million. The
Company benefited from another strong year of income from mortgage loan sales. Income from mortgage loan sales was $3.2 million for 2010 compared to $3.4 million during 2009, a decrease of $264,000. Mortgage loan rates continued to be attractive for
buyers and rates did decline during 2010 allowing customers to be able to refinance again at even lower rates. Service charges on deposit accounts produced earnings of $2.2 million, a decrease of 6.0%. These decreases were offset by an increase in
other service fees and commissions of $610,000 generated from brokerage commissions and asset management fees which increased $270,000 to $1.5 million and other banking fees which increased $340,000 during 2010. The recent downturn in the economy
that impacted the overall stock market and customers confidence to actively trade during 2009 began to turn around in 2010 attributing to the growth in brokerage commissions and asset management fees. The Company realized gains of $1.5 million
on the securities available for sale compared to realized losses of $711,000 in 2009. As previously discussed, the Company did not have other-than-temporary impairment during 2010 compared to $1.8 million 2009.

Noninterest Expense

Noninterest expense
for the year ended December 31, 2010 was $22.7 million compared to $20.9 million for the same period of 2009, an increase of $1.8 million. Salaries and employee benefits, the largest component of noninterest expense, increased $121,000, from
$11.5 million for the period ending December 31, 2009 to $11.6 million for the same period in 2010. This increase is attributable to normal salary increases, additions to staff and higher benefit expenses. Net occupancy and equipment expense
had a combined increase of $189,000. Professional fees and services increased $262,000 due mainly to increased loan collection costs. Data processing costs reflected a modest increase of $61,000, while software costs increased by $72,000. Growth in
electronic banking operations, including preparation for new services, created increased expense of $83,000. Marketing and donations expense grew by $545,000 and included expenditures associated with advertising, business development and public
relations, donations to local charities, sponsorships of local community events and economic development. Other noninterest expense increased $334,000 for the comparable twelve month period. The table on page 66 reflects the additional breakdown of
other noninterest expense. FDIC assessment costs decreased $163,000 during the twelve month ending December 31, 2010. During 2009, the FDIC had implemented a special one-time assessment which amounted to $209,000 for the Companys
subsidiary banks that did not recur during 2010.

Income Tax Expense

The Company had an income tax expense of $151,000 for 2010 at an effective tax rate of 17.48% compared to income tax benefit of $163,000 in 2009. Income taxes computed at the statutory rate are reduced
primarily by the eligible amount of interest earned on state and municipal securities and income earned on bank owned life insurance.

Results of Operations for the Years Ended December 31, 2009 and 2008

Earnings

Uwharrie Capital Corp reported net income of $690,000 for the twelve months ended
December 31, 2009, as compared to $2.0 million for the twelve months ended December 31, 2008, a decrease of $1.3 million. Net income available to common shareholders was $48,000 or $0.01 per common share at December 31, 2009, compared
to $2.0 million or $0.27 per common share



54



---

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Managements Discussion And Analysis of Financial Condition

And Results of Operations







at December 31, 2008. Net income available to common shareholders is net income less any dividends
and discount accretions on preferred stock related to the $10 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 increased $1.7 million to $17.4 million for 2009 compared to the $15.7 million earned in 2008. During the year ended December 31, 2009 our growth in the volume of interest-earning
assets outpaced the growth in interest-bearing liabilities by $1.4 million. The average yield on our interest-earning assets decreased 74 basis points to 5.89%, while the average rate we paid for our interest-bearing liabilities decreased 84 basis
points. The Companys assets that are interest rate sensitive adjust at the time the Federal Reserve Open Market Committee adjusts interest rates while interest-bearing time deposits adjust at the time of maturity. These decreases resulted in
an increase of 10 basis points in our interest rate spread, from 3.76% in 2008 to 3.86% in 2009. Our net interest margin for 2009 was 4.12%, compared to 4.13% in 2008. Financial Table 1 on page 62 presents a detailed analysis of the components of
the Companys net interest income while Financial Table 2 on page 63 summarizes the effects on net interest income from changes in interest rates and in the dollar volume of the components of interest-earning assets and interest bearing
liabilities.

Provision for Loan Losses

The provision for loan losses was $1.7 million and $1.0 million for the twelve months ended December 31, 2009 and 2008 respectively. There were net loan charge-offs of $817,000 for the twelve months
ended December 31, 2009 as compared with net loan charge-offs of $118,000 during the same period of 2008. Refer to the Asset Quality discussion beginning on page 56 for further information.

Noninterest Income

The Company
generates most of its revenue from net interest income; however, diversification of our earnings base is of major importance to our long term success. Noninterest income decreased 12.1%, from $6.6 million in 2008 to $5.8 million in 2009, a decrease
of $773,000. Service charges on deposit accounts produced earnings of $2.4 million an increase of 5.5%. The Company also benefited from an increase in income from mortgage loan sales of $2.2 million resulting from an increase in mortgage loan
originations. The rate reductions during 2008 by the Federal Reserve attributed to this increase in 2009. These increases were offset by a decrease in other service fees and commissions of $504,000. Income generated from brokerage commissions and
asset management fees decreased $389,000 to $1.3 million, while other banking fees decreased $115,000 or 10.1% during 2009. The recent downturn in the



55



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Managements Discussion And Analysis of Financial Condition

And Results of Operations







economy and the impact it has had on the overall stock market was the attributing factor to the decline in brokerage commissions and asset management fees. The Company had realized losses on the
securities available for sale of $711,000 and a loss of $172,000 on Silverton Bank stock. As previously discussed, the Company recorded an additional other-than-temporary impairment of $1.8 million during 2009 compared to $158,000 in 2008.

Noninterest Expense

Noninterest expense for the year ended December 31, 2009 was $20.9 million compared to $18.5 million for the same period of 2008, an increase of $2.4
million. Salaries and employee benefits, the largest component of noninterest expense, increased $890,000, from $10.6 million for the period ending December 31, 2008 to $11.5 million for the same period in 2009. This increase is attributable to
normal salary increases, additions to staff and higher benefit expenses. Net occupancy and equipment expense had a combined increase of $141,000. Professional fees and services increased $281,000. FDIC assessment costs also increased $830,000 during
the twelve month ending December 31, 2009. Not only has the assessment rate charged by the FDIC to all FDIC-insured financial institutions increased, but also the Company received and utilized FDIC credits that reduced its assessment charges
during 2008. Other noninterest expense increased $239,000 for the comparable twelve month period. The table on page 66 reflects the additional breakdown of other noninterest expense.

Income Tax Expense

The Company had an income tax benefit of $163,000 for 2009 compared to
income tax expense of $804,000 in 2008 at an effective tax rate of 28.38%. Income taxes computed at the statutory rate are reduced primarily by the eligible amount of interest earned on state and municipal securities and income earned on bank owned
life insurance.

Asset Quality

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

Management uses a risk-grading program to facilitate the evaluation of probable inherent loan losses and the adequacy of the allowance for loan losses.
In this program, risk grades are



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Managements Discussion And Analysis of Financial Condition

And Results of Operations







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 $4.9 million for the year ended December 31, 2010 as compared to $1.7 million for the same period in 2009. At the
end of 2010 the levels of our impaired loans, which includes all loans in nonaccrual status and other loans deemed by management to be impaired, were $43.3 million compared to $24.1 million at December 31, 2009, an increase of $19.2 million.
The increase in the level of impaired loans resulted from ten customer relationships totaling $17.1 million. These relationships are deemed impaired from a cashflow standpoint; however, we believe they are more than adequately collateralized. At
this time the collateral appears to be the primary source for the repayment. Total nonaccrual loans, which are a component of impaired loans, increased from $5.6 million at December 31, 2009 to $19.7 million at December 31, 2010. The
Company had net loan charge-offs for 2010 of $1.1 million compared to net loan charge-offs of $817,000 for the same period in 2009.

The
allowance expressed as a percentage of gross loans held for investment increased 85 basis points from 1.49% at December 31, 2009 to 2.34% at December 31, 2010. The collectively evaluated reserve allowance as a percentage of collectively
evaluated loans increased from 0.81% at December 31, 2009 to 1.29% at December 31, 2010, an increase of 48 basis points. Given the continued declines in the credit quality metrics relating to nonperforming loans since December 31,
2009, the increase in the reserve was warranted. During the year 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



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Managements Discussion And Analysis of Financial Condition

And Results of Operations







expected loss scenario by call codes. Together, these components created from Ordinary Least Squares (OLS) Regression of historical losses against multiple Macro-Economic factors make up the
basis of the new allowance model. The loans that are impaired and included in the specific reserve are excluded from these new calculations. The continued deteriorating credit metrics as evaluated in our updated allowance model resulted in $2.1
million in loan loss provisions during the third quarter of 2010. Approximately $300,000 of the $2.1 million was related to increases in impaired loans Nonperforming loans, which consist of nonaccrual loans and loan 90 days and still accruing, to
total loans increased from 1.67% at December 31, 2009, to 5.19% at December 31, 2010. During the period the Company had a decrease in other real estate owned of $1.4 million. Management believes the current level of the allowance for
loan losses is appropriate in light of the risk inherent in the loan portfolio.

The following nonperforming loan table shows the comparison
for the past five years:

Nonperforming Assets

(dollars in thousands)



|                                                 |  |                 |        |   |      |   |       |      |  |   |        |   |  |      |        |   |  |   |        |  
|------------------------------------------------ |  | --------------- | ------ | - | ---- | - | ----- | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|                                                 |  | At December 31, |       
|                                                 |  | 2010            |        |   | 2009 |   |       | 2008 |  |   | 2007   |   |  | 2006 |       
|Nonperforming Assets:                            |  |                 |        |   |      |   |       |      |  |   |        |   |  |      |        |   |  |   |        |  
|Nonaccrual loans past due 90 days or more        |  | $               | 407    |   |      | $ | 282   |      |  | $ | 3      |   |  | $    |       |   |  | $ | 500    |  
|Nonaccrual loans                                 |  |                 | 19,730 |   |      |   | 5,630 |      |  |   | 3,898  |   |  |      | 1,795  |   |  |   | 1,211  |  
|Other real estate owned                          |  |                 | 2,022  |   |      |   | 3,419 |      |  |   | 2,816  |   |  |      | 163    |   |  |   | 203    |  
|                                                 |  |                 |        |   |      |   |       |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total nonperforming assets                       |  | $               | 22,159 |   |      | $ | 9,331 |      |  | $ | 6,717  |   |  | $    | 1,958  |   |  | $ | 1,914  |  
|                                                 |  |                 |        |   |      |   |       |      |  |   |        |   |  |      |        |   |  |   |        |  
|                                                 |  |                 |        |   |     
|Allowance for loan losses                        |  | $               | 9,067  |   |      | $ | 5,276 |      |  | $ | 4,361  |   |  | $    | 3,510  |   |  | $ | 3,171  |  
|Nonperforming loans to total loans               |  |                 | 5.19   | % |      |   | 1.67  | %    |  |   | 1.14   | % |  |      | 0.56   | % |  |   | 0.59   | %
|Allowance for loan losses to total loans         |  |                 | 2.34   | % |      |   | 1.49  | %    |  |   | 1.28   | % |  |      | 1.09   | % |  |   | 1.10   | %
|Nonperforming assets to total assets             |  |                 | 4.14   | % |      |   | 1.95  | %    |  |   | 1.48   | % |  |      | 0.48   | % |  |   | 0.50   | %
|Allowance for loan losses to nonperforming loans |  |                 | 45.03  | % |      |   | 89.24 | %    |  |   | 111.79 | % |  |      | 195.54 | % |  |   | 185.33 | %

Capital Resources

The Company continues to maintain good capital ratios that support its asset growth. The capital position is maintained through the retention of earnings
and controlled growth. Regulatory agencies divide capital into Tier I (consisting of shareholders equity less ineligible intangible assets and accumulated other comprehensive income and allowable portions of trust preferred securities) and
Tier II (consisting of the allowable portion of the reserve for loan losses and certain long-term debt) and measure capital adequacy by applying both capital levels to a banking companys risk-adjusted assets and off-balance sheet items. In
addition to these capital ratios, regulatory agencies have established a Tier I leverage ratio that measures Tier I capital to average assets less ineligible intangible assets.

Regulatory guidelines require a minimum of total capital to risk-adjusted assets ratio of 8% with one-half consisting of tangible common shareholders equity and a minimum Tier I leverage ratio of
4%. Banks which meet or exceed a Tier I ratio of 6%, a total capital ratio of 10% and a



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Managements Discussion And Analysis of Financial Condition

And Results of Operations







Tier I leverage ratio of 5% are considered well capitalized by regulatory standards. At December 31, 2010, the Companys subsidiary banks were all well capitalized.

The Company expects to continue to exceed these minimums without altering current operations or strategy. Note 14 to the Consolidated Financial
Statements presents additional information regarding the Companys and its subsidiary banks capital ratios.

Dividends

The Board of Directors of Uwharrie Capital Corp declared a 3% stock dividend in 2008. All references in this Annual Report to net income
per share and weighted average common and common equivalent shares outstanding reflect the effects of these stock dividends. There was not a dividend declared in 2010 or 2009.

Liquidity

Liquidity, the ability to raise cash when needed without adversely impacting
profits, is managed primarily by the selection of asset mix and the maturity mix of liabilities. Maturities and the marketability of securities and other funding sources provide a source of liquidity to meet deposit fluctuations. Maturities in the
securities portfolio, presented in Financial Table 4 on page 65, are supported by cash flows from mortgage-backed securities that have longer-term contractual maturities.

Other funding sources at year-end 2010 included $14.3 million in federal funds lines of credit from correspondent banks and approximately $31.7 million of remaining credit availability from the Federal
Home Loan Bank. The Company may also borrow from the Federal Reserve Bank discount window. Growth in deposits is typically the primary source of funding for loans, supported by long-term credit available from the Federal Home Loan Bank.

At December 31, 2010, borrowings from federal funds lines and the issuance of commercial paper amounted to $8.6 million, while other short-term
borrowings totaled $11.9 million. Long-term debt at that date consisted of advances of $24.0 million from the Federal Home Loan Bank, junior subordinated debt of $9.9 million, a mortgage payable of $66,000 and a note payable for the purchase of a
building of $100,000.

Management believes that the Companys current sources of funds provide adequate liquidity for its current cash
flow needs.



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Managements Discussion And Analysis of Financial Condition

And Results of Operations







Contractual Obligations

The following table reflects the contractual obligations of the Company outstanding as of December 31, 2010.



|                                                       |  |                                       |         |  |                             |   |         |           |  |   |           |  |  |              |        |  |  |   |       | 
|------------------------------------------------------ |  | ------------------------------------- | ------- |  | --------------------------- | - | ------- | --------- |  | - | --------- |  |  | ------------ | ------ |  |  | - | ----- | 
|                                                       |  | Payments Due by Period (in thousands) |        
|                                                       |  | Total                                 |         |  | On Demandor
lessthan 1 year |   |         | 1-3 Years |  |   | 4-5 Years |  |  | After5 Years |       
|Contractual Obligations                                |  |                                       |         |  |                             |   |         |           |  |   |           |  |  |              |        |  |  |   |       | 
|Short-term debt                                        |  | $                                     | 20,482  |  |                             | $ | 20,482  |           |  | $ |          |  |  | $            |       |  |  | $ |      | 
|Long-term debt                                         |  |                                       | 34,061  |  |                             |   |        |           |  |   | 22,619    |  |  |              | 8,941  |  |  |   | 2,501 | 
|Operating leases                                       |  |                                       | 400     |  |                             |   | 60      |           |  |   | 120       |  |  |              | 120    |  |  |   | 100   | 
|                                                       |  |                                       |         |  |                             |   |         |           |  |   |           |  |  |              |        |  |  |   |       | 
|                                                       |  |                                       |         |  |                            
|Total contractual cash obligations, excluding deposits |  |                                       | 54,943  |  |                             |   | 20,542  |           |  |   | 22,739    |  |  |              | 9,061  |  |  |   | 2,601 | 
|                                                       |  |                                       |         |  |                            
|Deposits                                               |  |                                       | 434,033 |  |                             |   | 381,776 |           |  |   | 36,836    |  |  |              | 15,421 |  |  |   |      | 
|                                                       |  |                                       |         |  |                             |   |         |           |  |   |           |  |  |              |        |  |  |   |       | 
|Total contractual cash obligations, including deposits |  | $                                     | 488,976 |  |                             | $ | 402,318 |           |  | $ | 59,575    |  |  | $            | 24,482 |  |  | $ | 2,601 | 
|                                                       |  |                                       |         |  |                             |   |         |           |  |   |           |  |  |              |        |  |  |   |       | 

Critical Accounting Policy

The Companys most significant critical accounting policy is the determination of its allowance for loan losses. A critical accounting policy is one that is both very important to the portrayal of
the Companys financial condition and results, and requires managements most difficult, subjective and/or complex judgments. What makes these judgments difficult, subjective and/or complex is the need to make estimates about the effects
of matters that are inherently uncertain. Refer to the discussion within Allowance for Loan Losses and in Note 1 to the consolidated financial statements for a comprehensive discussion regarding this accounting policy.

Off-Balance Sheet Arrangements

The
Company has various financial instruments (outstanding commitments) with off-balance sheet risk that are issued in the normal course of business to meet the financing needs of its customers. See Note 12 to the consolidated financial statements for
more information regarding these commitments and contingent liabilities.

Interest Rate Sensitivity

Net Interest Income (Margin) is the single largest component of income for the Company. Net Interest Margin is the difference between the yield on earning
assets and interest paid on liabilities. The margin can vary over time as interest rates change. The variance fluctuates based on both the timing (repricing) and magnitude of maturing assets and liabilities.

To identify interest rate sensitivity, a common measure is a gap analysis, which reflects the difference or gap between rate sensitive assets and
liabilities over various time periods. Gap analysis at December 31, 2010 is reflected in Financial Table 3 on page 64. While management reviews this information, it has implemented the use of an income simulation model, which calculates
expected future Net Interest Income (Margin) based on projected interest-earning assets, interest-bearing liabilities and forecasted interest rates. Management believes this provides a more relevant view of interest rate risk sensitivity than the
traditional



60



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Managements Discussion And Analysis of Financial Condition

And Results of Operations







gap analysis. The income simulation model allows a comparison of flat, rising and falling rate scenarios to determine the interest rate sensitivity of earnings in varying interest rates
environments.

The Company models immediate rising and declining rate shocks of up to 4% (in 1% intervals) on its subsidiary banks, using a no
growth and most likely balance sheet growth, for a two year horizon, as preferred by regulators. The most recent consolidated 2% rate shock projections using the most likely balance sheet growth for a one year horizon, indicates a negative impact of
(10.44%) on Net Interest Income (Margin) in a rates down scenario and a positive impact of 8.56% on Net Interest Income (Margin) in a rates up scenario. Based on the most recent twelve month forecast, all three of the subsidiary banks are asset
sensitive and may experience some negative impact to earnings should interest rates decline. While many interest bearing assets would reprice in a declining interest rate environment; many liabilities are already approaching 0% interest rates. All
three of the subsidiary banks have the potential to benefit from a rising interest rate environment, but current market deposit pricing and embedded options in the balance sheet may limit the upside potential.

The principal goals for asset liability management for the Company are to maintain adequate levels and sources of liquidity and to manage interest rate
risk. Interest rate risk management attempts to balance the effects of interest rate changes on both interest-sensitive assets and liabilities to protect Net Interest Income (Margin) from wide fluctuations as a result from changes in interest rates.
Managing interest rate risk is an important factor to the long term viability of the Company since the Net Interest Income (Margin) is such a large component of earnings. The Companys Asset Liability Management Committee (ALCO) monitors market
changes in interest rates and assists with the pricing of loans and deposit products while considering the funding source needs and asset growth projections.



61



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Managements Discussion And Analysis of Financial Condition

And Results of Operations







Financial Table 1

Average Balances and Net Interest Income Analysis

(dollars in thousands)



|                                            |  |                |         |  |                        |   |        |                       |  |  |                |   |  |                        |         |  |                       |   |        |                |  |  |                       |   |  |                      |         |  |  |   |        |  |  |  |      |  
|------------------------------------------- |  | -------------- | ------- |  | ---------------------- | - | ------ | --------------------- |  |  | -------------- | - |  | ---------------------- | ------- |  | --------------------- | - | ------ | -------------- |  |  | --------------------- | - |  | -------------------- | ------- |  |  | - | ------ |  |  |  | ---- | -
|                                            |  | 2010           |         |  | 2009                   |   |        | 2008                  | 
|                                            |  | AverageBalance |         |  | InterestIncome/Expense |   |        | AverageYield/Rate (1) |  |  | AverageBalance |   |  | InterestIncome/Expense |         |  | AverageYield/Rate (1) |   |        | AverageBalance |  |  | InterestIncomeExpense |   |  | AverageYieldRate (1) |        
|                                            |  |                |         |  |                        |   |        |                       | 
|Interest-earning assets                     |  |                |         |  |                        |   |        |                       |  |  |                |   |  |                        |         |  |                       |   |        |                |  |  |                       |   |  |                      |         |  |  |   |        |  |  |  |      |  
|Taxable securities                          |  | $              | 78,479  |  |                        |   | 2,508  |                       |  |  | 3.20           | % |  | $                      | 63,934  |  |                       | $ | 3,128  |                |  |  | 4.89                  | % |  | $                    | 36,573  |  |  | $ | 2,021  |  |  |  | 5.53 | %
|Non-taxable securities (1)                  |  |                | 8,301   |  |                        |   | 319    |                       |  |  | 6.25           | % |  |                        | 14,115  |  |                       |   | 622    |                |  |  | 7.17                  | % |  |                      | 14,738  |  |  |   | 678    |  |  |  | 7.49 | %
|Short-term investments                      |  |                | 9,211   |  |                        |   | 44     |                       |  |  | 0.48           | % |  |                        | 6,334   |  |                       |   | 66     |                |  |  | 1.04                  | % |  |                      | 5,386   |  |  |   | 85     |  |  |  | 1.58 | %
|Taxable loans (2)                           |  |                | 371,057 |  |                        |   | 21,378 |                       |  |  | 5.76           | % |  |                        | 345,448 |  |                       |   | 21,020 |                |  |  | 6.08                  | % |  |                      | 332,986 |  |  |   | 22,592 |  |  |  | 6.78 | %
|Non-taxable loans (1)                       |  |                | 6,258   |  |                        |   | 238    |                       |  |  | 6.18           | % |  |                        | 4,387   |  |                       |   | 226    |                |  |  | 8.38                  | % |  |                      | 4,086   |  |  |   | 188    |  |  |  | 7.49 | %
|                                            |  |                |         |  |                        |   |        |                       |  |  |                |   |  |                        |         |  |                       |   |        |                |  |  |                       |   |  |                      |         |  |  |   |        |  |  |  |      |  
|Total interest-earning assets               |  |                | 473,306 |  |                        |   | 24,487 |                       |  |  | 5.25           | % |  |                        | 434,218 |  |                       |   | 25,062 |                |  |  | 5.89                  | % |  |                      | 393,769 |  |  |   | 25,564 |  |  |  | 6.63 | %
|                                            |  |                |         |  |                        |   |        |                       |  |  |                |   |  |                        |         |  |                       |   |        |                |  |  |                       |   |  |                      |         |  |  |   |        |  |  |  |      |  
|                                            |  |                |         |  |                        |   |        |                       | 
|Non-earning assets                          |  |                |         |  |                        |   |        |                       |  |  |                |   |  |                        |         |  |                       |   |        |                |  |  |                       |   |  |                      |         |  |  |   |        |  |  |  |      |  
|Cash and due from banks                     |  |                | 6,449   |  |                        |   |        |                       |  |  |                |   |  |                        | 7,057   |  |                       |   |        |                |  |  |                       |   |  |                      | 9,964   |  |  |   |        |  |  |  |      |  
|Premises and equipment, net                 |  |                | 14,246  |  |                        |   |        |                       |  |  |                |   |  |                        | 12,616  |  |                       |   |        |                |  |  |                       |   |  |                      | 9,735   |  |  |   |        |  |  |  |      |  
|Interest receivable and other               |  |                | 20,424  |  |                        |   |        |                       |  |  |                |   |  |                        | 17,838  |  |                       |   |        |                |  |  |                       |   |  |                      | 9,389   |  |  |   |        |  |  |  |      |  
|                                            |  |                |         |  |                        |   |        |                       |  |  |                |   |  |                        |         |  |                       |   |        |                |  |  |                       |   |  |                      |         |  |  |   |        |  |  |  |      |  
|Total non-earning assets                    |  |                | 41,119  |  |                        |   |        |                       |  |  |                |   |  |                        | 37,511  |  |                       |   |        |                |  |  |                       |   |  |                      | 29,088  |  |  |   |        |  |  |  |      |  
|                                            |  |                |         |  |                        |   |        |                       |  |  |                |   |  |                        |         |  |                       |   |        |                |  |  |                       |   |  |                      |         |  |  |   |        |  |  |  |      |  
|Total assets                                |  | $              | 514,425 |  |                        |   |        |                       |  |  |                |   |  | $                      | 471,729 |  |                       |   |        |                |  |  |                       |   |  | $                    | 422,857 |  |  |   |        |  |  |  |      |  
|                                            |  |                |         |  |                        |   |        |                       |  |  |                |   |  |                        |         |  |                       |   |        |                |  |  |                       |   |  |                      |         |  |  |   |        |  |  |  |      |  
|                                            |  |                |         |  |                        |   |        |                       | 
|Interest-bearing liabilities                |  |                |         |  |                        |   |        |                       |  |  |                |   |  |                        |         |  |                       |   |        |                |  |  |                       |   |  |                      |         |  |  |   |        |  |  |  |      |  
|Savings deposits                            |  | $              | 35,535  |  |                        | $ | 327    |                       |  |  | 0.92           | % |  | $                      | 30,912  |  |                       | $ | 255    |                |  |  | 0.82                  | % |  | $                    | 26,246  |  |  | $ | 301    |  |  |  | 1.15 | %
|Interest checking & MMDA                    |  |                | 162,373 |  |                        |   | 971    |                       |  |  | 0.60           | % |  |                        | 120,307 |  |                       |   | 838    |                |  |  | 0.70                  | % |  |                      | 109,469 |  |  |   | 1,357  |  |  |  | 1.24 | %
|Time deposits                               |  |                | 158,173 |  |                        |   | 2,876  |                       |  |  | 1.82           | % |  |                        | 172,108 |  |                       |   | 4,816  |                |  |  | 2.80                  | % |  |                      | 155,983 |  |  |   | 6,281  |  |  |  | 4.03 | %
|                                            |  |                |         |  |                        |   |        |                       |  |  |                |   |  |                        |         |  |                       |   |        |                |  |  |                       |   |  |                      |         |  |  |   |        |  |  |  |      |  
|Total deposits                              |  |                | 356,081 |  |                        |   | 4,174  |                       |  |  | 1.17           | % |  |                        | 323,327 |  |                       |   | 5,909  |                |  |  | 1.83                  | % |  |                      | 291,698 |  |  |   | 7,939  |  |  |  | 2.72 | %
|                                            |  |                |         |  |                        |   |        |                       |  |  |                |   |  |                        |         |  |                       |   |        |                |  |  |                       |   |  |                      |         |  |  |   |        |  |  |  |      |  
|Short-term borrowed funds                   |  |                | 26,352  |  |                        |   | 693    |                       |  |  | 2.63           | % |  |                        | 24,092  |  |                       |   | 316    |                |  |  | 1.31                  | % |  |                      | 19,453  |  |  |   | 529    |  |  |  | 2.72 | %
|Long-term debt                              |  |                | 31,939  |  |                        |   | 1,084  |                       |  |  | 3.39           | % |  |                        | 30,992  |  |                       |   | 1,472  |                |  |  | 4.75                  | % |  |                      | 31,190  |  |  |   | 1,360  |  |  |  | 4.36 | %
|                                            |  |                |         |  |                        |   |        |                       |  |  |                |   |  |                        |         |  |                       |   |        |                |  |  |                       |   |  |                      |         |  |  |   |        |  |  |  |      |  
|Total interest-bearing liabilities          |  |                | 414,372 |  |                        |   | 5,951  |                       |  |  | 1.44           | % |  |                        | 378,411 |  |                       |   | 7,697  |                |  |  | 2.03                  | % |  |                      | 342,341 |  |  |   | 9,828  |  |  |  | 2.87 | %
|                                            |  |                |         |  |                        |   |        |                       |  |  |                |   |  |                        |         |  |                       |   |        |                |  |  |                       |   |  |                      |         |  |  |   |        |  |  |  |      |  
|                                            |  |                |         |  |                        |   |        |                       | 
|Noninterest liabilities                     |  |                |         |  |                        |   |        |                       |  |  |                |   |  |                        |         |  |                       |   |        |                |  |  |                       |   |  |                      |         |  |  |   |        |  |  |  |      |  
|Transaction deposits                        |  |                | 50,223  |  |                        |   |        |                       |  |  |                |   |  |                        | 46,630  |  |                       |   |        |                |  |  |                       |   |  |                      | 45,685  |  |  |   |        |  |  |  |      |  
|Interest payable and other                  |  |                | 4,405   |  |                        |   |        |                       |  |  |                |   |  |                        | 3,506   |  |                       |   |        |                |  |  |                       |   |  |                      | 2,586   |  |  |   |        |  |  |  |      |  
|                                            |  |                |         |  |                        |   |        |                       |  |  |                |   |  |                        |         |  |                       |   |        |                |  |  |                       |   |  |                      |         |  |  |   |        |  |  |  |      |  
|Total liabilities                           |  |                | 469,000 |  |                        |   |        |                       |  |  |                |   |  |                        | 428,547 |  |                       |   |        |                |  |  |                       |   |  |                      | 390,612 |  |  |   |        |  |  |  |      |  
|                                            |  |                |         |  |                        |   |        |                       |  |  |                |   |  |                        |         |  |                       |   |        |                |  |  |                       |   |  |                      |         |  |  |   |        |  |  |  |      |  
|                                            |  |                |         |  |                        |   |        |                       | 
|Shareholders equity                        |  |                | 45,425  |  |                        |   |        |                       |  |  |                |   |  |                        | 43,182  |  |                       |   |        |                |  |  |                       |   |  |                      | 32,245  |  |  |   |        |  |  |  |      |  
|                                            |  |                |         |  |                        |   |        |                       |  |  |                |   |  |                        |         |  |                       |   |        |                |  |  |                       |   |  |                      |         |  |  |   |        |  |  |  |      |  
|Total liabilities and shareholders equity   |  | $              | 514,425 |  |                        |   |        |                       |  |  |                |   |  | $                      | 471,729 |  |                       |   |        |                |  |  |                       |   |  | $                    | 422,857 |  |  |   |        |  |  |  |      |  
|                                            |  |                |         |  |                        |   |        |                       |  |  |                |   |  |                        |         |  |                       |   |        |                |  |  |                       |   |  |                      |         |  |  |   |        |  |  |  |      |  
|                                            |  |                |         |  |                        |   |        |                       | 
|Interest rate spread                        |  |                |         |  |                        |   |        |                       |  |  | 3.81           | % |  |                        |         |  |                       |   |        |                |  |  | 3.86                  | % |  |                      |         |  |  |   |        |  |  |  | 3.76 | %
|                                            |  |                |         |  |                        |   |        |                       |  |  |                |   |  |                        |         |  |                       |   |        |                |  |  |                       |   |  |                      |         |  |  |   |        |  |  |  |      |  
|                                            |  |                |         |  |                        |   |        |                       | 
|Net interest income and net interest margin |  |                |         |  |                        | $ | 18,536 |                       |  |  | 3.99           | % |  |                        |         |  |                       | $ | 17,365 |                |  |  | 4.12                  | % |  |                      |         |  |  | $ | 15,736 |  |  |  | 4.13 | %
|                                            |  |                |         |  |                        |   |        |                       |  |  |                |   |  |                        |         |  |                       |   |        |                |  |  |                       |   |  |                      |         |  |  |   |        |  |  |  |      |  



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

|2) | Nonaccrual loans are included in loans, net of unearned income.
|-- | ---------------------------------------------------------------



62



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Managements Discussion And Analysis of Financial Condition

And Results of Operations







Financial Table 2

Volume and Rate Variance Analysis

(dollars in thousands)



|                                   |  |                  |       |   |                  |   |        |            |  |   |        |   |  |      |       |   |            |   |        |   |  |   |        |  
|---------------------------------- |  | ---------------- | ----- | - | ---------------- | - | ------ | ---------- |  | - | ------ | - |  | ---- | ----- | - | ---------- | - | ------ | - |  | - | ------ | -
|                                   |  | 2010 Versus 2009 |       |   | 2009 Versus 2008 |  
|                                   |  | Volume           |       |   | Rate             |   |        | Net Change |  |   | Volume |   |  | Rate |       |   | Net Change |  
|Interest-earning assets            |  |                  |       |   |                  |   |        |            |  |   |        |   |  |      |       |   |            |   |        |   |  |   |        |  
|                                   |  |                  |       |   |                  |  
|Taxable securities                 |  | $                | 588   |   |                  | $ | (1,208 | )          |  | $ | (620   | ) |  | $    | 1,425 |   |            | $ | (318   | ) |  | $ | 1,107  |  
|Non-taxable securities             |  |                  | (240  | ) |                  |   | (63    | )          |  |   | (303   | ) |  |      | (28   | ) |            |   | (28    | ) |  |   | (56    | )
|Short-term investments             |  |                  | 22    |   |                  |   | (44    | )          |  |   | (22    | ) |  |      | 12    |   |            |   | (31    | ) |  |   | (19    | )
|Taxable loans                      |  |                  | 1,517 |   |                  |   | (1,159 | )          |  |   | 358    |   |  |      | 802   |   |            |   | (2,374 | ) |  |   | (1,572 | )
|Non-taxable loans                  |  |                  | 84    |   |                  |   | (72    | )          |  |   | 12     |   |  |      | 15    |   |            |   | 23     |   |  |   | 38     |  
|                                   |  |                  |       |   |                  |   |        |            |  |   |        |   |  |      |       |   |            |   |        |   |  |   |        |  
|Total interest-earning assets      |  |                  | 1,971 |   |                  |   | (2,546 | )          |  |   | (575   | ) |  |      | 2,226 |   |            |   | (2,728 | ) |  |   | (502   | )
|                                   |  |                  |       |   |                  |   |        |            |  |   |        |   |  |      |       |   |            |   |        |   |  |   |        |  
|                                   |  |                  |       |   |                  |  
|Interest-bearing liabilities       |  |                  |       |   |                  |   |        |            |  |   |        |   |  |      |       |   |            |   |        |   |  |   |        |  
|                                   |  |                  |       |   |                  |  
|Savings deposits                   |  |                  | 40    |   |                  |   | 32     |            |  |   | 72     |   |  |      | 46    |   |            |   | (92    | ) |  |   | (46    | )
|Transaction and MMDA deposits      |  |                  | 272   |   |                  |   | (139   | )          |  |   | 133    |   |  |      | 105   |   |            |   | (624   | ) |  |   | (519   | )
|Other time deposits                |  |                  | (322  | ) |                  |   | (1,618 | )          |  |   | (1,940 | ) |  |      | 550   |   |            |   | (2,015 | ) |  |   | (1,465 | )
|Short-term borrowed funds          |  |                  | 45    |   |                  |   | 332    |            |  |   | 377    |   |  |      | 93    |   |            |   | (306   | ) |  |   | (213   | )
|Long-term debt                     |  |                  | 39    |   |                  |   | (427   | )          |  |   | (388   | ) |  |      | (9    | ) |            |   | 121    |   |  |   | 112    |  
|                                   |  |                  |       |   |                  |   |        |            |  |   |        |   |  |      |       |   |            |   |        |   |  |   |        |  
|Total interest-bearing liabilities |  |                  | 74    |   |                  |   | (1,820 | )          |  |   | (1,746 | ) |  |      | 785   |   |            |   | (2,916 | ) |  |   | (2,131 | )
|                                   |  |                  |       |   |                  |   |        |            |  |   |        |   |  |      |       |   |            |   |        |   |  |   |        |  
|                                   |  |                  |       |   |                  |  
|Net interest income                |  | $                | 1,897 |   |                  | $ | (726   | )          |  | $ | 1,171  |   |  | $    | 1,441 |   |            | $ | 188    |   |  | $ | 1,629  |  
|                                   |  |                  |       |   |                  |   |        |            |  |   |        |   |  |      |       |   |            |   |        |   |  |   |        |  

The above table analyzes the dollar amount of changes in interest income and interest expense for major components of
interest-earning assets and interest-bearing liabilities. The table distinguishes between (i) changes attributable to volume (changes in volume multiplied by the prior periods rate), (ii) changes attributable to rate (changes in rate
multiplied by the prior periods volume), and (iii) net change (the sum of the previous columns). The change attributable to both rate and volume (changes in rate multiplied by changes in volume) has been allocated equally to the change
attributable to volume and the change attributable to rate.



63



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Managements Discussion And Analysis of Financial Condition

And Results of Operations







Financial Table 3

Interest Rate Sensitivity Analysis

(dollars in thousands)



|                                                                                   |  |                  |         |   |                  |   |        |                   |  |   |                  |   |  |                  |         |   |               |   |         |   |  |   |         |  
|---------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ---------------- | - | ------ | ----------------- |  | - | ---------------- | - |  | ---------------- | ------- | - | ------------- | - | ------- | - |  | - | ------- | -
|                                                                                   |  | 1-90 DayPosition |         |   | 3-6MonthPosition |   |        | 6-12MonthPosition |  |   | 1-5 YearPosition |   |  | > 5 YearPosition |         |   | TotalPosition |  
|Interest-earning assets                                                            |  |                  |         |   |                  |   |        |                   |  |   |                  |   |  |                  |         |   |               |   |         |   |  |   |         |  
|Interest-earning deposits with banks                                               |  | $                | 7,926   |   |                  | $ | 750    |                   |  | $ |                 |   |  |                  |        |   |               | $ |        |   |  | $ | 8,676   |  
|Investment securities                                                              |  |                  | 1,098   |   |                  |   | 705    |                   |  |   | 2,381            |   |  |                  | 26,796  |   |               |   | 65,415  |   |  |   | 96,395  |  
|FHLB and other stock                                                               |  |                  |        |   |                  |   |       |                   |  |   |                 |   |  |                  |        |   |               |   | 4,531   |   |  |   | 4,531   |  
|Loans held for sale                                                                |  |                  | 6,286   |   |                  |   |       |                   |  |   |                 |   |  |                  |        |   |               |   |        |   |  |   | 6,286   |  
|Loans held for investment                                                          |  |                  | 121,269 |   |                  |   | 27,533 |                   |  |   | 53,558           |   |  |                  | 136,782 |   |               |   | 48,627  |   |  |   | 387,769 |  
|                                                                                   |  |                  |         |   |                  |   |        |                   |  |   |                  |   |  |                  |         |   |               |   |         |   |  |   |         |  
|                                                                                   |  |                  |         |   |                  |  
|Total interest-earning assets                                                      |  |                  | 136,579 |   |                  |   | 28,988 |                   |  |   | 55,939           |   |  |                  | 163,578 |   |               |   | 118,573 |   |  |   | 503,657 |  
|                                                                                   |  |                  |         |   |                  |   |        |                   |  |   |                  |   |  |                  |         |   |               |   |         |   |  |   |         |  
|                                                                                   |  |                  |         |   |                  |  
|Interest-bearing liabilities                                                       |  |                  |         |   |                  |   |        |                   |  |   |                  |   |  |                  |         |   |               |   |         |   |  |   |         |  
|Deposits                                                                           |  |                  | 45,050  |   |                  |   | 25,549 |                   |  |   | 68,118           |   |  |                  | 187,752 |   |               |   | 107,564 |   |  |   | 434,033 |  
|Short-term borrowed funds                                                          |  |                  | 16,482  |   |                  |   | 2,000  |                   |  |   | 2,000            |   |  |                  |        |   |               |   |        |   |  |   | 20,482  |  
|Long-term debt                                                                     |  |                  |        |   |                  |   |       |                   |  |   |                 |   |  |                  | 31,560  |   |               |   | 2,501   |   |  |   | 34,061  |  
|                                                                                   |  |                  |         |   |                  |   |        |                   |  |   |                  |   |  |                  |         |   |               |   |         |   |  |   |         |  
|                                                                                   |  |                  |         |   |                  |  
|Total interest-bearing liabilities                                                 |  |                  | 61,532  |   |                  |   | 27,549 |                   |  |   | 70,118           |   |  |                  | 219,312 |   |               |   | 110,065 |   |  |   | 488,576 |  
|                                                                                   |  |                  |         |   |                  |   |        |                   |  |   |                  |   |  |                  |         |   |               |   |         |   |  |   |         |  
|                                                                                   |  |                  |         |   |                  |  
|Interest sensitivity GAP per period                                                |  | $                | 75,047  |   |                  | $ | 1,439  |                   |  | $ | (14,179          | ) |  | $                | (55,734 | ) |               | $ | 8,508   |   |  | $ | 15,081  |  
|                                                                                   |  |                  |         |   |                  |   |        |                   |  |   |                  |   |  |                  |         |   |               |   |         |   |  |   |         |  
|                                                                                   |  |                  |         |   |                  |  
|Cumulative interest sensitivity GAP                                                |  | $                | 75,047  |   |                  | $ | 76,486 |                   |  | $ | 62,307           |   |  | $                | 6,573   |   |               | $ | 15,081  |   |  | $ | 15,081  |  
|                                                                                   |  |                  |         |   |                  |   |        |                   |  |   |                  |   |  |                  |         |   |               |   |         |   |  |   |         |  
|                                                                                   |  |                  |         |   |                  |  
|Ratios                                                                             |  |                  |         |   |                  |   |        |                   |  |   |                  |   |  |                  |         |   |               |   |         |   |  |   |         |  
|Cumulative gap as a percentage of total interest-earning assets                    |  |                  | 14.90   | % |                  |   | 15.19  | %                 |  |   | 12.37            | % |  |                  | 1.31    | % |               |   | 2.99    | % |  |   | 2.99    | %
|                                                                                   |  |                  |         |   |                  |  
|Cumulative interest-earning assets as a percentage of interest-bearing liabilities |  |                  | 221.96  | % |                  |   | 185.86 | %                 |  |   | 139.14           | % |  |                  | 101.74  | % |               |   | 103.09  | % |  |   | 103.09  | %



64



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Managements Discussion And Analysis of Financial Condition

And Results of Operations







Financial Table 4

Investment Securities Portfolio Analysis

(dollars in thousands)



|                                    |  |                   |        |  |                     |   |        |              |  |  |      |  
|----------------------------------- |  | ----------------- | ------ |  | ------------------- | - | ------ | ------------ |  |  | ---- | -
|                                    |  | December 31, 2010 |       
|                                    |  | AmortizedCost     |        |  | EstimatedFair Value |   |        | BookYield(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 one 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 | %
|                                    |  |                   |        |  |                     |   |        |              |  |  |      |  
|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 | %
|                                    |  |                   |        |  |                     |   |        |              |  |  |      |  



|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.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



65



---

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Managements Discussion And Analysis of Financial Condition

And Results of Operations







Financial Table 5

Noninterest Income

(dollars in thousands)



|                                                         |  |                         |       |   |      |   |        |      |  |   |       |  
|-------------------------------------------------------- |  | ----------------------- | ----- | - | ---- | - | ------ | ---- |  | - | ----- | -
|                                                         |  | Year Ended December 31, |      
|                                                         |  | 2010                    |       |   | 2009 |   |        | 2008 | 
|Service charges on deposit accounts                      |  | $                       | 2,219 |   |      | $ | 2,360  |      |  | $ | 2,238 |  
|Other banking fees                                       |  |                         | 1,362 |   |      |   | 1,023  |      |  |   | 1,138 |  
|Asset management fees                                    |  |                         | 1,357 |   |      |   | 1,054  |      |  |   | 1,396 |  
|Brokerage commissions                                    |  |                         | 164   |   |      |   | 196    |      |  |   | 243   |  
|Other noninterest income                                 |  |                         | 543   |   |      |   | 480    |      |  |   | 578   |  
|                                                         |  |                         |       |   |      |   |        |      |  |   |       |  
|                                                         |  |                         |      
|Core noninterest income                                  |  |                         | 5,645 |   |      |   | 5,113  |      |  |   | 5,593 |  
|                                                         |  |                         |      
|Income from mortgage loan sales                          |  |                         | 3,172 |   |      |   | 3,436  |      |  |   | 1,208 |  
|Security gains (losses)                                  |  |                         | 1,484 |   |      |   | (711   | )    |  |   |      |  
|Loss on nonmarketable securities                         |  |                         |      |   |      |   | (172   | )    |  |   |      |  
|Total other-than-temporary impairment loss               |  |                         |      |   |      |   | (1,807 | )    |  |   | (158  | )
|Portion of loss recognized in other comprehensive income |  |                         |      |   |      |   |       |      |  |   |      |  
|                                                         |  |                         |       |   |      |   |        |      |  |   |       |  
|Net impairment recognized in other comprehensive income  |  |                         |      |   |      |   | (1,807 | )    |  |   | (158  | )
|Losses from sale of OREO                                 |  |                         | (332  | ) |      |   | (36    | )    |  |   | (41   | )
|Other gains (losses) from sale of assets                 |  |                         | (71   | ) |      |   | 1      |      |  |   | (5    | )
|                                                         |  |                         |       |   |      |   |        |      |  |   |       |  
|Total noninterest income                                 |  | $                       | 9,898 |   |      | $ | 5,824  |      |  | $ | 6,597 |  
|                                                         |  |                         |       |   |      |   |        |      |  |   |       |  

Financial Table 6

Other Noninterest Expense

(dollars in thousands)



|                                |  |                         |       |  |      |   |       |      |  |   |       | 
|------------------------------- |  | ----------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                |  | Year Ended December 31, |      
|                                |  | 2010                    |       |  | 2009 |   |       | 2008 | 
|Postage                         |  | $                       | 221   |  |      | $ | 200   |      |  | $ | 200   | 
|Telephone and data lines        |  |                         | 233   |  |      |   | 237   |      |  |   | 244   | 
|Loan collection cost            |  |                         | 330   |  |      |   | 185   |      |  |   | 292   | 
|Shareholder relations expense   |  |                         | 150   |  |      |   | 187   |      |  |   | 185   | 
|Dues and subscriptions          |  |                         | 186   |  |      |   | 161   |      |  |   | 147   | 
|Other                           |  |                         | 1,628 |  |      |   | 1,444 |      |  |   | 1,320 | 
|                                |  |                         |       |  |      |   |       |      |  |   |       | 
|                                |  |                         |      
|Total other noninterest expense |  | $                       | 2,748 |  |      | $ | 2,414 |      |  | $ | 2,388 | 
|                                |  |                         |       |  |      |   |       |      |  |   |       | 



66



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Managements Discussion And Analysis of Financial Condition

And Results of Operations







Financial Table 7

Loan Portfolio Composition

(dollars in thousands)



|                           |  |                 |         |   |                 |  |        |        |  |   |                 |   |  |        |        |   |                 |   |         |   |  |  |        |  
|-------------------------- |  | --------------- | ------- | - | --------------- |  | ------ | ------ |  | - | --------------- | - |  | ------ | ------ | - | --------------- | - | ------- | - |  |  | ------ | -
|                           |  | At December 31, |        
|                           |  | 2010            |         |   | 2009            |  |        | 2008   | 
|                           |  | Amount          |         |   | % of TotalLoans |  |        | Amount |  |   | % of TotalLoans |   |  | Amount |        |   | % of TotalLoans |  
|Loan type:                 |  |                 |         |   |                 |  |        |        |  |   |                 |   |  |        |        |   |                 |   |         |   |  |  |        |  
|Commercial                 |  | $               | 51,679  |   |                 |  | 13.33  | %      |  | $ | 51,723          |   |  |        | 14.63  | % |                 | $ | 45,470  |   |  |  | 13.35  | %
|Real estate - construction |  |                 | 56,602  |   |                 |  | 14.60  | %      |  |   | 44,976          |   |  |        | 12.72  | % |                 |   | 50,661  |   |  |  | 14.87  | %
|Real estate - residential  |  |                 | 155,814 |   |                 |  | 40.19  | %      |  |   | 144,154         |   |  |        | 40.77  | % |                 |   | 139,346 |   |  |  | 40.90  | %
|Real estate - commercial   |  |                 | 105,123 |   |                 |  | 27.12  | %      |  |   | 95,938          |   |  |        | 27.13  | % |                 |   | 89,561  |   |  |  | 26.29  | %
|Consumer                   |  |                 | 17,721  |   |                 |  | 4.57   | %      |  |   | 16,628          |   |  |        | 4.70   | % |                 |   | 15,499  |   |  |  | 4.55   | %
|Other                      |  |                 | 739     |   |                 |  | 0.19   | %      |  |   | 172             |   |  |        | 0.05   | % |                 |   | 121     |   |  |  | 0.04   | %
|                           |  |                 |         |   |                 |  |        |        |  |   |                 |   |  |        |        |   |                 |   |         |   |  |  |        |  
|                           |  |                 |         |   |                 | 
|Total loans                |  |                 | 387,678 |   |                 |  | 100.00 | %      |  |   | 353,591         |   |  |        | 100.00 | % |                 |   | 340,658 |   |  |  | 100.00 | %
|                           |  |                 |         |   |                 |  |        |        |  |   |                 |   |  |        |        |   |                 |   |         |   |  |  |        |  
|                           |  |                 |         |   |                 | 
|Less:                      |  |                 |         |   |                 |  |        |        |  |   |                 |   |  |        |        |   |                 |   |         |   |  |  |        |  
|Allowance for loan losses  |  |                 | (9,067  | ) |                 |  |        |        |  |   | (5,276          | ) |  |        |        |   |                 |   | (4,361  | ) |  |  |        |  
|Unearned net loan fees     |  |                 | 91      |   |                 |  |        |        |  |   | 138             |   |  |        |        |   |                 |   | 172     |   |  |  |        |  
|                           |  |                 |         |   |                 |  |        |        |  |   |                 |   |  |        |        |   |                 |   |         |   |  |  |        |  
|                           |  |                 |         |   |                 | 
|Net loans                  |  | $               | 378,702 |   |                 |  |        |        |  | $ | 348,453         |   |  |        |        |   |                 | $ | 336,469 |   |  |  |        |  
|                           |  |                 |         |   |                 |  |        |        |  |   |                 |   |  |        |        |   |                 |   |         |   |  |  |        |  



|                           |  |                 |         |   |                 |  |        |        |  |   |                 |   |  |  |        |  
|-------------------------- |  | --------------- | ------- | - | --------------- |  | ------ | ------ |  | - | --------------- | - |  |  | ------ | -
|                           |  | At December 31, |        
|                           |  | 2007            |         |   | 2006            | 
|                           |  | Amount          |         |   | % of TotalLoans |  |        | Amount |  |   | % of TotalLoans |  
|Loan type:                 |  |                 |         |   |                 |  |        |        |  |   |                 |   |  |  |        |  
|Commercial                 |  | $               | 37,724  |   |                 |  | 11.72  | %      |  | $ | 36,406          |   |  |  | 12.64  | %
|Real estate - construction |  |                 | 46,546  |   |                 |  | 14.46  | %      |  |   | 27,342          |   |  |  | 9.49   | %
|Real estate - residential  |  |                 | 135,842 |   |                 |  | 42.21  | %      |  |   | 126,111         |   |  |  | 43.79  | %
|Real estate - commercial   |  |                 | 86,593  |   |                 |  | 26.90  | %      |  |   | 84,744          |   |  |  | 29.43  | %
|Consumer                   |  |                 | 15,022  |   |                 |  | 4.67   | %      |  |   | 13,262          |   |  |  | 4.60   | %
|Other                      |  |                 | 143     |   |                 |  | 0.04   | %      |  |   | 133             |   |  |  | 0.05   | %
|                           |  |                 |         |   |                 |  |        |        |  |   |                 |   |  |  |        |  
|                           |  |                 |         |  
|Total loans                |  |                 | 321,870 |   |                 |  | 100.00 | %      |  |   | 287,998         |   |  |  | 100.00 | %
|                           |  |                 |         |   |                 |  |        |        |  |   |                 |   |  |  |        |  
|                           |  |                 |         |  
|Less:                      |  |                 |         |   |                 |  |        |        |  |   |                 |   |  |  |        |  
|Allowance for loan losses  |  |                 | (3,510  | ) |                 |  |        |        |  |   | (3,171          | ) |  |  |        |  
|Unearned net loan fees     |  |                 | 117     |   |                 |  |        |        |  |   | 137             |   |  |  |        |  
|                           |  |                 |         |   |                 |  |        |        |  |   |                 |   |  |  |        |  
|                           |  |                 |         |  
|Net loans                  |  | $               | 318,477 |   |                 |  |        |        |  | $ | 284,964         |   |  |  |        |  
|                           |  |                 |         |   |                 |  |        |        |  |   |                 |   |  |  |        |  



67



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Managements Discussion And Analysis of Financial Condition

And Results of Operations







Financial Table 8

Selected Loan Maturities

(dollars in thousands)



|                             |  |                   |         |  |                  |   |        |                |  |   |        |  |  |   |         | 
|---------------------------- |  | ----------------- | ------- |  | ---------------- | - | ------ | -------------- |  | - | ------ |  |  | - | ------- | 
|                             |  | December 31, 2010 |        
|                             |  | One Yearor Less   |         |  | One toFive Years |   |        | Over FiveYears |  |   | Total  | 
|Commercial and agricultural  |  | $                 | 25,846  |  |                  | $ | 17,223 |                |  | $ | 8,610  |  |  | $ | 51,679  | 
|Real estate  construction   |  |                   | 26,168  |  |                  |   | 19,996 |                |  |   | 10,438 |  |  |   | 56,602  | 
|                             |  |                   |         |  |                  |   |        |                |  |   |        |  |  |   |         | 
|                             |  |                   |         | 
|Total selected loans         |  | $                 | 52,014  |  |                  | $ | 37,219 |                |  | $ | 19,048 |  |  | $ | 108,281 | 
|                             |  |                   |         |  |                  |   |        |                |  |   |        |  |  |   |         | 
|                             |  |                   |         | 
|Fixed rate loans             |  | $                 | 23,515  |  |                  | $ | 96,325 |                |  | $ | 80,637 |  |  | $ | 200,477 | 
|                             |  |                   |         |  |                  |   |        |                |  |   |        |  |  |   |         | 
|                             |  |                   |         | 
|Sensitivity to rate changes: |  |                   |         |  |                  |   |        |                |  |   |        |  |  |   |         | 
|Variable interest rates      |  | $                 | 193,578 |  |                  | $ |       |                |  | $ |       |  |  | $ | 193,578 | 
|                             |  |                   |         |  |                  |   |        |                |  |   |        |  |  |   |         | 



68



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Managements Discussion And Analysis of Financial Condition

And Results of Operations







Financial Table 9

Activity in the Allowance for Loan Loss

(dollars in thousands)



|                                                           |  |                                       |       |   |      |   |       |      |  |   |       |   |  |      |       |    |  |   |       |  
|---------------------------------------------------------- |  | ------------------------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | - |  | ---- | ----- | -- |  | - | ----- | -
|                                                           |  | At or for the Year Ended December 31, |      
|                                                           |  | 2010                                  |       |   | 2009 |   |       | 2008 |  |   | 2007  |   |  | 2006 |      
|Allowance for loan losses at beginning of year             |  | $                                     | 5,276 |   |      | $ | 4,361 |      |  | $ | 3,510 |   |  | $    | 3,171 |    |  | $ | 4,482 |  
|Provision for loan losses                                  |  |                                       | 4,919 |   |      |   | 1,732 |      |  |   | 969   |   |  |      | 15    |    |  |   | 298   |  
|                                                           |  |                                       |       |   |      |   |       |      |  |   |       |   |  |      |       |    |  |   |       |  
|Other                                                      |  |                                       | 17    |   |      |   |       |      |  |   |       |   |  |      |       |    |  |   |       |  
|Loan charge-offs:                                          |  |                                       |       |   |      |   |       |      |  |   |       |   |  |      |       |    |  |   |       |  
|Commercial                                                 |  |                                       | 59    |   |      |   | 39    |      |  |   | 122   |   |  |      |      |    |  |   | 1,533 |  
|Real estate                                                |  |                                       | 924   |   |      |   | 692   |      |  |   | 15    |   |  |      |      |    |  |   | 14    |  
|Consumer                                                   |  |                                       | 206   |   |      |   | 140   |      |  |   | 151   |   |  |      | 224   |    |  |   | 140   |  
|                                                           |  |                                       |       |   |      |   |       |      |  |   |       |   |  |      |       |    |  |   |       |  
|Total charge-offs                                          |  |                                       | 1,189 |   |      |   | 871   |      |  |   | 288   |   |  |      | 224   |    |  |   | 1,687 |  
|                                                           |  |                                       |       |   |      |   |       |      |  |   |       |   |  |      |       |    |  |   |       |  
|                                                           |  |                                       |       |   |     
|Recoveries of loans previously charged off:                |  |                                       |       |   |      |   |       |      |  |   |       |   |  |      |       |    |  |   |       |  
|Commercial                                                 |  |                                       | 3     |   |      |   | 19    |      |  |   | 120   |   |  |      | 440   |    |  |   | 34    |  
|Real estate                                                |  |                                       | 4     |   |      |   | 14    |      |  |   |      |   |  |      |      |    |  |   |      |  
|Consumer                                                   |  |                                       | 37    |   |      |   | 21    |      |  |   | 50    |   |  |      | 108   |    |  |   | 44    |  
|                                                           |  |                                       |       |   |      |   |       |      |  |   |       |   |  |      |       |    |  |   |       |  
|Total recoveries                                           |  |                                       | 44    |   |      |   | 54    |      |  |   | 170   |   |  |      | 548   |    |  |   | 78    |  
|                                                           |  |                                       |       |   |      |   |       |      |  |   |       |   |  |      |       |    |  |   |       |  
|Net charge-offs (recoveries)                               |  |                                       | 1,145 |   |      |   | 817   |      |  |   | 118   |   |  |      | (324  | )  |  |   | 1,609 |  
|                                                           |  |                                       |       |   |      |   |       |      |  |   |       |   |  |      |       |    |  |   |       |  
|Allowance for loan losses at end of year                   |  | $                                     | 9,067 |   |      | $ | 5,276 |      |  | $ | 4,361 |   |  | $    | 3,510 |    |  | $ | 3,171 |  
|                                                           |  |                                       |       |   |      |   |       |      |  |   |       |   |  |      |       |    |  |   |       |  
|Net (charge-offs) recoveries as a percent of average loans |  |                                       | 0.31  | % |      |   | 0.24  | %    |  |   | 0.04  | % |  |      | (0.11 | )% |  |   | 0.55  | %



69



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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Managements Discussion And Analysis of Financial Condition

And Results of Operations







Financial Table 10

Allocation of the Allowance for Loan Losses

(dollars in thousands)



|                           |  |                 |       |  |                     |  |        |        |  |   |                     |  |  |        |        |   |                     |   |       |  |  |  |        |  
|-------------------------- |  | --------------- | ----- |  | ------------------- |  | ------ | ------ |  | - | ------------------- |  |  | ------ | ------ | - | ------------------- | - | ----- |  |  |  | ------ | -
|                           |  | At December 31, |      
|                           |  | 2010            |       |  | 2009                |  |        | 2008   | 
|                           |  | Amount          |       |  | % of TotalLoans (1) |  |        | Amount |  |   | % of TotalLoans (1) |  |  | Amount |        |   | % of TotalLoans (1) |  
|Commercial                 |  | $               | 966   |  |                     |  | 10.65  | %      |  | $ | 449                 |  |  |        | 14.63  | % |                     | $ | 288   |  |  |  | 13.35  | %
|Real estate - construction |  |                 | 2,190 |  |                     |  | 24.15  | %      |  |   | 1,373               |  |  |        | 12.72  | % |                     |   | 1,232 |  |  |  | 14.87  | %
|Real estate - residential  |  |                 | 2,629 |  |                     |  | 29.00  | %      |  |   | 1,477               |  |  |        | 40.77  | % |                     |   | 1,180 |  |  |  | 40.90  | %
|Real estate - commercial   |  |                 | 2,240 |  |                     |  | 24.70  | %      |  |   | 1,541               |  |  |        | 27.13  | % |                     |   | 1,385 |  |  |  | 26.29  | %
|Consumer loans             |  |                 | 984   |  |                     |  | 10.85  | %      |  |   | 436                 |  |  |        | 4.70   | % |                     |   | 276   |  |  |  | 4.55   | %
|Other                      |  |                 | 58    |  |                     |  | 0.64   | %      |  |   |                    |  |  |        | 0.05   | % |                     |   |      |  |  |  | 0.04   | %
|Unallocated                |  |                 |      |  |                     |  |       | %      |  |   |                    |  |  |        |       | % |                     |   |      |  |  |  |       | %
|                           |  |                 |       |  |                     |  |        |        |  |   |                     |  |  |        |        |   |                     |   |       |  |  |  |        |  
|                           |  |                 |       |  |                     | 
|Total loans                |  | $               | 9,067 |  |                     |  | 100.00 | %      |  | $ | 5,276               |  |  |        | 100.00 | % |                     | $ | 4,361 |  |  |  | 100.00 | %
|                           |  |                 |       |  |                     |  |        |        |  |   |                     |  |  |        |        |   |                     |   |       |  |  |  |        |  



|                           |  |                 |       |  |                     |  |        |        |  |   |                     |  |  |  |        |  
|-------------------------- |  | --------------- | ----- |  | ------------------- |  | ------ | ------ |  | - | ------------------- |  |  |  | ------ | -
|                           |  | At December 31, |      
|                           |  | 2007            |       |  | 2006                | 
|                           |  | Amount          |       |  | % of TotalLoans (1) |  |        | Amount |  |   | % of TotalLoans (1) | 
|Commercial                 |  | $               | 326   |  |                     |  | 11.72  | %      |  | $ | 356                 |  |  |  | 12.64  | %
|Real estate  construction |  |                 | 325   |  |                     |  | 14.46  | %      |  |   | 255                 |  |  |  | 9.49   | %
|Real estate  residential  |  |                 | 922   |  |                     |  | 42.21  | %      |  |   | 1,235               |  |  |  | 43.79  | %
|Real estate  commercial   |  |                 | 1,715 |  |                     |  | 26.90  | %      |  |   | 1,123               |  |  |  | 29.43  | %
|Consumer                   |  |                 | 222   |  |                     |  | 4.67   | %      |  |   | 202                 |  |  |  | 4.60   | %
|Other                      |  |                 |      |  |                     |  | 0.04   | %      |  |   |                    |  |  |  | 0.05   | %
|Unallocated                |  |                 |      |  |                     |  |       | %      |  |   |                    |  |  |  |       | %
|                           |  |                 |       |  |                     |  |        |        |  |   |                     |  |  |  |        |  
|                           |  |                 |       | 
|Total loans                |  | $               | 3,510 |  |                     |  | 100.00 | %      |  | $ | 3,171               |  |  |  | 100.00 | %
|                           |  |                 |       |  |                     |  |        |        |  |   |                     |  |  |  |        |  



|(1) | Represents total of all outstanding loans in each category as a percent of total loans outstanding.
|--- | ---------------------------------------------------------------------------------------------------



70



---

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Managements Discussion And Analysis of Financial Condition

And Results of Operations







Financial Table 11

Maturities of Time Deposits

(dollars in thousands)



|                                  |  |                 |        |  |                         |   |        |                          |  |   |               |  |  |       |        |  |  |   |         | 
|--------------------------------- |  | --------------- | ------ |  | ----------------------- | - | ------ | ------------------------ |  | - | ------------- |  |  | ----- | ------ |  |  | - | ------- | 
|                                  |  | 3 Monthsor Less |        |  | Over 3Months to6 Months |   |        | Over 6Months to12 Months |  |   | Over12 Months |  |  | Total |       
|                                  |  |                 |        |  |                        
|Time Deposits of $100,000 or more |  | $               | 14,090 |  |                         | $ | 5,051  |                          |  | $ | 20,084        |  |  | $     | 20,206 |  |  | $ | 59,431  | 
|                                  |  |                 |        |  |                        
|Other Time Deposits               |  |                 | 17,677 |  |                         |   | 11,785 |                          |  |   | 33,135        |  |  |       | 32,051 |  |  |   | 94,648  | 
|                                  |  |                 |        |  |                         |   |        |                          |  |   |               |  |  |       |        |  |  |   |         | 
|                                  |  |                 |        |  |                        
|                                  |  | $               | 31,767 |  |                         | $ | 16,836 |                          |  | $ | 53,219        |  |  | $     | 52,257 |  |  | $ | 154,079 | 
|                                  |  |                 |        |  |                         |   |        |                          |  |   |               |  |  |       |        |  |  |   |         | 

Financial Table 12

Performance Ratios



|                               |  |                 |      |   |      |  |      |      |  |  |      |   |  |      |      |   |  |  |      |  
|------------------------------ |  | --------------- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | - |  | ---- | ---- | - |  |  | ---- | -
|                               |  | At December 31, |     
|                               |  | 2010            |      |   | 2009 |  |      | 2008 |  |  | 2007 |   |  | 2006 |     
|Return on average assets       |  |                 | 0.14 | % |      |  | 0.15 | %    |  |  | 0.48 | % |  |      | 0.75 | % |  |  | 0.56 | %
|Return on average equity       |  |                 | 1.57 | % |      |  | 1.60 | %    |  |  | 6.29 | % |  |      | 9.73 | % |  |  | 7.32 | %
|Equity to average assets ratio |  |                 | 8.83 | % |      |  | 9.15 | %    |  |  | 7.63 | % |  |      | 7.73 | % |  |  | 7.67 | %



71



---

UWHARRIE CAPITAL CORP

Board of Directors



|                               |  |                               |  |                              
|------------------------------ |  | ----------------------------- |  | -----------------------------
|W. Stephen Aldridge, III       |  | Charles D. Horne              |  | Cynthia L. Mynatt            
|President                      |  | President                     |  | President                    
|Stanly Funeral Home, Inc.      |  | Hornwood, Inc.                |  | Ben Mynatt Buick  GMC       
|                               |  |                              
|Joe S. Brooks                  |  | W. Kenneth Huntley            |  | Timothy J. Propst            
|Board Vice Chairman            |  | President and Owner           |  | Executive Vice President     
|Owner and Manager              |  | Huntley Oil & Gas Co., Inc.   |  | Propst Construction Co., Inc.
|Brothers Precision Tool Co.    |  |                               |  |                              
|                               |  |                              
|Ronald T. Burleson             |  | Joseph R. Kluttz, Jr.         |  | Susan J. Rourke              
|Partner                        |  | Secretary and Treasurer       |  | President and Owner          
|Thurman Burleson and Sons Farm |  | Albemarle Insurance           |  | U. S. Land Management Co.    
|                               |  | Agency, Inc.                  |  |                              
|                               |  |                              
|Bill C. Burnside, DDS          |  | Lee Roy Lookabill, Jr.        |  | Donald P. Scarborough        
|Sole Proprietor                |  | President                     |  | Board Chairman               
|Dental Practice                |  | Anson Real Estate and         |  | President and Broker-Owner   
|                               |  | Insurance Co., Inc.           |  | Plank Road Realty, Inc.      
|                               |  |                              
|Charles F. Geschickter, III    |  | W. Chester Lowder             |  | S. Todd Swaringen            
|President and                  |  | Director of Livestock Program |  | Partner                      
|Chief Executive Officer        |  | Public Policy Division        |  | Beane Swaringen &            
|JTG Racing, Inc.;              |  | NC Farm Bureau                |  | Company, PLLC                
|ST Motorsports, Inc.           |  | Federation, Inc.              |  |                              
|                               |  |                              
|Thomas M. Hearne, Jr.          |  | Barry S. Moose                |  | Edward B. Tyson              
|Retired - Geopavement Engineer |  | Division Engineer             |  | Retired - Superintendent of  
|NC Department                  |  | NC Department                 |  | Kannapolis City Schools      
|of Transportation              |  | of Transportation             |  |                              
|Executive Officers            
|Roger L. Dick                  |  | Christy D. Stoner             |  | Dana A. Maness               
|President and                  |  | President and                 |  | President                    
|Chief Executive Officer        |  | Chief Executive Officer       |  | Anson Bank & Trust Co.       
|Uwharrie Capital Corp          |  | The Strategic Alliance        |  |                              
|                               |  | Corporation, BOS              |  |                              
|Brendan P. Duffey              |  | Agency, Inc.                  |  | W.D. Bill Lawhon, Jr.      
|Executive Vice President and   |  | Chief Executive Officer       |  | President and                
|Chief Operating Officer        |  | Strategic Investment          |  | Chief Executive Officer      
|Uwharrie Capital Corp          |  | Advisors, Inc.                |  | Bank of Stanly               
|                               |  | Executive Vice President      |  |                              
|Robert O. Bratton              |  | Marketing                     |  | Patricia K. Horton           
|Chief Financial Officer        |  | Uwharrie Capital Corp         |  | President and                
|Uwharrie Capital Corp          |  |                               |  | Chief Executive Officer      
|                               |  |                               |  | Cabarrus Bank & Trust        
|Barbara S. Williams            |  | Jeffrey M. Talley             |  | Company                      
|Executive Vice President and   |  | President                     |  |                              
|Controller                     |  | Strategic Investment          |  |                              
|Uwharrie Capital Corp          |  | Advisors, Inc.                |  |                              



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