10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2007

OR

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

For the transition period from              to             .

COMMISSION FILE NUMBER 000-22062

UWHARRIE CAPITAL CORP

(Exact name of registrant as specified in its charter)

NORTH CAROLINA	56-1814206
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

132 North First Street Albemarle, North Carolina	28001
(Address of Principal Executive Offices)	(Zip Code)

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

N/A

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See the definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  x

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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date: 7,279,202 shares of common stock outstanding as of July 31, 2007.

Table of Contents

		Page No.
Part I.	FINANCIAL INFORMATION
Item 1 -	Financial Statements (Unaudited)
	Consolidated Balance Sheets June 30, 2007 and December 31, 2006	3
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2007 and 2006	4
	Consolidated Statements of Changes in Shareholders’ Equity Six Months Ended June 30, 2007	5
	Consolidated Statements of Cash Flows Six Months Ended June 30, 2007 and 2006	6
	Notes to Consolidated Financial Statements	7
Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3 -	Quantitative and Qualitative Disclosures about Market Risk	17
Item 4 -	Controls and Procedures	17
Part II.	OTHER INFORMATION
Item 1 -	Legal Proceedings	18
Item 1A -	Risk Factors	18
Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3 -	Defaults Upon Senior Securities	18
Item 4 -	Submission of Matters to a Vote of Security Holders	18
Item 5 -	Other Information	19
Item 6 -	Exhibits	19

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Uwharrie Capital Corp and Subsidiaries

Consolidated Balance Sheets

Part I. FINANCIAL INFORMATION

Item 1 - Financial Statements

	June 30, 2007 (Unaudited)			December 31, 2006*
	(dollars in thousands)
ASSETS
Cash and due from banks	$	11,541		$	15,088
Interest-earning deposits with banks		2,184			2,147
Federal funds sold		9,000			17,525
Securities available for sale, at fair value		41,223			37,150
Loans:
Loans held for sale		5,486			3,814
Loans held for investment		304,631			288,135
Less allowance for loan losses		(3,337	)		(3,171	)
Net loans		306,780			288,778
Premises and equipment, net		8,529			8,618
Interest receivable		1,836			1,775
Federal Home Loan Bank stock		1,972			1,980
Bank owned life insurance		5,219			5,133
Goodwill		987			987
Other assets		4,841			4,080
Total assets	$	394,112		$	383,261
LIABILITIES
Deposits:
Demand noninterest-bearing	$	48,717		$	48,149
Interest checking and money market accounts		99,042			101,470
Savings deposits		27,068			27,833
Time deposits, $100,000 and over		42,633			48,450
Other time deposits		88,580			83,698
Total deposits		306,040			309,600
Short-term borrowed funds		39,273			13,040
Long-term debt		16,449			29,289
Interest payable		418			503
Other liabilities		1,503			1,196
Total liabilities		363,683			353,628
Off balance sheet items, commitments and contingencies (Note 5)
SHAREHOLDERS’ EQUITY
Common stock, $ 1.25 par value: 20,000,000 shares authorized; shares issued and outstanding 7,341,062 and 7,423,550 shares, respectively		9,176			9,279
Additional paid-in capital		13,155			13,541
Unearned ESOP compensation		(830	)		(859	)
Undivided profits		8,877			7,502
Accumulated other comprehensive income		51			170
Total shareholders’ equity		30,429			29,633
Total liabilities and shareholders’ equity	$	394,112		$	383,261

(*) Derived from audited consolidated financial statements

See accompanying notes

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Uwharrie Capital Corp and Subsidiaries

Consolidated Statements of Operations (Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
	(in thousands, except share and per share data)
Interest Income
Loans, including fees	$	5,865		$	5,486		$	11,519		$	10,478
Investment securities
US Treasury		24			25			48			49
US Government agencies and corporations		316			214			596			396
State and political subdivisions		157			177			320			356
Other		37			15			74			71
Interest-earning deposits with banks and federal funds sold		251			54			635			98
Total interest income		6,650			5,971			13,192			11,448
Interest Expense
Interest checking and money market accounts		666			546			1,376			998
Savings deposits		134			189			280			394
Time deposits, $100,000 and over		566			484			1,172			836
Other time deposits		1,009			705			1,999			1,300
Short-term borrowed funds		396			263			640			428
Long-term debt		201			375			563			777
Total interest expense		2,972			2,562			6,030			4,733
Net interest income		3,678			3,409			7,162			6,715
Provision for loan losses		(138	)		98			(138	)		244
Net interest income after provision for loan losses		3,816			3,311			7,300			6,471
Noninterest Income
Service charges on deposit accounts		556			499			1,059			969
Other service fees and commissions		721			613			1,419			1,133
Loss on sale of securities		(76	)		—			(76	)		—
Gain(loss) on sale fixed assets/other assets		20			(17	)		20			(17	)
Income from mortgage loan sales		188			103			443			288
Other income		83			79			169			165
Total noninterest income		1,492			1,277			3,034			2,538
Noninterest Expense
Salaries and employee benefits		2,476			2,267			4,921			4,515
Net occupancy expense		209			182			426			370
Equipment expense		147			152			306			309
Data processing costs		185			206			363			406
Other noninterest expense		1,256			1,195			2,340			2,258
Total noninterest expense		4,273			4,002			8,356			7,858
Income before income taxes		1,035			586			1,978			1,151
Income taxes		318			145			603			284
Net income	$	717		$	441		$	1,375		$	867
Net income per common share
Basic	$	0.10		$	0.06		$	0.19		$	0.12
Diluted	$	0.10		$	0.06		$	0.19		$	0.12
Weighted average shares outstanding
Basic		7,195,656			7,252,299			7,223,359			7,220,339
Diluted		7,294,366			7,341,486			7,317,615			7,333,459

See accompanying notes

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Uwharrie Capital Corp and Subsidiaries

Consolidated Statement of Changes in Shareholders’ Equity

	Common Stock					Additional Paid-in			Unearned ESOP			Undivided		Accumulated Other Comprehensive			Total
	Shares		Amount			Capital			Compensation			Profits		Income
	(in thousands, except share data)
Balance, December 31, 2006	7,423,550		$	9,279		$	13,541		$	(859	)	$	7,502	$	170		$	29,633
Net income	—			—			—			—			1,375		—			1,375
Other comprehensive loss	—			—			—			—			—		(119	)		(119	)
Release of ESOP shares	—			—			15			29			—		—			44
Common stock issued pursuant to:
Stock options exercised	12,764			16			20			—			—		—			36
Tax benefit of stock options exercised	—			—			3			—			—		—			3
Repurchase of common stock	(95,252	)		(119	)		(447	)		—			—		—			(566	)
Stock based compensation	—			—			23			—			—		—			23
Balance, June 30, 2007	7,341,062		$	9,176		$	13,155		$	(830	)	$	8,877	$	51		$	30,429

See accompanying notes

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Uwharrie Capital Corp and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

	Six Months Ended June 30,
	2007			2006
	(dollars in thousands)
Cash flows from operating activities
Net income	$	1,375		$	867
Adjustments to reconcile net income to net cash
Provided (used) by operating activities:
Depreciation		312			316
Net amortization of security discounts		(90	)		(7	)
Amortization of mortgage servicing rights		(198	)		(187	)
Provision for loan losses		(138	)		244
Stock based compensation		23			32
Net realized loss on available for sale securities		76			—
Income from mortgage loan sales		(443	)		(288	)
Proceeds from sales of loans held for sale		19,565			19,826
Origination of loans held for sale		(21,680	)		(19,879	)
Loss on sale of premises, equipment and other assets		—			(2	)
Increase in cash surrender value of life insurance		(86	)		(81	)
Gain on sale of foreclosed real estate		—			(15	)
Gain on sale of other assets		(20	)		—
Release of ESOP shares		44			47
Net change in interest receivable		(61	)		(78	)
Net change in other assets		(510	)		(313	)
Net change in interest payable		(85	)		48
Net change in other liabilities		307			42
Net cash used (provided) by operating activities		(1,609	)		572
Cash flows from investing activities
Proceeds from sales, maturities and calls of securities available for sale		6,874			2,939
Purchase of securities available for sale		(11,129	)		(1,386	)
Net decrease in Federal Home Loan Bank Stock		8			182
Net increase in loans		(15,366	)		(20,264	)
Proceeds from sales of premises, equipment and other assets		65			—
Purchases of premises and equipment		(223	)		(133	)
Proceeds from sales of foreclosed real estate		39			172
Net cash used in investing activities		(19,732	)		(18,490	)
Cash flows from financing activities
Net increase (decrease) in deposit accounts		(3,560	)		18,553
Net increase in short-term borrowed funds		26,233			1,466
Net decrease in long-term debt		(12,840	)		(5,403	)
Repurchase of common stock		(566	)		(145	)
Proceeds from the exercise of stock options		36			204
Tax benefit of stock options exercised		3			—
Net cash provided by financing activities		9,306			14,675
Decrease in cash and cash equivalents		(12,035	)		(3,243	)
Cash and cash equivalents, beginning of period		34,760			21,369
Cash and cash equivalents, end of period	$	22,725		$	18,126

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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Note 1 - Basis of Presentation

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

The information contained in the consolidated financial statements is unaudited. In the opinion of management, the consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and material adjustments necessary for a fair presentation of results of interim periods, all of which are of a normal recurring nature, have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for an entire year. Management is not aware of economic events, outside influences or changes in concentrations of business that would require additional clarification or disclosure in the consolidated financial statements. Certain prior period amounts have been reclassified to conform to current period classifications. These reclassifications had no effect on net income or shareholders’ equity as previously reported.

The organization and business of the Company, accounting policies followed by the Company and other information are contained in the notes to consolidated financial statements filed as part of the Company’s 2006 annual report on Form 10-K. This quarterly report should be read in conjunction with such annual report.

Note 2 - Comprehensive Income

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
	(in thousands)
Net Income	$	717		$	441		$	1,375		$	867
Other comprehensive loss
Unrealized holding losses on available for sale securities		(344	)		(246	)		(271	)		(604	)
Related tax effect		133			95			105			233
Reclassification of loss recognized in net income		76			—			76			—
Related tax effect		(29	)		—			(29	)		—
Total other comprehensive loss		(164	)		(151	)		(119	)		(371	)
Comprehensive income	$	553		$	290		$	1,256		$	496

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Note 3 - Per Share Data

On September 19, 2006, the Company’s Board of Directors declared a 3% stock dividend payable on November 14, 2006 to shareholders of record on October 20, 2006. All information presented in the accompanying interim consolidated financial statements regarding earnings per share and weighted average number of shares outstanding has been computed giving effect to this stock dividend.

Basic and diluted net income per common share is computed based on the weighted average number of shares outstanding during each period after retroactively adjusting for stock dividends. Diluted net income per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the net income of the Company.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
Weighted average number of common shares used in computing basic net income per common share	7,341,062		7,413,321		7,368,765		7,381,361
Effect of ESOP shares	(145,406	)	(161,022	)	(145,406	)	(161,022	)
Adjusted weighted average number of Common shares used in computing Basic net income per common share	7,195,656		7,252,299		7,223,359		7,220,339
Effect of dilutive stock options	98,710		89,187		94,256		113,120
Weighted average number of common shares and dilutive potential common shares used in computing diluted net income per common share	7,294,366		7,341,486		7,317,615		7,333,459

Note 4 - Loans

	June 30, 2007		December 31, 2006
	(in thousands)
Loans outstanding at period end
Commercial	$	37,381	$	36,406
Real estate-construction		35,591		27,342
Real estate-residential		130,889		126,248
Real estate-commercial		86,436		84,744
Consumer loans		14,255		13,262
Loans held for sale		5,486		3,814
All other loans		79		133
Total	$	310,117	$	291,949

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	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
	(in thousands)
Analysis of the allowance for loan losses
Balance at beginning of period	$	3,034		$	4,564		$	3,171		$	4,482
Provision charged to operations		(138	)		98			(138	)		244
Charge-offs		(16	)		(110	)		(163	)		(184	)
Recoveries		457			49			467			59
Net recoveries(charge-offs)		441			(61	)		304			(125	)
Balance at end of period	$	3,337		$	4,601		$	3,337		$	4,601

Note 5 - Commitments and Contingencies

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

The banks’ risk of loss with the unfunded loans and lines of credit or standby letters of credit is represented by the contractual amount of these instruments. The banks use the same credit policies in making commitments under such instruments as they do for on-balance sheet instruments. The amount of collateral obtained, if any, is based on management’s credit evaluation of the borrower. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Credit card commitments are unsecured. At June 30, 2007, outstanding financial instruments whose contract amounts represent credit risk were approximately (numbers in thousands):

Commitments to extend credit	$	90,445
Credit card commitments		8,450
Standby letters of credit		633
Total commitments	$	99,528

Note 6 - Recent Accounting Pronouncements

The provisions of Statement of Financial Accounting Standards No.156 (“SFAS 156”), Accounting for Servicing of Financial Assets-an amendment of FASB Statement No. 10, were effective beginning January 1, 2007. The adoption of the provisions of SFAS No. 156 had no effect on financial position or results of operations.

Statement of Financial Accounting Standards No. 157 (“SFAS 157”), Fair Value Measurements, defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is in the process of evaluating the impact of the adoption of SFAS No. 157 on the consolidated financial statements.

Statement of Financial Accounting Standards No. 159 (“SFAS 159”), The Fair Value Option for Financial Assets and Financial Liabilities, permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of this standard is to improve

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financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complete hedge accounting provisions. This statement is effective for fiscal years beginning after November 15, 2007, with early adoption permitted under certain circumstances. The Company has chosen not to adopt the provision of SFAS 159 on an early basis. The Company has evaluated this statement and does not believe it will have a material effect on the Company’s consolidated financial statements.

The Company adopted the Financial Accounting Standards Board’s Interpretation No. 48 “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”), effective January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements and requires the impact of a tax position to be recognized in the financial statements if that position is more likely than not of being sustained by the taxing authority. The adoption of FIN 48 did not have a material effect on our consolidated financial position or results of operations.

From time to time, the FASB issues exposure drafts of proposed statements of financial accounting standards. Such exposure drafts are subject to comment from the public, to revisions by the FASB and to final issuance by the FASB as statements of financial accounting standards. Management considers the effect of the proposed statements on the consolidated financial statements of the Company and monitors the status of changes to and proposed effective dates of exposure drafts.

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

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

Comparison of Financial Condition at June 30, 2007 and December 31, 2006.

During the six months ended June 30, 2007, the Company’s total assets increased $10.8 million or 2.8% from $383.3 million to $394.1 million. During the six months, loans held for investment increased $16.5 million or 5.7%, from $288.1 million at December 31, 2006 to $304.6 million at June 30, 2007. Investment securities increased $4.1 million during the period. These increases, however, were offset by a decrease in cash and cash equivalents of $12.0 million.

Cash and cash equivalents decreased $12.0 million during the six months ended June 30, 2007. Cash and due from banks declined $3.5 million, while federal funds sold decreased $8.5 million. The growth in the loan portfolio was partially funded by the decrease in federal funds sold.

Investment securities increased $4.1 million or 11.0% for the six month period. The Company did a $4.0 million swap selling $4.0 million in securities realizing a loss of $75 thousand and reinvested the proceeds to improve its yield. The Company also had an additional sale realizing a loss of $1 thousand and purchased $7.4 million in new investments.

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As stated, loans held for investment increased $16.5 million to $304.6 million during the period ended June 30, 2007. The Company has experienced positive growth trends in all areas of its loan portfolio. Real estate construction loans lead the way with a $8.2 million increase during the period. Loans held for sale increased 43.8% or $1.7 million during the period. The allowance for loan losses was $3.3 million at June 30, 2007 which represents 1.08% of the loan portfolio.

Other changes in our consolidated assets related to premises and equipment, interest receivable, bank owned life insurance and other assets. Premises and equipment decreased $89 thousand, interest receivable grew $61 thousand, impacted by both loan and investment growth, bank owned life insurance increased $86 thousand and other assets increased $761 thousand.

Customer deposits, our primary funding source, experienced a $3.6 million decline during the six months ended June 30, 2007, decreasing from $309.6 million to $306.0 million. Interest checking and money market accounts decreased $2.4 million, savings deposits declined $765 thousand and total time deposits decreased $935 thousand. These decreases were partially offset by an increase in demand deposits of $568 thousand.

The decline in deposits coupled with the growth in total assets resulted in an increase in net borrowings of $13.4 million during the first six months of 2007. 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 June 30, 2007, $27.9 million of the total borrowings of $55.7 million were comprised of Federal Home Loan Bank advances.

At June 30, 2007, total shareholders’ equity was $30.4 million, an increase of $796 thousand from December 31, 2006. Net income for the period was $1.4 million and the Company received $36 thousand from the exercise of stock options. These increases were offset by the repurchase of 95,252 shares of the Company’s common stock at a cost of $566 thousand and unrealized losses on investment securities, net of tax, of $119 thousand.

At June 30, 2007, the Company and its subsidiary banks exceeded all applicable regulatory capital requirements.

Comparison of Results of Operations For the Three Months Ended June 30, 2007 and 2006.

Net Income

Uwharrie Capital Corp reported net income of $717 thousand, or $0.10 per basic share, for the three months ended June 30, 2007, as compared to $441 thousand, or $0.06, for the three months ended June 30, 2006, an increase of $276 thousand, or $0.04 per share.

Net Interest Income

The Company’s primary source of income, net interest income, increased $269 thousand or 7.9% for the period ending June 30, 2007, as compared to the same period for 2006. Refer to the six month discussion on page 13 for further information.

Provision for Loan Losses

The provision for loan losses was ($138) thousand and $98 thousand for the three months ended June 30, 2007 and 2006 respectively. There were net loan recoveries of $440 thousand for the three months ended June 30, 2007 as compared with net loan charge-offs of $61

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thousand during the same period of 2006. Refer to the Asset Quality discussion on page 15 for further information.

Noninterest Income

Total noninterest income increased $215 thousand, from $1.3 million for the quarter ended June 30, 2006 to $1.5 million for the same period in 2007. Service charges on deposit accounts produced revenues of $556 thousand for the three months ended June 30, 2007, an increase of $57 thousand, or 11.4%. Other service fees and commissions experienced a 17.6% increase for the comparable three month periods. Growth in ATM fees of $23 thousand and investment fees on managed accounts of $144 thousand enhanced this increase. Income from mortgage loan sales increased $85 thousand from $103 thousand for the quarter ended June 30, 2006 to $188 thousand for the same period in 2007.

Noninterest Expense

Noninterest expense for the quarter ended June 30, 2007 was $4.3 million compared to $4.0 million for the same period of 2006, an increase of $271 thousand. Salaries and employee benefits, the largest component of noninterest expense, increased $209 thousand, from $2.3 million for the quarter ending June 30, 2006 to $2.5 million for the same period in 2007. Additions at the executive and bank support staff levels during the past year coupled with normal salary increases contributed to this increase. Other noninterest expense increased $61 thousand from the comparable three month period. The table below reflects the composition of other noninterest expenses.

Other noninterest expenses

	Three months ended June 30,
	2007		2006
	(in thousands)
Professional fees and services	$	218	$	170
Marketing and donations		152		166
Office supplies, printing and postage		108		128
Telephone and data lines		60		52
Electronic banking expenses		167		134
Software amortization and maintenance		110		87
Loan collection expense		43		57
Other		398		401
Total	$	1,256	$	1,195

Income Tax Expense

The Company had income tax expense of $318 thousand for the three months ended June 30, 2007 resulting in an effective tax rate of 30.7% compared to income tax expense of $145 thousand and an effective rate of 24.7% in the 2006 period. Income taxes computed at the statutory rate are reduced primarily by the eligible amount of interest earned on state and municipal securities, tax free municipal loans and income earned on bank owned life insurance. The increase in the effective tax rate resulted primarily from the decrease in the level of such tax free income as a percentage of net income in the current year quarter compared to the 2006 quarter.

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Comparison of Results of Operations For the Six Months Ended June 30, 2007 and 2006.

Net Income

Uwharrie Capital Corp reported net income of $1.4 million, or $0.19 per basic share, for the six months ended June 30, 2007, as compared to $867 thousand, or $0.12, for the six months ended June 30, 2006, an increase of $508 thousand, or $0.07 per share.

Net Interest Income

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

Net interest income for the six months ended June 30, 2007 was $7.2 million as compared with $6.7 million during the quarter ending June 30, 2006, resulting in an increase of $447 thousand, or 6.7%. During the quarter ending June 30, 2007 our growth in the volume of interest-earning assets outpaced the six months growth in interest-bearing liabilities by $447 thousand. The average yield on our interest-earning assets increased 30 basis points to 7.44%, while the average rate we paid for our interest-bearing liabilities increased 48 basis points. These increases resulted in a decrease of 17 basis points in our interest rate spread, from 3.71% in 2006 to 3.54% in 2007. Our net interest margin was 4.10% and 4.25% for the comparable periods in 2007 and 2006.

The following table presents average balance sheets and a net interest income analysis for the six months ended June 30, 2007 and 2006:

Average Balance Sheet and Net Interest Income Analysis

For the Six Months Ended June 30,

(in thousands)

	Average Balance				Income/Expenses				Rate/Yield
	2007		2006		2007		2006		2007		2006
Interest-earning assets:
Loans (1)	$	295,136	$	286,044	$	11,424	$	10,377	7.81	%	7.32	%
Nontaxable loans (2)		3,952		4,279		95		101	7.91	%	7.78	%
Taxable securities		27,831		24,709		724		585	5.25	%	4.77	%
Nontaxable securities (2)		13,138		11,613		314		287	7.85	%	8.12	%
Other (3)		24,482		3,769		635		98	5.23	%	5.24	%
Total interest-earning assets		364,539		330,414		13,192		11,448	7.44	%	7.14	%
Interest-bearing liabilities:
Interest-bearing deposits		264,086		229,050		4,827		3,528	3.69	%	3.11	%
Short-term borrowings		23,944		20,574		640		428	5.39	%	4.20	%
Long-term debt		23,932		29,170		563		777	4.74	%	5.37	%
Total interest bearing liabilities		311,962		278,794		6,030		4,733	3.90	%	3.42	%
Net interest spread	$	52,577	$	51,620	$	7,162	$	6,715	3.54	%	3.71	%
Net interest margin (2) (% of earning assets)									4.10	%	4.25	%

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(1) Average loan balances are stated net of unearned income and include nonaccrual loans. Interest recognized on nonaccrual loans is included in interest income.

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

(3) Includes federal funds sold and interest bearing deposits with banks.

Provision for Loan Losses

The provision for loan losses was ($138) thousand and $244 thousand for the six months ended June 30, 2007 and 2006 respectively. There were net loan recoveries of $304 thousand for the six months ended June 30, 2007 as compared with net loan charge-offs of $125 thousand during the same period of 2006. Refer to the Asset Quality discussion on page 15 for further information.

Noninterest Income

The Company generates most of its revenue from net interest income; however, like all financial institutions, diversification of our earnings base is of major importance in our long term success. Total noninterest income increased $496 thousand, from $2.5 million for the six months ended June 30, 2006 to $3.0 million for the same period in 2007. Service charges on deposit accounts produced earnings of $1.1 million for the six months ended June 30, 2007, an increase of $90 thousand, or 9.3%. Other service fees and commissions experienced a 25.2% increase for the comparable six month periods. Growth in Mastercard fee income of $11 thousand and investment fees on managed accounts of $269 thousand enhanced this increase. Income from mortgage loan sales increased $155 thousand from $288 thousand for the six months ended June 30, 2006 to $443 thousand for the same period in 2007.

Noninterest Expense

Noninterest expense for the six months ended June 30, 2007 was $8.4 million compared to $7.9 million for the same period of 2006, an increase of $498 thousand. Salaries and employee benefits, the largest component of noninterest expense, increased $406 thousand, from $4.5 million for the six months ending June 30, 2006 to $4.9 million for the same period in 2007. Additions at the executive and bank support staff levels during the past year coupled with normal salary increases contributed to this increase. Net occupancy expense increased $56 thousand while other noninterest expense increased $82 thousand from the comparable six month period. The table below reflects the composition of other noninterest expenses.

Other noninterest expenses

	Six months ended June 30,
	2007		2006
	(in thousands)
Professional fees and services	$	376	$	298
Marketing and donations		277		292
Office supplies, printing and postage		218		251
Telephone and data lines		116		108
Electronic banking expenses		329		282
Software amortization and maintenance		214		163
Loan collection expense		68		113
Other		742		751
Total	$	2,340	$	2,258

Income Tax Expense

The Company had income tax expense of $603 thousand for the six months ended June 30, 2007 resulting in an effective tax rate of 30.5% compared to income tax expense of $284

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thousand and an effective rate of 24.7% in the 2006 period. Income taxes computed at the statutory rate are reduced primarily by the eligible amount of interest earned on state and municipal securities, tax free municipal loans and income earned on bank owned life insurance. The increase in the effective tax rate resulted primarily from the decrease in the level of such tax free income as a percentage of net income in the first six months compared to the same period in 2006.

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 evaluates the adequacy of the allowance at least quarterly. In evaluating the adequacy of the allowance, management considers 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 the risk-grading program to facilitate the evaluation of probable inherent loan losses and the adequacy of the allowance for loan losses. In this program, risk grades are initially assigned by loan officers and reviewed and monitored by credit administration. The Company strives to maintain its loan portfolio in accordance with conservative loan underwriting policies that result in loans specifically tailored to the needs of its market area. Every effort is made to identify and minimize the credit risks associated with such lending strategies. The Company has no foreign loans and does not engage in significant lease financing or highly leveraged transactions. The Company follows a loan review program designed to evaluate the credit risk in the loan portfolio. This process includes the maintenance of an internally classified watch list that helps 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 estimate of an appropriate amount to provide for known and inherent losses 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 substantially 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

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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 declined from $244 thousand for the six months ended June 30, 2006 to ($138) thousand for the current year. Additionally, the allowance expressed as a percentage of loans held for investment was 1.10% at both December 31, 2006 and June 30, 2007. The decline in the level of our provision in the 2007 period resulted primarily from improved trends in our overall asset quality. During the first six months of 2007 the levels of our impaired loans and the specific impairment identified for those impaired loans decreased by $1.2 million and $121 thousand, respectively, due primarily to the pay off of one impaired loan that also resulted in a recovery of $173 thousand. Additionally, other potential problem loans, which consist of loans which are currently performing and are not deemed to be impaired, but about which we have serious doubts as to the borrower’s ability to comply with present repayment terms, declined from $2.9 million at December 31, 2006 to $1.9 million at June 30, 2007, while the allowance for these loans decreased during this same period by $213 thousand. Net loan charge-offs for the six months ending June 30, 2006 were $125 thousand, while the same period in 2007 experienced net loan recoveries of $304 thousand. The recoveries for 2007 directly impacted the aforementioned negative provision of $138 thousand.

The allowance as a percentage of total impaired and potential problem loans has increased from 52.6% at December 31, 2006 to 87.9% at June 30, 2007. Likewise, the portion of the allowance specifically allocable to impaired loans decreased from 28.0% at December 31, 2006 to 23.0% at June 30, 2007. Management believes the current level of allowance for loan losses to be adequate at this time.

Liquidity and Capital Resources

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

The Company’s primary sources of internally generated funds are principal and interest payments on loans, cash flows generated from operations and cash flow generated by investments. Growth in deposits is typically the primary source of funds for loan growth. The Company and its subsidiary banks have multiple funding sources in addition to deposits that can be used to increase liquidity and provide additional financial flexibility. These sources are the subsidiary banks’ established federal funds lines with correspondent banks aggregating $20.1 million at June 30, 2007, with available credit of $15.1 million, established borrowing relationships with the Federal Home Loan Bank, with available credit of $32.0 million, access to borrowings from the Federal Reserve Bank discount window, and the sale of securities under agreements to repurchase. In addition, the Company issues commercial paper and has secured long-term debt from other sources. Total debt from these sources aggregated $55.7 million at June 30, 2007, compared to $42.3 million at December 31, 2006.

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

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

Both the Company and its subsidiary banks have maintained capital levels exceeding minimum levels for “well capitalized” banks and bank holding companies.

Accounting and Regulatory Matters

Management is not aware of any known trends, events, uncertainties or current recommendations by regulatory authorities that will have or that are reasonably likely to have a material effect on the Company’s liquidity, capital resources, or other operations.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

The Company’s primary market risk is interest rate risk. Interest rate risk is the result of differing maturities or repricing intervals of interest-earning assets and interest-bearing liabilities and the fact that rates on these financial instruments do not change uniformly. These conditions may impact the earnings generated by the Company’s interest earning assets or the cost of its interest-bearing liabilities, thus directly impacting the Company’s overall earnings. The Company’s management actively monitors and manages interest rate risk. One way this is accomplished is through the development of and adherence to the Company’s asset/liability policy. This policy sets forth management’s strategy for matching the risk characteristics of the Company’s interest-earning assets and liabilities so as to mitigate the effect of changes in the rate environment. The Company’s market risk profile has not changed significantly since December 31, 2006.

Item 4. Controls and Procedures

At the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-14.

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

There were no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company reviews its disclosure controls and procedures, which may include its internal control over financial reporting, on an ongoing basis, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that the Company’s systems evolve with its business.

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Part II. OTHER INFORMATION

Item 1. Legal Proceedings

Neither the Company nor its subsidiaries, nor any of their properties are subject to any material legal proceedings other than ordinary routine litigation incidental to their business.

Item 1A. Risk Factors

There has been no change in the risk factors included in the Company’s most recent annual report on form 10-K.

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

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

On March 20, 2007 the Board of Directors of Uwharrie Capital Corp unanimously approved the repurchase of 95,252, shares of its common stock at a cost of $566,807. This resolution is under a Stock Repurchase Plan that is contingent upon maintaining a well capitalized regulatory capital ratio. The purchase price under the plan is set on a quarterly basis, based on an independent valuation of the Company’s stock price, and is approved by the Board. The Board individually approves stock repurchases that exceed $50,000 in any one transaction.

The Company did not repurchase any shares of its common stock during the three months ended June 30, 2007. On June 28, 2007, the Executive Committee of Uwharrie Capital Corp mandated by resolution that the Company could repurchase up to $375,000 of its common stock during the third quarter of 2007.

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

The Company’s annual meeting of shareholders was held on Tuesday, May 8, 2007 in Albemarle, North Carolina. Proposals listed in the Proxy Statement dated March 30, 2007, (1) to elect six (6) directors of the Company to three (3) year terms and (2) to ratify the appointment of the Company’s independent public accountants for 2007, were approved by the shareholders as listed below. There were no other matters submitted for vote of the shareholders at this meeting.

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Proposal (1) To elect six (6) directors to a three (3) year term. Votes for each nominee were as follows:

Nominee	For	Withheld
Henry E. Farmer, Sr.	4,612,061	196,142
Thomas M. Hearne, Jr.	4,762,416	45,787
Charles D. Horne	4,761,859	46,344
Timothy J. Propst	4,766,482	41,721
Donald P. Scarborough	4,758,806	49,397
John W. Shealy, Jr.	4,765,482	42,721

The following twelve directors continued in office: Joe S. Brooks; Charles F. (“Tad”) Geschickter, III; Joseph R. Kluttz, Jr.; B. Franklin Lee; W. Chester Lowder; John P. Murray, M.D.; James E. Nance; Emmett S. Patterson; Susan J. Rourke; Michael E. Snyder, Sr.; Douglas L Stafford; and Emily M. Thomas.

Proposal (2) To ratify the appointment of Dixon Hughes PLLC as the Company’s independent public accountants for 2007.

For	4,786,648
Against	7,393
Abstain	14,162

Item 5. Other Information

None

Item 6. Exhibits

(a) Exhibits

10.1	Uwharrie Capital Corp 2006 Incentive Stock Option Plan
10.2	Uwharrie Capital Corp 2006 Employee Stock Purchase Plan
31.1	Certification of Chief Executive Officer pursuant to Rule 13a – 14(a)
31.2	Certification of Principal Financial Officer pursuant to Rule 13a – 14(a)
32	Certification pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002

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Signatures

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

	UWHARRIE CAPITAL CORP (Registrant)
Date: August 10, 2007	By:	/s/ Roger L. Dick
		Roger L. Dick
		President and Chief Executive Officer
Date: August 10, 2007	By:	/s/ Barbara S. Williams
		Barbara S. Williams
		Principal Financial Officer

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EX-10.1

Exhibit 10.1

UWHARRIE CAPITAL CORP

2006 INCENTIVE STOCK OPTION PLAN

Uwharrie Capital Corp (the “Company”) hereby adopts this 2006 INCENTIVE STOCK OPTION PLAN (the “Plan”) as further described herein.

ARTICLE I

PURPOSE AND SCOPE OF PLAN

1.1 Purpose.

The purpose of the Plan is to encourage the continued service of key employees of the Company or any company which is a direct or indirect subsidiary of the Company (a “Subsidiary”), and to provide an additional incentive for such employees to expand and improve the profits and prosperity of the Company and its Subsidiaries, by granting them options to purchase shares of the Company’s common stock. The Plan also will assist the Company and its subsidiaries in recruiting and retaining key employees to serve as employees of the Company and its Subsidiaries.

1.2 Stock Subject to Plan.

Pursuant to and in accordance with the terms of the Plan, options (“Options”) may be granted from time to time to purchase shares of the Company’s common stock, $1.25 par value per share (“Common Stock”).

The aggregate number of shares of Common Stock which may be sold upon the exercise of Options granted under the Plan is 153,132 shares, which maximum number is subject to adjustment as provided in Paragraph 6.1 hereof. Shares of Common Stock sold by the Company upon the exercise of Options granted hereunder, at the sole discretion of the Company, may be issued from the Company’s authorized but unissued shares, or be issued and outstanding shares purchased by the Company on the open market or in private transactions. In the event an Option granted under the Plan shall expire or terminate for any reason without having been exercised in full, then, to the extent the Plan shall remain in effect, the shares of Option Stock covered by the unexercised portion of such Option shall again be available for purposes of this Plan.

1.3 Effective Date; Termination Date.

The Plan shall be subject to approval by a vote of the holders of a majority of the shares of the Company’s Common Stock present or represented, in person or by proxy, and entitled to vote at a meeting of the Company’s shareholders held in accordance with North Carolina law. Subject to such approval, the Plan shall become effective as of May 16, 2006 (the “Effective Date,” which is the date of adoption of the Plan by the Company’s Board of Directors) and, unless sooner terminated as provided herein, shall terminate at 5:00 P.M. on May 16, 2016 (the “Termination Date”). Following the Termination Date, no further Options may be granted under the Plan, but such termination shall not effect any Option granted prior to the Termination Date.

ARTICLE II

DEFINITIONS

2.1 Board. “Board” refers to the Company’s Board of Directors.

2.2 Committee. The “Committee” shall refer to the committee of and appointed or designated by the Board to administer the Plan as described in Article III below.

2.3 Common Stock. “Common Stock” is the common stock of the Company, par value $1.25 per share.

2.4 Date of Grant. The “Date of Grant” of an Option refers to the effective date of action by the Committee granting such Option.

2.5 Employee. An “Employee” includes any person who is a full-time employee of the Company or of any of its Subsidiaries.

2.6 Exercise Price. The “Exercise Price” is the price per share to be paid by an Optionee for the purchase of Option Stock upon the exercise of an Option.

2.7 Expiration Date. “Expiration Date” refers to the date set by the Committee at which time any unexercised portion of such Option automatically will terminate and be of no further force or effect.

2.8 Modification, Extension or Renewal. “Modification” refers to any change in an Option which alters or modifies the original terms, conditions or benefits of the Option granted to the Optionee. “Extension” refers to the granting to the Optionee of an additional period of time within which to exercise the Option beyond the Expiration Date originally prescribed in the Option Agreement. “Renewal” refers to the granting of an Option to the Optionee with the same rights and privileges and on the same terms and conditions as contained in an original Option after expiration or termination of the original Option.

2.9 Option. An “Option” is a right granted by the Company pursuant to the Plan to an Employee to purchase shares of Common Stock at the Exercise Price set by the Committee for such Option and on the terms and conditions set forth herein and in the Option Agreement relating to such Option.

2.10 Option Agreement. An “Option Agreement” is a formal written agreement executed between the Company and an Optionee setting forth the terms and conditions of an Option.

2.11 Option Stock. “Option Stock” refers to the shares of Common Stock covered by an Option and which may be purchased by the Optionee upon the exercise, in whole or in part, of such Option.

2.12 Optionee. An “Optionee” is an Employee to whom an Option is granted.

2

ARTICLE III

PLAN ADMINISTRATION

3.1 General.

The Plan shall be administered by the Committee which shall be composed of not less than three members of the Board of Directors who (i) are not employees of the Company and who are not, during the one year prior to service as members of the Committee, granted or awarded any equity securities of the Company pursuant to the Plan or any other plan of the Company or any of its affiliates, and who (ii) otherwise qualify as “disinterested administrators’ as defined in Rule 16b-3 (c) (2) (i) under the Securities Exchange Act of 1934. Members of the Committee shall serve at the pleasure of the Board, and the Board of Directors, from time to time and at its discretion, may remove members from (with or without cause) or add members to the Committee or fill any vacancies on the Committee, however created.

3.2 Duties.

In its administration of the Plan, the Committee shall have the following authority, powers and duties:

(a) to make any and all determinations regarding persons who are eligible to receive Options under the Plan;

(b) to construe and interpret the terms and provisions of the Plan and any and all Option Agreements entered into pursuant to the Plan;

(c) to make, adopt, amend, rescind, and interpret such rules and regulations not inconsistent with the Plan or law as it from time to time deems reasonable and necessary for the interpretation and administration of the Plan;

(d) to prescribe the form or forms of the instruments evidencing any Options granted under the Plan and of any other instruments required under the Plan and to change such forms from time to time;

(e) to determine:

(i) the Employees to whom Options shall be granted pursuant to the Plan and the timing of such grant or grants, and to cause Options to be granted to Employees it selects;

(ii) the number of shares of Option Stock to be covered by each Option granted;

(iii) the Exercise Price to be paid for Option Stock upon exercise of the Option as set forth in the Option Agreement and as determined in accordance with Paragraph 4.3 hereof;

3

(iv) the Expiration Date of each Option granted, and the period within which any such Option may be exercised;

(v) any other term and/or condition of each Option (which need not be identical from Option to Option) so long as not inconsistent with the Plan; and,

(f) to make all other determinations and take all other actions provided for herein or deemed by it, in its discretion, to be necessary or advisable to administer the Plan in a proper and effective manner.

3.3 Meetings and Voting.

The Committee shall select one of its members as Chairman and shall hold meetings at such times and places as it shall deem necessary or desirable. A majority of the members of the Committee shall constitute a quorum for all matters with respect to administration of the Plan, and acts of a majority of the members of the Committee present at meetings at which a quorum is present, or acts reduced to and approved in writing by all of the members of the Committee without a meeting, shall be valid acts of the Committee.

3.4 Choice of Form of Option.

The Committee shall have the discretion to cause any Option granted pursuant to this Plan to be granted with the intent that it qualify for treatment as an “Incentive Stock Option” (an “ISO”) as defined in § 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or with the intent that it be treated as a “Nonqualified Stock Option” (a “NSO”) (ISOs and NSOs shall collectively be referred to herein as “Options” unless reference is specifically made only to one or the other, and, in the case of any such reference only to one, such reference shall be deemed to be made to the exclusion of the other.)

3.5 Effect of Committee Action.

All actions, decisions and determinations of the Committee in connection with the administration of the Plan, and in connection with the interpretation and construction of, or questions or other matters concerning, the Plan or any Option granted, shall (i) be made consistent and in accordance with the terms of the Plan and, with respect to an ISO, shall be designed to cause the Plan and each such ISO to continue to comply with applicable provisions of the Code, and (ii) shall be final, conclusive and binding on all persons, including the Company, its shareholders, Optionees and any other person claiming any interest in any Option; provided, however, that any action, decision, interpretation or determination, other than those respecting the actual grant of Options, shall be subject to review by the Board of Directors either on its own initiative, at the request of the Committee or on application of any aggrieved party. In such a case, the determination of the Board of Directors on such review shall be final and binding on all affected parties.

4

3.6 Indemnification.

To the extent permitted by applicable law, and in addition to such other rights of indemnification members of the Committee may have as Directors of the Company, the members of the Committee shall be indemnified by the Company against the reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal thereof, to which they or any of them may be a party by reason of any action taken or omitted in good faith under or in connection with administration of the Plan or any Option granted hereunder and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that any such Committee member is liable for gross negligence or misconduct in the performance of his duties; provided, however, that within sixty (60) days after institution of any such action, suit or proceeding, such Committee member(s) shall in writing offer the Company the opportunity, at its own expense, to handle and defend same.

ARTICLE IV

GRANT AND TERMS OF OPTIONS

4.1 Authorization to Grant Options.

Pursuant to the Plan, from time to time prior to the Termination Date the Company may grant Options to Employees to purchase shares of Common Stock. Options may only be granted by action of the Committee, and no person shall have any rights under the Plan or with respect to any Option except pursuant to such action of the Committee.

4.2 Number of Shares.

The number of shares of Option Stock covered by each Option shall be set by the Committee at the time such Option is granted and shall be specified in the Option Agreement relating to such Option. The number of shares of Option Stock covered by each Option shall be subject to adjustment in the manner described in Paragraph 6.1 below.

4.3 Exercise Price.

At the time an Option is granted, the Committee shall set the Exercise Price applicable to such Option. The Exercise Price shall be determined by the Committee in the manner described below and shall be specified in the Option Agreement evidencing the Option. The Exercise Price applicable to each Option shall be subject to adjustment in the manner described in Paragraph 6.1 below.

The Exercise Price for each share of Option Stock covered by an Option shall not be less than one hundred percent (100%) of the fair market value of one share of the Common Stock on the Date of Grant of such Options (the “Fair Market Value”). The Fair Market Value of a share of the Company’s outstanding Common Stock on any particular date shall be, (i) if the Common

5

Stock is not then listed on the Nasdaq Stock Market, the fair market value of a share of the Common Stock as determined by the Committee in its sole discretion in such manner as it shall deem to be reasonable and appropriate, or, (ii) if the Common Stock is listed on the Nasdaq Stock Market, the average of the bid and asked prices for a share of the Common Stock as quoted by Nasdaq on such date.

Notwithstanding anything contained herein to the contrary, in the case of an ISO being granted to an Employee who owns, immediately before the ISO is granted, more than ten percent (10%) of the total combined voting power of all classes of Common Stock of the Company, the Exercise Price per share with respect to such ISO, as determined by the Committee and stated in the Option Agreement, shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of the Company’s outstanding Common Stock as of the Date of Grant of the ISO.

4.4 Option Agreements.

Each Option granted under the Plan shall be evidenced by an Option Agreement which shall be executed and delivered by or on behalf of the Company and the Optionee and which shall (i) specify whether such Option is intended to be an ISO or an NSO, (ii) contain such other information as is provided or permitted herein to be contained in the Option Agreement, and (iii) not contain any provisions inconsistent with the Plan. Following the execution of an Option Agreement evidencing an Option, such Option shall be effective as of the Date of Grant of such Option.

4.5 Limit on Grant of ISOs.

The aggregate Fair Market Value (determined as of the Date of Grant of the Option) of the Option Stock for which an Optionee may be granted ISOs exercisable for the first time in any calendar year (including ISOs granted under all option plans of the Company or any of its Subsidiaries) shall not exceed $100,000. This $100,000 limitation shall not apply to the grant of NSOs.

ARTICLE V

EXERCISE OF OPTIONS

5.1 Waiting Period.

No Option may be exercised unless and until the Optionee shall have completed one full year (or such other or longer period as shall be specified by the Committee) of continuous, full time service in the employment of the Company or any of its Subsidiaries following the Date of Grant of the Option, but thereafter may be exercised as provided herein and in the Option Agreement evidencing such Option. The waiting period provided herein shall not operate to extend the Expiration Date or maximum period for exercise of an Option set forth or referred to in Paragraph 5.2 below.

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5.2 Term; Conditions on Exercise; Expiration or Termination.

The Expiration Date of each Option shall be set by the Committee at the time the Option is granted and shall be specified in the Option Agreement evidencing the Option. However, (i) the Expiration Date of an ISO granted to an Employee who owns, immediately before the ISO is granted, more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, shall not be more than 5 years following the Date of Grant of the ISO, and (ii) the Expiration Date of any Option shall not be more than ten (10) years following the Date of Grant of the Option.

Subject to the other terms and conditions contained in the Plan, each Option may be exercised by the Optionee at such times or intervals and on such other terms and conditions (if any) as are determined by the Committee and specified in the Option Agreement evidencing the Option.

Notwithstanding anything contained herein or in any Option Agreement to the contrary, to the extent that an Option shall not previously have been exercised in the manner required by the Plan, it shall expire and terminate at 5:00 P.M. on its Expiration Date. In addition to the termination provisions set forth above, Options granted pursuant to the Plan shall terminate or may be terminated as provided in Paragraphs 5.7 and 6.1 below. Upon the expiration or termination of all or any portion of an Option, such Option or portion thereof shall, without any further act by the Company, expire and no longer be exercisable or confer any rights to any person to purchase shares of Common Stock under the Plan.

5.3 Notice of Exercise.

To exercise an Option in whole or in part, the Optionee or other person then entitled to exercise the Option or portion thereof shall notify the Company by delivering written notice of such exercise (a “Notice of Exercise”) to the President, Chief Executive Officer or Executive Vice President-Investor Relations of the Company. Such written notice shall be substantially in the form attached hereto as Exhibit A and shall specify the number of shares of Option Stock to be purchased. A Notice of Exercise shall not be effective (and the Company shall have no obligation to sell any Option Stock to the Optionee pursuant to such Notice) unless it satisfies the terms and conditions set forth herein and actually is received by the Company as provided above prior to the Expiration Date of the Option to be exercised.

In the event an Option or portion thereof is being exercised by a person other than the Optionee (as provided in Paragraph 5.7(c) below), the Notice of Exercise shall be accompanied by appropriate proof of the right of such person(s) to exercise the Option.

5.4 Payment Upon Exercise.

The Exercise Price of Option Stock being purchased upon the exercise of an Option (in part or in whole) shall be paid by the Optionee in full at the time of such exercise. Such payment may be made (i) in cash, (ii) by bank check or by bank money order, (iii) subject to the consent of the Committee, by delivery to the Company of previously-acquired Common Stock (in proper form for transfer to the Company) and having a Fair Market Value (determined by the Committee as

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of the business day immediately preceding the date of exercise of the Option) equal to the purchase price of the shares of Option Stock being purchased, or, (iv) in the discretion of the Committee, by a combination thereof. No Option Stock shall be issued or delivered until full payment of the Exercise Price therefor has been made.

5.5 Restrictions.

With respect to any Option, the Committee shall have the authority, in its sole discretion, to impose restrictions of any nature on the exercise of such Option and on the Option Stock acquired by the Optionee upon such exercise. Without limiting the generality of the foregoing, the Committee may impose conditions restricting absolutely the transferability of Option Stock acquired through exercise of any Options for such periods as the Committee may determine. Any such restrictions imposed by the Committee shall be specified in the Option Agreement.

5.6 Nontransferability.

Options granted to an Eligible Employee hereunder shall not be assignable or transferable except by will or by the laws of descent and distribution, and, during the lifetime of the Eligible Employee, may be exercised only by him. More particularly, but without limiting the generality of the foregoing, an Option may not be sold, assigned, transferred (except as noted herein) pledged or hypothecated in any way and shall not be subject to execution, attachment or similar process.

5.7 Termination of Employment.

(a) In the event an Optionee’s employment with the Company or any Subsidiary shall terminate or be terminated prior to the Expiration Date of his or her Option for any reason other than his or her death, “Disability” (as defined below) or “Retirement” (as defined below), then the Optionee’s Option immediately shall terminate at the times specified below. Authorized leaves of absence and transfers of employment by an Optionee between the Company and a Subsidiary, or between two Subsidiaries, without a break in service, shall not constitute terminations of employment for purposes of the Plan. The Committee shall determine whether any other absence for military or government service or for any other reasons shall constitute a termination of employment for purposes of the Plan, and the Committee’s determination shall be final.

(i) If, prior to the Expiration Date of his or her Option, an Optionee voluntarily terminates his or her employment with the Company or any of its Subsidiaries (other than as a result of “Retirement” (as defined below), then, to the extent it shall not previously have been exercised in the manner required by the Plan, any Option previously granted to the Optionee which remains outstanding and in effect immediately shall terminate and be of no further force or effect on the effective date of such termination of employment.

(ii) If, prior to the Expiration Date of his or her Option, an Optionee’s employment with the Company or any of its Subsidiaries is terminated as a result of

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“Retirement” (as defined below) with the consent of the Company, the Eligible Employee shall have the right to exercise his rights pursuant to his Option within ninety (90) days following the date of such Retirement, but not later than the Expiration Date of the Option, in accordance with the terms of the Plan.

The termination of an Optionee’s employment with the Company or any of its Subsidiaries which is treated as a “retirement” under the terms of the Company’s Employee Savings Plus and Profit Sharing Plan, or the termination of an Optionee’s employment at such earlier time or under such other circumstances as the Committee shall agree in writing to treat as “Retirement” for purposes of the Plan, shall be deemed to be a “Retirement” with the consent of the Company.

(iii) If, prior to the Expiration Date of his or her Option, an Optionee’s employment is terminated by the Company or any of its Subsidiaries other than for “Cause” (as defined below), then, to the extent it shall not previously have been exercised in the manner required by the Plan, any Option previously granted to the Optionee which remains outstanding and in effect shall terminate and be of no further force or effect on the date ninety (90) days following the effective date of such termination of employment.

(iv) If, prior to the Expiration Date of his or her Option, an Optionee’s employment is terminated by the Company or any of its Subsidiaries for Cause, then, to the extent it shall not previously have been exercised in the manner required by the Plan, any Option previously granted to the Optionee which remains outstanding and in effect immediately shall terminate and be of no further force or effect on the earlier of the effective date of such termination of employment or the date of a determination by the Company or any of its Subsidiaries to terminate the Optionee’s employment for Cause.

For purposes of this Paragraph 5.7(a), the Company or its Subsidiary shall have “Cause” to terminate an Optionee’s employment upon:

(i) A determination by the Company or its Subsidiary, in good faith, that the Optionee (A) has failed in any material respect to perform or discharge his duties or responsibilities of employment, or (B) is engaging or has engaged in willful misconduct or conduct which is detrimental to the business prospects of the Company or its Subsidiary or which has had or likely will have a material adverse effect on the Company’s or its Subsidiary’s business or reputation;

(ii) The violation by the Optionee of any applicable federal or state law, or any applicable rule, regulation, order or statement of policy promulgated by any governmental agency or authority having jurisdiction over the Company or its Subsidiaries (a “Regulatory Authority”), including but not limited to the Federal Deposit Insurance Corporation, the North Carolina Commissioner of Banks, the North Carolina State Banking Commission, the Federal Reserve Board or any other regulator, which results from the Eligible Employee’s gross negligence,

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willful misconduct or intentional disregard of such law, rule, regulation, order or policy statement and results in any substantial damage, monetary or otherwise, to Company or any of its Subsidiaries or to its reputation;

(iii) The commission in the course of the Optionee’s employment of an act of fraud, embezzlement, theft or proven personal dishonesty, or the Optionee’s being charged with any felony or other crime involving moral turpitude (whether or not such act or charge involves the Company or its assets or results in criminal indictment, charges, prosecution or conviction)

(iv) The conviction of the Optionee of any felony or any criminal offense involving dishonesty or breach of trust, or the occurrence of any event described in Section 19 of the Federal Deposit Insurance Act or any other event or circumstance which disqualifies the Optionee from serving as an employee or executive officer of, or a party affiliated with, the Company or any of its Subsidiaries; or, in the event the Optionee becomes unacceptable to, or is removed, suspended or prohibited from participating in the conduct of the Company’s or any of its Subsidiaries’ affairs (or if proceedings for that purpose are commenced), by any Regulatory Authority;

(v) The exclusion of the Optionee by the carrier or underwriter from coverage under the Company’s then current “blanket bond” or other fidelity bond or insurance policy covering its or its Subsidiaries’ directors, officers or employees, or the occurrence of any event which the Company or any of its Subsidiaries believes, in good faith, will result in the Optionee being excluded from such coverage, or having coverage limited as to the Optionee as compared to other covered officers or employees, pursuant to the terms and conditions of such “blanket bond” or other fidelity bond or insurance policy; or,

(vi) Optionee’s excessive use of any addictive drug or use of any controlled substance, as defined at 21 U.S.C. § 802 or listed on Schedules I through V of 21 U.S.C. § 812, as revised from time to time, and as defined by other federal laws and regulations, use of legal drugs that have not been obtained legally or are not being taken as prescribed by a licensed physician, or use of alcohol in a manner that adversely affects the performance of his or her employment duties, prevents him or her from performing his or her employment duties safely or creates a risk to the safety of others at the workplace.

For purposes of this Plan, the determination of whether any termination of an Optionee’s employee was for Cause shall be within the sole discretion of the Committee.

(b) Disability of Optionee: If, prior to the Expiration Date of his or her Option, an Optionee becomes “Disabled” (as defined below) and his or her employment with the Company or any of its Subsidiaries is terminated as a result, then, to the extent it shall not previously have been exercised in the manner required by the Plan, any Option previously granted to the Optionee which remains outstanding and in effect shall terminate and be of no further force or effect on the date ninety (90) days following the effective date of such

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termination of employment. For purposes of this Paragraph 5.7(b), an Optionee shall be considered “Disabled” at such time as he or she is determined to be permanently disabled such as would qualify the Optionee for benefits under the Company’s long term disability insurance plan which is applicable to the Optionee.

(c) Death of Optionee: If an Optionee shall die while employed by the Company or a Subsidiary and prior to the Expiration Date of an Option held by him or her, then, to the extent the Option held by the Optionee at the time of his or her death remains in effect and could be exercised by the Optionee under the terms of the Plan and the Option Agreement relating to it, his designated beneficiary (determined either by will or other writing delivered to the Committee in advance), or if no designated beneficiary, the personal representative of his estate, shall have the right to exercise such Optionee’s rights pursuant to his Option following the date of his death, but not later than the Expiration Date of the Option, in accordance with the terms of the Plan. Any references herein to an Optionee shall be deemed to include any person entitled to exercise an Option after the death of such Optionee under the terms of this Plan.

5.8 Modification, Extension and Renewal of Options.

Subject to the provisions of Paragraph 6.1 below, any Option may be Modified, Extended or Renewed (as those terms are defined in Article II) only upon the agreement of the Committee and the Optionee. Any such agreement shall be in the form of a written amendment to the Option Agreement evidencing the Option being Modified, Extended or Renewed and which shall set forth the terms of any such Modification, Extension or Renewal.

5.9 Other Provisions.

In addition to the items required to be in the Option Agreement evidencing an Option, such Option Agreement shall contain such other terms, conditions and provisions applicable to such Option or the exercise thereof (including any and all limitations or restrictions as shall be necessary to comply with any applicable federal and state securities laws and regulations) as the Committee shall, at its sole discretion, deem necessary or advisable; provided, however, that the Committee may not impose any such terms, conditions or provisions that are inconsistent with any provisions of the Plan.

5.10 Issuance of Option Stock.

A stock certificate representing the number of shares of Option Stock purchased by the Optionee upon the proper exercise of an Option shall be issued and delivered by the Company as soon as practicable after receipt of a valid and effective Notice of Exercise and full payment of the Exercise Price relating to those shares. Such certificate shall be delivered to or on the written order of the person exercising the Option.

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ARTICLE VI

GENERAL PROVISIONS

6.1 Adjustment of Options.

(a) Changes in Capitalization; Stock Splits and Dividends. In the event of (i) any dividend payable by the Company in shares of Common Stock, or (ii) any recapitalization, reclassification, split, consolidation or combination of, or other change in or offering of rights to the holders of, Common Stock, or (iii) an exchange of the outstanding shares of Common Stock for a different number or class of shares of stock or other securities of the Company in connection with a merger, consolidation or other reorganization of or involving the Company (provided the Company shall be the surviving or resulting corporation in any such merger or consolidation) then the Committee may, in such a manner as it shall determine in its sole discretion, appropriately adjust the number and class or kind of shares which may be issued under the Plan and of the securities which shall be subject to outstanding Options and/or the Exercise Price applicable to any outstanding Option. However, in no event shall any such adjustment change the aggregate Exercise Price for Option Stock to be purchased upon the exercise of any Option.

Subject to review by the Board of Directors of the Company, any such adjustments made by the Committee shall be consistent with changes in the Company’s outstanding Common Stock resulting from the above events and, when made, shall be final, conclusive and binding on all persons, including, without limitation, the Company, its shareholders and each Optionee or other person having any interest in any Option so adjusted. Any fractional shares resulting from any such adjustment shall be eliminated. However, notwithstanding anything contained herein to the contrary, no Option which is intended to be an ISO shall be adjusted in a manner that causes the Option to fail to continue to qualify as an ISO.

(b) Dissolution; Merger or Consolidation; Sale of Assets. In the event of a dissolution or liquidation of the Company, the sale of substantially all the Company’s assets, or a merger or consolidation of the Company with or into any other corporation or entity (or any other such reorganization or similar transaction) in which the Company is not the surviving or resulting corporation (and if a provision is not made in such transaction for the continuance of this Plan or the assumption of Options by any successor to the Company or for the substitution for Options of new options covering shares of any successor corporation or a parent or subsidiary thereof) then, in such event, all rights of Optionees pursuant to all outstanding Options shall terminate and be of no further effect to the extent such Options have not been exercised prior to the effective time of such dissolution, liquidation, sale, merger, consolidation or other reorganization (or at such other time and pursuant to such rules and regulations as the Committee shall determine and promulgate to the Optionees). However, to the extent such Options shall not previously have been exercised, and notwithstanding any provisions of the Plan or any Option Agreement to the contrary, each such Option shall be exercisable in full immediately prior to the effective time of any such event. The Committee shall give each

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Optionee at least thirty (30) days prior written notice of the effective time of an event which gives rise to an immediate purchase right under this Paragraph 6.1.

(c) Miscellaneous. The grant of an Option shall not affect in any way the right or power of the Company to (i) make or authorize any adjustment, recapitalization, reclassification, reorganization or any other change in the Company’s capital or business structure or its business, (ii) to merge or consolidate, or to dissolve, liquidate, sell or transfer all or any part of its business or assets, or (iii) to issue bonds, debentures, preferred or other preference stock ahead of or affecting Common Stock or the rights thereof.

6.2 Rights as a Shareholder.

Neither an Optionee nor any other person shall have any rights as a stockholder with respect to any shares of Option Stock covered by an Option until such Option shall have been validly exercised in the manner described herein and in the Option Agreement relating to such Option, full payment of the Exercise Price has been made for such shares, and a stock certificate representing the Option Stock purchased upon such exercise shall have been registered on the Company’s stock records in the name of and delivered to such person. Except to the extent of adjustments made pursuant to Paragraph 6.1 above, no adjustment on behalf of the Optionee shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property), distributions or other rights for which the record date for determining the shareholders entitled to receive the same is prior to the date of registration and delivery of the stock certificate(s) representing the Option Stock.

6.3 No Right to Employment.

Neither the Plan nor the grant of an Option, nor any Option Agreement evidencing any such Option, is intended or shall be deemed or interpreted to constitute an employment agreement or to confer upon an Optionee any right of employment with the Company or any of its Subsidiaries, including without limitation any right to continue in the employ of the Company or any of its Subsidiaries, or to interfere with, restrict or otherwise limit in any way the right of the Corporation or any Subsidiary to discharge or terminate the employment of any Optionee at any time for any reason whatsoever, with or without cause.

6.4 Legal Restrictions.

If in the opinion of legal counsel for the Company the issuance or sale of any shares of Option Stock pursuant to the exercise of an Option would not be lawful without registration under the Securities Act of 1933 (the “1933 Act”) or without some other action being taken or for any other reason, or would require the Company to obtain approval from any governmental authority or regulatory body having jurisdiction deemed by such counsel to be necessary to such issuance or sale, then the Company shall not be obligated to issue or sell any Option Stock pursuant to the exercise of any Option to any Optionee or to any other authorized person unless a registration statement that complies with the provisions of the 1933 Act in respect of such shares is in effect at the time thereof, or all other required or appropriate action has been taken under and pursuant to the terms and provisions of the 1933 Act or other applicable law, or the Company receives

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evidence satisfactory to such counsel that the issuance and sale of such shares, in the absence of an effective registration statement or other action, would not constitute a violation of the 1933 Act or other applicable law, or unless any such required approval shall have been obtained. The Company is in no event obligated to register any such shares, to comply with any exemption from registration requirements or to take any other action which may be required in order to permit, or to remedy or remove any prohibition or limitation on, the issuance or sale of such shares to any Employee or other authorized person.

The Committee, as a condition of the grant of an Option and/or the exercise thereof, may require that the Optionee execute one or more undertakings in such form as the Committee shall prescribe to the effect that such shares are being acquired for investment purposes only and not with a view to the distribution or resale thereof.

Notwithstanding anything contained herein to the contrary, it is understood and agreed that neither the Company nor any of its Subsidiaries (or any of their successors in interest) shall be required to take any action under this Plan or any Option granted hereunder if:

(a) the Company is declared by any Regulatory Authority to be insolvent, in default or operating in an unsafe or unsound manner; or,

(b) in the opinion of counsel to the Company, such payment or action:

(i) would be prohibited by or would violate any provision of state or federal law applicable to the Company or any of its Subsidiaries, including without limitation the Federal Deposit Insurance Act as now in effect or hereafter amended;

(ii) would be prohibited by or would violate any applicable rules, regulations, orders or statements of policy, whether now existing or hereafter promulgated, of any Regulatory Authority; or,

(iii) otherwise would be prohibited by any Regulatory Authority.

6.5 No Obligation to Purchase Shares.

The granting of an Option pursuant to the Plan shall impose no obligation on the Optionee to purchase any shares covered by such Option.

6.6 Payment of Taxes.

Each Optionee shall be responsible for all federal, state, local or other taxes of any nature as shall be imposed pursuant to any law or governmental regulation or ruling on any Option or the exercise thereof or on any income which an Optionee is deemed to recognize in connection with an Option. If the Committee shall determine to its reasonable satisfaction that the Company or any of its Subsidiaries is be required to pay or withhold the whole or any part of any estate, inheritance, income, or other tax with respect to or in connection with any Option or the exercise thereof, then the Company or such Subsidiary shall have the full power and authority to withhold

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and pay such tax out of any shares of Common Stock being purchased by the Optionee or from the Optionee’s salary or any other funds otherwise payable to the Optionee, or, prior to and as a condition of exercising such Option, the Company may require that the Optionee pay to it in cash the amount of any such tax which the Company, in good faith, deems itself required to withhold.

6.7 Choice of Law.

The validity, interpretation and administration of the Plan and of any rules, regulations, determinations or decisions made thereunder, and the rights of any and all persons having or claiming to have any interest therein or thereunder, shall be determined exclusively in accordance with the laws of the State of North Carolina. Without limiting the generality of the foregoing, the period within which any action in connection with the Plan must be commenced shall be governed by the laws of the State of North Carolina, without regard to the place where the act or omission complained of took place, the residence of any party to such action, or the place where the action may be brought or maintained.

6.8 Modification of Plan.

The Board, upon recommendation of the Committee, may, from time to time, amend, modify, suspend, terminate or discontinue the Plan at any time without notice, provided, however, that no such action by the Board shall adversely affect any Optionee’s rights under any then outstanding Options without such Optionee’s prior written consent; and, provided further that, except as shall be required to comport with changes in the Code, any modification or amendment of the Plan that (a) increases the aggregate number of shares of Common Stock which may be issued upon the exercise of Options (other than as provided in Paragraph 6.1 above), (b) changes the formula by which the Exercise Price is determined, (c) changes the provisions of the Plan with respect to the determination of Employees to whom Options may be granted or, (d) otherwise materially increases the benefits accruing to Optionees under the Plan shall be subject to the approval of the Company’s shareholders. In the event the Board shall terminate or discontinue the Plan, such action shall not operate to deprive any Optionee of any rights theretofore acquired by him or her under the Plan, and any Options outstanding as of the date of any such termination shall remain in full force and effect according to their terms as though the Plan had not been terminated.

6.9 Application of Funds.

The proceeds received by the Company from the sale of Common Stock pursuant to Options granted under the Plan will be used for general corporate purposes.

6.10 Notices.

Except as otherwise provided herein, any notice which the Company or an Optionee may be required or permitted to give to the other under this Plan shall be in writing and shall be deemed duly given when delivered personally or deposited in the United States mail, first class postage prepaid, and properly addressed. Notice, if to the Company, shall be sent to its Executive Vice President-Investor Relations at the following address:

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Uwharrie Capital Corp

Post Office Box 338

Albemarle, North Carolina 28002-0338

Any notice sent by mail by the Company to an Optionee shall be sent to the most current address of the Optionee as reflected on the records of the Company or its Subsidiaries as of the time said notice is required. In the case of a deceased Optionee, any notice shall be given to the Optionee’s personal representative if such representative has delivered to the Company evidence satisfactory to the Company of such representative’s status as such and has informed the Company of the address of such representative by notice pursuant to this Paragraph 6.10.

6.11 Conformity With Applicable Laws and Regulations.

With respect to persons who are subject to Section 16 of the 1934 Act, the Plan and each Option granted and transaction under it are intended to satisfy applicable conditions of Rule 16b-3 of the Securities and Exchange Commission (as such Rule may be modified, amended or superseded from time to time). To the extent any provision of the Plan or any Option Agreement, or any action by the Committee or the Board, shall fail to so comply, then, to the extent permitted by law and deemed advisable by the Committee, such provision or action shall be deemed null and void.

6.12 Successors and Assigns.

Subject to Paragraph 5.6 above, this Plan shall bind and inure to the benefit of the Company, any Optionee, and their respective successors, assigns, personal or legal representatives and heirs.

6.13 Severability.

It is intended that each provision of this Plan shall be viewed as separate and divisible, and in the event that any provision hereof shall be held to be invalid or unenforceable, the remaining provisions shall continue to be in full force and effect.

6.14 Titles.

Titles of Articles and Paragraphs are provided herein for convenience only, do not modify or affect the meaning of any provision herein, and shall not serve as a basis for interpretation or construction of this Plan.

6.15 Gender and Number.

As used herein, the masculine gender shall include the feminine and neuter, the singular number the plural, and vice versa, whenever such meanings are appropriate.

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EX-10.2

Exhibit 10.2

UWHARRIE CAPITAL CORP

2006 EMPLOYEE STOCK PURCHASE PLAN

Uwharrie Capital Corp (the “Company”) hereby adopts this 2006 EMPLOYEE STOCK PURCHASE PLAN (the “Plan”) as further described herein.

ARTICLE I

PURPOSE AND SCOPE OF PLAN

1.1 Purpose.

The purpose of the Plan is to encourage employees of Uwharrie Capital Corp (the “Company”) and companies which are, or during the term of the Plan become, subsidiaries of the Company or subsidiaries of its subsidiaries (the “Subsidiaries” and each a “Subsidiary”) to acquire equity interests in the Company and to encourage their continued employment by giving them options to purchase shares of the Company’s capital stock and, thereby, the opportunity to share the benefit of increases in the value of the Company’s capital stock.

1.2 Stock to be Issued under Plan; Aggregate Limitation.

Pursuant to and in accordance with the terms of the Plan, options (“Options”) may be granted from time to time to purchase shares of the Company’s common stock, $1.25 par value per share (“Common Stock”). The Options are intended to constitute options issued pursuant to an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”).

The aggregate number of shares of Common Stock which may be sold upon the exercise of Options granted under the Plan is 94,474 shares, which maximum number is subject to adjustment as provided in Paragraph 6.1 hereof. Shares of Common Stock sold by the Company upon the exercise of Options granted hereunder, at the sole discretion of the Company, may be issued from the Company’s authorized but unissued shares, or be issued and outstanding shares purchased by the Company on the open market or in private transactions. Upon the expiration or termination of an Option granted pursuant to the Plan, any shares of Common Stock which have not been issued and purchased pursuant to the exercise of that Option shall again become available for the grant of new Options under the Plan.

1.3 Effective Date; Termination Date.

The Plan shall be subject to approval by a vote of the holders of a majority of the shares of the Company’s Common Stock present or represented, in person or by proxy, and entitled to vote at a meeting of the Company’s shareholders held in accordance with North Carolina law. Subject to such approval, the Plan shall become effective as of May 16, 2006 (the “Effective Date”), which is the date of adoption of the Plan by the Company’s Board of Directors) and, unless sooner

terminated as provided herein, shall terminate at 5:00 P.M. on May 16, 2016 (the “Termination Date”). Following the Termination Date, no further Options may be granted under the Plan, but such termination shall not effect any Option granted prior to the Termination Date.

ARTICLE II

PLAN ADMINISTRATION

2.1 General.

The Plan shall be administered by a committee (the “Committee”) of, and appointed by, the Board of Directors of the Company, and which shall be composed of not less than three members of the Board of Directors who (i) are not employees of the Company and who are not, during the one year prior to service as members of the Committee, granted or awarded any equity securities of the Company pursuant to the Plan or any other plan of the Company or any of its affiliates, and who (ii) otherwise qualify as “disinterested administrators” as defined in Rule 16b-3 (c) (2) (i) under the Securities Exchange Act of 1934. Members of the Committee shall serve at the pleasure of the Board, and the Board of Directors, from time to time and at its discretion, may remove members from (with or without cause) or add members to the Committee or fill any vacancies on the Committee, however created.

2.2 Duties.

In its administration of the Plan, the Committee shall have the following authority, powers and duties:

(a) to determine the persons who are eligible to receive Options under the Plan;

(b) to construe and interpret the terms and provisions of the Plan and any Options granted pursuant to the Plan;

(c) to make, adopt, amend, rescind, and interpret such rules and regulations not inconsistent with the Plan or law as it from time to time deems reasonable and necessary for the interpretation and administration of the Plan;

(d) to prescribe the form or forms of the instruments evidencing any Options granted under the Plan and of any other instruments required under the Plan and to change such forms from time to time;

(e) subject to the provisions of Articles III and IV below, to make any and all determinations in connection with each grant of Options pursuant to the Plan (including without limitation the timing of each grant of Options and the Annual Factor, Fair Market Value, Applicable Percentage, Option Price and Option Term) and otherwise in the administration of the Plan;

(f) to take all other actions provided for herein or deemed by it, in its discretion, to be necessary or advisable to administer the Plan in a proper and effective manner.

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2.3 Meetings and Voting.

The Committee shall select one of its members as Chairman and shall hold meetings at such times and places as it shall deem necessary or desirable. A majority of the members of the Committee shall constitute a quorum for all matters with respect to administration of the Plan, and acts of a majority of the members of the Committee present at meetings at which a quorum is present, or acts reduced to and approved in writing by all of the members of the Committee without a meeting, shall be valid acts of the Committee.

2.4 Effect of Committee Action.

All actions, decisions and determinations of the Committee in connection with the administration of the Plan, and in connection with the interpretation and construction of, or questions or other matters concerning, the Plan or any Options granted, shall (i) be made consistent and in accordance with the terms of the Plan and shall be designed to cause the Plan to continue to comply with Section 423 of the Code, and (ii) shall be final, conclusive and binding on all persons, including the Company, its shareholders, Eligible Employees and any other person claiming any interest in any Option; provided, however, that any action, decision, interpretation or determination, other than those respecting the actual grant of Options, shall be subject to review by the Board of Directors, either on its own initiative, at the request of the Committee or on application of any aggrieved party. In such a case, the determination of the Board of Directors on such review shall be final and binding on all affected parties.

2.5 Indemnification.

To the extent permitted by applicable law, and in addition to such other rights of indemnification members of the Committee may have as Directors of the Company, the members of the Committee shall be indemnified by the Company against the reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal thereof, to which they or any of them may be a party by reason of any action taken or omitted in good faith under or in connection with administration of the Plan or any Option granted hereunder and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that any such Committee member is liable for gross negligence or misconduct in the performance of his duties; provided, however, that within sixty (60) days after institution of any such action, suit or proceeding, such Committee member(s) shall in writing offer the Company the opportunity, at its own expense, to handle and defend same.

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ARTICLE III

ELIGIBILITY

3.1 Eligible Employees.

Except as provided in Paragraph 3.2 below, each employee of the Company and/or any Subsidiary who has been so employed on a continuous, full-time basis for a period of not less than one year preceding the effective date of a grant of Options under the Plan (the “Date of Grant”) and who remains actively employed by the Company and/or any Subsidiary or is on paid or authorized but unpaid leave of absence on that date (an “Eligible Employee”), shall be eligible to receive an Option under the Plan in connection with that grant of Options. For purposes of the Plan, the term “Eligible Employee” does not include (i) any person whose customary employment is less than 20 hours per week, or whose customary employment is less than 5 months in any calendar year, or (ii) any person who is a “highly compensated” employee of the Company or any of its Subsidiaries as defined in Section 414(q) of the Code. For purposes of determining an employee’s eligibility to receive an Option, the Committee may, at its sole discretion, give credit for the employee’s past service with any financial institution or other entity that shall have been acquired by the Company or any Subsidiary; provided, however, that all employees of the Company and/or any Subsidiary who were employees of any such acquired entity shall be treated alike for purposes of past service credit under the Plan.

3.2 Exclusion of Certain Shareholders.

Notwithstanding the provisions of Paragraph 3.1 above, in no event may an employee be granted an Option if such employee, immediately after the Option is granted, would own stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or its parent or subsidiary corporation (as the terms “parent corporation” and “subsidiary corporation” are defined in Sections 424(e) and (f) of the Code). For purposes of determining stock ownership under this paragraph, the rules of Section 424(d) of the Code shall apply, and shares of the Company’s stock which an Eligible Employee may purchase under outstanding options of any type shall be treated as shares owned by such employee.

ARTICLE IV

GRANT OF OPTIONS

4.1 Authorization to Grant Options.

Pursuant to the Plan, from time to time prior to the Termination Date the Company may grant Options to Eligible Employees to purchase shares of Common Stock. Each such grant of Options must be specifically approved by the Committee and, in connection with each such grant, Options will be granted in accordance with the terms of the Plan to all persons who are Eligible Employees as of the Date of Grant of such Options. However, notwithstanding anything contained herein to the contrary, in no event may the Committee approve a grant of Options under the Plan while any Option previously granted hereunder shall remain outstanding.

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4.2 Number of Shares.

At the time each grant of Options hereunder is approved by the Committee, the Committee also shall specify a dollar amount of annual compensation (the “Annual Factor”) on the basis of which the number of shares of Common Stock to be covered by the Option granted to each Eligible Employee will be determined. Each such Option will entitle the Eligible Employee to whom it is granted to purchase a number of whole shares of Common Stock equal to the lesser of (i) such employee’s annual rate of compensation as of the day prior to the Date of Grant of that Option (as determined by the payroll records of the corporation that employs such person) divided by the Annual Factor set by the Committee for that grant of Options, or (ii) 500. The Annual Factor may be different for each grant of Options under the Plan; however, in connection with each separate grant of Options the Annual Factor shall be the same for all Eligible Employees.

The term “compensation” as used herein is defined as an Eligible Employee’s annualized regular, fixed base salary or wages based on the Eligible Employee’s salary or wage rate (and number of hours per week) in effect at the time of grant. Compensation does not include any bonus, overtime payment, contribution by an employer corporation to an employee benefit plan or other similar payment or contribution.

4.3 Option Price.

The option or purchase price of each share of Common Stock covered by Options included in each grant of Options under the Plan (the “Option Price”) shall be a percentage (the “Applicable Percentage”) of the fair market value of one share of the Common Stock on the Date of Grant of such Options (the “Fair Market Value”). The Applicable Percentage for each grant of Options shall be determined by the Committee, but (i) in no event may be less than 85% nor more than 100%, and (ii) may be different for each grant of Options, but in connection with each separate grant of Options shall be the same for all Eligible Employees.

The Fair Market Value of a share of the Company’s outstanding Common Stock on any particular date shall be, (i) if the Common Stock is not then listed on the Nasdaq Stock Market, the fair market value of a share of the Common Stock as determined by the Committee in its sole discretion in such manner as it shall deem to be reasonable and appropriate, or, (ii) if the Common Stock is listed on the Nasdaq Stock Market, the average of the bid and asked prices for a share of the Common Stock as quoted by Nasdaq on such date.

4.4 Option Notices.

Each Option granted pursuant to the Plan shall be evidenced by a written notice (an “Option Notice”) delivered to the Eligible Employee to whom such Option is granted and which shall specify (i) the Date of Grant of the Option, (ii) the number of shares covered by the Option, and (iii) the Option Price of the covered shares. Each Option Notice shall be in such form as the Committee shall determine and shall incorporate by reference the terms and provisions of the Plan. No Eligible Employee shall have any rights hereunder to purchase any shares of Common

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Stock until an Option has been granted to him and such Option is evidenced by an Option Notice delivered to him, all as provided herein.

4.5 Limitation on Purchases.

Notwithstanding the foregoing provisions of the Plan or the terms of any Option granted hereunder, no employee of the Company or any Subsidiary shall be permitted to purchase shares of the Company’s stock under all employee stock purchase plans (including this Plan) of his employer corporation and its related corporations at a rate which exceeds $25,000 in fair market value of such stock (determined at the time the Option is granted) for each calendar year in which any option granted to such individual pursuant to any such plan is outstanding at any time. This limitation applies only to options granted under “employee stock purchase plans” as defined by Section 423 of the Code and does not limit the amount of the Company’s stock which an Eligible Employee may purchase under any other stock or bonus plan then in effect.

ARTICLE V

TERMS AND CONDITION OF OPTIONS; PURCHASE OF SHARES

5.1 Term of Options; Expiration or Termination.

Except as otherwise provided below, the term of each Option (the “Option Term”) shall extend for a period commencing on the Date of Grant and ending on the 15th day of the twenty-fourth calendar month (including the month in which the Option is granted) following the Date of Grant of such Option (the “Expiration Date”) Notwithstanding anything contained herein or in any Option Agreement to the contrary, to the extent that an Option shall not previously have been exercised in the manner required by the Plan, it shall expire and terminate at 5:00 P.M. on its Expiration Date.

In addition to the termination provisions set forth above, Options granted pursuant to the Plan shall terminate or may be terminated as provided in Paragraphs 5.6 and 6.1 below. Upon the expiration or termination of all or any portion of an Option, such Option or portion thereof shall, without any further act by the Company, expire and no longer be exercisable or confer any rights to any person to purchase shares of Common Stock under the Plan.

5.2 Election by Eligible Employee.

Each Option shall entitle the Eligible Employee to whom it is granted to purchase up to the total number of shares of Common Stock specified in the Option Notice relating to that Option, and to purchase all or any portion of such shares at the times and in the manner specified below.

During the first fifteen (15) days of each December and June during the Option Term of each Option granted under the Plan (the “Election Periods”), an Eligible Employee may elect to purchase shares pursuant to his Option. In order to make such election, the Eligible Employee must give written notice (an “Election Notice”) to the Company as to the number of shares he wishes to purchase (the “Elected Shares”). Such notices must be made on a form supplied by the Company for that purpose and must be accompanied by full payment of the Option Price of all

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Elected Shares or, if the Eligible Employee intends that payment for any of the Elected Shares be made from funds held for him under the payroll deduction plan described in Paragraph 5.4 below, such notice must indicate that payment of the Option Price for those shares will be made by transfer of funds under that plan. Purchases of Elected Shares shall be made on the Company’s last business day of each such month (the “Purchase Dates”). An Eligible Employee’s Election Notice as to any number of Elected Shares shall be irrevocable as to that number of shares and may not be altered or changed by such Eligible Employee following receipt of such notice by the Company.

The failure of an Eligible Employee to deliver an Election Notice to the Company in a timely manner to purchase all shares covered by an Option before the Expiration Date of that Option will be conclusively deemed to be an election by the Eligible Employee not to purchase, and a forfeiture of his rights to purchase, any and all such remaining shares covered by that Option; and, on the Expiration Date that Option shall immediately terminate and be of no further force or effect.

At its sole discretion and upon written notice to Eligible Employees, the Committee may (i) provide for Election Periods during other months during the Option Term of Options granted under the Plan, or, (ii) at the time any Options are granted, place other restrictions or limitations on the exercise of those Options.

5.3 Payment of Option Price.

Payment of the aggregate Option Price of Elected Shares must be delivered to the Company (in the form of certified or other collected U.S. funds) with the Election Notice pertaining to those Elected Shares required by Paragraph 5.2 above, or, in the case of any Eligible Employee participating in the payroll deduction plan, such payment must be transferred to the Company as described in Paragraph 5.4 below. If during any Election Period an Eligible Employee elects to purchase a number of shares greater than the number which could be purchased with funds credited to him under the payroll deduction plan, then payment of the aggregate Option Price of such excess Elected Shares must accompany the employee’s Election Notice with respect to those shares.

If payment of the Option Price of any Elected Shares is not made as required herein, then the Eligible Employee’s Election Notice will not be effective as to those shares and he will not be allowed to purchase those shares on the Purchase Date for that Election Period, but those shares may be reelected during a later Election Period (subject to final forfeiture as described in Paragraph 5.1 above)

5.4 Payroll Deduction Plan.

Any Eligible Employee may participate in a payroll deduction plan under which, at the Eligible Employee’s written instruction, a specified amount will be deducted from each payment of his salary or wages received on or before the Expiration Date of the Eligible Employee’s Option (or, in the case of an Eligible Employee whose salary or wages are paid other than monthly, from the second payment of wages each month), and will be applied in the manner described below

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toward the purchase of Elected Shares pursuant to his Option. Such instruction may be given only on a form of written authorization supplied by the Company for that purpose, and shall specify a dollar amount to be withheld from each salary or wage payment. The amount of such deduction shall not exceed the aggregate Option Price of all shares covered by the Eligible Employee’s Option which have not yet been purchased, divided by the number of the Eligible Employee’s salary or wage payments (or, in the case of an Eligible Employee whose salary or wages are paid other than monthly, the number of wage payments from which deductions will be made as described above) remaining prior to the Expiration Date of the Option. Once a payroll deduction authorization is given by an Eligible Employee, he may change the amount of the deduction, or terminate the deduction authorization, only upon prior written notice to the Company. Any such change in amount or termination shall be effective only on the January 1 or July 1 next following receipt of the Eligible Employee’s written notice thereof. Once an Eligible Employee has terminated a payroll deduction authorization, he may not give a new authorization or participate further in the payroll deduction plan until the January 1 or July 1 next following receipt by the Company of a new written payroll deduction authorization from the Eligible Employee.

All amounts deducted from the salaries or wages of all Eligible Employees pursuant to their payroll deduction authorizations shall be delivered to the Company’s subsidiary bank, Bank of Stanly (the “Bank”) which will hold such funds as custodian for each Eligible Employee in an interest-bearing deposit account.

Upon receipt by the Company of an Election Notice from an Eligible Employee with respect to the purchase of Elected Shares for which payment will be made with funds held by the Bank, the Company will so notify the Bank and the Bank will transfer to the Company from funds credited to the Eligible Employee on the Bank’s books and records the aggregate Option Price of those Elected Shares (but not more than the aggregate amount then credited to that Eligible Employee).

An Eligible Employee who has terminated a payroll deduction authorization as provided above, or whose Option has expired or been terminated, may request in writing that funds then credited to him on the Bank’s books and records be paid to him, and, following receipt of such a request by the Bank, all such funds which previously have not been transferred to the Company for the purchase of stock promptly will be paid to the Eligible Employee. Following the expiration or termination of an Eligible Employee’s Option, any remaining funds credited to him on the Bank’s books and records which previously have not been transferred to the Company for the purchase of stock shall be paid to the Eligible Employee.

5.5 Assignment.

Options granted to an Eligible Employee hereunder shall not be assignable or transferable except by will or by the laws of descent and distribution, and, during the lifetime of the Eligible Employee, may be exercised only by him. More particularly, but without limiting the generality of the foregoing, an Option may not be sold, assigned, transferred (except as noted herein), pledged or hypothecated in any way and shall not be subject to execution, attachment or similar process.

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5.6 Termination of Options; Effect.

(a) Termination of Employment: In the event an Eligible Employee’s employment with the Company or any Subsidiary shall terminate or be terminated during an Option Term for any reason other than his or her death, “Disability” (as defined below) or “Retirement” (as defined below), then the Eligible Employee’s Option shall terminate at the times specified below as to any unpurchased shares, including any Elected Shares to be purchased pursuant to an Option on a Purchase Date occurring after the date of his termination of employment.

Authorized leaves of absence and transfers of employment by an Eligible Employee between the Company and a Subsidiary, or between two Subsidiaries, without a break in service, shall not constitute terminations of employment for purposes of the Plan. The Committee shall determine whether any other absence for military or government service or for any other reasons shall constitute a termination of employment for purposes of the Plan, and the Committee’s determination shall be final.

(i) If, prior to the Expiration Date of his or her Option, an Eligible Employee voluntarily terminates his or her employment with the Company or any of its Subsidiaries (other than as a result of “Retirement” (as defined below), then, to the extent it shall not previously have been exercised in the manner required by the Plan, any Option previously granted to the Eligible Employee which remains outstanding and in effect immediately shall terminate and be of no further force or effect on the effective date of such termination of employment.

(ii) If, prior to the Expiration Date of his or her Option, an Eligible Employee’s employment with the Company or any of its Subsidiaries is terminated as a result of “Retirement” (as defined below) with the consent of the Company, the Eligible Employee shall have the right to exercise his rights pursuant to his Option within ninety (90) days following the date of such Retirement, but not later than the Expiration Date of the Option, in accordance with the terms of the Plan.

The termination of an Eligible Employee’s employment with the Company or any of its Subsidiaries which is treated as a “retirement” under the terms of the Company’s Employee Savings Plus and Profit Sharing Plan, or the termination of an Optionee’s employment at such earlier time or under such other circumstances as the Committee shall agree in writing to treat as “Retirement” for purposes of the Plan, shall be deemed to be a “Retirement” with the consent of the Company. The Committee shall determine whether any termination of employment is to be considered Retirement with the consent of the Company, and the Committee’s determination shall be final.

(iii) If, prior to the Expiration Date of his or her Option, an Eligible Employee’s employment is terminated by the Company or any of its Subsidiaries other than for Cause (as defined below), then, to the extent it shall not previously have been exercised in the manner required by the Plan, any Option previously granted to the Eligible Employee which remains outstanding and in effect shall terminate and be of no further force or effect on the date ninety (90) days following the effective date of such termination of employment.

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(iv) If, prior to the Expiration Date of his or her Option, an Eligible Employee’s employment is terminated by the Company or any of its Subsidiaries for Cause, then, to the extent it shall not previously have been exercised in the manner required by the Plan, any Option previously granted to the Eligible Employee which remains outstanding and in effect immediately shall terminate and be of no further force or effect on the earlier of the effective date of such termination of employment or the date of a determination by the Company or any of its Subsidiaries to terminate the Eligible Employee’s employment for Cause.

Within thirty (30) days after receipt by the Company of a written request therefor from an Eligible Employee whose employment has been terminated (voluntarily or by the Company or its Subsidiary), the Company shall pay to the Eligible Employee any funds paid prior to the date of such termination for the purchase of shares on a Purchase Date occurring after the date of termination and for which such Elected Shares have not been issued.

For purposes of this Paragraph 5.6(a), the Company or its Subsidiary shall have “Cause” to terminate an Eligible Employee’s employment upon:

(i) a determination by the Company or its Subsidiary, in good faith, that the Eligible Employee (A) has failed in any material respect to perform or discharge his duties or responsibilities of employment, or (B) is engaging or has engaged in willful misconduct or conduct which is detrimental to the business prospects of the Company or its Subsidiary or which has had or likely will have a material adverse effect on the Company’s or its Subsidiary’s business or reputation;

(ii) the violation by the Eligible Employee of any applicable federal or state law, or any applicable rule, regulation, order or statement of policy promulgated by any governmental agency or authority having jurisdiction over the Company or its Subsidiaries (a “Regulatory Authority”), including but not limited to the Federal Deposit Insurance Corporation, the North Carolina Banking Commissioner, the North Carolina State Banking Commission, the Federal Reserve Board or any other regulator, which results from the Eligible Employee’s gross negligence, willful misconduct or intentional disregard of such law, rule, regulation, order or policy statement and results in any substantial damage, monetary or otherwise, to Company or any of its Subsidiaries or to its reputation;

(iii) the commission in the course of the Eligible Employee’s employment of an act of fraud, embezzlement, theft or proven personal dishonesty, or the Eligible Employee’s being charged with any felony or other crime involving moral turpitude (whether or not such act or charge involves the Company or its assets or results in criminal indictment, charges, prosecution or conviction)

(iv) the conviction of the Eligible Employee of any felony or any criminal offense involving dishonesty or breach of trust, or the occurrence of any event described in Section 19 of the Federal Deposit Insurance Act or any other event or circumstance which disqualifies the Eligible Employee from serving as an employee or executive officer of, or a party affiliated with, the Company or any of its Subsidiaries; or, in the event the Eligible Employee becomes

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unacceptable to, or is removed, suspended or prohibited from participating in the conduct of the Company’s or any of its Subsidiaries’ affairs (or if proceedings for that purpose are commenced), by any Regulatory Authority;

(v) the exclusion of the Eligible Employee by the carrier or underwriter from coverage under the Company’s then current “blanket bond” or other fidelity bond or insurance policy covering its or its Subsidiaries’ directors, officers or employees, or the occurrence of any event which the Company or any of its Subsidiaries believes, in good faith, will result in the Eligible Employee being excluded from such coverage, or having coverage limited as to the Eligible Employee as compared to other covered officers or employees, pursuant to the terms and conditions of such “blanket bond” or other fidelity bond or insurance policy; or,

(vi) the Eligible Employee’s excessive use of any addictive drug or use of any controlled substance, as defined at 21 U.S.C. § 802 and listed on Schedules I through V of 21 U.S.C. § 812, as revised from time to time, and as defined by other federal laws and regulations, his use of legal drugs that have not been obtained legally or are not being taken as prescribed by a licensed physician, or his use of alcohol in a manner that adversely affects the performance of his or her employment duties, prevents him or her from performing his or her employment duties safely or creates a risk to the safety of others at the workplace.

For purposes of this Plan, the determination of whether any termination of an Optionee’s employee was for Cause shall be within the sole discretion of the Committee.

(b) Disability of Eligible Employee: If, prior to the Expiration Date of his or her Option, an Eligible Employee becomes “Disabled” (as defined below) and his or her employment with the Company or any of its Subsidiaries is terminated as a result, then, to the extent it shall not previously have been exercised in the manner required by the Plan, any Option previously granted to the Eligible Employee which remains outstanding and in effect shall terminate and be of no further force or effect on the date ninety (90) days following the effective date of such termination of employment. For purposes of this Paragraph 5.6 (b), an Eligible Employee shall be considered “Disabled” at such time as he or she is determined to be permanently disabled such as would qualify the Eligible Employee for benefits under the Company’s long term disability insurance plan which is applicable to the Eligible Employee.

(c) Death of Eligible Employee: If an Eligible Employee shall die while employed by the Company or a Subsidiary during an Option Term, his designated beneficiary (determined either by will or other writing delivered to the Committee in advance), or if no designated beneficiary, the personal representative of his estate, shall have the right to exercise such Eligible Employee’s rights pursuant to his Option following the date of his death, but not later than the Expiration Date of the Option, in accordance with the terms of the Plan.

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ARTICLE VI

GENERAL PROVISIONS

6.1 Allotment of Options.

(a) Changes in Capitalization; Stock Splits and Dividends. In the event of (i) any dividend payable by the Company in shares of Common Stock, or (ii) any recapitalization, reclassification, split, consolidation or combination of, or other change in or offering of rights to the holders of, Common Stock, or (iii) an exchange of the outstanding shares of Common Stock for a different number or class of shares of stock or other securities of the Company in connection with a merger, consolidation or other reorganization of or involving the Company (provided the Company shall be the surviving or resulting corporation in any such merger or consolidation) then the Committee may, in such a manner as it shall determine in its sole discretion, appropriately adjust the number and class or kind of shares or of the securities which shall be subject to outstanding Options and/or the Option Price per share which must be paid thereafter upon exercise of any Option. However, in no event shall any such adjustment change the aggregate Option Price for all shares that could be purchased pursuant to any Option.

Subject to review by the Board of Directors of the Company, any such adjustments made by the Committee shall be consistent with changes in the Company’s outstanding Common Stock resulting from the above events and, when made, shall be final, conclusive and binding upon all persons, including, without limitation, the Company, its shareholders and each Eligible Employee or other person having any interest in any Option so adjusted. Any fractional shares resulting from any such adjustment shall be eliminated. However, notwithstanding anything contained herein to the contrary, Options granted pursuant to the Plan shall not be adjusted in a manner that causes the Options to fail to continue to qualify as options issued pursuant to an “employee stock purchase plan” within the meaning of Section 423 of the Code.

(b) Dissolution; Merger or Consolidation; Sale of Assets. In the event of a dissolution or liquidation of the Company, the sale of substantially all the assets of the Company, or a merger or consolidation of the Company with or into any other corporation or entity (or any other such reorganization or similar transaction) in which the Company is not the surviving or resulting corporation (and if a provision is not made in such transaction for the continuance of this Plan or the assumption of Options by any successor to the Company or for the substitution for Options of new options covering shares of any successor corporation or a parent or subsidiary thereof) then, in such event, all rights of Eligible Employees pursuant to all outstanding Options shall terminate and be of no further effect to the extent such Options are not exercised during an Election Period preceding the effective date of such dissolution, liquidation, sale, merger, consolidation or other reorganization (or at such other time and pursuant to such rules and regulations as the Committee shall determine and promulgate to the Eligible Employees).

(c) Miscellaneous. The grant of an Option pursuant to the Plan shall not affect in any way

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the right or power of the Company to (i) make adjustments, recapitalizations, reclassifications, reorganizations or any other changes in its capital or business structure or its business, (ii) to merge or consolidate, or to dissolve, liquidate, sell or transfer all or any part of its business or assets, or (iii) to issue bonds, debentures, preferred or other preference stock ahead of or affecting the Common Stock or the rights thereof.

6.2 Rights as a Shareholder.

No Eligible Employee shall have any rights as a shareholder of the Company with respect to any Common Stock subject to an Option until such Option has been validly exercised in the manner described herein, and until full payment of the Option Price has been made for such shares hereunder and a stock certificate therefor has actually been issued to and registered in such Eligible Employee’s name on the Company’s stock records. Except for adjustments as provided in Paragraph 6.1 above, no adjustment will be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) distributions or other rights as to which the record date for determining shareholders entitled to receive the same is prior to the date of the issuance of such certificate.

6.3 No Right to Employment.

Nothing in the Plan or in any Option Notice is intended or shall be deemed or interpreted to constitute an employment agreement or to confer upon an Optionee any right of employment with the Company or a Subsidiary, including without limitation any right to continue in the employ of the Company or a Subsidiary, or to interfere with or otherwise restrict in any way the right of the Company or a Subsidiary to discharge or terminate the employment of an Eligible Employee at any time for any reason whatsoever, with or without cause.

6.4 Legal Restrictions.

If in the opinion of legal counsel for the Company the issuance or sale of any shares of Common Stock pursuant to the exercise of an Option would not be lawful without registration under the Securities Act of 1933 (the “Act”) or without some other action being taken or for any other reason, or would require the Company to obtain approval from any governmental authority or regulatory body having jurisdiction deemed by such counsel to be necessary to such issuance or sale, then the Company shall not be obligated to issue or sell any Common Stock pursuant to the exercise of any Option to its Eligible Employee or any other authorized person unless a registration statement that complies with the provisions of the Act in respect of such shares is in effect at the time thereof, or all other required or appropriate action has been taken under and pursuant to the terms and provisions of the Act or other applicable law, or the Company receives evidence satisfactory to such counsel that the issuance and sale of such shares, in the absence of an effective registration statement or other required or appropriate action, would not constitute a violation of the Act or other applicable law, or unless any such required approval shall have been obtained. The Company is in no event obligated to register any such shares, to comply with any exemption from registration requirements or to take any other action which may be required in order to permit, or to remedy or remove any prohibition or limitation on, the issuance or sale of such shares to any Eligible Employee or other authorized person.

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The Committee, as a condition of the grant of an Option and/or the exercise thereof, may require that the Eligible Employee execute one or more undertakings in such form as the Committee shall prescribe to the effect that such shares are being acquired for investment purposes only and not with a view to the distribution or resale thereof.

Notwithstanding anything contained herein to the contrary, it is understood and agreed that neither the Company nor any of its Subsidiaries (or any of their successors in interest) shall be required to take any action under this Plan or any Option granted hereunder if:

(a) the Company is declared by any Regulatory Authority to be insolvent, in default or operating in an unsafe or unsound manner; or,

(b) in the opinion of counsel to the Company, such payment or action:

(i) would be prohibited by or would violate any provision of state or federal law applicable to the Company or any of its Subsidiaries, including without limitation the Federal Deposit Insurance Act as now in effect or hereafter amended;

(ii) would be prohibited by or would violate any applicable rules, regulations, orders or statements of policy, whether now existing or hereafter promulgated, of any Regulatory Authority; or,

(iii) otherwise would be prohibited by any Regulatory Authority.

6.5 No Obligation to Purchase Shares.

The granting of an Option pursuant to the Plan shall impose no obligation on the Eligible Employee to purchase any shares covered by such Option.

6.6 Payment of Taxes.

Each Eligible Employee shall be responsible for all federal, state, local or other taxes of any nature as shall be imposed pursuant to any law or governmental regulation or ruling on any Option or the exercise thereof or on any income which an Eligible Employee is deemed to recognize in connection with an Option. If the Committee shall determine to its reasonable satisfaction that the Corporation or any Subsidiary is required to pay or withhold the whole or any part of any estate, inheritance, income, or other tax with respect to or in connection with any Option, the exercise thereof or the Eligible Employee’s resale of any Elected Shares, then the Company or such Subsidiary shall have the full power and authority to withhold and pay such tax out of any Elected Shares purchased by the Eligible Employee or from the Eligible Employee’s salary or any other funds otherwise payable to the Eligible Employee, or, prior to and as a condition of exercising such Option, the Company may require that the Eligible Employee pay to it in cash the amount of any such tax which the Company, in good faith, deems itself required to withhold.

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6.7 Choice of Law.

The validity, interpretation and administration of the Plan and of any rules, regulations, determinations or decisions made thereunder, and the rights of any and all persons having or claiming to have any interest therein or thereunder, shall be determined exclusively in accordance with the laws of the State of North Carolina. Without limiting the generality of the foregoing, the period within which any action in connection with the Plan must be commenced shall be governed by the laws of the State of North Carolina, without regard to the place where the act or omission complained of took place, the residence of any party to such action, or the place where the action may be brought or maintained.

6.8 Amendment of Plan.

The Board of Directors, upon recommendation of the Committee, may, from time to time, amend, modify, suspend or discontinue the Plan at any time without notice, provided that no Eligible Employee’s existing rights are adversely affected thereby; and, provided further that, except with the approval of shareholders of the Company and no more frequently than once each six months, or otherwise as provided in Paragraph 6.1 hereof or to comport with changes in the Code, no such amendment of the Plan shall: (a) increase the aggregate number of shares which may be sold upon the exercise of Options granted under the Plan; (b) change the formula by which the Option Price is determined; (c) change the formula by which the number of shares which any Optionee may purchase is determined; or, (d) change the provisions of the Plan with respect to the determination of Eligible Employees and the timing of grants of Options. In the event the Board shall terminate or discontinue the Plan, such action shall not operate to deprive any Eligible Employee of any rights theretofore acquired by him or her under the Plan, and any Options outstanding as of the date of any such termination shall remain in full force and effect according to their terms as though the Plan had not been terminated.

6.9 Application of Funds.

The proceeds received by the Company from the sale of Common Stock pursuant to Options granted under the Plan will be used for general corporate purposes.

6.10 Notices.

Except as otherwise provided herein, any notice which the Company or an Eligible Employee may be required or permitted to give to the other shall be in writing and shall be deemed duly given when delivered personally or deposited in the United States mail, first class postage prepaid, and properly addressed. Notice, if to the Company, shall be sent to its Executive Vice President-Investor Relations at the following address:

Uwharrie Capital Corp

Post Office Box 338

Albemarle, North Carolina 28002-0338

15

Any notice sent by mail by the Company to an Optionee shall be sent to the most current address of the Optionee as reflected on the records of the Company or its Subsidiaries as of the time said notice is required. In the case of a deceased Optionee, any notice shall be given to the Optionee’s personal representative if such representative has delivered to the Company evidence satisfactory to the Company of such representative’s status as such and has informed the Company of the address of such representative by notice pursuant to this Paragraph 6.10.

6.11 Conformity With Applicable Laws and Regulations.

With respect to persons who are subject to Section 16 of the Securities Exchange Act of 1934, the Plan and each Option granted and other transaction under it are intended to satisfy applicable conditions of Rule 16b-3 of the Securities and Exchange Commission (as such Rule may be modified, amended or superseded from time to time). To the extent any provision of the Plan or any Option, or any action by the Committee or the Board of Directors, shall fail to so comply, then, to the extent permitted by law and deemed advisable by the Committee, such provision or action shall be deemed null and void.

6.12 Successors and Assigns.

Subject to Paragraph 5.5 above, this Plan shall bind and inure to the benefit of the Company, any Optionee, and their respective successors, assigns, personal or legal representatives and heirs.

6.13 Severability.

It is intended that each provision of this Plan shall be viewed as separate and divisible, and in the event that any provision hereof shall be held to be invalid or unenforceable, the remaining provisions shall continue to be in full force and effect.

6.14 Titles.

Titles of Articles and Paragraphs are provided herein for convenience only, do not modify or affect the meaning of any provision herein, and shall not serve as a basis for interpretation or construction of this Plan.

6.15 Gender and Number.

As used herein, the masculine gender shall include the feminine and neuter, the singular number the plural, and vice versa, whenever such meanings are appropriate.

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EX-31.1

Exhibit 31.1

UWHARRIE CAPITAL CORP

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to Rule 13a -14(a)

I, Roger L. Dick, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the period ended June 30, 2007 of Uwharrie Capital Corp;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 10, 2007	By:	/s/ Roger L. Dick
		Roger L. Dick
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

UWHARRIE CAPITAL CORP

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

Pursuant to Rule 13a -14(a)

I, Barbara S. Williams, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the period ended June 30, 2007 of Uwharrie Capital Corp;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 10, 2007	By:	/s/ Barbara S. Williams
		Barbara S. Williams
		Principal Financial Officer

EX-32

Exhibit 32

Certification pursuant to 18 U.S.C. 1350 as adopted pursuant

to Section 906 of the Sarbanes-Oxley Act of 2002

The undersigned each hereby certifies that, to his or her knowledge, (i) the Form 10-Q filed by Uwharrie Capital Corp (the "Issuer") for the quarter ended June 30, 2007, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in that report fairly presents, in all material respects, the financial condition and results of operations of the Issuer on the dates and for the periods presented therein.

	UWHARRIE CAPITAL CORP
Date: August 10, 2007	By:	/s/ Roger L. Dick
		Roger L. Dick
		President and Chief Executive Officer
Date: August 10, 2007	By:	/s/ Barbara S. Williams
		Barbara S. Williams
		Principal Financial Officer