<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File No. 2-78572
December 31, 1996
UNITED BANCORPORATION OF ALABAMA, INC.
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 63-0833573
- --------------------------------- -------------------------------
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) No.)
P.O. Drawer 8, Atmore, Alabama 36504
----------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (334) 368-2525
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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. Yes x No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [x]
Aggregate market value of voting stock held by nonaffiliates as of February 25,
1997 was $13,942,395, based upon the price at which the stock was sold on that
date and using beneficial ownership of stock rules adopted pursuant to Section
13 of the Securities Exchange Act of 1934 to exclude voting stock owned by
directors and executive officers, some of whom might not be held to be
affiliates upon judicial determination.
Page 1 of 86 pages
Exhibit index on page E1
<PAGE> 2
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practical date.
Common Stock Par Value Outstanding at March 21, 1997
- ------------ --------- -------------------------------
Class A..........$.01 516,385 Shares*
Class B..........$.01 -0- Shares
*Excludes 31,775 shares held as treasury stock.
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
United Bancorporation of Alabama, Inc. (the "Corporation") is a one-bank
holding company with headquarters in Atmore, Alabama. The Corporation was
incorporated under the laws of Delaware on March 8, 1982 for the purpose of
acquiring all of the issued and outstanding capital stock of The Bank of
Atmore, Atmore, Alabama ("Atmore") and Peoples Bank, Frisco City, Alabama
("Peoples"). Atmore was merged into United Bank of Atmore, a wholly-owned
subsidiary of the Corporation, and Peoples was merged into United Bank of
Frisco City ("Frisco City"), also a wholly-owned subsidiary of the Corporation,
later in 1982. Effective March 30, 1984, Frisco City merged into United Bank of
Atmore, which had previously changed its name to simply "United Bank."
The Corporation and its subsidiary, United Bank (herein "United Bank" or the
"Bank"), are in one business segment, commercial banking. United Bank
contributes substantially all of the total operating revenues and consolidated
assets of the Corporation. The Bank serves its customers from five banking
offices located in Atmore, Frisco City, Monroeville, Flomaton and Foley,
Alabama. The office in Foley opened in 1996.
United Bank offers a broad range of banking services. Services to business
customers include providing checking and time deposit accounts and various
types of lending services. Services provided to individual customers include
checking accounts, NOW accounts, money market deposit accounts, statement
savings accounts, repurchase agreements and various other time deposit savings
programs and loans, including business, personal, automobile, home and home
improvement loans. United Bank offers securities brokerage services, Visa and
Master Card, multi-purpose, nationally recognized credit card services, and
trust service through Morgan Trust of Chattanooga, Tennessee.
Competition - The commercial banking business is highly competitive and United
Bank competes actively with state and national banks, savings and loan
associations and credit unions in its market areas for deposits and loans. In
addition, United Bank competes with other financial institutions, including
personal loan companies, leasing companies, finance companies and certain
governmental agencies, all of which engage in marketing various types of loans
and other services. The regulatory environment affects competition in the bank
business as well.
Employees - The Corporation and its subsidiary had approximately 88 full-time
officers and employees at December 31, 1996. All of the employees are engaged
in the operations of United Bank. The Corporation considers its employee
relations good, and has not experienced and does not anticipate any work
stoppage attributable to labor disputes.
3
<PAGE> 4
Supervision, Regulation and Government Policy - Bank holding companies, banks
and many of their nonbank affiliates are extensively regulated under both
federal and state law. The following brief summary of certain statutes, rules
and regulations affecting the Corporation and the Bank is qualified in its
entirety by reference to the particular statutory and regulatory provisions
referred to below, and is not intended to be an exhaustive description of the
statutes or regulations applicable to the Corporation's business. Any change in
applicable law or regulations could have a material effect on the business of
the Corporation and its subsidiary. Supervision, regulation and examination of
banks by bank regulatory agencies are intended primarily for the protection of
depositors rather than holders of Corporation common stock.
The Corporation is registered as a bank holding company with the Board
of Governors of the Federal Reserve System (the "Federal Reserve") under the
Bank Holding Company Act of 1956, as amended (the "BHC Act"). As such, the
Corporation is subject to the supervision, examination, and reporting
requirements in the BHC Act and the regulations of the Federal Reserve. The BHC
Act prohibits, subject to certain exceptions, a bank holding company from
engaging in or acquiring direct or indirect control of more than 5% of the
voting stock of any company engaged in non-banking activities. Activities
expressly found by the Board of Governors, by order or regulation, to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto, such as acting as fiduciary or investment or financial
advisor, selling or underwriting insurance coverage directly related to
extensions of credit, and the leasing of real and personal property, are
excepted from this prohibition.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before it may acquire substantially all of the
assets of any bank or control of any voting shares of any bank, if, after such
acquisition, it would own or control, directly or indirectly, more than 5% of
the voting shares of such bank. The BHC Act requires the Federal Reserve to
consider, among other things, anticompetitive effects, financial and managerial
resources and community needs in reviewing such a transaction. Under the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, enacted in
September 1994, bank holding companies are permitted to acquire banks located
in any state without regard to whether the transaction is prohibited under any
state law (except that states may establish a minimum age of not more than five
years for local banks subject to interstate acquisitions by out-of-state bank
holding companies), and interstate branching will be permitted June 1, 1997.
The Alabama Banking Code generally prohibits branching across county lines
within the state, but also provides that with the prior approval of the
Superintendent of the Alabama State Department of Banking ("Superintendent"),
state banks are entitled to all privileges granted to federally chartered or
regulated
4
<PAGE> 5
banks. As a result of action by the Office of the Comptroller of the Currency
to permit branching across county lines in 1990, the Superintendent authorized
branching by Alabama-chartered banks without geographic restriction.
Accordingly, if United Bank desired, it could expand by branching within
Alabama subject to the required approvals described herein.
The Corporation is a legal entity separate and distinct from the Bank.
Various legal limitations restrict the Bank from lending or otherwise supplying
funds to the Corporation, generally limiting such transactions to 10% of the
Bank's capital and surplus. Such transactions, including extensions of credit,
sales of securities or assets and provision of services, also must be on terms
and conditions consistent with safe and sound banking practices, including
credit standards, that are substantially the same or at least as favorable to
the Bank as prevailing at the time for transactions with unaffiliated
companies. Also, as a subsidiary of a bank holding company, the Bank is
generally prohibited from conditioning the extension of credit or other
services, or conditioning the lease or sale of property, on the customer's
agreement to obtain or furnish some additional credit, property or service from
or to such subsidiary or an affiliate.
The Bank is a state bank, subject to state banking laws and
regulation, supervision and regular examination by the Alabama State Department
of Banking (the "Department"), and as a member of the Bank Insurance Fund
("BIF") of the Federal Deposit Insurance Corporation (the "FDIC"), is also
subject to FDIC regulation and examination. Areas subject to federal and state
regulation include dividend payments, reserves, investments, loans, interest
rates, mergers and acquisitions, issuance of securities, borrowings,
establishment of branches and other aspects of operation, including compliance
with truth-in-lending and usury laws, and regulators have the right to prevent
the development or continuance of unsound banking practices or other violations
of law.
Dividends from United Bank constitute the major source of funds for
dividends to be paid by the Corporation. United Bank is subject to state law
restrictions on its ability to pay dividends, including the general
restrictions that dividends in excess of 90% of United Bank's net earnings may
not be declared or paid unless United Bank's surplus is at least equal to 20%
of its capital, and that the prior written approval of the Superintendent of
the Department is required if the total of all dividends declared in any
calendar year exceeds the total of United Bank's net earnings of that year
combined with its retained net earnings of the preceding two years, less any
required transfers to surplus. United Bank is subject to restrictions under
Alabama law which also prohibit any dividends from being made from surplus
without the Superintendent's prior written approval. Federal bank regulatory
agencies also have the general authority to limit the dividends paid by insured
banks and bank holding companies if such payment is deemed to constitute an
unsafe and unsound practice. United Bank's ability to make funds available to
the Corporation also is subject
5
<PAGE> 6
to restrictions imposed by federal law on the ability of a bank to extend credit
to its parent company, to purchase the assets thereof, to issue a guarantee,
acceptance or letter of credit on behalf thereof or to invest in the stock or
securities thereof or to take such stock or securities as collateral for loans
to any borrower.
The Bank is also subject to the requirements of the Community
Reinvestment Act of 1977 ("CRA"). The CRA and the regulations implementing the
CRA are intended to encourage regulated financial institutions to help meet the
credit needs of their local community, including low and moderate income
neighborhoods, consistent with the safe and sound operation of financial
institutions. The regulatory agency's assessment of the bank's records is made
available to the public.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") recapitalized the BIF and included numerous substantially revised
statutory provisions. FDICIA established five capital tiers for insured
depository institutions: "well capitalized", "adequately capitalized",
"undercapitalized", "significantly undercapitalized", and "critically
undercapitalized", as defined by regulations adopted by the Federal Reserve,
the FDIC and other federal depository institution regulatory agencies. At
December 31, 1996, the Bank was "well capitalized", and was not subject to
restrictions imposed for failure to satisfy applicable capital requirements.
BIF premiums for each member financial institution depend upon the risk
assessment classification assigned to the institution by the FDIC. The total
current assessment for the first six months of 1997 for United Bank was $3,889.
Banking is a business that depends on interest rate differentials. In
general, the difference between the interest paid by a bank on its deposits and
other borrowings and the interest rate received by the bank on its loans and
securities holdings constitutes the major portion of the bank's earnings. As a
result, the earnings and business of the Corporation are and will be affected
by economic conditions generally, both domestic and foreign, and also by the
policies of various regulatory authorities having jurisdiction over the
Corporation and the Bank, especially the Federal Reserve. The Federal Reserve,
among other functions, regulates the supply of credit and deals with general
economic conditions within the United States. The instruments of monetary
policy employed by the Federal Reserve for those purposes influence in various
ways the overall level of investments, loans and other extensions of credit and
deposits and the interest rates paid on liabilities and received on assets. The
Congress continues to consider a number of wide-ranging proposals for altering
the structure, regulation and competitive relationships of the nation's
financial institutions. It cannot be predicted whether or in what form any of
these proposals will be adopted or the extent to which the business of the
Corporation may be effected thereby.
6
<PAGE> 7
Selected Statistical Information - The following tables set forth certain
selected statistical information concerning the business and operations of the
Corporation and its wholly owned subsidiary, United Bank, as of December 31,
1996 and 1995. Averages referred to in the following statistical information
are generally average daily balances.
7
<PAGE> 8
AVERAGE CONSOLIDATED BALANCE SHEETS
1996 and 1995
AVERAGES
(Dollars In Thousands)
<TABLE>
<CAPTION>
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Cash and due from banks $ 5,752 5,924
Interest-bearing deposits with
other financial institutions 103 105
Federal funds sold 3,306 5,197
Securities available for sale/taxable 34,486 24,608
Securities available for sale/tax exempt 3,581 2,124
Taxable investment securities held to
maturity 17,497 24,320
Tax-exempt investment securities held to
maturity 5,569 4,393
Loans, net 68,446 62,386
Premises and equipment, net 1,720 1,347
Interest receivable and other assets 2,365 2,252
--------- -------
Total assets $ 142,825 132,656
========= =========
Liabilities and Stockholders' Equity
Demand deposits - noninterest-
bearing $ 19,663 18,376
Demand deposits - interest-bearing 17,356 17,439
Savings 14,876 15,631
Time 69,024 62,121
Other borrowed funds 1,426 642
Repurchase agreements 6,319 5,760
Accrued expenses and other liabilities 1,331 1,101
--------- -------
Total Liabilities 129,995 121,070
Stockholders' equity:
Common stock 5 5
Surplus 3,477 3,477
Retained earnings 9,814 8,570
Less shares held in treasury,
at cost (466) (466)
--------- -------
Total stockholders' equity 12,830 11,586
--------- -------
Total liabilities and
stockholders' equity $ 142,825 132,656
========= =========
</TABLE>
8
<PAGE> 9
Analysis of Net Interest Earnings: The following table sets forth interest
earned and the average yield on the major categories of the Corporation's
interest-earning assets and interest-bearing liabilities.
(Dollars in Thousands)
<TABLE>
<CAPTION>
Average
Interest Rates
Average Income/ Earned/
1996 Balance Expense Paid
----
<S> <C> <C> <C> <C>
Loans, net (1) $ 68,446 7,147 10.44
Available for Sale Taxable securities 34,486 2,146 6.22
Available for Sale Tax Exempt (2) 3,581 306 8.55
Held to Maturity Taxable Securities 17,497 1,110 6.34
Held to Maturity Tax Exempt (2) 5,569 441 7.91
Federal funds sold 3,306 186 5.63
Interest-earning deposits with 103 11 10.68
other financial institutions
-------- -------- ----
Total interest-earning assets $132,988 11,347 8.53%
======== ======== ====
Savings deposits and demand
deposits - interest-bearing $ 32,232 894 2.77%
Time deposits 69,024 3,687 5.34
Other borrowed funds 1,426 78 5.46
Repurchase agreements 6,319 293 4.64
-------- -------- ----
Total interest-bearing liabilities $109,001 4,952 4.54%
======== ======== ====
Net interest income/net yield
on interest-earning assets $ 6,395 4.81%
======== ====
</TABLE>
<TABLE>
<CAPTION>
(Dollars in Thousands) Average
Interest Rates
Average Income/ Earned/
1995 Balance Expense Paid
----
<S> <C> <C> <C> <C>
Loans, net (1) $ 62,386 6,704 10.75
Available for Sale Taxable securities 24,608 1,686 6.85
Available for Sale Tax Exempt (2) 2,124 195 9.18
Held to Maturity Taxable Securities 24,320 1,421 5.84
Held to Maturity Tax Exempt (2) 4,393 371 8.45
Federal funds sold 5,197 298 5.73
Interest-earning deposits with 105 11 10.48
other financial institutions
-------- -------- ----
Total interest-earning assets $123,133 10,686 8.68%
======== ======== ====
Savings deposits and demand
deposits - interest-bearing $ 33,070 888 2.69%
Time deposits 62,121 3,338 5.37
Other borrowed funds 642 31 4.83
Repurchase agreements 5,760 303 5.26
-------- -------- ----
Total interest-bearing liabilities $101,593 4,560 4.49%
======== ======== ====
Net interest income/net yield
on interest-earning assets $ 6,126 4.98%
======== ====
</TABLE>
9
<PAGE> 10
(1) Loans on nonaccrual status have been included in the
computation of average balances.
(2) Yields on tax-exempt obligations have been computed on a full federal
tax-equivalent basis using an income tax rate of 34% for 1996 and
1995.
10
<PAGE> 11
Analysis of Changes in Interest Income and Interest Expense: The following is
an Analysis of the dollar amounts of changes in interest income and interest
expense due to changes in rates and volume for the periods indicated.
(Dollars in Thousands)
Average Balances
<TABLE>
<CAPTION>
Interest Income
Expense Variance As to
1996 1995 1996 1995 Variance Rate Volume
<S> <C> <C> <C> <C> <C> <C> <C>
68,446 62,386 Loans (Net) 7,147 6,704 443 (409) 852
34,486 24,608 Taxable Securities AFS 2,146 1,686 460 (143) 603
3,581 2,124 Tax Exempt Securities AFS (1) 306 195 111 (12) 123
17,497 24,320 Taxable Securities HTM 1,110 1,421 (311) 120 (431)
5,569 4,393 Tax Exempt HTM (1) 441 371 70 (22) 92
3,306 5,197 Fed Funds Sold 186 298 (112) (5) (107)
103 105 Interest Bearing Deposits 11 11 0 0 0
132,988 123,133 Total Interest Earning Assets 11,347 10,686 661 (471) 1,132
Savings and Interest Bearing
32,232 33,070 Demand 894 888 (26) (3) (23)
69,024 62,121 Other Time Deposits 3,687 3,338 349 (19) 368
1,426 642 Other Borrowed Funds 78 31 47 4 43
6,319 5,760 Repurchase Agreements 293 303 22 (3) 25
109,001 101,593 Total Interest Bearing 4,952 4,560 392 (21) 413
</TABLE>
The variance of interest due to both rate and volume has been allocated
proportionately to the rate and the volume components based on the relationship
of the absolute dollar amounts of the change in each.
(1) Yields on tax-exempt obligations have been computed on a full federal tax
equivalent basis using an income tax rate of 34% for 1996 and 1995.
11
<PAGE> 12
Analysis of Changes in Interest Income and Interest Expense: The following is
an Analysis of the dollar amounts of changes in interest income and interest
expense due to changes in rates and volume for the periods indicated.
(Dollars in Thousands)
Average Balances
<TABLE>
<CAPTION>
Interest Income
Expense Variance As to
1995 1994 1995 1994 Variance Rate Volume
<S> <C> <C> <C> <C> <C> <C>
62,386 55,506 Loans (Net) 6,704 5,576 1,128 402 726
24,608 27,726 Taxable Securities AFS 1,686 1,821 (135) 82 (217)
2,124 1,016 Tax Exempt Securities AFS (1) 195 117 78 (18) 96
24,320 26,177 Taxable Securities HTM 1,421 1,452 (31) 166 (197)
4,393 4,819 Tax Exempt HTM (1) 371 436 (65) (28) (37)
5,197 3,508 Fed Funds Sold 298 192 106 9 97
105 167 Interest Bearing Deposits 11 17 (6) 1 (7)
123,133 118,919 Total Interest Earning Assets 10,686 9,611 1,075 614 461
33,070 36,865 Savings Deposit 920 1,035 (115) (11) (104)
62,121 57,904 Other Time Deposits 3,338 2,314 1,024 844 180
642 858 Other Borrowed Funds 31 21 10 13 (3)
5,760 3,871 Repurchase Agreements 271 148 123 39 84
101,593 99,498 Total Interest Bearing 4,560 3,518 1,042 885 157
</TABLE>
The variance of interest due to both rate and volume has been allocated
proportionately based on the relationship of the absolute dollar amounts of the
change in each.
(1) Yields on tax-exempt obligations have been computed on a full federal tax
equivalent basis using an income tax rate of 34% for 1994 and 1995.
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<PAGE> 13
Investments - The investment policy of United Bank provides that funds that are
not otherwise needed to meet the loan demand of United Bank's market area can
best be invested to earn maximum return for the Bank, yet still maintain
sufficient liquidity to meet fluctuations in the Bank's loan demand and deposit
structure. Approximately 38% of the Bank's investments are in investment
securities held to maturity and 62% are securities available for sale. The
Bank's loan policy establishes a desirable range for its loan to deposit ratio
as being between 50% and 70%. This ratio as of December 31, 1996, was near the
midway point of this range at 61.08%. Growth in the loan portfolio is driven by
general economic conditions and the availability of loans meeting the Bank's
credit quality standards. Current Bank strategy is to expand the loan
portfolio. Management intends that funding for this growth will come from small
deposit growth and reallocation of maturing investments.
Securities Portfolio - The Bank's investment policy as approved by the Board of
Directors dictates approved types of securities and the conditions under which
they may be held. Attention is paid to the maturity and risks associated with
each investment. The distribution reflected in the tables below could vary with
economic conditions which could shorten or lengthen maturities. The Corporation
believes the level of risks inherent in the securities portfolio is low.
Due to the adoption of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("FAS 115")
by the Corporation as of January 1, 1994, the categorization of the
Corporation's investment securities changed dramatically. As noted in the
Consolidated Statements of Cash Flows of the Corporation included under Item 8
below, the Bank transferred $31,145,694 in securities from held to maturity to
available for sale in accordance with FAS 115 on January 1, 1994. In addition,
the Corporation transferred, effective November 30, 1995, investment securities
totaling $7,851,246 from held to maturity to available for sale in conjunction
with the FASB Special Report "A Guide to Implementation of Statement No. 115 on
Accounting for Certain Investments in Debt and Equity Securities Questions and
Answers" issued in November 1995. For additional information regarding adoption
of FAS 115 see footnote 1 of the Notes to Consolidated Financial Statements
included under Item 8 below.
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Investment Securities Held to Maturity
December 31, 1996 and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1996 1995
------------------------- ---------------------
Amortized Amortized
Cost % Cost %
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 7 0.0% 7 0.0%
U.S. Government Agencies 11,214 49.3 12,727 58.4
Mortgage Backed Securities 5,023 22.1 2,804 12.9
State and Municipal 6,526 28.6 5,749 26.4
Other 0 0.0 513 2.3
------------ ----- ------ -----
Total Amortized Cost $ 22,770 100.0% 21,800 100.0%
============ ===== ====== =====
</TABLE>
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<PAGE> 15
Maturity Distribution of Investment Securities Held to Maturity
The following table sets forth the distribution of maturities of investment
securities.
December 31, 1996 and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1996 1995
------------------- --------------------
Amortized Weighted Amortized Weighted
Cost Avg Yld Cost Avg Yld
<S> <C> <C> <C> <C>
U.S. Treasury Securities
Within one year $ 0 0.00% $ 0 0.00%
1 - 5 years 7 3.67 7 3.64
5 - 10 years 0 0.00 0 0.00
------- ---- ------- ----
$ 7 3.67% $ 7 3.64%
======= ==== ======= ====
U.S. Government Agencies
Within one year $ 500 5.24% $ 1,497 6.06%
1 - 5 years 1,500 5.62 4,497 5.51
5 - 10 years 6,961 6.55 4,477 6.36
after 10 years 2,253 6.68 2,256 6.70
------- ---- ------- ----
$11,214 6.39% $12,727 6.08%
======= ==== ======= ====
State & Municipal (1)
Within one year $ 0 0.0% $ 108 6.44%
1 - 5 years 1,818 7.67 1,683 7.43
5 - 10 years 1,909 8.12 2,425 8.03
after 10 years 2,799 8.65 1,533 9.89
------- ---- ------- ----
Total $ 6,526 8.22% $ 5,749 8.32%
======= ==== ======= ====
Other Securities
Within one year $ 0 0.0% $ 513 4.75%
1 - 5 years 0 0.00 0 0.00
5 - 10 years 0 0.00 0 0.00
after 10 years 0 0.00 0 0.00
------- ---- ------- ----
Total $ 0 0.00% $ 513 4.75%
======= ==== ======= ====
Mortgage Backed
Securities
1 - 5 years $ 12 9.00% $ 0 0.00%
5 - 10 years 0 0.00 21 9.00
after 10 years 5,011 6.68 2,783 6.81
------- ---- ------- ----
Total $ 5,023 6.68% $ 2,804 6.83%
======= ==== ======= ====
</TABLE>
Continued on next page..
15
<PAGE> 16
Continued from previous page
<TABLE>
<S> <C> <C> <C> <C>
Total Yield 6.87% 6.61%
====== ======
Total Amortized Cost $22,770 $21,800
======= =======
</TABLE>
(1) Yields on tax-exempt obligations have been computed on a full federal
tax-equivalent basis using an income tax rate of 34% for 1996 and 1995.
Investment Securities Available for Sale
December 31, 1996 and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1996 1995
------------------- --------------------
Amortized Amortized
Cost % Cost %
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 7,550 20.8% 8,576 22.4%
U.S. Government Agencies 11,987 33.1 14,000 36.6
Mortgage Backed Securities 9,148 25.2 7,728 20.2
Collateralized Mortgage
Obligations 1,280 3.5 1,443 3.8
State and Municipal 5,536 15.3 6,221 16.3
Other 764 2.1 250 0.7
------- ----- ------ -----
Total $36,265 100.0% 38,218 100.0%
======= ===== ====== ======
</TABLE>
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<PAGE> 17
Maturity Distribution of Investment Securities Available for Sale
The following table sets forth the distribution of maturities of investment
securities available for sale.
December 31, 1996 and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
Amortized Weighted Amortized Weighted
Cost Avg Yld Cost Avg Yld
<S> <C> <C> <C> <C>
U.S. Treasury Securities
Within one year $ 2,514 4.73% 998 4.73%
1 - 5 years 5,036 5.21 7,578 6.11
5 - 10 years 0 0.00 0 0.00
------- ---- ------- ----
$ 7,550 5.05% $ 8,576 5.95%
======= ==== ======= ====
U.S. Government Agencies
excluding Mortgage Backed
Securities
Within one year $ 497 7.22% 750 5.64%
1 - 5 years 6,754 6.04 9,996 6.20
5 - 10 years 4,736 6.27 3,254 6.26
------- ---- ------- ----
Total $11,987 6.18% 14,000 6.18%
======= ==== ======= ====
Mortgage Backed Securities
Within one year $ 0 0.00% 0 0.00%
1 - 5 years 1,813 6.55 1,572 6.18
5 - 10 years 1,659 7.51 2,063 7.22
after 10 years 5,676 6.89 4,093 7.80
------- ---- ------- ----
Total $ 9,148 6.94% 7,728 7.32%
======= ==== ======= ====
Collateralized Mortgage
Obligations
After 10 years $ 1,280 5.67% 1,443 5.92%
------- ---- ------- ----
Total $ 1,280 5.67% 1,443 5.92%
======= ==== ======= ====
State & Municipal (1)
Less than 1 year 479 8.52% 1,596 8.61
1 - 5 years 1,007 8.13 1,948 6.53
5 - 10 years 2,317 10.51 2,677 7.94
after 10 years 1,733 9.03
------- ---- ------- ----
Total $ 5,536 9.44% 6,221 7.67%
======= ==== ======= ====
</TABLE>
Continued on next page..
17
<PAGE> 18
Continued from previous page
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
Amortized Weighted Amortized Weighted
Cost Avg Yld Cost Avg Yld
% %
Other Securities
<S> <C> <C> <C> <C>
Less than 1 year 425 7.25%
1 - 5 years 250 9.38 250 9.38
5 - 10 years 89 11.00
------- ----- ------ ----
Total $ 764 8.38% 250 9.38%
======= ===== ====== ====
Total Yield 6.49% 6.61%
===== ====
Total amortized cost $36,265 38,218
======= ======
</TABLE>
(1) Yields on tax-exempt obligations have been computed on a full federal
tax-equivalent basis using an income tax rate of 34% for 1996 and 1995.
Relative Lending Risk - United Bank is located in a rural market composed of
lower to middle income families. The primary economic influence in the area is
timber and agricultural production, and the Bank's loan portfolio is reflective
of this market. The Bank's ratio of loans to assets or deposits is at or above
the average of banks serving this market.
The risks associated with the Bank's lending are primarily interest rate risk
and risks from concentrations or types of loans.
Interest rate risk is a function of the maturity of the loan and method of
pricing. The Bank's loan maturity distribution reflects 32.25% of the portfolio
maturing in one year or less. In addition, 36.85% of all loans float with an
interest rate index. The maturity distribution and floating rate loans help
protect the Bank from unexpected interest rate changes.
Loan concentrations present different risk profiles depending on the type of
loan. The majority of all types of loans offered by the Bank are
collateralized. Regardless of the type of loan, collateralized lending is based
upon an evaluation of the collateral and repayment ability of the borrower.
Independent evaluations are utilized to determine appropriate loan amounts.
Loan policy, as approved by the Board of Directors of the bank subsidiary,
establishes collateral guidelines for each type of loan.
Small banks located in one community experience a much higher risk due to the
dependence on the economic viability of that single community. United Bank is
more geographically diverse than its local competitors. With offices in five
communities, the Bank is somewhat insulated from the effects of major economic
disruptions
18
<PAGE> 19
in one community. This geographic diversity affects all types of loans and
plays a part in the Bank's risk management.
Each type of loan exhibits unique profiles of risk that could threaten
repayment.
Commercial loans, which comprised 52.62% of the portfolio, require an
understanding of the customers' business and financial performance. The Bank's
commercial customers are primarily small to middle market enterprises. The
larger commercial accounts are managed by the Senior Loan Officer. Risks in
this category are primarily economic. Shifts in local and regional conditions
could have an effect on individual borrowers; but, as previously mentioned, the
Bank spreads this risk by serving multiple communities. As with the other
categories, these loans are typically collateralized by assets of the borrower.
In most situations, the personal assets of the business owners also
collateralize the credit.
Agricultural lending is a specialized type of lending for the Bank. Due to the
unique characteristics in this type of loan, the Bank has a loan officer
dedicated to this market. Collateral valuation and the experience of the
borrower play heavily into the approval process. This loan category would
include financing of equipment, crop production, timber, dairy operations and
others. Given the broad range of loans offered, it is difficult to generalize
risks in agricultural lending. The area of greatest attention and risk would be
crop production loans. Risks associated with catastrophic crop losses are
mitigated by crop insurance, government support programs, experience of the
borrower, collateral other than the crop and the borrower's financial
resources. Routine visitations and contact with the borrower help inform the
Bank about crop conditions.
Real estate loans, whether they are construction or mortgage, have a very low
delinquency rate. The Bank does not make long term, fixed rate mortgages;
however, it does offer loans with repayment terms based on amortization of up
to 15 years, but with balloons of shorter durations.
Installment loans comprised 26.72% of the portfolio and are generally
collateralized. Given the small dollar exposure on each loan, risk of a
significant loss is minimized. Pricing and closely monitoring past dues enhance
the Bank's returns from this type of loan and minimize risks.
An average loan in the loan portfolio at December 31, 1996 is approximately
$14,180.
19
<PAGE> 20
Maturities and sensitivity to change in interest rates in the Corporation's
loan portfolio are as follows:
LOAN PORTFOLIO MATURITIES
December 31, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
REMAINING MATURITY
-------------------------------------
One - After
One Year Five Five
or Less Years Years Total
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural $14,849 14,947 9,764 39,560
Real estate - construction 1,149 95 154 1,398
Real estate - mortgage 1,867 8,112 4,155 14,134
Installment loans to
individuals 6,607 11,425 2,059 20,091
------- ------ ------ ------
Total $24,472 34,579 16,132 75,183
======= ======= ======= =======
</TABLE>
SENSITIVITY TO CHANGES IN INTEREST RATES
LOANS DUE AFTER ONE YEAR
(Dollars in Thousands)
<TABLE>
<CAPTION>
Pre-
determined Floating
Rate Rate Total
<S> <C> <C> <C>
Commercial, financial
and agricultural $11,393 13,318 24,711
Real estate - construction 95 154 249
Real estate - mortgage 10,171 2,096 12,267
Installment loans to
individuals 12,034 1,450 13,484
</TABLE>
Non-performing Assets: The Corporation adopted the provisions of SFAS 114,
Accounting by Creditors for Impairment of a Loan, as amended by SFAS 118,
Accounting by Creditors for Impairment of a Loan--Income Recognition and
Disclosures on January 1, 1995. Under the provisions of SFAS 114 and 118,
management considers a loan to be impaired when it is probable that the
Corporation will be unable to collect all amounts due according to the
contractual terms of the loan agreement. When a loan is considered impaired,
the amount of impairment is measured based on the present value of expected
future cash flows discounted at the note's effective interest rate.
20
<PAGE> 21
If the loan is collateral-dependent, the fair value of the collateral is used
to determine the amount of impairment. Impairment losses are included in the
allowance for possible loan losses through a charge to the provision for
possible loan losses. Subsequent recoveries are added to the allowance.
Impaired loans are charged to the allowance when such loans are deemed to be
uncollectable. At December 31, 1996, pursuant to the definition within SFAS
114, the Corporation had no significant impaired loans, other than nonaccrual
loans.
The following table sets forth the Corporation's non-performing assets at
December 31, 1996 and 1995. Under the Corporation's nonaccrual policy, a loan
is placed on nonaccrual status when collectibility of principal and interest is
in doubt or when principal and interest is 90 days or more past due.
<TABLE>
<CAPTION>
Description 1996 1995
(Dollars in Thousands)
<S> <C> <C>
(A) Loans accounted for on $ 339 $ 333
a nonaccrual basis
(B) Loans which are contractually
past due ninety days or more
as to interest or principal
payments (excluding balances
included in (A) above). 14 30
(C) Loans, the terms of which have been renegotiated to provide a
reduction or deferral of interest or principal because of a
deterioration in the financial position of the
borrower. 54 13
(D) Other non-performing assets 147 107
--- ---
Total 554 483
=== ===
</TABLE>
If the loans in (A) above had been current throughout their term, interest
income would have been increased by approximately $12,355 and $9,363 for 1996
and 1995, respectively. Of the assets in (D) above, $52,000 in 1996 was other
real estate owned (OREO), and $94,891 was repossessed collateral, and in 1995
$81,072 was OREO and $26,367 was repossessed collateral.
As of December 31, 1996, all loans which management had determined were
uncollectible were charged to the allowance for possible loan losses.
At December 31, 1996, loans with a total outstanding balance of $2,030,712
were considered potential problem loans. Potential problem loans consist of
those loans for which management has serious doubts as
21
<PAGE> 22
to the borrower's ability to comply with present loan repayment terms.
There may be additional loans in the Corporation's portfolio that may become
classified as conditions dictate. However, management is not aware of any such
loans that are material in amount at December 31, 1996. Regulatory examiners
may require the Bank to recognize additions to the allowance based upon their
judgments about information available to them at the time of their examination.
Loan Concentrations: On December 31, 1996, the Corporation had $9,766,213 of
agriculture-related loans. Agriculture loans accounted for $93,269 and $147,661
of nonaccrual loans in 1996 and 1995, respectively.
Summary of Loan Loss Experience
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Average amount of loans
outstanding, net $ 68,446 62,386 55,506
======== ======== ========
Allowance for possible loan
losses, beginning January 1 1,344 1,252 1,174
-------- -------- --------
Losses charged off:
Commercial, financial
and agricultural (159) (9) (269)
Real estate - mortgage (8) (17) (3)
Installment loans to individuals (179) (125) (66)
-------- -------- --------
Total charged off (346) (151) (338)
Recoveries during the period:
Commercial, financial and
agricultural 7 13 71
Real estate - mortgage 8 6 0
Installment loans to individuals 60 20 15
-------- -------- --------
Total recoveries 75 39 86
-------- -------- --------
Net loans charged off (271) (112) (252)
Additions to the allowance
charged to operations 171 204 330
-------- -------- --------
Total allowance, ending
December 31 $ 1,244 $ 1,344 $ 1,252
======== ======== ========
Ratio of net charge offs during
the period to average loans
outstanding .40% .18% .45%
</TABLE>
22
<PAGE> 23
Allowance for Possible Loan Losses: The allowance for possible loan losses is
maintained at a level which, in management's opinion, is adequate to absorb
potential losses in the portfolio. Factors considered in determining the
adequacy of the allowance include historical loan loss experience, the amount
of past due loans, loans classified from the most recent regulatory
examinations and internal reviews, general economic conditions and the current
portfolio mix. The amount charged to operating expenses is that amount
necessary to maintain the allowance for possible loan losses at a level
indicative of the associated risk, as determined by management, of the current
loan portfolio.
The table below reflects an allocation of the allowance for the years ended
December 31, 1996 and 1995. The allocation represents an estimate for each
category of loans based upon historical experience and management's judgement.
Management realizes that general economic trends greatly affect loan losses,
and no assurances can be made that future charges to the loan loss allowance
will not be significant in relation to the amount provided during a particular
period, or that future evaluations of the loan portfolio based on conditions
then prevailing will not require sizable additions to the allowance, thus
necessitating similarly sizable charges to income. Management does consider,
however, the allowance for loan losses to be adequate for the reported periods.
<TABLE>
<CAPTION>
Loans as a
Allowance percent of total
1996 1995 1996 1995
------ ----- ----- -----
<S> <C> <C> <C> <C>
Commercial,
Financial &
Agricultural $ 875 1,008 52.6 40.1%
Real Estate -
Construction 0 0 1.9 1.9
Real Estate -
Mortgage 50 134 18.8 27.0
Installment Loans
to Individuals 319 202 26.7 31.0
------ ----- ----- -----
Total Allowance $1,244 1,344 100.0% 100.0%
====== ===== ===== =====
</TABLE>
Delinquent Loan Policy: Installment loans are placed on nonaccrual
when the loan is three payments past due, and any single-date
maturity notes are placed on nonaccrual status when such notes are
delinquent for ninety days. Exceptions may be made where there are
23
<PAGE> 24
extenuating circumstances, but any exception is subject to review by the Board
of Directors of the Bank. Delinquent commercial loans are placed on nonaccrual
status when the loan is 90 days past due.
Loans are considered delinquent if payments of principal or interest have not
been made by the end of periods ranging from one to ten days after the due
date, depending upon the type of loan involved. Installment loans are
considered delinquent if payments of principal and interest are past due for a
period of ten days and commercial loans are considered delinquent if payments
of principal and interest are past due for a period of one day. Single-date
maturity loans are considered delinquent if payments relating to such loans are
not made for a period of one day following the due date of such loans.
Loans are charged off quarterly in March, June, September, and December. If
necessary, loans can be charged of at any time with the approval of the Chief
Executive Officer (CEO). The loan officer responsible for the particular loan
initiates the charge off request which then must be approved by the Bank's
senior loan officer and CEO.
24
<PAGE> 25
DEPOSITS
(Dollars in Thousands)
The following table sets forth the average amount of deposits for the years
1996 and 1995 by category.
<TABLE>
<CAPTION>
Average
rate paid
Deposits 1996 1995 1996 1995
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $ 19,663 18,376 0% 0%
======== ====== ==== ====
Interest-bearing
deposits:
Demand $ 17,356 17,439 2.60% 2.63%
Savings 14,876 15,631 2.98 2.96
Time 69,024 62,121 5.34 5.37
-------- ------ ---- ----
$101,256 95,191 4.52% 4.47%
======== ====== ==== ====
</TABLE>
The following shows the amount of time deposits outstanding at December 31,
1996, classified by time remaining until maturity.
<TABLE>
<CAPTION>
$100,000
Certificates Other Time
Maturity of deposit deposits
<S> <C> <C>
Three months or less $ 8,264 17,043
Three to six months 6,133 14,672
Six to twelve months 2,740 9,166
Twelve months to five years 2,420 10,383
Over five years 0 0
-------- ------
$ 19,557 51,264
======== ======
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
Maximum Average
Outstanding Average interest
At Any Average Interest Ending Rate at
Month End Balance Rate Balance Year-end
---------- ------- -------- ------- --------
(Dollars In Thousands)
1996
<S> <C> <C> <C> <C> <C>
Securities sold $6,755 6,319 4.64% 6,755 4.86%
under agreements
to repurchase
Other Short Term $5,792 1,426 5.46 668 3.98
Borrowings
1995
Securities sold $8,691 5,760 4.70 8,691 5.19
under agreements
to repurchase
Other Short Term $1,019 642 4.83 172 5.42
Borrowings
</TABLE>
Return on Equity and Assets: The following table shows the percentage return on
equity and assets of the Corporation for the years ended December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Return on average assets 1.03% .93%
===== =====
Return on average equity 11.48% 10.62%
===== =====
Dividend pay-out ratio 35.09% 21.00%
===== =====
Ratio of average equity
to average assets 8.98% 8.73%
===== =====
</TABLE>
26
<PAGE> 27
ITEM 2. PROPERTIES
The Corporation's bank subsidiary occupies five offices which the subsidiary
owns or leases. The offices are located in Escambia County (cities of Atmore
and Flomaton) Monroe County (cities of Monroeville and Frisco City), and
Baldwin County (city of Foley), Alabama, with the principal office located in
Atmore, Alabama. The office in Atmore is a modern, three story, brick building
while the other offices are similar, modern, one story, brick buildings. The
subsidiary bank also leases land near the Atmore office on which a drive
through teller facility is located. The land lease is for twenty years,
expiring 2004. The Foley office is leased for a twenty year period, expiring in
2016.
ITEM 3. LEGAL PROCEEDINGS
There are presently no pending legal proceedings to which the Corporation or
its subsidiary, United Bank, is a party or to which any of their property is
subject, which management of the Corporation based upon consultation with legal
counsel believes are likely to have a material adverse effect upon the
financial position of the Corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the shareholders of the Corporation
during the fourth quarter of the fiscal year.
27
<PAGE> 28
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Corporation's authorized common shares consist of the following:
(1) 975,000 shares of Class A common stock, $.01 par value per share, of
which 516,385 shares were issued and outstanding and held by
approximately 480 shareholders of record, as of March 21, 1997.
(2) 250,000 shares of Class B common stock, $.01 par value per share, none
of which were issued, as of March 21, 1997.
There is no established public trading market for the shares of common stock of
the Corporation and there can be no assurance that any market will develop.
The Corporation paid total cash dividends of $1.00 per share in 1996 and $.50
per share in 1995. The Corporation expects to continue to pay cash dividends,
subject to the earnings and financial condition of the Corporation and other
relevant factors; however, dividends on the Corporation's common stock are
declared and paid based on a variety of considerations by the Corporation's
Board of Directors and there can be no assurance that the Corporation will
continue to pay regular dividends or as to the amount of any such dividends.
Payment of future dividends will depend upon business conditions, operating
results, capital and reserve requirements and the Board's consideration of
other relevant factors. In addition, the ability of the Corporation to pay
dividends is totally dependent on dividends received from its banking
subsidiary (see Note 12 to the consolidated financial statements) and is
subject to statutory restrictions on dividends applicable to Delaware
corporations, including the restrictions that dividends generally may be paid
only from a corporation's surplus or from its net profits for the fiscal year
in which the dividend is declared and the preceding year. The Corporation is
subject to state law restrictions on its ability to pay dividends.
28
<PAGE> 29
ITEM 6. SELECTED FINANCIAL DATA
(Amounts in Thousands except per share data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income statement data:
Interest income $ 11,093 10,495 9,423 9,595 10,615
Interest expense 4,952 4,560 3,519 3,431 4,575
-------- -------- -------- -------- --------
Net interest income 6,141 5,934 5,904 6,164 6,040
Provision for possible
loan losses 171 204 330 600 1,627
-------- -------- -------- -------- --------
Net interest income after
provision for possible
loan losses $ 5,970 5,731 5,574 5,564 4,413
======== ======== ======== ======== ========
Investment securities gains/
losses, net $ 35 32 14 831 428
======== ======== ======== ======== ========
Net Earnings $ 1,473 1,230 825 1,370 893
======== ======== ======== ======== ========
Balance sheet data:
Total assets $145,278 140,466 131,809 126,780 128,975
======== ======== ======== ======== ========
Total loans, net $ 73,002 62,603 59,094 50,919 54,720
======== ======== ======== ======== ========
Total deposits $123,075 117,743 114,065 108,638 113,352
======== ======== ======== ======== ========
Total stockholders'
equity $ 13,263 12,398 10,671 11,283 10,079
======== ======== ======== ======== ========
Per share data:
Net earnings
per share $ 2.85 2.38 1.70 2.83 1.84
======== ======== ======== ======== ========
Cash dividends per
share $ 1.00 .50 .50 .50 1.00
======== ======== ======== ======== ========
</TABLE>
29
<PAGE> 30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following financial review is presented to provide an analysis of the
consolidated results of operations of the Corporation and its subsidiary. This
review should be read in conjunction with the consolidated financial statements
included under Item 8.
SUMMARY OF OPERATIONS
The Corporation's 1996 net income was $1,473,027, as compared to a net income
in 1995 of $1,230,362. Average net interest spread declined by .20% from 4.19%
in 1995 to 3.99% in 1996. The decline in average net interest spread, offset by
an increase in average interest earning assets from $123,133,000 in 1995 to
$132,988,000 in 1996, produced a $206,192 increase in net interest income in
1996. Noninterest income increased by $48,966 from $1,156,686 in 1995 to
$1,205,652 in 1996. Most of this increase is attributed to the sale of other
real estate owned that had been written down in a prior period. The provision
for loan losses in 1996 was $171,000 as compared to $204,000 in 1995.
Noninterest expenses for 1996 decreased $85,356 from $5,155,026 in 1995 to
$5,069,670 in 1996. This decrease is attributed to lower litigation expenses in
1996.
The Corporation's 1995 net income was $1,230,362, as compared to a net income
in 1994 of $824,549. Average net interest spread declined by .35% from 4.54% in
1994 to 4.19% in 1995. The decline in average net interest spread, offset by an
increase in average interest earning assets from $118,919,000 in 1994 to
$123,133,000 in 1995, produced a $29,909 increase in net interest income in
1995. Noninterest income decreased by $71,611 from $1,228,297 in 1994 to
$1,156,686 in 1995. Most of this decrease is attributed to the decrease in
other noninterest income from $245,614 in 1994 to $127,830 in 1995. The
provision for loan losses in 1995 was $204,000 as compared to $330,000 in 1994.
Noninterest expenses for 1995 decreased $500,515 from $5,655,541 in 1994 to
$5,155,026 in 1995. This decrease was due to settlement of litigation in 1994
and the reduction in the FDIC premiums.
30
<PAGE> 31
NET INTEREST INCOME
(Dollars in Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Interest income (1)............... $11,347 10,745 9,651
Interest expense.................. $ 4,952 4,560 3,519
------- ------ ------
Net interest income ........... 6,395 6,135 6,132
Provision for possible
loan losses ................... 171 204 330
------- ------ ------
Net interest income after
provision for possible
loan losses on a Tax Equivalent
basis ......................... 6,224 5,981 5,802
Less: Tax Equivalent
adjustment .................... 254 250 228
------- ------ ------
Net interest income after
provision for possible
loan losses.................... $ 5,970 5,731 5,574
======= ====== ======
</TABLE>
(1) Yields on tax-exempt obligations have been computed on a full federal
tax-equivalent (FTE) basis using an income tax rate of 34% for 1996, 1995, and
1994.
Total interest income (on a full Federal tax equivalent basis) increased to
$11,347,000 in 1996, from $10,745,000 in 1995, an increase of $602,000, or
5.60%. Of this increase 152.57% is due to the average earning assets increasing
$9,855,000 while lower rates caused a 52.56% decrease in interest income.
Average loans increased $6,060,000 while the average rate paid decreased .31%.
The average interest rate (FTE) earned on all interest-earning assets in 1996
decreased to 8.53% from 8.68% in 1995. The interest rate spread decreased from
4.19% in 1995 to 3.99% in 1996, as interest rates remained stable on interest
bearing liabilities, but competition forced lower rates on loans. Average
taxable investment securities for 1996 were $51,983,000, as compared to
$48,928,000 for 1995, an increase of $3,055,000, or 6.24%. Average tax-exempt
investment securities increased $2,633,000, or 4.04%, to $9,150,000 in 1996
from $6,517,000 in 1995. The average volume of federal funds sold decreased to
$3,306,000 in 1996 from $5,197,000 in 1995, a decrease of $1,891,000 or 36.38%.
Average interest earning deposits with other financial institutions decreased
to $103,000 in 1996, from $105,000 in 1995.
Total interest expense increased $392,000, or 8.60% to $4,952,000 in 1996, from
$4,560,000 in 1995. This increase was primarily due to the increase in average
interest bearing liabilities. The average rate paid on interest-bearing
liabilities in 1996 was 4.54% as compared to 4.49% in 1995. Average
interest-bearing liabilities increased to $109,001,000 in 1996, from
$101,593,000 in 1995, an
31
<PAGE> 32
increase of $7,408,000, or 7.29%. Average savings and interest- bearing demand
deposits decreased $838,000 or 2.60% to $32,232,000 in 1996, from $33,070,000
in 1995. Average time deposits increased to $69,024,000 in 1996, from
$62,121,000 in 1995, an increase of $6,903,000, or 11.11%. The average rate
paid on time deposits decreased to 5.34% in 1996 from 5.37% in 1995. The
increase in time deposits during 1996 was due to the fact that the Bank opened
up into new markets and sought deposits more aggressively in all markets.
Total interest income (on a full Federal tax equivalent basis) increased to
$10,745,000 in 1995, from $9,651,000 in 1994, an increase of $1,094,000, or
11.34%. This increase is primarily due to the average earning assets increasing
$4,214,000. Average loans increased $6,880,000 while the average rate paid
increased .70%. The average interest rate (FTE) on all interest-earning assets
earned in 1995 rose to 8.68% from 8.08% in 1994. The interest rate spread
decreased from 4.54% in 1994 to 4.19% in 1995, as interest rates increased more
rapidly on interest bearing liabilities than interest earning assets. Average
taxable investment securities for 1995 were $48,928,000, as compared to
$53,903,000 for 1994, a decrease of $4,975,000, or 9.23%. The shift from
investments to loans was due to an increase in the Bank's loan demand. Average
tax-exempt investment securities increased $682,000, or 11.68%, to $6,517,000
in 1995 from $5,835,000 in 1994. The average volume of federal funds sold
increased to $5,197,000 in 1995 from $3,508,000 in 1994, an increase of
$1,689,000 or 48.15%. Average interest earning deposits with other financial
institutions decreased to $105,000 in 1995, from $167,000 in 1994.
Total interest expense increased $1,041,000, or 29.62% to $4,560,000 in 1995,
from $3,519,000 in 1994. This increase was primarily due to rising interest
rates during 1995. The average rate paid on interest-bearing liabilities in
1995 was 4.49% as compared to 3.54% in 1994. Average interest-bearing
liabilities increased to $101,593,000 in 1995, from $99,498,000 in 1994, an
increase of $2,095,000, or 2.11%. Average savings and interest-bearing demand
deposits decreased $3,795,000 or 10.29% to $33,070,000 in 1995, from
$36,865,000 in 1994. Average time deposits increased to $62,121,000 in 1995,
from $57,904,000 in 1994, an increase of $4,217,000, or 7.28%. The average rate
paid on time deposits increased to 5.37% in 1995 from 4.00% in 1994. The reason
for the increase in time deposits during 1995 was that the interest rate on
savings became less attractive than the interest paid on time deposits as
interest rates rose; therefore, customers chose the higher interest rate
investment available.
PROVISION FOR LOAN LOSSES
The provision for possible loan losses for the year ended December 31, 1996 was
$171,000, as compared to $204,000 in 1995, a decrease of $33,000, or 16.18%.
This decrease in provision reflects improved trends and maintains the allowance
at a level that is
32
<PAGE> 33
determined to be adequate by management, and approved by the Board of Directors
of the subsidiary bank.
Loans charged-off in 1996 increased to $345,750, from $150,896 in 1995, an
increase of $194,854. Recoveries of charged-off loans in 1996 were $74,571, an
increase of $35,588 as compared to $38,983 in 1995. Net charged-off loans for
1996 were $271,179, as compared to $111,913 for 1995, an increase of $159,266.
This increase is due to several unrelated borrowers filing bankruptcy in 1996.
The allowance for possible loans losses at December 31, 1996 represents 1.65%
of gross loans, as compared to 2.07% at year end 1995. Loans on which the
accrual of interest had been discontinued or reduced amounted to $339,016 on
December 31, 1996, as compared to $333,002 at year end 1995.
The provision for possible loan losses for the year ended December 31, 1995 was
$204,000, as compared to $330,000 in 1994, a decrease of $126,000, or 38.18%.
This decrease in provision reflected improved trends in past due percentages
and maintains the allowance at a level that is determined to be adequate by
management, and approved by the Board of Directors of the subsidiary bank.
Loans charged-off in 1995 decreased to $150,896, from $338,666 in 1994, a
decrease of $187,770. Recoveries of charged-off loans in 1995 were $38,983, a
decrease of $47,239 as compared to $86,222 in 1994. Net charged-off loans for
1995 were $111,913, as compared to $252,444 for 1994, a decrease of $140,531.
This decrease was a result of improved asset quality in the bank. The allowance
for possible loan losses at December 31, 1995 represented 2.07% of gross loans,
as compared to 2.04% at year end 1994. Loans on which the accrual of interest
had been discontinued or reduced amounted to $333,002 on December 31, 1995, as
compared to $162,844 at year end 1994.
While it is the Corporation's policy to charge-off loans on which a loss is
considered probable, there also exists the risk of future losses which cannot
be quantified precisely or attributed to particular loans or classes of loans.
Because this risk is continually changing in response to factors beyond the
control of the Corporation, such as the state of the economy, management's
judgment as to the adequacy of the provision is necessarily approximate and
imprecise. Adjustments to the provision for loan losses and the allowance for
loan losses may also be required by the FDIC or the Alabama Superintendent of
Banks in the course of their examinations of the Corporation's banking
subsidiary where the regulators make credit evaluations different from those of
management. Accordingly, no assurances can be given that continued evaluations
of the loan portfolio in light of economic conditions then prevailing, results
of upcoming regulatory examinations and other factors will not require
significant future additions to the allowance, thus necessitating sizable
charges to income.
33
<PAGE> 34
NONINTEREST INCOME
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
Service charges on
<S> <C> <C> <C>
deposits.................. $ 931,932 908,838 872,299
Commission - credit
life insurance............ 55,250 88,151 96,234
Investment securities
gains, net ............... 34,964 31,867 14,150
Other........................ 183,506 127,830 245,614
--------- --------- ---------
Total............... $1,205,652 1,156,686 1,228,297
========= ========= =========
</TABLE>
Total noninterest income increased $48,966 or 4.23%, to $1,205,652 in 1996, as
compared to $1,156,686 in 1995. Net gains on sale of investment securities
during 1996 totalled $34,964, as compared to a gain of $31,867 in 1995. In
1996, the Corporation sold some available for sale investment securities in
order to fund growing loan demand.
Service charge income increased to $931,932 in 1996, from $908,838 in 1995, an
increase of $23,094, or 2.54%. This slight increase is due to a change in
charges on overdraft checking accounts, for which new charges were implemented
to help cover the cost of these unsecured credits. Commissions on credit life
insurance decreased $32,901, or 37.32%, to $55,250 in 1996, from $88,151 in
1995. Other income increased to $183,506 in 1996, from $127,830 in 1995, an
increase of $55,676, or 43.56%. The increase in other income in 1996 was
attributable to the sale of other real estate owned that had been written down
in previous years. The property was sold at a profit of $55,000.
Total noninterest income decreased $71,611 or 5.83%, to $1,156,686 in 1995, as
compared to $1,228,297 in 1994. Net gains on sale of investment securities
during 1995 totalled $31,867, as compared to a gain of $14,150 in 1994. In
1995, the Corporation sold some available for sale investment securities in
order to fund growing loan demand. These securities were mostly mortgage backed
securities which had paid down significantly and which were no longer cost
effective to carry in the portfolio.
Service charge income increased to $908,838 in 1995, from $872,299 in 1994, an
increase of $36,539, or 4.19%. This slight increase was due to a change in the
calculation of analysis charges on certain checking accounts. Commissions on
credit life insurance decreased $8,083, or 8.40%, to $88,151 in 1995, from
$96,234 in 1994. Other income decreased to $127,830 in 1995, from $245,614 in
1994, a decrease of $117,784, or 47.95%. The decrease in other income in 1995
was attributable to a dividend from Risk Associates of approximately $60,000,
and the recognition of deferred income on the sale of other real estate owned
of $66,000, each of which occurred in 1994 and not in 1995.
34
<PAGE> 35
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Salaries and benefits $2,679,582 2,480,015 2,448,150
Net occupancy 736,551 638,798 590,890
Other 1,653,537 2,036,213 2,616,501
---------- --------- ---------
Total $5,069,670 5,155,026 5,655,541
========== ========== ==========
</TABLE>
Total noninterest expense decreased $85,356, or 1.66%, to $5,069,670 in 1996,
from $5,155,026 in 1995. Other expense decreased to $1,653,537 in 1996, from
$2,036,213 in 1995, a decrease of $382,676, or 23.14%. Legal fees associated
with pending litigation, bankruptcy filings and regulatory matters decreased
$56,490 in 1996. Miscellaneous losses decreased $413,614 due to decreased
litigation cost. Supplies increased $35,442 as the bank expanded into Baldwin
County. This expansion also caused marketing expenses to increase $40,981 for
the year.
Income tax expense for 1996 was $632,849 as compared to $502,000 in 1995. Net
earnings per share in 1996 were $2.85, as compared to a net earnings per share
of $2.38 in 1995. Return on average assets for 1996 was 1.03%, as compared to
.93% in 1995. Return on average equity was 11.48% in 1996, as compared to
10.62% in 1995.
Total noninterest expense decreased $500,515, or 8.85%, to $5,155,026 in 1995,
from $5,655,541 in 1994. Other expense decreased to $2,036,213 in 1995, from
$2,616,501 in 1994, a decrease of $580,288, or 22.17%. Legal fees associated
with pending litigation, bankruptcy filings and regulatory matters decreased
$222,908 in 1995. Miscellaneous losses decreased $286,543 due to decreased
litigation cost. Other data processing fees increased $162,944, because of
payments to a third party service center for 12 months in 1995 as opposed to 3
months in 1994. FDIC insurance decreased $115,395, because of the BIF fund
becoming fully capitalized in May of 1995 and a corresponding reduction in
premium assessments.
Income tax expense for 1995 was $502,000 as compared to $323,000 in 1994. Net
earnings per share in 1995 were $2.38, as compared to net earnings per share of
$1.70 in 1994. Return on average assets for 1995 was .93%, as compared to .64%
in 1994. Return on average equity was 10.62% in 1995, as compared to 7.36% in
1994.
35
<PAGE> 36
LOANS AT DECEMBER 31
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Commercial, financial
and agricultural $39,560,385 26,082,499 29,236,390
Real Estate - construction 1,398,013 1,230,498 1,337,971
Real Estate - mortgage 14,133,902 17,563,219 13,753,675
Installment loans to
individuals 20,091,315 20,185,236 17,061,301
----------- ---------- ----------
$75,183,615 65,061,452 61,389,337
=========== =========== ===========
</TABLE>
Total loans increased to $75,183,615 at December 31, 1996, from $65,061,452 at
year end 1995, an increase of $10,122,163, or 15.56%. Commercial, financial and
agricultural loans increased to $39,560,385 at year end 1996, from $26,082,499
at December 31, 1995. Most of the increase can be attributed to the opening of
a new branch in Foley, an expansion, and more competitive pricing in present
markets. Installment loans to individuals decreased to $20,091,315 at December
31, 1996, from $20,185,236 at year end 1995, a decrease of $93,921, or .47%.
The ratio of loans to deposits on December 31, 1996, was 61.08%, as compared to
55.26% in 1995.
Total loans increased to $65,061,452, at December 31, 1995, from $61,389,337 at
year end 1994, an increase of $3,672,115, or 5.98%. Commercial, financial and
agricultural loans decreased to $26,082,499 at year end 1995, from $29,236,390
at December 31, 1994. Most of the decrease of $3,153,891 can be attributed to
repayments on two major loans in the last half of the year. Installment loans
to individuals increased to $20,185,236 at December 31, 1995, from $17,061,301
at year end 1994, an increase of $3,123,935, or 18.31%. This increase was the
result of more emphasis being placed on consumer loans bankwide, including
hiring of new personnel and expansion of banking hours to make them more
accessible for customers. The ratio of loans, excluding bankers acceptances and
commercial paper, to deposits on December 31, 1995, was 55.26%, as compared to
53.79% in 1994.
LIQUIDITY
"Liquidity" refers to the Corporation's ability to meet its cash flow
requirements and to fund its commitments. The Corporation and its subsidiary
actively manage the levels, types and maturities of earning assets in relation
to the sources available to fund current and future needs in an effort to
ensure the availability of adequate funding at all times. The goal of liquidity
management is to ensure the availability of an adequate level of funds to meet
loan demand and the deposit withdrawal needs of the Corporation's customers.
As of December 31, 1996, the Corporation's liquidity was adequate. The
corporation relies primarily on the Bank for its liquidity
36
<PAGE> 37
needs. In addition to $650,000 in federal funds sold, the Bank's cash and due
from banks also had a balance of $8,139,453. At December 31, 1996 the loan to
deposit ratio was 61.08%. The Bank does not foresee any future problems with
liquidity, but if needed, it has a federal funds line of credit that totals
$10,500,000 and a line of credit from the Federal Home Loan Bank of $8,500,000.
The Corporation's bank subsidiary has an Asset and Liability Committee which
has as its primary objective the maintenance of specific funding and investment
strategies to achieve short-term and long-term financial goals.
As revealed in the Consolidated Statement of Cash Flows, the Corporation
generates the majority of its cash flows from financing activities. Financing
activities produced $3,376,144 in cash in 1996, with the majority of this
coming from a net increase in deposits. The investing activities of the
Corporation used $10,219,354 of the cash flows of the Bank. Of this use of
cash, $10,620,487 was the net outflow into the loan portfolio. Investments
maturing and proceeds from sales helped to fund these additional loans.
Operations provided $1,857,278 in cash flows for the year ended December 31,
1996.
37
<PAGE> 38
Interest Rate Sensitivity Analysis
Year Ended December 31
1996
<TABLE>
<CAPTION>
Three Three
Months To Six Six Months 1 - 5 5 Years
Or Less Months to One Year Years Or After Total
-------- -------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans, net of unearned
income $ 20,639 2,395 1,438 34,579 16,132 75,183
Taxable securities AFS 0 601 2,835 13,853 14,937 32,226
Tax exempt securities AFS 130 0 0 906 3,003 4,039
Taxable securities HTM 500 0 0 1,519 14,225 16,244
Tax exempt securities HTM 0 0 0 1,818 4,708 6,526
Federal Funds Sold 650 0 0 0 0 650
Interest bearing deposits
with other banks 0 0 0 102 0 102
-------- -------- -------- -------- -------- --------
TOTAL Interest Earning Assets $ 21,919 2,996 4,273 52,777 53,005 134,970
======== ======== ======== ======== ======== ========
Interest Earning Liabilities
Demand Deposits $ 0 0 0 0 18,455 18,455
Savings Deposits 0 0 0 0 14,473 14,473
Certificates of Deposit less
than $100,000 17,043 14,672 9,166 10,383 0 51,264
Certificates of Deposit
greater than $100,000 8,264 6,133 2,740 2,420 0 19,557
Federal Funds Purchased and
securities sold under
agreement to repurchase 6,755 0 0 0 0 6,755
Other Short Term Borrowings 668 0 0 0 0 668
-------- -------- -------- -------- -------- --------
TOTAL Interest Bearing $ 32,730 20,805 11,906 12,803 32,928 111,172
======== ======== ======== ======== ======== ========
Liabilities
Non Interest Bearing Source 0 0 0 0 19,973 19,973
of Funds
-------- -------- -------- -------- -------- --------
Interest Sensitivity Gap (10,811) (17,809) (7,633) 39,974 104 3,825
Cumulative Gap (28,620) (36,253) 3,721 3,825
</TABLE>
38
<PAGE> 39
The Corporation's sensitivity to changes in interest rates in conjunction with
the structure of interest rate spreads determines the impact of interest rates
on the Corporation's performance. Therefore, interest rate shock scenarios are
performed. In a rising interest rate shock scenario, the prime rate is assumed
to increase 200 basis points over the next twelve months. In the falling
interest rate shock case, the prime rate is assumed to drop 200 basis points
over the next twelve months. The projected net interest margin in a stable
interest rate environment is 4.75%, as compared to 4.86% in a rising rate
scenario and 4.61% in a falling rate scenario. Management considers these
interest rate movements to be worst case scenarios. Any business or strategic
plans the Corporation may implement in a rising or falling rate environment are
not taken into account in developing interest rate scenarios.
CAPITAL RESOURCES
The Corporation relies primarily on internally generated capital growth to
maintain capital adequacy. The average assets to average equity ratio during
1996 was 8.98% as compared to 8.73% in 1995. Total stockholders equity on
December 31, 1996 was $13,263,049, an increase of $865,511, or 6.98%, from
$12,397,538 at year end 1995. The Corporation's net operating profit during
1996, less dividends of $516,386 declared to stockholders, plus the FAS 115
adjustment of $91,130, accounted for this increase. The Corporation's bank
subsidiary, United Bank, had risk based capital of $13,980,000, or 16.63%, at
December 31, 1996, well above the minimum risk based capital requirement of
$6,725,000 or 8.0%. Based on management's projections, internally generated
capital should be sufficient to satisfy capital requirements in the foreseeable
future.
39
<PAGE> 40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Corporation's consolidated financial statements as of December 31, 1996 and
1995 and for each of the years in the three-year period ended December 31, 1996
are included in the following pages shown in the index below.
<TABLE>
<CAPTION>
Index to Financial Statements Page(s)
<S> <C>
Independent Auditors' Report F1
Consolidated Balance Sheets on December 31,
1996 and 1995 F2
Consolidated Statements of Operations for
the years ended December 31, 1996, 1995,
and 1994 F4
Consolidated Statements of Stockholders'
Equity for the years ended December 31,
1996, 1995, and 1994 F5
Consolidated Statements of Cash Flows for
the years ended December 31, 1996, 1995,
and 1994 F7
Notes to Consolidated Financial
Statements - December 31, 1996, 1995,
and 1994 F10
</TABLE>
40
<PAGE> 41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable
41
<PAGE> 42
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name of each nominee and each director
of the Corporation continuing in office after the Stockholders' Meeting, a
description of his position and offices, if any, with the Corporation and its
subsidiaries, a brief description of his principal occupation during at least
the last five years, and certain other information, including his age. Each
such director and each nominee is a director of United Bank. David D. Swift is
the nephew of Claude S. Swift.
<TABLE>
<CAPTION>
DIRECTOR DATE TERM AS PRINCIPAL OCCUPATION
NAME AND AGE SINCE DIRECTOR EXPIRES DURING PAST FIVE
YEARS
<S> <C> <C> <C>
L. Walter Crim (51) 1997 May 1997* Owner, Central Farm
Supply
H. Leon Esneul (61) 1993 May 1997* Chairman of the Board
of the Corporation;
pecan grower;
managing partner of
the Doris Company.
Robert R. Jones, III 1992 May 1999 President of the
(45) Corporation since
May,1993; Executive
Vice President of the
Corporation from July,1992
to May 1993; President and
Chief Executive Officer of
United Bank since July,1992.
William J. Justice 1991 May 1997* Vice Chairman of the
(57) Board of United Bank;
Pharmacist, President
and Chief Executive
Officer, Greenlawn
Pharmacy.
Bobby W. Sawyer (43) 1993 May 1999 President, Hammer,
Inc., construction
company.
Claude S. Swift (69) 1994 May 1998 Chairman of the Board
of United Bank;
President, Swift
Logging Co., Inc.
</TABLE>
42
<PAGE> 43
<TABLE>
<S> <C> <C> <C>
David D. Swift (46) 1995 May 1998 Secretary, Swift
Lumber Inc.;
Secretary, Swift
Supply, Inc.;
Partner, Palustris
Products, Ltd.
</TABLE>
* nominee for election for a term expiring in the year 2000
The following table lists the executive officers of the Corporation
and the respective positions held by them in the Corporation. Each is a
director of the Corporation, except for Mitchell D. Staples, and information
regarding their other business experience during the past five years and
certain other information is set forth under the caption "ELECTION OF
DIRECTORS" above. Mr. Staples, age 35, has been the Controller and Cashier of
United Bank from October 1992 to present; previously, he was Controller at
United Savings Bank, Anniston, Alabama.
NAME POSITION
---- --------
Robert R. Jones, III President
H. Leon Esneul Chairman of the Board
William J. Justice Secretary
Mitchell D. Staples Treasurer
The executive officers of the Corporation are elected annually at the
organizational meeting of the Board of Directors, which follows the annual
meeting of stockholders, to serve until the organizational meeting in the
subsequent year. There are no known arrangements or understandings between any
executive officers and any other person pursuant to which any of the
above-named persons was selected as an officer.
43
<PAGE> 44
ITEM 11. EXECUTIVE COMPENSATION
Officers of the Corporation, and directors who also serve as directors
or officers of United Bank, are remunerated by United Bank. The following
Summary Compensation Table sets forth certain information concerning
compensation to Robert R. Jones, III, the only executive officer of the
Corporation who received total annual salary and bonus for 1996 exceeding
$100,000.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
<S> <C> <C> <C> <C>
Robert R. Jones, III 1996 $110,250 $23,654 $19,986(1)
President of the Corporation; 1995 105,000 21,764 18,659
President of United Bank 1994 100,000 21,441 18,664
</TABLE>
- ---------------
(1) Includes $7,638 contributed on behalf of Mr. Jones as a
supplemental benefit pursuant to an Executive Compensation
Agreement; $456 premium reimbursed by United Bank on a
long-term disability insurance policy for Mr. Jones;
$1,345 contributed by United Bank for the account of Mr.
Jones pursuant to United Bank's 401(k) Employee Incentive
Savings Plan (the "401(k) Plan"); $5,350 in fees for
attendance at meetings of United Bank's Board of
Directors; and $5,197 in profit-sharing payments made in
1996 for services in 1995.
No fees are paid to directors of the Corporation for their services as
such. Since all of the Corporation's directors also serve as directors of
United Bank, they are compensated for their services to United Bank. See
"Executive Compensation" above for information regarding compensation paid to
executive officers of the Corporation.
During 1996 all current directors of the Corporation also served as
directors of United Bank. Each director of United Bank received a standard fee
for such service of $3,500 ($4,700 for United Bank Board Chairman Claude S.
Swift); $100 for each Joint Loan Committee meeting attended; and $50 for each
additional committee meeting attended, with a maximum of $50 per day for
additional meetings. In 1996, United Bank's Board of Directors held a total of
14 meetings: 12 monthly and two special.
Compensation Committee Interlocks and Insider Participation
Officers of the Corporation, and directors of the corporation who are also
directors of United Bank, are remunerated by United Bank, not by the
Corporation. The Corporation's Board of Directors does not have a compensation
committee or a committee performing similar functions. United Bank's Board of
Directors does have a
44
<PAGE> 45
compensation committee, which makes recommendations to United Bank's Board of
Directors regarding compensation to, among others, persons who serve as
executive officers of the Corporation. Such compensation committee is composed
of five directors, all of whom are outside directors who are not, and never
have been, officers or employees of the Corporation or any subsidiary thereof.
United Bank's Board of Directors determines the compensation of officers,
including those persons who serve as executive officers of the Corporation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 21, 1997, no single person or entity owned of record or,
to the knowledge of the Corporation, was deemed to own beneficially, more than
5% of the outstanding shares of Class A Stock.
The table below sets forth, as of March 21, 1997, the number of shares
of Class A Stock owned by each director and by all executive officers and
directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE
AMOUNT AND NATURE OF OF OUTSTANDING
NAME BENEFICIAL OWNERSHIP CLASS A STOCK
<S> <C> <C>
L. Walter Crim 616(1) *
H. Leon Esneul 13,604(2) 2.63%
Robert R. Jones, III 3,109(3) *
William J. Justice 4,638(4) *
Bobby W. Sawyer 3,132(5) *
Mitchell D. Staples 10(6) *
Claude S. Swift 25,599(7) 4.96%
David D. Swift 6,493 1.26%
All executive officers 57,201(1)(2)(3)(4) 11.08%
and directors as a (5)(6)(7)
group (8 persons)
</TABLE>
- --------------------------
* less than 1%
(1) Includes 168 shares owned jointly with his children.
(2) Includes 300 shares owned by The Doris Company; and 5,000
shares owned by his wife, as to which shares Mr. Esneul disclaims
beneficial ownership.
45
<PAGE> 46
(3) Includes 2,045 shares owned jointly with his wife; 32 shares owned jointly
with his son; 500 shares owned by United Bank as an Individual Retirement
Account; 500 shares owned by United Bank as an Individual Retirement Account
for his wife; and 32 shares owned jointly by his wife and his daughter.
(4) Includes 2,368 shares owned jointly with his wife; 1,098 shares owned by
his wife, as to which shares Mr. Justice disclaims beneficial ownership; and
106 shares owned by Mr. Justice for his granddaughter.
(5) Owned jointly with his wife.
(6) Owned jointly with his wife.
(7) Includes 21,333 shares owned jointly with his wife; and 4,266 shares owned
by his wife, as to which shares Mr. Swift disclaims beneficial ownership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Some Corporation and United Bank directors, officers, and principal
stockholders, and their associates and immediate families were customers of, or
had transactions with, subsidiaries of the Corporation in the ordinary course
of business during 1996. In addition, some Corporation and United Bank
directors are directors, officers, trustees, or principal security holders of
corporations or other organizations that were customers of, or had transactions
with, the Corporation or its subsidiaries in the ordinary course of business
during 1996.
United Bank has issued loans outstanding on behalf of directors, officers, and
principal shareholders, and their associates and immediate families, in the
aggregate amount of $2,284,315, representing approximately 17.2% of the
Corporation's shareholders' equity as of December 31, 1996. All outstanding
loans and other transactions with the Corporation's, and its subsidiaries',
directors, officers, and principal shareholders, and their associates and
immediate families, were made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons, and when
made did not involve more than the normal risk of collectibility or present
other unfavorable features. In addition to banking and financial transactions,
the Corporation and its subsidiaries may have had additional transactions with,
or may have used products or services of, various organizations of which
directors of the Corporation or its subsidiaries are directors, officers, or
principal shareholders. The amounts involved in such noncredit transactions
have in no case been material in relation to the business of the Corporation
and its subsidiaries or to such other organizations.
46
<PAGE> 47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The financial statements listed in the Index to Financial
Statements contained in Item 8 hereof are filed as part of
this Annual Report on Form 10-K.
(2) Financial statement schedules have been omitted as
inapplicable.
(3) The Exhibits listed below are filed as part of this Report.
Management contracts and compensatory plans and arrangements
required to be filed pursuant to Item 14(c) are identified by
an asterisk (*).
3.1 Restated Certificate of Incorporation of the Registrant
(Incorporated by reference herein from Exhibit 3a to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988).
3.2 Amended and Restated Bylaws of the Registrant (Incorporated
by reference herein from Exhibit 3.2 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1992).
10.1 Form of Executive Compensation Agreement between United
Bank and Robert R. Jones, III (Incorporated by reference
herein from Exhibit 10.1 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31,
1992).*
21 Subsidiary of the Registrant.
27 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the last quarter of the
fiscal year ended December 31, 1996.
47
<PAGE> 48
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNITED BANCORPORATION OF ALABAMA, INC.
(Registrant)
BY:/s/ Robert R. Jones, III
------------------------------
Robert R. Jones, III
President and Chief Executive Officer
March 21, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES CAPACITY IN WHICH SIGNED DATE
<S> <C> <C>
/s/ Robert R. Jones, III President, Chief March 21, 1997
- ------------------------- Executive Officer, and
Robert R. Jones, III Director
/s/ Mitchell D. Staples Treasurer March 21, 1997
- ------------------------- (principal financial and
Mitchell D. Staples principal accounting
officer)
Director March 21, 1997
- -------------------------
Elam P. Fayard
/s/ H. Leon Esneul Director March 21, 1997
- -------------------------
H. Leon Esneul
/s/ David D. Swift Director March 21, 1997
- --------------------------
David D. Swift
/s/ William J. Justice Director March 21, 1997
- -------------------------
William J. Justice
/s/ Bobby W. Sawyer Director March 21, 1997
- -------------------------
Bobby W. Sawyer
/s/ Claude S. Swift Director March 21, 1997
- -------------------------
Claude S. Swift
</TABLE>
48
<PAGE> 49
Supplemental Information to Be Furnished With Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered
Securities Pursuant to Section 12 of the Act
The annual report to shareholders covering the registrant's last fiscal year
and the proxy statement, form of proxy and other proxy soliciting material with
respect to the registrant's 1997 annual meeting of shareholders are to be
furnished to shareholders subsequent to the filing of this Annual Report on
Form 10-K. Four copies of such report and proxy material will be furnished to
the Commission when sent to security holders.
49
<PAGE> 50
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the
Registrant (Incorporated by reference herein from
Exhibit 3a to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31,
1988)
3.2 Amended and restated Bylaws of the Registrant
(Incorporated by reference herein from Exhibit 3.2
to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992).
10.1 Form of Executive Compensation Agreement between
United Bank and Robert R. Jones, III (Incorporated
by reference herein from Exhibit 10.1 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992).
21 Subsidiary of the registrant E2
27 Financial Data Schedule
(omitted from this conforming copy)
</TABLE>
E1
<PAGE> 51
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
United Bancorporation of Alabama, Inc.:
We have audited the accompanying consolidated financial statements of United
Bancorporation of Alabama, Inc. and subsidiary as listed in Item 8. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of United
Bancorporation of Alabama, Inc. and subsidiary at December 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Birmingham, Alabama
February 14, 1997
F-1
<PAGE> 52
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------------ -----------
<S> <C> <C>
Cash and due from banks (note 2) $ 8,139,453 6,225,385
Federal funds sold 650,000 7,550,000
------------ -----------
Cash and cash equivalents 8,789,453 13,775,385
Interest-earning deposits with other financial institutions 102,548 103,897
Investment securities available for sale (note 3) 36,308,703 38,413,968
Investment securities held to maturity (fair value
of $22,555,998 and $21,758,613 at December 31,
1996 and 1995, respectively) (note 3) 22,770,332 21,799,988
Loans (note 4) 75,183,615 65,061,452
Less: Unearned income 937,725 1,114,870
Allowance for loan losses 1,243,457 1,343,636
------------ -----------
Net loans 73,002,433 62,602,946
Premises and equipment, net (note 5) 2,012,227 1,667,135
Interest receivable 1,595,968 1,703,031
Other real estate, net (note 6) 52,000 81,072
Other assets 644,745 318,799
------------ -----------
Total assets $145,278,409 140,466,221
============ ===========
</TABLE>
(Continued)
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 53
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Consolidated Balance Sheets, Continued
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1996 1995
---- ----
<S> <C> <C>
Deposits (note 7):
Noninterest bearing $ 19,973,202 20,117,028
Interest bearing 103,102,366 97,625,844
------------ -----------
Total deposits 123,075,568 117,742,872
Securities sold under agreements to repurchase (note 8) 6,754,899 8,690,856
Treasury, tax and loan account 668,307 172,516
Accrued expenses and other liabilities (note 9) 1,516,586 1,462,439
------------ -----------
Total liabilities 132,015,360 128,068,683
Stockholders' equity (notes 12, 16 and 17):
Class A common stock. Authorized 975,000
shares of $.01 par value; 548,160 shares
issued and outstanding 5,482 5,482
Class B common stock of $.01 par value
Authorized 250,000 shares; no shares
issued and outstanding -- --
Preferred stock of $.01 par value
Authorized 250,000 shares; no shares
issued and outstanding -- --
Surplus 3,476,518 3,476,518
Retained earnings 10,220,356 9,263,715
Net unrealized gain on investment securities
available for sale 26,283 117,413
------------ -----------
13,728,639 12,863,128
Less 31,775 treasury shares at cost 465,590 465,590
------------ -----------
Total stockholders' equity 13,263,049 12,397,538
Commitments and contingencies (notes 13 and 14)
------------ -----------
Total liabilities and stockholders' equity $145,278,409 140,466,221
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 54
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Consolidated Statements of Operations
Years Ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 7,147,823 6,703,530 5,575,903
Interest on investment securities:
Taxable 3,255,448 3,107,793 3,272,913
Nontaxable 492,920 374,785 365,449
----------- --------- ---------
Total interest on investment securities 3,748,368 3,482,578 3,638,362
----------- --------- ---------
Other interest income 196,972 309,007 209,053
----------- --------- ---------
Total interest income 11,093,163 10,495,115 9,423,318
Interest expense:
Interest on deposits (note 7) 4,581,252 4,226,361 3,349,242
Interest on other borrowed funds 371,017 334,052 169,283
----------- --------- ---------
Total interest expense 4,952,269 4,560,413 3,518,525
----------- --------- ---------
Net interest income 6,140,894 5,934,702 5,904,793
Provision for loan losses (note 4) 171,000 204,000 330,000
----------- --------- ---------
Net interest income after
provision for loan losses 5,969,894 5,730,702 5,574,793
Noninterest income:
Service charges on deposits 931,932 908,838 872,299
Commissions on credit life insurance 55,250 88,151 96,234
Investment securities gains, net (note 3) 34,964 31,867 14,150
Other 183,506 127,830 245,614
----------- --------- ---------
Total noninterest income 1,205,652 1,156,686 1,228,297
----------- --------- ---------
Noninterest expense:
Salaries and benefits (note 10) 2,679,582 2,480,015 2,448,150
Net occupancy expense 736,551 638,798 590,890
Other (note 15) 1,653,537 2,036,213 2,616,501
----------- --------- ---------
Total noninterest expense 5,069,670 5,155,026 5,655,541
----------- --------- ---------
Earnings before income taxes 2,105,876 1,732,362 1,147,549
Income tax expense (note 9) 632,849 502,000 323,000
----------- --------- ---------
Net earnings $ 1,473,027 1,230,362 824,549
=========== ========= =========
Earnings per share $ 2.85 2.38 1.70
=========== ========= =========
Weighted average shares outstanding 516,385 516,385 484,275
=========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 55
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Net
unrealized
gain
(loss) on
investment
securities Total
Common Retained available Treasury stockholders'
Shares stock Surplus earnings for sale stock equity
------ ----- ------- -------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993 548,160 $ 5,482 3,476,518 8,309,569 -- (508,590) 11,282,979
Net earnings 1994 -- -- -- 824,549 -- -- 824,549
Cash dividends declared
($.50 per share) -- -- -- (257,118) -- -- (257,118)
Effect of adoption of FASB
Statement No. 115, Account-
ing for Certain Investments
in Debt and Equity Securities -- -- -- -- 491,437 -- 491,437
Change in unrealized gain (loss)
on investments securities
available for sale, net of
change in deferred tax -- -- -- -- (1,128,723) -- (1,128,723)
Purchase of treasury stock -- -- -- -- -- (539,280) (539,280)
Stock dividend (1 to 15):
29,960 at $18 -- -- -- (539,280) -- 539,280 --
2,150 at $20 -- -- -- (43,000) -- 43,000 --
Cash paid in lieu of fractional
shares -- -- -- (3,175) -- -- (3,175)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance December 31, 1994 548,160 5,482 3,476,518 8,291,545 (637,286) (465,590) 10,670,669
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 56
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Net
unrealized
gain
(loss) on
investment
securities Total
Common Retained available Treasury stockholders'
Shares stock Surplus earnings for sale stock equity
------ ----- ------- -------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net earnings 1995 -- -- -- 1,230,362 -- -- 1,230,362
Cash dividends declared
($.50 per share) -- -- -- (258,192) -- -- (258,192)
Change in net unrealized gain (loss)
on investment securities available
for sale, net of change in deferred -- -- -- -- 754,699 -- 754,699
tax
------- ------- --------- --------- ------- -------- ----------
Balance December 31, 1995 548,160 5,482 3,476,518 9,263,715 117,413 (465,590) 12,397,538
Net earnings 1996 -- -- -- 1,473,027 -- -- 1,473,027
Cash dividends declared
($1.00 per share) -- -- -- (516,386) -- -- (516,386)
Change in net unrealized gain (loss)
on investment securities available
for sale, net of change in deferred -- -- -- -- (91,130) -- (91,130)
tax ------- ------- --------- ---------- ------- -------- ----------
Balance December 31, 1996 548,160 $ 5,482 3,476,518 10,220,356 26,283 (465,590) 13,263,049
======= ======= ========= ========== ======= ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 57
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,473,027 1,230,362 824,549
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Provision for loan losses 171,000 204,000 330,000
Depreciation of premises and equipment 268,857 229,973 263,525
Net amortization (accretion) of
premium (discount) on investment
securities and interest-earning deposits 140,533 87,812 254,054
Gains on sales of investment
securities available for sale, net (34,964) (31,867) (14,150)
Deferred income tax expense 69,790 114,000 37,000
(Gains) losses on disposal of
premises and equipment, net -- 43,446 (4,325)
Gains on sale of other real estate, net (57,193) -- (11,500)
Decrease (increase) in interest
receivable 107,063 (188,182) (359,167)
(Increase) decrease in other assets (325,946) 226,657 (317,870)
Increase(decrease) in accrued
expenses and other liabilities 45,111 221,134 (298,728)
----------- --------- -------
Net cash provided by
operating activities 1,857,278 2,137,335 703,388
----------- --------- -------
Cash flows from investing activities:
Net decrease in interest-earning deposits
in other financial institutions 1,349 1,535 99,534
Proceeds from maturities, calls, and
principal repayments of investment
securities held to maturity 6,616,973 3,366,485 6,773,563
Purchases of investment securities
held to maturity (7,663,821) (2,623,814) (11,066,265)
Proceeds from maturities, calls, and
principal repayments of investment
securities available for sale 6,166,424 4,889,056 4,260,531
</TABLE>
(Continued)
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 58
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
Years Ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Proceeds from sales of investment
securities available for sale 1,350,757 2,764,542 7,751,403
Purchases of investment securities
available for sale (5,592,865) (11,806,339) (2,713,906)
Net increase in loans (10,620,487) (3,791,685) (8,566,190)
Proceeds from insurance settlement -- 1,237,589 --
Purchases of replacement assets -- (1,237,589) --
Purchases of premises and equipment (613,949) (241,618) (225,920)
Proceeds from sales of premises
and equipment -- 10 4,325
Proceeds from sales of other real estate 136,265 12,155 88,262
------------ --------- ----------
Net cash used in investing
activities (10,219,354) (7,429,673) (3,594,663)
------------ --------- ----------
Cash flows from financing activities:
Net increase in deposits 5,332,696 3,677,954 5,492,078
Net (decrease) increase in securities
sold under agreements to repurchase (1,935,957) 2,817,202 1,432,448
Cash dividends (516,386) -- (260,293)
Increase (decrease) in other
borrowed funds 495,791 (199,020) (797,137)
Purchase of treasury stock -- -- (539,280)
------------ --------- ----------
Net cash provided by
financing activities 3,376,144 6,296,136 5,327,816
------------ --------- ----------
Net (decrease) increase in cash and
cash equivalents (4,985,932) 1,003,798 2,436,541
Cash and cash equivalents at
beginning of year 13,775,385 12,771,587 10,335,046
------------ --------- ----------
Cash and cash equivalents at end of year $ 8,789,453 13,775,385 12,771,587
============ ========== ==========
Supplemental disclosures
Cash paid during the year for:
Interest $ 4,984,807 4,308,312 3,436,623
============ ========== ==========
Income taxes $ 447,000 430,000 900,945
============ ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 59
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
Years Ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Supplemental disclosures, Continued
Noncash transactions:
Transfer of loans to other real
estate through foreclosure $ 50,000 78,766 61,223
================ =========== ===========
Change in unrealized gain (loss)
on investment securities available
for sale, net of change in
deferred tax $ (91,130) 754,699 (1,128,723)
================ =========== ===========
Investment securities transferred
from held-to-maturity to
available-for-sale $ -- 7,851,246 31,145,694
================ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 60
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1996, 1995, and 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
financial statements of United Bancorporation of Alabama, Inc.
(the Corporation) and its wholly-owned subsidiary, United Bank
(the Bank), collectively referred to as the Company.
Significant intercompany balances and transactions have been
eliminated in consolidation.
(b) BASIS OF PRESENTATION
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the financial statements, management is required to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of
contingent assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual
results could differ significantly from those estimates.
Material estimates that are particularly susceptible to
significant change in a time period of less than one year
relate to the determination of the allowance for loan losses
and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. In connection with
the determination of the allowances for loan losses and real
estate owned, management obtains independent appraisals for
significant properties.
Management believes the allowances for losses on loans and
real estate owned are adequate. While management uses
available information to recognize losses on loans and real
estate owned, future additions to the allowances may be
necessary based on changes in economic conditions,
particularly in Alabama. In addition, various regulatory
agencies, as an integral part of their examination process,
periodically review the Company's allowances for losses on
loans and real estate owned. Such agencies may require the
Company to recognize additions to the allowances based on
their judgments about information available to them at the
time of their examination.
(c) CASH EQUIVALENTS
The Company considers due from banks and federal funds sold to
be cash equivalents. Federal funds are generally sold for
one-day periods.
(Continued)
F-10
<PAGE> 61
- 2 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(d) INVESTMENT SECURITIES
On January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) 115, Accounting for Certain
Investments in Debt and Equity Securities which requires that
investment securities be held in one of three portfolios: (i)
trading account securities, (ii) held to maturity securities,
and (iii) securities available for sale. Trading account
securities are to be stated at fair value. The Company does
not have trading account securities. Investment securities
held to maturity are stated at cost adjusted for amortization
of premiums and accretion of discounts. With regard to
investment securities held to maturity, management has the
intent and ability to hold such securities until maturity.
Investment securities available for sale are to be stated at
fair value with any unrealized gains and losses reported in a
separate component of stockholders' equity, net of tax effect,
until realized. Once realized, gains and losses on investment
securities available for sale are reflected in current period
earnings.
Upon the adoption of SFAS 115, the Company transferred
securities, totaling approximately $31,000,000, to the
available for sale portfolio at January 1, 1994 with a net
unrealized gain of approximately $491,000 included in
stockholders' equity, net of taxes of $285,000.
In November 1995, the Financial Accounting Standards Board
(FASB) issued FASB Special Report, A Guide to Implementation
of Statement No. 115 on Accounting for Certain Investments in
Debt and Equity Securities - Questions and Answers. Concurrent
with the initial adoption of this implementation guidance, an
entity may reassess the appropriateness of the classifications
of all securities held at that time and account for any
resulting reclassifications at fair value. This one-time
reclassification should occur as of a single date between
November 15, 1995 and December 31, 1995, not over a number of
days throughout that period. Reclassifications from the
held-to-maturity category that result from this one-time
reassessment will not call into question the intent of any
entity to hold other debt securities to maturity in the
future. In conjunction with this special report, the Company
transferred, effective November 30, 1995, investment
securities held to maturity, including U.S. Treasury notes,
U.S. government agency obligations, and state and political
subdivision obligations with a total amortized cost of
$5,072,080, $1,004,117, and $1,775,049, respectively, with a
fair value of $5,017,031, $980,919, and $1,962,576,
respectively, to the available-for-sale category. The
(Continued)
F-11
<PAGE> 62
- 3 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(d) INVESTMENT SECURITIES, CONTINUED
unrealized net holding gains on these securities at November
30, 1995, totaled approximately $109,000 and were included as
a separate component of stockholders' equity, net of deferred
taxes of approximately $44,000.
Interest earned on investment securities held to maturity and
investment securities available for sale is included in
interest income. Net gains and losses on the sale of
investment securities available for sale, computed principally
on the specific identification method, are shown separately in
noninterest income in the consolidated statements of
operations. Accretion of discounts and amortization of
premiums are calculated on the effective interest method over
the anticipated life of the security.
A decline in the market value of any security below cost that
is deemed other than temporary is charged to income resulting
in the establishment of a new cost basis for the security.
(e) LOANS
Loans are stated at principal amounts outstanding less
unearned income and the allowance for loan losses. Interest
income on loans is credited to earnings based on the principal
amount outstanding at the respective rate of interest except
for add on installment loans for which interest is recognized
on a method which is not materially different from a
level-yield basis over the terms of the loans. Interest
income on other loans is recognized on a level-yield basis.
Accrual of interest on loans is discontinued when a loan
becomes contractually past due by 90 days or more with respect
to interest or principal. When a loan is placed on nonaccrual
status, all interest previously accrued, but not collected, is
reversed against current period interest income. Income on
such loans is then recognized only to the extent that cash is
received and where the future collection of principal is
probable. Interest accruals are recorded on such loans only
when they are brought fully current with respect to interest
and principal and when, in the judgment of management, the
loans are estimated to be fully collectible as to both
principal and interest.
(Continued)
F-12
<PAGE> 63
- 4 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(e) LOANS, CONTINUED
The Company adopted the provisions of SFAS 114, Accounting by
Creditors for Impairment of a Loan, as amended by SFAS 118,
Accounting by Creditors for Impairment of a Loan--Income
Recognition and Disclosures, on January 1, 1995. Under the
provisions of SFAS 114 and 118, management considers a loan to
be impaired when it is probable that the Company will be
unable to collect all amounts due according to the contractual
terms of the loan agreement. When a loan is considered
impaired, the amount of impairment is measured based on the
present value of expected future cash flows discounted at the
note's effective interest rate. If the loan is
collateral-dependent, the fair value of the collateral is used
to determine the amount of impairment. Impairment losses are
included in the allowance for loan losses through a charge to
the provision for loan losses. Impaired loans are charged to
the allowance when such loans are deemed to be uncollectible.
Subsequent recoveries are added to the allowance.
When a loan is considered impaired, cash receipts are applied
under the contractual terms of the loan agreement, first to
principal and then to interest income. Once the recorded
principal balance has been reduced to zero, future cash
receipts are applied to interest income, to the extent that
any interest has not been recognized. Any further cash
receipts are recorded as recoveries of any amount previously
charged off.
A loan is also considered impaired if its terms are modified
in a troubled debt restructuring after January 1, 1995. For
those accruing impaired loans, cash receipts are typically
applied to principal and interest receivable in accordance
with the terms of the restructured loan agreement. Interest
income is recognized on these loans using the accrual method
of accounting.
(f) ALLOWANCE FOR LOAN LOSSES
Additions to the allowance for loan losses are based on
management's evaluation of the loan portfolio under current
economic conditions, past loan loss experience and such other
factors which, in management's judgment, deserve recognition
in estimating loan losses. The board of directors of the Bank
makes a formal review of the adequacy of the allowance for
loan losses prior to the end of each calendar quarter. Loans
are charged-off when, in the opinion of management, such loans
are deemed to be uncollectible. Subsequent recoveries are
added to the allowance.
(Continued)
F-13
<PAGE> 64
- 5 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(g) PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using both the
declining-balance method and the straight-line method over the
estimated useful lives of the assets, which range from three
to thirty years.
(h) OTHER REAL ESTATE
Other real estate represents property acquired through
foreclosure or deeded to the Company in lieu of foreclosure on
real estate mortgage loans on which borrowers have defaulted.
Other real estate is carried at the lower of cost or fair
value, adjusted for estimated selling costs. Reductions in the
balance of other real estate at the date of foreclosure are
charged to the allowance for loan losses. Subsequent changes
in fair value, up to the value established at foreclosure, are
recognized as charges or credits to noninterest expense with
an offset to the allowance for losses on other real estate.
(i) INCOME TAX EXPENSE
The Company accounts for income taxes under the asset and
liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period
that includes the enactment date.
The Company files its federal income tax returns on a
consolidated basis.
(j) RECLASSIFICATIONS
Certain reclassifications have been made in the 1995 and 1994
consolidated financial statements to conform with the
classifications in the 1996 consolidated financial statements.
F-14
(Continued)
<PAGE> 65
- 6 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(k) RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1996, the Company adopted SFAS No. 122,
Accounting for Mortgage Servicing Rights an amendment of FASB
Statement No. 65 (SFAS 122). SFAS 122 requires that a mortgage
banking enterprise recognize as separate assets, rights to
service mortgage loans for others, however those servicing
rights are acquired. SFAS 122 also requires that a mortgage
banking enterprise assess its capitalized mortgage servicing
rights for impairment based on the fair value of those rights.
The adoption of SFAS 122 did not have a material impact on the
consolidated financial statements.
(2) CASH AND DUE FROM BANKS
The Corporation's subsidiary bank is required to maintain daily cash
balances with the Federal Reserve. These balances were $823,000 and
$801,000 at December 31, 1996 and 1995, respectively.
(3) INVESTMENT SECURITIES
The amortized cost and approximate fair value of investment securities
held to maturity at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Gross Gross Approximate
Amortized unrealized unrealized fair
1996 cost gains losses value
---- ---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury $ 6,978 -- -- 6,978
U.S. Government agencies
excluding mortgage-
backed securities 11,213,696 3,301 229,379 10,987,618
State and political
subdivisions 6,526,184 127,063 49,571 6,603,676
Mortgage-backed securities 5,023,474 5,875 71,623 4,957,726
----------- ----------- ----------- -----------
$22,770,332 136,239 350,573 22,555,998
=========== =========== =========== ===========
</TABLE>
F-15
(Continued)
<PAGE> 66
- 7 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) INVESTMENT SECURITIES, CONTINUED
<TABLE>
<CAPTION>
Gross Gross Approximate
Amortized unrealized unrealized fair
1995 cost gains losses value
---- ---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury $ 6,984 -- 102 6,882
U.S. Government agencies
excluding mortgage-
backed securities 12,726,541 35,092 97,008 12,664,625
State and political
subdivisions 5,748,924 64,239 22,641 5,790,522
Mortgage-backed securities 2,803,881 6,197 23,844 2,786,234
Corporate notes 513,658 -- 3,308 510,350
----------- ----------- ----------- -----------
$21,799,988 105,528 146,903 21,758,613
=========== =========== =========== ===========
</TABLE>
Included in investment securities held to maturity at December 31, 1996
are certain U.S. Government agency securities whose yields are based on
various interest rate indices or which include various interest rate
step-up provisions. The amortized cost and net unrealized losses on such
securities at December 31, 1996 were $1,999,571 and $16,151,
respectively. The weighted average yield of such securities at December
31, 1996 was 5.22 percent. These securities mature at various dates from
January 1997 through October 2000.
The amortized cost and approximate fair value of debt securities
classified as investment securities held to maturity at December 31, 1996
by contractual maturity are shown below. Expected maturities may differ
from contractual maturities because borrowers may have the right to call
or prepay obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
Approximate
Amortized fair
cost value
---- ------
<S> <C> <C>
Investment securities held to maturity:
Due in one year or less $ 499,571 498,958
Due after one year through five years 3,325,151 3,331,470
Due after five years through ten years 8,870,576 8,771,750
Due after ten years 5,051,560 4,996,094
----------- -----------
Subtotal 17,746,858 17,598,272
Mortgage-backed securities 5,023,474 4,957,726
----------- -----------
Total $22,770,332 22,555,998
=========== ===========
</TABLE>
F-16
(Continued)
<PAGE> 67
- 8 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) INVESTMENT SECURITIES, CONTINUED
There were no sales of investment securities held to maturity during the
three-year period ended December 31, 1996.
The amortized cost and approximate fair value of investment securities
available for sale at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Gross Gross Approximate
Amortized unrealized unrealized fair
1996 cost gains losses value
---- ---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury $ 7,549,683 -- 60,353 7,489,330
U.S. Government agencies
excluding mortgage-
backed securities 11,987,314 58,393 152,479 11,893,228
State and political
subdivisions 5,536,152 246,282 28,177 5,754,257
Mortgage-backed securities 9,146,886 71,285 61,816 9,156,355
Collateralized mortgage
obligations 1,280,403 -- 71,393 1,209,010
Corporate notes and other 764,460 42,063 -- 806,523
----------- ----------- ----------- -----------
$36,264,898 418,023 374,218 36,308,703
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ ------
1995
----
<S> <C> <C> <C> <C>
U.S. Treasury $ 8,576,419 -- 48,138 8,528,281
U.S. Government agencies
excluding mortgage-
backed securities 13,999,877 122,959 130,670 13,992,166
State and political
subdivisions 6,220,645 304,713 80,880 6,444,478
Mortgage-backed securities 7,728,590 90,456 47,242 7,771,804
Collateralized mortgage
obligations 1,442,748 -- 40,384 1,402,364
Corporate notes 250,000 24,875 -- 274,875
------------- ---------- --------- -------------
$ 38,218,279 543,003 347,314 38,413,968
============= ========== ========= ============
</TABLE>
F-17
(Continued)
<PAGE> 68
- 9 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) INVESTMENT SECURITIES, CONTINUED
Included in investment securities available for sale at December 31, 1996
are certain U.S. Government agency securities and all of the
collateralized mortgage obligations whose yields are based on various
interest rate indices or which include various interest rate step-up
provisions. The amortized cost and net unrealized losses on such
securities at December 31, 1996, were $4,063,147 and $48,467
respectively. The weighted average yield of such securities at December
31, 1996 was 5.62 percent. These securities mature at various dates from
March 1998 through April 2024.
The amortized cost and approximate fair value of debt securities
classified as investment securities available for sale at December 31,
1996, by contractual maturity are shown below. Expected maturities may
differ from contractual maturities because borrowers may have the right
to call or prepay obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
Approximate
Amortized fair
cost value
---- -----
<S> <C> <C>
Investment securities available for sale:
Due in one year or less $ 3,915,389 3,912,220
Due after one year through five years 13,046,600 13,021,768
Due after five years through ten years 7,142,254 7,171,675
Due after ten years 1,733,366 1,837,675
----------- -----------
Subtotal 25,837,609 25,943,338
Mortgage-backed securities 9,146,886 9,156,355
Collateralized mortgage obligations 1,280,403 1,209,010
----------- -----------
Total $36,264,898 36,308,703
=========== ===========
</TABLE>
Proceeds from sales of investment securities available for sale during
1996, 1995, and 1994 were $1,350,757, $2,764,542, and $7,751,403,
respectively. Gross gains of $42,605 and gross losses of $7,641 were
realized on those sales in 1996. Gross gains of $39,240 and gross losses
of $7,373 were realized on those sales in 1995. Gross gains of $34,573
and gross losses of $20,423 were realized on those sales in 1994.
F-18
(Continued)
<PAGE> 69
- 10 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) INVESTMENT SECURITIES, CONTINUED
Securities with carrying values of $28,734,234 and $28,153,891 at
December 31, 1996 and 1995, respectively, were pledged to secure public
and trust deposits as required by law and for other purposes.
The Company maintains a highly-diversified investment portfolio,
including held to maturity and available for sale securities, with
limited concentration in any given region, industry, or economic
characteristic. At December 31, 1996, the investment portfolio, at
amortized cost consists of securities of the U.S. government or U.S.
government-backed securities (53 percent); mortgage-backed securities (24
percent); collateralized mortgage obligations (2 percent); securities of
state and municipal governments (20 percent); and corporate notes (1
percent). Investments in municipal governments are made throughout the
U.S. with no concentration in any given state.
(4) LOANS AND ALLOWANCE FOR LOAN LOSSES
At December 31, 1996 and 1995, the composition of the loan portfolio was
as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Commercial, financial and agricultural $39,560,385 26,082,499
Real estate - construction 1,398,013 1,230,498
Real estate - 1-4 family residential mortgage 14,133,902 17,563,219
Installment loans to individuals 20,091,315 20,185,236
----------- -----------
$75,183,615 65,061,452
=========== ===========
</TABLE>
A summary of the transactions in the allowance for loan losses for the
years ended December 31, 1996, 1995, and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 1,343,636 1,251,549 1,173,993
Provision charged to earnings 171,000 204,000 330,000
Less: Loans charged-off 345,750 150,896 338,666
Loan recoveries (74,571) (38,983) (86,222)
----------- ----------- -----------
Net charge-offs 271,179 111,913 252,444
----------- ----------- -----------
Balance at end of year $ 1,243,457 1,343,636 1,251,549
=========== =========== ===========
</TABLE>
F-19
(Continued)
<PAGE> 70
- 11 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(4) LOANS AND ALLOWANCE FOR LOAN LOSSES, CONTINUED
In May 1993, the FASB issued SFAS 114, Accounting by Creditors for
Impairment of a Loan. In October 1994, the FASB issued SFAS 118,
Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures, which amends the requirements of SFAS 114 regarding interest
income recognition and related disclosure requirements. Initial adoption
of SFAS 114 and SFAS 118 must be reflected prospectively. The Company
adopted SFAS 114 and SFAS 118 on January 1, 1995 and the impact to the
consolidated financial statements was not material. At December 31, 1996
and 1995, pursuant to the definition within SFAS 114, the Company had no
significant impaired loans, other than nonaccrual loans.
Loans on which the accrual of interest had been discontinued or reduced
amounted to $339,016 and $333,002 as of December 31, 1996 and 1995,
respectively. If these loans had been current throughout their terms,
interest income would have been increased by $12,355, $9,363, and $5,234
for 1996, 1995, and 1994, respectively.
The Company had $9,766,213 and $8,261,708 of agriculture-related loans at
December 31, 1996 and 1995, respectively. Agriculture loans accounted for
$93,269 and $147,661 of nonaccrual loans in 1996 and 1995, respectively.
In assessing the credit risk and related terms of this specialized type
of lending, the Company utilizes the experience of specific personnel in
evaluating collateral and the resources of the borrower. As the Company's
loans, including agriculture loans, are reflective of its geographic
market, the ultimate collectibility of a substantial portion of the loan
portfolio and the recovery of real estate owned are susceptible to
changes in market conditions in the geographic area served by the
Company.
During 1996 and 1995, certain executive officers and directors of the
Corporation and its subsidiary, including their immediate families and
companies with which they are associated, were loan customers of the
subsidiary bank. Total loans outstanding to these related parties at
December 31, 1996 and 1995, amounted to $2,284,315 and $1,919,670,
respectively. The change from December 31, 1995 to December 31, 1996
reflects advances amounting to $1,453,567 and payments of $1,088,922 made
during the year. Such loans are made in the ordinary course of business
at normal credit terms, including interest rate and collateral
requirements, and do not represent more than a normal credit risk.
(Continued)
F-20
<PAGE> 71
- 12 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(5) PREMISES AND EQUIPMENT
At December 31, 1996 and 1995, premises and equipment were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $ 532,060 255,749
Buildings and leasehold improvements 1,939,142 1,796,843
Furniture, fixtures and equipment 1,794,272 1,616,164
Automobiles 118,412 131,262
---------- ----------
4,383,886 3,800,018
Less: accumulated depreciation 2,371,659 2,132,883
---------- ----------
$2,012,227 1,667,135
========== ==========
</TABLE>
During the year ended December 31, 1995, certain premises and
equipment with a net book value of $43,456 were disposed of due to
damage sustained from Hurricane Erin. Premises and equipment lost due
to storm damage were covered by insurance so that proceeds received
were adequate to replace lost assets. In addition, the Company
incurred certain expenses relating to damage from the storm including
disposal costs, costs of temporary office and storage space, and other
related items. However, the net effect of such expenses, proceeds, and
disposals did not have a significant impact on the consolidated
financial statements.
(6) OTHER REAL ESTATE
Other real estate, net, as of December 31, 1996 and 1995 totaled
$52,000 and $81,072, respectively. There was no allowance for losses
on other real estate at December 31, 1996 or 1995.
(Continued)
F-21
<PAGE> 72
- 13 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(7) DEPOSITS
At December 31, 1996 and 1995, deposits were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Noninterest bearing accounts $ 19,973,202 20,117,028
NOW accounts 12,950,046 11,805,998
Money market investment accounts 4,858,478 5,628,649
Savings accounts 14,472,699 14,836,768
Time deposits:
Certificates of deposit less than $100,000 51,263,353 49,346,815
Certificates of deposit greater than $100,000 19,557,790 16,007,614
------------ ------------
Total deposits $123,075,568 117,742,872
============ ============
</TABLE>
Interest expense on certificates of deposit greater than $100,000
amounted to $644,399, $686,521, and $457,686 for the years ended
December 31, 1996, 1995, and 1994, respectively.
(8) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The maximum amount of outstanding securities sold under agreements to
repurchase during 1996 and 1995 was $6,754,899 and $8,690,856,
respectively. The weighted average borrowing rate at December 31, 1996
and 1995 was 4.86 percent and 5.19 percent, respectively. The average
amount of outstanding securities sold under agreements to repurchase
during 1996 and 1995 was $6,318,906 and $5,760,265, respectively. The
weighted average borrowing rate during the years ended December 31,
1996 and 1995 was 4.64 percent and 4.70 percent, respectively.
Securities underlying these agreements are under the Company's
control.
(Continued)
F-22
<PAGE> 73
- 14 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(9) INCOME TAXES
Total income tax expense (benefit) for the years ended December 31,
1996, 1995, and 1994 was allocated as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income from continuing operations $ 632,849 502,000 323,000
========= ========= =========
Stockholders' equity, for unrealized
gains (losses) on investment
securities available for sale $ (60,754) 503,466 (425,190)
========= ========= =========
</TABLE>
The components of income tax expense for the years ended December 31, 1996,
1995, and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current income tax expense:
Federal $500,275 318,000 248,000
State 62,784 70,000 38,000
-------- -------- --------
Total 563,059 388,000 286,000
Deferred income tax expense (benefit):
Federal 62,139 119,000 35,000
State 7,651 (5,000) 2,000
-------- -------- --------
Total 69,790 114,000 37,000
-------- -------- --------
Total income tax expense $632,849 502,000 323,000
======== ======== ========
</TABLE>
Income tax expense was $632,849, $502,000, and $323,000 (effective tax
rates of 30.05 percent, 28.98 percent, and 28.14 percent) for the
years ended December 31, 1996, 1995, and 1994, respectively.
(Continued)
F-23
<PAGE> 74
- 15 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(9) INCOME TAXES, CONTINUED
Total income tax expense differed from the amount computed by applying
the statutory federal income tax rate of 34 percent to pretax earnings
for the following reasons:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income tax at statutory rate $ 715,998 589,003 390,167
Increase (decrease) resulting from:
Tax exempt interest (142,215) (139,049) (147,760)
State income tax net of federal
tax benefit 46,487 42,900 26,400
Premium amortization on tax exempt
investment securities 9,344 8,857 10,436
Other, net 3,235 289 43,757
--------- --------- ---------
$ 632,849 502,000 323,000
========= ========= =========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Loans, principally due to the allowance
for loan losses $ 26,684 88,925
Other real estate, principally due to
differences in carrying value 18,956 42,049
Accrued expenses, principally due to
legal expenses 50,545 50,545
Capital loss carryforward 34,124 34,124
Other 4,421 4,441
--------- ---------
Total gross deferred tax assets
before valuation allowance 134,730 220,084
Valuation allowance attributable
to capital loss carryforward (34,124) (34,124)
--------- ---------
Total deferred tax assets 100,606 185,960
--------- ---------
</TABLE>
(Continued)
F-24
<PAGE> 75
- 16 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(9) INCOME TAXES, CONTINUED
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax liabilities:
Premises and equipment, principally due
to differences in depreciation 199,058 216,160
Unrealized gain on investment securities
available for sale 17,522 78,276
Accrued employee benefits 21,996 21,996
Other 2,280 742
--------- ---------
Total deferred tax liabilities 240,856 317,174
--------- ---------
Net deferred tax liabilities $(140,250) (131,214)
========= =========
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the
level of historical taxable income and projection for future taxable
income over the periods which the temporary differences resulting in
the deferred tax assets are deductible, management believes it is more
likely than not that the Company will realize the benefits of these
deductible differences, giving consideration to the valuation
allowance recorded.
(10) EMPLOYEE BENEFIT PLANS
The Company adopted a 401(k) Employee Incentive Savings Plan effective
January 1, 1988. Employees become eligible after completing six months
of service and attaining age 20 1/2. They can contribute a minimum of
one percent up to ten percent of salary to the plan. The Company
contributes twenty-five cents for each dollar the employee
contributes, up to four percent of the employee's salary. Total
Company contributions to the plan during 1996, 1995, and 1994 were
$16,154, $17,334, and $21,569, respectively.
The Company also maintains a profit-sharing plan for eligible
employees. Eligibility requirements for this plan are the same as the
401(k) Employee Incentive Savings Plan. Annual profit sharing
contributions of $60,000 were made in 1996, 1995, and 1994.
(Continued)
F-25
<PAGE> 76
- 17 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, Disclosures about Fair Value of Financial Instruments,
requires disclosure of fair value information about financial
instruments, whether or not recognized on the face of the balance
sheet, for which it is practicable to estimate that value. The
assumptions used in the estimation of the fair value of the Company's
financial instruments are explained below. Where quoted market prices
are not available, fair values are based on estimates using discounted
cash flow and other valuation techniques. Discounted cash flows can be
significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. The following fair value
estimates cannot be substantiated by comparison to independent markets
and should not be considered representative of the liquidation value
of the Company's financial instruments, but rather a good-faith
estimate of the fair value of financial instruments held by the
Company. SFAS 107 excludes certain financial instruments and all
non-financial instruments from its disclosure requirements.
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
(a) CASH, CASH EQUIVALENTS, AND INTEREST EARNING DEPOSITS WITH
OTHER FINANCIAL INSTITUTIONS
Fair value equals the carrying value of such assets.
(b) INVESTMENT SECURITIES
The fair value of investment securities is based on quoted
market prices.
(c) LOANS
The fair value of loans is calculated using discounted cash
flows and excludes lease financing arrangements. The discount
rates used to determine the present value of the loan
portfolio are estimated market discount rates that reflect the
credit and interest rate risk inherent in the loan portfolio.
The estimated maturities are based on the Company's historical
experience with repayments adjusted to estimate the effect of
current market conditions. The carrying amount of accrued
interest approximates its fair value.
(Continued)
F-26
<PAGE> 77
- 18 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
(d) DEPOSITS
As required by SFAS 107, the fair value of deposits with no
stated maturity, such as non-interest bearing demand deposits,
NOW accounts, savings and money market deposit accounts, is
equal to the carrying value. Certificates of deposit have been
valued using discounted cash flows. The discount rates used
are based on estimated market rates for deposits of similar
remaining maturities.
The fair value estimates in the table below do not include the
benefit that results from the low-cost funding provided by the
deposit liabilities compared to the cost of borrowing funds in
the market.
(e) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Due to their short-term nature, the fair value of securities
sold under agreements to repurchase approximates their
carrying value.
(f) OTHER BORROWED FUNDS
Due to their short-term nature, the fair value of the
Company's other borrowed funds equals the carrying value of
such liabilities.
The carrying value and estimated fair value of the Company's financial
instruments at December 31, 1996 and 1995 are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
Estimated Estimated
Carrying fair Carrying fair
amount value amount value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 8,892 8,892 13,879 13,879
======= ======= ======= =======
Investment securities $59,079 58,865 60,214 60,173
======= ======= ======= =======
Loans, net of unearned income
and allowance for loan losses $73,002 73,156 62,603 62,858
======= ======= ======= =======
</TABLE>
(Continued)
F-27
<PAGE> 78
- 19 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
Estimated Estimated
Carrying fair Carrying fair
amount value amount value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial liabilities:
Deposits $123,076 123,544 117,743 118,054
======== ======== ======== ========
Securities sold under
agreements to repurchase $ 6,755 6,755 8,691 8,691
======== ======== ======== ========
Other borrowed funds $ 668 668 173 173
======== ======== ======== ========
</TABLE>
(12) DIVIDENDS FROM SUBSIDIARY
Dividends paid by the subsidiary bank are the primary source of funds
available to the Corporation for payment of dividends to its
stockholders and for other needs. Applicable federal and state
statutes and regulations impose restrictions on the amounts of
dividends that may be declared by the subsidiary bank. In addition,
the subsidiary bank is also required to maintain minimum amounts of
capital to total "risk-weighted" assets, as defined by banking
regulators. Capital adequacy considerations could further limit the
availability of dividends from the subsidiary bank. At December 31,
1996, the Bank could have declared dividends of approximately
$1,880,000 without prior approval of regulatory authorities.
(13) LITIGATION
The Corporation and its subsidiary bank are involved in various legal
proceedings, arising in connection with their business. In the opinion
of management, based upon consultation with legal counsel, the
ultimate resolution of these other proceedings will not have a
material adverse effect upon the financial position of the Company.
(Continued)
F-28
<PAGE> 79
- 20 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(14) COMMITMENTS
The Corporation's subsidiary bank leases certain property and
equipment for use in its business. These leases have lease terms
generally not in excess of five years. Future minimum rental payments
required under operating leases which have initial or remaining
noncancelable lease terms as of December 31, 1996 are as follows:
Years ending December 31,
<TABLE>
<S> <C>
1997 $ 136,832
1998 73,610
1999 42,000
2000 42,000
2001 42,000
Thereafter 182,000
-------
$ 518,442
=======
</TABLE>
Rental expense for all operating leases charged to earnings aggregated
$124,582, $94,832, and $32,493 for the years ended December 31, 1996,
1995, and 1994, respectively.
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of
its customers. These financial instruments include commitments to
extend credit, standby letters of credit and financial guarantees.
Such instruments involve elements of credit risk in excess of the
amounts recognized in the consolidated financial statements.
The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit, standby letters of credit, and financial guarantees
written is represented by the contractual amount of these instruments.
The Company uses the same credit policies in making conditional
obligations as it does for on-balance-sheet instruments.
The financial instruments whose contract amounts represent credit risk
as of December 31, 1996, are as follows:
<TABLE>
<S> <C>
Commitments to extend credit $9,586,497
Standby letters of credit $ 827,948
</TABLE>
(Continued)
F-29
<PAGE> 80
- 21 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(14) COMMITMENTS AND CONTINGENCIES, CONTINUED
Standby letters of credit are commitments issued by the Company to
guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
facilities to customers. The Company holds various assets as
collateral supporting those commitments for which collateral is deemed
necessary.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements.
(15) OTHER NONINTEREST EXPENSE
Components of other noninterest expense exceeding 1 percent of total
revenues for any of the years ended December 31, 1996, 1995, and 1994,
respectively, include the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Legal fees $147,025 203,515 426,423
Data processing fees 228,771 222,872 59,928
FDIC insurance 5,288 161,962 277,357
Fidelity bond insurance 74,210 117,998 97,302
Supplies expenses 263,228 203,888 223,914
Miscellaneous losses 8,617 324,494 611,037
</TABLE>
Miscellaneous losses expense for 1995 and 1994 was composed primarily
of costs related to the settlement of lawsuits.
(Continued)
F-30
<PAGE> 81
- 22 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(16) STOCK DIVIDEND
The Company declared a 1 for 15 stock dividend as of November 15, 1994
to stockholders of record as of December 31, 1994 payable on January
13, 1995. The stock dividend was paid out of treasury shares. The
average number of shares outstanding and per share amounts have been
retroactively restated accordingly for all periods presented.
(17) REGULATORY MATTERS
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory-- and possibly
additional discretionary -- actions by regulators that, if undertaken,
could have a direct material effect on the Company's consolidated
financial statements. Under capital adequacy guidelines and the
regulatory framework of prompt corrective action, the Company must
meet specific capital guidelines that involve quantitative measures of
the Company's assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Company's
capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital (as
defined) to average assets (as defined). Management believes, as of
December 31, 1996, that the Company meets all capital adequacy
requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth
in the table below. There are no conditions or events since that
notification that management believes have changed the Bank's capital
category.
(Continued)
F-31
<PAGE> 82
- 23 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(17) REGULATORY MATTERS, CONTINUED
The Bank's actual capital amounts and ratios are also presented in the
table below:
<TABLE>
<CAPTION>
Minimum Minimum to be well
for capital capitalized under
adequacy prompt corrective
Actual purposes action provisions
------------------- ------------------ -------------------
Amount Ratio Amount Ratio Amount Ratio
------------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996
Total risk-based
capital (to risk
weighted assets) $13,980 16.63% $ 6,725 8.00% $ 8,406 10.00%
Tier I capital -
risk based (to
risk weighted assets) 12,927 15.38% 3,362 4.00% 5,044 6.00%
Tier I capital -
leverage (to
average assets) 12,927 8.83% 5,856 4.00% 7,320 5.00%
As of December 31, 1995
Total risk-based capital
(to risk weighted assets) 13,297 15.66% 6,790 8.00% 8,491 10.00%
Tier I capital-risk based
(to risk weighted assets) 12,236 14.41% 3,395 4.00% 5,095 6.00%
Tier I capital-leverage (to
average assets) 12,236 9.17% 5,336 4.00% 6,670 5.00%
</TABLE>
(Continued)
F-32
<PAGE> 83
- 24 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(18) PARENT COMPANY FINANCIAL INFORMATION
The condensed financial information for United Bancorporation of
Alabama, Inc. (Parent Company Only) is presented as follows:
(Parent Company Only)
Condensed Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
---- ----
<S> <C> <C>
Cash $ 296,431 44,246
Receivable from subsidiary bank -- 258,192
Premises and equipment 276,311 --
Investment in subsidiary bank 12,953,526 12,353,487
----------- -----------
Total assets $13,526,268 12,655,925
=========== ===========
Liabilities and Stockholders' Equity
Other liabilities $ 263,219 258,387
Stockholders' equity:
Class A common stock. Authorized
975,000 shares of $.01 par value;
548,160 shares issued and outstanding 5,482 5,482
Class B common stock of $.01 par value
Authorized 250,000 shares; no shares
issued and outstanding -- --
Preferred stock of $.01 par value
Authorized 250,000 shares; no shares
issued and outstanding -- --
Surplus 3,476,518 3,476,518
Retained earnings 10,220,356 9,263,715
Net unrealized gain on investment
securities available for sale 26,283 117,413
----------- -----------
13,728,639 12,863,128
Less 31,775 treasury shares, at cost 465,590 465,590
----------- -----------
Total stockholders' equity 13,263,049 12,397,538
----------- -----------
Total liabilities and stockholders' equity $13,526,268 12,655,925
=========== ===========
</TABLE>
(Continued)
F-33
<PAGE> 84
- 25 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(18) PARENT COMPANY FINANCIAL INFORMATION, CONTINUED
(Parent Company Only)
Condensed Statements of Operations
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income:
Cash dividends from subsidiary $ 795,001 50,000 332,118
Expense:
Other 13,143 8,322 76,999
---------- ---------- ----------
Earnings before income tax expense
and equity in undistributed
earnings of subsidiary 781,858 41,678 255,119
Applicable income tax expense -- -- --
---------- ---------- ----------
781,858 41,678 255,119
---------- ---------- ----------
Equity in undistributed earnings
of subsidiary 691,169 1,188,684 569,430
---------- ---------- ----------
Net earnings $1,473,027 1,230,362 824,549
========== ========== ==========
</TABLE>
(Continued)
F-34
<PAGE> 85
- 26 -
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(18) PARENT COMPANY, CONTINUED
(Parent Company Only)
Condensed Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,473,027 1,230,362 824,549
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Equity in undistributed
earnings of subsidiary (691,169) (1,188,684) (569,430)
Increase (decrease) in other
liabilities 4,832 255,062 (253,979)
Decrease (increase)in
receivables 258,192 (258,192) 257,118
----------- ----------- -----------
Net cash provided by
operating activities 1,044,882 38,548 258,258
----------- ----------- -----------
Cash flows from investing activities-
purchases of premises and equipment (276,311) -- --
----------- ----------- -----------
Cash flows from financing activities-
dividends paid (516,386) -- (260,293)
----------- ----------- -----------
Net increase (decrease) in cash 252,185 38,548 (2,035)
Cash at beginning of year 44,246 5,698 7,733
----------- ----------- -----------
Cash at end of year $ 296,431 44,246 5,698
=========== =========== ===========
</TABLE>
F-35
<PAGE> 1
EXHIBIT 21
The following wholly-owned subsidiary of United Bancorporation of Alabama, is
incorporated under the laws of the State of Alabama and does business under the
indicated corporate name:
United Bank
E2
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 12-31-96 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,139,453
<INT-BEARING-DEPOSITS> 102,548
<FED-FUNDS-SOLD> 650,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 36,308,703
<INVESTMENTS-CARRYING> 22,770,332
<INVESTMENTS-MARKET> 22,555,998
<LOANS> 75,183,615
<ALLOWANCE> 1,243,457
<TOTAL-ASSETS> 145,278,409
<DEPOSITS> 123,075,568
<SHORT-TERM> 668,307
<LIABILITIES-OTHER> 1,516,586
<LONG-TERM> 0
0
0
<COMMON> 5,482
<OTHER-SE> 13,257,567
<TOTAL-LIABILITIES-AND-EQUITY> 145,278,409
<INTEREST-LOAN> 7,147,823
<INTEREST-INVEST> 3,748,368
<INTEREST-OTHER> 196,972
<INTEREST-TOTAL> 11,093,163
<INTEREST-DEPOSIT> 4,581,252
<INTEREST-EXPENSE> 371,017
<INTEREST-INCOME-NET> 6,140,894
<LOAN-LOSSES> 171,000
<SECURITIES-GAINS> 34,964
<EXPENSE-OTHER> 5,069,670
<INCOME-PRETAX> 2,105,876
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,473,027
<EPS-PRIMARY> 2.85
<EPS-DILUTED> 2.85
<YIELD-ACTUAL> 8.53
<LOANS-NON> 339,000
<LOANS-PAST> 14,000
<LOANS-TROUBLED> 54,000
<LOANS-PROBLEM> 2,030,712
<ALLOWANCE-OPEN> 1,344,000
<CHARGE-OFFS> 346,000
<RECOVERIES> 75,000
<ALLOWANCE-CLOSE> 1,244,000
<ALLOWANCE-DOMESTIC> 1,244,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
