<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, 1997
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 No.)
organization)
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 27,
1998 was $20,139,015, based upon the price at which the stock was sold on that
date and using beneficial ownership of stock rules adopted pursuant to Section
13 of the Securities Exchange Act of 1934 to exclude voting stock owned by
directors and executive officers, some of whom might not be held to be
affiliates upon judicial determination.
<PAGE> 2
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practical date.
Common Stock Par Value Outstanding at March 20, 1998
- ------------ --------- ------------------------------
Class A..........$.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 six banking
offices located in Atmore, Frisco City, Monroeville, Flomaton, Foley and
Lillian, Alabama. The office in Lillian opened in 1997.
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 services
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 96 full-time
officers and employees at December 31, 1997. 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 was permitted beginning 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
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<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, United Bank has been able to 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
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<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, 1997, 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. Based on the Bank's capital tier it
paid no BIF premium in 1997.
Banking is a business that depends on interest rate differentials. In
general, the difference between the interest rate 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 affected 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,
1997 and 1996. Averages referred to in the following statistical information are
generally average daily balances.
AVERAGE CONSOLIDATED BALANCE SHEETS
1997 and 1996
AVERAGES
(Dollars In Thousands)
<TABLE>
<CAPTION>
Assets 1997 1996
--------- ---------
<S> <C> <C>
Cash and due from banks $ 5,733 5,752
Interest-bearing deposits with
other financial institutions 102 103
Federal funds sold 4,191 3,306
Securities available for sale/taxable 33,694 34,486
Securities available for sale/tax exempt 4,503 3,581
Taxable investment securities held to
maturity 15,409 17,497
Tax-exempt investment securities held to
maturity 7,530 5,569
Loans, net 79,023 68,446
Premises and equipment, net 2,023 1,720
Interest receivable and other assets 2,264 2,365
--------- ---------
Total assets $ 154,472 142,825
========= =========
Liabilities and Stockholders' Equity
Demand deposits - noninterest-
bearing $ 20,446 19,663
Demand deposits - interest-bearing 17,269 17,356
Savings Deposits 15,131 14,876
Time Deposits 75,671 69,024
Other borrowed funds 1,822 1,426
Repurchase agreements 8,432 6,319
Accrued expenses and other liabilities 1,833 1,331
--------- ---------
Total Liabilities 140,604 129,995
Stockholders' equity:
Common stock 5 5
Surplus 3,477 3,477
Retained earnings 10,852 9,814
Less shares held in treasury,
at cost (466) (466)
--------- ---------
Total stockholders' equity 13,868 12,830
--------- ---------
Total liabilities and
stockholders' equity $ 154,472 142,825
========= =========
</TABLE>
7
<PAGE> 8
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.
<TABLE>
<CAPTION>
(Dollars in Thousands) Average
Interest Rates
Average Income/ Earned/
1997 Balance Expense Paid
----
<S> <C> <C> <C>
Loans, net (1) $ 79,023 8,340 10.55
Available for Sale Taxable securities 33,694 2,116 6.28
Available for Sale Tax Exempt (2) 4,503 374 8.31
Held to Maturity Taxable Securities 15,409 987 6.41
Held to Maturity Tax Exempt (2) 7,530 592 7.86
Federal funds sold 4,191 232 5.54
Interest-earning deposits with 102 11 10.78
other financial institutions
-------- -------- -----
Total interest-earning assets $144,452 12,652 8.75%
======== ======== =====
Savings deposits and demand
deposits - interest-bearing $ 32,400 900 2.77%
Time deposits 75,671 4,112 5.43
Other borrowed funds 1,822 118 6.48
Repurchase agreements 8,432 403 4.78
-------- -------- -----
Total interest-bearing liabilities $118,325 5,533 4.68%
======== ======== =====
Net interest income/net yield
on interest-earning assets $ 7,119 4.93%
======== =====
</TABLE>
<TABLE>
<CAPTION>
(Dollars in Thousands) Average
Interest Rates
Average Income/ Earned/
1996 Balance Expense Paid
----
<S> <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>
8
<PAGE> 9
(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 1997 and 1996.
9
<PAGE> 10
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.
<TABLE>
<CAPTION>
(Dollars in Thousands)
Average Balances
Interest Income
Expense Variance As to
1997 1996 1997 1996 Variance Rate Volume
<S> <C> <C> <C> <C> <C> <C>
79,023 68,446 Loans (Net) 8,340 7,147 1,193 76 1,117
33,694 34,486 Taxable Securities AFS(1) 2,116 2,146 30 22 (52)
4,503 3,581 Tax Exempt Securities AFS (2) 374 306 68 (8) 76
15,409 17,497 Taxable Securities HTM(3) 987 1,110 (123) 13 (136)
7,530 5,569 Tax Exempt HTM (2) 592 441 151 (3) 154
4,191 3,306 Fed Funds Sold 232 186 46 (3) 49
102 103 Interest Bearing Deposits 11 11 0 0 0
144,452 132,988 Total Interest Earning Assets 12,652 11,347 1,305 49 1,256
Savings and Interest Bearing
32,400 32,232 Demand Deposits 900 894 6 0 6
75,671 69,024 Other Time Deposits 4,112 3,687 425 63 362
1,822 1,426 Other Borrowed Funds 118 78 40 16 24
8,432 6,319 Repurchase Agreements 403 293 110 9 101
118,325 109,001 Total Interest Bearing 5,533 4,952 581 88 493
</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) Available for Sale (AFS)
(2) Yields on tax-exempt obligations have been computed on a full federal tax
equivalent basis using an income tax rate of 34% for 1997 and 1996.
(3) Held to Maturity (HTM)
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.
<TABLE>
<CAPTION>
(Dollars in Thousands)
Average Balances
Interest Income
Expense Variance As to
1996 1995 1996 1995 Variance Rate Volume
<S> <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 Deposits 894 920 (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 293 271 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.
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<PAGE> 12
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 39% of the Bank's investments are in investment
securities held to maturity and 61% 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, 1997 was above the
midway point of this range at 64.49%. 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 deposit growth,
reallocation of maturing investments and advances from the Federal Home Loan
Bank (FHLB).
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.
Investment Securities Held to Maturity
December 31, 1997 and 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
Amortized Amortized
Cost % Cost %
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 7 0.0% 7 0.0%
U.S. Government Agencies 10,467 42.0 11,214 49.3
Mortgage Backed Securities 4,150 16.7 5,023 22.1
State and Municipal 10,290 41.3 6,526 28.6
------- ----- ------- -----
Total Amortized Cost $24,914 100.0% 22,770 100.0%
======= ===== ======= =====
</TABLE>
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<PAGE> 13
Maturity Distribution of Investment Securities Held to Maturity
The following table sets forth the distribution of maturities of investment
securities.
December 31, 1997 and 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
Amortized Weighted Amortized Weighted
Cost Avg Yld Cost Avg Yld
<S> <C> <C> <C> <C>
U.S. Treasury Securities
Within one year $ 7 3.67% $ 0 0.00%
1 - 5 years 0 0 7 3.67
5 - 10 years 0 0.00 0 0.00
------- ---- ------- ----
$ 7 3.67% $ 7 3.67%
======= ==== ======= ====
U.S. Government Agencies
Within one year $ 0 0.00% $ 500 5.24%
1 - 5 years 1,500 5.62 1,500 5.62
5 - 10 years 6,966 6.49 6,961 6.55
After 10 years 2,001 6.51 2,253 6.68
------- ---- ------- ----
$10,467 6.37% $11,214 6.39%
======= ==== ======= ====
State & Municipal (1)
Within one year $ 846 7.96% $ 0 0.00%
1 - 5 years 1,232 7.38 1,818 7.67
5 - 10 years 3,166 7.86 1,909 8.12
After 10 years 5,046 8.58 2,799 8.65
------- ---- ------- ----
Total $10,290 8.16% $ 6,526 8.22%
======= ==== ======= ====
Mortgage Backed
Securities
1 - 5 years $ 385 6.17% $ 12 9.00%
5 - 10 years 0 0.00 0 0.00
After 10 years 3,765 7.11 5,011 6.68
------- ---- ------- ----
Total $ 4,150 7.02% $ 5,023 6.68%
======= ==== ======= ====
Total Yield 7.22% 6.98%
===== ====
Total Amortized Cost $24,914 $22,770
======= =======
</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 1997 and 1996.
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<PAGE> 14
Investment Securities Available for Sale
December 31, 1997 and 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996
------------------ -------------------
Amortized % Amortized %
Cost Cost
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 7,543 19.7% 7,550 20.8%
U.S. Government Agencies 8,865 23.2 11,987 33.1
Mortgage Backed Securities 12,429 32.5 9,148 25.2
Collateralized Mortgage
Obligations 1,281 3.3 1,280 3.5
State and Municipal 7,369 19.3 5,536 15.3
Other 782 2.0 764 2.1
------- ----- ------- -----
Total $38,269 100.0% 36,265 100.0%
======= ===== ======= =====
</TABLE>
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<PAGE> 15
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, 1997 and 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
Amortized Weighted Amortized Weighted
Cost Avg Yld Cost Avg Yld
<S> <C> <C> <C> <C>
U.S. Treasury Securities
Within one year $ 2,499 5.23% 2,514 4.73%
1 - 5 years 5,044 6.07 5,036 5.21
------- ----- ------- -----
$ 7,543 5.79% $ 7,550 5.05%
======= ===== ======= =====
U.S. Government Agencies
excluding Mortgage Backed
Securities
Within one year $ 1,000 4.86% 497 7.22%
1 - 5 years 3,625 6.23 6,754 6.04
5 - 10 years 3,735 6.22 4,736 6.27
After 10 years 505 7.90 -- --
------- ----- ------- -----
Total $ 8,865 6.17% 11,987 6.18%
======= ===== ======= =====
Mortgage Backed Securities
Within one year $ 0 0.00% 0 0.00%
1 - 5 years 1,432 6.78 1,813 6.55
5 - 10 years 4,634 7.00 1,659 7.51
After 10 years 6,363 7.24 5,676 6.89
------- ----- ------- -----
Total $12,429 7.09% 9,148 6.94%
======= ===== ======= =====
Collateralized Mortgage
Obligations
After 10 years $ 1,281 5.67% 1,280 5.67%
------- ----- ------- -----
Total $ 1,281 5.67% 1,280 5.67%
======= ===== ======= =====
State & Municipal (1)
Less than 1 year 155 8.64% 479 8.52
1 - 5 years 2,183 8.78 1,007 8.13
5 - 10 years 2,190 9.27 2,317 10.51
After 10 years 2,841 10.82 1,733 9.03
------- ----- ------- -----
Total $ 7,369 9.70% 5,536 9.44%
======= ===== ======= =====
</TABLE>
Continued on next page..
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<PAGE> 16
Continued from previous page
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
Amortized Weighted Amortized Weighted
Cost Avg Yld Cost Avg Yld
% %
<S> <C> <C> <C> <C>
Other Securities
Less than 1 year 440 7.25% 425 7.25%
1 - 5 years 250 9.38 250 9.38
5 - 10 years 92 10.22 89 11.00
------- ----- ------- -----
Total $ 782 8.28% 764 8.38%
======= ===== ======= =====
Total Yield 7.10% 6.49%
==== =====
Total amortized cost $38,269 36,265
======= =======
</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 1997 and 1996.
Relative Lending Risk - United Bank is located in a primary 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 its peer 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 31.46% of the portfolio
maturing in one year or less. In addition, 34.47% 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 six
communities, the Bank is somewhat insulated from the effects of major economic
disruptions
16
<PAGE> 17
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 lending requires 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. The Bank does offer several
different long term mortgage programs through third party processors.
Installment loans 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, 1997 is approximately
$17,015, an increase from 1996 of $2,835.
17
<PAGE> 18
Maturities and sensitivity to change in interest rates in the Corporation's loan
portfolio are as follows:
LOAN PORTFOLIO MATURITIES
December 31, 1997
(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 $16,065 20,258 14,984 51,307
Real estate - construction 686 366 268 1,320
Real estate - mortgage 3,211 8,030 4,937 16,178
Installment loans to
individuals 7,487 9,947 999 18,433
------- ------ ------ ------
Total $27,449 38,601 21,188 87,238
======= ======= ======= =======
</TABLE>
SENSITIVITY TO CHANGES IN INTEREST RATES
LOANS DUE AFTER ONE YEAR
(Dollars in Thousands)
<TABLE>
<CAPTION>
Predetermined Floating
Rate Rate Total
<S> <C> <C> <C>
Commercial, financial
and agricultural $18,165 17,077 35,242
Real estate - construction 384 250 634
Real estate - mortgage 10,399 2,568 12,967
Installment loans to
individuals 9,849 1,097 10,946
</TABLE>
For additional information regarding interest rate sensitivity, see "Interest
Rate Sensitivity" in Item 7 below and see Item 7A below. Quantitative and
Qualitative Disclosures about Market Risk.
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
18
<PAGE> 19
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. Subsequent recoveries
are added to the allowance. Impaired loans are charged to the allowance when
such loans are deemed to be uncollectible. At December 31, 1997, pursuant to the
definition within SFAS 114, the Corporation had no significant impaired loans.
The following table sets forth the Corporation's non-performing assets at
December 31, 1997 and 1996. 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 1997 1996
(Dollars in Thousands)
<S> <C> <C> <C>
(A) Loans accounted for on $405 $339
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) 15 14
(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 36 54
(D) Other non-performing assets 48 147
---- ----
Total 504 554
==== ====
</TABLE>
If the loans in (A) above had been current throughout their term, interest
income would have been increased by approximately $24,475 and $12,355 for 1997
and 1996, respectively. Of the assets in (D) above, $42,200 in 1997 was other
real estate owned (OREO), and $6,091 was repossessed collateral, and in 1996
$52,000 was OREO and $94,891 was repossessed collateral.
As of December 31, 1997, all loans which management had determined were
uncollectible were charged to the allowance for loan losses.
At December 31, 1997, loans with a total outstanding balance of $2,244,427 were
considered potential problem loans. Potential problem loans consist of those
loans for which management has
19
<PAGE> 20
serious doubts as 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, 1997. 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, 1997, the Corporation had
$9,623,980 of agriculture-related loans. Agriculture loans
accounted for $91,313 and $93,269 of nonaccrual loans in 1997 and
1996, respectively.
Summary of Loan Loss Experience
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Average amount of loans
outstanding, net $ 79,023 68,446 62,386
======== ======== ========
Allowance for loan
losses, beginning January 1 1,244 1,344 1,252
-------- -------- --------
Losses charged off:
Commercial, financial
and agricultural (12) (159) (9)
Real estate - mortgage (2) (8) (17)
Installment loans to individuals (170) (179) (125)
-------- -------- --------
Total charged off (184) (346) (151)
Recoveries during the period:
Commercial, financial and
agricultural 3 7 13
Real estate - mortgage 0 8 6
Installment loans to individuals 40 60 20
-------- -------- --------
Total recoveries 43 75 39
-------- -------- --------
Net loans charged off (141) (271) (112)
Additions to the allowance
charged to operations 340 171 204
Total allowance, ending
December 31 $ 1,443 $ 1,244 $ 1,344
======== ======== ========
Ratio of net charge offs during
the period to average loans
outstanding .18% .40% .18%
</TABLE>
20
<PAGE> 21
Allowance for Loan Losses: The allowance for 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 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, 1997 and 1996. 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
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Commercial,
Financial &
Agricultural $ 679 875 58.8 52.6%
Real Estate -
Construction 0 0 1.5 1.9
Real Estate -
Mortgage 87 50 18.6 18.8
Installment Loans
to Individuals 677 319 21.1 26.7
------ ----- ----- -----
Total Allowance $1,443 1,244 100.0% 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 90 days. Exceptions may be made where there are
21
<PAGE> 22
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 monthly. If necessary, loans can be charged off 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.
22
<PAGE> 23
DEPOSITS
(Dollars in Thousands)
The following table sets forth the average amount of deposits for the years 1997
and 1996 by category.
<TABLE>
<CAPTION>
Average
rate paid
Deposits 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $ 20,446 19,663 0% 0%
======== ======== ==== ====
Interest-bearing
deposits:
Demand $ 17,269 17,356 2.60% 2.60%
Savings 15,131 14,876 2.98 2.98
Time 75,671 69,024 5.43 5.34
-------- ------- ---- ----
$108,071 101,256 4.63% 4.52%
======== ======== ==== ====
</TABLE>
The following shows the amount of time deposits outstanding at December 31,
1997, classified by time remaining until maturity.
<TABLE>
<CAPTION>
$100,000
Certificates Other time
Maturity of deposit deposits
<S> <C> <C>
Three months or less $12,276 17,496
Three to six months 6,705 14,804
Six to twelve months 5,619 10,378
Twelve months to five years 3,015 10,574
Over five years 0 0
------- ------
$27,615 53,252
======= =======
</TABLE>
23
<PAGE> 24
The following table shows various amounts of Repurchase and other Short term
borrowings and their respective rates.
<TABLE>
<CAPTION>
Maximum Average
Outstanding Average Interest
At Any Average Interest Ending Rate at
Month End Balance Rate Balance Year-end
--------- ------- -------- ------- --------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
1997
- ----
Securities sold $9,300 8,432 4.78% 8,972 4.80%
under agreements
to repurchase
Other Short Term $2,653 649 5.71 1,888 4.51
Borrowings
1996
- ----
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
</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, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
---- -----
<S> <C> <C>
Return on average assets 1.12% 1.03%
===== =====
Return on average equity 12.47% 11.48%
===== =====
Dividend pay-out ratio 32.84% 35.09%
===== =====
Ratio of average equity
to average assets 8.98% 8.98%
===== =====
</TABLE>
24
<PAGE> 25
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 (cities of Foley and Lillian) Alabama, with the principal office located
in Atmore, Alabama. The office in Atmore is a modern, three story, brick
building while the other offices (other than the present Lillian office) 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. The present office in Lillian is a
modular financial unit which is located on property owned by the Corporation and
leased to the subsidiary. The lease is for a five year period ending in June of
2002. The Corporation has begun plans for construction of a permanent facility
in Lillian.
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.
25
<PAGE> 26
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 498 shareholders of record, as of March 16, 1998.
(2) 250,000 shares of Class B common stock, $.01 par value per share, none
of which were issued, as of March 16, 1998.
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 $1.10 per share in 1997 and $1.00
per share in 1996. 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.
26
<PAGE> 27
ITEM 6. SELECTED FINANCIAL DATA
(Amounts in Thousands except per share data)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income statement data:
Interest income $ 12,323 11,093 10,495 9,423 9,595
Interest expense 5,533 4,952 4,560 3,519 3,431
--------- --------- --------- --------- ---------
Net interest income 6,790 6,141 5,935 5,904 6,164
Provision for
loan losses 340 171 204 330 600
--------- --------- --------- --------- ---------
Net interest income after
provision for
loan losses $ 6,450 5,970 5,731 5,574 5,564
========= ========= ========= ========= =========
Investment securities gains/
(losses), net $ (29) 35 32 14 831
========= ========= ========= ========= =========
Net Earnings $ 1,730 1,473 1,230 825 1,370
========= ========= ========= ========= =========
Balance sheet data:
Total assets $ 164,545 145,278 140,466 131,809 126,780
========= ========= ========= ========= =========
Total loans, net $ 85,328 73,002 62,603 59,094 50,919
========= ========= ========= ========= =========
Total deposits $ 135,282 123,075 117,743 114,065 108,638
========= ========= ========= ========= =========
Total stockholders'
equity $ 14,627 13,263 12,398 10,671 11,283
========= ========= ========= ========= =========
Per share data:
Basic and Fully diluted
earnings per share $ 3.35 2.85 2.38 1.70 2.83
========= ========= ========= ========= =========
Cash dividends per
share $ 1.10 1.00 .50 .50 .50
========= ========= ========= ========= =========
</TABLE>
27
<PAGE> 28
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 1997 net income was $1,729,559, as compared to a net income in
1996 of $1,473,027. Average net interest spread increased by 8 basis points from
3.99% in 1996 to 4.07% in 1997. The increase in average net interest spread,
helped by an increase in average interest earning assets from $132,988,000 in
1996 to $143,435,000 in 1997, produced a $649,706 increase in net interest
income in 1997. Noninterest income increased by $580,071 from $1,205,652 in 1996
to $1,785,723 in 1997. Most of this increase is attributed to an insurance
settlement. The provision for loan losses in 1997 was $340,000 as compared to
$171,000 in 1996. This increase was a result of the increase in the size of the
portfolio, as the Bank has not experienced any material credit deterioration in
its portfolio. Noninterest expenses for 1997 increased $733,206 from $5,069,670
in 1996 to $5,802,876 in 1997.
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 was 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 was attributed to lower litigation expenses in
1996.
28
<PAGE> 29
NET INTEREST INCOME
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Interest income (1) ................. $12,652 11,347 10,745
Interest expense .................... $ 5,533 4,952 4,560
------- ------- -------
Net interest income .............. 7,119 6,395 6,135
Provision for
loan losses ...................... 340 171 204
------- ------- -------
Net interest income after
provision for
loan losses on a Tax Equivalent
basis ............................ 6,779 6,224 5,981
Less: Tax Equivalent
adjustment ....................... 328 254 250
------- ------- -------
Net interest income after
provision for
loan losses ...................... $ 6,451 5,970 5,731
======= ======= =======
</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 1997, 1996,
and 1995.
Total interest income (on a full Federal tax equivalent basis) increased to
$12,652,000 in 1997, from $11,347,000 in 1996, an increase of $1,305,000, or
11.50%. Of this increase 96.24% is due to the average earning assets increasing
$10,447,000 while slightly higher interest rates caused an 3.76% increase in
interest income. Average loans increased $ 10,577,000 while the average rate
paid increased .08%. The average interest rate (FTE) earned on all
interest-earning assets in 1997 increased to 8.75% from 8.53% in 1996. The
interest rate spread increased from 3.99% in 1996 to 4.07% in 1997, as interest
rates rose slightly on interest bearing liabilities, and on loans. Average
taxable investment securities for 1997 were $49,103,000, as compared to
$51,983,000 for 1996, a decrease of $2,880,000, or 5.54%. Average tax-exempt
investment securities increased $2,883,000, or 31.51%, to $12,033,000 in 1997
from $9,150,000 in 1996. The average volume of federal funds sold increased to
$4,191,000 in 1997 from $3,306,000 in 1996, an increase of $885,000 or 26.77%.
Average interest earning deposits with other financial institutions decreased to
$102,000 in 1997, from $103,000 in 1996.
Total interest expense increased $581,000, or 11.73% to $5,533,000 in 1997, from
$4,952,000 in 1996. Of this increase 84.85% was due to the increase in average
interest bearing liabilities, and 15.14% was due to the increase in interest
rates in 1997. The average rate paid on interest-bearing liabilities in 1997 was
4.68% as compared to 4.54% in 1996. Average interest-bearing liabilities
29
<PAGE> 30
increased to $118,325,000 in 1997, from $109,001,000 in 1996, an increase of
$9,324,000, or 8.55%. Average savings and interest-bearing demand deposits
increased $168,000 or .52% to $32,400,000 in 1997, from $32,232,000 in 1996.
Average time deposits increased to $75,671,000 in 1997, from $69,024,000 in
1996, an increase of $6,647,000, or 9.62%. The average rate paid on time
deposits increased to 5.43% in 1997 from 5.34% in 1996. The increase in time
deposits during 1997 was due to the fact that the Bank expanded into new markets
and sought deposits more aggressively in all markets.
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 interest 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 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 expanded into new markets and sought deposits more aggressively in all
markets.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the year ended December 31, 1997 was $340,000,
as compared to $171,000 in 1996, an increase of $169,000, or 98.83%. This
increase in provision is due to growth in the loan portfolio and maintains the
allowance at a level that is determined to be adequate by management, and
approved by the
30
<PAGE> 31
Board of Directors of the subsidiary bank. The increase was due to the rapid
growth in the loan portfolio.
Loans charged-off in 1997 decreased to $183,593, from $345,750 in 1996, a
decrease of $162,157. Recoveries of charged-off loans in 1997 were $43,271, a
decrease of $31,300 as compared to $74,571 in 1996. Net charged-off loans for
1997 were $140,322, as compared to $271,179 for 1996, a decrease of $130,857.
The allowance for loan losses at December 31, 1997 represents 1.65% of gross
loans, as compared to 1.65% at year end 1996. Loans on which the accrual of
interest had been discontinued or reduced amounted to $405,236 on December 31,
1997, as compared to $339,016 at year end 1996.
The provision for 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 reflected improved asset quality and maintained 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 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 was due to several unrelated borrowers filing bankruptcy in 1996.
The allowance for loan losses at December 31, 1996 represented 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.
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.
31
<PAGE> 32
NONINTEREST INCOME
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Service charges on
deposits $ 996,164 931,932 908,838
Commission - credit
life insurance 68,704 55,250 88,151
Investment securities
gains and (losses)(net) (28,602) 34,964 31,867
Other 749,457 183,506 127,830
----------- ----------- -----------
Total $ 1,785,723 1,205,652 1,156,686
=========== =========== ===========
</TABLE>
Total noninterest income increased $580,071 or 48.11%, to $1,785,723 in 1997, as
compared to $1,205,652 in 1996. The primary increase in other income is due to a
$500,000 insurance settlement.
Service charge income increased to $996,164 in 1997, from $931,932 in 1996, an
increase of $64,232, or 6.89%. This increase is primarily due to an increase in
non-sufficient fund charges. Commissions on credit life insurance increased
$13,454, or 24.35%, to $68,704 in 1997, from $55,250 in 1996. Other income
increased to $749,457 in 1997, from $183,506 in 1996, an increase of $565,951,
or 308.41%. The increase in other income in 1997 was attributable to a $500,000
settlement the Corporation received from its insurance company.
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 was primarily 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.
32
<PAGE> 33
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Salaries and benefits $3,002,501 2,679,582 2,480,015
Net occupancy 841,008 736,551 638,798
Other 1,959,367 1,653,537 2,036,213
---------- ---------- ----------
Total $5,802,876 5,069,670 5,155,026
========== ========== ==========
</TABLE>
Total noninterest expense increased $733,206, or 14.46%, to $5,802,876 in 1997,
from $5,069,670 in 1996. Other expense increased to $1,959,367 in 1997, from
$1,653,537 in 1996, an increase of $305,830, or 18.50%. Of this increase
$250,000 was a donation to establish the United Bank Charitable Foundation, Inc.
The Bank also had additional cost to establish a new branch in Lillian, Alabama.
Salaries increased $322,919 or 12.05% to $3,002,501 in 1997 from $2,679,582 for
1996. A substancial portion of this increase can be attributed to the new branch
and having the Foley branch operating for its first full year.
Income tax expense for 1997 was $703,888 as compared to $632,849 in 1996. Net
earnings per share in 1997 were $3.35, as compared to a net earnings per share
of $2.85 in 1996. Return on average assets for 1997 was 1.12%, as compared to
1.03% in 1996. Return on average equity was 12.47% in 1997, as compared to
11.48% in 1996.
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.
33
<PAGE> 34
LOANS AT DECEMBER 31
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Commercial, financial
and agricultural $51,307,365 39,560,385 26,082,499
Real Estate - construction 1,319,684 1,398,013 1,230,498
Real Estate - mortgage 16,178,243 14,133,902 17,563,219
Installment loans to
individuals 18,432,583 20,091,315 20,185,236
----------- ----------- -----------
$87,237,875 75,183,615 65,061,452
=========== =========== ===========
</TABLE>
Total loans increased to $87,237,875 at December 31, 1997, from $75,183,615 at
year end 1996, an increase of $12,054,260, or 16.03%. Commercial, financial and
agricultural loans increased to $51,307,365 at year end 1997, from $39,560,385
at December 31, 1996. Most of the increase can be attributed to the Baldwin
County markets, and more competitive pricing in present markets. Installment
loans to individuals decreased to $18,432,583 at December 31, 1997, from
$20,091,315 at year end 1996, a decrease of $1,658,732, or 8.26%. The ratio of
loans to deposits on December 31, 1997, was 64.49%, as compared to 61.08% in
1996.
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 was attributed to the opening of a
new branch in Foley, and more competitive pricing in existing 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.
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, 1997, the Corporation's liquidity was adequate. The
corporation relies primarily on the Bank for its liquidity needs. In addition to
$2,710,000 in federal funds sold, the balance of the Bank's cash and due from
banks was $8,465,030. At December 31, 1997 the loan to deposit ratio was 64.49%.
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
34
<PAGE> 35
a credit availability from the Federal Home Loan Bank of $5,800,000. 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 $17,045,096 in cash in 1997, with the majority of this
coming from a net increase in deposits. The investing activities of the
Corporation used $17,291,019 of the cash flows of the Bank. Of this use of cash,
$12,720,148 was the net outflow into the loan portfolio. Investments maturing
and proceeds from sales helped to fund these additional loans. Operations
provided $2,631,500 in cash flows for the year ended December 31, 1997.
35
<PAGE> 36
INTEREST RATE SENSITIVITY
Interest Rate Sensitivity Analysis
Year Ended December 31
1997
<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 $ 39,038 6,951 10,679 23,744 6,359 86,771
Taxable securities AFS 2,440 999 500 10,582 17,962 32,483
Tax exempt securities AFS 155 0 0 1,952 3,677 5,784
Taxable securities HTM 0 0 7 1,885 12,732 14,624
Tax exempt securities HTM 0 415 431 1,232 8,212 10,290
Federal Funds Sold 2,710 0 0 0 0 2,710
Interest bearing deposits
with other banks 0 0 102 0 0 102
-------- -------- -------- -------- -------- --------
TOTAL Interest Earning Assets $ 44,343 8,365 11,719 39,395 48,942 152,764
======== ======== ======== ======== ======== ========
Interest Earning Liabilities
Demand Deposits $ 0 0 0 0 17,799 17,799
Savings Deposits 0 0 0 0 14,947 14,947
Certificates of Deposit less
than $100,000 17,496 14,804 10,378 10,574 0 53,252
Certificates of Deposit
greater than $100,000 12,276 6,705 5,619 3,015 0 27,615
Federal Funds Purchased and
securities sold under
agreement to repurchase 8,972 0 0 0 0 8,972
Other Short Term Borrowings 1,076 0 0 0 0 1,076
Federal Home Loan Bank
Borrowing 2,730 2,730
-------- -------- -------- -------- -------- --------
TOTAL Interest Bearing $ 39,820 21,509 15,997 13,589 35,476 126,391
======== ======== ======== ======== ======== ========
Liabilities
Non Interest Bearing Source 0 0 0 0 21,669 21,669
of Funds
-------- -------- -------- -------- -------- --------
Interest Sensitivity Gap 4,523 (13,144) (4,278) 25,806 (8,203) 4,704
Cumulative Gap (8,621) (12,899) 12,907 4,704
</TABLE>
36
<PAGE> 37
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 5.15%, as compared to 5.26% in a rising rate
scenario and 5.02% in a falling rate scenario. Management considers these
interest rate movements to be worst case scenarios and within the limits
established by the Board of Directors. 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.
YEAR 2000
The Bank recognizes that there is a business risk in computerized systems as the
calendar nears the next century. The Federal Financial Institutions Examination
Council ("FFIEC") issued an interagency statement on May 5, 1997, providing an
outline for institutions to effectively manage the Year 2000 challenges. The
Bank has developed an ongoing action plan designed to ensure that its
operational and financial systems will not be adversely affected by software
failures due to processing errors arising from the year 2000 date. The Bank
formed its Year 2000 committee in May of 1997, and the Board of Directors and
senior management of the Bank have established year 2000 compliance as a
strategic initiative. The Bank is well into the assessment and renovation phases
of the project, in which all critical applications have been identified,
programming issues determined, and software and hardware vendors and third party
services providers have been contacted. While the Bank believes that it has
available resources to assure year 2000 compliance, it is to some extent
dependent on vendor cooperation.
At the present time, the Bank expects its most critical application vendors to
have all systems compliant by June 1998, at which time testing will commence,
and that testing will be substantially completed by December 31, 1998. The Bank
routinely upgrades and purchases technologically advanced software and hardware
on a continual basis and expects to specifically evaluate and test such
purchases for year 2000 compliance. The Bank is also in the process of
addressing any loan relationships it believes could be materially affected by
the year 2000 issue.
At this time, the Bank has not determined the cost of making modifications to
correct any year 2000 problems, but presently anticipates that incremental
expenditures for equipment and software expenses related to year 2000 issues
will not materially differ from past expenditures. However, if Year 2000 issues
are not fully and timely resolved, both by the Bank and by third parties on
which the Bank's operations depend, including customers, clearing associations,
governmental entities and other financial institutions, there could be a
material impact on the operations of the Bank. The cost of implementing the
Bank's Year
37
<PAGE> 38
2000 plan and the date by which the Banks plans to complete its Year 2000
initiatives are based on management's best estimates, which were made based on
numerous assumptions as to future events, including the continued availability
and cooperation of vendors, service providers and other third parties, as well
as other factors. There can be no guarantee that these estimates will be
achieved at the anticipated costs or within the time frame anticipated. See
"forward looking statement below".
CAPITAL RESOURCES
The Corporation has historically relied primarily on internally generated
capital growth to maintain capital adequacy. The average assets to average
equity ratio during 1997 was 8.98% as compared to 8.98% in 1996. Total
stockholders equity on December 31, 1997 was $14,627,059, an increase of
$1,364,010, or 10.28%, from $13,263,049 at year end 1996. The Corporation's net
operating profit during 1997, less dividends of $568,023 declared to
stockholders, plus the FAS 115 adjustment of $202,474, accounted for this
increase. The Corporation's bank subsidiary, United Bank, had risk based capital
of $15,316,000, or 16.24%, at December 31, 1997, well above the minimum risk
based capital requirement of $7,543,000 or 8.0%. Based on management's
projections, internally generated capital should be sufficient to satisfy
capital requirements in the foreseeable future, for existing operations, but
the continual growth into new markets may require the Bank to access external
funding sources.
FORWARD LOOKING STATEMENTS
When used or incorporated by reference herein, the words herein, the words
"anticipate", "estimate", "expect", "project", "target", "goal", and similar
expressions, are intended to identify forward- looking statements within the
meaning of Section 27A of the Securities Act of 1933. Such forward-looking
statements are subject to certain risks, uncertainties, and assumptions
including those set forth herein. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those expected or projected. These
forward-looking statements speak only as of the date they are made. The
Corporation expressly disclaims any obligations or undertaking to publicly
release any updates or revisions to any forward-looking statement contained
herein to reflect any change in the Bank's expectations with regard to any
change Bank's
38
<PAGE> 39
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and rates.
The Bank's market risk arises principally from interest rate risk inherent in
its lending, deposit and borrowing activities. Management actively monitors and
manages its interest rate risk exposure. Although the Bank manages other risk,
as in credit quality and liquidity risk, in the normal course of business,
management considers interest rate risk to be its most significant market risk.
Interest rate risk could potentially have the largest material effect on the
Bank's financial condition and results of operations. Other types of market
risks, such as foreign currency exchange rate risk and commodity price risk, do
not arise in the Bank's normal course of business activities.
The Bank's profitability is affected by fluctuations in interest rates.
Management's goal is to maintain a reasonable balance between exposure to
interest rate fluctuations and earnings. A sudden and substantial increase in
interest rates may adversely impact the Bank's earnings to the extent that the
interest rates on interest-earning assets and interest-bearing liabilities do
not change at the same speed, to the same extent or on the same basis.
The Bank's Asset Liability Management Committee ("ALCO") monitors and considers
methods of managing the rate and sensitivity repricing characteristics of the
balance sheet components consistent with maintaining acceptable levels of
changes in the net portfolio value ("NPV") and net interest income. NPV
represents the market values of portfolio equity and is equal to the market
value of assets minus the market value of liabilities, with adjustments made for
off- balance sheet items over a range of assumed changes in market interest
rates. A primary purpose of the Bank's ALCO is to manage interest rate risk to
effectively invest the Bank's capital and to preserve the value created by its
core business operations. As such, certain management monitoring processes are
designed to minimize the impact of sudden and sustained changes in interest
rates on NPV and net interest income.
The Bank's exposure to interest rate risk is reviewed on a quarterly basis by
the Board of Directors and the ALCO. Interest rate risk exposure is measured
using interest rate sensitivity analysis to determine the Bank's change in NPV
in the event of hypothetical changes in interest rates. Further, interest rate
sensitivity gap analysis is used to determine the repricing characteristics of
the Bank's assets and liabilities. The ALCO is charged with the responsibility
to maintain the level of sensitivity of the Bank's net interest margin within
Board approved limits.
Interest rate sensitivity analysis is used to measure the Bank's interest rate
risk by computing estimated changes in NPV of its cash flows from assets,
liabilities, and off-balance sheet items in the event of a range of assumed
changes in market interest rates. This analysis assesses the risk of loss in
market risk sensitive instruments in the event of a sudden and sustained 100 -
400 basis points increase or decrease in the market interest rates. The Bank
39
<PAGE> 40
uses the Sendero Model Level II, which takes the current rate structure of the
portfolio and shocks for each rate level and calculates the new market value
equity at each level. The Bank's Board of Directors has adopted an interest rate
risk policy which establishes maximum allowable decreases in net interest margin
in the event of a sudden and sustained increase or decrease in market interest
rates. The following table presents the Bank's projected change in NPV for the
various rate shock levels as of December 31, 1997. All market risk sensitive
instruments presented in this table are held to maturity or available for sale.
The Bank has no trading securities.
<TABLE>
<CAPTION>
CHANGE IN CHANGE IN
CHANGE IN MARKET MARKET MARKET
INTEREST RATES VALUE VALUE VALUE
(BASIS POINTS) EQUITY EQUITY EQUITY(%)
<S> <C> <C> <C>
400 11,783.0 (4,915.2) (29.4)
300 12,936.3 (3,761.9) (22.5)
200 14,136.6 (2,561.6) (15.3)
100 15,388.6 (1,309.6) (7.8)
0 16,698.2 0 0
(100) 18,072.3 1,374.1 8.2
(200) 19,519.6 2,821.4 16.9
(300) 21,050.4 4,352.2 26.1
(400) 22,677.4 5,979.2 35.8
</TABLE>
The preceding table indicates that at December 31, 1997, in the event of a
sudden and sustained increase in prevailing market interest rates, the Bank's
NPV would be expected to decrease, and that in the event of a sudden decrease in
prevailing market interest rates, the Bank's NPV would be expected to increase.
Computation of prospective effects of hypothetical interest rate changes
included in these forward-looking statements are subject to certain risks,
uncertainties, and assumptions including relative levels of market interest
rates, loan prepayments and deposit decay rates, and should not be relied upon
as indicative of actual results. Further, the computations do not contemplate
any actions the Bank could undertake in response to changes in interest rates.
40
<PAGE> 41
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Corporation's consolidated financial statements as of December 31, 1997 and
1996 and for each of the years in the three-year period ended December 31, 1997
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 as of December 31,
1997 and 1996 F2
Consolidated Statements of Operations for
the years ended December 31, 1997, 1996,
and 1995 F4
Consolidated Statements of Stockholders'
Equity for the years ended December 31,
1997, 1996, and 1995 F5
Consolidated Statements of Cash Flows for
the years ended December 31, 1997, 1996,
and 1995 F6
Notes to Consolidated Financial
Statements - December 31, 1997, 1996,
and 1995 F9
</TABLE>
41
<PAGE> 42
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
42
<PAGE> 43
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 Annual 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.
<TABLE>
<CAPTION>
DIRECTOR DATE TERM AS PRINCIPAL OCCUPATION
NAME AND AGE SINCE DIRECTOR EXPIRES DURING PAST FIVE YEARS
<S> <S> <C> <C>
L. Walter Crim (52) 1997 May 2000 Owner, Central Farm
Supply
H. Leon Esneul (62) 1993 May 2000 Chairman of the Board
of the Corporation;
pecan grower;
managing partner of
the Doris Company.
William C. Grissett 1998 May 1998* President, Sunbelt
(49) Chemicals, Inc.
Robert R. Jones, III 1992 May 1999 President of the
(46) Corporation since
May, 1993; President
and Chief Executive
Officer of United
Bank since July,
1992.
William J. Justice 1991 May 2000 Vice Chairman of the
(58) Board of the
Corporation; Vice
Chairman of the
Board of United
Bank; Pharmacist,
President and Chief
Executive Officer,
Greenlawn Pharmacy.
Bobby W. Sawyer (44) 1993 May 1999 President, Hammer,
Inc., construction
company.
David D. Swift (47) 1995 May 1998* Chairman of the Board
of United Bank;
Secretary, Swift
Lumber, Inc.;
Secretary, Swift
Supply,
Inc.; Partner,
Palustris
Products, Ltd.
</TABLE>
* nominee for election for a term expiring at the 2001
Annual Meeting of Stockholders
43
<PAGE> 44
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 36, has been the Controller and Cashier of United Bank from October
1992 to present.
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Robert R. Jones, III President
H. Leon Esneul Chairman of the Board
William J. Justice Vice Chairman of the Board
David D. Swift Secretary
Mitchell D. Staples Treasurer
</TABLE>
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.
44
<PAGE> 45
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 1997 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 1997 $118,500 $20,289 $19,749(1)
President of the Corporation; 1996 110,250 23,654 19,986
President of United Bank 1995 105,000 21,764 18,659
</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; $958
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"); $5,500 in fees for attendance at
meetings of United Bank's Board of Directors; and $5,197 in
profit-sharing payments made in 1997 for services in 1996.
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 1997 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 1997, United Bank's Board of Directors held a total of
14 meetings: 12 monthly and two special.
Agreement with Mr. Jones
United Bank and Mr. Jones entered into an Employment Agreement
effective as of January 1 , 1998 (the "Agreement"), which prescribes certain
duties, responsibilities and authorities of Mr. Jones as President and Chief
Executive Officer of the Bank. The Agreement specifies an initial employment
term of three years, with provisions for automatic annual renewals of the
Agreement for successive three year period provides for annual determination by
the Board of Directors of United Bank (the "Board") of Mr. Jones' salary and
performance-based cash incentive compensation ("Bonus"), with 1998 salary of
$138,000 and the Bonus for 1998 to range from 30% of salary to 45% of salary,
based on attainment of net income goals of the Bank for the 1998 fiscal year
applicable to all executive officers of the Bank; provides for certain benefits
including supplemental benefits currently provided to Mr. Jones, and provides
that the Bank will provide to Mr. Jones long-term incentive compensation as may
be determined from time to time in the discretion of the Board.
The Agreement also provides generally that in the event of Mr. Jones'
death, the Bank will pay to his estate one quarter of his then-current annual
salary plus a prorata portion of the Bonus.
45
<PAGE> 46
otherwise payable to him; that in the event of his disability, the Bank will
pay his salary and a prorata portion of Bonus until the earlier of twelve
months after the date of disability or such time as disability benefits
commence under a Bank-provided disability insurance policy; and that the Bank
will pay Mr. Jones an amount equal to monthly salary, benefits and prorata
Bonus for twelve months after termination of his employment by United Bank if
such termination is not for cause.
Under the Agreement, Mr. Jones has agreed that during the term of his employment
and for two years thereafter, he will not engage in any business similar of that
of the Bank or any of its affiliates or solicit any employee of the Bank or any
of its affiliates to leave their employment with the Bank or affiliates (the
"Noncompetition Agreements"). The Agreement also provides generally that, if a
change of control of the Bank occurs and within 36 months thereafter his
employment by the Bank is terminated, the Bank will pay him a severance payment
equal to two times the greater of the total cash compensation paid to him for
the fiscal year most recently completed before the termination; or his annual
salary at the time of termination and that in such event, the Noncompetition
Agreements and non-solicitation would no longer apply.
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 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.
46
<PAGE> 47
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth, as of April 3, 1998, the number of shares
of the Corporation's Class A Stock held by each person who owns of record or, to
the knowledge of the Corporation, may be deemed to own beneficially, more than
5% of the outstanding shares of such Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------------- -------------------- --------
<S> <C> <C>
Patricia Swift, 26,025(1) 5.04%
P.O. Box 345
Monroeville, AL 34640
</TABLE>
- ---------------------
(1) Includes 20,000 shares held by the Claude Smithson Swift family trust
dated 9/12/86 of which Mrs. Swift is trustee.
The table below sets forth, as of April 3, 1998, 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 957(1) *
H. Leon Esneul 13,604(2) 2.63%
William C. Grissett 3,245(3) *
Robert R. Jones, III 3,281(4) *
William J. Justice 4,638(5) *
Bobby W. Sawyer 3,490(6) *
David D. Swift 7,188(7) 1.39%
All executive 36,413(1)(2)(3)(4) 7.05%
officers and (5)(6)(7)
directors as a
group (8 persons)
</TABLE>
- ---------------------
* less than 1%
(1) Includes 168 shares owned jointly with his children.
47
<PAGE> 48
(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.
(3) Owned jointly with his wife.
(4) Includes 2,070 shares owned jointly with his wife; 45 shares owned
jointly with his son; 560 shares owned by United Bank as an Individual
Retirement Account; 561 shares owned by United Bank as an Individual
Retirement Account for his wife; and 45 shares owned jointly by his
wife and his daughter.
(5) 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.
(6) Owned jointly with his wife.
(7) Includes 688 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 1997. 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 1997.
All outstanding loans and other transactions with the Corporation's, and its
subsidiary's, directors, officers, and principal stockholders, 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 stockholders. Such transactions were on terms comparable to those
which would have been recorded with unaffiliated parties, and 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.
48
<PAGE> 49
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 Employment Agreement between United Bank and
Robert R. Jones, III*
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, 1997.
49
<PAGE> 50
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 20, 1998
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 20, 1998
- ------------------------- Executive Officer, and
Robert R. Jones, III Director
/s/ Mitchell D. Staples Treasurer March 20, 1998
- ------------------------- (principal financial and
Mitchell D. Staples principal accounting
officer)
/s/ H. Leon Esneul Director March 20, 1998
- -------------------------
H. Leon Esneul
/s/ David D. Swift Director March 20, 1998
- -------------------------
David D. Swift
/s/ William J. Justice Director March 20, 1998
- -------------------------
William J. Justice
/s/ Bobby W. Sawyer Director March 20, 1998
- -------------------------
Bobby W. Sawyer
/s/ Claude S. Swift Director March 20, 1998
- -------------------------
Claude S. Swift
/s/ L. Walter Crim Director March 20, 1998
- -------------------------
L. Walter Crim
</TABLE>
50
<PAGE> 51
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 1998 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.
51
<PAGE> 52
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, 1997 and 1996,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
February 11, 1998
/s/ KPMG PEAT MARWICK LLP
-------------------------
KPMG Peat Marwick LLP
<PAGE> 53
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets 1997 1996
------ ---- ----
<S> <C> <C>
Cash and due from banks (note 2) $ 8,465,030 8,139,453
Federal funds sold 2,710,000 650,000
------------ ------------
Cash and cash equivalents 11,175,030 8,789,453
Interest-earning deposits with other financial institutions 100,920 102,548
Investment securities available for sale (note 3) 38,649,802 36,308,703
Investment securities held to maturity (fair value
of $25,077,650 and $22,555,998 at December 31,
1997 and 1996, respectively) (note 3) 24,914,930 22,770,332
Loans (note 4) 87,237,875 75,183,615
Less: Unearned income 466,859 937,725
Allowance for loan losses 1,443,135 1,243,457
------------ ------------
Net loans 85,327,881 73,002,433
Premises and equipment, net (note 5) 2,060,477 2,012,227
Interest receivable 1,831,947 1,595,968
Other assets 484,085 696,745
------------ ------------
Total assets $164,545,072 145,278,409
============ ============
</TABLE>
(Continued)
See accompanying notes to consolidated financial statements.
<PAGE> 54
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Consolidated Balance Sheets, Continued
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1997 1996
------------------------------------ ---- ----
<S> <C> <C>
Deposits (note 7):
Noninterest bearing $ 21,669,112 19,973,202
Interest bearing 113,612,701 103,102,366
------------ ------------
Total deposits 135,281,813 123,075,568
Securities sold under agreements to repurchase (note 8) 8,972,154 6,754,899
Advances from Federal Home Loan Bank (note 6) 2,729,885 --
Treasury, tax and loan account 1,076,404 668,307
Accrued expenses and other liabilities 1,857,757 1,516,586
------------ ------------
Total liabilities 149,918,013 132,015,360
Stockholders' equity (notes 12 and 16):
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 11,381,892 10,220,356
Net unrealized gain on investment securities available
for sale, net of deferred taxes of $152,506 and
$17,522 in 1997 and 1996, respectively 228,757 26,283
------------ ------------
15,092,649 13,728,639
Less 31,775 treasury shares at cost 465,590 465,590
------------ ------------
Total stockholders' equity 14,627,059 13,263,049
------------ ------------
Commitments and contingencies (notes 13 and 14)
Total liabilities and stockholders' equity $164,545,072 145,278,409
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 55
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Consolidated Statements of Operations
Years Ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 8,339,955 7,147,823 6,703,530
Interest on investment securities:
Taxable 3,102,931 3,255,448 3,107,793
Nontaxable 637,223 492,920 374,785
------------ ------------ ------------
Total interest on investment securities 3,740,154 3,748,368 3,482,578
------------ ------------ ------------
Other interest income 243,149 196,972 309,007
------------ ------------ ------------
Total interest income 12,323,258 11,093,163 10,495,115
------------ ------------ ------------
Interest expense:
Interest on deposits (note 7) 5,011,540 4,581,252 4,226,361
Interest on other borrowed funds 521,118 371,017 334,052
------------ ------------ ------------
Total interest expense 5,532,658 4,952,269 4,560,413
------------ ------------ ------------
Net interest income 6,790,600 6,140,894 5,934,702
Provision for loan losses (note 4) 340,000 171,000 204,000
------------ ------------ ------------
Net interest income after
provision for loan losses 6,450,600 5,969,894 5,730,702
Noninterest income:
Service charges on deposits 996,164 931,932 908,838
Commissions on credit life insurance 68,704 55,250 88,151
Investment securities (losses) gains, net (note 3) (28,602) 34,964 31,867
Other (note 15) 749,457 183,506 127,830
------------ ------------ ------------
Total noninterest income 1,785,723 1,205,652 1,156,686
------------ ------------ ------------
Noninterest expense:
Salaries and benefits (note 10) 3,002,501 2,679,582 2,480,015
Net occupancy expense 841,008 736,551 638,798
Other (note 15) 1,959,367 1,653,537 2,036,213
------------ ------------ ------------
Total noninterest expense 5,802,876 5,069,670 5,155,026
------------ ------------ ------------
Earnings before income taxes 2,433,447 2,105,876 1,732,362
Income tax expense (note 9) 703,888 632,849 502,000
------------ ------------ ------------
Net earnings $ 1,729,559 1,473,027 1,230,362
============ ============ ============
Basic earnings per share $ 3.35 2.85 2.38
============ ============ ============
Weighted average shares outstanding 516,385 516,385 516,385
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 56
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Net
unrealized
gain
(loss) on
investment
securities
Common Retained available
Shares stock Surplus earnings for sale
------ ----- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1994 548,160 $ 5,482 3,476,518 8,291,545 (637,286)
Net earnings 1995 -- -- -- 1,230,362 --
Cash dividends declared ($.50 per share) -- -- -- (258,192) --
Change in net unrealized gain (loss)
on investment securities available
for sale, net of change in deferred tax -- -- -- -- 754,699
----------- ----------- ----------- ----------- -----------
Balance December 31, 1995 548,160 5,482 3,476,518 9,263,715 117,413
Net earnings 1996 -- -- -- 1,473,027 --
Cash dividends declared ($1.00 per share) -- -- -- (516,386) --
Change in net unrealized gain (loss)
on investment securities available
for sale, net of change in deferred tax -- -- -- -- (91,130)
----------- ----------- ----------- ----------- -----------
Balance December 31, 1996 548,160 5,482 3,476,518 10,220,356 26,283
Net earnings 1997 -- -- -- 1,729,559 --
Cash dividends declared ($1.10 per share) -- -- -- (568,023) --
Change in net unrealized gain (loss)
on investment securities available
for sale, net of change in deferred tax -- -- -- -- 202,474
----------- ----------- ----------- ----------- -----------
Balance December 31, 1997 548,160 $ 5,482 3,476,518 11,381,892 228,757
=========== =========== =========== =========== ===========
<CAPTION>
Total
Treasury stockholders'
stock equity
----- ------
<S> <C> <C>
Balance December 31, 1994 (465,590) 10,670,669
Net earnings 1995 -- 1,230,362
Cash dividends declared ($.50 per share) -- (258,192)
Change in net unrealized gain (loss)
on investment securities available
for sale, net of change in deferred tax -- 754,699
----------- -----------
Balance December 31, 1995 (465,590) 12,397,538
Net earnings 1996 -- 1,473,027
Cash dividends declared ($1.00 per share) -- (516,386)
Change in net unrealized gain (loss)
on investment securities available
for sale, net of change in deferred tax -- (91,130)
----------- -----------
Balance December 31, 1996 (465,590) 13,263,049
Net earnings 1997 -- 1,729,559
Cash dividends declared ($1.10 per share) -- (568,023)
Change in net unrealized gain (loss)
on investment securities available
for sale, net of change in deferred tax -- 202,474
----------- -----------
Balance December 31, 1997 (465,590) 14,627,059
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 57
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,729,559 1,473,027 1,230,362
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Provision for loan losses 340,000 171,000 204,000
Depreciation of premises and equipment 285,625 268,857 229,973
Net amortization (accretion) of
premium (discount) on investment
securities and interest-earning deposits 125,554 140,533 87,812
Losses (gains) on sales of investment
securities available for sale, net 28,602 (34,964) (31,867)
Deferred income tax (benefit) expense (164,875) 69,790 114,000
Losses on disposal of premises and
equipment, net 727 -- 43,446
Gains on sale of other real estate, net -- (57,193) --
Decrease (increase) in interest
receivable (235,979) 107,063 (188,182)
Decrease (increase) in other assets 232,753 (325,946) 226,657
Increase(decrease) in accrued
expenses and other liabilities 289,534 45,111 221,134
----------- ----------- -----------
Net cash provided by
operating activities 2,631,500 1,857,278 2,137,335
----------- ----------- -----------
Cash flows from investing activities:
Net decrease in interest-earning deposits
in other financial institutions 1,628 1,349 1,535
Proceeds from maturities, calls, and
principal repayments of investment
securities held to maturity 1,926,827 6,616,973 3,366,485
Purchases of investment securities
held to maturity (4,122,790) (7,663,821) (2,623,814)
Proceeds from maturities, calls, and
principal repayments of investment
securities available for sale 4,860,170 6,166,424 4,889,056
</TABLE>
(Continued)
See accompanying notes to consolidated financial statements.
<PAGE> 58
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
Years Ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Proceeds from sales of investment
securities available for sale 4,494,206 1,350,757 2,764,542
Purchases of investment securities
available for sale (11,460,810) (5,592,865) (11,806,339)
Net increase in loans (12,720,148) (10,620,487) (3,791,685)
Proceeds from insurance settlement -- -- 1,237,589
Purchases of replacement assets -- -- (1,237,589)
Purchases of premises and equipment (334,602) (613,949) (241,618)
Proceeds from sales of premises
and equipment -- -- 10
Proceeds from sales of other real estate 64,500 136,265 12,155
------------ ------------ ------------
Net cash used in investing
activities (17,291,019) (10,219,354) (7,429,673)
------------ ------------ ------------
Cash flows from financing activities:
Net increase in deposits 12,206,245 5,332,696 3,677,954
Net (decrease) increase in securities
sold under agreements to repurchase 2,217,255 (1,935,957) 2,817,202
Cash dividends (516,386) (516,386) --
Increase in FHLB advances 2,729,885 -- --
Increase (decrease) in other
borrowed funds 408,097 495,791 (199,020)
------------ ------------ ------------
Net cash provided by
financing activities 17,045,096 3,376,144 6,296,136
------------ ------------ ------------
Net (decrease) increase in cash and
cash equivalents 2,385,577 (4,985,932) 1,003,798
Cash and cash equivalents at
beginning of year 8,789,453 13,775,385 12,771,587
------------ ------------ ------------
Cash and cash equivalents at end of year $ 11,175,030 8,789,453 13,775,385
============ ============ ============
Supplemental disclosures
Cash paid during the year for:
Interest $ 5,312,841 4,984,807 4,308,312
============ ============ ============
Income taxes $ 517,000 447,000 430,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 59
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
Years Ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Supplemental disclosures, Continued
Noncash transactions:
Transfer of loans to other real
estate through foreclosure $ 54,700 50,000 78,766
======== ======= =========
Change in unrealized gain (loss)
on investment securities available
for sale, net of change in
deferred tax $202,474 (91,130) 754,699
======== ======= =========
Investment securities transferred
from held-to-maturity to
available-for-sale $ -- -- 7,851,246
======== ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 60
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997, 1996, and 1995
(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)
<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
Investment securities are classified 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.
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
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)
<PAGE> 62
-3-
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(e) LOANS, CONTINUED
Under the provisions of Statement of Financial Accounting
Standards (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
The ultimate collectibility of a substantial portion of the
Company's loan portfolio and the recovery of real estate
owned are susceptible to changes in economic and market
conditions in the geographic area served by the Company and
various other factors.
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. Loans are charged-off when, in the
opinion of management, such loans are deemed to be
uncollectible. Subsequent recoveries are added to the
allowance.
<PAGE> 63
-4-
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 fifty 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) EARNINGS PER SHARE
Basic income per share is computed on the weighted average
number of shares outstanding in accordance with SFAS 128,
Earnings Per Share. The Company does not have stock option
plans or other stock-based compensation plans that would
result in potential common shares and thus diluted earnings
per share are identical to basic earnings per share.
(Continued)
<PAGE> 64
-5-
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(k) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB)
issued SFAS 130, Reporting Comprehensive Income. This
statement establishes standards for reporting and displaying
comprehensive income and its components in a full set of
general purpose financial statements. SFAS 130 requires all
items that are required to be recognized under accounting
standards as components of comprehensive income be reported in
a financial statement that is displayed in equal prominence
with the other financial statements. The term "comprehensive
income" is used in the statement to describe the total of all
components of comprehensive income including net income.
"Other comprehensive income" refers to revenues, expenses,
gains, and losses that are included in comprehensive income
but excluded from earnings under current accounting standards.
Currently, "other comprehensive income" for the Company
consists of items recorded directly in equity under SFAS 115,
Accounting for Certain Investments in Debt and Equity
Securities. SFAS 130 is effective for financial statements for
years beginning after December 15, 1997.
In June 1997, the FASB issued SFAS 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS 131
establishes new standards for the disclosures made by public
business enterprises to report information about operating
segments in annual financial statements and requires those
enterprises to report selected information about operating
segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about
products and services, geographic areas, and major customers.
SFAS 131 is effective for financial statements for years
beginning after December 15, 1997. The Company does not have
any segments other than banking that are considered material.
(2) CASH AND DUE FROM BANKS
The Corporation's subsidiary bank is required by the Federal Reserve
Bank to maintain daily cash balances. These balances were $795,000 and
$823,000 at December 31, 1997 and 1996, respectively.
(Continued)
<PAGE> 65
-6-
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) INVESTMENT SECURITIES
The amortized cost and approximate fair value of investment securities
held to maturity at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
1997
- ----
U.S. Treasury $ 6,990 -- 31 6,959
U.S. Government agencies
excluding mortgage-
backed securities 10,466,836 21,132 77,488 10,410,480
State and political
subdivisions 10,290,794 218,890 19,971 10,489,713
Mortgage-backed securities 4,150,310 31,274 11,086 4,170,498
----------- ----------- ----------- -----------
$24,914,930 271,296 108,576 25,077,650
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
1996
- ----
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>
Included in investment securities held to maturity at December 31, 1997
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, 1997 were $1,500,000 and $1,410,
respectively. The weighted average yield of such securities at December
31, 1997 was 5.63 percent. These securities mature at various dates
from January 1999 through October 2000.
(Continued)
<PAGE> 66
-7-
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) INVESTMENT SECURITIES, CONTINUED
The amortized cost and approximate fair value of debt securities
classified as investment securities held to maturity at December 31,
1997 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 $ 853,474 858,067
Due after one year through five years 2,732,352 2,738,924
Due after five years through ten years 10,131,204 10,163,387
Due after ten years 7,047,590 7,146,774
----------- -----------
Subtotal 20,764,620 20,907,152
Mortgage-backed securities 4,150,310 4,170,498
----------- -----------
Total $24,914,930 25,077,650
=========== ===========
</TABLE>
There were no sales of investment securities held to maturity during
the three-year period ended December 31, 1997.
The amortized cost and approximate fair value of investment securities
available for sale at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
1997
- ----
U.S. Treasury $ 7,543,060 19,967 17,237 7,545,790
U.S. Government agencies
excluding mortgage-
backed securities 8,865,349 47,299 36,687 8,875,961
State and political
subdivisions 7,368,779 182,486 9,652 7,541,613
Mortgage-backed securities 12,428,942 195,928 16,842 12,608,028
Collateralized mortgage
obligations 1,280,596 -- 21,665 1,258,931
Corporate notes and other 781,813 37,666 -- 819,479
----------- ----------- ----------- -----------
$38,268,539 483,346 102,083 38,649,802
=========== =========== =========== ===========
</TABLE>
(Continued)
<PAGE> 67
-8-
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
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
1996
- ----
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>
Included in investment securities available for sale at December 31, 1997
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, 1997, were $2,778,367 and $14,701
respectively. The weighted average yield of such securities at December
31, 1997 was 6.03 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,
1997, 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.
(Continued)
<PAGE> 68
-9-
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) INVESTMENT SECURITIES, CONTINUED
<TABLE>
<CAPTION>
Approximate
Amortized fair
cost value
--------- ------------
<S> <C> <C>
Investment securities available for sale:
Due in one year or less $ 3,654,186 3,647,551
Due after one year through five years 11,101,804 11,159,990
Due after five years through ten years 6,015,614 6,094,521
Due after ten years 3,346,097 3,439,481
----------- -----------
Subtotal 24,117,701 24,341,543
Mortgage-backed securities 12,428,942 12,608,028
Collateralized mortgage obligations 1,280,596 1,258,931
FHLB stock 441,300 441,300
----------- -----------
Total $38,268,539 38,649,802
=========== ===========
</TABLE>
Proceeds from sales of investment securities available for sale during
1997, 1996, and 1995 were $4,494,206, $1,350,757, and $2,764,542,
respectively. Gross gains of $350 and gross losses of $28,952 were
realized on those sales in 1997. 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.
Securities with carrying values of $25,872,266 and $28,734,234 at
December 31, 1997 and 1996, respectively, were pledged to secure public
and trust deposits as required by law and for other purposes.
(4) LOANS AND ALLOWANCE FOR LOAN LOSSES
At December 31, 1997 and 1996, the composition of the loan portfolio
was as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Commercial, financial and agricultural $51,307,365 39,560,385
Real estate - construction 1,319,684 1,398,013
Real estate - 1-4 family residential mortgage 16,178,243 14,133,902
Installment loans to individuals 18,432,583 20,091,315
----------- ----------
$87,237,875 75,183,615
=========== ==========
</TABLE>
(Continued)
<PAGE> 69
-10-
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(4) LOANS AND ALLOWANCE FOR LOAN LOSSES, CONTINUED
A summary of the transactions in the allowance for loan losses for the
years ended December 31, 1997, 1996, and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 1,243,457 1,343,636 1,251,549
Provision charged to earnings 340,000 171,000 204,000
Less: Loans charged-off 183,593 345,750 150,896
Loan recoveries (43,271) (74,571) (38,983)
----------- ---------- ----------
Net charge-offs 140,322 271,179 111,913
----------- ---------- ----------
Balance at end of year $ 1,443,135 1,243,457 1,343,636
=========== ========== ==========
</TABLE>
Loans on which the accrual of interest had been discontinued or reduced
amounted to $405,236 and $339,016 as of December 31, 1997 and 1996,
respectively. At December 31, 1997, 1996 and 1995, pursuant to the
definition within SFAS 114, the Company had no significant impaired
loans. If these loans had been current throughout their terms, interest
income would have been increased by $24,475, $12,355, and $9,363 for
1997, 1996, and 1995, respectively.
The Company had $9,623,980 and $9,766,213 of agriculture-related loans at
December 31, 1997 and 1996, respectively.
During 1997 and 1996, 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, 1997 and 1996, amounted to $2,889,144 and $2,284,315,
respectively. The change from December 31, 1996 to December 31, 1997
reflects advances amounting to $1,608,818 and payments of $1,003,989 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)
<PAGE> 70
-11-
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(5) PREMISES AND EQUIPMENT
At December 31, 1997 and 1996, premises and equipment were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $ 532,060 532,060
Buildings and leasehold improvements 2,103,532 1,939,142
Furniture, fixtures and equipment 1,964,749 1,794,272
Automobiles 112,357 118,412
---------- ---------
4,712,698 4,383,886
Less: accumulated depreciation 2,652,221 2,371,659
---------- ---------
$2,060,477 2,012,227
========== =========
</TABLE>
(6) BORROWED FUNDS
The Company was liable to the Federal Home Loan Bank of Atlanta on the
following advances at December 31, 1997:
<TABLE>
<CAPTION>
Maturity date Interest rate
- ------------- -------------
<S> <C> <C>
June 2007 7.19% $ 163,685
May 2012 7.41% 170,133
August 2012 7.54% 140,167
July 2017 6.93% 1,300,000
August 2017 6.84% 215,275
September 2017 6.82% 740,625
----------
Total (weighted average rate of 6.97%) $2,729,885
==========
</TABLE>
At December 31, 1997, the advances were collateralized by a blanket
pledge of first-mortgage residential loans.
(Continued)
<PAGE> 71
-12-
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(7) DEPOSITS
At December 31, 1997 and 1996, deposits were as follows:
1997 1996
---- ----
[S] [C] [C]
Noninterest bearing accounts $ 21,669,112 19,973,202
NOW accounts 12,631,015 12,950,046
Money market investment accounts 5,167,899 4,858,478
Savings accounts 14,946,894 14,472,699
Time deposits:
Certificates of deposit less than $100,000 53,251,890 51,263,353
Certificates of deposit greater than $100,000 27,615,003 19,557,790
------------ -----------
Total deposits $135,281,813 123,075,568
============ ===========
Interest expense on certificates of deposit greater than $100,000
amounted to $1,006,548, $644,399, and $686,521 for the years ended
December 31, 1997, 1996, and 1995, respectively.
(8) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The maximum amount of outstanding securities sold under agreements to
repurchase during 1997 and 1996 was $9,300,331 and $6,754,899,
respectively. The weighted average borrowing rate at December 31, 1997
and 1996 was 4.78 percent and 4.86 percent, respectively. The average
amount of outstanding securities sold under agreements to repurchase
during 1997 and 1996 was $8,432,464 and $6,318,906, respectively. The
weighted average borrowing rate during the years ended December 31,
1997 and 1996 was 4.80 percent and 4.64 percent, respectively.
Securities underlying these agreements are under the Company's control.
(Continued)
<PAGE> 72
-13-
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,
1997, 1996, and 1995 was allocated as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income from continuing operations $703,888 632,849 502,000
======== ======== =======
Stockholders' equity, for unrealized
gains (losses) on investment
securities available for sale $134,984 (60,754) 503,466
======== ======== =======
</TABLE>
The components of income tax expense attributable to income from
continuing operations for the years ended December 31, 1997, 1996, and
1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current income tax expense:
Federal $ 760,201 500,275 318,000
State 108,562 62,784 70,000
--------- ------- --------
Total 868,763 563,059 388,000
Deferred income tax expense (benefit):
Federal (139,111) 62,139 119,000
State (25,764) 7,651 (5,000)
--------- ------- --------
Total (164,875) 69,790 114,000
--------- ------- --------
Total income tax expense $ 703,888 632,849 502,000
========= ======= ========
</TABLE>
Total income tax expense differed from the amount computed by applying
the statutory federal income tax rate of 34 percent to pretax earnings
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income tax at statutory rate $ 827,372 715,998 589,003
Increase (decrease) resulting from:
Tax exempt interest (196,347) (142,215) (139,049)
State income tax net of federal
tax benefit 54,647 46,487 42,900
Premium amortization on tax exempt
investment securities 12,462 9,344 8,857
Other, net 5,754 3,235 289
--------- -------- --------
$ 703,888 632,849 502,000
========= ======== ========
</TABLE>
(Continued)
<PAGE> 73
-14-
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(9) INCOME TAXES, CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Loans, principally due to the allowance
for loan losses $160,300 26,684
Other real estate, principally due to
differences in carrying value 23,540 18,956
Accrued expenses, principally due to
legal expenses 50,545 50,545
Capital loss carryforward -- 34,124
Charitable contribution carryforward 11,988 --
Security writedown 4,399 4,421
-------- -------
Total gross deferred tax assets
before valuation allowance 250,772 134,730
Valuation allowance attributable
to capital loss carryforward -- (34,124)
------- -------
Total deferred tax assets 250,772 100,606
-------- --------
Deferred tax liabilities:
Premises and equipment, principally due
to differences in depreciation 182,071 199,058
Unrealized gain on investment securities
available for sale 152,506 17,522
Accrued employee benefits 21,996 21,996
Other 4,558 2,280
-------- --------
Total deferred tax liabilities 361,131 240,856
-------- --------
Net deferred tax liabilities $110,359 140,250
======== ========
</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.
(Continued)
<PAGE> 74
-15-
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(9) INCOME TAXES, CONTINUED
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 1997, 1996, and 1995 were $28,873,
$16,154, and $17,334, 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 $77,000, $60,000, and $60,000 were made in 1997, 1996,
and 1995, respectively.
(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.
(Continued)
<PAGE> 75
-16-
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
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.
(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.
(Continued)
<PAGE> 76
-17-
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
(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, 1997 and 1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------------------- ---------------------
Estimated Estimated
Carrying fair Carrying fair
amount value amount value
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 11,276 11,276 8,892 8,892
======== ======== ======= ========
Investment securities $ 63,565 63,727 59,079 58,865
======== ======== ======= ========
Loans, net of unearned income
and allowance for loan losses $ 85,328 87,118 73,002 73,156
======== ======== ======= ========
Financial liabilities:
Deposits $135,282 135,591 123,076 123,544
======== ======== ======= ========
Securities sold under
agreements to repurchase $ 8,972 8,972 6,755 6,755
======== ======== ======= ========
Other borrowed funds $ 1,076 1,076 606 606
======== ======== ======= ========
FHLB advances $ 2,730 3,092 -- --
======== ======== ======= ========
</TABLE>
(Continued)
<PAGE> 77
-18-
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(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, 1997, the Bank
could have declared dividends of approximately $3,658,000 without prior
approval of regulatory authorities. Accordingly, at December 31, 1997,
approximately $10,653,000 of the parents investment in its subsidiary
was restricted from transfer in the form of a dividends.
(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 proceedings is not expected to have a material
adverse effect upon the financial position of the Company.
(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 in excess of one year as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Years ending December 31,
-------------------------
<S> <C>
1998 $ 73,611
1999 42,000
2000 42,000
2001 42,000
2002 42,000
Thereafter 140,000
------------
$ 381,611
============
</TABLE>
(Continued)
<PAGE> 78
-19-
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(14) COMMITMENTS, CONTINUED
Rental expense for all operating leases charged to earnings aggregated
$153,135, $124,582, and $94,832 for the years ended December 31, 1997,
1996, and 1995, 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, 1997, are as follows:
Commitments to extend credit $ 12,302,653
Standby letters of credit $ 1,002,863
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.
(Continued)
<PAGE> 79
-20-
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(15) OTHER NONINTEREST INCOME AND EXPENSE
Components of other noninterest expense exceeding 1 percent of total
revenues for any of the years ended December 31, 1997, 1996, and 1995,
respectively, include the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Legal fees $ 53,524 147,025 203,515
Data processing fees 237,652 228,771 222,872
FDIC insurance 15,669 5,288 161,962
Fidelity bond insurance 43,116 74,210 117,998
Supplies expenses 269,447 263,228 203,888
Miscellaneous losses 9,320 8,617 324,494
Miscellaneous expense 254,756 6,167 4,018
</TABLE>
Miscellaneous losses expense for 1995 was composed primarily of costs
related to the settlement of lawsuits.
Miscellaneous expense in 1997 was composed primarily of a $250,000
contribution to a charitable foundation.
During 1997, the Company received $500,000 of insurance proceeds in
settlement of legal fees incurred related to prior litigation which has
been classified as other noninterest income.
(16) 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,
1997, that the Company meets all capital adequacy requirements to which
it is subject.
(Continued)
<PAGE> 80
-21-
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(16) REGULATORY MATTERS, CONTINUED
As of December 31, 1997, 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.
The Bank's actual capital amounts and ratios are also presented in the
table below (in thousands):
<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, 1997
Total risk-based
capital (to risk
weighted assets) $15,316 16.24% $ 7,543 8.00% $ 9,429 10.00%
Tier I capital -
risk based (to
risk weighted assets) 14,082 14.93% 3,772 4.00% 5,657 6.00%
Tier I capital -
leverage (to
average assets) 14,082 9.12% 6,175 4.00% 7,719 5.00%
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%
</TABLE>
(Continued)
<PAGE> 81
-22-
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(17) PARENT COMPANY FINANCIAL INFORMATION
The condensed financial information for United Bancorporation of
Alabama, Inc. (Parent Company Only) is presented as follows:
<TABLE>
<CAPTION>
(Parent Company Only)
Condensed Balance Sheets
December 31, 1997 and 1996
Assets 1997 1996
---- ----
<S> <C> <C>
Cash $ 17,556 296,431
Dividend receivable from subsidiary bank 340,000 --
Premises and equipment 276,311 276,311
Investment in subsidiary bank 14,310,721 12,953,526
----------- -----------
Total assets $14,944,588 13,526,268
=========== ===========
Liabilities and Stockholders' Equity
Other liabilities $ 317,529 263,219
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 11,381,892 10,220,356
Net unrealized gain on investment
securities available for sale 228,757 26,283
----------- -----------
15,092,649 13,728,639
Less 31,775 treasury shares, at cost 465,590 465,590
----------- -----------
Total stockholders' equity 14,627,059 13,263,049
----------- -----------
Total liabilities and stockholders' equity $14,944,588 13,526,268
=========== ===========
</TABLE>
(Continued)
<PAGE> 82
-23-
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(17) PARENT COMPANY FINANCIAL INFORMATION, CONTINUED
<TABLE>
<CAPTION>
(Parent Company Only)
Condensed Statements of Operations
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income:
Cash dividends from subsidiary $ 600,000 795,001 50,000
Other 9,450 -- --
Expense:
Other 34,612 13,143 8,322
---------- ---------- ----------
Earnings before equity in undistributed
earnings of subsidiary 574,838 781,858 41,678
---------- ---------- ----------
Equity in undistributed earnings
of subsidiary 1,154,721 691,169 1,188,684
---------- ---------- ----------
Net earnings $1,729,559 1,473,027 1,230,362
========== ========== ==========
</TABLE>
(Continued)
<PAGE> 83
-24-
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(17) PARENT COMPANY, CONTINUED
<TABLE>
<CAPTION>
(Parent Company Only)
Condensed Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,729,559 1,473,027 1,230,362
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Equity in undistributed
earnings of subsidiary (1,154,721) (691,169) (1,188,684)
Increase (decrease) in other
liabilities 2,673 4,832 255,062
Decrease (increase)in
receivables (340,000) 258,192 (258,192)
----------- ----------- -----------
Net cash provided by
operating activities 237,511 1,044,882 38,548
----------- ----------- -----------
Cash flows from investing activities-
purchases of premises and equipment -- (276,311) --
----------- ----------- -----------
Cash flows from financing activities-
dividends paid (516,386) (516,386) --
----------- ----------- -----------
Net increase (decrease) in cash (278,875) 252,185 38,548
Cash at beginning of year 296,431 44,246 5,698
----------- ----------- -----------
Cash at end of year $ 17,556 296,431 44,246
=========== =========== ===========
</TABLE>
<PAGE> 84
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 Employment Agreement between United Bank
and Robert R. Jones, III
21 Subsidiary of the registrant E2
27 Financial Data Schedule
(omitted from this conforming copy)
</TABLE>
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
ROBERT R. JONES, III
UNITED BANK
THIS AGREEMENT, made and entered into as of January 1, 1998, by and
between UNITED BANK (the "Bank") and ROBERT R. JONES, III ("Jones").
WHEREAS, United Bank desires to secure the services of Jones for the
successive terms set out herein and Jones desires to accept such employment.
NOW, THEREFORE, in consideration of the material advantages accruing
to the two parties and the mutual covenants contained herein, the Bank and
Jones agree as follows:
EMPLOYMENT
1. ENGAGEMENT. The Bank hereby employs and engages Jones as
its President & Chief Executive Officer ("CEO") as set forth herein. Jones
accepts such employment and agrees to provide full-time professional services
to the Bank in the capacity of President & CEO of the Bank for the term of this
Agreement as set forth herein.
2. DUTIES; PERFORMANCE. Jones agrees to at all times faithfully,
industriously, and to the best of his ability perform all duties that may be
required of him by virtue of his position as President & CEO, as well as such
duties and responsibilities as may be prescribed by the Bank's Board of
Directors (the "Board"), with all such duties and responsibilities being
subject to the general supervision of the Board. Jones' duties and
responsibilities shall include responsibility for supervision and management of
all Bank personnel, oversight and direction of the financial affairs of the
Bank, attendance at meetings of and reporting to the Board, and such other
duties and responsibilities as are specified in the position description for
the President & CEO of the Bank attached to as Appendix A and made a part of
this Agreement, as the same may be revised by the Board from time to time.
- --------------------------------------------------------------------------------
Employment Agreement-Robert R. Jones, III Page 1
<PAGE> 2
3. AUTHORITY. In carrying out his duties and responsibilities
hereunder, Jones shall have the authority to act for the Bank that is
specified in the Bylaws of the Bank for the President & CEO, as well as such
other authority as may be specified by the Board from time to time.
4. EXCLUSIVE EFFORTS. Jones shall devote his full time,
attention and energy to the business of the Bank. Except as otherwise provided
in this Agreement, Jones shall not during the term of this Agreement engage in
any business or other activity for gain, profit or other pecuniary advantage,
nor shall he engage in any activity which would interfere or conflict with his
duties and responsibilities as set forth herein or negatively affect the
interests of the Bank. Jones agrees that, upon written notice from the Board
that in the Board's opinion activities undertaken by Jones are inconsistent
with the interests of the Bank, he will promptly terminate such activities.
5. TERM. The initial term of this Agreement shall be a
three-year period commencing January 1, 1998 and terminating December 31, 2001.
Unless earlier terminated as provided herein, on January 1 of 1999 and each
year thereafter (each a "Renewal Date"), this Agreement shall automatically be
renewed for a period ending on the third December 31 after the Renewal Date.
COMPENSATION
6. GENERAL. Compensation payable to Jones in consideration of
his services hereunder shall include annual salary as described in Section 7
and performance-based annual cash incentive compensation as described in
Section 8. Jones may also be granted stock-based or other long-term incentive
compensation as described in Section 9.
7. SALARY. The annual salary payable to Jones for the 1998
fiscal year shall be $138,000, such salary to be payable by the Bank at regular
intervals in accordance with the Bank's standard payroll practices. As soon as
practicable following the end of each fiscal year, and in any event no later
than thirty (30) days after year-end performance results and other pertinent
information are made available to the Board, the Board shall conduct an annual
review of Jones' compensation (the "Annual Review"). As part of the Annual
Review, the Board shall determine the amount of Jones' salary for the
then-current fiscal year, with any change in salary to be effective as of the
first day of the then-current fiscal year. Such salary shall be not less than
the salary for the prior fiscal year, and shall be determined
- --------------------------------------------------------------------------------
Employment Agreement-Robert R. Jones, III Page 2
<PAGE> 3
in the discretion of the Board, taking into consideration Jones' performance,
the compensation paid to executives of comparable banks having similar
responsibilities, and such other factors as may be deemed appropriate by the
Board.
8. ANNUAL CASH INCENTIVE PAYMENT. The Bank shall pay to Jones
performance-based cash incentive compensation ("Bonus") in an amount determined
by the Board at the time of the Annual Review, and payable as soon as
practicable thereafter. Subject to such adjustment as may be deemed
appropriate by the Board, Bonus to be payable in 1999 to Jones for performance
during 1998 shall be calculated as a percentage of Jones' 1998 salary, such
percentage to be based on the net income of the Bank for the 1998 fiscal year,
as reported on the audited income statement of the Bank, as follows (with Bonus
percentage not to exceed 45% and to be interpolated for net income amounts not
specified):
<TABLE>
<CAPTION>
If net income is the Bonus percentage shall be
---------------- -----------------------------
<S> <C>
less than $1.887 million zero
$1.887 million 30%
$2.056 million 35%
$2.225 million 40%
$2.395 million or more 45%
</TABLE>
The Board shall determine performance goals and criteria as part of
each Annual Review and communicate same to Jones. Jones and the Bank
acknowledge that the Bank is developing an Executive Incentive Compensation
plan intended to apply to certain officers of the Bank generally, as well as to
the President and CEO of the Bank. It is intended that such plan will govern
Bonus compensation payable to Jones for performance in 1999 and subsequent
years, and that performance goals and criteria for the President and CEO (in
addition to the net income performance goals set forth herein for 1998) are
intended to be established by the Board, it being the intent of the Board that
in general, 1999 and subsequent year performance goals and criteria for the
President and CEO will be established so as to provide Bonus compensation at
least comparable to that specified above for 1998 for overall comparable
performance.
- --------------------------------------------------------------------------------
Employment Agreement-Robert R. Jones, III Page 3
<PAGE> 4
9. LONG-TERM INCENTIVE COMPENSATION. The Bank shall provide such
long-term incentive compensation to Jones as may be determined from time to
time in the discretion of the Board. The parties acknowledge that the Board is
evaluating possible long-term incentive compensation agreements for executives
of the Bank including the President and CEO. The Bank will exert its best
efforts to determine as soon as practicable in 1998 long-term compensation
award or awards to be made to Jones.
BENEFITS
10. PROVIDED TO EMPLOYEES GENERALLY. The Bank shall provide to
Jones all benefits provided to employees of the Bank generally, subject to
Jones meeting individual eligibility requirements for each such benefit. Such
benefits shall include, but are not limited to, such 401(k), profit sharing,
group life and health, disability insurance and supplemental retirement
benefits as may be made available to Bank employees generally from time to
time. All insurance provided to Jones shall be in such form and on such terms
as is provided to other executive officers and directors of the Bank. The Bank
reserves the right to modify or discontinue any benefit program as desired
without notice to Jones. The Bank will continue to provide the supplemental
retirement benefits currently provided to Jones notwithstanding any change
which may occur in benefits provided to Bank employees generally.
11. EXPENSES. The Bank shall pay or reimburse Jones for
reasonable and customary business expenses incurred by him in connection with
the performance of his duties hereunder. Such expenses shall include those
incurred for travel undertaken on behalf of the Bank, entertainment conducted
for the purpose of promoting the Bank's business and other reasonable
out-of-pocket expenses. Jones shall submit to the Bank a written report of all
such expenditures for which reimbursement is requested, consistent with Bank
operating guidelines and the Internal Revenue Code governing such
reimbursement.
12. FEES AND DUES. The Bank shall pay or reimburse Jones for
membership fees for professional organizations for dues and expenses incurred
by him for maintenance of professional qualifications, and for dues and
expenses incurred by him as a member of civic, social and business clubs in the
Bank's market area.
13. AUTOMOBILE. The Bank shall pay for an automobile for Jones'
exclusive use and for operating and maintenance expenses therefor (or, at Jones
option, shall pay to Jones an automobile
- --------------------------------------------------------------------------------
Employment Agreement-Robert R. Jones, III Page 4
<PAGE> 5
allowance of $500.00 per month) to assist him in the fulfillment of his duties
under the provisions of this Agreement.
14. VACATION. The Bank shall provide Jones at least four (4)
weeks of paid vacation time each calendar year, such vacation to be scheduled
in accordance with approved Bank policy consistent with the performance of his
duties hereunder.
TERMINATION
15. DEATH. Jones' employment hereunder shall terminate
immediately upon his death. In the event of Jones' death, the Bank shall pay
to such member of his family as may be designated by him in writing (or in the
event no such designation by him is made, to his spouse who survives him, if
any, and if none, to his estate) an amount equal to the sum of (a) one-quarter
(1/4) of his then-current annual salary, plus (b) a prorata portion of the
Bonus paid or payable to him for the fiscal year immediately preceding the date
of death, based on the number of days elapsed from the beginning of the year to
the date of death. Such payment shall be made in a lump sum within 90 days
after the date of death or in up to 12 equal monthly installments with interest
at the Banks's prime rate. Notwithstanding the foregoing, if and to the extent
that Jones' beneficiary or estate is entitled to be paid life insurance
benefits equal to or in excess of the amount specified in this Section 15
pursuant to a policy of life insurance purchased by and maintained at the
expense of the Bank and insuring Jones' life, the Bank shall not be required to
make payment pursuant to this Section 15.
16. DISABILITY. Jones' employment hereunder shall terminate
immediately upon his becoming disabled, as described in this Section 16. The
Bank and Jones acknowledge that the Bank currently provides the President & CEO
of the Bank with long term disability insurance as part of its regular employee
benefits plan. In the event that Jones is deemed to be disabled, as defined in
the then current disability insurance policy providing coverage for the
President & CEO of the Bank (the "Disability Policy"), the Bank will continue
to pay to Jones his regular monthly salary until the earlier of (a) twelve (12)
months after the date of disability or (b) such time as disability benefits
under the Disability Policy commence. In the event that no Disability Policy
is in force and the Bank and Jones have not agreed otherwise, the determination
of Jones' disability may be made in the sole discretion of the Board, and
- --------------------------------------------------------------------------------
Employment Agreement-Robert R. Jones, III Page 5
<PAGE> 6
the Bank will in the event of such determination pay to Jones his regular
monthly salary for twelve (12) months following the termination of his
employment as a result of such disability. Bonus shall be payable for the
portion of the year elapsed prior to the occurrence of the disability, based on
such proration as the Bank determines to be appropriate, such payment to be
made as soon as practicable after the date on which the Annual Review would
have occurred but for such disability.
17. TERMINATION BY BOARD FOR CAUSE. The Board, in its discretion,
may terminate Jones' employment hereunder for "Cause," as defined in this
Section 17, by written notice to Jones approved by a majority vote of the
members of the Board who are not employees of the Bank. Any such termination
shall be effective on the date specified in such notice. For purposes of this
Section 17, "Cause" shall mean any circumstances demonstrating to the Board
that Jones has undertaken deliberate actions with the intent to cause, or with
reckless disregard for the possibility of causing, substantial injury to the
Bank, as well as the following:
(a) Jones' conviction of, or his plea of guilty or nolo contendere
to, (i) a felony or misdemeanor involving moral turpitude,
including without limitation fraud, embezzlement, theft, or
dishonesty, (ii) any other felony or misdemeanor involving
criminal conduct against the Bank, or (iii) any other felony.
(b) Findings by the Board that Jones has engaged in any improper
actions specified in subsection (a) above, or that criminal
charges have been filed against him for such actions.
(c) Jones' willful misconduct or breach of fiduciary duty with
respect to the handling of monies or other properties or
interests of others.
(d) Issuance to Jones by a governmental or administrative agency
of a final cease and desist order with respect to actions
personally taken by him.
(e) Habitual neglect of his responsibilities hereunder, failure to
properly account for funds or accounts for which he has been
made specifically accountable, or failure to perform his
responsibilities hereunder after written notice and a
reasonable opportunity to cure such failure.
- --------------------------------------------------------------------------------
Employment Agreement-Robert R. Jones, III Page 6
<PAGE> 7
In the event of such termination, the Bank shall not be obligated to make any
payment to Jones other than for unpaid salary for the period prior to the date
of termination. Without limiting the generality of the foregoing, no Bonus
shall be payable by the Bank after the date of such termination, and all
arrangements for long-term compensation otherwise payable to Jones shall
immediately terminate without further obligation on the part of the Bank or the
Holding Company.
18. TERMINATION AT DISCRETION OF BOARD. The Board, in its
discretion, may terminate Jones' employment without cause by written notice to
Jones approved by a majority vote of the members of the Board who are not
employees of the Bank. Any such termination shall be effective on the date
specified in such notice. The Board may, in its discretion, change Jones'
duties and responsibilities hereunder, but if such change results in Jones'
duties and responsibilities or authority hereunder being materially different
from those customarily associated with the position of President & CEO of
comparable banks, Jones shall have the right in his complete discretion to
terminate this Agreement pursuant to this Section 18 by written notice
delivered to the Board of Directors. In the event of termination pursuant to
this Section 18, the Bank shall continue for a period of twelve (12) months
after the date of such termination to (a) pay to Jones monthly an amount equal
to his monthly salary for the month in which his employment was terminated and
(b) provide the benefits described in Sections 10, 12 and 13. During such
12-month period, Jones shall not be required to perform any duties for the Bank
or come to the Bank, and neither shall the fact he seeks, accepts or undertakes
other employment during this period shall affect such payments and benefits.
Bonus shall be payable for the portion of the year elapsed prior to termination
pursuant to this Section 18, based on such proration as the Bank determines to
be appropriate, such payment to be made as soon as practicable after the date
on which the Annual Review would have occurred but for such termination.
19. TERMINATION BY JONES. Jones may elect to terminate this
Agreement upon not less than one hundred twenty (120) days advance written
notice to the Board specifying the date of termination. Upon such termination
in accordance with such notice, in the event of such termination, the Bank
shall not be obligated to make any payment to Jones other than for unpaid
salary for the period prior to the date of termination. Without limiting the
generality of the foregoing, no Bonus shall be payable by the
- --------------------------------------------------------------------------------
Employment Agreement-Robert R. Jones, III Page 7
<PAGE> 8
Bank after the date of such termination, and all arrangements for long-term
compensation otherwise payable to Jones shall immediately terminate without
further obligation on the part of the Bank or the Holding Company.
20. INDEBTEDNESS. If at the time of termination of his employment
hereunder (other than pursuant to Section 18 hereof) Jones is indebted to the
Bank for any reason, the Bank shall have the right to set off and to collect
any sums due it from Jones out of any amounts which are otherwise payable to
Jones by the Bank. In the event of termination of Jones' employment pursuant
to Sections 17 or 19 hereof, all sums owed by Jones to the Bank shall become
immediately due and payable unless otherwise determined by at least a majority
of the members of the Board.
ADDITIONAL TERMS OF AGREEMENT
21. CHANGE OF CONTROL. (a) If a Change of Control, as defined
below, occurs and within thirty-six (36) months thereafter, Jones' employment
hereunder is terminated: by Jones for "Good Reason" as defined below; or by
the Bank pursuant to Section 18, the Bank shall pay Jones a severance payment
equal to two (2) times the greater of (i) the total cash compensation paid to
Jones for the fiscal year most recently completed before such termination, or
(ii) Jones' annual salary at the time of such termination.
(b) For purposes of this Section 21, a "Change of Control" shall be
deemed to have occurred if (i) any "person" or "group" (other than United
Bancorporation of Alabama, Inc. (the "Holding Company")) hereafter becomes the
"beneficial owner" (as such terms are defined in the Securities Exchange Act of
1934), of securities representing fifty percent (50%) or more of the combined
voting power of the Bank or the Holding Company; or (ii) a majority of the
Board or the Board of Directors of the Holding Company, comprised of persons
who were not elected or nominated for election to such Board by current
directors of the Bank or the Holding Company or directors who (or whose
predecessors on such Board) were ultimately nominated or elected by the current
directors of the Bank or the Holding Company, is elected; or (iii) the
shareholders of the Bank or of the Holding Company approve a merger or
consolidation of the Bank or of the Holding Company, other than a merger or
- --------------------------------------------------------------------------------
Employment Agreement-Robert R. Jones, III Page 8
<PAGE> 9
consolidation which results in the voting securities of the Bank or of the
Holding Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities
of the surviving entity) at least 80% of the combined voting power of the
voting securities of the Bank or of the Holding Company, as the case may be, of
such surviving entity outstanding immediately after such merger or
consolidation; or (iv) the shareholders of the Bank or of the Holding Company
approve a plan of complete liquidation or an agreement for the sale or
disposition of all or substantially all of the assets, of the Bank or of the
Holding Company, as the case may be.
(c) Jones shall be deemed for the purposes of this Section 21 to
have terminated his employment for "Good Reason" if he terminates his
employment after the occurrence (other than such as may be isolated,
unsubstantial and inadvertent on the Bank's part and which is remedied promptly
by the Bank after receipt of notice from Jones), without his express written
consent and after a Change in Control, of any one or more of the following:
(i) a substantial reduction or alteration in the nature or status of Jones'
responsibilities and status (including offices, titles and reporting
requirements) from those in effect during the six-month period immediately
preceding the Change of Control; (ii) a reduction by the Bank in Jones' total
compensation as in effect on the date hereof, or as the same may be increased
from time to time; (iii) the failure by the Bank to continue Jones'
participation in any of the Bank's employee benefit plans, practices or
arrangements in which Jones participates, on substantially the same basis as
those provided generally from time to time after the Change of Control to other
peer executives of the Bank and its affiliated companies; or (iv) the failure
of any successor to the Bank to assume or otherwise be bound to perform the
Bank's obligations under this Agreement.
(d) Jones shall not be required to mitigate the amount of any
payment provided for in this Section 21 by seeking other employment or
otherwise.
(e) The severance payment provided for in this Section 21 may be
made either (i) in a lump sum or (ii) in up to twenty-four (24) equal monthly
installments with interest at the Bank's prime rate, as may be elected by the
Bank. If Jones should die while any amount would still be payable to him under
this Section 21 if he had continued to live, all such amounts, unless otherwise
provided herein, shall be paid to Jones' devisee, legatee or other designee or,
if there is no such designee, to his estate.
- --------------------------------------------------------------------------------
Employment Agreement-Robert R. Jones, III Page 9
<PAGE> 10
(f) In the event that a severance payment becomes payable to Jones
pursuant to Section 21(a), the provisions of Section 23 shall no longer be
binding upon Jones.
22. CONFIDENTIALITY. Jones agrees to comply with the Right to
Financial Privacy Act (12 U.S.C. Section 3401) and the rules regarding
disclosure of financial information and other information. Jones agrees that,
during and after his term of employment by the Bank, he will not, without prior
written consent of the Bank, use for his own benefit or disclose any
confidential information relating directly or indirectly to the Bank to any
third person, partnership, company, corporation or other organization.
23. NONCOMPETITION COVENANT. Jones acknowledges that by reason of
his association with the Bank, he has obtained and will continue to obtain
intimate knowledge of the strategies and other trade secrets of the Bank, the
Bank's customer relations and its relation with its employees. Accordingly,
Jones agrees that he will not during the term of his employment with the Bank
and for a period of two years after termination for any reason of his
employment hereunder, either individually or as an employee, agent, officer,
director or shareholder or otherwise of or through any corporation or other
business organization, directly or indirectly (a) carry on or engage in a
business similar to that of the Bank or any of its affiliates (including
without limitation soliciting or doing any such business with any customer of
the Bank or any of its affiliates), in any territory which the Bank or any of
its affiliates has been conducting business, or advance or lend any money to or
make or hold any investment (other than a non-controlling owner of security
interest in a publicly-held corporation) in, or encourage participation by any
member of his family in, such a business; or (b) solicit any employee of the
Bank or any of its affiliates to leave their employment with the Bank or such
affiliate for any reason. The parties agree that in the event of a breach by
Jones of the terms of this Section 23, the Bank shall be entitled to institute
and prosecute proceedings in any court of competent jurisdiction, either in law
or in equity, to obtain damages for any breach of this Agreement, or to enforce
specific performance hereof by Jones, or to enjoin Jones from any violation
hereof. The term of the covenants contained in this Section 23 shall be tolled
for the period commencing on the date any successful action is filed for
injunctive relief or damages arising out of a breach by Jones of this Section
23 and ending upon final adjudication (including appeals) of such action.
Jones acknowledges that the restrictions set forth in this Section 23 are
reasonable in scope and duration, given the nature of the business of the Bank,
and agrees that
- --------------------------------------------------------------------------------
Employment Agreement-Robert R. Jones, III Page 10
<PAGE> 11
neither the compliance with this Section 23 nor issuance of an injunction as
described herein will impose an undue hardship on him.
24. KEY MAN INSURANCE. Jones acknowledges that the Bank desires to
procure at its expense, own, and be named the beneficiary of a key man
insurance policy on Jones' life in a face amount not less than $500,000. Jones
agrees to cooperate with the Bank with respect to such policy.
25. ANNUAL PHYSICAL. The Bank shall at its expense provide for an
annual physical examination of Jones.
MISCELLANEOUS
26. WAIVER. A party's failure to insist on compliance or enforcement
of any provisions of this Agreement shall not constitute a waiver of future
enforcement of that provision or of any other provision of this Agreement by
that party or any other party.
27. GOVERNING LAW. This Agreement shall be construed and enforced
under and in accordance with the laws of the State of Alabama.
28. SEVERABILITY. The invalidity or unenforceability of any
provision in this Agreement shall not in any way affect the validity or
enforceability of its other provisions and this Agreement shall be construed in
all respects as if such invalid or unenforceable provision had been omitted.
29. NOTICE. Any and all notices required or permitted herein shall
be deemed delivered when delivered personally, or upon receipt when mailed by
registered or certified mail or overnight courier service. Notices shall be
directed to the Bank to the attention of its Chairman of the Board at the
Bank's principal place of business and to Jones at that address set forth below
his signature or at such other addresses as either party may hereinafter
designate by notice in accordance with this Section 27 to the other.
30. ASSIGNMENT. This Agreement and the attachments hereto made a
part hereof, as the same may be amended from time to time in accordance with
Section 30, shall be binding upon and inure to the benefit of the parties
hereto, their respective successors, assigns, heirs and representatives, except
that the rights and benefits of either of the parties under this Agreement may
not be assigned without the prior written consent of the other party.
- --------------------------------------------------------------------------------
Employment Agreement-Robert R. Jones, III Page 11
<PAGE> 12
31. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties and supersedes all prior agreements and understandings,
oral or written, with respect to the subject matter hereof.
32. AMENDMENTS. This Agreement may be amended at any time by mutual
consent of the parties hereto; provided, however, no amendment to this
Agreement will be valid or effective unless in writing, signed by the Chairman
of the Board of the Bank and by Jones.
IN WITNESS WHEREOF, the Bank and Jones have duly executed this
Agreement as of the day and year above.
<TABLE>
<S> <C>
BANK
/s/ Charles E. Karrick By: /s/ David D. Swift
- --------------------------------------- --------------------------------------------------
Witness Chairman of the Board
United Bank
JONES
/s/ Charles E. Karrick By: /s/ Robert Jones
- --------------------------------------- --------------------------------------------------
Witness Robert Jones
</TABLE>
- --------------------------------------------------------------------------------
Employment Agreement-Robert R. Jones, III Page 12
<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 LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 12-31-97 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,465,030
<INT-BEARING-DEPOSITS> 100,920
<FED-FUNDS-SOLD> 2,710,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 38,649,802
<INVESTMENTS-CARRYING> 24,914,930
<INVESTMENTS-MARKET> 25,077,650
<LOANS> 87,237,875
<ALLOWANCE> 1,443,135
<TOTAL-ASSETS> 164,545,072
<DEPOSITS> 135,281,813
<SHORT-TERM> 1,076,404
<LIABILITIES-OTHER> 1,857,757
<LONG-TERM> 2,729,885
0
0
<COMMON> 5,482
<OTHER-SE> 14,621,577
<TOTAL-LIABILITIES-AND-EQUITY> 164,545,072
<INTEREST-LOAN> 8,339,955
<INTEREST-INVEST> 3,740,154
<INTEREST-OTHER> 243,149
<INTEREST-TOTAL> 12,323,258
<INTEREST-DEPOSIT> 5,011,540
<INTEREST-EXPENSE> 521,118
<INTEREST-INCOME-NET> 6,790,600
<LOAN-LOSSES> 340,000
<SECURITIES-GAINS> (28,602)
<EXPENSE-OTHER> 5,802,876
<INCOME-PRETAX> 2,433,447
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,729,559
<EPS-PRIMARY> 3.35
<EPS-DILUTED> 3.35
<YIELD-ACTUAL> 8.75
<LOANS-NON> 405,236
<LOANS-PAST> 15,000
<LOANS-TROUBLED> 36,000
<LOANS-PROBLEM> 2,244,427
<ALLOWANCE-OPEN> 1,243,457
<CHARGE-OFFS> 183,593
<RECOVERIES> 43,271
<ALLOWANCE-CLOSE> 1,443,135
<ALLOWANCE-DOMESTIC> 1,443,135
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
