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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
-------------------------
Commission file number 2-78572
-------------
UNITED BANCORPORATION OF ALABAMA, INC.
- -----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 63-0833573
- ----------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
200 East Nashville Avenue, Atmore, Alabama 36502
- ------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(334) 368-2525
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No[ ].
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of September 30, 1998.
Class A Common Stock.... 516,385 Shares
Class B Common Stock.. -0- Shares
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UNITED BANCORPORATION OF ALABAMA, INC.
FORM 10-Q
For the Quarter Ended September 30, 1998
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
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<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Earnings 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
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UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
Item 1.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
<S> <C> <C>
Assets
Cash and due from banks $9,928,615 8,465,030
Federal funds sold 0 2,710,000
-------------- -------------
Cash and cash equivalents 9,928,615 11,175,030
Interest bearing deposits with other
financial institutions 0 100,920
Securities available for sale, at fair values,
(amortized values $57,412,000 and $38,268,000 respectively) 57,410,864 38,649,802
Investment securities held to maturity, at amortized cost, 20,023,457 24,914,930
(market values of $20,346,744 and $25,077,650 respectively)
Loans 93,057,111 87,237,875
Less: Unearned income 146,967 466,859
Allowance for loan losses 1,404,940 1,443,135
-------------- -------------
Net loans 91,505,204 85,327,881
Premises and equipment, net 2,483,493 2,060,477
Interest receivable and other assets 2,572,574 2,316,032
-------------- -------------
Total assets $ 183,924,207 164,545,072
============== =============
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing $22,438,345 21,669,112
Interest bearing 127,277,935 113,612,701
-------------- -------------
Total deposits 149,716,280 135,281,813
Securities sold under agreements to repurchase 10,062,591 8,972,154
Other borrowed funds 6,567,305 2,729,885
Accrued expenses and other liabilities 1,705,593 2,934,161
-------------- -------------
Total liabilities 168,051,769 149,918,013
Stockholders' equity:
Class A common stock. Authorized 975,000
shares of $.01 par value; 548,160
shares issued. 5,482 5,482
Class B common stock of $.01 par value.
Authorized 250,000 shares;
-0- shares issued and outstanding. 0 0
Preferred stock of $.01 par value. Authorized
250,000 shares; -0- shares issued
and outstanding. 0 0
Surplus 3,476,518 3,476,518
Net unrealized loss on investments
available for sale 446,509 228,757
Retained earnings 12,409,519 11,381,892
-------------- -------------
16,338,028 15,092,649
Less 31,775 treasury shares, at cost 465,590 465,590
-------------- -------------
Total stockholders' equity 15,872,438 14,627,059
-------------- -------------
Total liabilities and stockholders' equity $ 183,924,207 164,545,072
============== =============
</TABLE>
3
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UNITED BANKCORPORATION OF ALABAMA,INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED
STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER SEPTEMBER
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 2,380,784 2,198,636 6,980,329 6,100,755
Interest on investment securities available for sale:
Taxable 723,613 542,589 2,059,904 1,580,904
Nontaxable 78,678 62,880 227,643 178,947
Interest on investment securities held to maturity:
Taxable 161,060 245,976 561,605 751,821
Nontaxable 128,819 97,817 390,749 275,478
----------- --------- ---------- ---------
Total investment income 1,092,170 949,262 3,239,901 2,787,150
Other interest income 125,926 44,154 297,074 202,206
----------- --------- ---------- ---------
Total interest income 3,598,880 3,192,052 10,517,304 9,090,111
Interest expense:
Interest on deposits 1,561,542 1,291,341 4,500,882 3,673,855
Interest on other borrowed funds 199,145 144,806 565,814 359,907
----------- --------- ---------- ---------
Total interest expense 1,760,687 1,436,147 5,066,696 4,033,762
Net interest income 1,838,193 1,755,905 5,450,608 5,056,349
Provision for loan losses 60,000 160,000 180,000 280,000
----------- --------- ---------- ---------
Net interest income after
provision for loan losses 1,778,193 1,595,905 5,270,608 4,776,349
Noninterest income:
Service charge on deposits 247,863 252,263 735,644 732,712
Commission on credit life 13,225 17,530 33,850 52,023
Investment securities gains and losses, net 65,355 (6,562) 65,355 (16,883)
Other 75,785 93,565 229,827 410,983
----------- --------- ---------- ---------
Total noninterest income 402,228 356,796 1,064,676 1,178,835
Noninterest expense:
Salaries and benefits 908,908 783,132 2,552,233 2,244,291
Net occupancy expense 217,401 225,384 654,086 647,489
Other 447,908 400,566 1,365,254 1,244,857
----------- --------- ---------- ---------
Total non-interest expense 1,574,217 1,409,082 4,571,573 4,136,637
Earnings before income tax expense 606,204 543,619 1,763,711 1,818,547
Income tax expense 157,664 169,481 477,922 564,941
----------- --------- ---------- ---------
Net earnings $ 448,540 374,138 1,285,789 1,253,606
=========== ========= ========== =========
Net earnings per share $ 0.87 0.72 2.49 2.43
Weighted average shares outstanding 516,385 516,385 516,385 516,385
=========== ========= ========== =========
Statement of Comprehensive Income
Net Income $ 448,540 374,138 1,285,789 1,253,606
Other comprehensive income, net of tax:
Unrealized holding gains (losses) arising during the 226,654 104,323 217,752 159,203
Less: Reclassification adjustment for gains (losses)
included in net income. 39,213 (3,938) 39,213 (10,130)
----------- --------- ---------- ---------
Comprehensive income $ 714,407 474,523 1,542,754 1,402,679
=========== ========= ========== =========
</TABLE>
4
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UNITED BANKCORPORATION OF ALABAMA INC.
AND SUBSIDIARY
CONSOLIDATED
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
<S> <C> <C>
Operating Activities
Net Income $ 1,285,789 1,253,606
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Provision for Loan Losses 180,000 280,000
Depreciation on Premises and Equipment 227,775 229,169
Amortization of Investment Securities held to maturity 48,355 36,583
Amortization of Investment Securities Available for Sale 150,723 49,822
(Gain) Loss on Sale of Investment Securities held to maturity -- --
(Gain) Loss on Sale of Investment Securities Available for Sale (65,355) 16,883
(Gain)Loss on Disposal of Premises and Equipment (3,500) (171)
(Increase) Decrease in Interest Receivable
and Other Assets (306,706) 22,074
Increase (Decrease) in Accrued Expenses
and Other Liabilities (1,228,568) 332,006
-------------- --------------
Net Cash Provided by Operating Activities 288,514 2,219,972
-------------- --------------
Investing Activities
Proceeds From Interest-bearing Deposits in
Other Financial Institutions 100,920 1,226
Purchases of Interest-bearing Deposits in
Proceeds From Sales of Investment Securities held to maturity 6,383,989 --
Proceeds From Sales of Investment Securities Available for Sale 3,087,911 3,505,925
Proceeds From Maturities of Investment Securities held to maturity 5,657,473 1,661,620
Proceeds From Maturities of Investment Securities Available for Sale 25,187,160 3,174,820
Purchases of Investment Securities held to maturity (1,540,895) (1,903,229)
Purchases of Investment Securities Available for Sale (46,743,721) (9,160,711)
Net (Increase) Decrease in Loans (6,357,323) (10,813,476)
Purchases of Premises and Equipment (650,791) (320,405)
Proceeds From Sales of Premises and Equipment 3,500 171
Purchases of Other Real Estate (152,013) (40,200)
Proceeds From Sales of Other Real Estate 42,200 --
-------------- --------------
Net Cash Used by Investing Activities (20,639,062) (13,894,259)
-------------- --------------
Financing Activities
Net Increase (Decrease) in Deposits, 14,434,467 7,591,494
Net Increase in securities sold under
agreement to repurchase 1,090,437 2,545,432
Cash Dividends (258,192) (258,194)
Increase (Decrease) in Other Borrowed Funds 3,837,421 3,075,798
-------------- --------------
Net Cash Provided by Financing Activities 19,104,133 12,954,530
-------------- --------------
Increase (Decrease) in Cash and Cash Equivalents (1,246,415) 1,280,243
Cash and Cash Equivalents at Beginning of Period 11,175,030 8,789,453
-------------- --------------
Cash and Cash Equivalents at End of Period 9,928,615 10,069,696
============== ==============
Supplemental disclosures
Cash paid during the year for:
Interest 5,283,904 3,762,749
============== ==============
Income Taxes 349,500 610,053
============== ==============
</TABLE>
5
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UNITED BANCORPORATION OF ALABAMA, INC.,
AND SUBSIDIARY
Notes to Consolidated Financial Statements
NOTE 1 - General
The consolidated financial statements in this report have not been audited. In
the opinion of management, all adjustments necessary to present fairly the
financial position and the results of operations for the interim periods have
been made. All such adjustments are of a normal recurring nature. The results of
operations are not necessarily indicative of the results of operations for the
full year or any other interim periods. For further information, refer to the
consolidated financial statements and footnotes included in the Corporation's
annual report on Form 10-K for the year ended December 31, 1997.
NOTE 2 - New Accounting Pronouncement
Earnings per share are computed in accordance with Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS No. 128 requires
the replacement of previously reported primary and fully diluted earnings per
share under Accounting Principles Board Opinion No. 15 with basic earnings per
share and diluted 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 Corporation does not have any stock options 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.
Effective January 1, 1998 the Corporation adopted the SFAS No. 130 "Reporting
Comprehensive Income" , which requires disclosure, in financial statements
format, all non-owners changes in equity. Adoption of the statement requires the
presentation of comprehensive income, which includes the unrealized gain or loss
on investment securities.
In June, 1997 the Financial Accounting Standards Board (FASB) issued SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information, ("SFAS
131"). SFAS 131 requires that financial and descriptive information be disclosed
for each reportable operating segment based on the management approach. The
management approach focuses on financial information that an enterprise's
decision makers use to assess performance and make decisions about resource
allocation. The statement also prescribes the enterprise-wide disclosures to be
made about products, services, geographic areas and major customers. SFAS 131 is
effective for annual
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financial statements issued for periods beginning after December 15, 1997, and
for interim financial statements in the second year of application. The
Corporation adopted SFAS 131 as of January 1, 1998.
In June, 1998, the Financial Accounting Standards Board issued FASB No. 133,
Accounting for Derivative Instruments and Hedging Activities, FASB 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity reorganize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. This Statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. Presently, the
Corporation is unable to quantify the impact that the adoption of FASB 133 will
have on the consolidated financial statements of the Corporation.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
The following financial review is presented to provide an analysis of the
results of operations of United Bancorporation of Alabama, Inc. (the
"Corporation" or the "Bank"), and its subsidiary for the nine months ended
September 30, 1998, and 1997, compared. This review should be used in
conjunction with the consolidated financial statements included in the Form
10-Q.
Net income after taxes for the nine months ended September 30, 1998, was
$1,285,789, an increase of $32,183 or 2.57%, as compared to $1,253,606 for the
same period in 1997. Net earnings per share increased to $2.49 for the nine
months ended September 30, 1998, as compared to $2.43 in 1997.
Net interest income through the nine months increased 7.80% to $5,450,608. The
net interest margin was 4.27% for the first nine months of 1998 as compared to
4.71% for the same period in 1997. Therefore, the increase in net interest
income was largely produced from volume as opposed to an increase in interest
rates.
Total interest income increased $1,427,193, or 15.70%, to $10,517,304 in 1998,
from $9,090,111 in 1997. Average interest earning assets were $171,314,985 for
the first nine months 1998, as compared to $143,039,566 for the same period in
1997, an increase of $28,275,419, or 19.77%. The average rate earned in 1998 on
earning assets was 8.22% as compared to 8.48% in 1997. The decrease in average
rate earned on earning assets was due to the decrease in the yields in the
investment portfolio and short term federal funds sold. The yield on the loan
portfolio has remained relatively constant over the past nine months. The Bank
expects a further decrease in its rates on earning assets if the rates in the
treasury market continue to fall.
Total interest expense increased by $1,032,934, or 25.62%, in 1998 to $5,066,696
from $4,033,762 in 1997. Average interest bearing liabilities increased to
$140,128,084 in 1998 from $118,698,363 in 1997, an increase of $21,429,721, or
18.05%. The average rate paid rose to 4.83% in 1998, from 4.70% in 1997. This
slight increase is attributed the increase in volume of certificates of deposit,
and the acquisition of a variable rate deposit priced at 61.8% of prime for
three years that has averaged $11,871,356 this year. This change in composition
of deposits along with outside market pressure has driven the cost of funds up.
The provision for loan losses decreased to $180,0000 for the first nine months
of 1998 as compared to $280,000 for the same period in 1997. Net charged-off
loans for the first nine months of 1998 were $218,195, as compared to $118,250
for the same
8
<PAGE> 9
period in 1997. This increase in charge-offs is of concern to management, but
does not represent a deterioration of the quality of the loan portfolio, and the
reserve remains adequate.
The allowance for possible loan losses represents 1.51% of gross loans
(excluding bankers acceptances and commercial paper) at September 30, 1998, as
compared to 1.65% at year-end 1997. Loans on which the accrual of interest had
been discontinued amounted to $336,966 at September 30, 1998, as compared to
$405,236 at December 31, 1997. Management believes that the allowance for loan
losses remains adequate given the growth in loans and based upon the risks in
the portfolio.
Total noninterest income decreased to $1,064,676 for the first nine months of
1998, as compared to $1,178,835 for the same period in 1997, a decrease of
$114,159, or 9.68%. Investment security gains were $65,355 for the first nine
months of 1998, as compared to losses of $16,883 in 1997. Service charges on
deposits increased $2,932, or .40%, to $735,644 in 1998 from $732,712 in 1997.
Commissions on credit life decreased to $33,850 in 1998 from $52,023 in 1997, a
decrease of $18,173, or 34.93%. Other income decreased during the first nine
months of 1998 to $229,827 from $410,983 in 1997, a decrease of $181,156, or
44.08%. This decrease is due to an insurance settlement in the amount of
$200,000, which occurred in 1997.
Total noninterest expense increased $434,936, or 10.51%, to $4,571,573 during
the first nine months of 1998, as compared to $4,136,637 for the same period in
1997. Salaries and benefits increased to $2,552,233 in 1998 from $2,244,291 in
1997, an increase of $307,942, or 13.72%. This increase is due to the opening of
a new branch, and the staffing of a branch to open in the middle of December.
Occupancy expense increased $6,597, or 1.02% to $654,086 in 1998 from $647,489
in 1997. Other expense increased to $1,365,254 during the first nine months of
1998 from $1,244,857 for the same period in 1997, an increase of $120,397, or
9.67%. Legal fees increased by $29,877, or 68.77%, to $73,324 for the first nine
months in 1998 from $43,447 in 1997. Data processing fees have increased $17,246
or 9.80% in the past nine months. The Bank uses an third party data processor
whose fees are based on total assets, therefore as the Bank grows the fee will
increase. The remainder of the increase can be traced to the expansion into
Baldwin County.
Earnings before taxes for the first nine months of 1998 decreased $54,836, or
3.02%, to $1,763,711 from $1,818,547 for the same period in 1997. Income taxes
decreased $87,019 or 15.40% , this decrease is due to the Bank buying more tax
free bonds in an effort to decrease the effective tax rate. The effective tax
rate has decreased to 27.09% from 31.06%. This accounts for the increase in net
income after tax of $32,183 or 2.57% from 1997 to 1998.
9
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Three Months Ended September 30, 1998, and 1997, Compared
Net earnings for the three months ended September 30, 1998 was $448,540, an
increase of $74,402, or 19.89% from $374,138, for the same period last year.
Earnings per share increased to $.87 for the third quarter of 1998, from $.72
for the same period in 1997.
Total interest income increased $406,828, or 12.75% to $3,598,880 for the third
quarter of 1998, as compared to $3,192,052 for the same period in 1997. Interest
and fees on loans increased $182,148, or 8.28%, to $2,380,784 in 1998, from
$2,198,636 in 1997. The average rate earned on interest earning assets during
the third quarter of 1998 was 8.23%, as compared to 8.56% for the same period in
1997. The decrease is related to the growth in the deposit side of the Bank and
the lack of loan demand. Therefore the excess cash has been invested in lower
earnings assets such as investments. The recent decrease in prime has also
lowered rates on $29 million in adjustable rate loans, which has also caused the
net interest margin to decrease to 4.11% or the third quarter of 1998, as
compared to 4.83% for the same period in 1997. Average interest earning assets
increased to $177,357,271 in 1998, from $147,213,409 in 1997, an increase of
$30,143,862, or 20.48%.
Total interest expense increased by $324,540 or 22.60% from $1,436,147 in 1997
to $1,760,687 due to a large deposit of $11,000,000 that was placed in the Bank
on a short term basis, therefore most of this increase is based on volume not
rate. Average interest bearing liabilities for the third quarter of 1998 were
$146,896,597, as compared to $117,991,539 for the same period in 1997, an
increase of $28,905,058 or 24.50%. The majority of this increase can be
attributed to a large public fund deposit obtained on a bid basis for three year
which at the end of September was earning 5.10%.
The provision for loan losses decreased to $60,000 for the third quarter of 1998
as compared to $160,000 for the same period in 1997. Net charged-off loans for
the third quarter of 1998 were $71,800, as compared to $62,870 for the same
period in 1997.
Total noninterest income increased to $402,228 for the third quarter of 1998 as
compared to $356,796 in 1997, an increase of $45,432, or 12.73%. Service charges
on deposits decreased $4,400, or 1.74%, to $247,863 in 1998, from $252,263 in
1997. Investment securities gain and losses increased $71,917 to gains of
$65,355 from a loss of $6,562. Commissions on credit life insurance decreased to
$13,225 in 1998 from $17,530 in 1997. Other income decreased during the third
quarter of 1998 to $75,785 from $93,565 in 1997, a decrease of $17,780, or
19.00%. This slight decrease was the result of the insurance settlement in 1997.
Total noninterest expense increased $165,135, or 11.72%, to $1,574,217 during
the third quarter of 1998, as compared to $1,409,082 for the same period in
1997. Salaries
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and benefits increased to $908,908 in 1998, from $783,132 in 1997, an increase
of $125,776, or 16.06%. Occupancy expense decreased $7,983, or 3.54%, to
$217,401 in 1998 from $225,384 in 1997. Other expense increased to $447,908
during the third quarter of 1998, as compared to $400,566 for the same period in
1997, an increase of $47,342, or 11.82%.
Earnings before taxes for the third quarter of 1998 increased by $62,585 to
$606,204 from $543,619 for the same period in 1997. Income taxes expense fell to
$157,664 for the three months ended September 30, 1998 from $169,481, for the
same period ended 1997. This decrease was due to increased levels of tax free
interest from the investment portfolio.
Financial Condition and Liquidity
Total assets on September 30, 1998, were $183,924,207, as compared to
$164,545,072 on December 31, 1997, an increase of $19,379,135, or 11.78%.
Average total assets for the first nine months of 1998 were $179,641,488. The
loan portfolio growth was funded largely by new deposits, new loans from Federal
Home Loan Bank, and the increase in repurchase agreements. The largest deposit
contributing to the increase is a public fund deposit which at month end had a
balance of $10,347,093. Net loans increased to $91,505,204 at September 30,
1998, from $85,327,881 at year end 1997, an increase of $6,177,323, or 7.24%.
The loan to deposit ratio (net loans) on September 30, 1998, excluding bankers
acceptances and commercial paper, was 61.12%, as compared to 63.07% on December
31, 1997.
Federal funds sold decreased to $0 on September 30, 1998, as compared to
$2,710,000 on December 31, 1997, a decrease of $2,710,000. Investment securities
held to maturity decreased to $20,023,457 at September 30, 1998 as compared to
$24,914,930 at year end. The investment securities available for sale increased
to $57,410,864 from $38,649,802 at December 31, 1997. This increase is
attributed to the large public fund deposit that had to be collateralized under
state law. Since the deposit is only guaranteed for three years it was necessary
to build the AFS portion of the portfolio for future liquidity needs.
Non-performing Assets: The following table sets forth the Corporation's
non-performing assets at September 30, 1998 and December 31, 1997. 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.
11
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<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
DESCRIPTION 1998 1997
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
(A) Loans accounted for on $337 $405
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). 27 15
(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. 39 36
(D) Other non-performing assets 169 48
</TABLE>
Total deposits increased $14,434,467, or 10.67%, to $149,716,280 on September
30, 1998, from $135,281,813 at year end. Noninterest bearing deposits increased
to $22,438,345 at September 30, 1998, from $21,669,112 at year end 1997, an
increase of $769,233, or 3.55%. Interest bearing deposits increased $13,665,233,
or 12.03%, to $127,277,935 on September 30, 1998, from $113,612,702 at December
31, 1997. This increase is associated with a large public fund deposit which had
a balance of $10,347,093 as of September 30, 1998. Average total deposits for
the first nine months of 1998 were $149,381,423.
The Corporation relies primarily on internally generated capital growth to
maintain capital adequacy. Total stockholders' equity on September 30, 1998, was
$15,872,438 an increase of $1,245,379, or 8.51%, from $14,627,059 at year end
1997.
Primary capital to total assets at September 30, 1998, was 8.63%, as compared to
8.89% at year end 1997. Total capital and allowances for loan losses to total
assets at September 30, 1998 were 9.39%, as compared to 9.77% at December 31,
1997. The Corporation's bank subsidiary, United Bank, had risk based capital of
$16,147,000, or 15.71%, at September 30, 1998, as compared to $15,316,000, or
16.24% at year end 1997. United Bank had excess risk based capital of 7.71% at
September 30, 1998, and 8.24% at December 31, 1997, based upon the minimum
requirement of 8.00%. Based on management's projection, internally generated
capital should be sufficient to satisfy
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<PAGE> 13
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.
YEAR 2000 ISSUES
The Bank has completed most of its assessment of Year 2000 issues. It has tested
the majority of all of its mission critical software. The third-party
application vendor most critical to the Bank, the Bank Data Center, has
certified to the Bank that it has assessed its Year 2000 compliance and has
tested the majority of its software. The Bank expects all of its critical
vendors' Year 2000 testing to be completed by December 31, 1998. The Bank has
also surveyed its physical facilities and anticipates no material problems with
devices such as vault doors, telephone and alarm systems, which have
computerized controls.
The Bank has also contacted the majority of its suppliers and vendors, and has
been informed that the suppliers and vendors whose goods and services are
material to the Bank are either Year 2000 compliant or in the process of
testing. The Bank believes that it will be able to replace any vendors or
suppliers who prove not to be Year 2000 compliant without disruption of Bank
operations or any material increase in expense.
The Bank does not expect the Year 2000 issue to have a material financial
impact on the Banks' financial statements. The Bank is in the process of
upgrading computers and installing a wide area network, but these replacements
and installations have been determined by management to be needed regardless of
Year 2000 issues. The Bank estimates that the cost of addressing Year 2000 will
include $23,500 of external costs, none of which was expended in the quarter
ended September 30, 1998, and the majority in 1999. The Bank has also incurred
and expects to incur internal costs of personnel whose responsibilities include
addressing Year 2000 issues; these internal costs are not separately allocated
by the Bank.
Because the Bank believes that it will have tested its internal computer
systems and received certification of Year 2000 compliance from critical
external vendors, it presently believes that the most reasonably likely Year
2000 risk to be addressed by the Bank will be possibility of significant
increases in withdrawals of deposited funds as the Year 2000 approaches. The
Bank plans to be prepared to handle these demands by having extra amounts of
cash on hand, and by arranging for sources of funding to replace the withdrawn
deposits. As its Year 2000 evaluation progresses, the Bank may develop further
contingency plans to address other risks that may be identified.
The Bank has evaluated its loan loss reserve and at the present time believes
that the reserve remains adequate. Each applicant for business loans must
provide a Year 2000 readiness form that helps the loan officer evaluate the
applicant's awareness of potential Year 2000 issues and the borrower's year
2000 readiness. Based on its review to date, the Bank does not currently
foresee any need to increase the loan loss reserve because of Year 2000 issues.
13
<PAGE> 14
MARKET RISK DISCLOSURES
The Corporation's market risk has not materially changed in the last six months.
For further discussion refer to the Corporation's Form 10-K.
FORWARD LOOKING STATEMENTS
When used or incorporated by reference herein, the words "anticipate",
"estimate", "expect", "project", "target", "goal", and similar expression, are
intended to identify forward-looking statements within the meaning of Section
27A of the Securities Act of 1933. Such forwarding-statements are subject to
certain risk, 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 and 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 in events, conditions or circumstances on which any such
statement is based.
14
<PAGE> 15
Item 6. Exhibits and Reports on Form 8-K.
(A) See Exhibit Index
(B) During the quarter ended September 30, 1998, the Corporation
did not file a Form 8-K Current Report with the Securities and
Exchange Commission.
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED BANCORPORATION OF ALABAMA, INC.
Date: November 12, 1998 /s/ Mitch Staples
----------------------- -----------------------------
Mitch Staples
Treasurer
(Principal Financial Officer)
<PAGE> 16
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27.1 Financial data schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S INTERIM FINANCIAL STATEMENTS FOR FISCAL PERIOD 9/30/98 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 9,928,615
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 57,410,864
<INVESTMENTS-CARRYING> 20,936,619
<INVESTMENTS-MARKET> 20,346,744
<LOANS> 93,057,111
<ALLOWANCE> 1,404,940
<TOTAL-ASSETS> 183,924,207
<DEPOSITS> 149,716,280
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,705,593
<LONG-TERM> 6,567,305
0
0
<COMMON> 5,482
<OTHER-SE> 15,866,956
<TOTAL-LIABILITIES-AND-EQUITY> 183,924,207
<INTEREST-LOAN> 6,980,329
<INTEREST-INVEST> 3,239,901
<INTEREST-OTHER> 297,074
<INTEREST-TOTAL> 10,517,304
<INTEREST-DEPOSIT> 4,500,882
<INTEREST-EXPENSE> 565,814
<INTEREST-INCOME-NET> 5,450,608
<LOAN-LOSSES> 180,000
<SECURITIES-GAINS> 65,355
<EXPENSE-OTHER> 4,571,573
<INCOME-PRETAX> 1,763,711
<INCOME-PRE-EXTRAORDINARY> 1,763,711
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,285,789
<EPS-PRIMARY> 2.49
<EPS-DILUTED> 2.49
<YIELD-ACTUAL> 8.22
<LOANS-NON> 336,966
<LOANS-PAST> 27,000
<LOANS-TROUBLED> 39,000
<LOANS-PROBLEM> 0<F1>
<ALLOWANCE-OPEN> 1,443,135
<CHARGE-OFFS> 251,514
<RECOVERIES> 33,319
<ALLOWANCE-CLOSE> 1,404,940
<ALLOWANCE-DOMESTIC> 1,404,940
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>INFORMATION NOT CONTAINED IN FINANCIAL STATEMENTS
</FN>
</TABLE>
