<PAGE> 1
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 June 30, 1999
-----------------------
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 Number)
incorporation or organization)
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 June 30, 1999.
Class A Common Stock.... 1,033,570 Shares
Class B Common Stock.... -0- Shares
Page 1 of 17
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UNITED BANCORPORATION OF ALABAMA, INC.
FORM 10-Q
For the Quarter Ended June 30, 1999
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
----
<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 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
2
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UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
Item 1.
<TABLE>
<CAPTION>
June 30 December 31,
1999 1998
------------- -------------
<S> <C> <C>
Assets
Cash and due from banks $ 6,667,111 8,385,901
Federal funds sold 140,000 645,000
------------- -------------
Cash and cash equivalents 6,807,111 9,030,901
Securities available for sale 44,692,480 54,210,192
Investment securities (market values of $16,121,896 16,210,465 17,045,566
and $16,767,495, respectively)
Loans 125,928,414 104,624,631
Less: Unearned income 44,234 106,471
Allowance for loan losses 1,605,898 1,428,492
------------- -------------
Net loans 124,278,282 103,089,668
Premises and equipment, net 4,594,224 2,894,882
Interest receivable and other assets 2,559,696 2,922,032
------------- -------------
Total assets 199,142,258 189,193,241
============= =============
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing $ 26,990,613 26,953,055
Interest bearing 130,962,472 125,873,484
------------- -------------
Total deposits 157,953,085 152,826,539
Securities sold under agreements to repurchase 12,928,114 11,810,188
Other borrowed funds 11,062,918 6,447,356
Accrued expenses and other liabilities 883,428 2,061,183
------------- -------------
Total liabilities 182,827,545 173,145,266
Stockholders' equity:
Class A common stock. Authorized 5,000,000
shares of $.01 par value; 1,097,120 and 1,096,320,
respectively
shares issued and outstanding 10,971 10,963
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 3,594,350 3,471,037
Accumulated other comprehensive
income (421,562) 284,877
Retained earnings 13,596,544 12,746,688
------------- -------------
16,780,303 16,513,565
Less 63,550 and 63,550 treasury shares, at cost 465,590 465,590
------------- -------------
Total stockholders' equity 16,314,713 16,047,975
------------- -------------
Total liabilities and stockholders' equity 199,142,258 189,193,241
============= =============
</TABLE>
3
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UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED
STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June June
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans 2,894,720 2,360,106 5,579,435 4,599,545
Interest on investment securities
Available for Sale:
Taxable 508,042 734,456 1,142,606 1,336,291
Nontaxable 122,394 74,879 232,970 148,965
Interest on investment securities
Held to Maturity:
Taxable 86,092 186,546 177,178 400,545
Nontaxable 130,831 132,397 269,782 261,930
---------- ---------- ---------- ----------
Total investment income 847,359 1,128,278 1,822,536 2,147,731
Other interest income 54,801 89,048 85,546 171,148
---------- ---------- ---------- ----------
Total interest income 3,796,880 3,577,432 7,487,517 6,918,424
Interest expense:
Interest on deposits 1,419,655 1,537,295 2,840,571 2,939,340
Interest on other borrowed funds 270,336 191,126 503,939 366,669
---------- ---------- ---------- ----------
Total interest expense 1,689,991 1,728,421 3,344,510 3,306,009
Net interest income 2,106,889 1,849,011 4,143,007 3,612,415
Provision for loan losses 99,000 60,000 298,000 120,000
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 2,007,889 1,789,011 3,845,007 3,492,415
Noninterest income:
Service charge on deposits 265,815 246,547 528,914 487,781
Commission on credit life insurance 10,152 9,088 26,437 20,625
Investment securities gains and losses, net 9,882 -- 31,907 --
Other 76,876 69,046 164,693 154,042
---------- ---------- ---------- ----------
Total noninterest income 362,725 324,681 751,951 662,448
Noninterest expense:
Salaries and benefits 1,058,152 853,567 1,979,993 1,643,325
Net occupancy expense 257,255 218,565 470,024 436,685
Other 491,663 474,956 1,007,817 917,346
---------- ---------- ---------- ----------
Total non-interest expense 1,807,070 1,547,088 3,457,834 2,997,356
Earnings before income tax expense 563,544 566,604 1,139,124 1,157,507
Income tax expense 144,031 154,313 283,815 320,258
---------- ---------- ---------- ----------
Net earnings 419,513 412,291 855,309 837,249
========== ========== ========== ==========
Basic earnings per share (Note 3) $ 0.41 $ 0.40 $ 0.83 $ 0.81
Diluted earnings per share (Note 3) $ 0.40 $ 0.40 $ 0.81 $ 0.81
Basic Weighted average shares outstanding
(Note 6) 1,033,157 1,032,770 1,032,964 1,032,770
========== ========== ========== ==========
Diluted earnings per share (Note 6) 1,042,892 1,032,770 1,042,699 1,032,770
========== ========== ========== ==========
Statement of Comprehensive Income
Net Income 419,513 412,291 855,309 837,249
Other Comprehensive Income, net of tax:
Unrealized Holding gains (losses)
arising during the period (506,197) (2,180) (725,097) (8,903)
Less: Reclassification adjustment
for gains (losses) included
in net income 5,929 -- 18,658 --
---------- ---------- ---------- ----------
Comprehensive income (80,755) 410,111 148,870 828,346
========== ========== ========== ==========
</TABLE>
4
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UNITED BANCORPORATION
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Operating Activities
Net Income $ 855,309 837,249
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Provision for Loan Losses 298,000 120,000
Depreciation on Premises and Equipment 159,668 148,516
Amortization of Investment Securities held to maturity 28,465 34,284
Amortization of Investment Securities Available for Sale 118,377 85,053
(Gain) Loss on Sale of Other Real Estate -- --
(Gain)Loss on Disposal of Premises and Equipment (4,300) (3,500)
(Increase) Decrease in Interest Receivable
and Other Assets 828,270 (352,503)
Decrease in Accrued Expenses
and Other Liabilities (1,177,839) (1,562,207)
Earned compensation -- stock option plan 117,839
------------ ------------
Net Cash Provided (Used) by Operating Activities 1,223,873 (693,108)
------------ ------------
Investing Activities
Proceeds From Interest-bearing Deposits in
Other Financial Institutions -- 875
Proceeds From Sales of Investment Securities Available for Sale 7,124,043 --
Proceeds From Maturities of Investment Securities held to maturity 806,636 4,739,229
Proceeds From Maturities of Investment Securities Available for Sale 7,713,814 22,472,985
Purchases of Investment Securities held to maturity -- (795,202)
Purchases of Investment Securities Available for Sale (6,615,873) (38,115,882)
Net Increase in Loans (21,486,614) (6,152,338)
Purchases of Premises and Equipment (1,859,010) (397,707)
Proceeds From Sales of Premises and Equipment 4,300 3,500
Purchases of Other Real Estate -- 152,013
Proceeds From Sales of Other Real Estate 5,006 --
------------ ------------
Net Cash Used by Investing Activities (14,307,698) (18,092,527)
------------ ------------
Financing Activities
Net Increase in Deposits, 5,126,546 18,705,621
Net Increase in securities sold under
agreement to repurchase 1,117,926 1,465,540
Cash Dividends -- (258,191)
Increase in Other Borrowed Funds 4,615,563 1,789,542
------------ ------------
Net Cash Provided by Financing Activities 10,800,035 21,702,512
------------ ------------
Decrease in Cash and Cash Equivalents (2,223,790) 2,916,877
Cash and Cash Equivalents at Beginning of Period 9,030,901 11,175,030
------------ ------------
Cash and Cash Equivalents at End of Period 6,807,111 14,091,907
============ ============
Supplemental disclosures
Cash paid during the year for:
Interest 3,344,634 3,330,155
============ ============
Income Taxes 415,293 191,500
============ ============
</TABLE>
5
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UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Interim Consolidated Financial Statements
Note 1 - General
The interim 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 Company's annual report on Form 10-K for the year ended December
31, 1998.
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.
Effective January 1, 1998 the Company adopted the (SFAS) No. 130 "Reporting
Comprehensive income, which requires disclosure, in financial statements format,
all non-owner changes in equity. Adoption of this statement requires the
presentation of comprehensive income, which includes the unrealized gain or loss
on investment securities.
In June, 1997 the FASB Issued Financial Accounting Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information, ("FAS131").
FAS131 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. FAS131 is effective
for annual financial statements issued for periods beginning after December 15,
1997, and for interim financial statements in the second year of application.
The Company adopted FAS131 as of January 1, 1998.
In June, 1998, the FASB issued Financial Accounting Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, ("FAS133"). FAS133
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
6
<PAGE> 7
or liabilities in the statement of financial position and measure those
instruments at fair value. In June 1999, the FASB issued FASB Statement No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133, an Amendment of FASB Statement No.
133". Statement No. 137 defers the effective date of Statement No. 133 from June
15, 1999 to June 15, 2000. Statement No. 133, as amended, is now effective for
all fiscal quarters beginning after June 15, 2000. Presently, the Corporation is
unable to quantify the impact that the adoption of FAS 133 will have on the
consolidated financial statements of the Corporation.
Note 3 - Stock Split
The Board of Directors of the Corporation declared a two-for-one split of the
Class A Common Stock ("Class A Stock") of the Corporation, to be effected as a
100% stock dividend payable on May 17, 1999 to stockholders of record on April
30, 1999, subject to approval of an amendment to the Certificate of
Incorporation of the Corporation to increase the Class A Stock from 975,000 to
5,000,000 shares. The increase in authorized stock was approved by the
stockholders of the Corporation at the Annual Meeting of Stockholders held on
May 5, 1999. Basic earnings per share on a restated basis for the three months
ended June 30, 1998 decreased from $0.80 per share to 0.40 per share. Basic
earnings per share on a restated basis for the six months ended decreased from
$1.62 to $0.81.
Note 4 - Stock Options
The 1998 Stock Options Plan of United Bancorporation of Alabama, Inc was created
in 1998 and became effective after a favorable vote of the Stockholders at the
Annual Meeting. Every person who at the date of grant of an Option is an
employee of the Company or of any Affiliate (as defined by the Plan) of the
Company is eligible to receive Options under this plan. In the first six months
of the year 800 options, and 800 shares were issued under the plan.
Note 5 - Private Placement Memorandum
The Company is currently conducting a private placement offering of up to
150,000 shares of its common stock at a price of $22 per share. If all of such
shares are sold, the net proceeds of the offering would be anticipated to be
approximately $3,287,500. In such event, stockholders' equity would increase by
a corresponding amount, and the capital ratios describe above would reflect the
improvement resulting from such increased capital. There can be no assurance,
however, as to the number of shares which might be sold in such offering, or of
the amount (if any) that the Company's capital may be increased as a result of
such offering.
Note 6 - Earnings per Share
Presented below is a summary of the components used to calculate diluted
earnings per share for the three month and nine months ended June 30, 1999 and
1998.
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Diluted earnings per share:
Weighted average common shares outstanding 1,033,157 1,032,770 1,032,964 1,032,770
Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market price for the quarter 9,735 -- 4,895 --
Notal weighted average common shares and
potential common stock outstanding 1,042,892 1,032,770 1,037,859 1,032,770
</TABLE>
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"), and its subsidiary for the six months ended June 30, 1999, and
1998, compared. This review should be used in conjunction with the consolidated
financial statements included in the Form 10-Q.
Net income for the six months ended June 30, 1999, increased $18,060, or 2.16%,
as compared to the same period in 1998. Basic earnings per share increased to
$0.83 for the six months ended June 30, 1999, as compared to $0.81 in 1998.
Total interest income increased $569,093, or 8.23%, in 1999. Average
interest-earning assets were $186,287,279 for the first six months 1999, as
compared to $178,655,696 for the same period in 1998, an increase of $7,631,583,
or 4.27%. The average rate earned in 1999 was 8.11% as compared to 8.29% in
1998, reflecting slightly lower interest rates during 1999. Thus, the increase
in total interest income in 1999 is attributed to the increase in earning
assets, and not to the rate environment. Net interest margin increased to 4.49%
for the first six months of 1999 as compared to 4.33% for the same period in
1998. This increase has been caused by cost of deposits decreasing over the last
year.
Total interest expense increased by $38,501, or 1.16%, in 1999, when compared to
the same period in 1998. The increase in deposits has been offset by lower
interest rates and alternative funding sources such as the Federal Home Loan
Bank. Average interest bearing liabilities increased to $153,829,755 in 1999
from $150,130,350 in 1998, an increase of $3,699,405, or 2.46%. The average rate
paid dropped to 4.38% in 1999, as compared to 4.78% in 1998.
The provision for loan losses increased to $298,000 for the first six months of
1999 as compared to $120,000 for the same period in 1998. The growth in the
provision for loan loss of 148.33% was primarily due to growth in the loan
portfolio. The allowance for loan losses is maintained at a level
which, in management's opinion, is appropriate to provide for estimated losses
in the portfolio at the balance sheet date. 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 portfolio.
The allowance for loan losses consists of two portions: the classified portion
and the nonclassified portion. The classified portion is based on identified
problem loans and is calculated based on an assessment of credit risk related to
those loans. Specific loss estimate amounts are included in the allowance based
on assigned classifications as follows: substandard (10%),
8
<PAGE> 9
doubtful (50%), and loss (100%).
The nonclassified portion of the allowance is for inherent losses which probably
exist as of the evaluation date even though they may not have been identified by
the more objective processes for the classified portion of the allowance. This
is due to the risk of error and inherent imprecision in the process. This
portion of the allowance is particularly subjective and requires judgments based
upon qualitative factors which do not lend themselves to exact mathematical
calculations. Some of the factors considered are changes in credit
concentrations, loan mix, historical loss experience, and general economic
environment in the Corporation's markets.
While the total allowance is described as consisting of a classified and a
nonclassified portion, these terms are primarily used to describe a process.
Both portions are available to support inherent losses in the loan portfolio.
Management realizes that general economic trends greatly effect loan losses, and
no assurances can be made that future charges to the allowance for loan losses
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 charges to income. Management does,
however, consider the allowance for loan losses to be appropriate for the
reported periods.
Net charged-off loans for the first six months of 1999 were $116,304, as
compared to $146,395 for the same period in 1998.
The allowance for possible loan losses represents 1.28% of gross loans at June
30, 1999, as compared to 1.37% at year-end 1998. Loans on which the accrual of
interest had been discontinued was reduced to $391,157 at June 30, 1999, as
compared to $420,192 at December 31, 1998.
Total noninterest income increased $89,503 or 13.51%, for the first six months
of 1999. Service charges on deposits increased $41,133, or 8.43%, for the first
six months. Commissions on credit life increased $5,812 in 1999, or 28.18%.
Other income increased during the first six months of 1999 $10,651, or 6.91%.
Total noninterest expense increased $460,478, or 15.36%, during the first six
months of 1999. Salaries and benefits increased $336,668 or 20.49%, in the first
six months of 1999. Increase in salaries is due to one new branch opening, and
the issuance of stock options. Occupancy expense increased $33,339, or 7.63%, in
the first six months of 1999. This increase in cost is due to the opening of one
new branch. Other expenses increased $90,471, or 9.86%, during the first six
months of 1999.
Earnings before taxes for the first six months of 1999 decreased $18,383, or
1.59%, over the same period in 1998. Income tax expense decreased $36,443, or
11.38%, for the first six months of 1999.
9
<PAGE> 10
Three Months Ended June 30, 1999, and 1998, Compared
Net earnings for the three months ended June 30, 1999 increased $7,222, or
1.75%. Basic Earnings per share increased to $0.41 from $0.40 in 1998.
Total interest income increased $219,448, or 6.13% for the second quarter of
1999. Interest and fees on loans increased $534,614, or 22.65%, in 1999. The
average rate earned on interest earning assets during the second quarter of 1999
was 8.10%, as compared to 8.19% for the same period in 1998. Therefore, the
increase in interest earned is due to the increase in earning assets. The net
interest margin decreased to 4.50% for the second quarter of 1999, as compared
to 4.36% for the same period in 1998. Average interest earning assets increased
to $187,940,436 in 1999, from $175,166,421 in 1998, an increase of $12,774,015,
or 7.29%.
Total interest expense decreased by $38,430, or 2.22%, for the second quarter of
1999. Average interest bearing liabilities for the second quarter of 1999 were
$154,650,001 as compared to $145,739,670 for the same period in 1998, an
increase of $8,910,331, or 6.11%.
The provision for loan losses increased to $99,000 for the second quarter of
1999 as compared to $60,000 for the same period in 1998. Net charge offs for the
second quarter of 1999 were $64,705 as compared to $2,139 net charge offs for
the same period in 1998.
Total noninterest income increased $38,044, or 11.72%, for the second quarter of
1999. Service charges on deposits increased $19,268, or 7.82%, in 1999.
Commissions on credit life insurance increased $1,064, or 11.71%, for the second
quarter of 1999. Other income increased during the second quarter of 1999 by
$7,830, or 11.34%, in 1999.
Total noninterest expense increased $259,982, or 16.80%, during the second
quarter of 1999. Salaries and benefits increased $204,585, or 23.97%, in 1999.
The opening of a new branch and the outstanding options have caused this
increase. The 1998 Stock Option Plan of United Bancorporation of Alabama, Inc
was created in 1998 and became effective after a favorable vote of the
Stockholders at the Annual Meeting. Every person who at the date of grant of an
Option is an employee of the Company or of any Affiliate (as defined by the
Plan) of the Company is eligible to receive Options under this plan. In the
first six months to the year 800 shares were issued under the plan. Occupancy
expense increased $38,690, or 17.70%, in 1999. The occupancy expense increase is
because the Bay Minette Branch was in operation for the full quarter in 1999.
Other expenses increased $16,707 during the second quarter of 1999.
Earnings before taxes for the second quarter of 1999 decreased by $3,060, or
.54%. Income taxes increased $31,734, or 20.56%, in the second quarter of 1999.
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Financial Condition and Liquidity
Total assets on June 30, 1999, increased $9,949,017, or 5.26%. Average total
assets for the first six months of 1999 were $197,772,776. The loan to deposit
ratio (net loans) on June 30, 1999, excluding bankers acceptances and commercial
paper, was 79.69% as compared to 68.39% on December 31, 1998.
Fed Funds Sold decreased $505,000, or 78.29%, as of June 30, 1999. The
investment securities available for sale decreased $9,517,712, or 17.56%, at
June 30, 1999. The investment securities held to maturity decreased $835,101, or
4.90%.
Non-performing Assets: The following table sets forth the Corporation's
non-performing assets at June 30, 1999 and December 31, 1998. Under the
Corporation's nonaccrual policy, a loan is placed on nonaccrual status when
collectability of principal and interest is in doubt or when principal and
interest is 90 days or more past due.
June December
Description 1999 1998
(Dollars in Thousands)
(A) Loans accounted for on
a nonaccrual basis $391 $420
(B) Loans which are contractually
past due ninety days or more
as to interest or principal
payments (excluding balances
included in (A) above). 29 13
(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. 184 41
(D) Other non-performing assets 205 248
The increase in 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 increase primarily because of one loan
that was restructured in bankruptcy court.
The decrease in other non-performing assets was due to the sale of repossessed
collateral.
Total deposits increased $5,126,546, or 3.35%, as of June 30, 1999. Noninterest
bearing deposits increased $37,558 at June 30, 1999. Interest bearing deposits
increased $5,088,988, or 4.04%, as of June 30, 1999.
The Corporation relies primarily on internally generated capital
growth to maintain capital adequacy.
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<PAGE> 12
Total stockholders' equity on June 30, 1999, was $16,314,713, an increase of
$266,738, or 1.66%. This increase is due to earnings, net of the decline of the
market value of the available for sale portfolio.
Primary capital to total assets at June 30, 1999, was 8.05%, as compared to
8.48% at year end 1998. Total capital and allowances for loan losses to total
assets at June 30, 1999, were 8.58%, as compared to 9.24% at December 31, 1998.
The Corporation's bank subsidiary, United Bank, had risk based capital of
$17,384,000, or 13.30%, at June 30, 1999, as compared to $16,557,000, or 14.85%,
at year end 1998. United Bank had excess risk based capital of 5.30% at June 30,
1999 and 6.85% at December 31, 1998, based upon the minimum requirement of
8.00%. Based on management's projection, internal 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.
The Company is currently conducting a private placement offering of up to
150,000 shares of its common stock at a price of $22 per share. If all of such
shares are sold, the net proceeds of the offering would be anticipated to be
approximately $ 3,287,500. In such event, stockholders' equity would increase by
a corresponding amount, and the capital ratios describe above would reflect the
improvement resulting from such increased capital. There can be no assurance,
however, as to the number of shares which might be sold in such offering, or of
the amount (if any) that the Company's capital may be increased as a result of
such offering.
Year 2000 Issues
The Federal Financial Institutions Examination Council (FFIEC) issued an
interagency statement on May 5, 1997, providing an outline for institutions to
effectively manage Year 2000 challenges. As a result, the Bank formed its Year
2000 committee in May of 1997. The board of directors has established Year 2000
compliance as a strategic initiative. The Bank has also established an ongoing
action plan designed to ensure that its operational and financial systems will
not be adversely effected by software failures due to processing errors
resulting from the Year 2000 issues. The status of the Bank's initiative as of
June 30, 1999 is as follows:
PROBLEM AWARENESS-The Bank is aware of the problems that could potentially
arise from Year 2000 problems and has analyzed internal systems
(information technology and non-information technology) as well as services
provided by third parties. The Bank will maintain initiatives focusing on
customer awareness throughout 1999.
ASSESSMENT PHASE-The Bank has identified all mission critical applications
and determined the respective systems which were not Year 2000 ready. The
Bank's third party service providers have been contacted to determine their
Year 2000 status. The Bank has completed the process of reviewing test
results. All third party service providers appear to be year 2000 ready.
RENOVATION PHASE-As of June 30, 1999, the renovation of all mission
critical systems, was
12
<PAGE> 13
essentially complete.
VALIDATION-All mission critical systems for which and is complete.
IMPLEMENTATION-Replacement of non-compliant mission critical systems is
complete. Results from testing, all of which has been completed, has been
thoroughly reviewed and any necessary remedial actions, have been taken.
Through June 30, 1999, the Bank has incurred approximately $35,000 in
conjunction with its Year 2000 efforts. Additional expenditures are expected to
approximate $50,000. The Bank's internal costs associated with the Year 2000
have not been separately identified. The Bank has an established contingency
plan with the third party data processing center, as well as for internal
operations which has been tested for Year 2000 issues.
Market Risk Disclosures
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,
such as 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
13
<PAGE> 14
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
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 June 30, 1999. All market risk sensitive
instruments presented in this table are held to maturity or available for sale.
The Bank has no trading securities.
CHANGE IN CHANGE IN CHANGE IN
INTEREST RATES MARKET VALUE MARKET VALUE MARKET VALUE
(BASIS POINTS) EQUITY EQUITY EQUITY %
- -------------- -------------- -------------- --------------
400 9,374.10 (5,747.4) (38.0)
- -------------- -------------- -------------- --------------
300 10,720.5 (4,401.0) (29.1)
- -------------- -------------- -------------- --------------
200 12,121.1 (3,000.4) (19.8)
- -------------- -------------- -------------- --------------
100 13,584.5 (1,537.0) (10.2)
- -------------- -------------- -------------- --------------
0 15,712.4 0 0
- -------------- -------------- -------------- --------------
(100) 16,745.4 1,624.0 10.7
- -------------- -------------- -------------- --------------
(200) 18,473.0 3,351.6 22.2
- -------------- -------------- -------------- --------------
(300) 20,325.0 5,203.6 34.4
- -------------- -------------- -------------- --------------
(400) 22,350.4 7,228.9 47.8
- -------------- -------------- -------------- --------------
The preceding table indicates that at June 30, 1999, 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
14
<PAGE> 15
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.
FORWARD LOOKING STATEMENTS
When used or incorporated by reference 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 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 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 in events, conditions or circumstances on
which any such statement is based.
15
<PAGE> 16
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The annual meeting of security holders of United
Bancorporation of Alabama, Inc. was held May 5, 1999. The
activities of the meeting were reported on the Corporations
Form 10Q for the quarter ended March of 1999.
Item 6. Exhibits and Reports on Form 8-K.
(a) See Exhibit Index.
(b) During the quarter ended June 30, 1999 the Corporation did not
file a Form 8-K Current Report.
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: August 12, 1999
/s/ ROBERT R. JONES III
--------------------------------------
Robert R. Jones III
President and CEO
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 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 PERIOD 6-30-99 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 6,667,111
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 140,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 44,692,480
<INVESTMENTS-CARRYING> 16,210,465
<INVESTMENTS-MARKET> 16,121,896
<LOANS> 125,925,414
<ALLOWANCE> 1,605,898
<TOTAL-ASSETS> 199,097,242
<DEPOSITS> 157,953,085
<SHORT-TERM> 460,000
<LIABILITIES-OTHER> 883,428
<LONG-TERM> 10,602,918
0
0
<COMMON> 10,971
<OTHER-SE> 16,261,726
<TOTAL-LIABILITIES-AND-EQUITY> 199,100,242
<INTEREST-LOAN> 5,579,435
<INTEREST-INVEST> 1,822,536
<INTEREST-OTHER> 85,546
<INTEREST-TOTAL> 7,487,517
<INTEREST-DEPOSIT> 2,840,571
<INTEREST-EXPENSE> 3,344,510
<INTEREST-INCOME-NET> 4,143,007
<LOAN-LOSSES> 298,000
<SECURITIES-GAINS> 31,907
<EXPENSE-OTHER> 3,352,794
<INCOME-PRETAX> 1,139,124
<INCOME-PRE-EXTRAORDINARY> 1,139,124
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 855,309
<EPS-BASIC> .83
<EPS-DILUTED> .82
<YIELD-ACTUAL> 8.11
<LOANS-NON> 391,157
<LOANS-PAST> 29,000
<LOANS-TROUBLED> 184,000
<LOANS-PROBLEM> 6,242,359
<ALLOWANCE-OPEN> 1,428,492
<CHARGE-OFFS> 147,282
<RECOVERIES> 26,688
<ALLOWANCE-CLOSE> 1,605,898
<ALLOWANCE-DOMESTIC> 1,605,898
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 820,623
</TABLE>
