<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 September 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 September 30, 1999.
Class A Common Stock.... 1,037,325 Shares
Class B Common Stock.... -0- Shares
<PAGE> 2
UNITED BANCORPORATION OF ALABAMA, INC.
FORM 10-Q
For the Quarter Ended September 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 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II - OTHER INFORMATION
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K 18
</TABLE>
<PAGE> 3
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
Part I - Financial Information
Item 1.
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
<S> <C> <C>
Assets
Cash and due from banks $ 8,939,268 8,385,901
Federal funds sold 110,000 645,000
------------- -------------
Cash and cash equivalents 9,049,268 9,030,901
Interest bearing deposits with other
financial institutions 0 0
Securities available for sale, at fair values,
(amortized values $44,802,339 and $53,735,446 respectively) 43,820,915 54,210,192
Investment securities held to maturity, at amortized cost, 15,890,653 17,045,566
(market values of $15,635,119 and $17,375,946 respectively)
Loans 129,800,780 104,624,631
Less: Unearned income 28,498 106,471
Allowance for loan losses 1,617,149 1,428,492
------------- -------------
Net loans 128,155,133 103,089,668
Premises and equipment, net 4,586,910 2,894,882
Interest receivable and other assets 2,969,996 2,922,032
------------- -------------
Total assets $ 204,472,875 189,193,241
============= =============
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing $ 27,585,016 26,953,055
Interest bearing 135,290,661 125,873,484
------------- -------------
Total deposits 162,875,677 152,826,539
Securities sold under agreements to repurchase 9,813,004 11,810,188
Other borrowed funds 14,382,494 6,447,356
Accrued expenses and other liabilities 912,570 2,061,183
------------- -------------
Total liabilities 187,983,745 173,145,266
Stockholders' equity:
Class A common stock. Authorized 5,000,000
shares of $.01 par value; 1,100,875 and 1,096,320
respectively shares issued and outstanding. 11,009 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 3,669,393 3,471,037
Net unrealized loss on investments
available for sale (588,853) 284,877
Retained earnings 13,863,171 12,746,688
------------- -------------
16,954,720 16,513,565
Less 63,550 treasury shares, at cost 465,590 465,590
------------- -------------
Total stockholders' equity 16,489,130 16,047,975
------------- -------------
Total liabilities and stockholders' equity $ 204,472,875 189,193,241
============= =============
</TABLE>
3
<PAGE> 4
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 3,039,794 2,380,784 8,619,229 6,980,329
Interest on investment securities available for sale:
Taxable 501,658 723,613 1,644,264 2,059,904
Nontaxable 130,775 78,678 363,745 227,643
Interest on investment securities held to maturity:
Taxable 85,912 161,060 263,090 561,605
Nontaxable 129,681 128,819 399,463 390,749
----------- ----------- ----------- -----------
Total investment income 848,026 1,092,170 2,670,562 3,239,901
Other interest income 29,110 125,926 114,656 297,074
----------- ----------- ----------- -----------
Total interest income 3,916,930 3,598,880 11,404,447 10,517,304
Interest expense:
Interest on deposits 1,475,976 1,561,542 4,316,547 4,500,882
Interest on other borrowed funds 289,692 199,145 793,631 565,814
----------- ----------- ----------- -----------
Total interest expense 1,765,668 1,760,687 5,110,178 5,066,696
Net interest income 2,151,262 1,838,193 6,294,269 5,450,608
Provision for loan losses 99,000 60,000 397,000 180,000
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 2,052,262 1,778,193 5,897,269 5,270,608
Noninterest income:
Service charge on deposits 287,184 247,863 816,098 735,644
Commission on credit life 11,579 13,225 38,016 33,850
Investment securities gains and losses, net -- 65,355 31,907 65,355
Other 64,004 75,785 228,697 229,827
----------- ----------- ----------- -----------
Total noninterest income 362,767 402,228 1,114,718 1,064,676
Noninterest expense:
Salaries and benefits 996,246 908,908 2,976,239 2,552,233
Net occupancy expense 256,561 217,401 726,585 654,086
Other 505,052 447,908 1,512,869 1,365,254
----------- ----------- ----------- -----------
Total non-interest expense 1,712,859 1,574,217 5,170,693 4,571,573
Earnings before income tax expense 657,170 606,204 1,796,294 1,763,711
Income tax expense 177,145 157,664 460,960 477,922
----------- ----------- ----------- -----------
Net earnings $ 516,025 448,540 1,371,334 1,285,789
=========== =========== =========== ===========
Basic earnings per share (Note 3) $ 0.46 $ 0.43 $ 1.29 $ 1.24
Diluted earnings per share (Note 3) $ 0.46 $ 0.43 $ 1.28 $ 1.24
Basic weighted average shares outstanding (Note 6) 1,034,084 1,032,770 1,033,342 1,032,770
=========== =========== =========== ===========
Diluted weighted average shares outstanding (Note 6) 1,049,151 1,032,770 1,041,608 1,032,770
=========== =========== =========== ===========
Statement of Comprehensive Income
Net Income $ 480,025 448,540 1,335,334 1,285,789
Other comprehensive income, net of tax:
Unrealized holding gains (losses) arising during the period (167,291) 265,868 (873,730) 256,965
Less: Reclassification adjustment for gains (losses)
included in net income -- 39,213 19,144 39,213
----------- ----------- ----------- -----------
Comprehensive income $ 312,734 675,195 442,460 1,503,541
=========== =========== =========== ===========
</TABLE>
4
<PAGE> 5
UNITED BANCORPORATION OF ALABAMA INC.
AND SUBSIDIARY
CONSOLIDATED
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30
1999 1998
<S> <C> <C>
Operating Activities
Net Income $ 1,371,334 1,285,789
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Provision for Loan Losses 397,000 180,000
Depreciation on Premises and Equipment 269,073 227,775
Amortization of Investment Securities held to maturity 40,315 48,355
Amortization of Investment Securities Available for Sale 154,825 150,723
(Gain) Loss on Sale of Investment Securities held to maturity -- --
(Gain) Loss on Sale of Investment Securities Available for Sale (31,907) (65,355)
(Gain) Loss on Sale of Other Real Estate -- (3,500)
(Gain)Loss on Disposal of Premises and Equipment (4,300)
(Increase) Decrease in Interest Receivable
and Other Assets (47,964) (306,706)
Increase (Decrease) in Deferred Income Taxes --
Decrease in Accrued Expenses
and Other Liabilities (566,143) (1,228,565)
Earned compensation - stock option plan 150,040 --
------------ ------------
Net Cash Provided (Used) by Operating Activities 1,696,273 288,516
Investing Activities
Proceeds From Interest-bearing Deposits in --
Other Financial Institutions -- 100,920
Proceeds From Sales of Investment Securities Available for Sale 7,499,650 3,087,911
Proceeds From Maturities of Investment Securities held to maturity 1,114,598 6,383,989
Proceeds From Maturities of Investment Securities Available for Sale 10,430,035 25,187,160
Purchases of Investment Securities held to maturity -- (1,540,895)
Purchases of Investment Securities Available for Sale (9,119,497) (46,743,721)
Net Increase in Loans (25,462,465) (6,357,323)
Purchases of Premises and Equipment (1,961,101) (650,791)
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 -- 42,200
------------ ------------
Net Cash Used by Investing Activities (17,494,480) (20,639,063)
------------ ------------
Financing Activities
Net Increase in Deposits, 10,049,138 14,434,467
Net Increase in securities sold under
agreement to repurchase (1,997,184) 1,090,437
Cash Dividends (258,394) (258,192)
Proceeds from Sale of Common Stock Class A 87,876 --
Increase in Other Borrowed Funds 7,935,138 3,837,421
------------ ------------
Net Cash Provided by Financing Activities 15,816,574 19,104,133
------------ ------------
Decrease in Cash and Cash Equivalents 18,367 (1,246,414)
Cash and Cash Equivalents at Beginning of Period 9,030,901 11,175,030
------------ ------------
Cash and Cash Equivalents at End of Period 9,049,268 9,928,616
============ ============
Supplemental disclosures
Cash paid during the year for:
Interest 4,622,628 5,283,904
============ ============
Income Taxes 468,543 349,500
============ ============
</TABLE>
5
<PAGE> 6
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
In June, 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS 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. 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 SFAS 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
6
<PAGE> 7
shares. All share and per share data has been restated to reflect the stock
split. The increase in authorized stock was approved by the stockholders of the
Corporation at the Annual Meeting of Stockholders held on May 5, 1999.
Note 4 - Stock Options
The 1998 Stock Option Plan of United Bancorporation of Alabama, became
effective after a favorable vote of the Stockholders at the Annual Meeting on
May 5, 1999. All employees (as defined by the Plan) of the Company are eligible
to receive options under the plan. The following summary sets forth activity
under the plan:
<TABLE>
<CAPTION>
1999
------------------------------
Weighted
Average
Exercise
Price
<S> <C> <C>
Outstanding, beginning of the year -- $ --
Granted 44,480 16.00
Exercised 2,055 16.00
Forfeited -- --
Outstanding, end of quarter 42,425
============
Weighted average fair value of options
Granted during the year $ 262,600
============
Exercisable, end of quarter 14,921
============
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related Interpretations in
accounting for its stock options rather than Financial Accounting Statement No.
123, Accounting for Stock-Based Compensation. Under APB 25 compensation expense
is recognized ratably over the vesting period at the excess of market price over
the exercise price as of the grant date. The options vest over a period of four
to five years, depending on the specific options. For disclosure purposes, the
compensation expense related to these options has been allocated over the
vesting period.
Note 5 - Private Placement
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 shares
are sold, the net proceeds of the offering would be approximately $3,287,500.
There can be no assurance, however, as to the number of shares which might be
sold in such offering,
7
<PAGE> 8
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 September 30, 1999
and 1998.
<TABLE>
<CAPTION>
Three months Nine months
Diluted earnings per share: Ended September 30, Ended September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 1,034,084 1,032,770 1,033,342 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 15,067 -- 8,266 --
Total weighted average common shares and potential
common stock outstanding 1,049,151 1,032,770 1,041,608 1,032,770
</TABLE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
The following financial review is presented to provide a comparative 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, 1999, and 1998. This review should be used in conjunction with
the consolidated financial statements included in the Form 10-Q.
8
<PAGE> 9
Net income after taxes for the nine months ended September 30, 1999, was
$1,335,334, an increase of $49,545, or 3.85%, as compared to $1,285,789 for the
same period in 1998. Basic earnings per share increased to $1.29 for the nine
months ended September 30, 1999 as compared to $1.24 in 1998.
Net interest income through the nine months increased to $6,294,269. The net
interest margin was 4.46% for the first nine months of 1999 as compared to
4.27% for the same period in 1998. The increase in net interest income was the
product of higher volume of interest earning assets offset by a slight decrease
in the average rate earned.
Total interest income increased $887,143, or 8.44%, to $11,404,447 in 1999 from
$10,517,304 in 1998. Average interest-earning assets were $188,149,101 for the
first nine months 1999, as compared to $171,314,985 for the same period in
1998, an increase of $16,834,116, or 9.83 %. The average rate earned in 1999 on
earning assets was 8.10% as compared to 8.22% in 1998. The decrease in average
rate earned on earning assets was due to the decrease in the yields in the
investment portfolio and the loan portfolio.
Total interest expense increased by $43,482 in 1999 to $5,110,178 from
$5,066,696 in 1998. Average interest-bearing liabilities increased to
$155,425,164 in 1999 from $140,128,084 in 1998, an increase of $15,297,080, or
10.92%. The average rate paid fell to 4.40% in 1999, from 4.83% in 1998. This
decrease is attributed to the decrease in rate in transaction accounts, savings
accounts and money market rates. The overall rate paid on certificates of
deposits has risen from 5.46% to 5.65%.
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%), 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.
9
<PAGE> 10
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.
The provision for loan losses increased to $397,000 for the first nine months
of 1999 as compared to $180,000 for the same period in 1998. Net charged-off
loans for the first nine months of 1999 were $208,342, as compared to $218,195
for the same period in 1998. Charge-offs are a concern of management, but, in
management's opinion, do not represent a deterioration of the overall quality
of the loan portfolio.
The allowance for possible loan losses represents 1.25% of gross loans
(excluding bankers acceptances and commercial paper) at September 30, 1999, as
compared to 1.37% at year-end 1998. Loans on which the accrual of interest had
been discontinued amounted to $430,998 at September 30, 1999, as compared to
$420,192 at December 31, 1998. Management believes that the allowance for loan
losses is appropriate considering the current position of the portfolio and
management's assessment of the underlying risk
Total noninterest income increased to $1,114,718 for the first nine months of
1999, as compared to $1,064,676 for the same period in 1998, an increase of
$50,042, or 4.70%. Investment security gains were $31,907 for the first nine
months of 1999, as compared to losses of $65,355 in 1998. Service charges on
deposits increased $80,454 or 10.94% to $816,098 in 1999 from $735,644 in 1998.
Commissions on credit life increased to $38,016 in 1999 from $33,850 in 1998,
an increase of $4,166, or 12.31%. Other income decreased during the first nine
months of 1999 to $228,697 from $229,827 in 1998, a decrease of $1,130, or
.49%.
Total noninterest expense increased $644,120, or 14.09%, to $5,215,693 during
the first nine months of 1999, as compared to $4,571,573 for the same period in
1998. Salaries and benefits increased to $2,976,239 in 1999 from $2,552,233 in
1998, an increase of $424,006, or 16.61%. This increase is due to the opening
of a new branch, and the staffing of a branch to open in the middle of
December, and the expense of $150,040 associated with the stock options.
Occupancy expense increased $72,499 or 11.08% to $726,585 in 1999 from $654,086
in 1998, primarily because of the new branches. Other expense increased to
$1,512,869 during the first nine months of 1999 from $1,365,254 for the same
period in 1998, an increase of
10
<PAGE> 11
$147,615, or 10.81%. Legal fees decreased by $20,141, or 68.77%, to $53,183 for
the first nine months in 1999 from $73,324 in 1998. Data processing fees have
decreased $8,496 or 4.41% in the past nine months. The remainder of the
increases are related to the expansion into Baldwin County.
Earnings before taxes for the first nine months of 1999 increased $32,583, or
1.85%, to $1,796,294 from $1,763,711 for the same period in 1998. Income taxes
decreased $16,962 or 3.55%, 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 25.66% from 27.09%. Net income after taxes increased
$85,545 or 6.65% from $1,285,789 in 1998 to $1,335,334 in 1999.
Three Months Ended September 30, 1999, and 1998, Compared
Net earnings for the three months ended September 30, 1999 was $480,025, an
increase of $31,485, or 7.02% from $448,540, for the same period last year.
Basic earnings per share increased to $.46 for the third quarter of 1999, from
$.43 for the same period in 1998.
Total interest income increased $318,050 or 8.84% to $3,916,930 for the third
quarter of 1999, as compared to $3,598,880 for the same period in 1998.
Interest and fees on loans increased $659,010, or 27.68%, to $3,039,794 in
1999, from $2,380,784 in 1998. The average rate earned on interest earning
assets during the third quarter of 1999 was 8.08%, as compared to 8.23% for the
same period in 1998. The decrease is related to the growth in the commercial
real estate loans of the bank, these loans are highly competitive and at times
require lower rates. Average interest earning assets increased to $191,847,407
in 1999, from $177,357,271 in 1998, an increase of $14,490,136, or 8.17%.
Total interest expense increased by $4,981 or .28% from $1,760,687 in 1998 to
$1,765,668. Average interest bearing liabilities for the third quarter of 1999
were $158,566,606, as compared to $146,896,597 for the same period in 1998, an
increase of $11,670,009 or 7.94%. This increase can be attributed to the growth
in deposits in the Baldwin County markets.
Net interest margin increased to 4.43% from 4.11% in the previous third
quarter.
The provision for loan losses increased to $99,000 for the third quarter of
1999 as compared to $60,000 for the same period in 1998, primarily due to the
overall growth in the loan portfolio. Net charged-off loans for the third
quarter of 1999 were $87,749, as compared to $71,800 for the same period in
1998.
11
<PAGE> 12
Total noninterest income decreased to $362,767 for the third quarter of 1999 as
compared to $402,228 in 1998, a decrease of $39,461, or 9.81%. Service charges
on deposits increased $39,321, or 15.86%, to $287,184 in 1999, from $247,863 in
1998. There were no investment securities gain and losses during the third
quarter of 1999 compared to gains of $65,355 in the third quarter of 1998.
Commissions on credit life insurance decreased to $11,579 in 1999 from $13,225
in 1998. Other income decreased during the third quarter of 1999 to $64,004
from $75,785 in 1998, a decrease of $11,781, or 15.54% as a result of losses on
repossessed collateral.
Total noninterest expense increased $138,642, or 8.81%, to $1,712,859 during the
third quarter of 1999, as compared to $1,574,217 for the same period in 1998.
Salaries and benefits increased to $996,246 in 1999, from $908,908 in 1998, an
increase of $87,338, or 9.61%. Occupancy expense increased $39,160, or 18.01%,
to $256,561 in 1999 from $217,401 in 1998. Other expense increased to $505,052
during the third quarter of 1999, as compared to $447,908 for the same period in
1998, an increase of $57,144, or 12.76%.
Earnings before taxes for the third quarter of 1999 increased by $50,966 or
8.41% to $657,170 from $606,204 for the same period in 1998. Accordingly, income
tax expense increased by $19,481 or 12.35% to $177,145 for the three months
ended September 30, 1999 from $157,664 for the same period ended 1998. The
effective tax rate for the third quarter of 1999 was 26.51% compared to 26.01%
for the same period in 1998.
Financial Condition and Liquidity
Total assets on September 30, 1999, were $204,472,875, as compared to
$189,193,241 on December 31, 1998, an increase of $15,279,634, or 8.08%.
Average total assets for the first nine months of 1999 were $188,149,101. The
loan portfolio growth was funded largely by new deposits, and advances from
Federal Home Loan Bank.. Net loans increased to $128,155,133 at September 30,
1999, from $103,089,668 at year end 1998, an increase of $25,065,465, or
24.31%. The loan to deposit ratio (net loans) on September 30, 1999, excluding
bankers acceptances and commercial paper, was 79.69%, as compared to 68.46% on
December 31, 1998.
Federal funds sold decreased to $110,000 on September 30, 1999, as compared to
$645,000 on December 31, 1998, a decrease of $535,000. Investment securities
held to maturity decreased to $15,890,653 at September 30, 1999 as compared to
$17,045,566 at year end. The investment securities available for sale decreased
to $43,820,915 from $54,210,192 at December 31, 1998.
12
<PAGE> 13
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 shares
are sold, the net proceeds of the offering would be approximately $3,287,500.
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. The Company has currently sold 2,500
shares at a price of $22.00.
Non-performing Assets: The following table sets forth the Corporation's
non-performing assets at September 30, 1999 and December 31, 1998. 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>
September 30 December 31
Description 1999 1998
(Dollars in Thousands)
<S> <C> <C>
(A) Loans accounted for on
a nonaccrual basis $430 $420
(B) Loans which are contractually
past due ninety days or more as to
interest or principal payments
(excluding balances included in
(A) above). 16 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. 160 41
(D) Other non-performing assets 196 248
</TABLE>
At September 30, 1999, loans with a total outstanding balance of $6,123,535
were considered potential problem loans. Potential problem loans consist of
those loans for which management has serious doubts as to the borrower's
ability to comply with present loan repayment terms.
13
<PAGE> 14
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 September 30, 1999. 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.
Total deposits increased $10,049,138, or 6.58%, to $162,875,677 on September
30, 1999, from $152,826,539 at year-end 1998. Noninterest bearing deposits
increased to $27,585,016 at September 30, 1999, from $26,953,055 at year-end
1998, an increase of $631,961, or 2.34%. Interest bearing deposits increased
$9,417,177, or 7.48%, to $135,290,661 on September 30, 1999, from $125,873,484
at December 31, 1998. This increase is associated with the expansion into the
Baldwin County markets.
The Corporation relies primarily on internally generated capital growth to
maintain capital adequacy. Total stockholders' equity on September 30, 1999, was
$16,489,130 an increase of $441,155, or 2.69%, from $16,047,975 at year end
1998.
Primary capital to total assets at September 30, 1999, was 8.06%, as compared
to 8.48% at year end 1998. Total capital and allowances for loan losses to
total assets at September 30, 1999 were 8.85%, as compared to 9.24% at December
31, 1998. The Corporation's bank subsidiary, United Bank, had risk based
capital of $17,914,000, or 13.21%, at September 30, 1999, as compared to
$16,557,000, or 14.85% at year end 1998. United Bank had excess risk based
capital of 5.21% at September 30, 1999, and 6.85% at December 31, 1998, based
upon the minimum requirement of 8.00%. Based on management's projection,
internally generated capital should be sufficient to satisfy capital
requirements in the foreseeable future, for existing operations, however, the
continued growth into new markets may require the Bank to access external
funding sources.
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
14
<PAGE> 15
Year 2000 issues. The status of the Bank's initiative as of September 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 internal systems and third
party service providers appear to be Year 2000 ready.
RENOVATION PHASE-As of September 30, 1999, the renovation of all
mission critical systems, was essentially complete.
VALIDATION-All mission critical systems have been tested and are
considered Year 2000 ready.
IMPLEMENTATION-Replacement of non-compliant mission critical systems
is complete. Results from testing, all of which has been completed,
have been thoroughly reviewed and any necessary remedial actions have
been taken.
Through September 30, 1999, the Bank has incurred approximately $35,000 in
conjunction with its Year 2000 efforts. Additional expenditures are expected to
approximate $15,000. 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.
Management is continually monitoring Year 2000 issues; however, no definite
assurance can be made that the Year 2000 issues will not have a material effect
on the operations of the Company.
Item 3. 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
15
<PAGE> 16
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 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
of maintaining 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 September 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.
16
<PAGE> 17
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
CHANGE IN CHANGE IN CHANGE IN
- ------------------------------------------------------------------------------------------------
INTEREST RATES MARKET VALUE MARKET VALUE MARKET VALUE
- ------------------------------------------------------------------------------------------------
(BASIS POINTS) EQUITY EQUITY EQUITY %
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
400 8,155.9 (5,830.8) (41.7)
- ------------------------------------------------------------------------------------------------
300 9,501.6 (4,485.1) (32.1)
- ------------------------------------------------------------------------------------------------
200 11,051.0 (2,935.7) (21.0)
- ------------------------------------------------------------------------------------------------
100 12,405.8 (1,580.8) (11.3)
- ------------------------------------------------------------------------------------------------
0 13,986.70 0 0
- ------------------------------------------------------------------------------------------------
(100) 15,672.4 1,685.7 12.1
- ------------------------------------------------------------------------------------------------
(200) 17,480.9 3,494.2 25.0
- ------------------------------------------------------------------------------------------------
(300) 19,434.3 5,447.7 38.9
- ------------------------------------------------------------------------------------------------
(400) 21,559.2 7,572.5 54.1
- ------------------------------------------------------------------------------------------------
</TABLE>
The preceding table indicates that at September 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 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.
17
<PAGE> 18
Part II - Other Information
Item 2. Changes in Securities
(c) On September 29, 1999, the Company issued 2,500 shares of
its Class A Common Stock to one accredited investor for aggregate cash
consideration of $53,000 in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933
and Regulation D promulgated thereunder.
Item 6. Exhibits and Reports on Form 8-K.
(A) See Exhibit Index
(B) During the quarter ended September 30, 1999, the Corporation
did not file a Form 8-K Current Report with the Securities
and Exchange Commission.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED BANCORPORATION OF ALABAMA, INC.
Date: November 12, 1999 /s/ Mitch Staples
----------------------------------
Mitch Staples
Chief Financial Officer
18
<PAGE> 19
EXHIBIT INDEX
<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 PERIOD 9-30-99 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,939,268
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 110,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 43,820,915
<INVESTMENTS-CARRYING> 15,890,653
<INVESTMENTS-MARKET> 15,635,119
<LOANS> 129,800,780
<ALLOWANCE> 1,617,149
<TOTAL-ASSETS> 204,472,875
<DEPOSITS> 162,875,677
<SHORT-TERM> 4,315,000
<LIABILITIES-OTHER> 912,570
<LONG-TERM> 10,067,494
0
0
<COMMON> 11,009
<OTHER-SE> 16,469,121
<TOTAL-LIABILITIES-AND-EQUITY> 204,472,875
<INTEREST-LOAN> 8,619,229
<INTEREST-INVEST> 2,670,562
<INTEREST-OTHER> 114,656
<INTEREST-TOTAL> 11,404,447
<INTEREST-DEPOSIT> 4,316,547
<INTEREST-EXPENSE> 5,110,178
<INTEREST-INCOME-NET> 6,294,269
<LOAN-LOSSES> 397,000
<SECURITIES-GAINS> 31,907
<EXPENSE-OTHER> 5,170,693
<INCOME-PRETAX> 1,841,294
<INCOME-PRE-EXTRAORDINARY> 1,841,294
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,335,334
<EPS-BASIC> 1.29
<EPS-DILUTED> 1.28
<YIELD-ACTUAL> 8.10
<LOANS-NON> 430,998
<LOANS-PAST> 16,000
<LOANS-TROUBLED> 160,000
<LOANS-PROBLEM> 6,123,535
<ALLOWANCE-OPEN> 1,428,492
<CHARGE-OFFS> 253,093
<RECOVERIES> 44,751
<ALLOWANCE-CLOSE> 1,617,149
<ALLOWANCE-DOMESTIC> 1,617,149
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 845,813
</TABLE>
