<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File No. 2-78572
December 31, 1999
UNITED BANCORPORATION OF ALABAMA, INC.
----------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 63-0833573
- ---------------------------- ---------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
P.O. Drawer 8, Atmore, Alabama 36504
----------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (334) 368-2525
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, Par Value $.01 Per Share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of voting stock held by nonaffiliates as of March 20,
2000 was $27,261,390 based upon the price at which the stock was sold on that
date and using beneficial ownership of stock rules adopted pursuant to Section
13 of the Securities Exchange Act of 1934 to exclude voting stock owned by
directors and executive officers, some of whom might not be held to be
affiliates upon judicial determination.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Common Stock Par Value Outstanding at March 20, 2000
- ------------ --------- -----------------------------
<S> <C> <C>
Class A.......... $.01 1,090,531 Shares*
Class B.......... $.01 0 Shares
</TABLE>
*Excludes 63,550 shares held as treasury stock.
<PAGE> 2
PART I
ITEM 1. BUSINESS
United Bancorporation of Alabama, Inc. (the "Corporation") is a one-bank holding
company with headquarters in Atmore, Alabama. The Corporation was incorporated
under the laws of Delaware on March 8, 1982 for the purpose of acquiring all of
the issued and outstanding capital stock of The Bank of Atmore, Atmore, Alabama
("Atmore") and Peoples Bank, Frisco City, Alabama ("Peoples"). Atmore was merged
into United Bank of Atmore, a wholly-owned subsidiary of the Corporation, and
Peoples was merged into United Bank of Frisco City ("Frisco City"), also a
wholly-owned subsidiary of the Corporation, later in 1982. Effective March 30,
1984, Frisco City merged into United Bank of Atmore, which had previously
changed its name to simply "United Bank."
The Corporation and its subsidiary, United Bank (herein "United Bank" or the
"Bank"), are in one business segment, commercial banking. United Bank
contributes substantially all of the total operating revenues and consolidated
assets of the Corporation. The Bank serves its customers from seven full service
banking offices located in Atmore, Frisco City, Monroeville, Flomaton, Foley,
Lillian, and Bay Minette, Alabama, and it has a drive up facility in Atmore.
United Bank offers a broad range of banking services. Services to business
customers include providing checking and time deposit accounts and various types
of lending services. Services provided to individual customers include checking
accounts, NOW accounts, money market deposit accounts, statement savings
accounts, repurchase agreements and various other time deposit savings programs
and loans, including business, personal, automobile, home and home improvement
loans. United Bank offers securities brokerage services, Visa and Master Card,
multi-purpose, nationally recognized credit card services, and trust services
through Morgan Trust of Chattanooga, Tennessee.
Competition - The commercial banking business is highly competitive and United
Bank competes actively with state and national banks, savings and loan
associations, insurance companies, brokerage houses, and credit unions in its
market areas for deposits and loans. In addition, United Bank competes with
other financial institutions, including personal loan companies, leasing
companies, finance companies and certain governmental agencies, all of which
engage in marketing various types of loans and other services. The regulatory
environment affects competition in the bank business as well.
Employees - The Corporation and its subsidiary had approximately 114 full-time
equivalent officers and employees at December 31, 1999. All of the employees are
engaged in the operations of United Bank, or the Corporation. The Corporation
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<PAGE> 3
considers its employee relations good, and has not experienced and does not
anticipate any work stoppage attributable to labor disputes.
Supervision, Regulation and Government Policy - Bank holding companies, banks
and many of their nonbank affiliates are extensively regulated under both
federal and state law. The following brief summary of certain statutes, rules
and regulations affecting the Corporation and the Bank is qualified in its
entirety by reference to the particular statutory and regulatory provisions
referred to below, and is not intended to be an exhaustive description of the
statutes or regulations applicable to the Corporation's business. Any change in
applicable law or regulations could have a material effect on the business of
the Corporation and its subsidiary. Supervision, regulation and examination of
banks by bank regulatory agencies are intended primarily for the protection of
depositors rather than holders of Corporation common stock.
The Corporation is registered as a bank holding company with the Board of
Governors of the Federal Reserve System (the "Federal Reserve") under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). As such, the
Corporation is subject to the supervision, examination, and reporting
requirements in the BHC Act and the regulations of the Federal Reserve.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before it may acquire substantially all of the
assets of any bank or control of any voting shares of any bank, if, after such
acquisition, it would own or control, directly or indirectly, more than 5% of
the voting shares of such bank. The BHC Act requires the Federal Reserve to
consider, among other things, anticompetitive effects, financial and managerial
resources and community needs in reviewing such a transaction. Under the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, enacted in
September 1994, bank holding companies were permitted to acquire banks located
in any state without regard to whether the transaction is prohibited under any
state law (except that states may establish a minimum age of not more than five
years for local banks subject to interstate acquisitions by out-of-state bank
holding companies), and interstate branching was permitted beginning June 1,
1997 in certain circumstances.
With the prior approval of the Superintendent of the Alabama State
Department of Banking ("Superintendent") and their primary federal regulators,
state banks are entitled to expand by branching within Alabama.
The Corporation is a legal entity separate and distinct from the Bank.
Various legal limitations restrict the Bank from lending or otherwise supplying
funds to the Corporation.
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Such transactions, including extensions of credit, sales of securities or assets
and provision of services, also must be on terms and conditions consistent with
safe and sound banking practices, including credit standards, that are
substantially the same or at least as favorable to the Bank as prevailing at the
time for transactions with unaffiliated companies. Also, as a subsidiary of a
bank holding company, the Bank is generally prohibited from conditioning the
extension of credit or other services, or conditioning the lease or sale of
property, on the customer's agreement to obtain or furnish some additional
credit, property or service from or to such subsidiary or an affiliate.
The Bank is a state bank, subject to state banking laws and regulation,
supervision and regular examination by the Alabama State Department of Banking
(the "Department"), and as a member of the Bank Insurance Fund ("BIF") of the
Federal Deposit Insurance Corporation (the "FDIC"), is also subject to FDIC
regulation and examination. The Bank is not a member of the Federal Reserve
System. Areas subject to federal and state regulation include dividend payments,
reserves, investments, loans, interest rates, mergers and acquisitions, issuance
of securities, borrowings, establishment of branches and other aspects of
operation, including compliance with truth-in-lending and usury laws, and
regulators have the right to prevent the development or continuance of unsafe or
unsound banking practices (regardless of whether the practice is specifically
prescribed or other violations of law.
Dividends from United Bank constitute the major source of funds for the
Corporation. United Bank is subject to state law restrictions on its ability to
pay dividends, including the general restrictions that dividends in excess of
90% of United Bank's net earnings,(as defined by statue) may not be declared or
paid unless United Bank's surplus is at least equal to 20% of its capital, and
that the prior written approval of the Superintendent is required if the total
of all dividends declared in any calendar year exceeds the total of United
Bank's net earnings of that year combined with its retained net earnings of the
preceding two years, less any required transfers to surplus. United Bank is
subject to restrictions under Alabama law which also prohibit any dividends from
being made from surplus without the Superintendent's prior written approval.
Federal bank regulatory agencies also have the general authority to limit the
dividends paid by insured banks and bank holding companies if such payment is
deemed to constitute an unsafe and unsound practice. Federal law provides that
no dividends may be paid which would render the Bank undercapitalized. United
Bank's ability to make funds available to the Corporation also is subject to
restrictions imposed by federal law on the ability of a bank to extend credit to
its parent company, to purchase the assets thereof, to issue a guarantee,
acceptance or letter of credit on behalf thereof or to invest in the stock or
securities thereof or to take such stock or securities as collateral for loans
to any borrower.
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<PAGE> 5
The Bank is also subject to the requirements of the Community Reinvestment
Act of 1977 ("CRA"). The CRA and the regulations implementing the CRA are
intended to encourage regulated financial institutions to help meet the credit
needs of their local community, including low and moderate-income neighborhoods,
consistent with the safe and sound operation of financial institutions. The
regulatory agency's assessment of the Bank's CRA record is made available to the
public.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") recapitalized the BIF and included numerous substantially revised
statutory provisions. FDICIA established five capital tiers for insured
depository institutions: "well capitalized", "adequately capitalized",
"undercapitalized", "significantly undercapitalized", and "critically
undercapitalized", as defined by regulations adopted by the Federal Reserve, the
FDIC and other federal depository institution regulatory agencies. At December
31, 1999, the Bank was "well capitalized", and was not subject to restrictions
imposed for failure to satisfy applicable capital requirements. BIF premiums for
each member financial institution depend upon the risk assessment classification
assigned to the institution by the FDIC.
Banking is a business that depends on interest rate differentials. In
general, the difference between the interest rate paid by a bank on its deposits
and other borrowings and the interest rate received by the bank on its loans and
securities holdings constitutes the major portion of the bank's earnings. As a
result, the earnings and business of the Corporation are and will be affected by
economic conditions generally, both domestic and foreign, and also by the
policies of various regulatory authorities having jurisdiction over the
Corporation and the Bank, especially the Federal Reserve. The Federal Reserve,
among other functions, regulates the supply of credit and deals with general
economic conditions within the United States. The instruments of monetary policy
employed by the Federal Reserve for those purposes influence in various ways the
overall level of investments, loans and other extensions of credit and deposits
and the interest rates paid on liabilities and received on assets.
The enactment of the Gramm-Leach-Bliley Financial Services Modernization
Act (the"GLB Act") on November 12, 1999 represented a potentially important
development in the powers of banks and their competitors in the financial
services industry by removing many of the barriers between commercial banking,
investment banking, securities brokerages and insurance. Inter-affiliation of
many of these formerly separated businesses is expected by many commentators.
The GLB Act also provides a federal right to financial privacy for certain of
individual customers' information. The impact
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<PAGE> 6
of the passage of the GLB Act on the Corporation and its subsidiary is difficult
to determine at this time, but may included increased competitive pressure. The
Corporation and its subsidiary have not yet undertaken any actions to avail
themselves of any of the advantages provided by the GLB Act.
Selected Statistical Information - The following tables set forth certain
selected statistical information concerning the business and operations of the
Corporation and its wholly-owned subsidiary, United Bank, as of December 31,
1999 and 1998. Averages referred to in the following statistical information are
generally average daily balances.
AVERAGE CONSOLIDATED BALANCE SHEETS
1999 and 1998
AVERAGES
(Dollars In Thousands)
<TABLE>
<CAPTION>
Assets 1999 1998
--------- ---------
<S> <C> <C>
Cash and due from banks $ 8,550 $ 7,077
Interest-bearing deposits with
other financial institutions 0 51
Federal funds sold and repurchase
agreements 3,554 4,992
Taxable Securities available for sale 36,673 47,557
Tax-exempt Securities available for sale 10,369 6,381
Taxable investment securities held to
maturity 5,473 10,526
Tax-exempt investment securities held
to maturity 10,730 10,356
Loans, net 120,323 90,419
Premises and equipment, net 4,027 2,332
Interest receivable and other assets 2,034 2,120
--------- ---------
Total assets $ 201,733 181,811
========= =========
Liabilities and Stockholders' Equity
Demand deposits - noninterest-bearing $ 27,215 22,896
Demand deposits - interest-bearing 35,631 30,984
Savings Deposits 16,086 16,140
Time Deposits 83,272 79,966
Other borrowed funds 10,233 4,561
Repurchase agreements 11,833 10,468
Accrued expenses and other liabilities 1,181 1,645
--------- ---------
Total liabilities 185,451 166,660
--------- ---------
Stockholders' equity:
Common Stock 11 11
Surplus 4,137 3,471
Retained earnings 12,600 12,135
Less shares held in treasury,
At cost (466) (466)
--------- ---------
Total stockholders' equity 16,282 15,151
--------- ---------
Total liabilities and
stockholders' equity $ 201,733 181,811
========= =========
</TABLE>
6
<PAGE> 7
Analysis of Net Interest Earnings: The following table sets forth interest
earned and the average yield on the major categories of the Corporation's
interest-earning assets and interest-bearing liabilities(Dollars in Thousands).
<TABLE>
<CAPTION>
Average
Interest Rates
Average Income/ Earned/
1999 Balance Expense Paid
----
<S> <C> <C> <C>
Loans, net (1) $120,323 11,594 9.64%
Taxable securities Available for Sale 36,673 2,144 5.85
Tax Exempt sec. available for Sale (2) 10,369 753 7.26
Taxable Securities Held to Maturity 5,473 342 6.25
Tax Exempt Held to Maturity (2) 10,730 797 7.43
Federal funds sold and repurchase
agreements 3,554 235 6.61
-------- -------- --------
Total interest-earning assets $187,122 15,865 8.48%
======== ======== ========
Savings deposits and demand
deposits - interest-bearing $ 51,717 1,640 3.17%
Time deposits 83,272 4,238 5.09
Repurchase agreements 11,833 498 4.21
Other borrowed funds 10,233 559 5.46
-------- -------- --------
Total interest-bearing liabilities $157,055 6,935 4.42%
======== ======== ========
Net interest income/net yield
on interest-earning assets $ 8,930 4.77%
======== ========
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
Average
Interest Rates
1998 Average Income/ Earned/
---- Balance Expense Paid
<S> <C> <C> <C>
Loans, net (1) $ 90,419 9,468 10.47%
Taxable securities Available for Sale 47,557 2,844 5.98
Tax Exempt Available for Sale (2) 6,381 489 7.66
Taxable Securities Held to Maturity 10,526 677 6.43
Tax Exempt Held to Maturity (2) 10,356 789 7.62
Federal funds sold 4,992 278 5.57
Interest-earning deposits with 51 6 11.76
other financial institutions
-------- -------- --------
Total interest-earning assets $170,282 14,551 8.55%
======== ======== ========
Savings deposits and demand
deposits - interest-bearing $ 47,124 1,543 3.27%
Time deposits 79,966 4,384 5.48
Repurchase agreements 10,468 485 4.63
Other borrowed funds 4,561 285 6.25
-------- -------- --------
Total interest-bearing liabilities $142,119 6,697 4.71%
======== ======== ========
Net interest income/net yield
on interest-earning assets $ 7,854 4.61%
======== ========
</TABLE>
(1) Loans on nonaccrual status have been included in the computation of average
balances.
(2) Yields on tax-exempt obligations have been computed on a full federal
tax-equivalent basis using an income tax rate of 34% for 1999 and 1998.
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<PAGE> 9
Analysis of Changes in Interest Income and Interest Expense: The following is an
Analysis of the dollar amounts of changes in interest income and interest
expense due to changes in rates and volume for the periods indicated.
(Dollars in Thousands)
Average Balances
<TABLE>
<CAPTION>
Interest Income
Expense Variance As to
--------------- --------------
1999 1998 1999 1998 Variance Rate Volume
- ---- ---- ---- ---- -------- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
$120,323 90,419 Loans (Net) 11,594 9,468 2,126 (670) 2,796
36,673 47,557 Taxable Securities AFS(1) 2,144 2,844 (700) (61) (639)
10,369 6,381 Tax Exempt Securities AFS (2) 753 489 264 (24) 288
5,473 10,526 Taxable Securities HTM(3) 342 677 (335) (16) (319)
10,730 10,356 Tax Exempt HTM (2) 797 789 8 (15) 23
3,554 4,992 Fed Funds Sold 235 278 (43) 79 (122)
0 51 Interest Bearing Deposits 0 6 (6) (3) (3)
187,122 170,282 Total Interest Earning Assets 15,865 14,551 1,314 (710) 2,024
Savings and Interest Bearing
51,717 47,124 Demand Deposits 1,640 1,543 97 (44) 141
83,272 79,966 Other Time Deposits 4,238 4,384 (146) (348) 202
11,833 4,561 Other Borrowed Funds 559 285 274 (71) 345
10,233 10,468 Repurchase Agreements 498 485 13 15 (2)
157,055 142,119 Total Int Bearing Liabilities 6,935 6,697 238 (448) 686
</TABLE>
The variance of interest due to both rate and volume has been allocated
proportionately to the rate and the volume components based on the relationship
of the absolute dollar amounts of the change in each.
(1) Available for Sale (AFS)
(2) Yields on tax-exempt obligations have been computed on a full federal tax
equivalent basis using an income tax rate of 34% for 1999 and 1998.
(3) Held to Maturity (HTM)
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<PAGE> 10
Analysis of Changes in Interest Income and Interest Expense: The following is an
Analysis of the dollar amounts of changes in interest income and interest
expense due to changes in rates and volume for the periods indicated.
(Dollars in Thousands)
Average Balances
<TABLE>
<CAPTION>
Interest Income
Expense Variance As to
--------------- --------------
1998 1997 1998 1997 Variance Rate Volume
- ---- ---- ---- ---- -------- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
$90,419 79,023 Loans (Net) 9,468 8,340 1,128 (63) 1,191
47,557 33,694 Taxable Securities AFS(1) 2,844 2,116 728 (96) 824
6,381 4,503 Tax Exempt Securities AFS (2) 489 374 115 (27) 142
10,526 15,409 Taxable Securities HTM(3) 677 987 (310) (2) (308)
10,356 7,530 Tax Exempt HTM (2) 789 592 197 (18) 215
4,992 4,191 Fed Funds Sold 278 232 46 1 45
51 102 Interest Bearing Deposits 6 11 (5) 1 (6)
170,282 144,452 Total Interest Earning Assets 14,551 12,652 1,899 (204) 2,103
Savings and Interest Bearing
47,124 32,400 Demand Deposits 1,543 900 643 183 460
79,966 75,671 Other Time Deposits 4,384 4,112 272 102 170
4,561 1,822 Other Borrowed Funds 285 118 167 (4) 171
10,468 8,432 Repurchase Agreements 485 403 82 (12) 94
142,119 118,325 Total Int. Bearing Liabilities 6,697 5,533 1,164 269 895
</TABLE>
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<PAGE> 11
Investments - The investment policy of United Bank provides that funds that are
not otherwise needed to meet the loan demand of United Bank's market area can
best be invested to earn maximum return for the Bank, yet still maintain
sufficient liquidity to meet fluctuations in the Bank's loan demand and deposit
structure. Approximately 27% of the Bank's investments are in investment
securities held to maturity and 73% are securities available for sale. The
Bank's loan policy establishes the optimal loan to deposit ratio as being 75%.
This ratio as of December 31, 1999 was 67.51%. Growth in the loan portfolio is
driven by general economic conditions and the availability of loans meeting the
Bank's credit quality standards. Management intends that funding for this growth
will come from deposit growth, reallocation of maturing investments and advances
from the Federal Home Loan Bank (FHLB).
Securities Portfolio - The Bank's investment policy as approved by the Board of
Directors dictates approved types of securities and the conditions under which
they may be held. Attention is paid to the maturity and risks associated with
each investment. The distribution reflected in the tables below could vary with
economic conditions which could shorten or lengthen maturities. The Corporation
believes the level of risks inherent in the securities portfolio is low.
Investment Securities Held to Maturity
December 31, 1999 and 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
---------------------- -----------------------
Amortized Amortized
Cost % Cost %
<S> <C> <C> <C> <C>
U.S. Government Agencies 2,994 19.3 2,993 17.6
Mortgage Backed Securities 2,141 13.8 2,963 17.4
State and Municipal 10,410 66.9 11,089 65.0
------- ------- ------- -------
Total Amortized Cost $15,545 100.0% $17,045 100.0%
======= ======= ======= =======
</TABLE>
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<PAGE> 12
Maturity Distribution of Investment Securities Held to Maturity
The following table sets forth the distribution of maturities of investment
securities.
December 31, 1999 and 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998
------------------------ ------------------------
Amortized Weighted Amortized Weighted
Cost Avg Yld Cost Avg Yld
<S> <C> <C> <C> <C>
U.S. Government Agencies
Within one year $ 0 0.00% $ 0 0.00%
1 - 5 years 0 0.00 0 0.00
5 - 10 years 2,994 6.51 2,993 6.50
After 10 years 0 0 0 0.00
---------- ---------- ---------- ----------
$ 2,994 6.51% $ 2,993 6.50%
========== ========== ========== ==========
State & Municipal (1)
Within one year $ 375 7.80% $ 200 6.44%
1 - 5 years 1,644 8.19 1,457 7.80
5 - 10 years 3,728 7.29 3,426 7.53
After 10 years 4,663 8.31 6,006 8.12
---------- ---------- ---------- ----------
Total $ 10,410 7.91% $ 11,089 7.87%
========== ========== ========== ==========
Mortgage Backed
Securities
1 - 5 years $ 165 6.01% $ 253 6.04%
5 - 10 years 1,109 6.55 1,121 6.40
After 10 years 867 7.59 1,589 7.32
---------- ---------- ---------- ----------
Total $ 2,141 6.93% $ 2,963 6.86%
========== ========== ========== ==========
Total Yield 7.51% 7.45%
========== ==========
Total Amortized Cost $ 15,545 $ 17,045
========== ==========
</TABLE>
(1) Yields on tax-exempt obligations have been computed on a full federal
tax-equivalent basis using an income tax rate of 34% for 1999 and 1998.
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<PAGE> 13
Investment Securities Available for Sale
December 31, 1999 and 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998
---------------------- -----------------------
Amortized % Amortized %
Cost Cost
<S> <C> <C> <C> <C>
U.S. Treasury $ 8,592 19.4% $10,618 19.8%
U.S. Government Agencies 1,503 3.4 3,754 7.0
Mortgage Backed Securities 20,434 46.1 27,426 51.0
Collateralized Mortgage
Obligations 0 0 596 1.1
State and Municipal 12,617 28.5 9,668 18.0
Other 1,164 2.6 1,673 3.1
------- ------- ------- -------
Total $44,310 100.0% $53,735 100.0%
======= ======= ======= =======
</TABLE>
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<PAGE> 14
Maturity Distribution of Investment Securities Available for Sale
The following table sets forth the distribution of maturities of investment
securities available for sale.
December 31, 1999 and 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
Amortized Weighted Amortized Weighted
Cost Avg Yld Cost Avg Yld
<S> <C> <C> <C> <C>
U.S. Treasury Securities
Within one year $ 2,003 6.20% 2,509 5.80%
1 - 5 years 6,589 5.91 8,109 6.09
------- ------- ------- -------
$ 8,591 5.96 10,618 6.02
======= ======= ======= =======
U.S. Government Agencies
excluding Mortgage Backed
Securities
1 - 5 years 1,000 5.81 1,752 5.25
5 - 10 years 0 0.00 1,497 6.45
After 10 years 503 7.95 505 7.93
------- ------- ------- -------
Total $ 1,503 6.53% 3,754 6.09%
======= ======= ======= =======
Mortgage Backed Securities
Within one year $ 315 8.48% 92 7.00%
1 - 5 years 0 0.00 955 6.98
5 - 10 years 2,032 6.75 3,303 6.79
After 10 years 18,087 6.45 23,076 6.44
------- ------- ------- -------
Total $20,434 6.51% 27,426 6.50%
======= ======= ======= =======
Collateralized Mortgage
Obligations
After 10 years $ 0 0 596 4.64%
------- ------- ------- -------
Total $ 0 0% 596 4.64%
======= ======= ======= =======
State & Municipal (1)
Less than 1 year 65 7.20% 486 10.12
1 - 5 years 1,934 8.04 1,465 7.78
5 - 10 years 2,445 8.45 2,594 6.83
After 10 years 8,173 7.51 5,123 8.02
------- ------- ------- -------
Total $12,617 7.77% 9,668 7.75%
======= ======= ======= =======
</TABLE>
Continued on next page..
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<PAGE> 15
Continued from previous page
<TABLE>
<CAPTION>
1999 1998
------------------------ -----------------------
Amortized Weighted Amortized Weighted
Cost Avg Yld Cost Avg Yld
<S> <C> <C> <C> <C>
Other Securities
Less than 1 year $ 0 0.00% $ 1,170 7.71%
1 - 5 years 0 0.00 0 0
5 - 10 years 503 6.25 503 6.25
After 10 Years 662 7.25
---------- ---------- ---------- ----------
Total $ 1,165 6.82% $ 1,673 8.28%
========== ========== ========== ==========
Total Yield 6.77% 6.60%
========== ==========
Total amortized cost $ 44,310 $ 53,735
========== ==========
</TABLE>
(1) Yields on tax-exempt obligations have been computed on a full federal
tax-equivalent basis using an income tax rate of 34% for 1999 and 1998.
Relative Lending Risk - United Bank is located in a primarily rural market
composed of lower to middle income families. The primary economic influence in
the area is timber and agricultural production, and the Bank's loan portfolio is
reflective of this market. The Bank's ratio of loans to assets or deposits is
comparable to its peer banks serving similar markets.
The risks associated with the Bank's lending are primarily interest rate risk
and credit risks from concentrations or types of loans.
Interest rate risk is a function of the maturity of the loan and method of
pricing. The Bank's loan maturity distribution reflects 32.71% of the portfolio
maturing in one year or less. In addition, 29.55% of all loans float with an
interest rate index. The maturity distribution and floating rate loans help
protect the Bank from unexpected interest rate changes.
Loan concentrations present different risk profiles depending on the type of
loan. The majority of all types of loans offered by the Bank are collateralized.
Regardless of the type of loan, collateralized lending is based upon an
evaluation of the collateral and repayment ability of the borrower. Loan policy,
as approved by the Board of Directors of the Bank, establishes collateral
guidelines for each type of loan.
Small banks located in one community experience a much higher risk due to the
dependence on the economic viability of that single community. United Bank is
more geographically diverse than its local competitors. With offices in seven
communities, the Bank is somewhat insulated from the effects of major economic
disruptions in one community. This geographic diversity affects all types of
loans and plays a part in the Bank's risk management.
Each type of loan exhibits unique profiles of risk that could threaten
repayment.
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<PAGE> 16
Commercial lending requires an understanding of the customers' business and
financial performance. The Bank's commercial customers are primarily small to
middle market enterprises. The larger commercial accounts are managed by the
Senior Commercial Officer. Risks in this category are primarily economic. Shifts
in local and regional conditions could have an effect on individual borrowers;
but, as previously mentioned, the Bank spreads this risk by serving multiple
communities. As with the other categories, these loans are typically
collateralized by assets of the borrower. In most situations, the personal
assets of the business owners also collateralize the credit.
Agricultural lending is a specialized type of lending for the Bank. Due to the
unique characteristics in this type of loan, the Bank has a loan officer
dedicated to this market. Collateral valuation and the experience of the
borrower play heavily into the approval process. This loan category includes
financing of equipment, crop production, timber, dairy operations and others.
Given the broad range of loans offered, it is difficult to generalize risks in
agricultural lending. The area of greatest attention and risk is crop production
loans. Risks associated with catastrophic crop losses may be mitigated by crop
insurance, government support programs, experience of the borrower, collateral
other than the crop and the borrower's other financial resources. Routine
visitations and contact with the borrower help inform the Bank about crop
conditions.
Real estate loans, whether they are construction or mortgage, generally have
lower delinquency rates than other types of loans in the portfolio. The Bank
makes very few long term, fixed rate mortgage loans; however, it does offer
loans with repayment terms based on amortization of up to 15 years with balloon
features of shorter durations. The Bank does offer several different long-term
mortgage programs provided by third party processors.
Installment loans are generally collateralized. Given the small dollar exposure
on each loan, the risk of a significant loss on any one credit is minimized.
Pricing and close monitoring of past due loans enhance the Bank's returns from
this type of loan and minimize risks.
An average loan in the loan portfolio at December 31, 1999 is approximately
$25,662, an increase of $4,590 from 1998. This increase in the average loan size
is due to the shift of loans to commercial real estate, financial, and
agriculture loans, and 1-4 family loans from the installment loan portion of the
portfolio.
16
<PAGE> 17
Maturities and sensitivity to change in interest rates in the Corporation's loan
portfolio are as follows:
LOAN PORTFOLIO MATURITIES
December 31, 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
REMAINING MATURITY
-------------------------------------
One- After
One Year Five Five
or Less Years Years Total
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Commercial, Financial
and agricultural $25,789 29,709 21,208 76,706
Real estate - construction 2,269 1,060 256 3,585
Real estate - mortgage 3,489 17,546 4,288 25,323
Installment loans to
individuals 8,918 8,719 445 18,082
------- ------- ------- -------
Total 40,465 57,034 26,197 123,696
======= ======= ======= =======
</TABLE>
SENSITIVITY TO CHANGES IN INTEREST RATES
LOANS DUE AFTER ONE YEAR
(Dollars in Thousands)
<TABLE>
<CAPTION>
Predetermined Floating
Rate Rate Total
------------- -------- -----
<S> <C> <C> <C>
Commercial, financial
and agricultural $32,128 18,789 50,917
Real estate - construction 955 361 1,316
Real estate - mortgage 18,873 2,961 18,873
Installment loans to
individuals 9,043 121 9,164
</TABLE>
For additional information regarding interest rate sensitivity see Interest Rate
Sensitivity in Item 7 below and Item 7A below.
Non-performing Assets: The Corporation adopted the provisions of SFAS 114,
Accounting by Creditors for Impairment of a Loan, as amended by SFAS 118,
Accounting by Creditors for Impairment of a Loan--Income Recognition and
Disclosures on January 1, 1995. Under the provisions of SFAS 114 and 118,
management considers a loan to be impaired when it is probable that the
Corporation will be unable to collect all amounts due according to the
contractual terms of the loan agreement. When a loan is considered impaired, the
amount of impairment is measured based on the present value of expected future
cash flows discounted at the note's effective interest rate. If the loan is
collateral-dependent, the fair value of the collateral is used to determine the
amount of impairment.
17
<PAGE> 18
Impairment losses are included in the allowance for loan losses through a charge
to the provision for loan losses. Subsequent recoveries are added to the
allowance. Impaired loans are charged to the allowance when such loans are
deemed to be uncollectible. At December 31, 1999, pursuant to the definition
within SFAS 114, the Corporation had one $83,979 impaired loan.
The following table sets forth the Corporation's non-performing assets at
December 31, 1999 and 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>
Description
----------- 1999 1998
---- ----
(Dollars in Thousands)
<S> <C> <C>
(A) Loans accounted for on $ 674 $ 420
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). 28 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. 122 41
(D) Other non-performing assets 257 248
----- ----
Total 1,081 722
===== ====
</TABLE>
If the loans in (A) above had been current throughout their term, interest
income would have been increased by $36,625 and $32,821 for 1999 and 1998,
respectively. Of the assets in (D) above, at the end of 1999 $195,337 was other
real estate owned (OREO) and $61,500 was repossessed collateral, and in 1998
$200,344 was OREO and $48,615 was repossessed collateral.
At December 31, 1999, loans with a total outstanding balance of $2,634,347 were
considered potential problem loans. Potential problem loans consist of those
loans for which management has doubts as to the borrower's ability to comply
with present loan repayment terms.
There may be additional loans in the Corporation's portfolio that may become
classified as conditions dictate. However, management is not aware of any such
loans that are material in amount at December 31, 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.
18
<PAGE> 19
Loan Concentrations: On December 31, 1999, the Corporation had $13,392,804 of
agriculture-related loans. Agriculture loans accounted for $39,543 and $42,170
of nonaccrual loans in 1999 and 1998, respectively.
Summary of Loan Loss Experience
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Average amount of loans
outstanding, net $ 120,323 90,419 79,032
========= ========= =========
Allowance for loan
losses, beginning January 1 1,428 1,443 1,244
--------- --------- ---------
Losses charged off:
Commercial, financial
and agricultural (27) (130) (12)
Real estate - mortgage (0) (0) (2)
Installment loans to
individuals (270) (175) (170)
--------- --------- ---------
Total charged off (297) (305) (184)
Recoveries during the period:
Commercial, financial and
agricultural 13 10 3
Real estate - mortgage 0 0 0
Installment loans to individuals 36 40 40
--------- --------- ---------
Total recoveries 49 50 43
--------- --------- ---------
(248) (255) (141)
Additions to the allowance
charged to operations 496 240 340
--------- --------- ---------
Total allowance, ending
December 31 $ 1,676 $ 1,428 $ 1,443
========= ========= =========
Ratio of net charge offs during
the period to average loans
outstanding .21% .28% .18%
</TABLE>
Allowance for Loan Losses: 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.
19
<PAGE> 20
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 (15%), 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 Company'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. The Company has allocated proportionately the nonclassified
portion of the allowance to the individual loan categories for purposes of the
loan loss allowance table below.
The allocated portion of the loan loss provision is summarized in the following
table for the relative periods.
The table below reflects an allocation of the allowance for the years ended
December 31, 1999 and 1998. The allocation represents an estimate for each
category of loans based upon historical experience and management's judgement.
Management realizes that general economic trends greatly affect loan losses, and
no assurances can be made that future charges to the loan loss allowance will
not be significant in relation to the amount provided during a particular
period, or that future evaluations of the loan portfolio based on conditions
then prevailing will not require sizable additions to the allowance, thus
necessitating similarly sizable charges to income. Management does consider,
however, the allowance for loan losses to be adequate for the reported periods.
<TABLE>
<CAPTION>
Loans as a
Allowance percent of total
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Commercial,
Financial &
Agricultural $1,039 780 62.0 61.0%
Real Estate -
Construction 49 15 2.9 3.1
Real Estate -
Mortgage 352 87 20.5 20.1
Installment Loans 236 546 14.6 15.8
------ ------ ------ ------
Total Allowance $1,676 1,428 100.0% 100.0%
====== ====== ====== ======
</TABLE>
Delinquent Loan Policy: Installment loans are placed on nonaccrual when the loan
is three payments past due, and single-date maturity notes are placed on
nonaccrual status when such notes are delinquent for 90 days. Exceptions may be
made where there are extenuating circumstances, but any exception is subject to
review by the Board of Directors of the Bank. Delinquent commercial loans are
placed on nonaccrual status when the loan is 90 days past due.
Loans are considered delinquent if payments of principal or interest have not
been made by the end of periods ranging from one to ten days after the due date,
depending upon the type of loan involved. Installment loans are considered
delinquent if payments of principal and interest are past due for a period of
ten days and commercial loans are considered delinquent if payments of principal
and interest are past due for a period of one day. Single-date maturity loans
are considered delinquent if payments are not made by the day following the due
date of such loans.
Loans are reviewed for charge offs, as necessary, on a monthly basis. If
necessary, loans can be charged off at any time with the approval of the Chief
Executive Officer (CEO). The loan officer responsible for the particular loan
initiates the charge off request which then must be approved by the Bank's
senior commercial loan officer and the CEO.
20
<PAGE> 21
DEPOSITS
(Dollars in Thousands)
The following table sets forth the average amount of deposits for the years 1999
and 1998 by category.
<TABLE>
<CAPTION>
Average
Deposits rate paid
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $ 27,434 22,896 0% 0%
======== ======== ======== ========
Interest-bearing
deposits:
Demand $ 35,631 30,984 4.01% 3.48%
Savings 16,086 16,140 2.45 2.88
Time 83,272 79,966 5.09 5.48
-------- -------- -------- --------
$134,989 127,090 4.68% 4.66%
======== ======== ======== ========
</TABLE>
The following shows the amount of time deposits outstanding at December 31,
1999, classified by time remaining until maturity.
<TABLE>
<CAPTION>
$100,000
Certificates Other time
Maturity of deposit deposits
<S> <C> <C>
Three months or less $ 7,263 15,207
Three to six months 7,049 23,215
Six to twelve months 7,969 13,083
Twelve months to five years 2,253 10,253
------- -------
$24,534 $61,750
======= =======
</TABLE>
21
<PAGE> 22
The following table shows various amounts of repurchase agreements and other
short term borrowings and their respective rates.
<TABLE>
<CAPTION>
Maximum Average
Outstanding Average Interest
At Any Average Interest Ending Rate at
Month End Balance Rate Balance Year-end
----------- ------- --------- ------- --------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
1999
Securities sold $13,514 11,833 4.23% 8,935 4.62%
under agreements
to repurchase
Other short term
borrowings $ 4,905 983 4.72 525 5.16
1998
Securities sold $11,810 10,468 4.62 1 1,810 3.88
under agreements
to repurchase
Other short term
borrowings $ 5,180 190 6.08 0 0.00
</TABLE>
Return on Equity and Assets: The following table shows the percentage return on
equity and assets of the Corporation for the years ended December 31, 1999 and
1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Return on average assets .97% 1.06%
===== =====
Return on average equity 11.96% 12.76%
===== =====
Dividend pay-out ratio 29.99% 29.39%
===== =====
Ratio of average equity
to average assets 8.07% 8.33%
===== =====
</TABLE>
ITEM 2. PROPERTIES
The Corporation's bank subsidiary occupies eight offices which the subsidiary
owns or leases. The offices are located in Escambia County
22
<PAGE> 23
(cities of Atmore and Flomaton), Monroe County (cities of Monroeville and Frisco
City), and Baldwin County (cities of Foley, Lillian, and Bay Minette) Alabama,
with the principal office located in Atmore, Alabama. The office in Atmore is a
modern, three story, brick building while the other offices (other than the
present Lillian and Bay Minette offices) are similar, modern, one story, brick
buildings. The subsidiary bank also leases land near the Atmore office on which
a drive through teller facility is located. The land lease is for twenty years,
expiring 2004. The Foley office is leased for a twenty year period, expiring in
2016. The office in Lillian is a modern two story brick building which is
located on property owned by the Corporation and leased to the subsidiary . The
lease is for a five year period ending in June of 2002. The Corporation
purchased a two story brick building in Bay Minette which is leased to the
subsidiary. The lease is for a five year period ending in December of 2003.
ITEM 3. LEGAL PROCEEDINGS
There are presently no pending legal proceedings to which the Corporation or its
subsidiary, United Bank, is a party or to which any of their property is
subject, which management of the Corporation based upon consultation with legal
counsel believes are likely to have a material adverse effect upon the financial
position of the Corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the shareholders of the Corporation
during the fourth quarter of the fiscal year.
23
<PAGE> 24
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Corporation's authorized common shares consist of the following:
(1) 5,000,000 shares of Class A common stock, $.01 par value per share, of
which 1,151,081 shares issued of which 1,091,531 are outstanding and held
by approximately 550 shareholders of record, as of March 20, 2000.
(2) 250,000 shares of Class B common stock, $.01 par value per share, none of
which were issued, as of March 20, 2000.
There is no established public trading market for the shares of common stock of
the Corporation and there can be no assurance that any market will develop.
The Corporation paid total cash dividends of $.55 per share in 1999 and $.55 per
share in 1998 (adjusted for effects of two for one stock split in May of 1999).
The Corporation expects to continue to pay cash dividends, subject to the
earnings and financial condition of the Corporation and other relevant factors;
however, dividends on the Corporation's common stock are declared and paid based
on a variety of considerations by the Corporation's Board of Directors and there
can be no assurance that the Corporation will continue to pay regular dividends
or as to the amount of dividends if any. Payment of future dividends will depend
upon business conditions, operating results, capital and reserve requirements
and the Board's consideration of other relevant factors. In addition, the
ability of the Corporation to pay dividends is totally dependent on dividends
received from its banking subsidiary (see Note 14 to the consolidated financial
statements) and is subject to statutory restrictions on dividends applicable to
Delaware corporations, including the restrictions that dividends generally may
be paid only from a corporation's surplus or from its net profits for the fiscal
year in which the dividend is declared and the preceding year. The Corporation
is subject to state law restrictions on its ability to pay dividends.
24
<PAGE> 25
ITEM 6. SELECTED FINANCIAL DATA
(Amounts in Thousands except per share data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income statement data:
Interest income $ 15,338 14,117 12,323 11,093 10,495
Interest expense 6,935 6,697 5,533 4,952 4,560
-------- -------- -------- -------- --------
Net interest income 8,404 7,420 6,790 6,141 5,935
Provision for
loan losses 496 240 340 171 204
-------- -------- -------- -------- --------
Net interest income after
Provision for
loan losses $ 7,908 7,180 6,450 5,970 5,731
======== ======== ======== ======== ========
Investment securities gains/
(losses), net $ 32 133 (29) 35 32
======== ======== ======== ======== ========
Net Earnings $ 1,947 1,932 1,730 1,473 1,230
======== ======== ======== ======== ========
Balance sheet data:
Total assets $221,967 189,193 164,545 145,278 140,466
======== ======== ======== ======== ========
Total loans, net $122,000 103,090 85,328 63,002 62,603
======== ======== ======== ======== ========
Total deposits $183,208 152,826 135,282 123,075 117,743
======== ======== ======== ======== ========
Total stockholders'
equity $ 17,647 16,048 14,627 13,263 12,398
======== ======== ======== ======== ========
Per share data:
Basic earnings per share $ 1.88 1.87 1.67 1.43 1.19
======== ======== ======== ======== ========
Diluted earnings per share $ 1.86 1.87 1.67 1.43 1.19
======== ======== ======== ======== ========
Cash dividends per
Share(1) $ .55 .55 .55 .25 .25
======== ======== ======== ======== ========
</TABLE>
(1) Per Share data prior to 1999 reflects two for one split in May of 1999.
25
<PAGE> 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following financial review is presented to provide an analysis of the
consolidated results of operations of the Corporation and its subsidiary. This
review should be read in conjunction with the consolidated financial statements
included under Item 8.
SUMMARY OF OPERATIONS
The Corporation's 1999 net income was $1,947,776, as compared to a net income in
1998 of $1,932,819. Average net interest spread increased by 22 basis points
from 3.84% in 1998 to 4.06% in 1999. Average interest earning assets, which
increased from $170,282,000 in 1998 to $187,122,000 in 1999, produced a $982,795
increase in net interest income in 1999. Noninterest income decreased by $53,247
from $1,529,260 in 1998 to $1,476,013 in 1999. The provision for loan losses in
1999 was $496,000 as compared to $240,000 in 1998. The 1999 provision was the
amount established by management to maintain the allowance at the appropriate
level. Noninterest expenses for 1999 increased $720,809 from $6,089,203 in 1998
to $6,810,012 in 1999.
The Corporation's 1998 net income was $1,932,819, as compared to a net income in
1997 of $1,729,559. Average net interest spread decreased by 23 basis points
from 4.07% in 1997 to 3.84% in 1998. Average interest earning assets, which
increased from $144,452,000 in 1997 to $170,282,000 in 1998, produced a $730,142
increase in net interest income in 1998. Noninterest income decreased by
$256,463 from $1,785,723 in 1997 to $1,529,260 in 1998. Most of this decrease is
attributed to a $500,000 insurance settlement that was received in 1997. The
provision for loan losses in 1998 was $240,000 as compared to $340,000 in 1997.
The 1998 provision was the amount established by management to maintain the
allowance at the appropriate level. Noninterest expenses for 1998 increased
$286,327 from $5,802,876 in 1997 to $6,089,203 in 1998.
26
<PAGE> 27
NET INTEREST INCOME
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Interest income (1)........................... $15,865 14,551 12,652
Interest expense.............................. $ 6,935 6,697 5,533
------- ------- -------
Net interest income........................ 8,830 7,854 7,119
Provision for
loan losses................................ 496 240 340
------- ------- -------
Net interest income after
provision for
loan losses on a tax equivalent
basis...................................... 8,434 7,614 6,779
Less: tax equivalent
adjustment................................. 527 434 328
------- ------- -------
Net interest income after
provision for
loan losses................................ $ 7,907 7,180 6,451
======= ======= =======
</TABLE>
(1) Yields on tax-exempt obligations have been computed on a full federal
tax-equivalent (FTE) basis using an income tax rate of 34% for 1999, 1998, and
1997.
Total interest income (on a FTE) increased to $15,865,000 in 1999, from
$14,551,000 in 1998, an increase of $1,314,000, or 9.03%. This increase is a
function of the average earning assets increasing $16,840,000 while slightly
lower interest rates offset the increase. Average loans increased $29,904,000
while the average rate earned decreased 0.83%. The average interest rate (FTE)
earned on all earning assets in 1999 decreased to 8.48% from 8.55% in 1998. The
interest rate spread increased from 3.83% in 1998 to 4.06% in 1999, as interest
rates dropped on interest bearing liabilities, and decreased slightly on the
interest earning assets. Average taxable investment securities for 1999 were
$42,807,000, as compared to $58,083,000 for 1998, a decrease of $15,276,000, or
26.30%. Average tax-exempt investment securities increased $4,362,000, or
26.06%, to $21,099,000 in 1999 from $16,737,000 in 1998. This total decrease was
the result of the growth in the loan portfolio. The average volume of federal
funds sold decreased to $2,893,000 in 1999 from $4,992,000 in 1998, a decrease
of $2,099,000 or 42.05%. Average interest earning deposits with other financial
institutions decreased to $0 in 1999, from $51,000 in 1998 as a result of the
certificate of deposit maturing.
Total interest expense increased $238,000, or 3.55%, to $6,935,000 in 1999, from
$6,697,000 in 1998. This increase is a function of the increase in the volume of
interest bearing liabilities and the decrease in interest rates. The average
rate paid on interest-bearing liabilities in 1999 was 4.42% as compared to 4.71%
in 1998. Average interest-bearing liabilities increased to $157,055,000 in 1999,
from $142,119,000 in 1998, an increase of $14,936,000, or 10.51%. Average
savings and interest-bearing demand deposits increased $4,593,000 or 9.75% to
$51,717,000 in 1999, from $47,124,000 in 1998. Average time deposits
27
<PAGE> 28
increased to $83,272,000 in 1999, from $79,966,000 in 1998, an increase of
$3,306,000, or 4.13%. The average rate paid on time deposits decreased to 5.09%
in 1999 from 5.48% in 1998. This slight decrease in the rate paid on time
deposits during 1999 was due to the lower interest rates in the first half of
the year.
Total interest income (on a FTE) increased to $14,551,000 in 1998, from
$12,652,000 in 1997, an increase of $1,899,000, or 15.01%. Of this increase
110.74% was due to the average earning assets increasing $25,881,000 while
slightly lower interest rates in interest income off set the increase. Average
loans increased $11,396,000 while the average rate earned decreased 0.08%. The
average interest rate (FTE) earned on all earning assets in 1998 decreased to
8.55% from 8.75% in 1997. The interest rate spread decreased from 4.07% in 1997
to 3.84% in 1998, as interest rates rose slightly on interest bearing
liabilities, and decreased on the interest earning assets. Average taxable
investment securities for 1998 were $58,083,000, as compared to $49,103,000 for
1997, an increase of $8,980,000, or 18.29%. Average tax-exempt investment
securities increased $4,704,000, or 39.09%, to $16,737,000 in 1998 from
$12,033,000 in 1997. These average increases were funded largely by a public
fund deposit in the first quarter of 1998. The deposit is under a three year
contract to end in 2001. The rate paid on the deposit is 61.8% of prime.
Currently the deposit is earning 4.790%. The deposit account averaged
$11,510,585 in 1998. The average volume of federal funds sold increased to
$4,992,000 in 1998 from $4,191,000 in 1997, an increase of $801,000 or 19.11%.
Average interest earning deposits with other financial institutions decreased to
$51,000 in 1998, from $102,000 in 1997. The single certificate of deposit
matured in 1998.
Total interest expense increased $1,164,000, or 21.04%, to $6,697,000 in 1998,
from $5,533,000 in 1997. Of this increase, 76.90% was due to the increase in
average interest bearing liabilities, and 23.10% was due to the increase in
interest rates in 1998. The average rate paid on interest-bearing liabilities in
1998 was 4.71% as compared to 4.68% in 1997. Average interest-bearing
liabilities increased to $142,119,000 in 1998, from $118,325,000 in 1997, an
increase of $23,794,000, or 20.11%. Average savings and interest-bearing demand
deposits increased $14,724,000 or 45.44% to $47,124,000 in 1998, from
$32,400,000 in 1997. Average time deposits increased to $79,966,000 in 1998,
from $75,671,000 in 1997, an increase of $4,295,000, or 5.68%. The average rate
paid on time deposits increased to 5.48% in 1998 from 5.43% in 1997. This slight
increase in time deposits during 1998 was due to the fact that the Bank expanded
into a new market and sought deposits more aggressively in this new market.
PROVISION FOR LOAN LOSSES
The provision for loan losses is that amount necessary to maintain the allowance
for loan losses at a level appropriate and indicative of the associated risk, as
determined by management in accordance with Generally Accepted Accounting
Principles (GAAP), in the current portfolio. The provision for loan losses for
the year ended December 31, 1999 was $496,000, as compared to $240,000 in 1998,
an increase of
28
<PAGE> 29
$256,000, or 106.67%. The change in provision is primarily a function the
increase in volume in the loan portfolio. The charge in the provision maintains
the allowance at a level that is determined to be appropriate by management and
the board of directors of the Bank.
The allowance for loan losses at December 31, 1999 represents 1.36% of gross
loans, as compared to 1.37% at December 31, 1998. The overall allowance as a
percentage of the loan portfolio as of December 31, 1999 remained relatively
unchanged as compared to that at December 31, 1998.
While it is the Bank's policy to chargeoff loans on which a loss is considered
probable, there exists the risk of future losses which cannot be quantified
precisely or attributed to particular loans or classes of loans. Because this
risk is continually changing in response to factors beyond the control of the
Bank, management's judgment as to the appropriateness of the allowance for loan
losses is necessarily approximate and imprecise. Adjustments to the allowance
for loan losses may also be required by the FDIC or the Alabama Superintendent
of Banks in the course of their examinations of the Bank. Accordingly, no
assurances can be given that continued evaluations of the loan portfolio in
light of economic conditions then prevailing, results of upcoming examinations,
or other factors will not require significant changes to the allowance.
NONINTEREST INCOME
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Service charges on
deposits $1,108,164 1,010,712 996,164
Commission - credit
life insurance $ 45,878 46,242 68,704
Investment securities
gains and (losses) (net) 31,907 132,828 (28,602)
Other 290,064 339,478 749,457
---------- ---------- ----------
Total $1,476,013 $1,529,260 1,785,723
========== ========== ==========
</TABLE>
Total noninterest income decreased $53,247 or 3.48%, to $1,476,013 in 1999, as
compared to $1,529,260 in 1998.
Service charge income increased to $1,108,164 in 1999, from $1,010,712 in 1998,
an increase of $97,452, or 9.64%. Commissions on credit life insurance decreased
$364, or .79%, to $45,878 in 1999, from $46,242 in 1998. Other income decreased
to $290,064 in 1999, from $339,478 in 1998, a decrease of $49,414 or 14.56%.
This decrease is partly attributed to higher interest rates that decrease the
demand for refinancing, therefore, reducing the fee income from third party
mortgages.
Total noninterest income decreased $256,463 or 14.36%, to $1,529,260 in 1998, as
compared to $1,785,723 in 1997.
29
<PAGE> 30
Service charge income increased to $1,010,712 in 1998, from $996,164 in 1997, an
increase of $14,548, or 1.46%. Commissions on credit life insurance decreased
$22,462, or 32.69%, to $46,242 in 1998, from $68,704 in 1997. Other income
decreased to $339,478 in 1998, from $749,457 in 1997, a decrease of $409,979 or
54.70%. The increase in other income in 1997 was attributable to a $500,000
settlement the Corporation received from its insurance company. Therefore, other
income actually increased by $90,021 when adjusted for the insurance settlement.
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Salaries and benefits $3,879,425 3,405,746 3,002,501
Net occupancy 1,003,641 826,067 841,008
Other 1,926,946 1,857,390 1,959,367
---------- ---------- ----------
Total $6,810,012 6,089,203 5,802,876
========== ========== ==========
</TABLE>
Total noninterest expense increased $720,809, or 11.84%, to $6,810,012 in 1999,
from $6,089,203 in 1998. Other expense increased to $1,926,946 in 1999, from
$1,857,390 in 1998, an increase of $69,556, or 3.75%. This increase can be
attributed to a new branch in Bay Minette, and the Lillian branch being open a
full year. Salaries and other compensation expense increased $473,679 or 13.91%
to $3,879,425 in 1999 from $3,405,746 for 1998. A substantial portion of this
increase can be attributed to the stock options issued to the Board and a key
employee of the Corporation under the United Bancorporation of Alabama, Inc.
1998 Stock Option Plan.
Income tax expense for 1999 was $625,762 as compared to $687,980 in 1998. Basic
earnings per share in 1999 were $1.88, as compared to a basic earnings per share
of $1.87 in 1998. Diluted earnings per share in 1999 were $1.86 and $1.87 in
1998. Return on average assets for 1999 was .97%, as compared to 1.06% in 1998.
Return on average equity was 11.96% in 1999, as compared to 12.76% in 1998.
<TABLE>
<CAPTION>
LOANS AT DECEMBER 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Commercial, financial
and agricultural $ 76,705,657 63,792,383 51,307,365
Real estate
-construction 3,585,107 3,212,719 1,319,684
Real estate
- mortgage 25,322,667 21,025,234 16,178,243
Installment loans to
individuals 18,082,531 16,594,295 18,432,583
------------ ------------ ------------
$123,695,962 104,624,631 87,237,875
============ ============ ============
</TABLE>
Total loans increased to $123,695,962 at December 31, 1999, from $104,624,631 at
year end 1998, an increase of $19,071,331, or 18.23%.
30
<PAGE> 31
Commercial, financial and agricultural loans increased to $76,705,657 at year
end 1999, from $63,792,383 at December 31, 1998. Most of the increase can be
attributed to the Baldwin County markets, and more competitive pricing in
present markets. Real Estate construction loans increased by $372,388 or 11.59%
in 1999 to $3,585,107 from $3,212,719 in 1998. The increase in these loans is
related to the increase housing demands brought on by lower interest rates in
1998 and the increase in rates in 1999 has not been enough to slow demand for
homes. Real Estate mortgage loans increased in 1999 by $4,297,433 or 20.44% to
$25,322,667 from $21,025,234 in 1998. Installment loans to individuals increased
to $18,082,531 at December 31, 1999, from $16,594,295 at year end 1998, an
increase of $1,488,236 or 8.97%. The ratio of loans to deposits on December 31,
1999, was 67.51%, as compared to 68.46% in 1998.
Total loans increased to $104,624,631 at December 31, 1998, from $87,237,875 at
year end 1997, an increase of $17,386,756, or 19.93%. Commercial, financial and
agricultural loans increased to $63,792,383 at year end 1998, from $51,307,365
at December 31, 1998. Most of the increase was attributed to the Baldwin County
markets, and more competitive pricing in other markets. The Bank felt the
increase was in an area of the portfolio which is considered subject to less
credit risk and the net charge offs in this portion of the portfolio had
averaged only .15% over the prior four years. Real Estate construction loans
increased by $1,893,035 or 143.45% from $1,319,684 in 1997 to $3,212,719 in
1998. The increase in these loans was related to lower interest rates and more
marketing in the real estate loan area. Real Estate mortgage loans increased in
1998 by $4,846,991 or 29.96% to $21,025,234 from $16,178,243 in 1997. The
average annual net charge off of these types of loans in the prior four years
was .02%. Installment loans to individuals decreased to $16,594,295 at December
31, 1998, from $18,432,583 at year end 1997, a decrease of $1,838,288, or
11.08%. The ratio of loans to deposits on December 31, 1998, was 68.46%, as
compared to 64.49% in 1997.
LIQUIDITY
"Liquidity" refers to the Corporation's ability to meet its cash flow
requirements and to fund its commitments. The Corporation and its subsidiary
actively manage the levels, types and maturities of earning assets in relation
to the sources available to fund current and future needs in an effort to ensure
the availability of adequate funding at all times. The goal of liquidity
management is to ensure the availability of an adequate level of funds to meet
loan demand and the deposit withdrawal needs of the Corporation's customers.
As of December 31, 1999, the Corporation's liquidity was adequate. The
corporation relies primarily on the Bank for its liquidity needs. In addition to
$425,000 in federal funds sold, the balance of the Bank's cash and due from
banks was $10,312,090. The Bank also had $22,220,000 in repurchase agreements.
At December 31, 1999 the loan to deposit ratio was 67.51%. The Bank has
experienced no liquidity problems associated with Year 2000 issues. The
Corporation's bank subsidiary has an Asset Liability Committee which has as its
primary objective the maintenance of specific funding and investment strategies
to achieve short-term and long-term financial goals.
31
<PAGE> 32
As revealed in the Consolidated Statement of Cash Flows, the Corporation
generates the majority of its cash flows from financing activities. Financing
activities produced $31,873,635 in cash in 1999, with the majority of this
coming from a net increase in deposits. The investing activities of the
Corporation used $11,162,483 of the cash flows of the Bank. Operations provided
$3,215,037 in cash flows for the year ended December 31, 1999.
32
<PAGE> 33
INTEREST RATE SENSITIVITY
Interest Rate Sensitivity Analysis
Year Ended December 31
1999
<TABLE>
<CAPTION>
Three Three
Months To Six Six Months 1 to 5 5 Years
Or Less Months to One Year Years Or After Total
------- ------- ----------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans, net of unearned
income $16,759 11,380 12,326 57,034 26,197 123,696
Taxable securities AFS 500 0 1,503 8,184 21,735 31,922
Tax exempt securities AFS 0 0 65 1,759 9,217 11,041
Taxable securities HTM 0 0 0 165 4,970 5,135
Tax exempt securities HTM 0 0 375 1,644 8,391 10,410
Federal Funds Sold & Securities Purchased
Under agreements to resale 22,645 0 0 0 0 22,645
------- ------- ------- ------- ------- -------
Total Interest Earning Assets $39,904 11,380 14,269 68,786 70,510 204,849
======= ======= ======= ======= ======= =======
Interest Bearing Liabilities
Demand Deposits $ 0 0 0 0 52,932 52,938
Savings Deposits 0 0 0 0 14,774 14,774
Certificates of Deposit less
than $100,000 15,207 23,215 13,083 10,253 0 61,758
Certificates of Deposit
greater than $100,000 7,262 7,049 7,969 2,253 0 24,535
Federal Funds Purchased and
securities sold under
agreement to repurchase 8,935 0 0 0 0 8,935
Other Short Term Borrowings 525 0 0 0 0 525
Federal Home Loan Bank Borrowing 7,500 2,288 9,788
------- ------- ------- ------- ------- -------
TOTAL Interest Bearing Source $31,929 30,264 21,052 20,006 69,994 173,245
======= ======= ======= ======= ======= =======
Liabilities
Non Interest Bearing Source 0 0 0 0 29,211 29,211
of Funds
------- ------- ------- ------- ------- -------
Interest Sensitivity Gap 7,975 (18,884) (6,783) 48,780 (28,693) 2,393
Cumulative Gap 7,975 (10,909) (17,692) 31,088 2,393
</TABLE>
33
<PAGE> 34
The Corporation's sensitivity to changes in interest rates in conjunction with
the structure of interest rate spreads determines the impact of change in
interest rates on the Corporation's performance. Therefore, interest rate shock
scenarios are performed. See Item 7A.
CAPITAL RESOURCES
The Corporation has historically relied primarily on internally generated
capital growth to maintain capital adequacy. The average assets to average
equity ratio during 1999 was 8.07% as compared to 8.33% in 1998. Total
stockholders equity on December 31, 1999 was $17,646,663, an increase of
$1,598,688, or 9.96%, from $16,047,975 at year-end 1998. The Corporation's net
operating profit during 1999, less dividends of $584,112 declared to
stockholders, minus other comprehensive income of $1,093,477,and plus additional
capital of $1,328,501 obtained through the sale of stock in a private placement
offering and upon the exercise of stock options, accounted for this increase.
The Corporation's risk based capital of $20,131,537, or 10.61%, at December 31,
1999, was well above the Corporation's minimum risk based capital requirement of
$15,172,000 or 8.0%. Based on management's projections, internally generated
capital should be sufficient to satisfy capital requirements for existing
operations into the foreseeable future, but any continued growth into new
markets may require the Bank to continue to access external funding sources.
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 risks, uncertainties, and assumptions including those set forth
herein. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those expected or projected. These forward-looking statements
speak only as of the date they are made. The Corporation expressly disclaims any
obligations or undertaking to publicly release any updates or revisions to any
forward-looking statement contained herein to reflect any change in the Bank's
expectations with regard to any change in events, conditions or circumstances on
which any such statement is based.
34
<PAGE> 35
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and rates.
The Bank's market risk arises principally from interest rate risk inherent in
its lending, deposit and borrowing activities. Management actively monitors and
manages its interest rate risk exposure. Although the Bank manages other risk,
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 potential. A sudden and substantial
increase in interest rates may adversely impact the Bank's earnings to the
extent that the interest rates on interest-earning assets and interest-bearing
liabilities do not change at the same speed, to the same extent or on the same
basis.
The Bank's Asset Liability Management Committee ("ALCO") monitors and considers
methods of managing the rate and sensitivity repricing characteristics of the
balance sheet components consistent with maintaining acceptable levels of
changes in the net portfolio value ("NPV") and net interest income. NPV
represents the market values of portfolio equity and is equal to the market
value of assets minus the market value of liabilities, with adjustments made for
off-balance sheet items over a range of assumed changes in market interest
rates. A primary purpose of the Bank's ALCO is to manage interest rate risk to
effectively invest the Bank's capital and to preserve the value created by its
core business operations. As such, certain management monitoring processes are
designed to minimize the impact of sudden and sustained changes in interest
rates on NPV and net interest income.
The Bank's exposure to interest rate risk is reviewed on a quarterly basis by
the Board of Directors and the ALCO. Interest rate risk exposure is measured
using interest rate sensitivity analysis to determine the Bank's change in NPV
in the event of hypothetical changes in interest rates. Further, interest rate
sensitivity gap analysis is used to determine the repricing characteristics of
the Bank's assets and liabilities. The ALCO is charged with the responsibility
to maintain the level of sensitivity of the Bank's net interest margin within
Board approved limits.
Interest rate sensitivity analysis is used to measure the Bank's interest rate
risk by computing estimated changes in NPV of its cash flows from assets,
liabilities, and off-balance sheet items in
35
<PAGE> 36
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 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 (fair value assets less fair value
liabilities) for the various rate shock levels as of December 31, 1999. All
market risk sensitive instruments presented in this table are held to maturity
or available for sale. The Bank has no trading securities.
<TABLE>
<CAPTION>
CHANGE IN CHANGE IN
CHANGE IN MARKET MARKET MARKET
INTEREST RATES VALUE VALUE VALUE
(BASIS POINTS) EQUITY EQUITY EQUITY(%)
- -------------- ------ --------- -----------
<S> <C> <C> <C>
400 $ 9,699.6 (6,053.4) (38.4)
300 10,858.5 (4,894.5) (31.1)
200 12,355.9 (3,397.2) (21.6)
100 14,043.2 (1,709.9) (10.9)
0 15,753.0 0 0
(100) 17,571.8 1,818.8 11.5
(200) 19,564.6 3,811.6 24.2
(300) 21,652.6 5,899.6 37.5
(400) 23,610.2 7,857.2 49.9
</TABLE>
The preceding table indicates that at December 31, 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.
36
<PAGE> 37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Corporation's consolidated financial statements as of December 31, 1999 and
1998 and for each of the years in the three-year period ended December 31, 1999
are included in the following pages shown in the index below.
<TABLE>
<CAPTION>
Index to Financial Statements Page(s)
----------------------------- -------
<S> <C>
Independent Auditors' Report F1
Consolidated Balance Sheets as of December 31,
1999 and 1998 F2
Consolidated Statements of Operations for
the years ended December 31, 1999, 1998,
and 1997 F4
Consolidated Statements of Stockholders'
Equity and Other Comprehensive Income
for the years ended December 31,
1999, 1998, and 1997 F5
Consolidated Statements of Cash Flows for
the years ended December 31, 1999, 1998,
and 1997 F6
Notes to Consolidated Financial
Statements - December 31, 1999, 1998,
and 1997 F9
</TABLE>
37
<PAGE> 38
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
United Bancorporation of Alabama, Inc.:
We have audited the accompanying consolidated financial statements of United
Bancorporation of Alabama, Inc. and subsidiary as listed in Item 8. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of United
Bancorporation of Alabama, Inc. and subsidiary as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
Birmingham, Alabama
February 29, 2000
F-1
<PAGE> 39
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ----------
<S> <C> <C>
ASSETS
Cash and due from banks (note 2) $ 10,312,090 8,385,901
Federal funds sold and securities purchased under agreements
to resale 22,645,000 645,000
------------ -----------
Cash and cash equivalents 32,957,090 9,030,901
Investment securities available for sale, at fair value
(cost of $44,310,451 and $53,735,446, respectively) (note 3) 42,962,734 54,210,192
Investment securities held to maturity (fair value
of $15,152,215 and $17,375,946 at December 31,
1999 and 1998, respectively) (note 3) 15,545,733 17,045,566
Loans (notes 4 and 6) 123,695,962 104,624,631
Less: Unearned income 19,448 106,471
Allowance for loan losses 1,676,274 1,428,492
------------ -----------
Net loans 122,000,240 103,089,668
Premises and equipment, net (note 5) 4,979,984 2,894,882
Interest receivable 2,198,957 2,224,442
Other assets 1,322,506 697,590
------------ -----------
Total assets $221,967,244 189,193,241
============ ===========
</TABLE>
(Continued)
F-2
<PAGE> 40
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (note 7):
Noninterest bearing $ 29,211,226 26,953,055
Interest bearing 153,997,225 125,873,484
------------- -------------
Total deposits 183,208,451 152,826,539
Securities sold under agreements to repurchase (note 8) 8,935,003 11,810,188
Advances from Federal Home Loan Bank (note 6) 9,787,762 6,447,356
Treasury, tax and loan account 524,741 49,269
Accrued expenses and other liabilities 1,864,624 2,011,914
------------- -------------
Total liabilities 204,320,581 173,145,266
Stockholders' equity (notes 10 and 17):
Class A common stock of $.01 par value
Authorized 5,000,000 shares; 1,149,281 and 1,096,320
shares issued in 1999 and 1998, respectively 11,494 5,482
Class B common stock of $.01 par value
Authorized 250,000 shares; no shares
issued and outstanding -- --
Preferred stock of $.01 par value
Authorized 250,000 shares; no shares
issued and outstanding -- --
Surplus 4,804,489 3,476,518
Retained earnings 14,104,870 12,746,688
Accumulated other comprehensive income
net of deferred asset of $539,117 and deferred tax
liability of $189,899 in 1999 and 1998, respectively (808,600) 284,877
------------- -------------
18,112,253 16,513,565
Less 63,550 treasury shares at cost 465,590 465,590
------------- -------------
Total stockholders' equity 17,646,663 16,047,975
Commitments and contingencies (notes 16 and 17)
------------- -------------
Total liabilities and stockholders' equity $ 221,967,244 189,193,241
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 41
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $11,593,789 9,468,119 8,339,955
Interest on investment securities:
Taxable 2,486,621 3,526,707 3,102,931
Nontaxable 1,022,963 844,053 637,223
----------- ----------- -----------
Total interest on investment securities 3,509,584 4,370,760 3,740,154
----------- ----------- -----------
Other interest income 234,819 278,459 243,149
----------- ----------- -----------
Total interest income 15,338,192 14,117,338 12,323,258
----------- ----------- -----------
Interest expense:
Interest on deposits (note 7) 5,903,334 5,927,380 5,011,540
Interest on other borrowed funds 1,031,321 769,216 521,118
----------- ----------- -----------
Total interest expense 6,934,655 6,696,596 5,532,658
----------- ----------- -----------
Net interest income 8,403,537 7,420,742 6,790,600
Provision for loan losses (note 4) 496,000 240,000 340,000
----------- ----------- -----------
Net interest income after provision for loan losses 7,907,537 7,180,742 6,450,600
Noninterest income:
Service charges on deposits 1,108,164 1,010,712 996,164
Commissions on credit life insurance 45,878 46,242 68,704
Investment securities gains, net (note 3) 31,907 132,828 (28,602)
Other (note 18) 290,064 339,478 749,457
----------- ----------- -----------
Total noninterest income 1,476,013 1,529,260 1,785,723
----------- ----------- -----------
Noninterest expense:
Salaries and benefits (notes 10 and 12) 3,879,425 3,405,746 3,002,501
Net occupancy expense 1,003,641 826,067 841,008
Other (note 18) 1,926,946 1,857,390 1,959,367
----------- ----------- -----------
Total noninterest expense 6,810,012 6,089,203 5,802,876
----------- ----------- -----------
Earnings before income taxes 2,573,538 2,620,799 2,433,447
Income tax expense (note 9) 625,762 687,980 703,888
----------- ----------- -----------
Net earnings $ 1,947,776 1,932,819 1,729,559
=========== =========== ===========
Basic earnings per share $ 1.88 1.87 1.67
=========== =========== ===========
Basic weighted average shares outstanding 1,034,346 1,032,770 1,032,770
=========== =========== ===========
Diluted earnings per share $ 1.86 1.87 1.67
=========== =========== ===========
Diluted weighted average shares outstanding 1,046,799 1,032,770 1,032,770
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 42
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity and Comprehensive
Income Years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON RETAINED COMPREHENSIVE
SHARES STOCK SURPLUS EARNINGS INCOME
--------- ----------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1996 1,096,320 $ 10,964 3,476,518 10,214,874 26,283
Net earnings 1997 -- -- -- 1,729,559 --
Unrealized change in investment
securities, net of tax -- -- -- -- 202,474
Comprehensive income
Cash dividends declared ($.55 per share) -- -- -- (568,023) --
--------- ----------- --------- ---------- ----------
Balance December 31, 1997 1,096,320 10,964 3,476,518 11,376,410 228,757
Net earnings 1998 -- -- -- 1,932,819 --
Unrealized change in investment
securities, net of tax -- -- -- -- 56,120
Comprehensive income
Cash dividends declared ($.55 per share) -- -- -- (568,023) --
--------- ----------- --------- ---------- ----------
Balance December 31, 1998 1,096,320 10,964 3,476,518 12,741,206 284,877
Net earnings 1999 -- -- -- 1,947,776 --
Unrealized change in investment
securities, net of tax -- -- -- -- (1,093,477)
Comprehensive income
Cash dividends declared ($.55 per share) -- -- -- (584,112) --
Difference between fair market value and
exercise price of stock options vesting
during the period -- -- 193,359 -- --
Exercise of stock options 5,000 50 79,950 -- --
Sale of common stock 47,961 480 1,054,662 -- --
--------- ----------- --------- ---------- ----------
Balance December 31, 1999 1,149,281 $ 11,494 4,804,489 14,104,870 (808,600)
========= =========== ========= ========== ==========
<CAPTION>
TOTAL
TREASURY STOCKHOLDERS' COMPREHENSIVE
STOCK EQUITY INCOME
-------- ------------ ------------
<S> <C> <C> <C>
Balance December 31, 1996 (465,590) 13,263,049
Net earnings 1997 -- 1,729,559 1,729,559
Unrealized change in investment
securities, net of tax -- 202,474 202,474
----------
Comprehensive income 1,932,033
==========
Cash dividends declared ($.55 per share) -- (568,023)
-------- ----------
Balance December 31, 1997 (465,590) 14,627,059
Net earnings 1998 -- 1,932,819 1,932,819
Unrealized change in investment
securities, net of tax -- 56,120 56,120
----------
Comprehensive income 1,988,939
==========
Cash dividends declared ($.55 per share) -- (568,023)
-------- ----------
Balance December 31, 1998 (465,590) 16,047,975
Net earnings 1999 -- 1,947,776 1,947,776
Unrealized change in investment
securities, net of tax -- (1,093,477) (1,093,477)
----------
Comprehensive income 854,299
==========
Cash dividends declared ($.55 per share) -- (584,112)
Difference between fair market value and
exercise price of stock options vesting
during the period 193,359
Exercise of stock options -- 80,000
Sale of common stock -- 1,055,142
-------- ----------
Balance December 31, 1999 (465,590) 17,646,663
======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 43
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,947,776 1,932,819 1,729,559
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Provision for loan losses 496,000 240,000 340,000
Compensation expense arising from stock
option awards 193,359 -- --
Depreciation of premises and equipment 393,352 258,346 285,625
Net amortization of premium
on investment securities 234,192 281,890 125,554
Losses (gains) on sales of investment
securities available for sale, net (31,907) (132,828) 28,602
Deferred income tax benefit (146,436) (63,298) (164,875)
Losses on disposal of premises and equipment, net -- -- 727
Gains on sale of other real estate, net -- (2,500) --
Decrease (increase) in interest receivable 25,485 (392,495) (235,979)
Decrease (increase) in other assets (478,480) (225,072) 232,753
Decrease in accrued expenses
and other liabilities 581,696 154,157 289,534
------------ ------------ ------------
Net cash provided by operating activities 3,215,037 2,051,019 2,631,500
------------ ------------ ------------
Cash flows from investing activities:
Net decrease in interest-earning deposits
in other financial institutions -- 100,920 1,628
Proceeds from maturities, calls, and principal
repayments of investment securities held to maturity 1,446,418 10,287,052 1,926,827
Proceeds from sales of investment securities
held to maturity -- 19,975 --
Purchases of investment securities held to maturity -- (2,500,304) (4,122,790)
Proceeds from maturities, calls, and principal
repayments of investment securities available for sale 12,016,772 30,269,450 4,860,170
Proceeds from sales of investment
securities available for sale 7,499,649 6,731,529 4,494,206
Purchases of investment securities available for sale (10,240,296) (52,554,305) (11,460,810)
Net increase in loans (19,406,572) (18,001,787) (12,720,148)
Purchases of premises and equipment (2,505,402) (1,092,751) (334,602)
Proceeds from sales of other real estate 26,948 40,000 64,500
------------ ------------ ------------
Net cash used in investing activities (11,162,483) (26,700,221) (17,291,019)
------------ ------------ ------------
</TABLE>
(Continued)
F-6
<PAGE> 44
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued Years ended
December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits $ 30,381,912 17,544,726 12,206,245
Net increase (decrease) in securities sold under
agreements to repurchase (2,875,185) 2,838,034 2,217,255
Cash dividends (584,112) (568,023) (516,386)
Exercise of stock options 80,000 -- --
Proceeds from sale of common stock 1,055,142 -- --
Increase in FHLB advances 3,340,406 3,717,471 2,729,885
Increase (decrease) in other borrowed funds 475,472 (1,027,135) 408,097
------------ ------------ ------------
Net cash provided by financing activities 31,873,635 22,505,073 17,045,096
Net increase (decrease) in cash and cash equivalents 23,926,189 (2,144,129) 2,385,577
Cash and cash equivalents at beginning of year 9,030,901 11,175,030 8,789,453
------------ ------------ ------------
Cash and cash equivalents at end of year $ 32,957,090 9,030,901 11,175,030
============ ============ ============
Supplemental disclosures:
Cash paid during the year for:
Interest $ 6,925,803 6,661,160 5,312,841
============ ============ ============
Income taxes $ 746,750 778,516 517,000
============ ============ ============
Noncash transactions:
Transfer of loans to other real estate
through foreclosure $ -- 200,344 54,700
============ ============ ============
Other comprehensive income, net of tax $ (1,093,477) 56,120 202,474
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 45
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
financial statements of United Bancorporation of Alabama, Inc.
(the Corporation) and its wholly owned subsidiary, United Bank
(the Bank) collectively referred to as the Company. Significant
intercompany balances and transactions have been eliminated in
consolidation.
(b) BASIS OF PRESENTATION
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ significantly
from those estimates.
Material estimates that are particularly susceptible to
significant change in a time period of less than one year relate
to the determination of the allowance for loan losses and the
valuation of real estate acquired in connection with foreclosures
or in satisfaction of loans. In connection with the determination
of the allowances for loan losses and real estate owned,
management obtains independent appraisals for significant
properties.
Management believes the allowances for losses on loans and real
estate owned are adequate. While management uses available
information to recognize losses on loans and real estate owned,
future additions to the allowances may be necessary based on
changes in economic conditions, particularly in Alabama. In
addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's
allowances for losses on loans and real estate owned. Such
agencies may require the Company to recognize additions to the
allowances based on their judgments about information available to
them at the time of their examination.
(c) CASH EQUIVALENTS
The Company considers due from banks and federal funds sold to be
cash equivalents. Federal funds are generally sold for one-day
periods.
(Continued)
F-8
<PAGE> 46
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(d) INVESTMENT SECURITIES
Investment securities are classified in one of three portfolios:
(i) trading account securities, (ii) held to maturity securities,
and (iii) securities available for sale. Trading account
securities are to be stated at fair value. The Company does not
have trading account securities. Investment securities held to
maturity are stated at cost adjusted for amortization of premiums
and accretion of discounts. With regard to investment securities
held to maturity, management has the intent and ability to hold
such securities until maturity. Investment securities available
for sale are to be stated at fair value with any unrealized gains
and losses reported in a separate component of stockholders'
equity, net of tax effect, until realized. Once realized, gains
and losses on investment securities available for sale are
reflected in current period earnings.
Interest earned on investment securities is included in interest
income. Net gains and losses on the sale of investment securities
available for sale, computed on the specific identification
method, are shown separately in noninterest income in the
consolidated statements of operations. Accretion of discounts and
amortization of premiums are calculated on the effective interest
method over the anticipated life of the security.
A decline in the market value of any security below amortized cost
that is deemed other than temporary is charged to income resulting
in the establishment of a new cost basis for the security.
(e) LOANS
Interest income on loans is credited to earnings based on the
principal amount outstanding at the respective rate of interest
except for certain installment loans for which interest is
recognized on a method which is not materially different from a
level-yield basis over the terms of the loans. Interest income on
other loans is recognized on a level-yield basis.
Accrual of interest on loans is discontinued when a loan becomes
contractually past due by 90 days or more with respect to interest
or principal. When a loan is placed on nonaccrual status, all
interest previously accrued, but not collected, is reversed
against current period interest income. Income on such loans is
then recognized only to the extent that cash is received and where
the future collection of principal is probable. Interest accruals
are recorded on such loans only when they are brought fully
current with respect to interest and principal and when, in the
judgment of management, the loans are estimated to be fully
collectible as to both principal and interest.
(Continued)
F-9
<PAGE> 47
Under the provisions of Statement of Financial Accounting
Standards ("SFAS") 114 and 118, management considers a loan to be
impaired when it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the
loan agreement. When a loan is considered impaired, the amount of
impairment is measured based on the present value of expected
future cash flows discounted at the loan's effective interest
rate. If the loan is collateral-dependent, the fair value of the
collateral is used to determine the amount of impairment.
Impairment losses are included in the allowance for loan losses
through a charge to the provision for loan losses. Impaired loans
are charged to the allowance when such loans are deemed to be
uncollectible. Subsequent recoveries are added to the allowance.
When a loan is considered impaired, cash receipts are applied
under the contractual terms of the loan agreement, first to
principal and then to interest income. Once the recorded principal
balance has been reduced to zero, future cash receipts are applied
to interest income, to the extent that any interest has not been
recognized. Any further cash receipts are recorded as recoveries
of any amount previously charged off.
A loan is also considered impaired if its terms are modified in a
troubled debt restructuring. For those accruing impaired loans,
cash receipts are typically applied to principal and interest
receivable in accordance with the terms of the restructured loan
agreement. Interest income is recognized on these loans using the
accrual method of accounting.
(f) ALLOWANCE FOR LOAN LOSSES
The ultimate collectibility of a substantial portion of the
Company's loan portfolio and the recovery of real estate owned are
susceptible to changes in economic and market conditions in the
geographic area served by the Company and various other factors.
Additions to the allowance for loan losses are based on
management's evaluation of the loan portfolio under current
economic conditions, past loan loss experience and such other
factors which, in management's judgment, deserve recognition in
estimating loan losses. Loans are charged-off when, in the opinion
of management, such loans are deemed to be uncollectible.
Subsequent recoveries are added to the allowance.
(g) PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using both the
declining-balance method and the straight-line method over the
estimated useful lives of the assets, which range from three to
fifty years.
(Continued)
F-10
<PAGE> 48
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(h) OTHER REAL ESTATE
Other real estate represents property acquired through foreclosure
or deeded to the Company in lieu of foreclosure on real estate
mortgage loans on which borrowers have defaulted. Other real
estate is carried at the lower of cost or fair value, adjusted for
estimated selling costs. Reductions in the balance of other real
estate at the date of foreclosure are charged to the allowance for
loan losses. Subsequent changes in fair value, up to the value
established at foreclosure, are recognized as charges or credits
to noninterest expense with an offset to the allowance for losses
on other real estate.
(i) INCOME TAX EXPENSE
The Company accounts for income taxes under the asset and
liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.
The Company files its federal income tax returns on a consolidated
basis.
(j) STOCK OPTION PLAN
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and related
interpretations, in accounting for its fixed plan stock options.
As such, compensation expense is recorded on the date of grant if
the current market price of the underlying stock exceeds the
exercise price.
SFAS 123, Accounting for Stock Based Compensation, which became
effective in 1996 and prescribes the recognition of compensation
expense on the fair value of options on the grant date, allows
companies to apply APB 25 as long as certain pro forma disclosures
are made assuming hypothetical fair value method application. See
note 10 for pro forma disclosures required by SFAS 123.
(k) EARNINGS PER SHARE
Basic and diluted earnings per share are computed on the weighted
average number of shares outstanding in accordance with SFAS 128,
Earnings Per Share.
(Continued)
F-11
<PAGE> 49
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(l) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS 130, Reporting Comprehensive Income. This statement
establishes standards for reporting and displaying comprehensive
income and its components in a full set of general purpose
financial statements. SFAS 130 requires all items that are
required to be recognized under accounting standards as components
of comprehensive income be reported in a financial statement that
is displayed in equal prominence with the other financial
statements. The term "comprehensive income" is used in the
statement to describe the total of all components of comprehensive
income including net income. "Other comprehensive income" refers
to revenues, expenses, gains, and losses that are included in
comprehensive income but excluded from earnings under current
accounting standards.
"Other comprehensive income" for the Company consists of items
recorded directly in equity under SFAS 115, Accounting for Certain
Investments in Debt and Equity Securities.
In June 1997, the FASB issued SFAS 131, Disclosures about Segments
of an Enterprise and Related Information. SFAS 131 establishes new
standards for the disclosures made by public business enterprises
to report information about operating segments in annual financial
statements and requires those enterprises to report selected
information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and
major customers. SFAS 131 is effective for financial statements
for years beginning after December 15, 1997. The Company operates
in only one segment - commercial banking.
In June 1998, the FASB issued SFAS 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
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at
fair value. SFAS 133, as amended, is effective for financial
statements for the first quarter of fiscal years beginning after
June 15, 2000. The Company is currently evaluating the impact SFAS
133 will have on the Company.
(2) CASH AND DUE FROM BANKS
The Corporation's subsidiary bank is required by the Federal Reserve Bank
to maintain daily cash balances. These balances were $3,041,000 and
$1,226,000 at December 31, 1999 and 1998, respectively.
(Continued)
F-12
<PAGE> 50
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(3) INVESTMENT SECURITIES
The amortized cost and fair value of investment securities held to
maturity at December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1999
U.S. government agencies excluding
mortgage-backed securities
$ 2,994,337 -- 169,712 2,824,625
State and political subdivisions
10,410,355 32,512 224,464 10,218,403
Mortgage-backed securities 2,141,041 5,280 37,134 2,109,187
----------- ----------- ----------- -----------
$15,545,733 37,792 431,310 15,152,215
=========== =========== =========== ===========
1998
U.S. government agencies excluding
mortgage-backed securities
$ 2,993,375 21,315 11,160 3,003,530
State and political subdivisions
11,089,445 319,896 33,440 11,375,901
Mortgage-backed securities 2,962,746 33,769 -- 2,996,515
----------- ----------- ----------- -----------
$17,045,566 374,980 44,600 17,375,946
=========== =========== =========== ===========
</TABLE>
(Continued)
F-13
<PAGE> 51
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
The amortized cost and fair value of debt securities classified as
investment securities held to maturity at December 31, 1999 by
contractual maturity are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
Investment securities held to maturity:
Due in one year or less $ 374,860 376,831
Due after one year through five years 1,644,036 1,644,570
Due after five years through ten years 6,722,040 6,489,355
Due after ten years 4,663,756 4,532,272
----------- -----------
Subtotal 13,404,692 13,043,028
Mortgage-back securities 2,141,041 2,109,187
----------- -----------
Total $15,545,733 15,152,215
=========== ===========
</TABLE>
There were no sales of investment securities held to maturity during the
three-year period ended December 31, 1999 except for $19,975 sold in
1998.
(Continued)
F-14
<PAGE> 52
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
The amortized cost and fair value of investment securities available for sale at
December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1999
U.S. treasury $ 8,591,805 315 130,225 8,461,895
U.S. government agencies excluding
mortgage-backed securities
1,503,065 -- 32,105 1,470,960
State and political subdivisions 12,617,221 23,391 661,943 11,978,669
Mortgage-backed securities 20,434,134 32,352 554,406 19,912,080
Corporate notes and other 1,164,226 -- 25,096 1,139,130
----------- ----------- ----------- -----------
$44,310,451 56,058 1,403,775 42,962,734
=========== =========== =========== ===========
1998
U.S. treasury $10,617,535 172,795 -- 10,790,330
U.S. government agencies excluding
mortgage-backed securities 3,753,863 47,522 34,350 3,767,035
State and political subdivisions 9,668,163 210,462 9,412 9,869,213
Mortgage-backed securities 27,426,099 130,688 42,878 27,513,909
Collateralized mortgage obligations
596,511 -- 14,621 581,890
Corporate notes and other 1,673,275 14,540 -- 1,687,815
----------- ----------- ----------- -----------
$53,735,446 576,007 101,261 54,210,192
=========== =========== =========== ===========
</TABLE>
(Continued)
F-15
<PAGE> 53
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
Included in investment securities available for sale at December 31, 1999
is a U.S. government agency security with a yield based on various
interest rate indices or which includes various interest rate step-up
provisions. The amortized cost and net unrealized losses on this security
at December 31, 1999, were $1,000,000 and $22,010, respectively. The
weighted average yield of this security at December 31, 1999 was 5.81
percent. This security matures in November 2003.
The amortized cost and fair value of debt securities classified as
investment securities available for sale at December 31, 1999,
categorized by contractual maturity are shown below. Expected maturities
may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
Investment securities available for sale:
Due in one year or less $ 2,067,609 2,064,812
Due after one year through five years 9,522,897 9,376,937
Due after five years through ten years 2,947,338 2,891,909
Due after ten years 8,676,873 8,055,396
----------- -----------
Subtotal 23,214,717 22,389,054
Mortgage-backed securities 20,434,134 19,912,080
FHLB stock 661,600 661,600
----------- -----------
Total $44,310,451 42,962,734
=========== ===========
</TABLE>
Proceeds from sales of investment securities available for sale during
1999, 1998, and 1997 were $7,499,649, $6,731,529, and $4,494,206,
respectively. Gross gains of $43,974 and gross losses of $12,067 were
realized on those sales in 1999. Gross gains of $137,485 and gross losses
of $4,657 were realized on those sales in 1998. Gross gains of $350 and
gross losses of $28,952 were realized on those sales in 1997.
Securities with carrying values of $47,459,218 and $45,618,050 at
December 31, 1999 and 1998, respectively, were pledged to secure public
and trust deposits as required by law and for other purposes.
(Continued)
F-16
<PAGE> 54
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(4) LOANS AND ALLOWANCE FOR LOAN LOSSES
At December 31, 1999 and 1998, the composition of the loan portfolio was
as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Commercial, financial and agricultural $ 76,705,657 63,792,383
Real estate - construction 3,585,107 3,212,719
Real estate - 1-4 family residential mortgage 25,322,667 21,025,234
Installment loans to individuals 18,082,531 16,594,295
------------ ------------
Total $123,695,962 104,624,631
============ ============
</TABLE>
A summary of the transactions in the allowance for loan losses for the
years ended December 31, 1999, 1998, and 1997 follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year $1,428,492 1,443,135 1,243,457
Provision charged to earnings 496,000 240,000 340,000
Less: Loans charged-off 297,358 305,220 183,593
Loan recoveries 49,140 50,577 43,271
---------- ---------- ----------
Net charge-offs 248,218 254,643 140,322
---------- ---------- ----------
Balance at end of year $1,676,274 1,428,492 1,443,135
========== ========== ==========
</TABLE>
Loans on which the accrual of interest had been discontinued or reduced
amounted to $673,522 and $420,192 as of December 31, 1999 and 1998,
respectively. If these loans had been current throughout their terms,
interest income would have been increased by $36,625, $32,821, and
$24,475 for 1999, 1998, and 1997, respectively. At December 31, 1999,
pursuant to the definition within SFAS 114, the Company had an impaired
loan of $83,979. At December 31, 1998 and 1997, the Company had no
significant impaired loans.
The Company had $13,392,804 and $9,769,937 of agriculture-related loans
at December 31, 1999 and 1998, respectively.
(Continued)
F-17
<PAGE> 55
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
During 1999 and 1998, certain executive officers and directors of the
Corporation and its subsidiary, including their immediate families and
companies with which they are associated, were loan customers of the
subsidiary bank. Total loans outstanding to these related parties at
December 31, 1999 and 1998, amounted to $4,982,244 and $4,319,594,
respectively. The change from December 31, 1998 to December 31, 1999
reflects advances amounting to $1,526,534 and payments of $863,885 made
during the year. Such loans are made in the ordinary course of business
at normal credit terms, including interest rate and collateral
requirements, and do not represent more than a normal credit risk.
(5) PREMISES AND EQUIPMENT
At December 31, 1999 and 1998, premises and equipment were as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Land $ 886,629 812,576
Buildings and leasehold improvements 4,257,311 2,606,279
Furniture, fixtures and equipment 2,992,095 2,274,236
Automobiles 120,945 112,357
---------- ----------
8,256,980 5,805,448
Less accumulated depreciation 3,276,996 2,910,566
---------- ----------
$4,979,984 2,894,882
========== ==========
</TABLE>
(6) BORROWED FUNDS
The Company was liable to the Federal Home Loan Bank of Atlanta on the
following advances at December 31, 1999:
<TABLE>
<CAPTION>
INTEREST
MATURITY DATE RATE
- ------------- ------------
<S> <C> <C>
April 2003 5.52% $1,000,000
October 2003 4.40% 3,000,000
April 2004 5.01% 1,500,000
April 2004 5.94% 2,000,000
June 2007 7.19% 111,995
May 2012 7.41% 146,667
July 2017 6.93% 1,170,000
August 2017 6.84% 193,475
September 2017 6.82% 665,625
------------ ----------
Total (weighted average rate of 5.47%)$ 9,787,762
==========
</TABLE>
(Continued)
F-18
<PAGE> 56
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
At December 31, 1999, the advances were collateralized by a blanket
pledge of first-mortgage residential loans.
(7) DEPOSITS
At December 31, 1999 and 1998, deposits were as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Noninterest bearing accounts $ 29,211,226 26,953,055
NOW accounts 46,559,634 26,412,431
Money market investment accounts 6,378,672 4,152,467
Savings account 14,773,999 15,741,049
Time deposits:
Certificates of deposit less than $100,000 61,750,432 55,634,034
Certificates of deposit greater than $100,000 24,534,488 23,933,503
------------ ------------
Total deposits $183,208,451 152,826,539
============ ============
</TABLE>
Interest expense on certificates of deposit greater than $100,000
amounted to $1,183,108, $1,361,765, and $1,006,548 for the years ended
December 31, 1999, 1998, and 1997, respectively.
(8) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The maximum amount of outstanding securities sold under agreements to
repurchase during 1999 and 1998 was $13,513,712 and $11,810,188,
respectively. The weighted average borrowing rate at December 31, 1999
and 1998 was 4.62 percent and 3.88 percent, respectively. The average
amount of outstanding securities sold under agreements to repurchase
during 1999 and 1998 was $11,833,159 and $10,467,702, respectively. The
weighted average borrowing rate during the years ended December 31, 1999
and 1998 was 4.23 percent and 4.62 percent, respectively. Securities
underlying these agreements are under the Company's control.
(Continued)
F-19
<PAGE> 57
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(9) INCOME TAXES
Total income tax expense for the years ended December 31, 1999, 1998, and
1997 was allocated as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Income from continuing operations $ 625,762 687,980 703,888
========= ========= =========
Stockholders' equity, for other comprehensive
income $(728,986) 37,363 134,984
========= ========= =========
</TABLE>
The components of income tax expense attributable to income from
continuing operations for the years ended December 31, 1999, 1998, and
1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Current income tax expense:
Federal $ 711,105 672,671 760,201
State 61,093 78,607 108,562
--------- --------- ---------
Total 772,198 751,278 868,763
Deferred income tax benefit:
Federal (134,478) (59,805) (139,111)
State (11,958) (3,493) (25,764)
--------- --------- ---------
Total (146,436) (63,298) (164,875)
--------- --------- ---------
Total income tax expense $ 625,762 687,980 703,888
========= ========= =========
</TABLE>
(Continued)
F-20
<PAGE> 58
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
Total income tax expense differed from the amount computed by applying
the statutory federal income tax rate of 34 percent to pretax earnings as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Income tax at statutory rate $ 875,003 891,072 827,372
Increase (decrease) resulting from:
Tax exempt interest (371,959) (253,304) (196,347)
TEFRA disallowance 67,438 -- --
Deferred compensation 11,739 -- --
State income tax net of federal tax
benefit 32,429 49,575 54,647
Premium amortization on tax
exempt investment securities 23,362 19,867 12,462
Other, net (12,250) (19,230) 5,754
--------- --------- ---------
$ 625,762 687,980 703,888
========= ========= =========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Loans, principally due to the allowance for loan losses $329,336 238,499
Other real estate, principally due to differences in carrying value
58,207 56,372
Accumulated other comprehensive loss 539,117 --
Accrued expenses 55,882 --
Charitable contribution carryforward -- 2,948
Security writedown 4,399 4,399
Other 56 --
-------- --------
Total deferred tax assets 986,997 302,218
-------- --------
Deferred tax liabilities:
Premises and equipment, principally due to difference in
depreciation 156,782 168,079
Discount accretion 17,220 --
Accumulated other comprehensive income -- 189,899
Accrued employee benefits 21,996 21,996
Other -- 6,698
-------- --------
Total deferred tax liabilities 195,998 386,672
-------- --------
Net deferred tax asset (liability) $790,999 (84,454)
======== ========
</TABLE>
(Continued)
F-21
<PAGE> 59
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
As of December 31, 1999 and 1998, the net deferred income tax asset of
$790,999 and liability of $84,454 were presented in the balance sheet as
other assets and accrued expenses and other liabilities, respectively.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making
this assessment. Based upon the level of historical taxable income and
projection for future taxable income over the periods which the temporary
differences resulting in the deferred tax assets are deductible,
management believes it is more likely than not that the Company will
realize the benefits of these deductible differences.
(10) STOCK OPTION PLAN
The United Bancorporation of Alabama, Inc. 1998 Stock Option Plan (the
"Plan") provides for the grant of options to officers, directors, and
employees of the Corporation to purchase up to an aggregate of 77,000
shares of Class A Stock. On May 5, 1999, options for shares totaling
42,480 were awarded under the Plan. Of the 42,480 shares, 19,440 vested
immediately and the remaining 23,040 vest over a period of three years
from the grant date. The changes in outstanding options are as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES UNDER PRICE PER
OPTION SHARE
------- ------
<S> <C> <C>
Awarded May 5, 1999 42,480 $16.62
Issued 4,080 30.00
Surrendered -- --
Exercised (5,000) 16.00
------- ------
Balance at December 31, 1999 41,560 $18.01
======= ======
</TABLE>
(Continued)
F-22
<PAGE> 60
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
Stock options outstanding and exercisable on December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
REMAINING
EXERCISE PRICE PER SHARES UNDER CONTRACTUAL LIFE IN
SHARE OPTION YEARS
------------------- ----------------- -------------------
<S> <C> <C>
Outstanding:
$16.00 33,400 9.0
22.50 4,080 9.0
30.00 4,080 10.0
-------------- ------- -----
$16.00 - 30.00 41,560 9.1
-------------- ------- -----
Exercisable:
$16.00 18,040 9.0
22.50 4,080 9.0
30.00 4,080 10.0
-------------- ------- -----
$16.00 - 30.00 26,200 9.1
============== ======= =====
</TABLE>
Had compensation expense for the Company's stock options been recognized
based on the fair value on the grant date under the methodology
prescribed by SFAS 123, the Company's income from continuing operations
and earnings per share for the year ended December 31, 1999 would have
been impacted as shown in the following table (in thousands, except per
share), no options were granted during the years ended December 31, 1998
and 1997:
<TABLE>
<CAPTION>
1999
--------
<S> <C>
Reported net earnings $1,947.7
Pro forma net earnings 1,872.8
Reported diluted earnings per share
1.86
Pro forma diluted earnings per share
1.79
</TABLE>
(Continued)
F-23
<PAGE> 61
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
The fair value of options granted, which is amortized to expense over the
option vesting period in determining the pro forma impact, is estimated
on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions:
<TABLE>
<CAPTION>
1999
-------
<S> <C>
Expected life of option 10 yrs
Risk-free interest rate 5.16%
Expected volatility of Company stock 12.0%
Expected dividend yield of Company stock 2.67%
</TABLE>
The weighted average fair value of options granted during 1999 is as
follows:
<TABLE>
<CAPTION>
1999
--------
<S> <C>
Fair value of each option granted $ 8.09
Total number of options granted 46,560
Total fair value of all options granted $376,651
</TABLE>
In accordance with FAS 123, the weighted average fair value of stock
options granted is required to be based on a theoretical statistical
model using the preceding Black-Scholes assumptions. In actuality,
because the Company's stock options are not traded on any exchange,
employees can receive no additional value nor derive any additional
benefit from holding stock options under these plans without an increase
in market price of the Company's stock. Such an increase in stock price
would benefit all stockholders commensurately.
(11) NET INCOME PER SHARE
Presented below is a summary of the components used to calculate diluted
earnings per share for the years ended December 31, 1999, 1998, and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Diluted earnings per share:
Weighted average common shares
outstanding $1,034,346 1,032,770 1,032,770
Effect of the assumed exercise of stock
options-based on the treasury stock
method using average market price 12,453 -- --
---------- ---------- ----------
Total weighted average common shares
and potential common stock outstanding $1,046,799 1,032,770 1,032,770
========== ========== ==========
</TABLE>
(Continued)
F-24
<PAGE> 62
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(12) EMPLOYEE BENEFIT PLANS
The Company adopted a 401(k) Employee Incentive Savings Plan effective
January 1, 1988. Employees become eligible after completing six months of
service and attaining age 20.5. They can contribute a minimum of one
percent up to ten percent of salary to the plan. The Company contributes
twenty-five cents for each dollar the employee contributes, up to four
percent of the employee's salary. Total Company contributions to the plan
during 1999, 1998, and 1997 were $31,428, $35,049, and $28,873,
respectively.
The Company also maintains a profit-sharing plan for eligible employees.
Eligibility requirements for this plan are the same as the 401(k)
Employee Incentive Savings Plan. Annual profit sharing contributions of
$98,000, $84,000, and $77,000 were made in 1999, 1998, and 1997,
respectively.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, Disclosures about Fair Value of Financial Instruments, requires
disclosure of fair value information about financial instruments, whether
or not recognized on the face of the balance sheet, for which it is
practicable to estimate that value. The assumptions used in the
estimation of the fair value of the Company's financial instruments are
explained below. Where quoted market prices are not available, fair
values are based on estimates using discounted cash flow and other
valuation techniques. Discounted cash flows can be significantly affected
by the assumptions used, including the discount rate and estimates of
future cash flows. The following fair value estimates cannot be
substantiated by comparison to independent markets and should not be
considered representative of the liquidation value of the Company's
financial instruments, but rather a good-faith estimate of the fair value
of financial instruments held by the Company. SFAS 107 excludes certain
financial instruments and all non-financial instruments from its
disclosure requirements.
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
(a) CASH, CASH EQUIVALENTS, AND INTEREST EARNING DEPOSITS WITH OTHER
FINANCIAL INSTITUTIONS
Fair value equals the carrying value of such assets.
(b) INVESTMENT SECURITIES
The fair value of investment securities is based on quoted market
prices.
(Continued)
F-25
<PAGE> 63
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(c) LOANS
The fair value of loans is calculated using discounted cash flows
and excludes lease financing arrangements. The discount rates used
to determine the present value of the loan portfolio are estimated
market discount rates that reflect the credit and interest rate
risk inherent in the loan portfolio. The estimated maturities are
based on the Company's historical experience with repayments
adjusted to estimate the effect of current market conditions. The
carrying amount of accrued interest approximates its fair value.
(d) DEPOSITS
As required by SFAS 107, the fair value of deposits with no stated
maturity, such as non-interest bearing demand deposits, NOW
accounts, savings and money market deposit accounts, is equal to
the carrying value. Certificates of deposit have been valued using
discounted cash flows. The discount rates used are based on
estimated market rates for deposits of similar remaining
maturities.
The fair value estimates in the table below do not include the
benefit that results from the low-cost funding provided by the
deposit liabilities compared to the cost of borrowing funds in the
market.
(e) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Due to their short-term nature, the fair value of securities sold
under agreements to repurchase approximates their carrying value.
(f) FHLB AND OTHER BORROWED FUNDS
Due to their short-term nature, the fair value of the Company's
other borrowed funds equals the carrying value of such
liabilities. The fair value of FHLB advances is based on current
borrowing rates.
(Continued)
F-26
<PAGE> 64
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(g) COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
There is no market for the commitment to extend credit and standby
letters of credit and they were issued without explicit cost.
Thereby it is not practical to establish their fair value.
The carrying value and estimated fair value of the Company's
financial instruments at December 31, 1999 and 1998 are as follows
(in thousands):
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term
investments $ 32,957 32,957 9,031 9,031
======== ======== ======== ========
Investment securities $ 58,509 58,115 71,256 71,586
======== ======== ======== ========
Loans, net of unearned
income and allowance
for loan losses
$122,000 121,850 103,090 104,544
======== ======== ======== ========
Financial liabilities:
Deposits $183,623 182,790 152,827 152,975
======== ======== ======== ========
Securities sold under
agreements to
repurchase $ 8,935 8,935 11,810 11,810
======== ======== ======== ========
Other borrowed funds $ 525 525 49 49
======== ======== ======== ========
FHLB advances $ 9,788 9,743 6,447 6,615
======== ======== ======== ========
</TABLE>
(Continued)
F-27
<PAGE> 65
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(14) DIVIDENDS FROM SUBSIDIARY
Dividends paid by the subsidiary bank are the primary source of funds
available to the Corporation for payment of dividends to its stockholders
and for other needs. Applicable federal and state statutes and
regulations impose restrictions on the amounts of dividends that may be
declared by the subsidiary bank. In addition, the subsidiary bank is also
required to maintain minimum amounts of capital to total "risk-weighted"
assets, as defined by banking regulators. Capital adequacy considerations
could further limit the availability of dividends from the subsidiary
bank. At December 31, 1999, the Bank could have declared dividends of
approximately $4,474,000 without prior approval of regulatory
authorities. Accordingly, at December 31, 1999, approximately $12,452,000
of the parents investment in its subsidiary was restricted from transfer
in the form of a dividends.
(15) COMPREHENSIVE INCOME
The following is a summary of the components of other comprehensive
income:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Other comprehensive income before tax
Unrealized holding gains (losses) arising
during the period, net $(1,790,555) 226,311 308,856
Less: reclassification adjustment for gains
(losses) included in net income 31,907 132,828 (28,602)
----------- ----------- -----------
Other comprehensive income, before
income taxes (1,822,462) 93,483 337,458
Income tax expense (benefit) related to other
comprehensive income:
Unrealized holding gains (losses) arising
during the period, net (716,222) 92,849 123,535
Less: reclassification adjustment for gains
(losses) included in net income 12,763 55,486 (11,449)
----------- ----------- -----------
Total income tax expense (benefit)
related to other comprehensive
income (728,985) 37,363 134,984
----------- ----------- -----------
Other comprehensive income (loss), after taxes $(1,093,477) 56,120 202,474
=========== =========== ===========
</TABLE>
(Continued)
F-28
<PAGE> 66
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(16) LITIGATION
The Corporation and its subsidiary bank are involved in various legal
proceedings, arising in connection with their business. In the opinion of
management, based upon consultation with legal counsel, the ultimate
resolution of these proceedings is not expected to have a material
adverse effect upon the financial position, liquidity or operation of the
Company.
(17) COMMITMENTS
The Corporation's subsidiary bank leases certain property and equipment
for use in its business. These leases have lease terms generally not in
excess of five years. Future minimum rental payments required under
operating leases which have initial or remaining noncancelable lease
terms in excess of one year as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31
------------------------
<S> <C>
2000 $ 50,886
2001 50,886
2002 50,886
2003 50,886
2004 46,446
Thereafter 56,000
--------
$305,990
========
</TABLE>
Rental expense for all operating leases charged to earnings aggregated
$103,298, $121,275, and $153,135 for the years ended December 31, 1999,
1998, and 1997, respectively.
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit, standby letters of credit and financial guarantees. Such
instruments involve elements of credit risk in excess of the amounts
recognized in the consolidated financial statements.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit, standby letters of credit, and financial guarantees written is
represented by the contractual amount of these instruments. The Company
uses the same credit policies in making conditional obligations as it
does for on-balance-sheet instruments.
(Continued)
F-29
<PAGE> 67
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
The financial instruments whose contract amounts represent credit risk as
of December 31, 1999, are as follows:
<TABLE>
<S> <C>
Commitments to extend credit $15,366,632
Standby letters of credit $ 1,310,000
</TABLE>
Standby letters of credit are commitments issued by the Company to
guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. The Company holds various assets as collateral supporting
those commitments for which collateral is deemed necessary.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements.
(18) OTHER NONINTEREST INCOME AND EXPENSE
Components of other noninterest expense exceeding one percent of the
total of interest income and other income for any of the years ended
December 31, 1999, 1998, and 1997, respectively, include the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Data processing fees $252,773 250,632 237,652
Supplies expenses 293,732 288,667 269,447
Miscellaneous expense 4,309 28,471 254,756
</TABLE>
Miscellaneous expense in 1997 was composed primarily of a $250,000
contribution to a charitable foundation.
During 1997, the Company received $500,000 of insurance proceeds in
settlement of legal fees incurred related to prior litigation which has
been classified as other noninterest income.
(Continued)
F-30
<PAGE> 68
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(19) REGULATORY MATTERS
The Company and the subsidiary banks are subject to various regulatory
capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain
mandatory--and possibly additional discretionary--actions by regulators
that, if undertaken, could have a direct material effect on the Company's
financial statements. Under capital adequacy guidelines and the
regulatory framework of prompt corrective action, the Company and the
subsidiary banks must meet specific capital guidelines that involve
quantitative measures of each bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The capital amounts and classification of the Company and the
subsidiary banks are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the subsidiary banks to maintain minimum
core capital ("Tier I Capital") of at least four percent of risk-weighted
assets, minimum total capital ("Total Qualifying Capital") of at least
eight percent of risk-weighted assets and a minimum leverage ratio of at
least four percent of average assets. Management believes, as of December
31, 1999, that the Company and the subsidiary banks meet all capital
adequacy requirements to which they are subject.
As of December 31, 1999, the most recent notification from the
appropriate regulatory agencies categorized the subsidiary banks as "well
capitalized" under the regulatory framework for prompt corrective action.
To be categorized as "well capitalized", the subsidiary banks must
maintain minimum Total Qualifying Capital, Tier I Capital and leverage
ratios of at least ten percent, six percent, and five percent,
respectively. There are no conditions or events since that notification
that management believes have changed the subsidiary bank's category.
The following table presents the actual capital amounts and ratios of the
Company and its significant subsidiary banks at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
Total Qualifying Capital Tier I Capital Leverage
------------------ ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999
Consolidated $20,132 14.96% 18,455 13.72% 18,455 9.15%
United Bank 19,323 14.40% 17,646 13.15% 17,646 8.70%
As of December 31, 1998
Consolidated 17,188 15.07% 15,763 13.82% 15,763 8.67%
United Bank 16,557 14.85% 15,163 13.60% 15,163 8.28%
</TABLE>
(Continued)
F-31
<PAGE> 69
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(20) SUBSEQUENT EVENTS
The Corporation is negotiating a Real Estate Opinion Agreement (the
"Option Agreement") with Juniper Development, LLC ("Juniper"), an Alabama
limited liability company owned by the directors of the Corporation and
the Bank. Juniper has contracted to buy a 22-acre parcel of land located
on County Road 20 in Foley, Alabama. Under the Option Agreement, the
Corporation would have the right to select up to 3 acres of the 22-acre
parcel to be used for a Foley branch of the Bank (the "Bank Site"). If
the Corporation exercises the option to purchase the Bank Site, the
purchase price under the Option Agreement would be the lesser of 85
percent of the appraised value of the land being purchased or $400,000.
The Corporation has previously investigated other property which might be
purchased for use for a Foley Bank branch, and anticipates that the
Corporation's cost to acquire a Foley branch site under the Option
Agreement would be lower than would be paid for comparable alternate
sites in a transaction with unaffiliated third parties.
(Continued)
F-32
<PAGE> 70
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(21) PARENT COMPANY FINANCIAL INFORMATION
The condensed financial information for United Bancorporation of Alabama,
Inc. (Parent Company Only) is presented as follows:
(Parent Company Only)
Condensed Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
------------ ------------
<S> <C> <C>
Cash $ 426,089 11,795
Dividend receivable from subsidiary bank -- 519,831
Premises and equipment 630,856 556,825
Investment in subsidiary bank 16,926,498 15,448,354
------------ ------------
Total assets $ 17,983,443 16,536,805
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 336,780 488,830
Stockholders' equity:
Class A common stock of $.01 par value. Authorized
5,000,000 shares; 1,149,281 and 1,096,320 shares
issued in 1999 and 1998, respectively 11,494 10,964
Class B common stock of $.01 par value. Authorized
250,000 shares; no shares issued and outstanding -- --
Preferred stock of $.01 par value. Authorized
250,000 shares; no shares issued and outstanding -- --
Surplus 4,804,489 3,476,518
Retained earnings 14,104,870 12,741,206
Accumulated other comprehensive income net of deferred
tax asset of $539,117 and deferred tax liability of
$189,899 in 1999 and 1998, respectively (808,600) 284,877
------------ ------------
18,112,253 16,513,565
Less 63,550 treasury shares, at cost 465,590 465,590
------------ ------------
Total stockholders' equity 17,646,663 16,047,975
------------ ------------
Total liabilities and stockholders' equity $ 17,983,443 16,536,805
============ ============
</TABLE>
(Continued)
F-33
<PAGE> 71
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Parent Company Only)
Condensed Statements of Operations
Years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Income:
Cash dividends from subsidiary $ 333,393 818,024 600,000
Other 41,967 51,200 9,450
Expense:
Salaries and benefits 193,359 -- --
Other 80,846 17,917 34,612
---------- ---------- ----------
Earnings before equity in undistributed
earnings of subsidiary 101,155 851,307 574,838
---------- ---------- ----------
Equity in undistributed earnings of subsidiary 1,846,621 1,081,512 1,154,721
---------- ---------- ----------
Net earnings $1,947,776 1,932,819 1,729,559
========== ========== ==========
</TABLE>
(Continued)
F-34
<PAGE> 72
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Parent Company Only)
Condensed Statements of Cash Flows
Years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,947,776 1,932,819 1,729,559
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Equity in undistributed earnings of
subsidiary (1,846,621) (1,081,512) (1,154,721)
Compensation expense arising from stock
option awards 193,359 -- --
Increase (decrease) in other liabilities (152,050) 171,301 2,673
Decrease (increase) in receivables 519,831 (179,831) (340,000)
----------- ----------- -----------
Net cash provided by operating
Activities 662,295 842,777 237,511
----------- ----------- -----------
Cash flows from investing activities:
Purchases of premises and equipment (74,031) (280,514) --
Capital investment in subsidiary (725,000) -- --
----------- ----------- -----------
Net cash used in investing activities (799,031) (280,514) --
----------- ----------- -----------
Cash flows from financing activities:
Cash dividends (584,112) (568,024) (516,386)
Proceeds from private placement 1,055,142 -- --
Exercise of stock options 80,000 -- --
----------- ----------- -----------
Net cash provided by financial activities 551,030 (568,024) (516,386)
----------- ----------- -----------
Net increase (decrease) in cash 414,294 (5,761) (278,875)
Cash at beginning of year 11,795 17,556 296,431
----------- ----------- -----------
Cash at end of year $ 426,089 11,795 17,556
=========== =========== ===========
</TABLE>
(Continued)
F-35
<PAGE> 73
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
38
<PAGE> 74
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by reference to the
Company's definitive Proxy Statement relating to the Company's 2000 Annual
Meeting of Stockholders to be filed not later than 120 days after the year ended
December 31, 1999 pursuant to Regulation 14A under the Securities Exchange Act
of 1934, as amended.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to the
Company's definitive Proxy Statement relating to the Company's 2000 Annual
Meeting of Stockholders to be filed not later than 120 days after the year ended
December 31, 1999 pursuant to Regulation 14A under the Securities Exchange Act
of 1934, as amended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to the
Company's definitive Proxy Statement relating to the Company's 2000 Annual
Meeting of Stockholders to be filed not later than 120 days after the year ended
December 31, 1999 pursuant to Regulation 14A under the Securities Exchange Act
of 1934, as amended.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to the
Company's definitive Proxy Statement relating to the Company's 2000 Annual
Meeting of Stockholders to be filed not later than 120 days after the year ended
December 31, 1999 pursuant to Regulation 14A under the Securities Exchange Act
of 1934, as amended.
39
<PAGE> 75
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The financial statements listed in the Index to Financial Statements
contained in Item 8 hereof are filed as part of this Annual Report on
Form 10-K.
(2) Financial statement schedules have been omitted as inapplicable.
(3) The Exhibits listed below are filed as part of this Report. Management
contracts and compensatory plans and arrangements required to be filed
pursuant to Item 14(c) are identified by an asterisk (*).
3.1 Restated Certificate of Incorporation of the Registrant (Incorporated
by reference herein from Exhibit 3a to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1988).
3.1.1 Certificate of Amendment to Restated Certificate of Incorporation of
the Registrant. (Incorporated by reference herein from Exhibit 3.1.1
to Registrant's Quarterly Report on Form 10-Q for the Quarter Ended
March 31, 1999.)
3.2 Amended and Restated Bylaws of the Registrant (Incorporated by
reference herein from Exhibit 3.2 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992).
10.1 Form of Employment Agreement between United Bank and Robert R. Jones,
III(Incorporated by reference herein from Exhibit 10.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.*
10.2 Supplemental Agreement between United Bank, the Registrant and Robert
R. Jones III*.
10.3 1998 Stock Option Plan of United Bancorporation of Alabama, Inc.
(Incorporated by reference herein from Exhibit 3.1.1 to Registrant's
Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1999.)
21 Subsidiary of the Registrant.
27 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the last quarter of the fiscal
year ended December 31, 1999.
40
<PAGE> 76
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNITED BANCORPORATION OF ALABAMA, INC.
(Registrant)
BY: /s/ Robert R. Jones, III
-------------------------------------
Robert R. Jones, III
President and Chief Executive Officer
March 29, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES CAPACITY IN WHICH SIGNED DATE
<S> <C> <C>
/s/ Robert R. Jones, III President, Chief March 29, 2000
- ------------------------- Executive Officer, and
Robert R. Jones, III Director
/s/ Mitchell D. Staples Treasurer March 29, 2000
- ------------------------- (principal financial and
Mitchell D. Staples principal accounting
officer)
/s/ H. Leon Esneul Director March 29, 2000
- -------------------------
H. Leon Esneul
/s/ David D. Swift Director March 29, 2000
- -------------------------
David D. Swift
/s/ William J. Justice Director March 29, 2000
- -------------------------
William J. Justice
/s/ Bobby W. Sawyer Director March 29, 2000
- -------------------------
Bobby W. Sawyer
</TABLE>
41
<PAGE> 77
<TABLE>
<CAPTION>
<S> <C> <C>
Director March 29, 2000
- -------------------------
William C. Grissett
/s/ L. Walter Crim Director March 29, 2000
- -------------------------
L. Walter Crim
</TABLE>
42
<PAGE> 78
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
21 Subsidiary of the registrant
E2
27 Financial Data Schedule
(omitted from this conforming copy)
</TABLE>
<PAGE> 1
EXHIBIT 21
The following wholly-owned subsidiary of United Bancorporation of Alabama, is
incorporated under the laws of the State of Alabama and does business under the
indicated corporate name:
United Bank
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 12-31-99 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 10,312,090
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 22,645,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 42,962,734
<INVESTMENTS-CARRYING> 15,545,733
<INVESTMENTS-MARKET> 15,152,215
<LOANS> 123,695,962
<ALLOWANCE> 1,676,274
<TOTAL-ASSETS> 221,967,244
<DEPOSITS> 183,208,451
<SHORT-TERM> 524,741
<LIABILITIES-OTHER> 1,864,624
<LONG-TERM> 9,787,762
0
0
<COMMON> 11,494
<OTHER-SE> 17,635,169
<TOTAL-LIABILITIES-AND-EQUITY> 221,967,244
<INTEREST-LOAN> 11,593,789
<INTEREST-INVEST> 3,509,584
<INTEREST-OTHER> 234,819
<INTEREST-TOTAL> 15,338,192
<INTEREST-DEPOSIT> 5,903,334
<INTEREST-EXPENSE> 6,934,655
<INTEREST-INCOME-NET> 8,403,537
<LOAN-LOSSES> 496,000
<SECURITIES-GAINS> 31,907
<EXPENSE-OTHER> 6,810,012
<INCOME-PRETAX> 2,573,538
<INCOME-PRE-EXTRAORDINARY> 2,573,538
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,947,776
<EPS-BASIC> 1.88
<EPS-DILUTED> 1.86
<YIELD-ACTUAL> 8.48
<LOANS-NON> 674,000
<LOANS-PAST> 28,000
<LOANS-TROUBLED> 122,000
<LOANS-PROBLEM> 2,634,347
<ALLOWANCE-OPEN> 1,428,492
<CHARGE-OFFS> 297,358
<RECOVERIES> 49,141
<ALLOWANCE-CLOSE> 1,676,274
<ALLOWANCE-DOMESTIC> 1,676,274
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
