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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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Commission file number 2-78572
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UNITED BANCORPORATION OF ALABAMA, INC.
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(Exact name of registrant as specified in its charter)
Delaware 63-0833573
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
P.O. Drawer 8, Atmore, AL 36504
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(Address of principal executive offices)
334-368-2525
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(Registrant's telephone number, including area code:)
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 report(s), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as March 31, 1999.
Class A Common Stock....... 516,385 Shares
Class B Common Stock....... -0- Shares
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UNITED BANCORPORATION OF ALABAMA, INC.
FORM 10-Q
For the Quarter Ended March 31, 1999
INDEX
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Earnings and Comprehensive Income 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Market Risk Disclosures 12
PART II - OTHER INFORMATION 15
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Item 6. (a) Exhibit 3.1.1 Certification of Amendment to Restated
Certificate of Incorporation of the
Corporation
Exhibit 10.3 1998 Stock Option Plan of United Bancorporation
of Alabama, Inc.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
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ITEM 1. UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED
STATEMENT OF CONDITION
March 31, December 31,
1999 1998
Unaudited Audited
Assets
Cash and due from banks $ 6,839,027 $ 8,385,901
Federal funds sold 0 645,000
------------ ------------
Cash and cash equivalents 6,839,027 9,030,901
Securities available for sale (amortized cost of $52,695,745
and $53,735,446 respectively) 52,826,921 54,210,192
Securities held to maturity (market values of $16,767,495 16,481,938 17,045,566
and $17,375,946 respectively)
Loans 118,126,079 104,624,631
Less: Unearned income 70,475 106,471
Allowance for loan losses 1,571,603 1,428,492
------------ ------------
Net loans 116,484,001 103,089,668
Premises and equipment, net 3,468,101 2,894,882
Interest receivable and other assets 2,519,205 2,922,032
------------ ------------
Total assets $198,619,193 $189,193,241
============ ============
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing $ 26,324,491 $ 26,953,055
Interest bearing 131,557,109 125,873,484
------------ ------------
Total deposits 157,881,600 152,826,539
Securities sold under agreements to repurchase 11,487,619 11,810,188
Other borrowed funds 11,757,509 6,447,356
Accrued expenses and other liabilities 1,214,835 2,061,183
------------ ------------
Total liabilities 182,341,563 173,145,266
Stockholders' equity:
Class A common stock. Authorized 975,000
shares of $.01 par value; 548,160
shares issued 5,482 5,482
Class B common stock of $.01 par value.
Authorized 250,000 shares;
-0- shares issued and outstanding. 0 0
Preferred stock of $.01 par value. Authorized
250,000 shares; -0- shares issued
and outstanding. 0 0
Surplus 3,476,518 3,476,518
Accumulated other comprehensive
income 78,707 284,877
Retained earnings 13,182,513 12,746,688
------------ ------------
16,743,220 16,513,565
Less 31,775 and 31,775 treasury shares, at cost 465,590 465,590
------------ ------------
Total stockholders' equity 16,277,630 16,047,975
------------ ------------
Total liabilities and stockholders' equity $198,619,193 $189,193,241
============ ============
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UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
March 31
1999 1998
Interest income:
Interest and fees on loans $2,684,715 $2,239,439
Interest on investment securities available for sale:
Taxable 634,564 601,835
Nontaxable 110,576 74,086
Interest on investment securities held to maturity:
Taxable 91,086 213,999
Nontaxable 138,951 129,533
---------- ----------
Total investment income 975,177 1,019,453
Other interest income 30,745 82,100
---------- ----------
Total interest income 3,690,637 3,340,992
Interest expense:
Interest on deposits 1,420,916 1,402,045
Interest on other borrowed funds 233,603 175,543
---------- ----------
Total interest expense 1,654,519 1,577,588
Net interest income 2,036,118 1,763,404
Provision for loan losses 199,000 60,000
---------- ----------
Net interest income after
provision for loan losses 1,837,118 1,703,404
Noninterest income:
Service charge on deposits 263,099 241,234
Commission on credit life 16,285 11,537
Investment securities gains and (losses), net 22,025 0
Other 87,817 84,996
---------- ----------
Total noninterest income 389,226 337,767
Noninterest expense:
Salaries and benefits 921,841 789,758
Net occupancy expense 212,769 218,120
Other 516,154 442,390
---------- ----------
Total non-interest expense 1,650,764 1,450,268
Earnings before income tax expense 575,580 590,903
Income tax expense 139,784 165,945
---------- ----------
Net earnings $ 435,796 $ 424,958
========== ==========
Basic earnings per share $ 0.84 $ 0.82
Weighted average shares outstanding 516,385 516,385
========== ==========
1999 1998
Statement of Comprehensive Income
Net Income $ 435,796 $ 424,958
Other Comprehensive Income, net of tax:
Unrealized holding gains arising during the period (206,142) (6,723)
Less: Reclassification adjustment for gains (losses)
included in net income -- --
---------- ----------
Comprehensive income $ 229,654 $ 418,235
========== ==========
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UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
1999 1998
Operating Activities
Net Income $ 435,796 $ 424,958
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Provision for Loan Losses 199,000 60,000
Depreciation on Premises and Equipment 72,347 74,259
Amortization of Investment Securities held to maturity 13,652 17,550
Amortization of Investment Securities Available for Sale 59,387 32,716
(Gain) Loss on Sale of Investment Securities Available for Sale (22,025) --
(Gain) Loss on Disposal of Premises and Equipment -- (3,500)
(Increase) Decrease in Interest Receivable
and Other Assets 540,275 (262,163)
Decrease in Accrued Expenses
and Other Liabilities (846,368) (1,431,761)
------------ ------------
Net Cash Provided (Used) by Operating Activities 452,064 (1,087,941)
------------ ------------
Investing Activities
Proceeds From Interest-bearing Deposits in
Other Financial Institutions -- 477
Proceeds From Sales of Investment Securities Available for Sale 2,037,207 --
Proceeds From Maturities of Investment Securities held to maturity 549,976 2,972,706
Proceeds From Maturities of Investment Securities Available for Sale 5,581,005 4,698,203
Purchases of Investment Securities held to maturity -- (690,201)
Purchases of Investment Securities Available for Sale (6,615,873) (23,275,049)
Net Increase in Loans (13,593,333) (1,229,312)
Purchases of Premises and Equipment (645,566) (276,779)
Proceeds From Sales of Premises and Equipment -- 3,500
Proceeds From Sales of Other Real Estate -- 37,500
------------ ------------
Net Cash Used by Investing Activities (12,686,584) (17,758,955)
------------ ------------
Financing Activities
Net Increase in Deposits, 5,055,061 16,259,181
Net Increase in securities sold under
agreement to repurchase (322,569) 752,412
Increase in Other Borrowed Funds 5,310,154 1,366,425
------------ ------------
Net Cash Provided by Financing Activities 10,042,646 18,378,018
------------ ------------
Decrease in Cash and Cash Equivalents (2,191,874) (468,878)
Cash and Cash Equivalents at Beginning of Period 9,030,901 11,175,030
------------ ------------
Cash and Cash Equivalents at End of Period $ 6,839,027 $ 10,706,152
============ ============
Supplemental disclosures
Cash paid during the year for:
Interest $ 1,710,118 $ 1,582,867
============ ============
Income Taxes $ 3,543 $ --
============ ============
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UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
NOTE 1 - General
The consolidated financial statements in this report have not been audited,
except for the Condensed Consolidated Statement of Condition dated December 31,
1998. In the opinion of management, all adjustments necessary to present fairly
the financial position, the results of operations and the statement of cash
flows for the interim periods have been made. All such adjustments are of a
normal recurring nature. The results of operations are not necessarily
indicative of the results of operations for the full year or any other interim
periods. For further information, refer to the consolidated financial
statements and footnotes included in the Corporation's annual report on Form
10-K for the year ended December 31, 1998.
NOTE 2 - New Accounting Pronouncements
Earnings per share are computed in accordance with Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS No. 128
requires the replacement of previously reported primary and fully diluted
earnings per share under Accounting Principles Board Opinion No. 15 with basic
earnings per share and diluted earnings per share. Basic earnings per share are
computed on the weighted average number of shares outstanding. As of March 31,
1999 the Company did not have stock option plans or other stock-based
compensation plans that would result in potential common shares and thus
diluted earnings per share for the quarter were identical to basic earnings per
share. The stockholders of the Corporation approved the United Bancorporation
of Alabama, Inc. Stock Option Plan at the Annual Meeting of Stockholders on May
5, 1999, pursuant to which stock options had been granted subject to
stockholder approval.
Effective January 1, 1998, the Corporation adopted the SFAS No. 130 "Reporting
Comprehensive Income", which requires disclosure, in financial statement
format, all non-owner changes in equity. Adoption of this statement requires
the presentation of comprehensive income, which includes the unrealized gain of
loss on investment 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 about operating segments. Disclosure of selected information about
operating segments. 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 Corporation 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 recognizes all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS 133 is effective for financial statements for the first quarter of fiscal
years beginning after June 15, 1999. Management is evaluating the impact of
SFAS 133 on the financial statements of the Corporation.
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Note 3 - Subsequent Events
On May 5, 1999, the Corporation announced a two-for-one stock split to be
effected in the form of stock dividend payable May 17, 1999 to shareholders of
record on April 30, 1999. Basic earnings per share on a restated basis was
$0.42 for March 31, 1999 and $0.41 for March 31, 1998.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The following financial review is presented to provide an analysis of the
results of operations of United Bancorporation of Alabama, Inc. (the
"Corporation"), and its subsidiary for the three months ended March 31, 1999,
and 1998, comparatives. This review should be used in conjunction with the
consolidated financial statements included in the Form 10-Q.
Net income after taxes for the three months ended March 31, 1999, increased
$10,838, or 2.55%, as compared to the same period in 1998. This increase is a
result of a lower effective tax rate due to a higher level of tax exempt
income.
Total interest income increased by $349,645, or 10.47% in 1999. This increase
was caused by loan interest income increasing $445,276 or 19.88% and a decrease
of $95,631 or 8.68% in income from other interest earning assets. Average
interest earning assets were $184,624,977 for the first quarter of 1999 as
compared to $161,247,219 for the same period in 1998, an increase of
$23,377,758 or 14.50%. The average rate earned in 1999 was 8.11% as compared to
8.40% in 1998, reflecting the lowering of rates by the Federal Reserve in the
fall of 1998, and resulting in higher yielding bonds being called in the latter
part of 1998. Thus, the majority of the increase in total interest income in
1999 is attributed to the increase in volume of earning assets. The net
interest margin increased to 4.47% for the first quarter of 1999, as compared
to 4.43% for the same period in 1998.
Total interest expense increased by $76,931, or 4.88%, in 1999. Average
interest bearing liabilities increased to $152,999,633 in 1999, from
$142,466,082 in 1998, an increase of $10,533,551, or 7.39%. The average rate
paid during the first quarter of 1999 was 4.39% as compared to 4.80% for the
same period in 1998. The increase in interest expense is attributed to the
increase in interest bearing liabilities but was affected somewhat by the
decrease in the interest rate paid. The Bank received approximately 15,000,000
in 1998, in interest bearing checking accounts based on a floating rate of
61.8% of prime. The account is currently paying 4.79%. These deposits were a
competitive bid on public funds, the contract runs for three years.
The provision for loan losses increased to $199,000 for the first three months
of 1999, as compared to $60,000 for the same period in 1998. The growth in the
provision for loan loss of 231.66% was due to the growth in the loan portfolio
of $13,510,817. 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.
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The allowance for loan losses consists of two portions: the classified portion
and the nonclassified portion. The classified portion is based on identified
problem loans and is calculated based on an assessment of credit risk related
to those loans. Specific loss estimate amounts are included in the allowance
based on assigned classifications as follows: substandard (10%), doubtful
(50%), and loss (100%).
The nonclassified portion of the allowance is for inherent losses which
probably exist as of the evaluation date even though they may not have been
identified by the more objective processes for the classified portion of the
allowance. This is due to the risk of error and inherent imprecision in the
process. This portion of the allowance is particularly subjective and requires
judgments based upon qualitative factors which do not lend themselves to exact
mathematical calculations. Some of the factors considered are changes in credit
concentrations, loan mix, historical loss experience, and general economic
environment in the Corporation's markets.
While the total allowance is described as consisting of a classified and a
nonclassified portion, these terms are primarily used to describe a process.
Both portions are available to support inherent losses in the loan portfolio.
Management realizes that general economic trends greatly effect loan losses,
and no assurances can be made that future charges to the allowance for loan
losses will not be significant in relation to the amount provided during a
particular period, or that future evaluations of the loan portfolio based on
conditions then prevailing will not require sizable charges to income.
Management does, however, consider the allowance for loan losses to be
appropriate for the reported periods.
Net charged-off loans for the first quarter of 1999 were $55,889, as compared
to $148,534 net charge-offs in the first quarter of 1998.
The allowance for loan losses represents 1.33% of gross loans at March 31,
1999, as compared to 1.37% at year-end 1998. Loans on which the accrual of
interest had been discontinued amounted to $395,814 at March 31, 1999, as
compared to $420,192 at December 31, 1998.
Total non-interest income increased to $389,226 for the first quarter of 1999,
as compared to $337,767 for the same period of 1998, an increase of $51,459, or
15.24%. Service charges on deposits increased $21,865, or 9.06%. Commissions on
credit life increased by $4,748 in 1999, or 4.12%. Other income increased
during the first quarter of 1999 to $87,817 from $84,996 in 1998 or 3.32%.
Total non-interest expense increased $200,496, or 13.82% during the first
quarter of 1999. Salaries and benefits increased $132,083 or 16.72% in 1999.
The Corporation has added one new branch since March of 1998, which accounted
for a majority of the increase in salaries and benefits. Occupancy expense
decreased $5,351, or 2.45%. Other expense increased $63,714 or 14.40% during
the first quarter of 1999. The majority of this increase can be traced to
professional services that increased $19,692 and supplies, which increased
$15,684.
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Earnings before taxes for the first quarter of 1999 decreased $15,323, or
2.59%, compared to the same period of 1998. Income tax expense decreased to
$139,784 in 1999 from $165,945 in 1998, a decrease of $26,161, or 15.76%. The
effective tax rate decreased from 28.08% to 24.29% as a result increased
interest income from tax-free bonds.
Financial Condition and Liquidity
Total assets on March 31, 1999, had increased $9,425,951 or 4.75% as compared
to December 31, 1998. Average total assets for the first quarter of 1999 were
$196,037,952 as compared to $171,119,129 for the same period in 1998. Net loans
increased by $13,394,333 or 12.99% at March 31, 1999, from December 31, 1998.
This growth in loans has occurred in the Baldwin County markets of the
Corporation, and the growth is primarily in the commercial real estate type
loans. The net loan to deposit ratio on March 31, 1999 was 73.78%, as compared
to 68.46% on December 31, 1998.
Fed Funds Sold decreased $645,000 as of March 31, 1999, as the bank has a
borrowed position in Fed Funds, due to loan demand exceeding deposit growth. At
the end of March the Corporation had $4,905,000 in federal funds borrowed at a
rate of 4.98%. The investment securities available for sale decreased by
$1,383,271 or 2.55% in the first quarter of 1999, from December 31, 1998. The
investment securities held to maturity decreased by $563,528 or 3.31% at March
31, 1999 from December 31, 1998.
Non-performing Assets: The following table sets forth the Corporation's
non-performing assets at March 31, 1999 and December 31, 1998. Under the
Corporation's nonaccrual policy, a loan is placed on nonaccrual status when
collectibility of principal and interest is in doubt or when principal and
interest is 90 days or more past due.
March December
Description 1999 1998
(Dollars in Thousands)
(A) Loans accounted for on a $395 $420
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). 34 13
(C) Loans, the term 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. 38 41
(D) Other non-performing assets 217 248
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Total deposits increased $5,055,061, or 3.31%, at March 31, 1999, from December
31, 1998. Non-interest bearing deposits decreased $628,564 or 2.33% at quarter
end from the year-end total. Interest bearing deposits increased $5,683,625, or
4.52%, at March 31, 1999, from December 31, 1998. Average total deposits for
the first quarter of 1999 were $157,187,762, as compared to $141,084,491 for
the same period in 1998.
The Corporation relies primarily on internally generated capital growth to
maintain capital adequacy. Total stockholders' equity on March 31, 1999, was
$16,277,651, an increase of $229,676, or 1.43%, from $16,047,975 at year-end
1998.
Primary capital to total assets at March 31, 1999, was 8.19%, as compared to
8.48% at year-end 1998. Total capital and allowances for loan losses to total
assets at March 31, 1999, were 8.99%, as compared to 9.24% at December 31,
1998. The Corporation's bank subsidiary, United Bank, had risk based capital of
$17,137,000, or 13.89%, at March 31, 1999, as compared to $16,557,000, or
14.85% at year end 1998. The minimum requirement is 8.00%. Based on
management's projection, internally generated capital should be sufficient to
satisfy capital requirements in the foreseeable future, for existing
operations, but the continual growth into new markets may require the Bank to
access external funding sources.
Year 2000 Issues
The Federal Financial Institutions Examination Council (FFIEC) issued an
interagency statement on May 5, 1997, providing an outline for institutions to
effectively manage Year 2000 challenges. As a result, the Bank formed its Year
2000 committee in May of 1997. The board of directors has established Year 2000
compliance as a strategic initiative. The Bank has also established an ongoing
action plan designed to ensure that its operational and financial systems will
not be adversely effected by software failures due to processing errors
resulting from the Year 2000 issues. The status of the Bank's initiative as of
March 31, 1999 is as follows:
PROBLEM AWARENESS-The Bank is aware of the problems that could
potentially arise from Year 2000 problems and has analyzed internal
systems (information technology and non-information technology) as
well as services provided by third parties. The Bank will maintain
initiatives focusing on customer awareness throughout 1999.
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ASSESSMENT PHASE-The Bank has identified all mission critical
applications and determined the respective systems which were not Year
2000 compliant. The Bank's third party service providers have been
contacted to determine their Year 2000 status. The Bank is in the
process of reviewing test results to determine if the providers are
Year 2000 compliant. These results should be completed by the end of
the second quarter.
RENOVATION PHASE-As of March 31, 1999, the renovation of all mission
critical systems, other than the Bank's third party data processing
center, was essentially complete. The Bank's third party data
processing center is currently reviewing testing results from late
March and early April testing and is expected to complete its
renovation phase in the second quarter.
VALIDATION-The only mission critical system for which testing
renovation is currently not complete, is the Bank's third party data
processing center, is expected to be completed by June of 1999.
IMPLEMENTATION-Replacement of non-compliant mission critical systems
is essentially complete. Results from testing, all of which has been
completed, will be thoroughly reviewed and remedial actions, if
necessary, will be taken.
Through March 31, 1999, the Bank has incurred approximately $18,689 in
conjunction with its Year 2000 efforts. Additional expenditures are expected to
approximate $48,000. The Bank's internal costs associated with the Year 2000
have not been separately identified. The Bank has an established contingency
plan with the third party data processing center, as well as for internal
operations. Which has been tested for Year 2000 issues.
Item 3. Market Risk Disclosures
Market risk is the risk of loss from adverse changes in market prices and
rates. The Bank's market risk arises principally from interest rate risk
inherent in its lending, deposit and borrowing activities. Management actively
monitors and manages its interest rate risk exposure. Although the Bank manages
other risk, such as credit quality and liquidity risk, in the normal course of
business, management considers interest rate risk to be its most significant
market risk. Interest rate risk could potentially have the largest material
effect on the Bank's financial condition and results of operations. Other types
of market risks, such as foreign currency exchange rate risk and commodity
price risk, do not arise in the Bank's normal course of business activities.
The Bank's profitability is affected by fluctuations in interest rates.
Management's goal is to maintain a reasonable balance between exposure to
interest rate fluctuations and earnings. A sudden and substantial increase in
interest rates may adversely impact the Bank's earnings to the extent that the
interest rates on interest-earning assets and interest-bearing liabilities do
not change at the same speed, to the same extent or on the same basis.
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The Bank's Asset Liability Management Committee ("ALCO") monitors and considers
methods of managing the rate and sensitivity repricing characteristics of the
balance sheet components consistent with maintaining acceptable levels of
changes in the net portfolio value ("NPV") and net interest income. NPV
represents the market values of portfolio equity and is equal to the market
value of assets minus the market value of liabilities, with adjustments made
for off- balance sheet items over a range of assumed changes in market interest
rates. A primary purpose of the Bank's ALCO is to manage interest rate risk to
effectively invest the Bank's capital and to preserve the value created by its
core business operations. As such, certain management monitoring processes are
designed to minimize the impact of sudden and sustained changes in interest
rates on NPV and net interest income.
The Bank's exposure to interest rate risk is reviewed on a quarterly basis by
the Board of Directors and the ALCO. Interest rate risk exposure is measured
using interest rate sensitivity analysis to determine the Bank's change in NPV
in the event of hypothetical changes in interest rates. Further, interest rate
sensitivity gap analysis is used to determine the repricing characteristics of
the Bank's assets and liabilities. The ALCO is charged with the responsibility
to maintain the level of sensitivity of the Bank's net interest margin within
Board approved limits.
Interest rate sensitivity analysis is used to measure the Bank's interest rate
risk by computing estimated changes in NPV of its cash flows from assets,
liabilities, and off-balance sheet items in the event of a range of assumed
changes in market interest rates. This analysis assesses the risk of loss in
market risk sensitive instruments in the event of a sudden and sustained 100 -
400 basis points increase or decrease in the market interest rates. The Bank
uses the Sendero Model Level II, which takes the current rate structure of the
portfolio and shocks for each rate level and calculates the new market value
equity at each level. The Bank's Board of Directors has adopted an interest
rate risk policy, which establishes maximum allowable decreases in net interest
margin in the event of a sudden and sustained increase or decrease in market
interest rates. The following table presents the Bank's projected change in NPV
for the various rate shock levels as of March 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.
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CHANGE IN CHANGE IN
CHANGE IN MARKET MARKET MARKET
INTEREST RATES VALUE VALUE VALUE
(BASIS POINTS) EQUITY EQUITY EQUITY (%)
-------------- -------- --------- ----------
400 11,068.2 (6,075.7) (35.4)
300 12,475.6 (4,668.2) (27.2)
200 13,950.5 (3,193.4) (18.6)
100 15,502.6 (1,641.2) (9.6)
0 17,143.9 0 0
(100) 18,888.8 1,744.9 10.2
(200) 20,764.8 3,611.4 21.1
(300) 22,764.8 5,620.9 32.8
(400) 24,587.9 7,444.0 43.4
The preceding table indicates that at March 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.
The recent growth in loans has caused the caused the Corporation to become more
liability sensitive over the period of a year, but the net interest margin
remains stable in all interest rate environments tested.
Computation of prospective effects of hypothetical interest rate changes
included in these forward-looking statements are subject to certain risks,
uncertainties, and assumptions including relative levels of market interest
rates, loan prepayments and deposit decay rates, and should not be relied upon
as indicative of actual results. Further, the computations do not contemplate
any actions the Bank could undertake in response to changes in interest rates.
Forward Looking Statements
When used or incorporated by reference herein, the words "anticipate",
"estimate", "expect", "project", "target", "goal", and similar expressions, are
intended to identify forward-looking statements within the meaning of Section
27A of the Securities Act of 1933. Such forward-looking statements are subject
to certain 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.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of United Bancorporation
of Alabama, Inc. was held on May 5, 1999.
(b) The following nominees were re-elected as Directors of the
Corporation, to serve until the 2002 Annual Meeting of
Stockholders, by the votes indicated:
Nominee For Against
-------------------- ----------- ---------------
Robert R. Jones, III 331,937 8
Bobby W. Sawyer 331,837 108
The Directors of the Corporation whose terms of office
continued after the 1999 Annual Meeting are as follows below:
To Serve Until the Annual
Director Meeting of Stockholders in the year
------------------- -----------------------------------
L. Walker Crim 2000
H. Leon Esneul 2000
William J. Justice 2000
William C. Grissett 2001
David D. Swift 2001
(c) The stockholders of the Corporation approved an amendment of
the Certificate of Incorporation of the Corporation to
increase the authorized Class A Common Stock of the
Corporation from 975,000 to 5,000,000 shares, by the
following vote:
For Against Abstain
------- ------- -------
326,771 4,461 713
(d) The stockholders of the Corporation approved the 1998 Stock
Option Plan of United Bancorporation of Alabama, Inc. (the
"Plan") by the following vote:
For Against Abstain
------- ------- -------
323,714 7,284 947
A copy of the Plan is attached hereto as Exhibit 10.3.
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Item 5. Other Information.
The Board of Directors of the Corporation declared a two-for-one split
of the Class A Common Stock ("Class A Stock") of the Corporation, to be
effected as a 100% stock dividend payable on May 17, 1999 to stockholders of
record on April 30, 1999, subject to approval of an amendment to the
Certificate of Incorporation of the Corporation to increase the Class A Stock
from 975,000 to 5,000,000 shares. The increase in authorized stock was approved
by the stockholders of the Corporation at the Annual Meeting of Stockholders
held on May 5, 1999.
Item 6. Exhibits and Reports on Form 8-K.
(A) Exhibits.
Exhibit No. Description
----------- -----------
Exhibit 3.1.1 Certificate of Amendment to Restated Certificate of
Incorporation of the Corporation.
Exhibit 10.3* 1998 Stock Option Plan of United Bancorporation of
Alabama, Inc.
* Management contracts and compensatory plans and arrangements
are identified by an asterisk (*).
Exhibit 27 Financial Data Schedule
(B) During the three months ended March 31, 1999, the Corporation
did not file a Form 8-K Current Report with the Securities
and Exchange Commission.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED BANCORPORATION OF ALABAMA, INC.
Dated: May 13, 1999 /s/ ROBERT R. JONES, III
------------- ---------------------------------------
Robert R. Jones, III
President
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INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
Exhibit 3.1.1 Certificate of Amendment to Restated Certificate of
Incorporation of the Corporation.
Exhibit 10.3 1998 Stock Option Plan of United Bancorporation of
Alabama, Inc.
Exhibit 27 Financial Data Schedule