##### 



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 Commission File No. 2-78572
 UNITED BANCORPORATION OF ALABAMA, INC.
  Delaware
    
    63-0833573(State or other jurisdiction of
    
    (I.R.S.Employer Identification No.)incorporation or organization)
 P.O. Drawer 8, Atmore, Alabama 36504
     o þ
 o þ
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 o þ
  TABLE OF CONTENTS  PART IITEM 1. BUSINESSITEM 1A. RISK FACTORSITEM 1B. UNRESOLVED STAFF COMMENTSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5. MARKET FOR THE REGISTRANTS EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A(T). CONTROLS AND PROCEDURESITEM 9B. OTHER INFORMATIONPART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCEITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICESPART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULESSIGNATURESINDEX TO EXHIBITSEmployment Agreement - Allen O. Jones, Jr.Subsidiaries of the RegistrantConsent of Independent Registered Public Accounting Firm (Mauldin & Jenkins, LLC)Certification of CEO Pursuant to Rules 13a-15(e) and 15d-15(e)Certification of CFO Pursuant to Rules 13a-15(e) and 15d-15(e)Certification Pursuant to 18 U.S.C. Section 1350Certification Pursuant to 18 U.S.C. Section 1350  Common Stock
    
    Par Value
    
    Outstanding at March 27, 2008Class A
    
    $
    .01
    
    
    
    2,251,164
    
    Shares*Class B
    
    $
    .01
    
    
    
    0
    
    Shares
 
 *
    
    Excludes 133,007 shares held as treasury stock.




---



##### 



PART I
 
 ITEM 1. BUSINESS
 Forward-Looking Statements
  United Bancorporation of Alabama, Inc and United Bank
   www.unitedbank.com
 2




---



##### 



Competition
 Employees
 Supervision, Regulation and Government Policy
     3




---



##### 



4




---



##### 



5




---



##### 



(Dollars in Thousands)Interest Income
    
    
    Average RatesAverage Balance
    
    
    Expense
    
    
    Earned Paid2007Loans, net (1)
    
    $
    251,348
    
    
    $
    21,195
    
    
    
    8.43
    %Taxable securities available for sale
    
    
    73,682
    
    
    
    3,662
    
    
    
    4.97
    %Tax exempt sec available for sale (2)
    
    
    35,750
    
    
    
    2,163
    
    
    
    6.05
    %Federal funds sold and repurchase agreements
    
    
    5,230
    
    
    
    258
    
    
    
    4.93
    %Interest-bearing deposits with other
financial institutions
    
    
    12,832
    
    
    
    667
    
    
    
    5.20
    %Total interest-earning assets
    
    $
    381,137
    
    
    $
    27,945
    
    
    
    7.38
    %Saving deposits and demand deposits interest-bearing
    
    $
    90,123
    
    
    $
    2,052
    
    
    
    2.28
    %Time deposits
    
    
    174,009
    
    
    
    8,407
    
    
    
    4.83
    %Repurchase agreements
    
    
    40,909
    
    
    
    1,708
    
    
    
    4.18
    %Other borrowed funds
    
    
    18,318
    
    
    
    1,396
    
    
    
    7.62
    %Total interest-bearing liabilities
    
    $
    323,359
    
    
    $
    13,563
    
    
    
    4.19
    %Net interest income/net yield on interest earning assets
    
    
    
    
    
    $
    14,382
    
    
    
    3.8
    %
 Interest Income
    
    
    Average RatesAverage Balance
    
    
    Expense
    
    
    Earned Paid2006Loans, net (1)
    
    $
    242,431
    
    
    $
    20,815
    
    
    
    8.59
    %Taxable securities available for sale
    
    
    43,275
    
    
    
    2,112
    
    
    
    4.88
    %Tax exempt sec available for sale (2)
    
    
    31,870
    
    
    
    1,912
    
    
    
    6.00
    %Federal funds sold and repurchase agreements
    
    
    8,535
    
    
    
    434
    
    
    
    5.08
    %Interest-bearing deposits with other
financial institutions
    
    
    10,369
    
    
    
    427
    
    
    
    4.12
    %Total interest-earning assets
    
    $
    336,480
    
    
    $
    25,700
    
    
    
    7.64
    %Saving deposits and demand deposits interest-bearing
    
    $
    79,120
    
    
    $
    1,197
    
    
    
    1.51
    %Time deposits
    
    
    143,241
    
    
    
    5,846
    
    
    
    4.08
    %Repurchase agreements
    
    
    41,745
    
    
    
    1,661
    
    
    
    3.98
    %Other borrowed funds
    
    
    16,380
    
    
    
    1,052
    
    
    
    6.42
    %Total interest-bearing liabilities
    
    $
    280,486
    
    
    $
    9,756
    
    
    
    3.48
    %Net interest income/net yield on interest earning assets
    
    
    
    
    
    $
    15,944
    
    
    
    4.74
    %
 6




---



##### 



Average Balance
    
    
    Expense
    
    
    Earned Paid2005Loans, net (1)
    
    $
    213,311
    
    
    $
    15,786
    
    
    
    7.40
    %Taxable securities available for sale
    
    
    42,604
    
    
    
    1,822
    
    
    
    4.28
    %Tax exempt sec available for sale (2)
    
    
    26,117
    
    
    
    1,575
    
    
    
    6.03
    %Federal funds sold and repurchase agreements
    
    
    9,784
    
    
    
    243
    
    
    
    2.48
    %Interest-bearing deposits with other
financial institutions
    
    
    6,847
    
    
    
    204
    
    
    
    2.98
    %Total interest-earning assets
    
    $
    298,663
    
    
    $
    19,630
    
    
    
    6.57
    %Saving deposits and demand deposits interest-bearing
    
    $
    74,362
    
    
    $
    893
    
    
    
    1.20
    %Time deposits
    
    
    122,387
    
    
    
    3,290
    
    
    
    2.69
    %Repurchase agreements
    
    
    27,580
    
    
    
    642
    
    
    
    2.33
    %Other borrowed funds
    
    
    13,500
    
    
    
    678
    
    
    
    5.02
    %Total interest-bearing liabilities
    
    $
    237,829
    
    
    $
    5,503
    
    
    
    2.31
    %Net interest income/net yield on interest earning assets
    
    
    
    
    
    $
    14,127
    
    
    
    4.73
    %
 
 (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 2007, 2006, and 2005.   Interest IncomeAverage Balances
    
    
    
    
    Expense
    
    
    
    
    
    
    Variance as to2007
    
    
    2006
    
    
    
    
    2007
    
    
    2006
    
    
    Variance
    
    
    Rate
    
    
    Volume$
    251,348
    
    
    $
    242,431
    
    
    Loans (Net)
    
    $
    21,194
    
    
    $
    20,815
    
    
    $
    379
    
    
    $
    (368
    )
    
    $
    74773,682
    
    
    
    43,275
    
    
    Taxable SecuritiesAFS (1)
    
    
    3,692
    
    
    
    2,112
    
    
    
    1,580
    
    
    
    122
    
    
    
    1,45835,750
    
    
    
    31,870
    
    
    Tax Exempt Securities AFS (2)
    
    
    2,164
    
    
    
    1,912
    
    
    
    252
    
    
    
    20
    
    
    
    2325,230
    
    
    
    8,535
    
    
    Fed Funds Sold
    
    
    258
    
    
    
    434
    
    
    
    (176
    )
    
    
    (12
    )
    
    
    (164
    )12,832
    
    
    
    10,369
    
    
    Interest Bearing Deposits
    
    
    637
    
    
    
    427
    
    
    
    210
    
    
    
    97
    
    
    
    113$
    378,842
    
    
    $
    336,480
    
    
    Total Earning Assets
    
    $
    27,945
    
    
    $
    25,700
    
    
    $
    2,245
    
    
    $
    (141
    )
    
    $
    2,386$
    90,123
    
    
    $
    79,120
    
    
    Savings and Interest Bearing Demand Deposits
    
    $
    2,052
    
    
    $
    1,197
    
    
    $
    855
    
    
    $
    312
    
    
    $
    543174,009
    
    
    
    143,241
    
    
    Time Deposits
    
    
    8,407
    
    
    
    5,846
    
    
    
    2,561
    
    
    
    1,368
    
    
    
    1,19340,909
    
    
    
    41,745
    
    
    Repurchase Agreements
    
    
    1,708
    
    
    
    1,661
    
    
    
    47
    
    
    
    78
    
    
    
    (31
    )18,318
    
    
    
    16,380
    
    
    Other Borrowed Funds
    
    
    1,396
    
    
    
    1,052
    
    
    
    344
    
    
    
    138
    
    
    
    205$
    323,359
    
    
    $
    280,486
    
    
    Total Interest Bearing Liabilities
    
    $
    13,563
    
    
    $
    9,756
    
    
    $
    3,807
    
    
    $
    1,896
    
    
    $
    1,910
  
 (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 2007, 2006, and 2005. 7




---



##### 



Interest IncomeAverage Balances
    
    
    
    
    Expense
    
    
    
    
    
    
    Variance as to2006
    
    
    2005
    
    
    
    
    2006
    
    
    2005
    
    
    Variance
    
    
    Rate
    
    
    Volume$
    242,431
    
    
    $
    213,311
    
    
    Loans (Net)
    
    $
    20,815
    
    
    $
    15,786
    
    
    $
    5,029
    
    
    $
    2,684
    
    
    $
    2,34543,275
    
    
    
    42,604
    
    
    Taxable SecuritiesAFS (1)
    
    
    2,112
    
    
    
    1,822
    
    
    
    290
    
    
    
    30
    
    
    
    26031,870
    
    
    
    26,117
    
    
    Tax Exempt Securities AFS (2)
    
    
    1,912
    
    
    
    1,575
    
    
    
    337
    
    
    
    (15
    )
    
    
    3528,535
    
    
    
    9,784
    
    
    Fed Funds Sold
    
    
    434
    
    
    
    243
    
    
    
    191
    
    
    
    (52
    )
    
    
    24310,369
    
    
    
    6,847
    
    
    Interest Bearing Deposits
    
    
    427
    
    
    
    204
    
    
    
    223
    
    
    
    132
    
    
    
    91$
    336,480
    
    
    $
    298,663
    
    
    Total Earning Assets
    
    $
    25,700
    
    
    $
    19,630
    
    
    $
    6,070
    
    
    $
    2,779
    
    
    $
    3,291$
    79,120
    
    
    $
    74,362
    
    
    Savings and Interest Bearing Demand Deposits
    
    $
    1,197
    
    
    $
    893
    
    
    $
    304
    
    
    $
    255
    
    
    $
    49143,241
    
    
    
    122,387
    
    
    Time Deposits
    
    
    5,846
    
    
    
    3,290
    
    
    
    2,556
    
    
    
    1,732
    
    
    
    82441,745
    
    
    
    27,580
    
    
    Repurchase Agreements
    
    
    1,661
    
    
    
    642
    
    
    
    1,019
    
    
    
    595
    
    
    
    42416,380
    
    
    
    13,500
    
    
    Other Borrowed Funds
    
    
    1,052
    
    
    
    678
    
    
    
    374
    
    
    
    130
    
    
    
    244$
    280,486
    
    
    $
    237,829
    
    
    Total Interest Bearing Liabilities
    
    $
    9,756
    
    
    $
    5,503
    
    
    $
    4,253
    
    
    $
    2,712
    
    
    $
    1,541
  
 (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 2006 and 2005.   8




---



##### 



2007
    
    
    2006
    
    
    2005US Government Agencies
excluding Mortgage Backed
securities
Within one year
    
    $
    22,434
    
    
    
    4.28
    %
    
    $
    29,457
    
    
    
    5.40
    %
    
    $
    
    
    
    
    0.00
    %1-5 years
    
    
    14,236
    
    
    
    4.73
    %
    
    
    12,869
    
    
    
    4.48
    %
    
    
    17,103
    
    
    
    4.06
    %5-10 years
    
    
    21,943
    
    
    
    5.49
    %
    
    
    11,785
    
    
    
    5.48
    %
    
    
    2,000
    
    
    
    4.89
    %After 10 years
    
    
    1,002
    
    
    
    5.75
    %
    
    
    1,000
    
    
    
    5.75
    %
    
    
    
    
    
    
    0.00
    %Total
    
    $
    59,615
    
    
    
    4.86
    %
    
    $
    55,111
    
    
    
    5.21
    %
    
    $
    19,103
    
    
    
    4.15
    %Mortgage Backed Securities
Within one year
    
    $
    728
    
    
    
    3.60
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    
    
    
    
    0.00
    %1-5 years
    
    
    2,356
    
    
    
    4.05
    %
    
    
    3,980
    
    
    
    4.02
    %
    
    
    4,292
    
    
    
    3.83
    %5-10 years
    
    
    4,620
    
    
    
    4.05
    %
    
    
    6,000
    
    
    
    4.05
    %
    
    
    8,358
    
    
    
    4.06
    %After 10 years
    
    
    9,208
    
    
    
    4.74
    %
    
    
    11,435
    
    
    
    4.66
    %
    
    
    11,123
    
    
    
    4.98
    %Total
    
    $
    16,912
    
    
    
    4.44
    %
    
    $
    21,415
    
    
    
    4.37
    %
    
    $
    23,773
    
    
    
    4.45
    %State &
Municipal (1) Within one year
    
    $
    469
    
    
    
    4.06
    %
    
    $
    591
    
    
    
    2.52
    %
    
    $
    1,000
    
    
    
    3.13
    %1-5 years
    
    
    6,318
    
    
    
    3.90
    %
    
    
    5,169
    
    
    
    3.88
    %
    
    
    4,709
    
    
    
    3.76
    %5-10 years
    
    
    14,160
    
    
    
    4.02
    %
    
    
    12,407
    
    
    
    4.09
    %
    
    
    10,416
    
    
    
    4.11
    %After 10 years
    
    
    14,471
    
    
    
    4.02
    %
    
    
    14,482
    
    
    
    4.01
    %
    
    
    12,769
    
    
    
    4.01
    %Total
    
    $
    35,418
    
    
    
    4.00
    %
    
    $
    32,649
    
    
    
    3.99
    %
    
    $
    28,894
    
    
    
    3.97
    %Totals
    
    $
    111,945
    
    
    
    4.52
    %
    
    $
    109,175
    
    
    
    4.68
    %
    
    $
    71,770
    
    
    
    4.18
    %
 
 (1)
    
    Yields on tax-exempt obligations have been computed on a full federal tax-equivalent basis
using an income tax rate of 34% for 2007, 2006 and 2005.    9




---



##### 



10




---



##### 



One year
    
    
    One - five
    
    
    After fiveor less
    
    
    years
    
    
    years
    
    
    TotalReal estate  construction
    
    $
    9,045
    
    
    $
    56,955
    
    
    $
    2,699
    
    
    $
    68,699Real estate  mortgage
1-4 family
    
    
    615
    
    
    
    27,264
    
    
    
    13,860
    
    
    
    41,739Real estate  commercial
    
    
    671
    
    
    
    40,611
    
    
    
    13,281
    
    
    
    54,563Real estate  other
    
    
    1,201
    
    
    
    16,959
    
    
    
    13,377
    
    
    
    31,537Agricultural
    
    
    490
    
    
    
    7,719
    
    
    
    1,045
    
    
    
    9,254Commercial
    
    
    3,202
    
    
    
    32,362
    
    
    
    10,566
    
    
    
    46,130Other loans
    
    
    1,412
    
    
    
    11,494
    
    
    
    2,310
    
    
    
    15,216Totals
    
    $
    16,636
    
    
    $
    193,364
    
    
    $
    57,138
    
    
    $
    267,138
   Prime
    
    
    LIBOR
    
    
    Other
    
    
    TotalReal estate  construction
    
    $
    49,275
    
    
    $
    4,517
    
    
    $
    
    
    
    $
    53,792Real estate  mortgage
1-4 family
    
    
    16,035
    
    
    
    
    
    
    
    
    
    
    
    16,035Real estate  commercial
    
    
    19,723
    
    
    
    707
    
    
    
    
    
    
    
    20,430Real estate  other
    
    
    11,087
    
    
    
    
    
    
    
    425
    
    
    
    11,512Agricultural
    
    
    1,920
    
    
    
    
    
    
    
    
    
    
    
    1,920Commercial
    
    
    18,369
    
    
    
    
    
    
    
    
    
    
    
    18,369Other loans
    
    
    667
    
    
    
    
    
    
    
    
    
    
    
    667Totals
    
    $
    117,076
    
    
    $
    5,224
    
    
    $
    425
    
    
    $
    122,725
   11




---



##### 



Descriptions
    
    2007
    
    
    2006
    
    
    2005A
    
    Loans accounted for on
a nonaccrual basis
    
    $
    11,079
    
    
    $
    1,570
    
    
    $
    1,406B
    
    Loans which are contractually
past due ninety days or more
as to interest or principal payments
(excluding balances included in (A)
above)
    
    
    26
    
    
    
    9
    
    
    
    4C
    
    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.
    
    
    54
    
    
    
    197
    
    
    
    318D
    
    Other non-performing assets
    
    
    551
    
    
    
    621
    
    
    
    1,131Total
    
    $
    11,710
    
    
    $
    2,397
    
    
    $
    2,859
    12




---



##### 



2007
    
    
    2006
    
    
    2005Average amount of loans outstanding, net
    
    $
    251,348
    
    
    $
    243,546
    
    
    $
    213,311Allowance for loan losses beginning January 1
    
    $
    3,011
    
    
    $
    3,028
    
    
    $
    2,562Loans Charged off:Commercial, financial and
agriculture
    
    
    (226
    )
    
    
    (960
    )
    
    
    (365
    )Real estate  mortgage
    
    
    
    
    
    
    
    
    
    
    Installment loans to
individuals
    
    
    (213
    )
    
    
    (95
    )
    
    
    (108
    )Total Charged off
    
    
    (439
    )
    
    
    (1,055
    )
    
    
    (473
    )Recoveries during the period
Commercial, financial and
agriculture
    
    
    12
    
    
    
    35
    
    
    
    2Real estate  mortgage
    
    
    
    
    
    
    
    
    
    
    Installment loans to
individuals
    
    
    17
    
    
    
    45
    
    
    
    57Total Recoveries
    
    
    29
    
    
    
    80
    
    
    
    59Loans Charged off, net
    
    
    (410
    )
    
    
    (975
    )
    
    
    (414
    )Other Adjustments
    
    
    
    
    
    
    (102
    )
    
    
    Additions to the allowance charged to operations
    
    
    1,380
    
    
    
    1,060
    
    
    
    880$
    3,981
    
    
    $
    3,011
    
    
    $
    3,028Ratio of net charge offs during the period to
average loans outstanding
    
    
    0.16
    %
    
    
    0.40
    %
    
    
    0.19
    %
   13




---



##### 



Percentage of Loans toAllowance
    
    
    
    Total Loans2007
    
    
    2006
    
    
    2005
    
    
    
    2007
    
    
    2006
    
    
    2005Commercial, financial
and agricultural
    
    $
    2,964
    
    
    $
    2,173
    
    
    $
    2,271
    
    
    
    
    53.5
    %
    
    
    54.2
    %
    
    
    70.1
    %Real estate  construction
    
    
    336
    
    
    
    116
    
    
    
    91
    
    
    
    
    25.7
    %
    
    
    24.2
    %
    
    
    8.5
    %Real estate  mortgage
1-4 family
    
    
    554
    
    
    
    563
    
    
    
    454
    
    
    
    
    15.6
    %
    
    
    15.4
    %
    
    
    15.6
    %Installment loans to
individuals
    
    
    127
    
    
    
    159
    
    
    
    212
    
    
    
    
    5.2
    %
    
    
    6.2
    %
    
    
    5.8
    %Total
    
    $
    3,981
    
    
    $
    3,011
    
    
    $
    3,028
    
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 14




---



##### 



Average
    
    
    
    AverageDeposits
    
    
    
    Rate Paid2007
    
    
    2006
    
    
    2005
    
    
    
    2007
    
    
    2006
    
    
    2005Noninterest-bearing
demand deposits
    
    $
    60,446
    
    
    $
    63,833
    
    
    $
    63,211
    
    
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Interest  bearingDemand
    
    
    71,593
    
    
    
    57,613
    
    
    
    49,350
    
    
    
    
    2.80
    %
    
    
    1.98
    %
    
    
    1.38
    %Savings
    
    
    18,530
    
    
    
    21,507
    
    
    
    25,012
    
    
    
    
    0.25
    %
    
    
    0.25
    %
    
    
    0.25
    %Time
    
    
    174,009
    
    
    
    143,241
    
    
    
    122,387
    
    
    
    
    4.83
    %
    
    
    4.08
    %
    
    
    2.68
    %$
    264,132
    
    
    $
    222,361
    
    
    $
    196,749
    
    
    
    
    3.96
    %
    
    
    3.17
    %
    
    
    2.05
    %
 15




---



##### 



$100,000 or GreaterCertificates of
    
    
    Other TimeDeposit
    
    
    DepositsMaturityThree months or less
    
    $
    31,338
    
    
    $
    28,895Three to six months
    
    
    14,496
    
    
    
    23,163Six to twelve months
    
    
    27,995
    
    
    
    26,611Twelve months or more
    
    
    13,595
    
    
    
    20,242Totals
    
    $
    87,424
    
    
    $
    98,911
   Maximum Outstanding
    
    Average
    
    Average interest
    
    Ending
    
    Average interestat any month end
    
    balance
    
    rate
    
    balance
    
    rate at year end2007Securities sold under
agreements to repurchase
    
    $
    60,504
    
    
    $
    40,909
    
    
    
    4.18
    %
    
    $
    41,204
    
    
    
    3.34
    %Other short term borrowings
    
    $
    1,044
    
    
    $
    422
    
    
    
    6.09
    %
    
    $
    692
    
    
    
    1.02
    %2006Securities sold under
agreements to repurchase
    
    $
    47,133
    
    
    $
    41,745
    
    
    
    3.98
    %
    
    $
    44,410
    
    
    
    4.17
    %Other short term borrowings
    
    $
    872
    
    
    $
    362
    
    
    
    5.25
    %
    
    $
    857
    
    
    
    3.49
    %2005Securities sold under
agreements to repurchase
    
    $
    34,429
    
    
    $
    27,580
    
    
    
    2.30
    %
    
    $
    34,429
    
    
    
    3.14
    %Other short term borrowings
    
    $
    1,001
    
    
    $
    346
    
    
    
    3.45
    %
    
    $
    1,001
    
    
    
    3.45
    %
 16




---



##### 



2007
    
    2006
    
    2005Return on average assets
    
    
    0.23
    %
    
    
    0.84
    %
    
    
    0.88
    %Return on average equity
    
    
    3.28
    %
    
    
    11.08
    %
    
    
    10.93
    %Dividend pay-out ratio
    
    
    65.22
    %
    
    
    21.43
    %
    
    
    23.08
    %Ratio of average equity to
average assets
    
    
    7.12
    %
    
    
    7.55
    %
    
    
    8.02
    %
 ITEM 1A. RISK FACTORS
      17




---



##### 



Ending Balances
    
    
    Down 200
    
    
    Up 200as of 12/31/07
    
    
    Basis Points
    
    
    Basis PointsEarning Assets:Cash & Short-term Investments
    
    $
    36,547,422
    
    
    
    -57.21
    %
    
    
    8.34
    %Investment securities, taxable
    
    
    78,072,734
    
    
    
    -1.96
    %
    
    
    7.47
    %Investment securities, tax-exempt
    
    
    35,418,999
    
    
    
    -6.16
    %
    
    
    -0.11
    %Loans
    
    
    267,137,723
    
    
    
    -18.58
    %
    
    
    18.28
    %Total Assets
    
    $
    417,176,878
    
    
    
    -16.80
    %
    
    
    16.00
    %Interest Bearing Liabilities:Interest Bearing Deposits
    
    $
    119,740,850
    
    
    
    -39.74
    %
    
    
    38.70
    %Certificates of Deposit less than $100,000
    
    
    93,890,301
    
    
    
    -24.84
    %
    
    
    24.84
    %Certificates of Deposit greater than $100,000
    
    
    92,424,525
    
    
    
    -24.97
    %
    
    
    24.97
    %Total Interest Bearing Deposits
    
    
    306,055,676
    
    
    
    -27.86
    %
    
    
    27.65
    %Other short
term borrowings & securities sold under agreements to repurchase
    
    
    41,895,519
    
    
    
    -85.78
    %
    
    
    114.88
    %Federal Home Loan Bank borrowings
    
    
    1,774,700
    
    
    
    0.68
    %
    
    
    -0.68
    %Total Purchased Funds
    
    
    43,670,219
    
    
    
    -74.64
    %
    
    
    99.98
    %Total Liabilities
    
    $
    349,725,895
    
    
    
    -31.69
    %
    
    
    33.58
    %Net Interest Income
    
    
    
    
    
    
    -7.55
    %
    
    
    5.08
    %
 
 *
    
    Information pertains to the Bank only   18




---



##### 



19




---



##### 



20




---



##### 



21




---



##### 



(1)
    
    5,000,000 shares of Class A common stock, $.01 par value per share, of which 2,384,171
shares are issued and 2,251,164 are outstanding and held by approximately 820 shareholders
of record, as of March 27, 2008.(2)
    
    250,000 shares of Class B common stock, $.01 par value per share, none of which were
issued, as of March 27, 2008.
    22




---



##### 



23




---



##### 



24




---



##### 



2007
    
    
    2006Interest income (1)
    
    $
    27,945
    
    
    $
    25,700Interest expense
    
    
    13,563
    
    
    
    9,756Net interest income
    
    
    14,382
    
    
    
    15,944Provision for loan losses
    
    
    1,380
    
    
    
    960Net interest income after
provision for loan losses
on a tax equivalent basis
    
    
    13,002
    
    
    
    14,984Less: tax equivalent adjustment
    
    
    735
    
    
    
    650Net interest income after
provision for loan losses
    
    $
    12,267
    
    
    $
    14,334
 
 (1)
    
    Income on tax-exempt obligations has been computed on a full federal tax-equivalent (FTE) basis
using an income tax rate of 34% for 2007 and 2006.   25




---



##### 



2007
    
    
    2006Service Charge Income
    
    $
    1,035,779
    
    
    $
    907,655Nonsufficient Fund Charges, net
    
    
    1,978,692
    
    
    
    1,833,652Mortgage Origination Fees
    
    
    213,071
    
    
    
    261,473Investment Securities Gains, (net)
    
    
    (3,780
    )
    
    
    (4,879
    )Other
    
    
    768,810
    
    
    
    914,312$
    3,992,572
    
    
    $
    3,912,213
   26




---



##### 



NONINTEREST EXPENSE
 2007
    
    
    2006Salaries and benefits
    
    $
    8,315,265
    
    
    $
    7,353,896Net occupancy
    
    
    2,596,804
    
    
    
    2,368,030Other
    
    
    4,541,315
    
    
    
    4,366,672Total
    
    $
    15,453,384
    
    
    $
    14,088,598
   27




---



##### 



2007
    
    
    2006Commercial, financial and
agriculture
    
    $
    142,857,221
    
    
    $
    133,174,048Real estate  construction
    
    
    68,699,154
    
    
    
    59,392,025Real estate  mortgage
    
    
    41,738,820
    
    
    
    37,899,222Installment loans to
indiviuals
    
    
    13,842,528
    
    
    
    15,173,427Totals
    
    $
    267,137,723
    
    
    $
    245,638,722
       28




---



##### 



29




---



##### 



Index to Financial Statements
    
    Page(s)Report of Independent Registered Public Accounting Firm
    
    F1Consolidated Balance Sheets as of December 31,
2007 and 2006
    
    F2Consolidated Statements of Operations for
the years ended December 31, 2007 and 2006
    
    F3Consolidated Statements of Stockholders
Equity and Other Comprehensive Income for
the years ended December 31, 2007 and 2006
    
    F4Consolidated Statements of Cash Flows for
the years ended December 31, 2007 and 2006
    
    F5Notes to Consolidated Financial
Statements  December 31, 2007 and 2006
    
    F6
 30




---



##### 



31




---



##### 



32




---



##### 



(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 15(b) are identified by an asterisk (*).1.1
    
    
    Purchase Agreement, dated as of September 27, 2006, among the Registrant, United
Bancorp Capital Trust II and TWE, Ltd., as Purchaser (Incorporated by reference herein
from Exhibit 1.1 to Registrants Quarterly Report on Form 10-Q for the Quarter Ended
September 30, 2006).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).4.1
    
    
    Junior Subordinated Indenture, dated as of September 27, 2006, by and between the
Registrant and Wilmington Trust Company, as Trustee (Incorporated by reference herein
from Exhibit 4.1 to Registrants Quarterly Report on Form 10-Q for the Quarter Ended
September 30, 2006).4.2
    
    
    United Bancorp Capital Trust II Amended and Restated Trust Agreement, dated as of
September 27, 2006, among the Registrant, as Depositor, Wilmington Trust Company, as
Property Trustee, Wilmington Trust Company, as Delaware Trustee and Robert R. Jones, III
and Allen O. Jones, as Administrative Trustees (Incorporated by reference herein from
Exhibit 4.2 to Registrants Quarterly Report on Form 10-Q for the Quarter Ended
September 30, 2006).4.3
    
    
    United Bancorp Capital Trust II Guarantee Agreement, dated as of September 27,
2006, by and between the Registrant, as Guarantor and Wilmington Trust Company, as
Guarantee Trustee (Incorporated by reference herein from Exhibit 4.3 to Registrants
Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2006).
 33




---



##### 



4.4
    
    
    Common Securities Subscription Agreement, dated as of September 27, 2006, by and
between United Bancorp Capital Trust II and the Registrant (Incorporated by reference herein
from Exhibit 4.4 to Registrants Quarterly Report on Form 10-Q for the Quarter Ended
September 30, 2006).4.5
    
    
    Junior Subordinated Note Subscription Agreement, dated as of September 27, 2006,
by and between United Bancorp Capital Trust II and the Registrant (Incorporated by
reference herein from Exhibit 4.5 to Registrants Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 2006).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 (Incorporated by reference herein from Exhibit 10.2 to the Registrants Annual Report
on Form 10-K for the fiscal year ended December 31, 1998)*.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).10.4
    
    
    1999 Employee Stock Purchase Plan of United Bancorporation of Alabama, Inc.
(incorporated herein by reference from Appendix A to the Registrants definitive
proxy statement dated April 10, 2000)*.10.5
    
    
    Supplemental Compensation and Amendment Agreement between United Bank and Robert R.
Jones, III (Incorporated by reference herein from Exhibit 10.4 to the Registrants
Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2001).*10.6
    
    
    Placement Agreement for Floating Rate Cumulative Trust Preferred Securities of
United Bancorp Capital Trust I effective as of June 27, 2002 among the Registrant, United
Bancorp Capital Trust I and SAMCO Capital Markets, a division of Service Asset Management
Company (Incorporated by reference herein from Exhibit 1.1 to the Registrants report on
Form 8-K dated June 27, 2002).10.7
    
    
    Indenture effective as of June 27, 2002, by and between the Registrant and Wells
Fargo Bank, National Association, as Trustee (Incorporated by reference herein from
Exhibit 4.1 to the Registrants report on Form 8-K dated June 27, 2002).10.8
    
    
    United Bancorp Capital Trust I Amended and Restated Trust Agreement effective as of
June 27, 2002, among the Registrant as Depositor, Wells Fargo Bank, National Association,
as Property Trustee, Wells Fargo Delaware Trust Company, as Resident Trustee and Robert
R. Jones, III, Mitchell D. Staples and Charles E. Karrick, as Administrative Trustees
(Incorporated by reference herein from Exhibit 4.2 to the Registrants report on Form 8-K
dated June 27, 2002).
 34




---



##### 



10.9
    
    
    Trust Preferred Securities Guarantee Agreement effective as of June 27, 2002, by
and between the Registrant and Wells Fargo Bank, National Association (Incorporated by reference
herein from Exhibit 4.3 to the Registrants report on Form 8-K dated June 27, 2002).10.10
    
    
    United Bancorporation of Alabama, Inc. 2007 Equity Incentive Plan (Incorporated by
reference to Appendix A to the Registrants Definitive Proxy Statement on Schedule 14A
filed with the Securities and Exchange Commission on April 9, 2007.*10.11
    
    
    First Amendment to Supplemental Compensation and Amendment Agreement between the
Registrant and Robert R. Jones, III, dated as of December 12, 2007 and effective January
1, 2008 (Incorporated by reference herein from Exhibit 10.12 to the Registrants report
on Form 8-K dated December 12, 2007).*10.12
    
    
    Employment Agreement between United Bank and Allen O. Jones, Jr. (filed herewith).21
    
    
    Subsidiaries of the Registrant.23
    
    
    Consent of Independent Registered Public Accounting Firm (Mauldin & Jenkins, LLC)31.1
    
    
    Certification of Chief Executive Officer under Securities Exchange Act Rules
13a-15(e) and 15d- 15(e)31.2
    
    
    Certification of Chief Financial Officer under Securities Exchange Act Rules
13a-15(e) and 15d- 15(e)32.1
    
    
    Certificate pursuant to 18 U.S.C Section 135032.2
    
    
    Certificate pursuant to 18 U.S.C Section 1350
 35




---



##### 



UNITED BANCORPORATION OF ALABAMA, INC.(Registrant)BY:      /s/Robert R. Jones, IIIRobert R. Jones, IIIPresident and Chief Executive Officer March 27, 2008  SIGNATURES
    
    CAPACITY IN WHICH SIGNED
    
    DATE/s/ Robert R. Jones, III
    
    President, Chief Executive Officer,
and Director
    
    March 27, 2008Robert R. Jones, III/s/ Allen O. Jones, Jr.

     Allen O. Jones, Jr.
    
    Senior Vice
President Chief Financial Officer(Principal Financial and Principal Accounting Officer)
    
    March 27, 2008/s/ William J. Justice
    
    Director
    
    March 27, 2008William J. Justice/s/ David D. Swift

     David D. Swift
    
    Director
    
    March 27, 2008/s/ Dale M. Ash

     Dale M. Ash
    
    Director
    
    March 27, 2008/s/ Michael Andreoli

     Michael Andreoli
    
    Director
    
    March 27, 2008/s/ L. Walter Crim

     L. Walter Crim
    
    Director
    
    March 27, 2008/s/ J. W. Trawick

     J. W. Trawick
    
    Director
    
    March 27, 2008
 36




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 To the Board of Directors
United Bancorporation of Alabama, Inc.
Atmore, Alabama
 United Bancorporation of Alabama, Inc. and
subsidiary




---



##### 



UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
 2007
    
    
    2006AssetsCash and due from banks
    
    $
    17,571,893
    
    
    $
    19,558,529Interest bearing deposits in banks
    
    
    31,547,422
    
    
    
    31,645,717Federal funds sold
    
    
    5,000,000
    
    
    
    0Cash and short-term investments
    
    
    54,119,315
    
    
    
    51,204,246Interest
bearing deposits with other Securities available for sale, at fair value (amortized cost of
$111,718,759 and $109,175,484 at December 31, 2007 and 2006,
respectively)
    
    
    111,945,701
    
    
    
    108,410,473Loans
    
    
    267,137,723
    
    
    
    245,638,722Less: Allowance for loan losses
    
    
    3,981,922
    
    
    
    3,011,731Net loans
    
    
    263,155,801
    
    
    
    242,626,991Premises and equipment, net
    
    
    16,808,578
    
    
    
    11,796,175Interest receivable
    
    
    3,952,077
    
    
    
    3,579,922Intangible assets
    
    
    934,763
    
    
    
    917,263Other assets
    
    
    6,385,725
    
    
    
    7,635,904Total assets
    
    $
    457,301,960
    
    
    $
    426,170,974Liabilities and Stockholders EquityDeposits:Non-interest bearing
    
    $
    62,854,927
    
    
    $
    64,993,029Interest bearing
    
    
    306,047,638
    
    
    
    261,842,434Total deposits
    
    
    368,902,565
    
    
    
    326,835,463Securities sold under agreements to repurchase
    
    
    41,203,851
    
    
    
    44,410,101Advances from Federal Home Loan Bank of Atlanta
    
    
    1,774,700
    
    
    
    6,939,500Treasury, tax, and loan account
    
    
    691,668
    
    
    
    857,015Interest Payable
    
    
    1,161,362
    
    
    
    937,314Accrued expenses and other liabilities
    
    
    1,336,424
    
    
    
    1,144,008Notes payable to Trusts, net of debt issuance costs
of $111,147 in 2006
    
    
    10,310,000
    
    
    
    14,322,853Total liabilities
    
    
    425,380,570
    
    
    
    395,446,254Stockholders equity:Class A common stock, $0.01 par value.
Authorized 5,000,000 shares; issued and outstanding,
2,383,097 and 2,375,471 shares in 2007 and 2006, respectively
    
    
    23,831
    
    
    
    23,755Class B common stock, $0.01 par value.
Authorized 250,000 shares; no shares issued or outstanding
    
    
    0
    
    
    
    0Preferred stock of $.01 par value. Authorized
250,000 shares; no shares issued or outstanding
    
    
    0
    
    
    
    0Additional paid in capital
    
    
    5,916,367
    
    
    
    5,673,088Unearned stock based compensation
    
    
    (51,403
    )
    
    
    0Accumulated other comprehensive
income (loss), net of tax
    
    
    122,105
    
    
    
    (475,478
    )Retained earnings
    
    
    26,700,500
    
    
    
    26,341,11632,711,400
    
    
    
    31,562,481Less: 134,654 and 142,789 treasury shares, at cost, respectively
    
    
    790,010
    
    
    
    837,761Total stockholders equity
    
    
    31,921,390
    
    
    
    30,724,720Total liabilities and stockholders equity
    
    $
    457,301,960
    
    
    $
    426,170,974
  F-2




---



##### 



UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
 2007
    
    
    2006Interest income:Interest and fees on loans
    
    $
    21,194,540
    
    
    $
    20,814,959Interest on investment securities available for sale:Taxable
    
    
    3,661,508
    
    
    
    2,095,191Nontaxable
    
    
    1,428,219
    
    
    
    1,261,694Total investment income
    
    
    5,089,727
    
    
    
    3,356,885Other interest income
    
    
    925,634
    
    
    
    878,384Total interest income
    
    
    27,209,901
    
    
    
    25,050,228Interest expense:Interest on deposits
    
    
    10,458,704
    
    
    
    7,042,421Interest on other borrowed funds
    
    
    3,103,958
    
    
    
    2,713,470Total interest expense
    
    
    13,562,662
    
    
    
    9,755,891Net interest income
    
    
    13,647,239
    
    
    
    15,294,337Provision for loan losses
    
    
    1,380,000
    
    
    
    960,000Net interest income after
provision for loan losses
    
    
    12,267,239
    
    
    
    14,334,337Noninterest income:Service charge on deposits
    
    
    3,014,471
    
    
    
    2,741,307Commission on credit life
    
    
    57,499
    
    
    
    45,666Investment securities losses, net
    
    
    (3,780
    )
    
    
    (4,879
    )Other
    
    
    924,382
    
    
    
    1,130,119Total noninterest income
    
    
    3,992,572
    
    
    
    3,912,213Noninterest expense:Salaries and benefits
    
    
    8,315,265
    
    
    
    7,353,896Net occupancy expense
    
    
    2,596,804
    
    
    
    2,368,030Other
    
    
    4,541,315
    
    
    
    4,366,672Total noninterest expense
    
    
    15,453,384
    
    
    
    14,088,598Earnings before income tax expense (benefits)
    
    
    806,427
    
    
    
    4,157,952Income tax expense (benefits)
    
    
    (225,331
    )
    
    
    1,022,882Net earnings
    
    $
    1,031,758
    
    
    $
    3,135,070Basic earnings per share
    
    $
    0.46
    
    
    $
    1.41Basic weighted average shares outstanding
    
    
    2,240,010
    
    
    
    2,225,269Diluted earnings per share
    
    $
    0.46
    
    
    $
    1.40Diluted weighted average shares outstanding
    
    
    2,251,838
    
    
    
    2,232,279
  F-3




---



##### 



UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
 Accumulated
    
    
    UnearnedAdditional
    
    
    
    
    
    
    other
    
    
    Stock
    
    
    
    
    
    
    TotalCommon
    
    
    paid in
    
    
    Retained
    
    
    comprehensive
    
    
    Based
    
    
    Treasury
    
    
    stockholders
    
    
    ComprehensiveShares
    
    
    stock
    
    
    Capital
    
    
    earnings
    
    
    income (loss)
    
    
    Compensation
    
    
    stock
    
    
    equity
    
    
    IncomeBalance December 31, 2005
    
    
    2,366,871
    
    
    $
    23,669
    
    
    $
    5,445,822
    
    
    $
    23,874,164
    
    
    $
    (512,299
    )
    
    $
    0
    
    
    $
    (805,711
    )
    
    $
    28,025,645Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,135,070
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,135,070
    
    
    $
    3,135,070Other comprehensive income (Note 18)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,821
    
    
    
    
    
    
    
    
    
    
    
    36,821
    
    
    
    36,821Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,171,891Cash dividends declared ($.30 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (668,118
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (668,118
    )Exercise of stock options
    
    
    8,600
    
    
    
    86
    
    
    
    135,304
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135,390Tax benefit from exercise of stock options
    
    
    
    
    
    
    
    
    
    
    8,701
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,701Purchase of trreasury shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (63,750
    )
    
    
    (63,750
    )Treasury shares issued to
dividend reinvestment plan
    
    
    
    
    
    
    
    
    
    
    64,864
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,700
    
    
    
    96,564Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    18,397
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,397Balance December 31, 2006
    
    
    2,375,471
    
    
    $
    23,755
    
    
    $
    5,673,088
    
    
    $
    26,341,116
    
    
    $
    (475,478
    )
    
    $
    0

    
    
    $
    (837,761
    )
    
    $
    30,724,720Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,031,758
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,031,758
    
    
    $
    1,031,758Other comprehensive income (Note 18)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    597,583
    
    
    
    
    
    
    
    
    
    
    
    597,583
    
    
    
    597,583Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,629,341Cash dividends declared ($.30 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (672,374
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (672,374
    )Exercise of stock options
    
    
    2,000
    
    
    
    20
    
    
    
    22,380
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,400Tax benefit from exercise of stock options
    
    
    
    
    
    
    
    
    
    
    5,313
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,313Treasury shares issued to
dividend reinvestment plan
    
    
    
    
    
    
    
    
    
    
    96,425
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,411
    
    
    
    137,836Treasury shares issued to
employee stock purchase plan
    
    
    
    
    
    
    
    
    
    
    10,649
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,340
    
    
    
    16,989Restricted Stock Grants
    
    
    5,626
    
    
    
    56
    
    
    
    101,212
    
    
    
    
    
    
    
    
    
    
    
    (101,268
    )
    
    
    
    
    
    
    0Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    7,300
    
    
    
    
    
    
    
    
    
    
    
    49,865
    
    
    
    
    
    
    
    57,165Balance December 31, 2007
    
    
    2,383,097
    
    
    $
    23,831
    
    
    $
    5,916,367
    
    
    $
    26,700,500
    
    
    $
    122,105
    
    
    $
    (51,403
    )
    
    $
    (790,010
    )
    
    $
    31,921,390
  F-4




---



##### 



United Bancorporation of Alabama, Inc.
And Subsidiary
Consolidated Statements of Cash Flows
Years ended December 31, 2007 and 2006
 2007
    
    
    2006Cash flows from operating activitiesNet earnings
    
    $
    1,031,758
    
    
    $
    3,135,070Adjustments to reconcile net earnings to net
cash provided by operating activitiesProvision for loan losses
    
    
    1,380,000
    
    
    
    960,000Depreciation of premises and equipment
    
    
    1,183,299
    
    
    
    1,217,193Net amortization of premium on investment securities
    
    
    206,900
    
    
    
    72,812Loss on sales of investment securities available for sale, net
    
    
    3,780
    
    
    
    4,879Gain on sale of other real estate
    
    
    (28,516
    )
    
    
    (12,501
    )Stock-based compensation
    
    
    57,165
    
    
    
    18,397Gain on disposal of equipment
    
    
    (3,786
    )
    
    
    (3,987
    )Deferred income taxes
    
    
    (471,729
    )
    
    
    238,646Writedown of other real estate
    
    
    90,000
    
    
    
    278,100Increase in interest receivable
    
    
    (372,155
    )
    
    
    (506,390
    )(Increase) decrease in other assets
    
    
    334,530
    
    
    
    (877,072
    )Increase in interest payable
    
    
    224,048
    
    
    
    341,684Increase (decrease) in accrued expenses and other liabilities
    
    
    237,621
    
    
    
    (719,149
    )Net cash provided by operating activities
    
    
    3,872,915
    
    
    
    4,147,682Cash flows from investing activitiesProceeds from maturities, calls, and principal
repayments of investment securities available for sale
    
    
    114,141,651
    
    
    
    8,615,708Proceeds from sales of investment securities available for sale
    
    
    18,055,198
    
    
    
    1,743,150Purchases of investment securities available for sale
    
    
    (134,974,231
    )
    
    
    (47,832,178
    )Net increase in loans
    
    
    (22,113,810
    )
    
    
    (16,544,981
    )Purchases of premises and equipment, net
    
    
    (6,176,578
    )
    
    
    (3,192,253
    )Proceeds from sale of premises and equipmet
    
    
    24,662
    
    
    
    24,832Insurance claim received
    
    
    1,038,775
    
    
    
    Proceeds from sale of other real estate
    
    
    173,016
    
    
    
    484,901Net cash used in investing activities
    
    
    (29,831,317
    )
    
    
    (56,700,821
    )Cash flows from financing activitiesNet increase in deposits
    
    
    42,067,102
    
    
    
    35,814,992Net increase (decrease) in securities sold under
agreements to repurchase
    
    
    (3,206,250
    )
    
    
    9,980,727Cash dividends
    
    
    (701,936
    )
    
    
    (668,118
    )Exercise of stock options
    
    
    22,400
    
    
    
    135,390Tax benefit from exercise of common stock
    
    
    5,313
    
    
    
    8,701Purchase of treasury stock
    
    
    
    
    
    
    (63,750
    )Proceeds from sale of treasury stock
    
    
    16,989
    
    
    
    Advances from FHLB Atlanta
    
    
    
    
    
    
    5,000,000Repayments of advances from FHLB Atlanta
    
    
    (5,164,800
    )
    
    
    (7,173,415
    )Proceeds from Trust Preferred Issuance
    
    
    
    
    
    
    10,000,000Redemption of Trust Preferred (net unamortized issuance costs)
    
    
    (4,000,000
    )
    
    
    Decrease in other borrowed funds
    
    
    (165,347
    )
    
    
    (143,985
    )Net cash provided by financing activities
    
    
    28,873,471
    
    
    
    52,890,542Net increase in cash and short-term investments
    
    
    2,915,069
    
    
    
    337,403Cash and short-term investments, beginning of period
    
    
    51,204,246
    
    
    
    50,866,843Cash and short-term investments, end of period
    
    $
    54,119,315
    
    
    $
    51,204,246Supplemental disclosuresCash paid during the period for:Interest
    
    $
    13,338,614
    
    
    $
    9,414,207Income taxes
    
    
    94,454
    
    
    
    1,564,073Noncash transactionsTransfer of loans to other real estate
through foreclosure
    
    $
    205,000
    
    
    $
    240,000
  F-5




---



##### 



(1)
    
    Summary of Significant Accounting Policies
 (a)
    
    Principles of ConsolidationThe 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 Corporation. Significant
inter-company balances and transactions have been eliminated in consolidation.(b)
    
    Market ConcentrationsThe Corporation operates primarily in one business segment, commercial banking, in
Southwest Alabama and Northwest Florida.(c)
    
    Basis of PresentationThe consolidated financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America. 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 the near
term relate to the determination of the allowance for loan losses. In connection with the
determination of the allowance for loan losses, management obtains independent appraisals
for significant properties.Management believes the allowance for losses on loans is appropriate. While management
uses available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions, particularly in
Southwest Alabama and Northwest Florida. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Corporations
allowance for losses on loans. Such agencies may require the Corporation to recognize
additions to the allowance based on their judgments about information available to them
at the time of their examination.(d)
    
    Cash and Short-Term InvestmentsThe Corporation considers due from banks, interest-bearing deposits in banks, and federal
funds sold to be cash and short-term investments. Federal funds are generally sold for
one-day periods.(e)
    
    Investment SecuritiesInvestment 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 stated at fair value. Investment securities held to
maturity are stated at cost adjusted for amortization of premiums and accretion of
discounts. Investment securities available for sale are 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. As of December 31, 2007 and 2006 all
investment securities were classified as available for sale.
 F-6




---



##### 



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 fair 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 or the securities call date, whichever comes first.(f)
    
    LoansInterest income on loans is credited to earnings based on the principal amount
outstanding at the respective rate of interest. 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 charged 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.As of December 31, 2007 and December 31, 2006, approximately 64% and 61%, respectively,
of the Corporations loans were commercial loans. The Corporations commercial customers
are primarily small to middle market enterprises. The Corporation also specializes in
agricultural loans, which represented approximately 15% of the Corporations total loans
at both December 31, 2007 and December 31, 2006, respectively.(g)
    
    Allowance for Loan LossesManagement 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 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 off against 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 recognized as
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-7




---



##### 



The ultimate ability to collect a substantial portion of the Corporations loan portfolio
is susceptible to changes in economic and market conditions in the geographic area served
by the Corporation 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.(h)
    
    Premises and EquipmentLand is carried at cost. Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the estimated
useful lives of the assets.(i)
    
    Other Real EstateOther real estate represents property acquired through foreclosure or deeded to the
Corporation in lieu of foreclosure on real estate mortgage loans on which borrowers have
defaulted. Other real estate is carried in other assets 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 valuation decreases in the carrying value of other real estate as well as
costs to carry other real estate are recognized as charges to noninterest expense. As of
December 31, 2007 and 2006, the Corporation had $550,776 and $620,776, respectively, in
other real estate.(j)
    
    Intangible AssetsIntangible assets represent purchased assets that lack physical substance but can be
identified because of contractual or other legal rights. Under the provisions of SFAS
No. 142, intangible assets with indefinite useful lives are not amortized, but instead
are tested for impairment at least annually. Intangible assets that have finite lives are
amortized over their estimated useful lives and are also subject to impairment testing.
The Corporations intangible assets have indefinite useful lives and are not subject to
amortization. See Note 6 for summaries of the Corporations intangible assets.(k)
    
    Income TaxesThe Corporation 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.(l)
    
    Stock Based CompensationAt December 31, 2007, the Corporation had options and other equity awards outstanding
under two stock-based employee compensation plans, which are described more fully in Note
12. Effective, January 1, 2006, the Corporation adopted FASB No. 123R, Share-Based
Payment, whereby compensation cost is recognized for all stock-based payments based upon
the grant-date fair value.
 F-8




---



##### 



(m)
    
    Earnings per ShareBasic and diluted earnings per share are computed on the
weighted average number of shares outstanding in accordance with SFAS No. 128, Earnings Per Share. Note 13 provides
additional disclosure information regarding earnings per share.(n)
    
    Recent Accounting PronouncementsIn September 2006, the FASB issued Statement No. 157, Fair Value Measurements.The
Statement provides guidance for using fair value to measure assets and liabilities. It
defines fair value, establishes a framework for measuring fair value under generally
accepted accounting principles and expands disclosures about fair value measurement.
Under the Statement, fair value refers to the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants in the market in which the reporting entity transacts. It clarifies the
principle that fair value should be based on the assumptions market participants would
use when pricing the asset or liability. In support of this principle, the Statement
establishes a fair value hierarchy that prioritizes the information used to develop those
assumptions. Under the Statement, fair value measurements would be separately disclosed
by level within the fair value hierarchy. Statement No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007 and is not expected
to have a material impact on the Corporations financial condition or results of
operations.In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities
 Including an Amendment of FASB Statement No. 115.The
Statement permits an entity to choose to measure many financial instruments and certain
other items at fair value at specified election dates. A business entity will report
unrealized gains and losses on items for which the fair value option has been elected in
earnings at each subsequent reporting date. The fair value option may be applied
instrument by instrument (with a few exceptions), is irrevocable (unless a new election
date occurs) and is applied only to entire instruments and not to portions of
instruments. Most of the provisions in Statement 159 are elective; however, the
amendment to FASB Statement No. 115, Accounting for Certain Investments in Debt and
EquitySecurities, applies to all entities with available-for-sale and trading
securities. Statement No. 159 is effective as of the beginning of an entitys first
fiscal year that begins after November 15, 2007 and is not expected to have a material
impact on the Corporations financial condition or results of
operations.In December 2007, the FASB issued Statement No. 141 (Revised 2007), Business
Combinations.The Statement will significantly change the accounting for business
combinations, as an acquiring entity will be required to recognize all the assets and
liabilities assumed in a transaction at the acquisition-date fair value with limited
exceptions. The Statement changes the accounting treatment for several specific items,
such as acquisition costs, noncontrolling interests (formerly referred to as minority
interests), contingent liabilities, restructuring costs and changes in deferred tax asset
valuation allowances. The Statement also includes a substantial number of new disclosure
requirements. Statement No. 141R applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. Early adoption is prohibited. The
Corporation is currently evaluating the impact the adoption of this statement will have
on the accounting for future acquisitions and business combinations.In December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements  An Amendment of ARB No. 51.The Statement
establishes new accounting and reporting standards for the noncontrolling interest
(formerly referred to as minority interests) in a subsidiary and for the deconsolidation
of a subsidiary. Statement No. 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning on our after December 15, 2008 and
 F-9




---



##### 



early adoption is prohibited. The Corporation currently does not have any noncontrolling
interests and is evaluating the impact the adoption of this statement will have on the
accounting for future business combinations and ventures.(o)
    
    ReclassificationsCertain items on the consolidated balance sheets for the year ended December 31, 2006
have been reclassified, with no effect on total assets, to be consistent with the
classifications adopted for the year ended December 31, 2007
 (2)
    
    Cash and Due From Banks
 The Bank is required by the Federal Reserve Bank to maintain daily cash balances. These
balances were $2,048,000 and $2,984,000 at December 31, 2007 and 2006, respectively.
 F-10




---



##### 



(3)
    
    Investment Securities
 The amortized cost and fair value of investment securities available for sale at
December 31, 2007 and 2006 were as follows:
 Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Faircost
    
    
    gains
    
    
    losses
    
    
    value2007:U.S. government sponsored agencies,
excluding mortgage-backed
securities
    
    $
    59,297,311
    
    
    $
    349,616
    
    
    $
    (32,722
    )
    
    $
    59,614,205State and political subdivisions
    
    
    35,446,149
    
    
    
    223,688
    
    
    
    (250,838
    )
    
    
    35,418,999Mortgage-backed securities
    
    
    16,975,299
    
    
    
    81,329
    
    
    
    (144,131
    )
    
    
    16,912,497$
    111,718,759
    
    
    $
    654,633
    
    
    $
    (427,691
    )
    
    $
    111,945,7012006:U.S. government sponsored agencies,
excluding mortgage-backed
securities
    
    $
    55,111,730
    
    
    $
    49,238
    
    
    $
    (268,097
    )
    
    $
    54,892,871State and political subdivisions
    
    
    32,648,697
    
    
    
    232,723
    
    
    
    (230,686
    )
    
    
    32,650,734Mortgage-backed securities
    
    
    21,415,057
    
    
    
    14,215
    
    
    
    (562,404
    )
    
    
    20,866,868$
    109,175,484
    
    
    $
    296,176
    
    
    $
    (1,061,187
    )
    
    $
    108,410,473
 The FASB Emerging Issues Task Force Issue 03-01, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investmentsrequires disclosure of certain
information about other than temporary impairments in the market value of securities.
Management evaluates securities for other-than-temporary impairment at least on a
quarterly basis, and more frequently when economic or market concerns warrant such
evaluation. Consideration is given to (1) the length of time and the extent to which the
fair value has been less than cost, (2) the financial condition and near-term prospects
of the issuer, and (3) the intent and ability of the Corporation to retain its investment
in the issuer for a period of time sufficient to allow for any anticipated recovery in
fair value.
 F-11




---



##### 



Those investment securities which have an unrealized loss position at December 31, 2007
and 2006, are detailed below:
 2007
    
    Less than 12 months
    
    
    12 months or more
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedDescription of Securities
    
    Fair Value
    
    
    losses
    
    
    Fair Value
    
    
    losses
    
    
    Fair Value
    
    
    lossesU.S. Government sponsored agencies &
mortgage-backed securities
    
    $
    21,639,799
    
    
    $
    33,336
    
    
    $
    14,188,655
    
    
    $
    143,517
    
    
    $
    35,828,454
    
    
    $
    176,853State and political subdivdisions
    
    
    7,418,877
    
    
    
    127,547
    
    
    
    9,069,492
    
    
    
    123,291
    
    
    
    16,488,369
    
    
    
    250,838Total temporarily impaired
securities
    
    $
    29,058,676
    
    
    $
    160,883
    
    
    $
    23,258,147
    
    
    $
    266,808
    
    
    $
    52,316,823
    
    
    $
    427,691
 2006
    
    Less than 12 months
    
    
    12 months or more
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedDescription of Securities
    
    Fair Value
    
    
    losses
    
    
    Fair Value
    
    
    losses
    
    
    Fair Value
    
    
    lossesU.S. Government sponsored agencies &
mortgage-backed securities
    
    $
    11,416,997
    
    
    $
    100,759
    
    
    $
    32,802,651
    
    
    $
    729,742
    
    
    $
    44,219,648
    
    
    $
    830,501State and political subdivdisions
    
    
    6,115,311
    
    
    
    57,643
    
    
    
    10,235,173
    
    
    
    173,043
    
    
    
    16,350,484
    
    
    
    230,686Total temporarily impaired
securities
    
    $
    17,532,308
    
    
    $
    158,402
    
    
    $
    43,037,824
    
    
    $
    902,785
    
    
    $
    60,570,132
    
    
    $
    1,061,187
 In analyzing an issuers financial condition, management considers whether the securities
are issued by the federal government or its agencies, whether downgrades by bond rating
agencies has occurred, and industry analysts reports. As management has the ability to
hold debt securities until maturity, or for the foreseeable future if classified as
available for sale, no declines are deemed to be other than temporary.The amortized cost and fair value of investment securities available for sale at
December 31, 2007, categorized by contractual maturity are shown below. Expected
maturities may differ from contractual maturities for mortgage-backed securities because
borrowers may have the right to call or prepay obligations with or without prepayment
penalties. Therefore, these securities are not presented by maturity class in the
following table.
 F-12




---



##### 



Amortized
    
    
    Faircost
    
    
    valueInvestment securities available for sale:Due in one year or less
    
    $
    22,928,317
    
    
    $
    22,902,542Due after one year through five years
    
    
    20,379,868
    
    
    
    20,554,022Due after five years through ten years
    
    
    35,825,067
    
    
    
    36,103,296Due after ten years
    
    
    15,610,208
    
    
    
    15,473,344Subtotal
    
    
    94,743,460
    
    
    
    95,033,204Mortgage-backed securities
    
    
    16,975,299
    
    
    
    16,912,497Total
    
    $
    111,718,759
    
    
    $
    111,945,701
 Gross gains of $139 and gross losses of $3,919 were realized on sales of investment
securities available for sale in 2007. Gross gains of $3,886 and gross losses of $8,765
were realized on sales of investment securities available for sale in 2006.Securities with carrying values of approximately $102,745,000 and $69,210,000 at
December 31, 2007 and 2006, respectively, were pledged to secure public and trust
deposits as required by law and for other purposes.
 (4)
    
    Loans and Allowance for Loan LossesAt December 31, 2007 and 2006, the composition of the loan portfolio was as follows:
 2007
    
    
    2006Real estate  construction
    
    $
    68,699,154
    
    
    $
    59,392,025Real estate  1- 4 family residential mortgage
    
    
    41,738,820
    
    
    
    37,899,222Real estate  commercial
    
    
    54,562,891
    
    
    
    56,294,859Real estate  other
    
    
    31,537,613
    
    
    
    23,699,403Agricultural
    
    
    9,254,558
    
    
    
    13,238,214Commercial
    
    
    46,129,553
    
    
    
    38,653,631Other loans
    
    
    15,215,134
    
    
    
    16,461,368Total
    
    $
    267,137,723
    
    
    $
    245,638,722
 F-13




---



##### 



A summary of the transactions in the allowance for loan losses for the years ended
December 31, 2007 and 2006 follows:
 2007
    
    
    2006Balance, beginning of year
    
    $
    3,011,731
    
    
    $
    3,028,847Provision charged to earnings
    
    
    1,380,000
    
    
    
    960,000Less loans charged-off
    
    
    (439,297
    )
    
    
    (1,157,350
    )Plus loan recoveries
    
    
    29,488
    
    
    
    80,185Net charge-offs
    
    
    (409,809
    )
    
    
    (1,077,165
    )Other adjustments
    
    
    
    
    
    
    100,050Balance, end of year
    
    $
    3,981,922
    
    
    $
    3,011,731
 Impaired loans, which consist of loans on which the accrual of interest had been discontinued
or reduced totaled $11,710,174 and $1,766,960 as of December 31, 2007 and 2006, respectively.
The majority of the impaired loans is comprised of 7 loans totaling $10,959,402 against which
specific reserves in the amount of $1,825,820, 16.65% of the balance, have been provided.The average amount of impaired loans for the year 2007 and 2006, totaled approximately,
$5,212,000 and $2,477,000, respectively. If these loans had been current throughout their
terms, interest income would have been increased by $685,398 and $123,917, for 2007 and 2006,
respectively. At December 31, 2007 and 2006, the Corporation had no other significant impaired
loans. There was no significant amount of interest income recognized from impaired loans for
the years ended December 31, 2007 and 2006.During 2007, certain executive officers and directors of the Corporation, including their
immediate families and companies with which they are associated, were loan customers of the
Bank. Total loans outstanding and available lines of credit to these related parties at
December 31, 2007 and 2006, totaled $7,854,404 and $6,583,666, respectively. 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 EquipmentAt December 31, 2007 and 2006, premises and equipment were as follows:
 2007
    
    
    2006Land
    
    $
    5,042,293
    
    
    $
    3,341,231Buildings and leasehold improvements (depreciated over
5 to 50 years)
    
    
    12,787,606
    
    
    
    9,341,067Furniture, fixtures, and equipment (depreciated over
3 to 10 years)
    
    
    7,477,361
    
    
    
    6,727,116Automobiles (depreciated over 3 years)
    
    
    113,081
    
    
    
    106,024Construction in process
    
    
    364,391
    
    
    
    88,98625,784,732
    
    
    
    19,604,424Less accumulated depreciation
    
    
    8,976,154
    
    
    
    7,808,249$
    16,808,578
    
    
    $
    11,796,175
 F-14




---



##### 



The balance of construction in process associated with building projects that are in process,
but are not complete, are anticipated to cost approximately $5,370,000.Depreciation expense for the year ended December 31, 2007 and 2006 was $1,183,299 and
$1,217,193, respectively.(6)
    
    Intangible AssetsFlorida Charter- On July 2, 2004, the Corporation acquired a State of Florida banking charter
from a financial institution. Subsequent to the purchase, the charter was terminated but the
Corporation retained the legal right to branch into Florida through its existing Alabama bank
charter. The Corporation accounts for the charter cost as an indefinite lived intangible
asset because the legal right acquired does not have an expiration date under Florida banking
laws and there is no renewal process to keep the branching rights. The Corporation tests the
intangible asset each September 30 for impairment. At December 31, 2007, the Corporation
operates two branch offices in Florida.For the years ended December 31, 2007 and 2006, no impairment was recorded related to the
intangible asset. As of December 31, 2007 and 2006, the Corporation had recorded $917,263 in
intangible assets related to the cost of the charter.Internet Domain Address- On March 21, 2007, the Bank purchased the rights to the internet
domain name www.unitedbank.com for $17,500. This internet domain is defined as an intangible
asset with an indefinite life under FAS 142 and, as such, is not required to be amortized over
any period of time.(7)
    
    DepositsAt December 31, 2007 and 2006, deposits were as follows:
 2007
    
    
    2006Noninterest bearing accounts
    
    $
    62,854,927
    
    
    $
    64,993,029NOW accounts
    
    
    84,770,810
    
    
    
    68,550,299Money market investment accounts
    
    
    17,692,439
    
    
    
    19,554,738Savings account
    
    
    17,248,660
    
    
    
    18,626,579Time deposits:Time deposits less than $100,000
    
    
    98,911,207
    
    
    
    86,467,042Time deposits greater than $100,000
    
    
    87,424,522
    
    
    
    68,643,776Total deposits
    
    $
    368,902,565
    
    
    $
    326,835,463
 F-15




---



##### 



2007
    
    
    2006NOW accounts
    
    $
    1,334,097
    
    
    $
    704,904Money market investment accounts
    
    
    671,496
    
    
    
    438,237Savings accounts
    
    
    45,980
    
    
    
    53,401Time deposits:Time deposit less than $100,000
    
    
    6,634,034
    
    
    
    4,104,442Time deposit greater than $100,000
    
    
    1,773,097
    
    
    
    1,741,437Total interst expense on deposits
    
    $
    10,458,704
    
    
    $
    7,042,421
  Due in one year
    
    $
    152,675,496Due in one to two years
    
    
    18,746,976Due in two to three years
    
    
    4,946,662Due in three to four years
    
    
    4,819,290Due in four to five years
    
    
    5,147,305$
    186,335,729
  (8)
    
    Securities Sold Under Agreements to Repurchase
  F-16




---



##### 



(9)
    
    Borrowed Funds
  2007Maturity date
    
    Interest rateMay 2012
    
    
    7.41
    %
    
    
    52,801July 2017
    
    
    6.93
    %
    
    
    650,000August 2017
    
    
    6.84
    %
    
    
    106,275June 2020
    
    
    4.62
    %
    
    
    808,333July 2020
    
    
    7.54
    %
    
    
    157,291Total (weighted average rate of 5.94%)
    
    
    
    
    
    $
    1,774,700
 2006Maturity date
    
    Interest rateMay 2012
    
    
    7.41
    %
    
    
    64,534April 2013
    
    
    4.53
    %
    
    
    5,000,000July 2017
    
    
    6.93
    %
    
    
    715,000August 2017
    
    
    6.84
    %
    
    
    117,175June 2020
    
    
    4.62
    %
    
    
    873,000July 2020
    
    
    7.54
    %
    
    
    169,791Total (weighted average rate of 4.92%)
    
    
    
    
    
    $
    6,939,500
   (10)
    
    Notes Payable to Trust
 United Bancorp Capital Trust I
 F-17




---



##### 



United Bancorp Capital Trust II
   F-18




---



##### 



(11)
    
    Income Taxes
  2007
    
    
    2006Current:Federal
    
    $
    226,407
    
    
    $
    736,314State
    
    
    19,991
    
    
    
    47,924Total
    
    
    246,398
    
    
    
    784,238Deferred:Federal
    
    
    (419,277
    )
    
    
    174,232State
    
    
    (52,452
    )
    
    
    64,414Total
    
    
    (471,729
    )
    
    
    238,646Total income tax expense
    
    $
    (225,331
    )
    
    $
    1,022,884
  2007
    
    
    2006Income tax at statutory rate
    
    $
    274,525
    
    
    $
    1,413,704Increase (decrease) resulting from:Tax exempt interest
    
    
    (540,041
    )
    
    
    (471,962
    )Interest disallowance
    
    
    76,963
    
    
    
    55,465State income tax net of federal benefit
    
    
    (21,424
    )
    
    
    74,143Premium amortization on tax exempt
investment securities
    
    
    22,733
    
    
    
    21,892Cash surrendered value of life insurance
    
    
    (30,850
    )
    
    
    (29,165
    )GoZone tax credits
    
    
    (26,429
    )
    
    
    (30,032
    )Other, net
    
    
    19,192
    
    
    
    (11,161
    )$
    (225,331
    )
    
    $
    1,022,884
 F-19




---



##### 



2007
    
    
    2006Deferred tax assets:Loans, principally due to the allowance for loan losses
    
    $
    1,129,131
    
    
    $
    809,953Other real estate, principally due to differences in
carrying value
    
    
    37,079
    
    
    
    3,874Deferred compensation
    
    
    239,453
    
    
    
    160,604AMT credit carryover
    
    
    202,417
    
    
    
    Investment securities available for sale
    
    
    
    
    
    
    306,000Interest rate floor
    
    
    
    
    
    
    13,594Other
    
    
    2,987
    
    
    
    28,694Total deferred tax assets
    
    
    1,611,067
    
    
    
    1,322,719Deferred tax liabilities:Premises and equipment, principally due to difference
in depreciation
    
    
    415,589
    
    
    
    286,794Investment securities available for sale
    
    
    81,410
    
    
    
    Discount accretion
    
    
    34,996
    
    
    
    29,605Other
    
    
    86,932
    
    
    
    83,599Total deferred tax liabilities
    
    
    618,927
    
    
    
    399,998Net deferred tax assets
    
    $
    992,140
    
    
    $
    922,721
  F-20




---



##### 



(12)
    
    Stock Based CompensationStock Options
 1998 Stock Option Plan
 WeightedaverageShares under
    
    exercise priceoption
    
    per shareBalance at December 31, 2005
    
    
    70,200
    
    
    $
    14.70Granted
    
    
    6,000
    
    
    
    16.67Surrendered
    
    
    (12,000
    )
    
    
    (15.75
    )Exercised
    
    
    (8,600
    )
    
    
    (15.75
    )Balance at December 31, 2006
    
    
    55,600
    
    
    $
    14.50Granted
    
    
    Surrendered
    
    
    Exercised
    
    
    (2,000
    )
    
    
    11.20Balance at December 31, 2007
    
    
    53,600
    
    
    $
    14.38
  2007
    
    2006Aggregate intrinsic value
of outstanding options
    
    $
    220,837
    
    
    $
    235,437Aggregate intrinsic value
of exercisable options
    
    $
    215,037
    
    
    $
    227,637
   F-21




---



##### 



2007Weighted averageExercise price per share
    
    
    
    
    
    
    
    
    remaining contractual
    
    
    Weighted averageOutstanding:
    
    
    
    
    Shares under option
    
    
    life in years
    
    
    exercise price$
    8.00
    
    
    
    
    
    2,800
    
    
    
    1.3
    
    
    $
    8.0011.25
    
    
    
    
    
    8,160
    
    
    
    1.3
    
    
    
    11.2512.87
    
    
    
    
    
    8,160
    
    
    
    2.0
    
    
    
    12.8715.65
    
    
    
    
    
    8,960
    
    
    
    3.1
    
    
    
    15.6515.75
    
    
    
    
    
    12,160
    
    
    
    5.0
    
    
    
    15.7516.00
    
    
    
    
    
    3,200
    
    
    
    8.2
    
    
    
    16.0016.25
    
    
    
    
    
    8,160
    
    
    
    4.0
    
    
    
    16.2518.00
    
    
    
    
    
    2,000
    
    
    
    8.6
    
    
    
    18.0053,600
    
    
    
    3.6
    
    
    $
    14.38Exercisable:$
    8.00
    
    
    
    
    
    2,800
    
    
    
    1.3
    
    
    $
    8.0011.25
    
    
    
    
    
    8,160
    
    
    
    1.3
    
    
    
    11.2512.87
    
    
    
    
    
    8,160
    
    
    
    2.0
    
    
    
    12.8715.65
    
    
    
    
    
    8,960
    
    
    
    3.1
    
    
    
    15.6515.75
    
    
    
    
    
    12,160
    
    
    
    5.0
    
    
    
    15.7516.00
    
    
    
    
    
    1,200
    
    
    
    8.0
    
    
    
    16.0016.25
    
    
    
    
    
    8,160
    
    
    
    5.0
    
    
    
    16.2518.00
    
    
    
    
    
    800
    
    
    
    8.6
    
    
    
    18.0050,400
    
    
    
    3.5
    
    
    $
    14.60
  F-22




---



##### 



2007 Equity Incentive Plan. The United Bancorporation of Alabama, Inc. 2007 Equity
Incentive Plan (the 2007 Plan) provides for the grant of stock options, stock appreciation
rights, restricted stock awards (discussed below), performance units, or any combination
thereof to officers, directors, and employees of the Corporation to purchase up to an
aggregate of 308,000 shares of Class A Stock. As of December 31, 2007, 300,374 shares of
stock could be granted in the future. The changes in outstanding options are as follows:
 WeightedaverageShares under
    
    exercise priceoption
    
    per shareBalance at December 31, 2006
    
    
    Granted
    
    
    2,000
    
    
    $
    18.50Surrendered
    
    
    Exercised
    
    
    
    
    
    
    Balance at December 31, 2007
    
    
    2,000
    
    
    $
    18.50
 The shares outstanding and exercisable had no intrinsic values as of December 31, 2007 as the
strike price was equal to the fair market value of $18.50.At December 31, 2007, 400 optioned shares were exercisable at a price of $18.50 per share.
When options are exercised, par value of the shares issued is recorded as an addition to
common stock, and the remainder of the proceeds (including any tax benefit, if applicable) is
credited to capital surplus. The following table summarizes information about stock options
outstanding at December 31, 2007.Stock options outstanding and exercisable on December 31, 2007 were as follows:
 2007Weighted averageremaining contractual
    
    
    Weighted averageExercise price per share Outstanding:
    
    Shares under option
    
    
    life in years
    
    
    exercise price2,000
    
    
    
    9.9
    
    
    $
    18.50$18.50
    
    
    2,000
    
    
    
    9.9
    
    
    $
    18.50Exercisable:400
    
    
    
    9.9
    
    
    $
    18.50$18.50
    
    
    400
    
    
    
    9.9
    
    
    $
    18.50
 Grant-date fair value is measured on the date of grant using an option-pricing model with
market assumptions. The grant-date fair values are amortized into expense on a straight-line
basis over the vesting period. The company applies the Black-Scholes-Merton option-pricing
model which requires the use of
highly subjective assumptions, including but not limited to, expected stock price volatility,
term, dividend rates, forfeiture rates, and risk-free interest rates, which if changed can
materially affect fair value estimates.The following is a summary of our weighted average assumptions used to estimate the
weighted-average per share fair value of options granted on the date of grant using the
Black-Scholes-Merton option-pricing model.
 F-23




---



##### 



2007
    
    2006Weighted-average expected life (in years)
    
    
    10.00
    
    
    
    6.67Expected Volatility
    
    
    20.00
    %
    
    
    20.00
    %Risk-free interest rate
    
    
    4.15
    %
    
    
    5.02
    %Expected dividend yield
    
    
    1.62
    %
    
    
    1.90
    %Weighted-average fair value of
options granted during the period
    
    $
    5.47
    
    
    $
    4.26
 Cash received from the exercise of options was $22,400 and $135,390 for the years ended
December 31, 2007 and 2006, respectively. The tax benefit realized for the tax deductions
from options exercise of the share-based payment arrangements totaled $5,313 and $8,701 for
the years ended December 31, 2007 and 2006.As of December 31, 2007, there was $22,664 of total unrecognized compensation costs related to
the nonvested share based compensation arrangements granted under the 1998 and 2007 Plans.
That cost is expected to be recognized over a period of 4 years.Restricted StockOn October 5, 2007, two restricted stock awards were made to employees totaling 5,626 shares
of restricted common stock with an aggregate per share fair market value of $18.00. The first
award of 2,620 shares was made with a six month vesting period. The Corporation recognized
$47,160 of stock based compensation expense as of the award date. The second award of 3,006
shares has a duration of 60 months with vesting of one-third of the award on the third,
fourth, and fifth anniversaries of the award. The total expense associated with this grant of
$54,108 will be recognized over the vesting period on a straight-line basis. The unamortized
balance of the fair value of the restricted stock grant has been recorded as unearned
compensation in the equity section of the consolidated balance sheets. As of December 31,
2007, there was $51,403 of unrecognized stock-based compensation expense related to restricted
stock, which is expected to be recognized over a period of 4.77 years.
 F-24




---



##### 



The following tables present restricted stock activity:
 Restricted
    
    Weightedstock
    
    averageactivity
    
    fair valueBalance at December 31, 2006
    
    
    Granted
    
    
    5,626
    
    
    
    18.00Surrendered
    
    
    Vested
    
    
    
    
    
    
    Balance at December 31, 2007
    
    
    5,626
    
    
    
    18.00
 The following table summarizes stock-based compensation expense:
 2007
    
    2006Stock Option Expense (1998 Plan)
    
    
    5,112
    
    
    
    18,397Stock Option Expense (2007 Plan)
    
    
    2,188
    
    
    
    Restricted Stock Expense (2007 Plan)
    
    
    49,865
    
    
    
    Total Stock Based Compensation Expense
    
    
    57,165
    
    
    
    18,397
 (13)
    
    Net Earnings per Share
 Presented below is a summary of the components used to calculate diluted earnings per
share for the years ended December 31, 2007 and 2006:
 2007
    
    2006Diluted earnings per share:Basic weighted average common shares
outstanding
    
    
    2,240,010
    
    
    
    2,225,269Effect of the assumed exercise of stock
options-based on the treasury stock
method using average market price
    
    
    11,828
    
    
    
    7,010Diluted weighted average
common shares outstanding
    
    
    2,251,838
    
    
    
    2,232,279
 (14)
    
    Dividend Reinvestment and Share Purchase Plan
 The Corporation sponsors a dividend reinvestment and share purchase plan. Under the plan,
all holders of record of common stock are eligible to participate in the plan. Participants
in the plan may direct the plan administrator to invest cash dividends declared with respect
to all or any portion of their common stock. Participants may also make optional cash
payments that will be invested through the plan. All cash dividends paid to the plan
administrator are invested within 30 days of cash dividend payment date.
Cash dividends and optional cash payments will be used to purchase common stock of the
Corporation in the open market, from newly-issued shares, from shares held in treasury, in
negotiated transactions, or in any combination of the foregoing. The purchase price of the
shares of common stock is based on the
 F-25




---



##### 



average market price. All administrative costs are
borne by the Corporation. For the years ended December 31, 2007 and 2006, 7,055 and 5,518
shares were purchased under the plan, respectively.
 (15)
    
    Employee Benefit Plans
 401(k)Savings PlanPrior to October 1, 2006, employees were eligible in the Corporations 401(k) Employee
Incentive Savings Plan after completing six months of service and attaining age 20.5. Eligible
employees could contribute a minimum of 1% up to 15% of salary to the plan. The Corporation
contributed one dollar for each dollar the employee contributed, up to 4% of the employees
salary, then the company matched fifty cents for each dollar the employee contributed up to 7%
of the employees salary.Under a new 401(k) savings plan that became effective October 1, 2006, employees are eligible
after completing ninety days of service and attaining age 20.5. Eligible employees can
contribute a minimum of 1% up to 15% of salary to the plan. The Corporation contributes one
dollar for each dollar the employee contributes, up to 5.5% of the employees salary.Contributions to the Plan charged to expense during 2007 and 2006 were $286,855 and
$202,753, respectively.Profit-Sharing PlanThe Corporation 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 $57,142 and $60,533 were made in 2007 and 2006, respectively.Salary Continuation PlanThe Corporation provides a salary continuation plan providing for death and retirement
benefits for certain executive officers. The present value of the estimated amounts to be
paid under the plan is being accrued over the remaining service period of the executives. The
expense recognized for the salary continuation plan amounted to $82,030 and $77,382 for the
years ended December 31, 2007 and 2006, respectively. The balance of the liability for the
salary continuation plan included in other liabilities at December 31, 2007 and 2006 totaled
$517,331 and $435,301, respectively.The cost of the salary continuation plan described above is being offset by earnings from bank
owned life insurance policies on the executives. The balance of the policy surrender values
included in other assets totaled $ 2,506,756 and $2,416,020 at December 31, 2007 and 2006,
respectively. Income recognized from the increase in cash surrender value on these policies
totaled $90,736 and $85,774 for the years ended December 31, 2007 and 2006, respectively.
 F-26




---



##### 



Employee Stock Purchase PlanThe Corporation sponsors an employee stock purchase plan which is available to all employees
subject to certain minimum service requirements. The Plan is administered by a Board
appointed committee which designates the offering period in which employees may purchase
shares and the offering price. All administrative costs are borne by the Corporation. For
the years ended December 31, 2007 and 2006, 1,080 and 0 shares were purchased under the Plan,
respectively.(16)
    
    Fair Value of Financial InstrumentsThe assumptions used in estimating the fair value of the Corporation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 Corporations financial instruments, but rather a good-faith estimate of the fair value of
financial instruments held by the Corporation. SFAS No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.The following methods and assumptions were used by the Corporation in estimating the fair
value of its financial instruments:
 (a)
    
    Cash and Short-term InvestmentsFair value approximates the carrying value of such assets.(b)
    
    Investment Securities and Other SecuritiesThe fair value of investment securities is based on quoted market prices. The fair value
of other securities, which includes Federal Home Loan Bank stock and other correspondent
stocks, approximates their carrying value.(c)
    
    LoansThe 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 Corporations historical experience with repayments adjusted to estimate the effect
of current market conditions.(d)
    
    Bank Owned Life InsuranceThe fair value of bank owned life insurance approximates its carrying value.(e)
    
    DepositsThe fair value of deposits with no stated maturity, such as non-interest bearing demand
deposits, NOW accounts, savings and money market deposit accounts, approximates 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.
 F-27




---



##### 



(f)
    
    Securities Sold Under Agreements to RepurchaseDue to their short-term nature, the fair value of securities sold under agreements to
repurchase approximates their carrying value.(g)
    
    FHLB, Other Borrowed Funds and Subordinated DebtThe fair value of the Corporations other borrowed funds and subordinated debt
approximates the carrying value of such liabilities. The fair value of FHLB advances have
been valued using discounted cash flows. The discount rates used are based on estimated
market rates for borrowings of similar remaining maturities.(h)
    
    Accrued InterestThe fair value of accrued interest receivable and payable approximates their carrying value.(i)
    
    Commitments to Extend Credit and Standby Letters of CreditThere is no market for the commitment to extend credit and standby letters of credit and
they were issued without explicit cost. Therefore, it is not practical to establish their
fair value.The carrying value and estimated fair value of the Corporations financial instruments at
December 31, 2007 and 2006 are as follows (in thousands):
 2007
    
    2006Carrying
    
    Estimated
    
    Carrying
    
    Estimatedamount
    
    fair value
    
    amount
    
    fair value(Dollars in Thousands)Financial assets:Cash and short-term investments
    
    $
    54,119
    
    
    $
    54,119
    
    
    $
    51,204
    
    
    $
    51,204Investment securities
    
    
    111,946
    
    
    
    111,946
    
    
    
    108,410
    
    
    
    108,410Loans, net of the allowance for loan losses
    
    
    263,156
    
    
    
    265,186
    
    
    
    242,627
    
    
    
    241,925Bank owned life insurance
    
    
    2,507
    
    
    
    2,507
    
    
    
    2,416
    
    
    
    2,416Accrued interest receivable
    
    
    3,952
    
    
    
    3,952
    
    
    
    3,580
    
    
    
    3,580Financial liabilities:Deposits
    
    
    368,903
    
    
    
    369,222
    
    
    
    326,835
    
    
    
    336,040Securities sold under
agreements to repurchase
    
    
    41,204
    
    
    
    41,204
    
    
    
    44,410
    
    
    
    44,410Other borrowed funds
    
    
    699
    
    
    
    699
    
    
    
    857
    
    
    
    857FHLB advances
    
    
    1,775
    
    
    
    1,897
    
    
    
    6,939
    
    
    
    7,054Subordinated Debt
    
    
    10,310
    
    
    
    10,310
    
    
    
    14,323
    
    
    
    14,323Accrued interest payable
    
    
    1,161
    
    
    
    1,161
    
    
    
    937
    
    
    
    937
 F-28




---



##### 



(17)
    
    Dividends From Bank
 Dividends paid by the 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. During 2007, the Bank could have declared an
additional amount of dividends of approximately $6,500,000 without prior approval of
regulatory authorities.
 (18)
    
    Comprehensive IncomeThe following is a summary of the components of other comprehensive income:
 Years ended December 312007
    
    
    2006Other comprehensive income before tax:Unrealized holding gains arising during
the period for securities, net
    
    $
    964,745
    
    
    $
    67,763Reclassification adjustment for losses on
sales of securities included in net earnings
    
    
    3,780
    
    
    
    4,879Unrealized holding gains (losses) arising
during the period for cash flow hedges
    
    
    30,062
    
    
    
    (13,888
    )Other comprehensive income,
before income taxes
    
    
    998,587
    
    
    
    58,754Income tax expense (benefits) related to other
comprehensive income:Unrealized holding gains arising during
the period for securities, net
    
    
    (385,898
    )
    
    
    (25,422
    )Reclassification adjustment for losses on
sales of securities included in net earnings
    
    
    (1,512
    )
    
    
    (1,952
    )Unrealized holding (gains) losses arising
during the period for cash flow hedges
    
    
    (13,594
    )
    
    
    5,441Total income tax expense related
to other comprehensive income
    
    
    (401,004
    )
    
    
    (21,933
    )Other comprehensive income
after taxes
    
    $
    597,583
    
    
    $
    36,821
 F-29




---



##### 



(19)
    
    LitigationThe Corporation is 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 statements of the Corporation.(20)
    
    CommitmentsThe Corporation 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, 2007, are as follows:
 Years ending December 31:2008
    
    $
    42,0002009
    
    
    25,000Total
    
    $
    67,000
 Rental expense for all operating leases charged to earnings aggregated $35,489 and $190,036
for the years ended December 31, 2007 and 2006, respectively.The Corporation 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 and standby letters of credit. Such instruments involve
elements of credit risk in excess of the amounts recognized in the consolidated financial
statements.The Corporations exposure to credit loss in the event of nonperformance by the other party to
the financial instrument for commitments to extend credit and standby letters of credit is
represented by the contractual amount of these instruments. The Corporation uses the same
credit policies in making conditional obligations as it does for on-balance-sheet instruments.The financial instruments whose contractual amounts represent credit risk as of December 31,
2007 and 2006, are approximately as follows:
 Years Ended December 312007
    
    2006Commitments to extend credit
    
    $
    36,710,000
    
    
    $
    33,394,000Standby letters of credit
    
    
    1,580,000
    
    
    
    3,233,000
 F-30




---



##### 



Standby letters of credit are commitments issued by the Corporation 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
Corporation 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.(21)
    
    Other Noninterest ExpenseComponents of other noninterest expense exceeding 1% of the total of interest income and other
income for any of the years ended December 31, 2007 and 2006, respectively, include the
following:
 2007
    
    2006Advertising
    
    $
    639,572
    
    
    $
    481,016Accounting and audit
    
    
    349,927
    
    
    
    214,612
 (22)
    
    Regulatory MattersThe Corporation and its subsidiary bank 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 Corporation. Under capital
adequacy guidelines and the regulatory framework of prompt corrective action, the Corporation
and its subsidiary bank 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
Corporation and its subsidiary bank 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
Corporation and its subsidiary bank to maintain minimum core capital (Tier I Capital) of at
least 4% of risk-weighted assets, minimum total capital (Total Qualifying Capital) of at least
8% of risk-weighted assets and a minimum leverage ratio of at least 4% of average assets.
Management believes, as of December 31, 2007, that the Corporation and its subsidiary bank
meet all capital adequacy requirements to which they are subject.As of December 31, 2007, the most recent notification from the appropriate regulatory agencies
categorized the subsidiary bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the subsidiary banks must
maintain minimum TotalQualifying Capital, Tier I Capital, and leverage ratios of at least 10%, 6%, and 5%,
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 Corporation and its
subsidiary bank at December 31, 2007 and 2006:
 F-31




---



##### 



Total Qualifying Capital
    
    Tier I Capital
    
    LeverageAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of December 31, 2007:United Bancorporation
    
    $
    44,846
    
    
    
    14.35
    %
    
    $
    40,865
    
    
    
    13.07
    %
    
    $
    40,865
    
    
    
    8.94
    %United Bank
    
    
    43,822
    
    
    
    14.03
    %
    
    
    39,920
    
    
    
    12.78
    %
    
    
    39,920
    
    
    
    9.44
    %As of December 31, 2006:United Bancorporation
    
    $
    47,286
    
    
    
    16.40
    %
    
    $
    40,366
    
    
    
    14.00
    %
    
    $
    40,366
    
    
    
    9.47
    %United Bank
    
    
    42,550
    
    
    
    14.77
    %
    
    
    39,538
    
    
    
    13.72
    %
    
    
    39,538
    
    
    
    9.88
    %
 F-32




---



##### 



(24)
    
    Parent Corporation Financial Information
  
 2007
    
    
    2006AssetsCash
    
    $
    522,364
    
    
    $
    4,868,380Investment in subsidiary
    
    
    41,287,605
    
    
    
    39,979,820Other assets
    
    
    632,640
    
    
    
    571,667Total assets
    
    $
    42,442,609
    
    
    $
    45,419,867Liabilities and Stockholders EquityOther liabilities
    
    $
    211,219
    
    
    $
    380,995Note payable to Trust
    
    
    10,310,000
    
    
    
    14,322,853Total liabilities
    
    
    10,521,219
    
    
    
    14,703,848Stockholders equity:Class A common stock of $0.01 par value. Authorized
5,000,000 shares; issued 2,383,097 and 2,375,471 shares
in 2007 and 2006, respectively
    
    
    23,831
    
    
    
    23,755Class B common stock of $0.01 par value. Authorized
250,000 shares; no shares issued
    
    
    
    
    
    
    Preferred stock of $.01 par value. Authorized 250,000
shares; no shares issued
    
    
    
    
    
    
    Additional paid-in capital
    
    
    5,916,367
    
    
    
    5,664,387Unearned stock based compensation
    
    
    (51,403
    )
    
    
    Retained earnings
    
    
    26,700,500
    
    
    
    26,341,116Accumulated other comprehensive loss, net of tax
    
    
    122,105
    
    
    
    (475,478
    )Less: 134,654 and 142,789 treasury shares at cost in 2007
and 2006, respectively
    
    
    790,010
    
    
    
    837,761Total stockholders equity
    
    
    31,921,390
    
    
    
    30,716,019Total liabilities and
stockholders equity
    
    $
    42,442,609
    
    
    $
    45,419,867
 F-33




---



##### 



2007
    
    
    2006Income:Dividend income from subsidiary
    
    $
    1,500,000
    
    
    $
    1,320,000Other income
    
    
    30,523
    
    
    
    151,158Total income
    
    
    1,530,523
    
    
    
    1,471,158Expense:Interest on subordinated debentures
    
    
    1,126,275
    
    
    
    567,449Other operating expense
    
    
    201,424
    
    
    
    286,216Total expense
    
    
    1,327,699
    
    
    
    853,665Income before equity in undistributed
income of subsidiaries and taxes
    
    
    202,824
    
    
    
    617,493Equity in undistributed earnings
of subsidiary
    
    
    350,336
    
    
    
    2,275,608Income before taxes
    
    
    553,160
    
    
    
    2,893,101Income tax benefit
    
    
    (478,598
    )
    
    
    (241,969
    )Net earnings
    
    $
    1,031,758
    
    
    $
    3,135,070
 F-34




---



##### 



2007
    
    
    2006Cash flows from operating activities:Net earnings
    
    $
    1,031,758
    
    
    $
    3,135,070Adjustments to reconcile net earnings to
net cash provided by operating
activities:Equity in undistributed earnings of
subsidiary
    
    
    (350,336
    )
    
    
    (2,275,608
    )Depreciation of premises and equipment
    
    
    
    
    
    
    137,151Stock-based compensation expense
    
    
    10,005
    
    
    
    18,397Amortization of trust preferred cost
    
    
    111,147
    
    
    
    10,104Increase (decrease) in other liabilities
    
    
    (411,616
    )
    
    
    (43,000
    )Decrease (increase) in receivables
    
    
    (79,740
    )
    
    
    34,859Net cash provided by
operating activities
    
    
    311,218
    
    
    
    1,016,973Cash flows from investing activities:Investment in bank subsidiary
    
    
    
    
    
    
    (6,000,000
    )Net cash used in investing
activities
    
    
    
    
    
    
    (6,000,000
    )Cash flows from financing activities:Cash dividends
    
    
    (701,936
    )
    
    
    (668,118
    )Purchase of treasury stock
    
    
    
    
    
    
    (63,750
    )Proceeds from sale of treasury stock
    
    
    16,989
    
    
    
    Proceeds from exercise of stock options
    
    
    22,400
    
    
    
    135,390Tax benefit from exercise of common stock
    
    
    5,313
    
    
    
    Redemption of subordinated debentures
    
    
    (4,000,000
    )
    
    
    Issuance of surbordinated debentures
    
    
    
    
    
    
    10,000,000Net cash provided by(used in)
financial activities
    
    
    (4,657,234
    )
    
    
    9,403,522Net increase (decrease)
in cash
    
    
    (4,346,016
    )
    
    
    4,420,495Cash, beginning of year
    
    
    4,868,380
    
    
    
    447,885Cash, end of year
    
    $
    522,364
    
    
    $
    4,868,380
 F-35




---



##### 



INDEX TO EXHIBITS
 Exhibit10.12
    
    Employment Agreement between United Bank and Allen O. Jones, Jr. (filed herewith).21
    
    Subsidiaries of the registrant23
    
    Consent of Independent Registered Public Accounting Firm (Mauldin & Jenkins, LLC)31.1
    
    Certification of Chief Executive
Officer under Securities Exchange Act Rules 13a-15(e) and 15d-15(e)31.2
    
    Certification of Chief Financial
Officer under Securities Exchange Act Rules 13a-15(e) and 15d-15(e)32.1
    
    Certificate pursuant to 18 U.S.C Section 135032.2
    
    Certificate pursuant to 18 U.S.C Section 1350