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, 2008
 Commission File No. 000-25917
 UNITED BANCORPORATION OF ALABAMA, INC.
 
  Delaware
    
    63-0833573(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S.Employer Identification No.)
 
      o þ
 o þ
 þ o
 þ
 Large accelerated filer oAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company þ
 o þ
   Common Stock
    
    
    Par Value
    
    
    Outstanding at March 27, 2009Class A
    
    
    $
    .01
    
    
    
    2,234,711 Shares*Class B
    
    
    $
    .01
    
    
    
    0 Shares
 
 *
    
    Excludes 153,839 shares held as treasury stock.




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




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Competition
 Employees
 Supervision, Regulation and Government Policy
     3




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4




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5




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6




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7




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Selected Statistical Information
 
 (Dollars in Thousands)Interest Income
    
    
    Average RatesAverage Balance
    
    
    Expense
    
    
    Earned Paid2008Loans, net (1)
    
    $
    287,491
    
    
    $
    19,718
    
    
    
    6.86
    %Taxable securities available for sale
    
    
    84,813
    
    
    
    3,063
    
    
    
    3.61
    %Tax exempt sec available for sale (2)
    
    
    33,903
    
    
    
    1,360
    
    
    
    6.08
    %Federal funds sold and repurchase agreements
    
    
    9,204
    
    
    
    179
    
    
    
    1.94
    %Interest-bearing deposits with other
financial institutions
    
    
    14,766
    
    
    
    359
    
    
    
    2.43
    %Total interest-earning assets
    
    $
    430,177
    
    
    $
    24,679
    
    
    
    5.90
    %Saving deposits and demand deposits interest-bearing
    
    $
    99,969
    
    
    $
    1,429
    
    
    
    1.43
    %Time deposits
    
    
    194,524
    
    
    
    7,944
    
    
    
    4.08
    %Repurchase agreements
    
    
    68,257
    
    
    
    834
    
    
    
    1.22
    %Other borrowed funds
    
    
    12,648
    
    
    
    672
    
    
    
    5.31
    %Total interest-bearing liabilities
    
    $
    375,398
    
    
    $
    10,879
    
    
    
    2.90
    %Net interest income/net yield on interest earning assets
    
    
    
    
    
    $
    13,800
    
    
    
    3.37
    %
 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
    
    
    
    1,428
    
    
    
    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
    
    $
    378,842
    
    
    $
    27,210
    
    
    
    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
    
    
    
    
    
    $
    13,647
    
    
    
    3.80
    %
 8




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##### 



Interest Income
    
    
    Average RatesInterest Income
    
    
    Average Rates2006
    
    Average Balance
    
    
    Expense
    
    
    Earned PaidLoans, 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
    
    
    
    1,262
    
    
    
    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
    
    
    $
    25,050
    
    
    
    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
    
    
    
    
    
    $
    15,294
    
    
    
    4.74
    %
 
 (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 2008, 2007, and 2006.   Interest IncomeAverage Balances
    
    
    
    
    Expense
    
    
    
    
    
    
    Variance as to2008
    
    
    2007
    
    
    
    
    2008
    
    
    2007
    
    
    Variance
    
    
    Rate
    
    
    Volume$
    287,491
    
    
    $
    251,348
    
    
    Loans (Net)
    
    $
    19,718
    
    
    $
    21,195
    
    
    $
    (1,477
    )
    
    $
    (3,942
    )
    
    $
    2,46584,813
    
    
    
    73,682
    
    
    Taxable Securities AFS (1)
    
    
    3,063
    
    
    
    3,662
    
    
    
    (599
    )
    
    
    (1,075
    )
    
    
    47633,903
    
    
    
    35,750
    
    
    Tax Exempt Securities AFS (2)
    
    
    1,359
    
    
    
    1,428
    
    
    
    (69
    )
    
    
    38
    
    
    
    (107
    )9,204
    
    
    
    5,230
    
    
    Fed Funds Sold
    
    
    179
    
    
    
    258
    
    
    
    (79
    )
    
    
    (220
    )
    
    
    14114,766
    
    
    
    12,832
    
    
    Interest Bearing Deposits
    
    
    359
    
    
    
    667
    
    
    
    (308
    )
    
    
    (784
    )
    
    
    476$
    430,177
    
    
    $
    378,842
    
    
    Total Earning Assets
    
    $
    24,678
    
    
    $
    27,210
    
    
    $
    (2,532
    )
    
    $
    (5,983
    )
    
    $
    3,451Savings and Interest Bearing$
    99,969
    
    
    $
    90,123
    
    
    Demand Deposits
    
    $
    1,429
    
    
    $
    2,052
    
    
    $
    (623
    )
    
    $
    (910
    )
    
    $
    287194,524
    
    
    
    174,009
    
    
    Time Deposits
    
    
    7,944
    
    
    
    8,407
    
    
    
    (463
    )
    
    
    (790
    )
    
    
    32768,257
    
    
    
    40,909
    
    
    Repurchase Agreements
    
    
    834
    
    
    
    1,708
    
    
    
    (874
    )
    
    
    (1,620
    )
    
    
    74612,648
    
    
    
    18,318
    
    
    Other Borrowed Funds
    
    
    672
    
    
    
    1,396
    
    
    
    (724
    )
    
    
    (271
    )
    
    
    (453
    )$
    375,398
    
    
    $
    323,359
    
    
    Total
Interest Bearing Liabilities
    
    $
    10,879
    
    
    $
    13,563
    
    
    $
    (2,684
    )
    
    $
    (3,591
    )
    
    $
    907
  
 (1)
    
    Available for Sale (AFS)(2)
    
    Yields on tax-exempt obligations have been computed on a full federal tax-equivalent basis
using an income 9




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tax rate of 34% for 2008, 2007, and 2006. Analysis of Changes in Interest Income and Interest Expense
  Interest IncomeAverage Balances
    
    
    
    
    Expense
    
    
    
    
    
    
    Variance as to2007
    
    
    2006
    
    
    
    
    2007
    
    
    2006
    
    
    Variance
    
    
    Rate
    
    
    Volume$
    251,348
    
    
    $
    242,431
    
    
    Loans (Net)
    
    $
    21,195
    
    
    $
    20,815
    
    
    $
    380
    
    
    $
    (368
    )
    
    $
    74873,682
    
    
    
    43,275
    
    
    Taxable Securities AFS (1)
    
    
    3,662
    
    
    
    2,112
    
    
    
    1,550
    
    
    
    122
    
    
    
    1,42835,750
    
    
    
    31,870
    
    
    Tax Exempt Securities AFS (2)
    
    
    1,428
    
    
    
    1,262
    
    
    
    166
    
    
    
    20
    
    
    
    1465,230
    
    
    
    8,535
    
    
    Fed Funds Sold
    
    
    258
    
    
    
    434
    
    
    
    (176
    )
    
    
    (12
    )
    
    
    (164
    )12,832
    
    
    
    10,369
    
    
    Interest Bearing Deposits
    
    
    667
    
    
    
    427
    
    
    
    240
    
    
    
    97
    
    
    
    143$
    378,842
    
    
    $
    336,480
    
    
    Total Earning Assets
    
    $
    27,210
    
    
    $
    25,050
    
    
    $
    2,160
    
    
    $
    (141
    )
    
    $
    2,301Savings and Interest Bearing$
    90,123
    
    
    $
    79,120
    
    
    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 and 2006. Investments
 Securities Portfolio
 10




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2008
    
    
    2007
    
    
    2006US Government Agencies
excluding Mortgage Backed
securitiesWithin one year
    
    $
    16,520
    
    
    
    0.99
    %
    
    $
    22,434
    
    
    
    4.28
    %
    
    $
    29,457
    
    
    
    5.40
    %1-5 years
    
    
    7,662
    
    
    
    4.63
    %
    
    
    14,236
    
    
    
    4.73
    %
    
    
    12,869
    
    
    
    4.48
    %5-10 years
    
    
    15,371
    
    
    
    5.35
    %
    
    
    21,943
    
    
    
    5.49
    %
    
    
    11,785
    
    
    
    5.48
    %After 10 years
    
    
    
    
    
    
    
    
    
    
    1,002
    
    
    
    5.75
    %
    
    
    1,000
    
    
    
    5.75
    %Total
    
    $
    39,553
    
    
    
    3.39
    %
    
    $
    59,615
    
    
    
    4.86
    %
    
    $
    55,111
    
    
    
    5.21
    %Mortgage Backed SecuritiesWithin one year
    
    $
    170
    
    
    
    3.23
    %
    
    $
    728
    
    
    
    3.60
    %
    
    $
    
    
    
    
    1-5 years
    
    
    4,302
    
    
    
    3.93
    %
    
    
    2,356
    
    
    
    4.05
    %
    
    
    3,980
    
    
    
    4.02
    %5-10 years
    
    
    1,519
    
    
    
    4.57
    %
    
    
    4,620
    
    
    
    4.05
    %
    
    
    6,000
    
    
    
    4.05
    %After 10 years
    
    
    6,860
    
    
    
    4.57
    %
    
    
    9,208
    
    
    
    4.74
    %
    
    
    11,435
    
    
    
    4.66
    %Total
    
    $
    12,851
    
    
    
    4.35
    %
    
    $
    16,912
    
    
    
    4.44
    %
    
    $
    21,415
    
    
    
    4.37
    %State & Municipal (1)Within one year
    
    $
    1,460
    
    
    
    3.51
    %
    
    $
    469
    
    
    
    4.06
    %
    
    $
    591
    
    
    
    2.52
    %1-5 years
    
    
    7,063
    
    
    
    3.88
    %
    
    
    6,318
    
    
    
    3.90
    %
    
    
    5,169
    
    
    
    3.88
    %5-10 years
    
    
    13,118
    
    
    
    4.08
    %
    
    
    14,160
    
    
    
    4.02
    %
    
    
    12,407
    
    
    
    4.09
    %After 10 years
    
    
    11,481
    
    
    
    4.03
    %
    
    
    14,471
    
    
    
    4.02
    %
    
    
    14,482
    
    
    
    4.01
    %Total
    
    $
    33,122
    
    
    
    3.99
    %
    
    $
    35,418
    
    
    
    4.00
    %
    
    $
    32,649
    
    
    
    3.99
    %Totals
    
    $
    85,526
    
    
    
    4.52
    %
    
    $
    111,945
    
    
    
    4.52
    %
    
    $
    109,175
    
    
    
    4.68
    %
 
 (1)
    
    Yields on tax-exempt obligations have been computed on a full federal tax-equivalent basis
using an income tax rate of 34% for 2008, 2007 and 2006. 11




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2008US Government Agencies
excluding Mortgage Backed
securitiesWithin one year
    
    $
    
    
    
    
    1-5 years
    
    
    3,050
    
    
    
    4.34
    %5-10 years
    
    
    3,000
    
    
    
    4.48
    %After 10 years
    
    
    
    
    
    
    Total
    
    $
    6,050
    
    
    
    4.41
    %Other Domestic Debt SecuritiesWithin one year
    
    $
    
    
    
    
    1-5 years
    
    
    500
    
    
    
    5.25
    %5-10 years
    
    
    
    
    
    
    After 10 years
    
    
    
    
    
    
    Total
    
    $
    500
    
    
    
    5.25
    %Totals
    
    $
    6,550
    
    
    
    4.47
    %
 Relative Lending Risk
     12




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13




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One year
    
    
    One - five
    
    
    After fiveor less
    
    
    years
    
    
    years
    
    
    TotalReal estate  construction
    
    $
    36,062
    
    
    $
    16,037
    
    
    $
    551
    
    
    $
    52,650Real estate  mortgage
1-4 family
    
    
    11,255
    
    
    
    37,365
    
    
    
    4,057
    
    
    
    52,677Real estate  commercial
    
    
    11,528
    
    
    
    33,498
    
    
    
    3,270
    
    
    
    48,296Real estate  other
    
    
    9,506
    
    
    
    24,850
    
    
    
    3,655
    
    
    
    38,011Agricultural
    
    
    8,000
    
    
    
    3,431
    
    
    
    594
    
    
    
    12,025Commercial
    
    
    26,258
    
    
    
    25,864
    
    
    
    5,419
    
    
    
    57,541Other loans
    
    
    9,786
    
    
    
    8,647
    
    
    
    147
    
    
    
    18,580Totals
    
    $
    112,395
    
    
    $
    149,692
    
    
    $
    17,693
    
    
    $
    279,780
   Prime
    
    
    LIBOR
    
    
    Other
    
    
    TotalReal estate  construction
    
    $
    41,290
    
    
    $
    2,225
    
    
    $
    
    
    
    $
    43,515Real estate  mortgage
1-4 family
    
    
    18,784
    
    
    
    
    
    
    
    
    
    
    
    18,784Real estate  commercial
    
    
    13,873
    
    
    
    3,169
    
    
    
    
    
    
    
    17,042Real estate  other
    
    
    15,460
    
    
    
    
    
    
    
    425
    
    
    
    15,885Agricultural
    
    
    4,219
    
    
    
    
    
    
    
    
    
    
    
    4,219Commercial
    
    
    21,230
    
    
    
    2,718
    
    
    
    
    
    
    
    23,948Other loans
    
    
    2,334
    
    
    
    
    
    
    
    
    
    
    
    2,334Totals
    
    $
    117,190
    
    
    $
    8,112
    
    
    $
    425
    
    
    $
    125,727
  Non-performing Assets
 14




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##### 



Descriptions
    
    2008
    
    
    2007
    
    
    2006A
    
    Loans accounted for on
a nonaccrual basis
    
    $
    14,700
    
    
    $
    11,079
    
    
    $
    1,570B
    
    Loans which are contractually
past due ninety days or more
as to interest or principal payments
(excluding balances included in (A)
above)
    
    
    28
    
    
    
    26
    
    
    
    9C
    
    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.
    
    
    1,106
    
    
    
    54
    
    
    
    197D
    
    Other non-performing assets
    
    
    5,524
    
    
    
    551
    
    
    
    621Total
    
    $
    21,358
    
    
    $
    11,710
    
    
    $
    2,397
   15




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##### 



Loan Concentrations
 
 2008
    
    
    2007
    
    
    2006Average amount of loans outstanding, net
    
    $
    287,491
    
    
    $
    251,348
    
    
    $
    242,431Allowance for loan losses beginning January 1
    
    $
    3,981
    
    
    $
    3,011
    
    
    $
    3,028Loans Charged off:Commercial, financial and
agriculture
    
    
    (2,422
    )
    
    
    (226
    )
    
    
    (960
    )Real estate  mortgage
    
    
    (68
    )
    
    
    
    
    
    
    Installment loans to
individuals
    
    
    (265
    )
    
    
    (213
    )
    
    
    (95
    )Total Charged off
    
    
    (2,755
    )
    
    
    (439
    )
    
    
    (1,055
    )Recoveries during the period
Commercial, financial and
agriculture
    
    
    30
    
    
    
    12
    
    
    
    35Real estate  mortgage
    
    
    
    
    
    
    
    
    
    
    Installment loans to
individuals
    
    
    35
    
    
    
    17
    
    
    
    45Total Recoveries
    
    
    65
    
    
    
    29
    
    
    
    80Loans Charged off, net
    
    
    (2,690
    )
    
    
    (410
    )
    
    
    (975
    )Other Adjustments
    
    
    
    
    
    
    
    
    
    
    (102
    )Additions to the allowance charged to operations
    
    
    2,300
    
    
    
    1,380
    
    
    
    1,060$
    3,591
    
    
    $
    3,981
    
    
    $
    3,011Ratio of net charge offs during the period to average loans outstanding
    
    
    0.94
    %
    
    
    0.16
    %
    
    
    0.40
    %
  Allowance for Loan Losses
  16




---



##### 



(Dollars In Thousands)Percentage of Loans toAllowance
    
    
    
    
    Total Loans2008
    
    
    2007
    
    
    2006
    
    
    
    2008
    
    
    2007
    
    
    2006Commercial, financial
and agricultural
    
    $
    1,618
    
    
    $
    2,964
    
    
    $
    2,173
    
    
    
    
    56.4
    %
    
    
    53.5
    %
    
    
    54.2
    %Real estate  construction
    
    
    1,777
    
    
    
    336
    
    
    
    116
    
    
    
    
    18.8
    %
    
    
    25.7
    %
    
    
    24.2
    %Real estate  mortgage
1-4 family
    
    
    64
    
    
    
    554
    
    
    
    563
    
    
    
    
    18.8
    %
    
    
    15.6
    %
    
    
    15.4
    %Installment loans to
individuals
    
    
    132
    
    
    
    127
    
    
    
    159
    
    
    
    
    6.0
    %
    
    
    5.2
    %
    
    
    6.2
    %Total
    
    $
    3,591
    
    
    $
    3,981
    
    
    $
    3,011
    
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  17




---



##### 



Delinquent Loan Policy
   
  Average
    
    
    
    AverageDeposits
    
    
    
    Rate Paid2008
    
    
    2007
    
    
    2006
    
    
    
    2008
    
    
    2007
    
    
    2006Noninterest-bearing
demand deposits
    
    $
    63,234
    
    
    $
    60,446
    
    
    $
    63,833
    
    
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Interest  bearing
Demand
    
    
    82,357
    
    
    
    71,593
    
    
    
    57,613
    
    
    
    
    1.68
    %
    
    
    2.80
    %
    
    
    1.98
    %Savings
    
    
    17,612
    
    
    
    18,530
    
    
    
    21,507
    
    
    
    
    0.24
    %
    
    
    0.25
    %
    
    
    0.25
    %Time
    
    
    194,524
    
    
    
    174,009
    
    
    
    143,241
    
    
    
    
    4.08
    %
    
    
    4.83
    %
    
    
    4.08
    %$
    294,493
    
    
    $
    264,132
    
    
    $
    222,361
    
    
    
    
    3.18
    %
    
    
    3.96
    %
    
    
    3.17
    %
 18




---



##### 



$100,000 or GreaterCertificates of
    
    
    Other TimeDeposit
    
    
    DepositsMaturityThree months or less
    
    $
    27,046
    
    
    $
    38,166Three to six months
    
    
    11,966
    
    
    
    25,340Six to twelve months
    
    
    26,748
    
    
    
    25,135Twelve months or more
    
    
    15,961
    
    
    
    24,861Totals
    
    $
    81,721
    
    
    $
    113,502
   Maximum Outstanding
    
    Average
    
    Average interest
    
    Ending
    
    Average interestat any month end
    
    balance
    
    rate
    
    balance
    
    rate at year end2008Securities sold under
agreements to repurchase
    
    $
    108,160
    
    
    $
    68,257
    
    
    
    1.22
    %
    
    $
    1,861
    
    
    
    0.00
    %Other short term borrowings
    
    $
    661
    
    
    $
    663
    
    
    
    1.59
    %
    
    $
    496
    
    
    
    0.19
    %2007Securities 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
    %
 19




---



##### 



Return on Equity and Assets
 2008
    
    2007
    
    2006Return on average assets
    
    
    0.11
    %
    
    
    0.23
    %
    
    
    0.84
    %Return on average equity
    
    
    1.67
    %
    
    
    3.28
    %
    
    
    11.08
    %Dividend pay-out ratio
    
    
    125.00
    %
    
    
    65.22
    %
    
    
    21.43
    %Ratio of average equity to
average assets
    
    
    7.35
    %
    
    
    7.12
    %
    
    
    7.55
    %
 ITEM 1A. RISK FACTORS
     20




---



##### 



Ending Balances
    
    
    Down 200
    
    
    Up 200as of 12/31/08
    
    
    Basis Points
    
    
    Basis PointsEarning Assets:Cash & Short-term Investments
    
    $
    143,758,602
    
    
    
    -51.36
    %
    
    
    347.47
    %Investment securities, taxable
    
    
    59,426,555
    
    
    
    -9.72
    %
    
    
    14.22
    %Investment securities, tax-exempt
    
    
    33,540,244
    
    
    
    -7.02
    %
    
    
    4.38
    %Loans
    
    
    276,188,318
    
    
    
    -11.82
    %
    
    
    17.57
    %Total Assets
    
    $
    512,913,719
    
    
    
    -12.01
    %
    
    
    23.04
    %Interest Bearing Liabilities:Interest Bearing Deposits
    
    $
    123,631,633
    
    
    
    -23.35
    %
    
    
    58.32
    %Certificates
of Deposit less than $100,000
    
    
    110,196,452
    
    
    
    -24.60
    %
    
    
    33.60
    %Certificates of Deposit greater
than $100,000
    
    
    85,044,401
    
    
    
    -21.74
    %
    
    
    29.63
    %Total Interest Bearing Deposits
    
    
    318,872,486
    
    
    
    -23.32
    %
    
    
    35.45
    %Federal funds sold & securities
purchased under agreement to resale
    
    
    1,861,237
    
    
    
    0.00
    %
    
    
    0.00
    %Federal Home Loan Bank borrowings
    
    
    2,105,471
    
    
    
    2.35
    %
    
    
    16.10
    %Total Purchased Funds
    
    
    3,966,708
    
    
    
    2.35
    %
    
    
    16.10
    %Total Liabilities
    
    $
    322,839,194
    
    
    
    -23.01
    %
    
    
    35.21
    %Net Interest Income
    
    
    
    
    
    
    -6.54
    %
    
    
    16.98
    %
 
 *
    
    Information pertains to the Bank only 21




---



##### 



22




---



##### 



23




---



##### 




    
    The Bank expects to face increased regulation of the industry, including the
results of the EESA and the American Recovery and Reinvestment Act of 2009 (ARRA).
Compliance with such regulation may increase the Banks costs and limit our ability to
pursue business opportunities.
 24




---



##### 




    
    Government stimulus packages and other responses to the financial crises may not
stabilize the economy or financial system.
    
    The ability to assess the creditworthiness of the Banks customers may be impaired
if the approaches used to select, manage, and underwrite our customers become less
predictive of future behaviors.
    
    The process used to estimate losses requires difficult, subjective, and complex
judgments, including forecasts of economic conditions and how these economic
predictions might impair the ability of the Banks borrowers to repay their loans.
The current economic conditions may make accurate estimation more difficult and
negatively impact the reliability of this process.
    
    The Bank will be required to pay significantly higher Federal Deposit Insurance
Corporation premiums because market developments have significantly depleted the
insurance fund of the FDIC and reduced the ratio of reserves to insured deposits.
    
    The ability to engage in routine funding transactions could be adversely affected
by the actions and commercial soundness of other financial institutions and government
sponsored entities.
             25




---



##### 



(1)
    
    5,000,000 shares of Class A common stock, $.01 par value per share, of which 2,388,550
shares are issued and 2,234,711 are outstanding and held by approximately 839 shareholders
of record, as of March 27, 2009.(2)
    
    250,000 shares of Class B common stock, $.01 par value per share, none of which were
issued, as of March 27, 2009.
    26




---



##### 



27




---



##### 



28




---



##### 



2008
    
    
    2007Interest income (1)
    
    $
    25,349
    
    
    $
    27,945Interest expense
    
    
    10,879
    
    
    
    13,563Net interest income
    
    
    14,470
    
    
    
    14,382Provision for loan losses
    
    
    2,300
    
    
    
    1,380Net interest income after
provision for loan losses
on a tax equivalent basis
    
    
    12,170
    
    
    
    13,002Less: tax equivalent adjustment
    
    
    671
    
    
    
    735Net interest income after
provision for loan losses
    
    $
    11,499
    
    
    $
    12,267
 
 (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 2008 and 2007.  29




---



##### 



30




---



##### 



2008
    
    
    2007Service Charge Income
    
    $
    1,225,778
    
    
    $
    1,035,779Nonsufficient Fund Charges, net
    
    
    2,217,484
    
    
    
    1,978,692Mortgage Origination Fees
    
    
    168,157
    
    
    
    213,071Investment Securities Gains, (net)
    
    
    264,737
    
    
    
    (3,780
    )Other
    
    
    864,674
    
    
    
    768,810$
    4,740,830
    
    
    $
    3,992,572
   NONINTEREST EXPENSE
 2008
    
    
    2007Salaries and benefits
    
    $
    8,548,033
    
    
    $
    8,315,265Net occupancy
    
    
    2,872,565
    
    
    
    2,596,804Other
    
    
    4,743,515
    
    
    
    4,541,315Total
    
    $
    16,164,113
    
    
    $
    15,453,384
   31




---



##### 



2008
    
    
    2007Real estate  construction
    
    $
    52,649,854
    
    
    $
    68,699,154Real estate - 1-4 family residential mortgage
    
    
    52,676,766
    
    
    
    41,738,820Real estate  commercial
    
    
    51,733,848
    
    
    
    54,562,891Real estate  other
    
    
    34,574,419
    
    
    
    31,537,613Agriculture
    
    
    12,024,870
    
    
    
    9,254,558Commercial
    
    
    57,233,574
    
    
    
    46,129,553Other loans
    
    
    18,886,546
    
    
    
    15,215,134$
    279,779,877
    
    
    $
    267,137,723
      32




---



##### 




    
    The Corporation had recently expanded its locations and to absorb the additional
operating costs, growth was required. If capital requirements were increased or losses
lowered capital levels, the ability to grow would be restricted.
    
    The economy had entered a declining period with the result that the opportunity to
increase earnings would be restricted, therefore reducing internal capital generation and
the ability to add assets to meet the loan and
 33




---



##### 



deposit needs of the communities served by
the Corporation.
 
    
    With economic activity nationally slowing and exposure to the commercial real estate
market on the Gulf Coast, additional capital would insure the ability to absorb any
negative earnings impacts from these and continue to service the communities and maintain
capital levels at high levels.
  
    Index to Financial Statements
    
    Page(s)Report of Independent Registered Public Accounting Firm
    
    
    F1Consolidated Balance Sheets as of December 31,
2008 and 2007
    
    
    F2Consolidated Statements of Operations for
the years ended December 31, 2008 and 2007
    
    
    F3Consolidated Statements of Stockholders
Equity and Other Comprehensive Income for
the years ended December 31, 2008 and 2007
    
    
    F4Consolidated Statements of Cash Flows for
the years ended December 31, 2008 and 2007
    
    
    F5Notes to Consolidated Financial
Statements  December 31, 2008 and 2007
    
    
    F6
  34




---



##### 



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
     
 F-1




---



##### 



UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
 
 
 2008
    
    2007AssetsCash and due from banks
    
    $
    35,148,646
    
    
    $
    17,571,893Interest bearing deposits in banks
    
    
    91,773,852
    
    
    
    31,547,422Federal funds sold
    
    
    16,600,000
    
    
    
    5,000,000Cash and short-term investments
    
    
    143,522,498
    
    
    
    54,119,315Securities available for sale, at fair value (amortized cost of
$84,725,733 and $111,718,759 at December 31, 2008 and 2007,
respectively)
    
    
    85,526,712
    
    
    
    111,945,701Securities held to maturity (market values of $6,596,039
and $0 respectively)
    
    
    6,550,000
    
    
    
    Loans
    
    
    279,779,877
    
    
    
    267,137,723Less: Allowance for loan losses
    
    
    3,591,558
    
    
    
    3,981,922Net loans
    
    
    276,188,319
    
    
    
    263,155,801Premises and equipment, net
    
    
    18,856,327
    
    
    
    16,808,578Interest receivable
    
    
    3,253,604
    
    
    
    3,952,077Intangible assets
    
    
    934,763
    
    
    
    934,763Other assets
    
    
    15,212,784
    
    
    
    6,385,725Total assets
    
    $
    550,045,007
    
    
    $
    457,301,960Liabilities and Stockholders EquityDeposits:Non-interest bearing
    
    $
    172,291,464
    
    
    $
    62,854,927Interest bearing
    
    
    318,864,162
    
    
    
    306,047,638Total deposits
    
    
    491,155,626
    
    
    
    368,902,565Securities sold under agreements to repurchase
    
    
    1,861,237
    
    
    
    41,203,851Advances from Federal Home Loan Bank of Atlanta
    
    
    1,609,900
    
    
    
    1,774,700Treasury, tax, and loan account
    
    
    495,572
    
    
    
    691,668Interest payable
    
    
    912,570
    
    
    
    1,161,362Accrued expenses and other liabilities
    
    
    1,577,461
    
    
    
    1,336,424Note payable to Trust
    
    
    10,310,000
    
    
    
    10,310,000Total liabilities
    
    
    507,922,366
    
    
    
    425,380,570Stockholders equity:Preferred stock of $.01 par value. Authorized 250,000 shares;
10,300 and 0 shares in 2008 and 2007, respectively
    
    
    9,953,381
    
    
    
    Class A common stock, $0.01 par value.
Authorized 5,000,000 shares; issued and outstanding,
2,388,125 and 2,383,097 shares in 2008 and 2007, respectively
    
    
    23,881
    
    
    
    23,831Class B common stock, $0.01 par value.
Authorized 250,000 shares; no shares issued or outstanding
    
    
    
    
    
    
    Additional paid in capital
    
    
    6,429,869
    
    
    
    5,916,367Unearned stock based compensation
    
    
    (87,446
    )
    
    
    (51,403
    )Accumulated other comprehensive
income, net of tax
    
    
    480,584
    
    
    
    122,105Retained earnings
    
    
    26,572,188
    
    
    
    26,700,50043,372,457
    
    
    
    32,711,400Less: 155,855 and 134,654 treasury shares, at cost, respectively
    
    
    1,249,816
    
    
    
    790,010Total stockholders equity
    
    
    42,122,641
    
    
    
    31,921,390Total liabilities and stockholders equity
    
    $
    550,045,007
    
    
    $
    457,301,960
  F-2




---



##### 



UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
 
 
 2008
    
    
    2007Interest income:Interest and fees on loans
    
    $
    19,717,252
    
    
    $
    21,194,540Interest on investment securities:Taxable
    
    
    3,062,502
    
    
    
    3,661,508Nontaxable
    
    
    1,359,884
    
    
    
    1,428,219Total investment income
    
    
    4,422,386
    
    
    
    5,089,727Other interest income
    
    
    537,993
    
    
    
    925,634Total interest income
    
    
    24,677,631
    
    
    
    27,209,901Interest expense:Interest on deposits
    
    
    9,373,000
    
    
    
    10,458,704Interest on other borrowed funds
    
    
    1,505,520
    
    
    
    3,103,958Total interest expense
    
    
    10,878,520
    
    
    
    13,562,662Net interest income
    
    
    13,799,111
    
    
    
    13,647,239Provision for loan losses
    
    
    2,300,000
    
    
    
    1,380,000Net interest income after
provision for loan losses
    
    
    11,499,111
    
    
    
    12,267,239Noninterest income:Service charge on deposits
    
    
    3,443,262
    
    
    
    3,014,471Investment securities gains (losses), net
    
    
    264,737
    
    
    
    (3,780
    )Mortgage loan and related fees
    
    
    168,157
    
    
    
    213,071Other
    
    
    864,674
    
    
    
    768,810Total noninterest income
    
    
    4,740,830
    
    
    
    3,992,572Noninterest expense:Salaries and benefits
    
    
    8,548,033
    
    
    
    8,315,265Net occupancy expense
    
    
    2,872,565
    
    
    
    2,596,804Other
    
    
    4,743,515
    
    
    
    4,541,315Total noninterest expense
    
    
    16,164,113
    
    
    
    15,453,384Earnings before income tax benefits
    
    
    75,828
    
    
    
    806,427Income tax benefits
    
    
    (470,110
    )
    
    
    (225,331
    )Net earnings
    
    $
    545,938
    
    
    $
    1,031,758Basic earnings per share
    
    $
    0.24
    
    
    $
    0.46Basic weighted average shares outstanding
    
    
    2,251,179
    
    
    
    2,240,010Diluted earnings per share
    
    $
    0.24
    
    
    $
    0.46Diluted weighted average shares outstanding
    
    
    2,254,513
    
    
    
    2,251,838
  F-3




---



##### 



UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
 
 
 Accumulated
    
    
    UnearnedAdditional
    
    
    
    
    
    
    other
    
    
    Stock
    
    
    
    
    
    
    TotalCommon
    
    
    Common
    
    
    paid in
    
    
    Retained
    
    
    comprehensive
    
    
    Based
    
    
    Treasury
    
    
    stockholders
    
    
    ComprehensivePreferred Stock
    
    
    Shares
    
    
    stock
    
    
    Capital
    
    
    earnings
    
    
    income (loss)
    
    
    Compensation
    
    
    stock
    
    
    equity
    
    
    IncomeBalance December 31, 2006
    
    $
    0
    
    
    
    2,375,471
    
    
    $
    23,755
    
    
    $
    5,673,088
    
    
    $
    26,341,116
    
    
    $
    (475,478
    )
    
    $
    
    
    
    $
    (837,761
    )
    
    $
    30,724,720Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,031,758
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,031,758
    
    
    $
    1,031,758Other comprehensive income (Note 19)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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
    
    $
    0
    
    
    
    2,383,097
    
    
    $
    23,831
    
    
    $
    5,916,367
    
    
    $
    26,700,500
    
    
    $
    122,105
    
    
    $
    (51,403
    )
    
    $
    (790,010
    )
    
    $
    31,921,390Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    545,938
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    545,938
    
    
    $
    545,938Other comprehensive income (Note 19)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    358,479
    
    
    
    
    
    
    
    
    
    
    
    358,479
    
    
    
    358,479Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    904,417Cash dividends declared ($.30 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (674,250
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (674,250
    )Exercise of stock options
    
    
    
    
    
    
    634
    
    
    
    6
    
    
    
    9,979
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,985Sale of common stock (ESPP)
    
    
    
    
    
    
    440
    
    
    
    4
    
    
    
    6,728
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,732Treasury shares issued to
dividend reinvestment plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81,442
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,917
    
    
    
    125,359Purchased Treasury Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (94,923
    )
    
    
    (94,923
    )Received stock to satisfy loan outstanding
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (408,800
    )
    
    
    (408,800
    )Restricted Stock Grants, net of cancellations
    
    
    
    
    
    
    3,954
    
    
    
    40
    
    
    
    64,490
    
    
    
    
    
    
    
    
    
    
    
    (64,530
    )
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,244
    
    
    
    
    
    
    
    
    
    
    
    28,487
    
    
    
    
    
    
    
    32,731Preferred Stock Issued to US Treasury Department
    
    
    9,953,381
    
    
    
    
    
    
    
    
    
    
    
    346,619
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,300,000Balance December 31, 2008
    
    $
    9,953,381
    
    
    
    2,388,125
    
    
    $
    23,881
    
    
    $
    6,429,869
    
    
    $
    26,572,188
    
    
    $
    480,584
    
    
    $
    (87,446
    )
    
    $
    (1,249,816
    )
    
    $
    42,122,641
  F-4




---



##### 



UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
 
 
 2008
    
    
    2007Cash flows from operating activitiesNet earnings
    
    $
    545,938
    
    
    $
    1,031,758Adjustments to reconcile net earnings to net
cash provided by operating activitiesProvision for loan losses
    
    
    2,300,000
    
    
    
    1,380,000Depreciation of premises and equipment
    
    
    1,375,022
    
    
    
    1,183,299Net (accretion) amortization of premium on investment securities
    
    
    (811,325
    )
    
    
    206,900(Gain) loss on sales of investment securities available for sale, net
    
    
    (264,737
    )
    
    
    3,780(Gain) loss on sale of other real estate
    
    
    1,045
    
    
    
    (28,516
    )Stock-based compensation
    
    
    32,731
    
    
    
    57,165Gain on disposal of equipment
    
    
    (14,316
    )
    
    
    (3,786
    )Deferred income taxes
    
    
    (625,263
    )
    
    
    (471,729
    )Writedown of other real estate
    
    
    85,000
    
    
    
    90,000(Increase) decrease in interest receivable
    
    
    698,473
    
    
    
    (372,155
    )(Increase) decrease in other assets
    
    
    (207,330
    )
    
    
    334,530Increase (decrease) in interest payable
    
    
    (248,792
    )
    
    
    224,048Increase (decrease) in accrued expenses and other liabilities
    
    
    242,250
    
    
    
    237,621Net cash provided by operating activities
    
    
    3,108,696
    
    
    
    3,872,915Cash flows from investing activitiesProceeds from maturities, calls, and principal
repayments of investment securities available for sale
    
    
    1,122,276,179
    
    
    
    114,141,651Proceeds from sales of investment securities available for sale
    
    
    19,461,248
    
    
    
    18,055,198Purchases of investment securities available for sale
    
    
    (1,116,905,637
    )
    
    
    (134,974,231
    )Purchases of investment securities held to maturity
    
    
    (6,550,000
    )
    
    
    Net increase in loans
    
    
    (20,913,368
    )
    
    
    (22,113,810
    )Purchases of premises and equipment, net
    
    
    (3,432,055
    )
    
    
    (6,176,578
    )Proceeds from sale of premises and equipmet
    
    
    23,600
    
    
    
    24,662Insurance claim received
    
    
    
    
    
    
    1,038,775Proceeds from sale of other real estate
    
    
    113,279
    
    
    
    173,016Net cash used in investing activities
    
    
    (5,926,754
    )
    
    
    (29,831,317
    )Cash flows from financing activitiesNet increase in deposits
    
    
    122,253,061
    
    
    
    42,067,102Net increase (decrease) in securities sold under
agreements to repurchase
    
    
    (39,342,614
    )
    
    
    (3,206,250
    )Cash dividends
    
    
    (675,462
    )
    
    
    (701,936
    )Exercise of stock options
    
    
    9,985
    
    
    
    22,400Tax benefit from exercise of common stock
    
    
    
    
    
    
    5,313Purchase of treasury stock
    
    
    (94,923
    )
    
    
    Proceeds from sale of common stock
    
    
    6,732Proceeds from sale of treasury stock
    
    
    125,359
    
    
    
    16,989Repayments of advances from FHLB Atlanta
    
    
    (164,800
    )
    
    
    (5,164,800
    )Proceeds from CPP funds provided by U.S. Treasury
    
    
    10,300,000
    
    
    
    Redemption of Trust Preferred (net unamortized issuance costs)
    
    
    
    
    
    
    (4,000,000
    )Decrease in other borrowed funds
    
    
    (196,096
    )
    
    
    (165,347
    )Net cash provided by financing activities
    
    
    92,221,242
    
    
    
    28,873,471Net increase in cash and short-term investments
    
    
    89,403,183
    
    
    
    2,915,069Cash and short-term investments, beginning of period
    
    
    54,119,315
    
    
    
    51,204,246Cash and short-term investments, end of period
    
    $
    143,522,498
    
    
    $
    54,119,315Supplemental disclosuresCash paid during the period for:Interest
    
    $
    11,127,312
    
    
    $
    13,338,614Income taxes
    
    
    83,171
    
    
    
    94,454Noncash transactionsTransfer of loans to other real estate
through foreclosure
    
    $
    5,172,049
    
    
    $
    205,000Transfer other real estate to premises and equipment
    
    
    
    
    
    
    40,000Transfer of loans to treasury stock in satisfaction of loans
    
    
    408,800
    
    
    
    
 See Notes to Consolidated financial Statements
 F-5




---



##### 



UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
 (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) securities available for sale, or (iii) securities held to maturity.
Trading account securities are stated at fair value. 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
 F-6




---



##### 



reflected in current period earnings. Investment securities held to maturity are stated
at cost adjusted for amortization of premiums and accretion of discounts. As of December
31, 2008, the Corporation had $85,527,000 of investment securities, or approximately 93%,
classified as securities available for sale and $6,550,000, or approximately 7%,
classified as securities held to maturity. All securities were classified as available
for sale as of December 31, 2007.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.(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, unless, after analysis it is determined that the interest is
well secured and in the process of collection. When a loan is placed on nonaccrual
status, all interest previously accrued, but not collected, is charged against current
period interest income, unless, after analysis it is determined that the interest is well
secured and in the process of collection. 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, 2008 and December 31, 2007, approximately 52% and 64%, 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 17% and 15% of the Corporations
total loans at both December 31, 2008 and December 31, 2007, 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 restructuring loans, cash receipts are typically
applied to principal and interest
 F-7




---



##### 



receivable in accordance with the terms of the
restructured loan agreement. Interest income is recognized on these loans using the
accrual method of accounting.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, 2008 and 2007, the Corporation had $5,523,501 and $550,776, respectively, in
other real estate which are included in other assets in the consolidated balance sheets.(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, 2008, the Corporation had options and other equity awards outstanding as
defined by two stock-based employee compensation plans, which are described more fully in
Note 13. The Corporation accounts for its stock based compensation plans under 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 14 provides
additional disclosure information regarding earnings per share.(n)
    
    Recent Accounting PronouncementsIn December 2007, the FASB issued SFAS No. 141(R) Business Combinations. This Statement
replaces SFAS No. 141, Business Combinations and establishes standards for how the
acquirer in a business combination transaction: (1) recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree, (2) recognizes and measures the goodwill
acquired in the business combination or a gain from a bargain purchase, and (3)
determines what information to disclose to enable users of financial statements to
evaluate the nature and financial effects of the business combination. SFAS 141(R)
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. The Corporation is 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 SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements  an amendment of Accounting Research Bulletin (ARB) No. 51. A
noncontrolling interest, (formerly known as minority interest) is the portion of equity
in a subsidiary not attributable to a parent. The standard requires an entity to
identify separately the ownership interests in subsidiaries held by parties other than
the parent, and to identify the amount of consolidated net income attributable to the
parent and to the noncontrolling interest. Changes in a parents ownership interest
while the parent retains its controlling financial interest in its subsidiary must be
accounted for consistently, and when a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the former subsidiary should be initially measured at
fair value. SFAS No. 160 is effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2008. The impact of this standard is
not expected to be material to the Corporationss financial position or results of
operations.In March 2008, the FASB issued SFAS No. 161 Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB Statement No. 133.SFAS No. 161 requires
entities to provide qualitative disclosures about the objectives and strategies for using
derivatives, quantitative
data about the fair value of gains and losses on derivative contracts, and details of
credit risk related contingent features in their hedged positions. The statement also
requires entities to explain how hedges affect their financial position, financial
performance and cash flows. This statement is effective for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008. The impact of
this standard is not expected to be material to the Corporationss financial position or
results of operations.In May 2008, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 provides
a framework, or hierarchy, for selecting accounting principles to be used in preparing
financial statements that are presented in conformity with generally accepted accounting
principles in the United States (US GAAP). Previously, US GAAP hierarchy had been
defined in the American Institute of Public Accountants Statement on Auditing Standards
No. 69, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles.The new FASB guidance specifies that the
 F-9




---



##### 



US GAAP hierarchy should be directed
to entities, because the entity, not its auditor, is responsible for selecting
appropriate accounting principles. This statement is effective 60 days after the SECs
approval of the Public Company Accounting Oversight Board Auditing amendments to AU
Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles. The impact of this standard is not expected to be material to the
Corporations financial position or results of operations.In May 2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee Insurance
Contracts. SFAS No. 163 clarifies how SFAS No. 60, Accounting and Reporting by Insurance
Enterprises, applies to financial guarantee insurance contracts issued by insurance
enterprises, and addresses the recognition and measurement of premium revenue and claim
liabilities. It also requires expanded disclosures about these types of contracts. This
statement is effective for financial statements issued for fiscal years beginning after
December 15, 2008, and all interim periods within those fiscal years. The impact of this
standard is not expected to be material to the Corporationss financial position or
results of operations.
 (2)
    
    Cash and Due From Banks
 The Bank is required by the Federal Reserve Bank to maintain daily cash balances. These
balances were $425,000 and $2,048,000 at December 31, 2008 and 2007, respectively.
 F-10




---



##### 



(3)
    
    Investment Securities
 The amortized cost and fair value of investment securities available for sale at
December 31, 2008 and 2007 were as follows:
 Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Faircost
    
    
    gains
    
    
    losses
    
    
    value2008:U.S. government sponsored agencies,
excluding mortgage-backed
securities
    
    $
    38,977,901
    
    
    $
    574,397
    
    
    $
    
    
    
    $
    39,552,298State and political subdivisions
    
    
    33,040,244
    
    
    
    511,299
    
    
    
    (428,646
    )
    
    
    33,122,897Mortgage-backed securities
    
    
    12,707,588
    
    
    
    193,462
    
    
    
    (49,533
    )
    
    
    12,851,517$
    84,725,733
    
    
    $
    1,279,158
    
    
    $
    (478,179
    )
    
    $
    85,526,7122007: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
    )
    
    $
    111,945,701
  Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Faircost
    
    
    gains
    
    
    losses
    
    
    value2008:U.S. government sponsored
agency securities
    
    $
    6,050,000
    
    
    $
    46,539
    
    
    $
    (500
    )
    
    $
    6,096,039Other domestic debt securties
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    500,000$
    6,550,000
    
    
    $
    46,539
    
    
    $
    (500
    )
    
    $
    6,596,039
 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
 F-11




---



##### 



Corporation to retain its investment in the issuer for a period of time sufficient to
allow for any anticipated recovery in fair value.Those investment securities classified as available for sale which have an unrealized
loss position at December 31, 2008 and 2007 are detailed below:
 Less than 12 months
    
    
    12 months or more
    
    
    Total2008
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedDescription of Securities
    
    Fair Value
    
    
    losses
    
    
    Fair Value
    
    
    losses
    
    
    Fair Value
    
    
    lossesU.S. Government sponsored agencies &
mortgage-backed securities
    
    $
    2,453,105
    
    
    $
    27,224
    
    
    $
    1,191,568
    
    
    $
    22,309
    
    
    $
    3,644,673
    
    
    $
    49,533State and political
subdivdisions
    
    
    7,843,035
    
    
    
    387,848
    
    
    
    1,218,280
    
    
    
    40,798
    
    
    
    9,061,315
    
    
    
    428,646Total temporarily impaired
securities
    
    $
    10,296,140
    
    
    $
    415,072
    
    
    $
    2,409,848
    
    
    $
    63,107
    
    
    $
    12,705,988
    
    
    $
    478,179
 Less than 12 months
    
    
    12 months or more
    
    
    Total2007
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    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
 F-12




---



##### 



Those investment securities classified as held to maturity which have an unrealized loss
position at December 31, 2008, are detailed below (there were no securities classified as
held to maturity as of December 31, 2007):
 Less than 12 months
    
    
    12 months or more
    
    
    Total2008
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedDescription of Securities
    
    Fair Value
    
    
    losses
    
    
    Fair Value
    
    
    losses
    
    
    Fair Value
    
    
    lossesU.S. Government sponsored
agencies &
mortgage-backed securities
    
    $
    999,500
    
    
    $
    500
    
    
    $
    
    
    
    $
    
    
    
    $
    999,500
    
    
    $
    500State and political
subdivdisions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total temporarily impaired
securities
    
    $
    999,500
    
    
    $
    500
    
    
    $
    
    
    
    $
    
    
    
    $
    999,500
    
    
    $
    500
 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, 2008, 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.
 Available for sale
    
    
    Held to maturityAmortized
    
    
    Fair
    
    
    Amortized
    
    
    Faircost
    
    
    value
    
    
    cost
    
    
    valueInvestment securities due in or after:Due in one year or less
    
    $
    17,951,515
    
    
    $
    17,979,327
    
    
    $
    
    
    
    $
    Due after one year through five years
    
    
    14,454,176
    
    
    
    14,725,676
    
    
    
    3,550,000
    
    
    
    3,596,539Due after five years through ten years
    
    
    27,872,221
    
    
    
    28,488,897
    
    
    
    3,000,000
    
    
    
    2,999,500Due after ten years
    
    
    11,740,233
    
    
    
    11,481,295
    
    
    
    
    
    
    
    Subtotal
    
    
    72,018,145
    
    
    
    72,675,195
    
    
    
    6,550,000
    
    
    
    6,596,039Mortgagebacked securities
    
    
    12,707,588
    
    
    
    12,851,517
    
    
    
    
    
    
    
    Total
    
    $
    84,725,733
    
    
    $
    85,526,712
    
    
    $
    6,550,000
    
    
    $
    6,596,039
 Gross gains of $264,975 and gross losses of $238 were realized on sales of investment
securities available for sale in 2008. Gross gains of $139 and gross losses of $3,919
were realized on sales of investment securities available for sale in 2007.Securities with carrying values of approximately $41,416,404 and $102,745,000 at
December 31, 2008 and 2007, respectively, were pledged to secure public and trust
deposits as required by law and for other purposes.
 F-13




---



##### 



(4)
    
    Loans and Allowance for Loan LossesAt December 31, 2008 and 2007, the composition of the loan portfolio was as follows:
 2008
    
    
    2007Real estate  construction
    
    $
    52,649,854
    
    
    $
    68,699,154Real estate  1-4 family residential mortgage
    
    
    52,676,766
    
    
    
    41,738,820Real estate  commercial
    
    
    51,733,848
    
    
    
    54,562,891Real estate  other
    
    
    34,574,419
    
    
    
    31,537,613Agriculture
    
    
    12,024,870
    
    
    
    9,254,558Commercial
    
    
    57,233,574
    
    
    
    46,129,553Other loans
    
    
    18,886,546
    
    
    
    15,215,134$
    279,779,877
    
    
    $
    267,137,723
 Changes in the allowance for loan losses for the years ended December 31, 2008 and 2007 are as
follows:
 2008
    
    
    2007Balance, beginning of year
    
    $
    3,981,922
    
    
    $
    3,011,731Provision charged to earnings
    
    
    2,300,000
    
    
    
    1,380,000Less loans chargedoff
    
    
    (2,754,386
    )
    
    
    (439,297
    )Plus loan recoveries
    
    
    64,022
    
    
    
    29,488Net chargeoffs
    
    
    (2,690,364
    )
    
    
    (409,809
    )Balance, end of year
    
    $
    3,591,558
    
    
    $
    3,981,922
 The following is a summary of information pertaining to impaired loans, nonaccrual loans, and
loans past due ninety days or more:
 As of and for the Years EndedDecember 31,2008
    
    
    2007Impaired loans with a valuation allowance
    
    $
    14,431,827
    
    
    $
    10,959,402Impaired loans without a valuation allowance
    
    
    6,717,490
    
    
    
    750,772Total impaired loans
    
    $
    21,149,317
    
    
    $
    11,710,174Valuation allowance related to impaired loans
    
    $
    1,577,292
    
    
    $
    1,825,820Total nonaccrual loans
    
    
    14,699,556
    
    
    
    11,078,540Total loans past due ninety days or more and still accruing
    
    
    28,436
    
    
    
    25,793Troubled debt restructured loans
    
    
    1,105,782
    
    
    
    53,800
 The average amount of impaired loans for the year 2008 and 2007 totaled approximately,
$16,429,746 and $5,212,000, respectively. If these loans had been current throughout their
terms, interest income would
 F-14




---



##### 



have been increased by $862,019 and $685,398, for 2008 and 2007,
respectively. There was no significant amount of interest income recognized from impaired
loans for the years ended December 31, 2008 and 2007.During 2008, 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, 2008 and
2007, totaled $2,900,612 and $7,854,404, 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, 2008 and 2007, premises and equipment were as follows:
 2008
    
    
    2007Land
    
    $
    5,258,831
    
    
    $
    5,042,293Buildings and leasehold improvements (depreciated over
5 to 50 years)
    
    
    15,748,566
    
    
    
    12,787,606Furniture, fixtures, and equipment (depreciated over
3 to 10 years)
    
    
    7,952,191
    
    
    
    7,477,361Automobiles (depreciated over 3 years)
    
    
    104,883
    
    
    
    113,081Construction in process
    
    
    101,663
    
    
    
    364,39129,166,134
    
    
    
    25,784,732Less accumulated depreciation
    
    
    10,309,807
    
    
    
    8,976,154$
    18,856,327
    
    
    $
    16,808,578
 The balance of 2008 construction in process is associated with building projects and consists
of architect and engineering fees and an amount for the acquisition of a building for future
expansion. The completion of these projects has been delayed for the duration of the current
economic downturn. The 2007 amount includes work on several projects which, with the
exception of the two being delayed, were completed and placed in service in 2008.Depreciation expense for the years ended December 31, 2008 and 2007 was $1,375,022 and
$1,183,299, 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, 2008, the Corporation
operates three branch offices in Florida.For the years ended December 31, 2008 and 2007, no impairment was recorded related to the
intangible asset. As of December 31, 2008 and 2007, the Corporation had recorded $917,263 in
intangible assets related to the cost of the charter.
 F-15




---



##### 



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, 2008 and 2007, deposits were as follows:
 2008
    
    
    2007Noninterest bearing accounts
    
    $
    172,291,464
    
    
    $
    62,854,927NOW accounts
    
    
    87,291,512
    
    
    
    84,770,810Money market investment accounts
    
    
    19,158,033
    
    
    
    17,692,439Savings account
    
    
    17,192,088
    
    
    
    17,248,660Time deposits:Time deposits less than $100,000
    
    
    113,501,663
    
    
    
    98,911,207Time deposits greater than $100,000
    
    
    81,720,866
    
    
    
    87,424,522Total deposits
    
    $
    491,155,626
    
    
    $
    368,902,565
 At December 31, 2008, the Bank had on deposit $108,210,017 and $36,240,750 in deposits from
two, significant customers. These deposits were temporary in nature and provisions were made
to have sufficient liquidity to meet any withdrawal demands by these customers.At December 31, 2008 and 2007 interest expense on deposits was as follows:
 2008
    
    
    2007NOW accounts
    
    $
    963,679
    
    
    $
    1,334,097Money market investment accounts
    
    
    422,292
    
    
    
    671,496Savings accounts
    
    
    42,672
    
    
    
    45,980Time deposits:Time deposit less than $100,000
    
    
    5,877,791
    
    
    
    6,634,034Time deposit greater than $100,000
    
    
    2,066,566
    
    
    
    1,773,097Total interst expense on deposits
    
    $
    9,373,000
    
    
    $
    10,458,704
 At December 31, 2008, the Bank had approximately $3,042,000 of brokered deposits representing
0.61% of total deposits. The Bank occasionally makes use of this source of funding to obtain
longer dated deposits to use in matching against fixed rate loans of similar maturity. This
assures a positive spread and reduces interest rate risk.
 F-16




---



##### 



At December 31, 2008, the contractual maturities of time deposits are as follows:
 Due in 2009
    
    $
    153,827,831Due in 2010
    
    
    27,325,304Due in 2011
    
    
    7,086,955Due in 2012
    
    
    5,878,343Due in 2013 or later
    
    
    1,104,096$
    195,222,529
 During 2008, certain executive officers and directors of the Corporation were deposit
customers of the Bank. Total deposits outstanding to these related parties at December 31,
2008, amounted to $2,324,599.(8)
    
    Securities Sold Under Agreements to RepurchaseThe maximum amount of outstanding securities sold under agreements to repurchase during 2008
and 2007 was $122,172,909 and $83,228,977, respectively. The weighted average borrowing rate
at December 31, 2008 and 2007 was 0.00% and 3.34%, respectively. The average amount of
outstanding securities sold under agreements to repurchase during 2008 and 2007 was
$68,257,308 and $40,908,908 respectively. The weighted average borrowing rate during the years
ended December 31, 2008 and 2007 was 1.22% and 3.98% respectively. Securities underlying
these agreements are under the Corporations control.(9)
    
    Participation in U.S. Treasury Capital Purchase ProgramOn December 23, 2008, the Corporation issued 10,300 shares of preferred stock to the U.S.
Treasury for $10.3 million pursuant to the CPP. Additionally, the Corporation issued 104,040
common stock warrants to the U.S. Treasury as a condition to its participation in the CPP. The
warrants have an exercise price of $14.85 each and are immediately exercisable and expire 10
years from the date of issuance. Proceeds from this sale of the preferred stock are expected
to be used for general corporate purposes, including supporting the continued, anticipated
growth of the Corporation. The CPP preferred stock is non-voting, other than having class
voting rights on certain matters, and pays cumulative dividends quarterly at a rate of 5% per
annum for the first five years and 9% thereafter. The preferred shares are redeemable at the
option of the Corporation under certain circumstances during the first three years and
thereafter without restriction.Based on a Black-Scholes-Merton options pricing model, the common stock warrants have
been assigned a fair value of $2.55 per warrant, or $265,303 in the aggregate, as of December
12, 2008. As a result of allocating the fair value of the preferred stock and the related
common stock warrants, $346,619 has been recorded in additional paid in capital as the
discount on the preferred stock obtained above and will be accreted as a reduction in net
income available for common shareholders over the next five years. For purposes of these
calculations, the fair value of the common stock warrants as of December 23, 2008 was
estimated using the Black-Scholes option pricing model with the following assumptions:
 Weighted-average fair value of the underlying common stock
    
    
    14.85Weighted-average expected life (in years)
    
    
    5.00Expected Volatility
    
    
    22.84
    %Risk-free interest rate
    
    
    1.44
    %Expected dividend yield
    
    
    2.02
    %
 F-17




---



##### 



The Corporations computation of expected volatility is based on weekly historical volatility
since September of 2002. The risk free interest rate of the award is based on the closing
market bid for U.S. Treasury securities corresponding to the expected life of the common stock warrants in effect
at time of sale.As noted above $346,619 was assigned to the common stock warrants, and accordingly,
$9,953,381 (total $10.3 million) has been assigned to the Series A preferred stock and will be
accreted up to the redemption amount of $10.3 million over the next five years.(10)
    
    Borrowed FundsThe Corporation owed the Federal Home Loan Bank of Atlanta the following advances at
December 31, 2008 and 2007.
 2008
 Maturity date
    
    Interest rateMay 2012
    
    
    7.41
    %
    
    
    41,067July 2017
    
    
    6.93
    %
    
    
    585,000August 2017
    
    
    6.84
    %
    
    
    95,375June 2020
    
    
    4.62
    %
    
    
    743,667July 2020
    
    
    7.54
    %
    
    
    144,791Total (weighted average rate of 5.92%)
    
    
    
    
    
    $
    1,609,900
 2007
 Maturity 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
 At December 31, 2008 and 2007, the advances were collateralized by a blanket pledge of
first-mortgage residential loans with available collateral amounts of $5,240,416 and
$7,447,206, respectively. At December 31, 2008 the Corporations advances were also
collateralized by Commercial Real Estate loans and Multi Family Real Estate loans with
available collateral amounts of $1,096,022 and $1,479,210 respectively.As of December 31, 2008, the Corporation had additional outstanding credit facilities with the
Federal Home Loan Bank of Atlanta totaling $5,000,000 in the form of a letter of credit that
matures in 2009. As of December 31, 2008, the letter of credit was in the process of
cancellation by the Corporation.
 F-18




---



##### 



(11)
    
    Note Payable to TrustUnited Bancorp Capital Trust II. In 2007, the Corporation formed a wholly-owned
grantor trust to issue cumulative trust preferred securities. The grantor trust has invested
the proceeds of the trust preferred
securities in junior subordinated debentures of the Corporation. The junior subordinated
debentures can be redeemed prior to maturity at the option of the Corporation on or after
September 30, 2011. The sole assets of the guarantor trust are the Junior Subordinated
Deferrable Interest Debentures of the Corporation (the Debentures) held by the grantor trust.
The debentures have the same interest rate (three month LIBOR plus 1.68%, floating) as the
trust preferred securities. The interest rate in effect as of December 30, 2008 was 5.44%.
The Corporation has the right to defer interest payments on the Debentures at any time or from
time to time for a period not exceeding 20 consecutive quarters provided that no extension
period may extend beyond the stated maturity of the related Debentures. During any such
extension period, distributions on the trust preferred certificates would also be deferred.Payment of periodic cash distributions and payment upon liquidation or redemption with respect
to the trust preferred securities are guaranteed by the Corporation to the extent of funds
held by the grantor trust (the Preferred Securities Guarantee). The Preferred Securities
Guarantee, when taken together with the Corporations other obligations under the Debentures,
constitute a full and unconditional guarantee, on a subordinated basis, by the Corporation of
payments due on the trust preferred securities.The trust preferred securities and the related debentures were issued on September 27, 2007.
Distributions on the trust preferred securities are paid quarterly on March 31, June 30,
September 30 and December 31 of each year. Interest on the Debentures is paid on the
corresponding dates. The aggregate principal amount of Debentures outstanding at December 31,
2008 was $10,310,000.(12)
    
    Income TaxesThe components of income tax expense attributable to income from continuing operations for the
years ended December 31, 2008 and 2007:
 2008
    
    
    2007Current:Federal
    
    $
    134,049
    
    
    $
    226,407State
    
    
    21,104
    
    
    
    19,991Total
    
    
    155,153
    
    
    
    246,398Deferred:Federal
    
    
    (577,328
    )
    
    
    (419,277
    )State
    
    
    (47,935
    )
    
    
    (52,452
    )Total
    
    
    (625,263
    )
    
    
    (471,729
    )Total income tax
benefits
    
    $
    (470,110
    )
    
    $
    (225,331
    )
 F-19




---



##### 



Total income tax expense differed from the amount computed by applying the statutory federal
income tax rate of 34% to pretax earnings as follows:
 2008
    
    
    2007Income tax at statutory rate
    
    $
    27,822
    
    
    $
    274,525Increase (decrease) resulting from:Tax exempt interest
    
    
    (509,084
    )
    
    
    (540,041
    )Interest disallowance
    
    
    51,393
    
    
    
    76,963State income tax net of federal benefit
    
    
    (17,708
    )
    
    
    (21,424
    )Premium amortization on tax exempt
investment securities
    
    
    20,350
    
    
    
    22,733Cash surrendered value of life insurance
    
    
    (31,886
    )
    
    
    (30,850
    )GoZone tax credits
    
    
    (31,748
    )
    
    
    (26,429
    )Other, net
    
    
    20,751
    
    
    
    19,192$
    (470,110
    )
    
    $
    (225,331
    )
 The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31, 2008 and 2007 are as follows:
 2008
    
    
    2007Deferred tax assets:Loans, principally due to the allowance for loan losses
    
    $
    1,079,260
    
    
    $
    1,129,131Other real estate, principally due to differences in
carrying value
    
    
    600,240
    
    
    
    37,079Accrued expenses
    
    
    251,305
    
    
    
    239,453AMT credit carryover
    
    
    368,347
    
    
    
    202,417Other
    
    
    15,201
    
    
    
    2,987Total deferred tax assets
    
    
    2,314,353
    
    
    
    1,611,067Deferred tax liabilities:Premises and equipment, principally due to difference
in depreciation
    
    
    459,152
    
    
    
    415,589Investment securities available for sale
    
    
    320,395
    
    
    
    81,410Discount accretion
    
    
    40,366
    
    
    
    34,996Other
    
    
    116,023
    
    
    
    86,932Total deferred tax liabilities
    
    
    935,936
    
    
    
    618,927Net deferred tax asset (liability)
    
    $
    1,378,417
    
    
    $
    992,140
 In assessing the realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning strategies. Based
upon the level of historical taxable income and projection for future taxable income over the
periods which the temporary differences resulting in the deferred tax assets are deductible,
management believes it is more likely than not that the Company will realize the benefits of
these deductible differences.
 F-20




---



##### 



(13)
    
    Stock Based CompensationStock Options1998 Stock Option Plan. The United Bancorporation of Alabama, Inc. 1998 Stock Option
Plan (the 1998 Plan) provides for the grant of options 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, 2008, 170,400 shares of stock were available for future grants; however, it is
not the intent of the Corporation to grant additional options under the 1998 Plan. The changes
in outstanding options are as follows:
 WeightedaverageShares under
    
    exercise priceoption
    
    per shareBalance at December 31, 2006
    
    
    55,600
    
    
    $
    14.50Granted
    
    
    Expired
    
    
    Surrendered
    
    
    Exercised
    
    
    (2,000
    )
    
    
    11.20Balance at December 31, 2007
    
    
    53,600
    
    
    $
    14.38Granted
    
    
    Expired
    
    
    (8,560
    )
    
    
    11.10Surrendered
    
    
    (5,600
    )
    
    
    12.48Exercised
    
    
    (634
    )
    
    
    15.75Balance at December 31, 2008
    
    
    38,806
    
    
    $
    15.36
 The following table displays information pertaining to the intrinsic value of option shares
both outstanding and exercisable for the years ended December 31, 2008 and 2007, respectively.
 2008
    
    2007Aggregate intrinsic value
of outstanding options
    
    $
    16,157
    
    
    $
    220,837Aggregate intrinsic value
of exercisable options
    
    $
    16,157
    
    
    $
    215,037
 At December 31, 2008, approximately 37,000 optioned shares were exercisable at prices between
$12.87 and $18.00 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, 2008 and 2007.
 F-21




---



##### 



Stock options outstanding and exercisable on December 31, 2008 were as follows:
 2008
 Weighted averageExercise price per share
    
    
    
    
    
    
    
    
    remaining contractual
    
    
    Weighted averageOutstanding:
    
    
    
    
    Shares under option
    
    
    life in years
    
    
    exercise price$
    12.87
    
    
    
    
    
    8,160
    
    
    
    1.0
    
    
    $
    12.8715.65
    
    
    
    
    
    8,960
    
    
    
    2.1
    
    
    
    15.6515.75
    
    
    
    
    
    9,526
    
    
    
    4.0
    
    
    
    15.7516.00
    
    
    
    
    
    2,000
    
    
    
    7.0
    
    
    
    16.0016.25
    
    
    
    
    
    8,160
    
    
    
    3.0
    
    
    
    16.2518.00
    
    
    
    
    
    2,000
    
    
    
    7.6
    
    
    
    18.0038,806
    
    
    
    3.1
    
    
    $
    15.36Exercisable:$
    12.87
    
    
    
    
    
    8,160
    
    
    
    1.0
    
    
    $
    12.8715.65
    
    
    
    
    
    8,960
    
    
    
    2.1
    
    
    
    15.6515.75
    
    
    
    
    
    9,526
    
    
    
    4.0
    
    
    
    15.7516.00
    
    
    
    
    
    1,600
    
    
    
    7.0
    
    
    
    16.0016.25
    
    
    
    
    
    8,160
    
    
    
    3.0
    
    
    
    16.2518.00
    
    
    
    
    
    1,200
    
    
    
    7.6
    
    
    
    18.0037,606
    
    
    
    2.9
    
    
    $
    15.29
 Total intrinsic value of options exercised was $9,986 and $17,600 for the years ended December
31, 2008 and 2007 respectively. The total fair value of options exercised during the years
ended December 31, 2008 and 2007 was $11,729 and $22,200, respectively.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, 2008, 298,420 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, 2007
    
    
    2,000
    
    
    $
    18.50Granted
    
    
    Surrendered
    
    
    (2,000
    )
    
    
    18.50Exercised
    
    
    
    
    
    
    Balance at December 31, 2008
    
    
    
 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
 F-22




---



##### 



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 the 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. No shares were granted during the year ended
December 31, 2008.
 2008
    
    2007Weighted-average expected life (in years)
    
    
    N/A
    
    
    
    10.00Expected Volatility
    
    
    N/A
    
    
    
    20.00
    %Risk-free interest rate
    
    
    N/A
    
    
    
    4.15
    %Expected dividend yield
    
    
    N/A
    
    
    
    1.62
    %Weighted-average fair value of
options granted during the period
    
    
    N/A
    
    
    $
    5.47
 Cash received from the exercise of options was $9,986 and $22,400 for the years ended December
31, 2008 and 2007, respectively. The tax benefit realized for the tax deductions from options
exercise of the share-based payment arrangements totaled $643 and $5,313 for the years ended
December 31, 2008 and 2007.As of December 31, 2008, there was $5,328 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 2 years.Restricted StockDuring 2008 four restricted stock grants were made by the Corporation totaling 4,459 shares.
As of December 31, 2008 the Corporation has awarded restricted stock grants in two formats to
two distinct classes of employees. Employees with more than 20 years of service have been
awarded grants with a six month balloon vesting. The expense of these awards is recorded on a
straight-line basis over the six month term. The second type of grant has been awarded to
senior officers of the Corporation. These grants have five year terms (60 months) with 1/3
vesting on the grant anniversary date in years 3, 4, and 5. The expense of these awards is
recorded on a straight-line basis over the 60 month term. As of December 31, 2008 there was
$87,446 of unrecognized stock-based compensation related to these restricted stock grants
which is expected to be recognized over a period of 4 years.
 F-23




---



##### 



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
    
    
    
    18.00Granted
    
    
    4,459
    
    
    
    16.51Surrendered
    
    
    (505
    )
    
    
    18.00Vested
    
    
    
    
    
    
    Balance at December 31, 2008
    
    
    9,580
    
    
    
    17.34
 The following table summarizes stock-based compensation expense:
 2008
    
    2007Stock Option Expense (1998 Plan)
    
    
    4,244
    
    
    
    5,112Stock Option Expense (2007 Plan)
    
    
    
    
    
    
    2,188Restricted Stock Expense (2007 Plan)
    
    
    28,487
    
    
    
    49,865Total Stock Based Compensation Expense
    
    
    32,731
    
    
    
    57,165
 (14)
    
    Net Earnings per SharePresented below is a summary of the components used to calculate diluted earnings per
share for the years ended December 31, 2008 and 2007:
 2008
    
    2007Diluted earnings per share:Basic weighted average common shares
outstanding
    
    
    2,251,179
    
    
    
    2,240,010Effect of the assumed exercise of stock
options-based on the treasury stock
method using average market price
    
    
    3,334
    
    
    
    11,828Diluted weighted average
common shares outstanding
    
    
    2,254,513
    
    
    
    2,251,838
 F-24




---



##### 



(15)
    
    Dividend Reinvestment and Share Purchase PlanThe 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 average market price. All administrative costs are borne by the Corporation.
For the years ended December 31, 2008 and 2007, 7,298 and 7,055 shares were purchased under
the plan, respectively.(16)
    
    Employee Benefit Plans401(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 2008 and 2007 were $294,684 and
$286,855, 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 $60,817 and $57,142 were made in 2008 and 2007, 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 $86,952 and $82,030 for the
years ended December 31, 2008 and 2007, respectively. The balance of the liability for the
salary continuation plan included in other liabilities at December 31, 2008 and 2007 totaled
$604,283 and $517,331, 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 $2,600,539 and $2,506,756 at December 31, 2008 and 2007,
respectively. Income recognized from the increase in cash surrender value on these policies
totaled $93,783 and $90,736 for the years ended December 31, 2008 and 2007, respectively.
 F-25




---



##### 



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, 2008 and 2007, 440 and 1,080 shares were purchased under the
Plan, respectively.(17)
    
    Fair Value of Financial InstrumentsOn January 1, 2008, the Corporation adopted Statement of Financial Accounting Standards
No. 157, Fair Value Measurements(SFAS No. 157). SFAS No. 157 defines fair value,
establishes a framework for measuring fair value, and expands disclosures about fair value
measurements. SFAS No. 157 applies to reported balances that are required or permitted to be
measured at fair value under existing accounting pronouncements; accordingly, the standard
does not require any new fair value measurements of reported balances. On February 12, 2008,
the FASB issued Staff Position 157-2 which defers the effective date of Statement 157 for
certain nonfinancial assets and liabilities to fiscal years beginning after November 15, 2008.
All other provisions of Statement 157 are effective for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years.On October 10, 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial
Asset When the Market for that Asset Is Not Active.This FSP clarified the application of
SFAS No. 157 in a market that is not active and reiterated that the results of distressed
sales or forced liquidations are not determinative when measuring fair value. It emphasized
that when determining fair value, the use of managements internal assumptions concerning
future cash flows discounted at an appropriate risk-adjusted interest rate is acceptable when
relevant observable market data do not exist. In some situations, multiple inputs from a
variety of sources may provide the best evidence of fair value. The FSP also described how
the use of broker quotes should be considered when assessing the relevance of observable and
unobservable inputs. The impact of this statement is minimal, as this FSP provides
clarification to existing guidance.As defined in SFAS No. 157, fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the
measurement date. In determining fair value, the Corporation uses various methods including
market, income and cost approaches. Based on these approaches, the Corporation often utilizes
certain assumptions that market participants would use in pricing the asset or liability,
including assumptions about risk and or the risks inherent in the inputs to the valuation
technique. These inputs can be readily observable, market corroborated, or generally
unobservable inputs. The fair value of specific assets or liabilities has the potential to
increase or decrease relative to changes in the markets which support their current
valuations. The Corporation utilizes valuation techniques that maximize the use of
observable inputs and minimize the use of unobservable inputs. Based on the observability of
the inputs used in the valuation techniques the Corporation is required to provide the
following information according to the fair value hierarchy. The fair value hierarchy ranks
the quality and reliability of the information used to determine fair values. Financial
assets and liabilities carried at fair value will be classified and disclosed in one of the
following three categories:Level 1Quoted prices in active markets for identical assets or liabilities. Level 1 assets
and liabilities include debt and equity securities that are traded in an active exchange
market, as well as certain U.S. Treasury and U.S. Government-sponsored enterprise debt
securities that are highly liquid and are actively traded in over-the-counter markets.
 F-26




---



##### 



Level 2Observable inputs other than Level 1 prices such as quoted prices for similar assets
or liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be
corroborated by observable market data for substantially the full term of the assets or
liabilities. Level 2 assets and liabilities include debt securities with quoted prices that
are traded less frequently than exchange-traded instruments and derivative contracts whose
value is determined using a pricing model with inputs that are observable in the market or can
be derived principally from or corroborated by observable market data.Level 3Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities. Level 3 assets and liabilities
include financial instruments whose value is determined using pricing models, discounted cash
flow methodologies, or similar techniques, as well as instruments for which the determination
of fair value requires significant management judgment or estimation.Assets Measured at Fair Value on a Recurring BasisFollowing is a description of the valuation methodologies used for instruments measured at
fair value on a recurring basis and recognized in the accompanying balance sheet, as well as
the general classification of such instruments pursuant to the valuation hierarchy.Available for Sale SecuritiesWhere quoted market prices are available in an active market, securities are classified within
Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government
bonds, mortgage products and exchange traded equities. If quoted market prices are not
available, then fair values are estimated by using pricing models, quoted prices of securities
with similar characteristics or discounted cash flows. Level 2 securities include U.S. agency
securities, mortgage-backed agency securities, obligations of states and political
subdivisions and certain corporate, asset backed and other securities. In certain cases where
Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the
hierarchy.The following table presents financial assets measured at fair value on a recurring basis as
of December 31, 2008:
 Fair Value Measurements at December 31, 2008 UsingQuoted Prices
    
    Significant Other
    
    SignificantAssets/Liabilities
    
    in Active Markets for
    
    Observable
    
    UnobservableMeasured at
    
    Identical Assets
    
    Inputs
    
    InputsFair Value
    
    (Level 1)
    
    Level (2)
    
    (Level 3)AFS Securities
    
    $
    85,526,712
    
    
    $
    
    
    
    $
    85,526,712
    
    
    $
    
 Assets Measured at Fair Value on a Non-recurring BasisFollowing is a description of the valuation methodologies used for instruments measured at
fair value on a non-recurring basis and recognized in the accompanying balance sheet, as well
as the general classification of such instruments pursuant to the valuation hierarchy.
 F-27




---



##### 



Impaired LoansLoan impairment is reported when full payment under the loan terms is not expected. Impaired
loans are carried at the present value of estimated future cash flows using the loans
existing rate, or the fair value of collateral if the loan is collateral dependent. A portion
of the allowance for loan losses is allocated to
impaired loans if the value of such loans is deemed to be less than the unpaid balance. If
these allocations cause the allowance for loan losses to require increase, such increase is
reported as a component of the provision for loan losses. Loan losses are charged against the
allowance when Management believes the uncollectibility of a loan is confirmed.
When the fair value of the collateral is based on an observable
market price or a current appraised value, the Corporation records the loan impairment as
nonrecurring Level 2. When an appraised value is not available or management determines the
fair value of the collateral is further impaired below the appraised value and there is no
observable market price, the Corporation records the loan impairment as nonrecurring Level 3.Foreclosed AssetsForeclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets.
Subsequently, foreclosed assets are carried at the lower of carrying value or fair value. Fair
value is based upon independent market prices, appraised values of the collateral or
managements estimation of the value of the collateral. When the fair value of the collateral
is based on an observable market price or a current appraised value, the Corporation records
the foreclosed assets as nonrecurring Level 2. When an appraised value is not available or
management determines the fair value of the collateral is further impaired below the appraised
value and there is no observable market price, the Corporation records the foreclosed asset as
nonrecurring Level 3.The following table presents the assets and liabilities carried on the balance sheet by
caption and by level within the FAS No. 157 valuation hierarchy (as described above) as of
December 31, 2008, for which a nonrecurring change in fair value has been recorded during the
year ended December 31, 2008.
 Year EndedCarrying Value at December 31, 2008
    
    December 31, 2008Total gainsTotal
    
    Level 1
    
    Level 2
    

Level
3
    

(losses)Impaired loans
    
    $
    19,877,990
    
    
    $
    
    
    
    $
    7,238,474
    
    
    $
    12,639,516
    
    
    $
    (1,049,758
    )Foreclosed assets
    
    
    5,523,501
    
    
    
    
    
    
    
    5,523,501
    
    
    
    
    
    
    
    (1,639,741
    )
 Fair Value OptionIn February, 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities, including an amendment of FASB Statement No. 115. SFAS No. 159
allows companies to report selected financial assets and liabilities at fair value. The
changes in fair value are recognized in earnings and the assets and liabilities measured under
this methodology are required to be displayed separately on the balance sheet. While SFAS No.
159 became effective for the Corporation
 F-28




---



##### 



beginning January 1, 2008, the Corporation has not
elected the fair value option that is offered by this statement.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)
    
    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.
 F-29




---



##### 



(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, 2008 and 2007 are as follows (in thousands):
 2008
    
    2007Carrying
    
    Estimated
    
    Carrying
    
    Estimatedamount
    
    fair value
    
    amount
    
    fair value(Dollars in Thousands)Financial assets:Cash and short-term
investments
    
    $
    143,522
    
    
    $
    143,546
    
    
    $
    54,119
    
    
    $
    54,119Investment securities
    
    
    92,077
    
    
    
    92,123
    
    
    
    111,946
    
    
    
    111,946Loans, net of the
allowance for loan losses
    
    
    276,188
    
    
    
    275,720
    
    
    
    263,156
    
    
    
    265,186Bank owned life insurance
    
    
    2,601
    
    
    
    2,601
    
    
    
    2,507
    
    
    
    2,507Accrued interest receivable
    
    
    3,254
    
    
    
    3,254
    
    
    
    3,952
    
    
    
    3,952Financial liabilities:Deposits
    
    
    491,156
    
    
    
    492,531
    
    
    
    368,903
    
    
    
    369,222Securities sold under
agreements to repurchase
    
    
    1,861
    
    
    
    1,861
    
    
    
    41,204
    
    
    
    41,204Other borrowed funds
    
    
    496
    
    
    
    496
    
    
    
    699
    
    
    
    699FHLB advances
    
    
    1,610
    
    
    
    2,206
    
    
    
    1,775
    
    
    
    1,897Subordinated Debt
    
    
    10,310
    
    
    
    10,310
    
    
    
    10,310
    
    
    
    10,310Accrued interest payable
    
    
    913
    
    
    
    913
    
    
    
    1,161
    
    
    
    1,161
 (18)
    
    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 2008 the Bank could have declared a minimum
of approximately $362,000 in additional dividends without the prior approval of
regulatory authorities.
 F-30




---



##### 



(19)
    
    Comprehensive IncomeThe following is a summary of the components of other comprehensive income:
 Years ended December 312008
    
    
    2007Other comprehensive income before tax:Unrealized holding gains arising during
the period for securities, net
    
    $
    862,203
    
    
    $
    964,745Reclassification adjustment for (gains) losses
on sales of securities included in net earnings
    
    
    (264,737
    )
    
    
    3,780Unrealized holding gains (losses) arising
during the period for cash flow hedges
    
    
    
    
    
    
    30,062Other comprehensive income,
before income taxes
    
    
    597,466
    
    
    
    998,587Income tax expense (benefits) related to other
comprehensive income:Unrealized holding gains arising during
the period for securities, net
    
    
    (344,881
    )
    
    
    (385,898
    )Reclassification adjustment for gains (losses)
on sales of securities included in net earnings
    
    
    105,894
    
    
    
    (1,512
    )Unrealized holding (gains) losses arising
during the period for cash flow hedges
    
    
    
    
    
    
    (13,594
    )Total income tax expense related
to other comprehensive income
    
    
    (238,987
    )
    
    
    (401,004
    )Other comprehensive income
after taxes
    
    $
    358,479
    
    
    $
    597,583
 F-31




---



##### 



(20)
    
    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.(21)
    
    CommitmentsThe Corporation leases certain property and equipment for use in its business. These leases
have lease terms generally not in excess of five years. The Corporation is not committed to
any operating leases, which have initial or remaining noncancelable lease terms in excess of
one year as of December 31, 2008.Rental expense for all operating leases charged to earnings aggregated $53,254 and $35,489 for
the years ended December 31, 2008 and 2007, 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,
2008 and 2007 are approximately as follows:
 Years Ended December 312008
    
    2007Commitments to extend credit
    
    $
    38,661,000
    
    
    $
    36,710,000Standby letters of credit
    
    
    1,666,000
    
    
    
    1,580,000
 F-32




---



##### 



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.(22)
    
    Other Noninterest ExpenseComponents of other noninterest expense exceeding 1% of the total of interest income and other
income for either of the years ended December 31, 2008 or 2007, respectively, include the
following:
 2008
    
    2007Advertising
    
    $
    386,671
    
    
    $
    639,572Accounting and audit
    
    
    233,787
    
    
    
    349,927ATM Network
    
    
    297,044
    
    
    
    245,753Communications
    
    
    399,455
    
    
    
    297,281Legal
    
    
    422,528
    
    
    
    244,026
 (23)
    
    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, 2008, that the Corporation and its subsidiary bank
meet all capital adequacy requirements to which they are subject.As of December 31, 2008, 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 Total Qualifying 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.
 F-33




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##### 



The following table presents the actual capital amounts and ratios of the Corporation and its
subsidiary bank at December 31, 2008 and 2007:
 Total Qualifying Capital
    
    Tier I Capital
    
    LeverageAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of December 31, 2008:United Bancorporation
    
    $
    54,299
    
    
    
    16.28
    %
    
    $
    50,707
    
    
    
    15.20
    %
    
    $
    50,707
    
    
    
    10.07
    %United Bank
    
    
    52,852
    
    
    
    15.88
    %
    
    
    49,260
    
    
    
    14.80
    %
    
    
    49,260
    
    
    
    10.35
    %As 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
    %
 F-34




---



##### 



(25)
    
    Parent Corporation Financial Information
 The condensed financial information for United Bancorporation of Alabama, Inc. (Parent
Corporation Only) follows:
 
 2008
    
    
    2007AssetsCash
    
    $
    1,156,920
    
    
    $
    522,364Investment in subsidiaries
    
    
    50,985,787
    
    
    
    41,287,605Other assets
    
    
    520,694
    
    
    
    632,640Total assets
    
    $
    52,663,401
    
    
    $
    42,442,609Liabilities and Stockholders EquityOther liabilities
    
    $
    230,760
    
    
    $
    211,219Note payable to Trust
    
    
    10,310,000
    
    
    
    10,310,000Total liabilities
    
    
    10,540,760
    
    
    
    10,521,219Stockholders equity:Class A common stock of $0.01 par value. Authorized
5,000,000 shares; issued 2,388,125 and 2,383,097 shares
in 2008 and 2007, respectively
    
    
    23,881
    
    
    
    23,831Class 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
    
    
    9,953,381
    
    
    
    Additional paid-in capital
    
    
    6,429,869
    
    
    
    5,916,367Unearned stock based compensation
    
    
    (87,446
    )
    
    
    (51,403
    )Retained earnings
    
    
    26,572,188
    
    
    
    26,700,500Accumulated other comprehensive income, net of tax
    
    
    480,584
    
    
    
    122,105Less: 155,855 and 134,654 treasury shares at cost in 2008
and 2007, respectively
    
    
    1,249,816
    
    
    
    790,010Total stockholders equity
    
    
    42,122,641
    
    
    
    31,921,390Total liabilities and
stockholders equity
    
    $
    52,663,401
    
    
    $
    42,442,609
 F-35




---



##### 



2008
    
    
    2007Income:Dividend income from subsidiary
    
    $
    716,000
    
    
    $
    1,500,000Other income
    
    
    16,382
    
    
    
    30,523Total income
    
    
    732,382
    
    
    
    1,530,523Expense:Interest on subordinated debentures
    
    
    544,842
    
    
    
    1,126,275Other operating expense
    
    
    406,619
    
    
    
    201,424Total expense
    
    
    951,461
    
    
    
    1,327,699Income (loss) before equity in undistributed
earnings of subsidiaries and taxes
    
    
    (219,079
    )
    
    
    202,824Income tax benefit
    
    
    (345,001
    )
    
    
    (478,598
    )Income before equity in undistributed
earnings of subsidiaries
    
    
    125,922
    
    
    
    681,422Equity in undistributed earnings of subsidiary
    
    
    420,016
    
    
    
    350,336Net earnings
    
    $
    545,938
    
    
    $
    1,031,758
 F-36




---



##### 



2008
    
    
    2007Cash flows from operating activities:Net earnings
    
    $
    545,938
    
    
    $
    1,031,758Adjustments to reconcile net earnings to
net cash provided by operating
activities:Equity in undistributed earnings of
subsidiary
    
    
    (420,016
    )
    
    
    (350,336
    )Stock-based compensation expense
    
    
    4,244
    
    
    
    10,005Amortization of trust preferred cost
    
    
    
    
    
    
    111,147Increase (decrease) in other liabilities
    
    
    19,541
    
    
    
    (411,616
    )(Increase) decrease in other receivables
    
    
    113,157
    
    
    
    (79,740
    )Net cash provided by
operating activities
    
    
    262,864
    
    
    
    311,218Cash flows from investing activities:Investment in bank subsidiary
    
    
    (9,300,000
    )
    
    
    Net cash used in investing
activities
    
    
    (9,300,000
    )
    
    
    Cash flows from financing activities:Cash dividends
    
    
    (675,462
    )
    
    
    (701,936
    )Purchase of treasury stock
    
    
    (94,923
    )
    
    
    Proceeds from sale of treasury stock
    
    
    125,359
    
    
    
    16,989Proceeds from exercise of stock options
    
    
    9,986
    
    
    
    22,400Proceeeds from sale of common stock (ESPP)
    
    
    6,732Tax benefit from exercise of common stock
    
    
    
    
    
    
    5,313Redemption of subordinated debentures
    
    
    
    
    
    
    (4,000,000
    )Proceeds from US Treasury CPP
    
    
    10,300,000
    
    
    
    Net cash provided by(used in)
financial activities
    
    
    9,671,692
    
    
    
    (4,657,234
    )Net increase (decrease)
in cash
    
    
    634,556
    
    
    
    (4,346,016
    )Cash, beginning of year
    
    
    522,364
    
    
    
    4,868,380Cash, end of year
    
    $
    1,156,920
    
    
    $
    522,364
 F-37




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##### 



(a)
    
    Based on evaluation of the Corporations disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the Exchange Act), as of the end of the period covered by this annual report, the principal
executive officer and the principal financial officer of the Corporation have concluded that
as of such date the Corporations disclosure controls and procedures were effective to ensure
that information the Corporation is required to disclose in its filings under the Exchange
Act is recorded, processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commissions rules and forms, and to ensure that information required
to be disclosed by the Corporation in the reports that it files under the Exchange Act is
accumulated and communicated to the Corporations management, including its principal
executive officer and principal financial officer, as appropriate to allow timely decisions
regarding required disclosure.(b)
    
    There were no significant changes in the Corporations internal controls or in other factors
that could significantly affect these controls subsequent to the date of the evaluation
referred to in (a) above.(c)
    
    This annual report does not include an attestation report of the Corporations independent
registered public accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permits the Corporation to provide only managements report in this annual
report.(d)
    
    The Corporations management, including its principal executive officer and principal
financial officer, has conducted an evaluation of the effectiveness of the Corporations
internal control over financial reporting as of the end of the period covered by this report
based on the framework in Internal Control  Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
   35




---



##### 



36




---



##### 



(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).
 37




---



##### 



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
    
    United Bancorporation of Alabama, Inc. 2008 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, 2008.*10.7
    
    First Amendment to Supplemental Compensation and Amendment Agreement between the
Registrant and Robert R. Jones, III, dated as of December 12, 2008 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, 2008).*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)
 38




---



##### 



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
 39




---



##### 



UNITED BANCORPORATION OF ALABAMA, INC.
(Registrant)BY:

    /s/Robert R. Jones, IIIRobert R. Jones, IIIPresident and Chief Executive OfficerMarch 27, 2009  SIGNATURES
    
    CAPACITY IN WHICH SIGNED
    
    DATE/s/ Robert R. Jones, III
    
    President, Chief
    
    March 27, 2009Robert R. Jones, III
    
    Executive Officer, and Director/s/ Allen O. Jones, Jr.
    
    Senior Vice President
    
    March 27, 2009Allen O. Jones, Jr.
    
    Chief Financial Officer
(Principal Financial and Principal Accounting Officer)/s/ William J. Justice

William J. Justice
    
    Director
    
    March 27, 2009/s/ David D. Swift

David D. Swift
    
    Director
    
    March 27, 2009/s/ Dale M. Ash

Dale M. Ash
    
    Director
    
    March 27, 2009/s/ Michael Andreoli
    
    Director
    
    March 27, 2009Michael Andreoli/s/ L. Walter Crim

L. Walter Crim
    
    Director
    
    March 27, 2009/s/ Richard K. Maxwell

Richard K. Maxwell
    
    Director
    
    March 27, 2009
 40




---



##### 



INDEX TO EXHIBITS
 Exhibit
 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