##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 Commission file number 2-78572
 UNITED BANCORPORATION OF ALABAMA, INC.
  Delaware
    
    63-0833573(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification Number)
  (Address of principal executive offices)(Zip Code)
 (Registrants telephone number, including area code)
 þ o
  o o þ
 o þ




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##### 



UNITED BANCORPORATION OF ALABAMA, INC.
 FORM 10-Q
  INDEX
 PAGEPART I  FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets
    
    
    3Consolidated Statements of Earnings
and Comprehensive Income
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    21Item 4. Controls and Procedures
    
    
    23PART II  OTHER INFORMATIONItem 1A. Risk Factors
    
    
    24Item 6. Exhibits
    
    
    24Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  2




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##### Table of Contents



PART IFINANCIAL INFORMATION
 
 Item 1. Financial Statements
 United Bancorporation of Alabama, Inc.
and Subsidiary
 
 Consolidated Balance Sheets
 September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)Assets:Cash and due from banks
    
    $
    11,932,698
    
    
    $
    19,558,529Interest bearing deposits in banks
    
    
    3,657,887
    
    
    
    31,645,717Federal funds sold
    
    
    9,945,000
    
    
    
    0Cash and cash equivalents
    
    
    25,535,585
    
    
    
    51,204,246Securities available for sale (amortized cost of $97,416,350
and $109,175,484 respectively)
    
    
    96,850,886
    
    
    
    108,410,473Loans
    
    
    262,716,167
    
    
    
    245,638,722Allowance for loan losses
    
    
    3,309,256
    
    
    
    3,011,731Net loans
    
    
    259,406,911
    
    
    
    242,626,991Premises and equipment, net
    
    
    15,517,782
    
    
    
    11,796,175Interest receivable
    
    
    3,961,828
    
    
    
    3,579,922Intangible assets
    
    
    934,763
    
    
    
    917,263Other assets
    
    
    6,255,244
    
    
    
    7,635,904Total assets
    
    
    408,462,999
    
    
    
    426,170,974Liabilities and Stockholders Equity:Deposits:Non-interest bearing
    
    
    61,583,243
    
    
    
    64,993,029Interest bearing
    
    
    265,153,606
    
    
    
    261,842,434Total deposits
    
    
    326,736,849
    
    
    
    326,835,463Securities sold under agreements to repurchase
    
    
    30,631,077
    
    
    
    44,410,101Advances from Federal Home Loan Bank of Atlanta
    
    
    1,799,650
    
    
    
    6,939,500Treasury, tax, and loan account
    
    
    511,489
    
    
    
    857,015Interest payable
    
    
    1,098,883
    
    
    
    937,314Accrued expenses and other liabilities
    
    
    5,635,611
    
    
    
    1,144,008Note payable to Trust, net of debt issuance costs
of $0 and $111,147 in 2007 and 2006 respectively
    
    
    10,310,000
    
    
    
    14,322,853Total liabilities
    
    
    376,723,559
    
    
    
    395,446,254Stockholders equity:Class A common stock, $0.01 par value.
Authorized 5,000,000 shares; issued and outstanding,
2,377,471 and 2,375,471 shares in 2007 and 2006, respectively
    
    
    23,775
    
    
    
    23,755Class B common stock, $0.01 par value.
Authorized 250,000 shares; no shares issued or outstanding
    
    
    0
    
    
    
    0Preferred stock of $.01 par value. Authorized
250,000 shares; no shares issued or outstanding
    
    
    0
    
    
    
    0Additional paid in capital
    
    
    5,791,215
    
    
    
    5,673,088Accumulated other comprehensive
(loss), net of tax
    
    
    (346,837
    )
    
    
    (475,478
    )Retained earnings
    
    
    27,069,549
    
    
    
    26,341,11632,537,702
    
    
    
    31,562,481Less: 136,058 and 142,789 treasury shares, at cost, respectively
    
    
    798,262
    
    
    
    837,761Total stockholders equity
    
    
    31,739,440
    
    
    
    30,724,720Total liabilities and stockholders equity
    
    $
    408,462,999
    
    
    $
    426,170,974
 See Notes to Consolidated Financial Statements
 3




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United Bancorporation of Alabama, Inc.
And Subsidiary
 
 Consolidated Statements of Earnings and Comprehensive Income
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302007
    
    
    2006
    
    
    2007
    
    
    2006Interest income:Interest and fees on loans
    
    $
    5,616,402
    
    
    $
    5,401,421
    
    
    $
    16,188,641
    
    
    $
    15,235,377Interest on investment securities available for sale:Taxable
    
    
    839,446
    
    
    
    517,565
    
    
    
    2,883,701
    
    
    
    1,538,285Nontaxable
    
    
    369,901
    
    
    
    322,368
    
    
    
    1,067,981
    
    
    
    936,114Total investment income
    
    
    1,209,347
    
    
    
    839,933
    
    
    
    3,951,682
    
    
    
    2,474,399Other interest income
    
    
    52,897
    
    
    
    116,657
    
    
    
    652,971
    
    
    
    410,332Total interest income
    
    
    6,878,646
    
    
    
    6,358,011
    
    
    
    20,793,294
    
    
    
    18,120,108Interest expense:Interest on deposits
    
    
    2,731,059
    
    
    
    1,851,026
    
    
    
    7,661,024
    
    
    
    4,783,035Interest on other borrowed funds
    
    
    781,254
    
    
    
    712,714
    
    
    
    2,604,000
    
    
    
    1,862,848Total interest expense
    
    
    3,512,313
    
    
    
    2,563,740
    
    
    
    10,265,024
    
    
    
    6,645,883Net interest income
    
    
    3,366,333
    
    
    
    3,794,271
    
    
    
    10,528,270
    
    
    
    11,474,225Provision for loan losses
    
    
    240,000
    
    
    
    240,000
    
    
    
    630,000
    
    
    
    720,000Net interest income after
provision for loan losses
    
    
    3,126,333
    
    
    
    3,554,271
    
    
    
    9,898,270
    
    
    
    10,754,225Noninterest income:Service charge on deposits
    
    
    807,481
    
    
    
    711,615
    
    
    
    2,147,783
    
    
    
    2,038,730Commission on credit life
    
    
    17,963
    
    
    
    17,248
    
    
    
    44,541
    
    
    
    43,277Investment securities gains (losses), net
    
    
    
    
    
    
    3,886
    
    
    
    (306
    )
    
    
    (4,879
    )Other
    
    
    242,607
    
    
    
    211,461
    
    
    
    710,898
    
    
    
    792,970Total noninterest income
    
    
    1,068,051
    
    
    
    944,210
    
    
    
    2,902,916
    
    
    
    2,870,098Noninterest expense:Salaries and benefits
    
    
    2,118,849
    
    
    
    1,906,969
    
    
    
    6,255,238
    
    
    
    5,555,420Net occupancy expense
    
    
    665,035
    
    
    
    668,340
    
    
    
    1,885,163
    
    
    
    1,802,157Other
    
    
    1,099,973
    
    
    
    1,274,026
    
    
    
    3,268,264
    
    
    
    3,146,403Total noninterest expense
    
    
    3,883,857
    
    
    
    3,849,335
    
    
    
    11,408,665
    
    
    
    10,503,980Earnings before income tax expense (benefit)
    
    
    310,527
    
    
    
    649,146
    
    
    
    1,392,521
    
    
    
    3,120,343Income tax expense (benefit)
    
    
    (6,461
    )
    
    
    139,642
    
    
    
    160,347
    
    
    
    833,163Net earnings
    
    $
    316,988
    
    
    $
    509,504
    
    
    $
    1,232,174
    
    
    $
    2,287,180Basic earnings per share
    
    $
    0.14
    
    
    $
    0.23
    
    
    $
    0.55
    
    
    $
    1.03Diluted earnings per share
    
    $
    0.14
    
    
    $
    0.23
    
    
    $
    0.55
    
    
    $
    1.02Basic weighted average shares outstanding
    
    
    2,239,815
    
    
    
    2,223,594
    
    
    
    2,237,323
    
    
    
    2,223,855Diluted weighted average shares outstanding
    
    
    2,246,461
    
    
    
    2,231,755
    
    
    
    2,243,969
    
    
    
    2,232,016Cash dividend per share
    
    $
    0.08
    
    
    $
    
    
    
    $
    0.23
    
    
    $
    0.15Statement of Comprehensive IncomeNet earnings
    
    $
    316,988
    
    
    $
    509,504
    
    
    $
    1,232,174
    
    
    $
    2,287,180Other comprehensive income (loss), net of tax:Unrealized holding gain (loss) arising during the period
    
    
    901,200
    
    
    
    684,976
    
    
    
    128,457
    
    
    
    (23,372
    )Reclassification adjustment for gains (losses)
included in net income
    
    
    
    
    
    
    2,332
    
    
    
    184
    
    
    
    2,927Comprehensive income (loss)
    
    $
    1,218,188
    
    
    $
    1,196,812
    
    
    $
    1,360,815
    
    
    $
    2,260,881
 See Notes to Consolidated Financial Statements
 4




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United Bancorporation of Alabama, Inc.
And Subsidiary
 
 Consolidated Statements of Cash Flows
(Unaudited)
 Nine Months EndedSeptember 302007
    
    
    2006Cash flows from operating activitiesNet earnings
    
    $
    1,232,174
    
    
    $
    2,287,180Adjustments to reconcile net earnings to net
cash provided by operating activitiesProvision for loan losses
    
    
    630,000
    
    
    
    720,000Depreciation of premises and equipment
    
    
    826,626
    
    
    
    926,890Net amortization of premium on investment securities
    
    
    187,457
    
    
    
    70,478Loss on sales of investment securities available for sale, net
    
    
    306
    
    
    
    4,879Gain on sale of other real estate
    
    
    (28,016
    )
    
    
    (12,501
    )Stock-based compensation
    
    
    4,268
    
    
    
    12,714Gain on disposal of equipment
    
    
    (3,435
    )
    
    
    (3,987
    )Writedown of other real estate
    
    
    
    
    
    
    200,000Increase in interest receivable
    
    
    (381,906
    )
    
    
    (469,446
    )(Increase) decrease in other assets
    
    
    326,072
    
    
    
    (294,714
    )Increase in interest payable
    
    
    161,569
    
    
    
    195,049Increase (decrease) in accrued expenses and other liabilities
    
    
    542,215
    
    
    
    (381,520
    )Net cash provided by operating activities
    
    
    3,497,330
    
    
    
    3,255,022Cash flows from investing activitiesProceeds from maturities, calls, and principal
repayments of investment securities available for sale
    
    
    104,585,075
    
    
    
    7,504,977Proceeds from sales of investment securities available for sale
    
    
    16,958,673
    
    
    
    1,743,150Purchases of investment securities available for sale
    
    
    (109,984,970
    )
    
    
    (14,548,141
    )Net increase in loans
    
    
    (17,614,920
    )
    
    
    (25,215,790
    )Purchases of premises and equipment, net
    
    
    (4,561,036
    )
    
    
    (3,881,647
    )Proceeds from sale of premises and equipment
    
    
    16,238
    
    
    
    24,832Insurance claim received
    
    
    1,038,775
    
    
    
    Proceeds from sale of other real estate
    
    
    173,016
    
    
    
    177,501Net cash used in investing activities
    
    
    (9,389,149
    )
    
    
    (34,195,118
    )Cash flows from financing activitiesNet decrease in deposits
    
    
    (98,614
    )
    
    
    (5,411,872
    )Net increase (decrease) in securities sold under
agreements to repurchase
    
    
    (13,779,024
    )
    
    
    12,381,804Cash dividends
    
    
    (561,758
    )
    
    
    (333,216
    )Exercise of stock options
    
    
    22,400
    
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    (63,750
    )Proceeds from sale of treasury stock
    
    
    125,530
    
    
    
    96,565Advances from FHLB Atlanta
    
    
    
    
    
    
    5,000,000Proceeds from Trust Preferred Issuance
    
    
    
    
    
    
    10,000,000Repayments of advances from FHLB Atlanta
    
    
    (5,139,850
    )
    
    
    (7,148,465
    )Decrease in other borrowed funds
    
    
    (345,526
    )
    
    
    (730,614
    )Net cash (used in) provided by financing activities
    
    
    (19,776,842
    )
    
    
    13,790,452Net decrease in cash and cash equivalents
    
    
    (25,668,661
    )
    
    
    (17,149,644
    )Cash and cash equivalents, beginning of period
    
    
    51,204,246
    
    
    
    50,866,843Cash and cash equivalents, end of period
    
    $
    25,535,585
    
    
    $
    33,717,199Supplemental disclosuresCash paid during the period for:Interest
    
    $
    10,103,455
    
    
    $
    6,450,834Income taxes
    
    
    94,454
    
    
    
    1,155,000Noncash transactionsTransfer of loans to other real estate
through foreclosure
    
    $
    205,000
    
    
    $
    240,000
 See Notes to Consolidated Financial Statements
 5




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6




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Three Months Ended
    
    
    Nine Months EndedSeptember
    
    
    September2007
    
    
    2006
    
    
    2007
    
    
    2006Diluted earnings per share
    
    $
    0.14
    
    
    $
    0.23
    
    
    $
    0.55
    
    
    $
    1.02Weighted average common
shares outstanding
    
    
    2,239,815
    
    
    
    2,223,594
    
    
    
    2,237,323
    
    
    
    2,223,855Effect of the assumed exercise of
stock options based on the
treasury stock method using
average market price
    
    
    6,646
    
    
    
    8,161
    
    
    
    6,646
    
    
    
    8,161Total weighted average common
shares and potential common
stock outstanding
    
    
    2,246,461
    
    
    
    2,231,755
    
    
    
    2,243,969
    
    
    
    2,232,016
   September 302007
    
    
    2006Balance at beginning of year
    
    $
    3,011
    
    
    $
    3,029Provision charged to expense
    
    
    630
    
    
    
    720Less Loans charged off
    
    
    (355
    )
    
    
    (1,112
    )Recoveries
    
    
    23
    
    
    
    63Other Adjustments
    
    
    
    
    
    
    97Balance at end of period
    
    $
    3,309
    
    
    $
    2,797
 Allowance for Loan Losses
 7




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Disclosures about Segments of an
Enterprise and Related Information,
      8




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##### Table of Contents



September 302007
    
    2006Weighted-average expected life (in years)
    
    
    N/A
    
    
    
    5.00Expected Volatility
    
    
    N/A
    
    
    
    20.00
    %Risk-free interest rate
    
    
    N/A
    
    
    
    5.02
    %Expected dividend yield
    
    
    N/A
    
    
    
    1.90
    %Weighted-average fair value of
options granted during the period
    
    
    N/A
    
    
    $
    4.26
   WeightedWeighted
    
    averageaverage
    
    remainingShares under
    
    exercise price
    
    contractualoption
    
    per share
    
    lifeOptions outstanding, beginning of period
    
    
    55,600
    
    
    
    14.27Granted
    
    
    
    
    
    
    Surrendered
    
    
    
    
    
    
    Exercised
    
    
    (2,000
    )
    
    
    11.20Options outstanding, end of period
    
    
    53,600
    
    
    
    14.38
    
    
    
    3.9Exercisable, end of period
    
    
    50,400
    
    
    
    14.23
    
    
    
    3.5
   September 302007
    
    2006Aggregate intrinsic value
of outstanding options
    
    $
    301,237
    
    
    $
    154,000Aggregate intrinsic value
of exercisable options
    
    $
    290,037
    
    
    $
    152,000
  9




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Accounting for Uncertainty in
Income Taxes ,
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an amendment of FASB Statement No. 115
 10




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward Looking Statements
  Critical Accounting Estimates
    11




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Operating Climate and Strategy
   Results of Operations
  12




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Nine Months ended September 30, 2007 and 2006, Compared
 Summary
  Net Interest Income
   
    
    The issuance of $10 million of Trust Preferred Securities by United Bancorp Capital
Trust II on September 30, 2006; the first nine months of 2007 includes approximately
$540,000 of interest expense paid with respect to the issuance of the Trust Preferred
Securities that was not incurred in the same period of 2006. These securities were issued
in anticipation of and to finance the cost of the branch expansion strategy and to provide
capital to support the growth in deposits and loans.
    
    The general rise in interest rates paid on deposits caused the average rate paid on
interest bearing liabilities to increase to 4.3% in the first nine months of 2007 from 3.3%
in the same period in 2006.
    
    Depositors demonstrated a preference for the higher rates of time deposits and these
deposits became a larger percentage of total sources of funds.
  Provision for Loan Losses
  13




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Allowance for Loan Losses
 Noninterest Income
  Noninterest Expense
  Income Taxes
  14




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Three Months Ended September 30, 2007 and 2006, Compared
 Summary
  Net Interest Income
    Provision for Loan Losses
 Allowance for Loan Losses
 Noninterest Income
  15




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Noninterest Expense
 Noninterest Expense
 Income Taxes
  Financial Condition and Liquidity
 st
 Cash and Cash Equivalents
 st
 16




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Investment Securities
  Loans
  Allowance for Loan Losses
   Non-performing Assets
   17




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September 30,
    
    
    December 31,2007
    
    
    2006(Dollars in Thousands)DescriptionA
    
    Loans accounted for on
a nonaccrual basis
    
    $
    6,980
    
    
    $
    1,570B
    
    Loans which are contractually
past due ninety days or more
as to interest or principal
payments (excluding balances
included in (A) above)
    
    
    24
    
    
    
    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.
    
    
    39
    
    
    
    197D
    
    Other non-performing assets
    
    
    681
    
    
    
    621Total
    
    $
    7,724
    
    
    $
    2,397
  Premises and Equipment
  Intangible Assets
 Florida Charter
 18




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Internet Domain Address www.unitedbank.com
 Deposits
  Out of Market Deposits
  Trust Preferred Redemption
  19




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Liquidity
  Capital Adequacy
     20




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WellSeptember 30,
    
    Capitalized2007
    
    TreatmentUnited Bancorporation of Alabama, Inc.Total risk-based capital
    
    
    14.74
    %
    
    
    N/ATier 1 risk-based capital
    
    
    13.65
    
    
    
    N/ALeverage Ratio
    
    
    9.86
    
    
    
    N/AUnited BankTotal risk-based capital
    
    
    14.51
    %
    
    
    10.00
    %Tier 1 risk-based capital
    
    
    13.41
    
    
    
    6.00Leverage ratio
    
    
    9.93
    
    
    
    5.00
  Off-Balance Sheet Items
   September 30,2007Commitments to extend credit
    
    $
    21,912,000Standby letters of credit
    
    
    2,364,000
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  21




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Change in Interest Rates
    
    
    
    
    
    Change in Market
    
    Change in Market(Basis Points)
    
    Market Value Equity
    
    Value Equity
    
    Value Equity %300
    
    
    45,900
    
    
    
    (6,261
    )
    
    
    (12.0
    %)200
    
    
    48,167
    
    
    
    (3,994
    )
    
    
    (7.7
    %)100
    
    
    50,111
    
    
    
    (2,050
    )
    
    
    (3.9
    %)0
    
    
    52,161
    
    
    
    
    
    
    
    0.0
    %-100
    
    
    53,397
    
    
    
    1,236
    
    
    
    2.4
    %-200
    
    
    52,978
    
    
    
    817
    
    
    
    1.6
    %-300
    
    
    52,303
    
    
    
    142
    
    
    
    0.3
    %
  
 Item 4. Controls and Procedures
   23




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31.1
    
    Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002
 
   UNITED BANCORPORATION OF ALABAMA, INC.Date: November 13, 2007/s/ Robert R. Jones, IIIRobert R. Jones, IIIPresident and CEO/s/ Allen O. Jones, Jr.Allen O. Jones, Jr.Senior Vice President and CFO
 24