##### 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, 2008
 Commission file number 2-78572
 UNITED BANCORPORATION OF ALABAMA, INC.
  Delaware
    
    63-0833573(State or other jurisdiction of
    
    (I.R.S. Employer Identification Number)incorporation or organization)200 East Nashville Avenue, Atmore, Alabama
    
    36502(Address of principal executive offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company þ
 o þ
  Class A Common Stock
    
    2,256,709 SharesClass B Common Stock
    
    -0- Shares
 Page 1 of 28




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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
    
    
    14Item 4T. Controls and Procedures
    
    
    25PART II  OTHER INFORMATIONItem 1A. Risk Factors
    
    
    26Item 6. Exhibits
    
    
    26EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2EXHIBIT 99.1
  2




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##### Table of Contents



PART IFINANCIAL INFORMATION
United Bancorporation of Alabama, Inc.
and Subsidiary
 
 Consolidated Balance Sheets
 
 Item 1. Financial Statements
 September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)AssetsCash and due from banks
    
    $
    12,244,620
    
    
    $
    17,571,893Interest bearing deposits in banks
    
    
    9,011,933
    
    
    
    31,547,422Federal funds sold
    
    
    6,000,000
    
    
    
    5,000,000Cash and cash equivalents
    
    
    27,256,553
    
    
    
    54,119,315Securities available for sale (amortized cost of $111,450,844
and $111,718,759 respectively)
    
    
    111,175,113
    
    
    
    111,945,701Security
held to maturity (market values of $1,050,000 and $0 respectively)
    
    
    1,050,000
    
    
    
    0Loans
    
    
    294,176,681
    
    
    
    267,137,723Less: Allowance for loan losses
    
    
    3,150,997
    
    
    
    3,981,922Net loans
    
    
    291,025,684
    
    
    
    263,155,801Premises and equipment, net
    
    
    18,586,469
    
    
    
    16,808,578Interest receivable
    
    
    3,323,779
    
    
    
    3,952,077Intangible assets
    
    
    934,763
    
    
    
    934,763Other assets
    
    
    10,753,108
    
    
    
    6,385,725Total assets
    
    
    464,105,469
    
    
    
    457,301,960Liabilities and Stockholders EquityDeposits:Non-interest bearing
    
    
    61,045,352
    
    
    
    62,854,927Interest bearing
    
    
    295,048,307
    
    
    
    306,047,638Total deposits
    
    
    356,093,659
    
    
    
    368,902,565Securities sold under agreements to repurchase
    
    
    61,766,047
    
    
    
    41,203,851Advances from Federal Home Loan Bank of Atlanta
    
    
    1,634,850
    
    
    
    1,774,700Treasury, tax, and loan account
    
    
    247,128
    
    
    
    691,668Interest payable
    
    
    922,770
    
    
    
    1,161,362Accrued expenses and other liabilities
    
    
    1,311,870
    
    
    
    1,336,424Note payable to Trust
    
    
    10,310,000
    
    
    
    10,310,000Total liabilities
    
    
    432,286,324
    
    
    
    425,380,570Stockholders equityClass 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
    
    
    0
    
    
    
    0Preferred stock of $.01 par value. Authorized
250,000 shares; no shares issued or outstanding
    
    
    0
    
    
    
    0Additional paid in capital
    
    
    6,063,682
    
    
    
    5,916,367Unearned stock based compensation
    
    
    (100,101
    )
    
    
    (51,403
    )Accumulated other comprehensive income (loss) net of tax
    
    
    (176,799
    )
    
    
    122,105Retained earnings
    
    
    26,828,638
    
    
    
    26,700,50032,639,301
    
    
    
    32,711,400Less: 133,006 and 134,654 treasury shares, at cost, respectively
    
    
    820,156
    
    
    
    790,010Total stockholders equity
    
    
    31,819,145
    
    
    
    31,921,390Total liabilities and stockholders equity
    
    $
    464,105,469
    
    
    $
    457,301,960
 See Notes to Consolidated Financial Statements
 3




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##### Table of Contents



United Bancorporation of Alabama, Inc.
And Subsidiary
 
 Consolidated Statements of Earnings and Comprehensive Income
 (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302008
    
    
    2007
    
    
    2008
    
    
    2007Interest income:Interest and fees on loans
    
    $
    5,207,737
    
    
    $
    5,616,402
    
    
    $
    15,230,042
    
    
    $
    16,188,641Interest on investment securities available for sale:Taxable
    
    
    771,681
    
    
    
    839,446
    
    
    
    2,476,620
    
    
    
    2,883,701Nontaxable
    
    
    333,840
    
    
    
    369,901
    
    
    
    1,029,517
    
    
    
    1,067,981Total investment income
    
    
    1,105,521
    
    
    
    1,209,347
    
    
    
    3,506,137
    
    
    
    3,951,682Other interest income
    
    
    83,169
    
    
    
    52,897
    
    
    
    484,905
    
    
    
    652,971Total interest income
    
    
    6,396,427
    
    
    
    6,878,646
    
    
    
    19,221,084
    
    
    
    20,793,294Interest expense:Interest on deposits
    
    
    2,276,454
    
    
    
    2,731,059
    
    
    
    7,245,415
    
    
    
    7,661,024Interest on other borrowed funds
    
    
    341,195
    
    
    
    781,254
    
    
    
    1,293,213
    
    
    
    2,604,000Total interest expense
    
    
    2,617,649
    
    
    
    3,512,313
    
    
    
    8,538,628
    
    
    
    10,265,024Net interest income
    
    
    3,778,778
    
    
    
    3,366,333
    
    
    
    10,682,456
    
    
    
    10,528,270Provision for loan losses
    
    
    750,000
    
    
    
    240,000
    
    
    
    1,490,000
    
    
    
    630,000Net interest income after
provision for loan losses
    
    
    3,028,778
    
    
    
    3,126,333
    
    
    
    9,192,456
    
    
    
    9,898,270Noninterest income:Service charge on deposits
    
    
    885,734
    
    
    
    807,481
    
    
    
    2,550,913
    
    
    
    2,147,783Investment securities losses, net
    
    
    (238
    )
    
    
    
    
    
    
    (177
    )
    
    
    (306
    )Mortgage loan and related fees
    
    
    31,653
    
    
    
    55,772
    
    
    
    150,524
    
    
    
    169,879Other
    
    
    212,722
    
    
    
    204,798
    
    
    
    686,322
    
    
    
    585,560Total noninterest income
    
    
    1,129,871
    
    
    
    1,068,051
    
    
    
    3,387,582
    
    
    
    2,902,916Noninterest expense:Salaries and benefits
    
    
    2,186,778
    
    
    
    2,118,849
    
    
    
    6,411,926
    
    
    
    6,255,238Net occupancy expense
    
    
    725,162
    
    
    
    665,035
    
    
    
    2,109,184
    
    
    
    1,885,163Other
    
    
    1,322,475
    
    
    
    1,099,973
    
    
    
    3,664,234
    
    
    
    3,268,264Total noninterest expense
    
    
    4,234,415
    
    
    
    3,883,857
    
    
    
    12,185,344
    
    
    
    11,408,665Earnings before income tax expense (benefits)
    
    
    (75,766
    )
    
    
    310,527
    
    
    
    394,694
    
    
    
    1,392,521Income tax expense (benefits)
    
    
    (166,192
    )
    
    
    (6,461
    )
    
    
    (240,273
    )
    
    
    160,347Net earnings
    
    $
    90,426
    
    
    $
    316,988
    
    
    $
    634,967
    
    
    $
    1,232,174Basic earnings per share
    
    $
    0.04
    
    
    $
    0.14
    
    
    $
    0.28
    
    
    $
    0.55Diluted earnings per share
    
    $
    0.04
    
    
    $
    0.14
    
    
    $
    0.28
    
    
    $
    0.55Basic weighted average shares outstanding
    
    
    2,252,698
    
    
    
    2,239,815
    
    
    
    2,251,078
    
    
    
    2,237,323Diluted weighted average shares outstanding
    
    
    2,259,767
    
    
    
    2,246,461
    
    
    
    2,258,147
    
    
    
    2,243,969Cash dividend per share
    
    $
    0.08
    
    
    $
    0.08
    
    
    $
    0.23
    
    
    $
    0.23Statement of Comprehensive IncomeNet earnings
    
    $
    90,426
    
    
    $
    316,988
    
    
    $
    634,967
    
    
    $
    1,232,174Other comprehensive income (loss), net of tax:Unrealized holding gain (losses) arising during
the period
    
    
    (157,301
    )
    
    
    901,200
    
    
    
    (299,010
    )
    
    
    128,457Reclassification adjustment for losses
included in net earnings
    
    
    143
    
    
    
    
    
    
    
    106
    
    
    
    184Comprehensive income (loss)
    
    $
    (66,732
    )
    
    $
    1,218,188
    
    
    $
    336,063
    
    
    $
    1,360,815
 See Notes to Consolidated Financial Statements
 4




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##### Table of Contents



United Bancorporation of Alabama, Inc. and Subsidiary
 
 Consolidated Statements of Cash Flows
 (Unaudited)
 Nine Months EndedSeptember 302008
    
    
    2007Cash flows from operating activitiesNet earnings
    
    $
    634,967
    
    
    $
    1,232,174Adjustments to reconcile net earnings to net
cash provided by operating activitiesProvision for loan losses
    
    
    1,490,000
    
    
    
    630,000Depreciation of premises and equipment
    
    
    992,540
    
    
    
    826,626Net amortization (accretion) of discount on investment securities
    
    
    (796,266
    )
    
    
    187,457Loss on sales of investment securities available for sale, net
    
    
    177
    
    
    
    306(Gain) loss on sale of other real estate
    
    
    1,045
    
    
    
    (28,016
    )Writedown of other real estate
    
    
    85,000
    
    
    
    Stock-based compensation
    
    
    21,307
    
    
    
    4,268Gain on disposal of equipment
    
    
    (14,316
    )
    
    
    (3,435
    )(Increase) decrease in interest receivable
    
    
    628,298
    
    
    
    (381,906
    )Decrease in other assets
    
    
    243,236
    
    
    
    326,072Increase (decrease) in interest payable
    
    
    (238,592
    )
    
    
    161,569Increase (decrease) in accrued expenses and other liabilities
    
    
    (25,055
    )
    
    
    542,215Net cash provided by operating activities
    
    
    3,022,341
    
    
    
    3,497,330Cash flows from investing activitiesProceeds from maturities, calls, and principal
repayments of investment securities available for sale
    
    
    1,032,513,350
    
    
    
    104,585,075Proceeds from sales of investment securities available for sale
    
    
    12,492,231
    
    
    
    16,958,673Purchases of investment securities available for sale
    
    
    (1,043,937,077
    )
    
    
    (109,984,970
    )Purchase of investment security held to maturity
    
    
    (1,050,000
    )
    
    
    Net increase in loans
    
    
    (33,970,557
    )
    
    
    (17,614,920
    )Purchases of premises and equipment, net
    
    
    (2,779,715
    )
    
    
    (4,561,036
    )Proceeds from sale of premises and equipment
    
    
    23,600
    
    
    
    16,238Insurance claim received
    
    
    
    
    
    
    1,038,775Proceeds from sale of other real estate
    
    
    113,279
    
    
    
    173,016Net cash used in investing activities
    
    
    (36,594,889
    )
    
    
    (9,389,149
    )Cash flows from financing activitiesNet decrease in deposits
    
    
    (12,808,906
    )
    
    
    (98,614
    )Net increase (decrease) in securities sold under
agreements to repurchase
    
    
    20,562,196
    
    
    
    (13,779,024
    )Cash dividends
    
    
    (506,328
    )
    
    
    (561,758
    )Proceeds from exercise of stock options
    
    
    9,986
    
    
    
    22,400Proceeds from sale of common stock
    
    
    6,732
    
    
    
    Purchase of treasury stock
    
    
    (63,019
    )
    
    
    Proceeds from sale of treasury stock
    
    
    93,515
    
    
    
    125,530Repayments of advances from FHLB Atlanta
    
    
    (139,850
    )
    
    
    (5,139,850
    )Decrease in other borrowed funds
    
    
    (444,540
    )
    
    
    (345,526
    )Net cash provided by (used in) financing activities
    
    
    6,709,786
    
    
    
    (19,776,842
    )Net decrease in cash and cash equivalents
    
    
    (26,862,762
    )
    
    
    (25,668,661
    )Cash and cash equivalents, beginning of period
    
    
    54,119,315
    
    
    
    51,204,246Cash and cash equivalents, end of period
    
    $
    27,256,553
    
    
    $
    25,535,585Supplemental disclosuresCash paid during the period for:Interest
    
    $
    8,777,220
    
    
    $
    10,103,455Income taxes
    
    
    83,171
    
    
    
    94,454Noncash transactionsTransfer of loans to other real estate
through foreclosure
    
    $
    4,610,674
    
    
    $
    205,000
 See Notes to Consolidated Financial Statements
 5




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Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302008
    
    
    2007
    
    
    2008
    
    
    2007Diluted earnings per share
    
    $
    0.04
    
    
    $
    0.14
    
    
    $
    0.28
    
    
    $
    0.55Weighted average common
shares outstanding
    
    
    2,252,698
    
    
    
    2,239,815
    
    
    
    2,251,078
    
    
    
    2,237,323Effect of the assumed exercise of
stock options based on the
treasury stock method using
average market price
    
    
    7,069
    
    
    
    6,646
    
    
    
    7,069
    
    
    
    6,646Total weighted average common
shares and potential common
stock outstanding
    
    
    2,259,767
    
    
    
    2,246,461
    
    
    
    2,258,147
    
    
    
    2,243,969
 7




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September 302008
    
    
    2007Balance at beginning of year
    
    
    3,982
    
    
    
    3,011Provision charged to expense
    
    
    1,490
    
    
    
    630Loans charged off
    
    
    (2,361
    )
    
    
    (355
    )Recoveries
    
    
    40
    
    
    
    23Balance at end of period
    
    
    3,151
    
    
    
    3,309
   Disclosures about Segments of an
Enterprise and Related Information,
  Share-Based
Payment
 8




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##### Table of Contents



Stock Options
 1998 Stock Option Plan
  WeightedWeighted
    
    
    averageaverage
    
    
    remainingShares under
    
    
    exercise price
    
    
    contractualoption
    
    
    per share
    
    
    lifeOptions outstanding, beginning of period
    
    
    53,600
    
    
    $
    14.38Granted
    
    
    
    
    
    
    Surrendered
    
    
    
    
    
    
    Exercised
    
    
    (634
    )
    
    
    15.75Options outstanding, end of period
    
    
    52,966
    
    
    
    14.36
    
    
    
    2.9Exercisable, end of period
    
    
    50,966
    
    
    
    14.83
    
    
    
    2.7
  2008
    
    2007Aggregate intrinsic value
of outstanding options
    
    $
    48,461
    
    
    $
    301,237Aggregate intrinsic value
of exercisable options
    
    $
    48,461
    
    
    $
    290,037
  2007 Equity Incentive Plan
  WeightedWeighted
    
    
    averageaverage
    
    
    remainingShares under
    
    
    exercise price
    
    
    contractualoption
    
    
    per share
    
    
    lifeOptions outstanding, beginning of period
    
    
    2,000
    
    
    $
    18.50Granted
    
    
    
    
    
    
    Surrendered
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Options outstanding, end of period
    
    
    2,000
    
    
    
    18.50
    
    
    
    9.2Exercisable, end of period
    
    
    400
    
    
    
    18.50
    
    
    
    9.2
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##### Table of Contents



Restricted Stock
  Restricted
    
    Weightedstock
    
    averageactivity
    
    fair valueShares granted at beginning of period
    
    
    5,626
    
    
    $
    18.00Granted
    
    
    4,459
    
    
    
    16.51Surrendered
    
    
    (505
    )
    
    
    18.00Vested
    
    
    (2,620
    )
    
    
    18.00Shares granted at end of period
    
    
    6,960
    
    
    
    17.05
    Fair Value Measurements
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Determining the Fair Value of a Financial
Asset When the Market for that Asset Is Not Active.
  
    
    Level 1 Quoted 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 U.S. Treasury securities that are highly liquid and
are actively traded in over-the-counter markets.
    
    Level 2 Observable 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, as well as U.S. Government and agency mortgage-backed debt
securities 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 3 Unobservable 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.
 11




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Assets Measured at Fair Value on a Recurring Basis
  Available-for-Sale Securities
  Assets Measured at Fair Value on a Nonrecurring Basis
  Impaired Loans
  12




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##### Table of Contents



Other Real Estate Owned
  The Fair Value Option for Financial Assets and
Financial Liabilities, including an amendment of FASB Statement No. 115
 13




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements
  Critical Accounting Estimates
   Intangible Assets
  14




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Results of Operations
  Nine Months Ended September 30, 2008 and 2007, Compared
 Summary
  Net Interest Income
  15




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Provision for Loan Losses
 Allowance for Loan Losses
 Noninterest Income
  16




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Noninterest Expense
  Income Taxes
  Three Months Ended September 30, 2008 and 2007, Compared
 Summary
  Net Interest Income
  17




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Provision for Loan Losses
 Allowance for Loan Losses
 Noninterest Income
  Noninterest Expense
  Income Taxes
  18




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Financial Condition and Liquidity
  Cash and Cash Equivalents
  Investment
Securities  Available-for-sale
  Investment
Securities  Held-to-maturity
  Loans
  Allowance for Loan Losses
  19




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Non-performing Assets
 September 30,
    
    
    December 31,2008
    
    
    2007(Dollars in Thousands)DescriptionA
    
    
    Loans accounted for on
a nonaccrual basis
    
    $
    6,489
    
    
    $
    11,079B
    
    
    Loans which are contractually
past due ninety days or more
as to interest or principal
payments (excluding balances
included in (A) above)
    
    
    22
    
    
    
    26C
    
    
    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
    
    
    1,634
    
    
    
    54D
    
    
    Other non-performing assets (ORE)
    
    
    4,962
    
    
    
    551Total
    
    $
    13,107
    
    
    $
    11,710
 Premises and Equipment
  Intangible Assets
  Florida Charter
 21




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##### Table of Contents



Internet Domain Address www.unitedbank.com
  Deposits
  Repurchase Agreements
 Net Interest
Income
 Liquidity
  22




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Capital Adequacy
     WellSeptember 30,
    
    Capitalized2008
    
    TreatmentUnited Bancorporation of Alabama, Inc.Total risk-based capital
    
    
    12.88
    %
    
    
    N/ATier 1 risk-based capital
    
    
    11.96
    
    
    
    N/ALeverage Ratio
    
    
    8.91
    
    
    
    N/AUnited BankTotal risk-based capital
    
    
    12.70
    %
    
    
    10.00
    %Tier 1 risk-based capital
    
    
    11.78
    
    
    
    6.00Leverage ratio
    
    
    8.50
    
    
    
    5.00
 23




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##### Table of Contents



Off-Balance Sheet items
   September 30,2008Commitments to extend credit
    
    $
    29,447,000Standby letters of credit
    
    
    1,617,277FHLB letters of credit to United Bank
    
    
    5,000,000
 24




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##### Table of Contents



Item 4T. Controls and Procedures
    25




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##### Table of Contents



(a)
    
    Exhibits.
 31.1
    
    Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Principal 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 Principal Financial Officer pursuant to 18
U.S.C. Section 1350, adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 200299.1
    
    Report of United Bank mailed November 10, 2008
 26




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##### Table of Contents



UNITED BANCORPORATION OF ALABAMA, INC.Date: November 12, 2008
    /s/ Robert R. Jones, IIIRobert R. Jones, IIIPresident and CEO/s/ Allen O. Jones, Jr.Allen O. Jones, Jr.Senior Vice President and CFO 27




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##### Table of Contents



EXHIBITNUMBER
    
    DESCRIPTION31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 200231.2
    
    Certification of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification pursuant to 18 U.S.C. Section 1350, adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification pursuant to 18 U.S.C. Section 1350, adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 200299.1
    
    Report of United Bank mailed November 10, 2008
 28