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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 March 31, 2005 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)
 (251) 368-2525 
  Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such report(s), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ Indicate the number of shares outstanding of each of the issuers classes of common stock as of
April 20, 2005. Class A Common Stock.... 2,217,330 Shares*
Class B Common Stock.... -0- Shares *Reflects two-for-one stock split effective June 30, 2004.   Page 1 of 27




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UNITED BANCORPORATION OF ALABAMA, INC. FORM 10-Q For the Quarter Ended March 31, 2005 INDEX PAGEPART I  FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets
    
    
    3Condensed Consolidated Statements of Earnings and
Comprehensive Income
    
    
    4Condensed Consolidated Statements of Cash Flows
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    9Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    16Item 4. Controls and Procedures
    
    
    18PART II  OTHER INFORMATIONItem 5. Other Information
    
    
    20Item 6. Exhibits
    
    
    20Certification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906Report of United Bank mailed May 13, 2005
  2




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PART I  FINANCIAL INFORMATION 
  United Bancorporation of Alabama, Inc.
and Subsidiary
 
 Condensed Consolidated
 Balance Sheets
 March
    
    
    December 31,2005
    
    
    2004Unaudited
    
    
    AuditedAssets:Cash and due from banks
    
    $
    12,916,523
    
    
    $
    16,446,574Federal funds sold
    
    
    13,450,459
    
    
    
    27,494,426Cash and cash equivalents
    
    
    26,366,982
    
    
    
    43,941,000Securities
available for sale (amortized cost of $72,550,236 and $54,502,411 respectively)
    
    
    72,149,165
    
    
    
    55,004,982Loans
    
    
    203,065,851
    
    
    
    199,160,445Allowance for loan losses
    
    
    2,653,754
    
    
    
    2,562,239Net loans
    
    
    200,412,097
    
    
    
    196,598,206Premises and equipment, net
    
    
    7,146,634
    
    
    
    7,192,202Interest receivable and other assets
    
    
    8,980,420
    
    
    
    9,094,834Total assets
    
    
    315,055,298
    
    
    
    311,831,224Liabilities and Stockholders Equity:Deposits:Non-interest bearing
    
    
    64,226,488
    
    
    
    68,763,895Interest bearing
    
    
    185,749,700
    
    
    
    184,174,772Total deposits
    
    
    249,976,188
    
    
    
    252,938,667Securities sold under agreements to repurchase
    
    
    24,409,146
    
    
    
    18,381,063Other borrowed funds
    
    
    9,216,920
    
    
    
    8,292,612Accrued expenses and other liabilities
    
    
    975,266
    
    
    
    1,881,143Note payable to Trust
net of debt issuance costs of $128,829 and $131,355
in 2005 and 2004, respectively
    
    
    3,995,171
    
    
    
    3,992,645Total liabilities
    
    
    288,572,691
    
    
    
    285,486,130Stockholders equity:Class A
common stock, Authorized 5,000,000
shares of $.01 par value; 2,363,762* and 2,363,762*
shares issued respectively
    
    
    23,638
    
    
    
    23,638Class B
common stock of $.01 par value,
Authorized 250,000 shares;
-0- shares issued and outstanding.
    
    
    0
    
    
    
    0Preferred
stock of $.01 par value, Authorized
250,000 shares; -0- shares issued
and outstanding.
    
    
    0
    
    
    
    0Additional Paid in Capital
    
    
    5,444,599
    
    
    
    5,444,563Accumulated other comprehensive
income, net of tax
    
    
    (204,948
    )
    
    
    301,542Retained earnings
    
    
    22,058,338
    
    
    
    21,414,37027,321,626
    
    
    
    27,184,113Less: 147,706* and 147,706* treasury shares, at cost, respectively
    
    
    839,019
    
    
    
    839,019Total stockholders equity
    
    
    26,482,608
    
    
    
    26,345,094Total liabilities and stockholders equity
    
    $
    315,055,298
    
    
    $
    311,831,224
   *
    
    Reflects 2 for 1 stock split effective June 30, 2004 See Notes to Condensed Consolidated Financial Statements 3




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United Bancorporation of Alabama, Inc.
And Subsidiary 
 Condensed Consolidated Statements of Earnings and Comprehensive Income
 (Unaudited)
 Three Months EndedMarch2005
    
    
    2004Interest income:Interest and fees on loans
    
    $
    3,293,351
    
    
    $
    2,688,542Interest on investment securities available for sale:Taxable
    
    $
    382,672
    
    
    
    303,068Nontaxable
    
    $
    246,810
    
    
    
    251,227Total investment income
    
    $
    629,482
    
    
    
    554,295Other interest income
    
    $
    158,655
    
    
    
    27,126Total interest income
    
    
    4,081,488
    
    
    
    3,269,963Interest expense:Interest on deposits
    
    
    913,426
    
    
    
    653,641Interest on other borrowed funds
    
    
    140,912
    
    
    
    144,761Total interest expense
    
    
    1,054,338
    
    
    
    798,402Net interest income
    
    
    3,027,150
    
    
    
    2,471,561Provision for loan losses
    
    
    195,000
    
    
    
    180,000Net interest income after
provision for loan losses
    
    
    2,832,150
    
    
    
    2,291,561Noninterest income:Service charge on deposits
    
    
    507,968
    
    
    
    588,242Commission on credit life
    
    
    6,151
    
    
    
    13,697Investment securities gains, net
    
    
    
    
    
    
    3,268Other
    
    
    187,198
    
    
    
    191,503Total noninterest income
    
    
    701,317
    
    
    
    796,710Noninterest expense:Salaries and benefits
    
    
    1,530,575
    
    
    
    1,361,796Net occupancy expense
    
    
    493,376
    
    
    
    458,398Other
    
    
    664,174
    
    
    
    629,775Total noninterest expense
    
    
    2,688,125
    
    
    
    2,449,969Earnings before income tax expense
    
    
    845,342
    
    
    
    638,302Income tax expense
    
    
    193,078
    
    
    
    177,288Net earnings
    
    $
    652,264
    
    
    $
    461,014Basic earnings per share
    
    $
    0.29
    
    
    $
    0.22Diluted earnings per share
    
    $
    0.29
    
    
    $
    0.22Basic weighted average shares outstanding *
    
    
    2,217,330

    
    
    
    2,215,444Diluted weighted average shares outstanding *
    
    
    2,219,679
    
    
    
    2,216,746Cash dividend per share
    
    $
    Statement of Comprehensive IncomeNet Income
    
    
    652,264
    
    
    
    461,014Other Comprehensive Income (loss), net of tax:Unrealized holding (losses) gain arising during
the period
    
    
    (903,642
    )
    
    
    429,009Less: Reclassification adjustment for gains
included in net income.
    
    
    
    
    
    
    1,961Comprehensive income (loss)
    
    $
    (251,378
    )
    
    $
    888,062
   *
    
    Reflects 2 for 1 stock split effective June 30, 2004 See Notes to Condensed Consolidated Financial Statements 4




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United Bancorporation of Alabama, Inc.
and Subsidiary 
 Condensed Consolidated Statements of Cash Flows
 For the Three Months Ended March 31, 2005 and 2004
 (Unaudited)
 2005
    
    
    2004Operating ActivitiesNet Income
    
    $
    652,264
    
    
    
    461,014Adjustments to Reconcile Net Income to Net Cash
Provided by Operating ActivitiesProvision for Loan Losses
    
    
    195,000
    
    
    
    180,000Depreciation on Premises and Equipment
    
    
    231,722
    
    
    
    201,643Amortization (Accretion) of Investment Securities Available for Sale
    
    
    48,851
    
    
    
    (38,547
    )Gain on Sale of Investment Securities Available for Sale
    
    
    
    
    
    
    (3,268
    )(Gain) Loss on Sale of Other Real Estate
    
    
    (2,776
    )
    
    
    Increase in Interest Receivable and Other Assets
    
    
    105,414
    
    
    
    239,762Increase (Decrease) in Accrued Expenses and Other Liabilities
    
    
    204,042
    
    
    
    (586,963
    )Net Cash Provided (Used) by Operating Activities
    
    
    1,434,517
    
    
    
    453,641Investing ActivitiesProceeds From Sales of Investment Securities Available for Sale
    
    
    
    
    
    
    1,500,300Proceeds From Maturities of Investment Securities Available for Sale
    
    
    2,641,445
    
    
    
    1,620,998Purchases of Investment Securities Available for Sale
    
    
    (20,738,121
    )
    
    
    (7,244,582
    )Net Increase in Loans
    
    
    (4,008,891
    )
    
    
    (16,659,386
    )Purchase of Premises and Equipment
    
    
    (186,154
    )
    
    
    (164,768
    )Purchases of Other Real Estate
    
    
    
    
    
    
    (16,000
    )Proceeds Form Sale of Other Real Estate
    
    
    11,776
    
    
    
    Net cash used by Investing Activities
    
    
    (22,279,945
    )
    
    
    (20,963,438
    )Financing ActivitiesNet (Decrease) Increase in Deposits
    
    
    (2,962,479
    )
    
    
    9,112,885Net Increase in Securities sold under agreement to repurchase
    
    
    6,028,083
    
    
    
    3,859,333Net Transactions on Treasury Stock
    
    
    (8,260
    )
    
    
    2,166Increase (Decrease) in Other Borrowed Fund
    
    
    214,066
    
    
    
    (1,538,757
    )Net Cash Provided by Financing Activities
    
    
    3,271,410
    
    
    
    11,435,627Decrease in Cash and Cash Equivalents
    
    
    (17,574,018
    )
    
    
    (9,074,170
    )Cash and Cash Equivalents at Beginning of Period
    
    
    43,941,000
    
    
    
    24,447,625Cash and Cash Equivalents at End of Period
    
    $
    26,366,982
    
    
    
    15,373,455Supplemental disclosuresCash paid during the year for:Interest
    
    $
    1,025,007
    
    
    $
    803,337Income Taxes
    
    $
    138,000
    
    
    $
    Noncash transactionsTransfer of loans to other real estate through foreclosure
    
    $
    
    
    
    $
    16,000
 See Notes to Condensed Consolidated Financial Statements 5




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UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY 
 Notes to Condensed Consolidated Financial Statements NOTE 1  General This report includes interim consolidated financial statements of United Bancorporation of Alabama,
Inc. (the Corporation or the Company) and its wholly-owned subsidiary, United Bank (the
Bank). The interim consolidated financial statements in this report have not been audited. In
the opinion of management, all adjustments necessary to present fairly the financial position and
the results of operations for the interim periods have been made. All such adjustments are of a
normal recurring nature. The results of operations are not necessarily indicative of the results
of operations for the full year or any other interim periods. For further information, refer to
the consolidated financial statements and footnotes included in the Companys Annual Report on Form
10-K for the year ended December 31, 2004.




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NOTE 2  Net Earnings per Share Basic net earnings per share were computed by dividing net earnings by the weighted average number
of shares of common stock outstanding during the three month periods ended March 31, 2005 and 2004.
Common stock outstanding consists of issued shares less treasury stock. Diluted net earnings per
share for the three month periods ended March 31, 2005 and 2004 were computed by dividing net
earnings by the weighted average number of shares of common stock and the dilutive effects of the
shares subject to options awarded under the Companys Stock Option Plan, based on the treasury
stock method using an average fair market value of the stock during the respective periods. The
earnings per share amounts and average common shares and potential common stock outstanding have
been adjusted to reflect the two-for-one stock split effected as a 100% stock dividend as of June
30, 2004. Presented below is a summary of the components used to calculate diluted earnings per
share for the three months ended March 31, 2005 and 2004: Three Months EndedMarch2005
    
    
    2004Diluted earnings per share
    
    $
    0.29
    
    
    $
    0.22Weighted average common
shares outstanding
    
    
    2,217,330
    
    
    
    2,215,444Effect of the assumed exercise of
stock options based on the
treasury stock method using
average market price
    
    
    2,349
    
    
    
    1,302Total weighted average common
shares and potential common
stock outstanding*
    
    
    2,219,679
    
    
    
    2,216,746
   *
    
    33,584 and 23,888 shares subject to outstanding options for the three months ended March 31, 2005
and 2004, respectively, were not included in the calculation of diluted earnings per share, as the
exercise price of these options was in excess of average market price.




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NOTE 3  Allowance for Loan Losses The following table summarizes the activity in the allowance for loan losses for the three month
periods ended March 31 ($ in thousands): March 312005
    
    
    2004Balance at beginning of year
    
    
    2,562
    
    
    
    2,117Provision charged to expense
    
    
    195
    
    
    
    180Less Loans charged off
    
    
    120
    
    
    
    121Recoveries
    
    
    17
    
    
    
    11Balance at end of period
    
    
    2,654
    
    
    
    2,187
 At March 31, 2005 and 2004, the amounts of nonaccrual loans were $987,402 and $1,695,136,
respectively. NOTE 4  Operating Segments Statement of Financial Accounting Standard 131 (SFAS 131), Disclosures about Segments of an
Enterprise and Related Information,establishes standards for the disclosure made by public
business enterprises to report information about operating segments in annual financial statements
and requires those enterprises to report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The Corporation operates in
only one segment  commercial banking. NOTE 5  New Accounting Standards In December 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46
(revised December 2003) (FIN 46R), Consolidation of Variable Interest Entities, which addresses how
a business enterprise should evaluate whether it has a controlling financial interest in an entity
through means other than voting rights and accordingly should consolidate the entity. FIN 46R
replaces No. 46, Consolidation of Variable Interest Entities, which was issued in January 2003. The
Company will be required to apply FIN 46R to all entities subject to this interpretation no later
than the end of the first reporting period that ends after December 15, 2004. This interpretation
must be applied to those entities that are considered to be




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specialpurpose entities no later than as of the end of the first reporting period that ended after
December 15, 2003. For any variable interest entities (VIEs) that must be consolidated under FIN No. 46R that were
created before January 1, 2004, the assets, liabilities, and noncontrolling interests of the VIE
initially would be measured at their carrying amounts with any difference between the net amount
added to the balance sheet and any previously recognized interest being recognized as the
cumulative effect of an accounting change. If determining the carrying amounts is not practicable,
fair value at the date FIN No. 46R first applies may be used to measure the assets, liabilities and
noncontrolling interest of the VIE. The Company has applied FIN No. 46R in accounting for United Bancorp Capital Trust I (Trust),
established on June 27, 2002. Accordingly, the accompanying balance sheet includes, in other
assets, the Companys investment in the Trust of $124,000 and also includes, in Note payable to
Trust, the balance owed the Trust of $4,124,000. Except as related to the Trust, the application
of this interpretation is not expected to have a material effect on the Companys consolidated
financial statements. In December 2004, the Financial Accounting Standards Board (FASB) published FASB Statement No.
123 (revised 2004), Share-Based Payment(FAS 123(R) or the Statement). FAS 123(R) requires that
the compensation cost relating to share-based payment transactions, including grants of employee
stock options, be recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability instruments issued. FAS 123(R) covers a wide range of share-based
compensation arrangements including stock options, restricted share plans, performance-based
awards, share appreciation rights, and employee share purchase plans. FAS 123(R) is a replacement
of FASB Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No.
25, Accounting for Stock Issued to Employees, and its related interpretive guidance. The effect of the Statement will be to require entities to measure the cost of employee services
received in exchange for stock options based on the grant-date fair value of the award, and to
recognize the cost over the period the employee is required to provide services for the award. FAS
123(R) permits entities to use any option-pricing model that meets the fair value objective in the
Statement. The Company will be required to apply FAS 123(R) as of the beginning of its first interim period




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that begins after December 15, 2005, which will be the quarter ending March 31, 2006. FAS 123(R) allows two methods for determining the effects of the transition: the modified
prospective transition method and the modified retrospective method of transition. Under the
modified prospective transition method, an entity would use the fair value based accounting method
for all employee awards granted, modified, or settled after the effective date. As of the effective
date, compensation cost related to the nonvested portion of awards outstanding as of that date
would be based on the grant-date fair value of those awards as calculated under the original
provisions of Statement No. 123; that is, an entity would not remeasure the grant-date fair value
estimate of the unvested portion of awards granted prior to the effective date of FAS 123(R). An
entity will have the further option to either apply the Statement to only the quarters in the
period of adoption and subsequent periods, or apply the Statement to all quarters in the fiscal
year of adoption. Under the modified retrospective method of transition, an entity would revise its
previously issued financial statements to recognize employee compensation cost for prior periods
presented in accordance with the original provisions of Statement No. 123. Although it has not yet completed its study of the transition methods, the Company believes it will
elect the modified prospective transition method. The impact of this Statement on the Company in
fiscal 2006 and beyond will depend upon various factors, among them
being the Companys future
compensation strategy. The pro forma compensation costs presented in the table above and in prior
filings for the Company have been calculated using a Black-Scholes option pricing model and may not
be indicative of amounts which should be expected in future years. No decisions have been made as
to which option-pricing model is most appropriate for the Company for any future awards. NOTE 6 Stock Based Compensation The Company applies the intrinsic value-based method of accounting prescribed by Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations, in accounting for its fixed plan stock options. As such, compensation
expense is recorded if the current market price on the date of grant of the underlying stock
exceeds the exercise price. Statement of Financial Accounting Standard (SFAS) No. 123 prescribes the recognition of
compensation expense based on the fair value of options on the grant date and allows companies to
apply APB No. 25 as long as certain pro forma disclosures are made assuming a hypothetical fair
value method application. Had compensation expense for the Companys stock options been recognized based on the fair value on
the grant date under the methodology prescribed by SFAS No. 123, the Companys net earnings and
earnings per share for the three months ended March 31, 2005 and 2004 would have been impacted as
shown in the following table:




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For the three months endedMarch 312005
    
    
    2004Reported net earnings
    
    $
    652,264
    
    
    $
    461,014Compensation expense, net of taxes
    
    
    4,119
    
    
    
    6,835Pro forma net earnings
    
    
    648,145
    
    
    
    454,179Reported basic earnings per share*
    
    $
    0.29
    
    
    $
    0.21Pro forma basic earnings per share*
    
    $
    0.29
    
    
    $
    0.21Reported diluted earnings per share*
    
    $
    0.29
    
    
    $
    0.21Pro forma diluted earnings per share*
    
    $
    0.29
    
    
    $
    0.21
   *
    
    Reflects two-for-one stock split effective June 30, 2004. 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Critical Accounting Estimates The consolidated financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America, which require management to make estimates and
assumptions. Management believes that its determination of the allowance for loan losses is a
critical accounting policy and involves a higher degree of judgment and complexity than the Banks
other significant accounting policies. Further, these estimates can be materially impacted by
changes in market conditions or the actual or perceived financial condition of the Banks
borrowers, subjecting the Bank to significant volatility of earnings. The allowance for loan losses is regularly evaluated by management and reviewed by the Board of
Directors for accuracy by taking into consideration factors such as changes in the nature and
volume of the loan portfolio; trends in actual and forecasted portfolio credit quality, including
delinquency, charge-off and bankruptcy rates; and current economic conditions that may affect a
borrowers ability to pay. The use of different estimates or assumptions could produce different




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provisions for loan losses. The allowance for credit losses is established through the provision
for loan losses, which is a charge against earnings. Results of Operations The following financial review is presented to provide an analysis of the results of operations of
United Bancorporation of Alabama, Inc. (the Corporation) and its principal subsidiary for the
three ended March 31, 2005 and 2004, compared. This review should be used in conjunction with the
condensed consolidated financial statements included in the Form 10-Q. Three Months Ended March 31, 2005 and 2004, Compared Summary Net income for the three months ended March 31, 2005 increased $191,251, or 41.49%. Net Interest Income Total interest income increased $811,525, or 24.82%, in the first quarter of 2005 as compared to
2004. Average interest-earning assets were $287,016,612 for the first three months of 2005, as
compared to $239,069,878 for the same period in 2004, an increase of $47,946,734, or 20.06%. A
substantial portion of the increase is due to increases in Bank deposits that came after Hurricane
Ivan in the fourth quarter of 2004. The average rate earned during the first quarter of 2005 was
5.68% as compared to 5.21% in 2004, reflecting the continuing impact of the increase in rates by
the Federal Reserve Board during the past and current year. Total interest expense increased by $255,936 or 32.06% in the first quarter of 2005, when compared
to the same period in 2004. Average interest bearing liabilities increased to $222,363,849 in 2005
from $187,520,945 in 2004, an increase of $34,842,904, or 18.58%. The average rate paid increased
to 1.90% in 2005 as compared to 1.60% in 2004. The net interest margin increased to 4.35% for the first quarter of 2005, as compared to 4.23% for
the same period in 2004. This was due to the increase in interest rates by the Federal Reserve
Board and the fact that the Banks assets reprice faster then
the Banks liabilities. Provision for Loan Losses The provision for loan losses totaled $195,000 for the first quarter of 2005 as compared to
$180,000 for the same period in 2004. The provision reflected both the growth and improvement in
credit quality in the loan portfolio. For further discussion of the Provision for Loan Losses see
Allowance




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for Loan Losses below. Noninterest Income Total noninterest income decreased $95,393 or 11.97% for the first quarter of 2005. Service charges
on deposits decreased $80,274, or 13.65%, for the first quarter of 2005 as compared to 2004. This
decrease is primarily due to a decrease in insufficient fund charges on checks. Gains on sale of
investments decreased by $3,268 in the first quarter of 2005 as compared to 2004, because
the Bank sold investments in the first quarter of 2004 to help fund loans. Other income
decreased during the first quarter of 2005 by $4,305 or 2.25% as compared to 2004. The majority of
this decrease is from the decrease in insurance commission of $18,660 from the 2004 first quarter
compared to the 2005 period, while dividends from Risk Associates, were $22,000, and last year the
dividend was received in April of 2004. Noninterest Expense Total noninterest expense increased $238,155, or 9.72%, during the first quarter of 2005 compared
to the same quarter of 2004. Salaries and benefits increased $168,779, or 12.39%, in the first
quarter 2005 as compared to 2004. This increase is primarily due to the expansion of the Bank into
new markets and increases in health care cost for the Bank. Occupancy expense increased $34,978,
or 8.18%, in the first quarter of 2005, also largely associated with branch expansion. Other
expenses increased $34,399 or 5.06% during the first quarter of 2005 as compared to 2004,
reflecting increases in general operating expenses. Income Taxes Earnings before taxes for the first quarter of 2005 were $845,342 as compared to $638,302 in the
first quarter of 2004, an increase of $207,041 or 32.44%. Income tax expense for the first quarter
increased $15,790 to $193,078, or by 8.91%, when compared to $177,288 for the same period in 2004.
The effective tax rate decreased to 22.84% in 2005 from 27.77% in 2004. Financial Condition and Liquidity Total assets on March 31, 2005 increased $3,224,074 or 1.03% from December 31, 2004. Average total
assets for the first three months of 2005 were $313,443,216. The ratio of loans (net of allowance)
to deposits plus repurchase agreements on March 31, 2005 was 73.04% as compared to 72.46% on
December 31, 2004. Cash and Cash Equivalents Federal Funds Sold and interest bearing balances in other banks as of March 31, 2005 decreased by




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$17,574,018, or by 40.00%, from December 31, 2004. This decrease is attributed to the increase in
loans and the increase in investment securities available for sale, as the Bank shifts investments
from lower earning assets to higher yielding loans and investments. Loans Net loans increased by $3,813,891 or 1.94% at March 31, 2005, from December 31, 2004.
Agricultural lending and commercial real estate loans contributed the majority of this loan growth. Allowance for Loan Losses The allowance for loan losses is maintained at a level which, in managements opinion, is
appropriate to provide for estimated losses in the portfolio at the balance sheet date. Factors
considered in determining the adequacy of the allowance include historical loan loss experience,
the amount of past due loans, loans classified from the most recent regulatory examinations and
internal reviews, general economic conditions and the current portfolio mix. The amount charged to
operating expenses is that amount necessary to maintain the allowance for loan losses at a level
indicative of the associated risk, as determined by management, of the current portfolio. The allowance for loan losses consists of two portions: the classified portion and the
nonclassified portion. The classified portion is based on identified problem loans and is
calculated based on an assessment of credit risk related to those loans. Specific loss estimate
amounts are included in the allowance based on assigned loan classifications as follows: monitor
(5%), substandard (15%), doubtful (50%), loss (100%) and specific reserves based on identifiable
losses. Any loan categorized loss is charged off in the period in which the loan is so categorized. The nonclassified portion of the allowance is for inherent losses which probably exist as of the
evaluation date even though they may not have been identified by the more specific processes for
the classified portion of the allowance. This is due to the risk of error and inherent imprecision
in the process. This portion of the allowance is particularly subjective and requires judgments
based upon qualitative factors which do not lend themselves to exact mathematical calculations.
Some of the factors considered are changes in credit concentrations, loan mix, historical loss
experience, non-accrual and delinquent loans and the general economic environment in the
Corporations markets. However, unfavorable changes in the factors used by management to determine
the adequacy of the allowance, including increased loan delinquencies and subsequent charge-offs,
or the availability of new information, could require additional provisions, in excess of normal
provisions, to the allowance for loan losses in future periods. While the total allowance is described as consisting of a classified and a nonclassified portion,
these terms are primarily used to describe a process. Both portions are available to support
inherent losses in the loan portfolio. Management realizes that general economic trends greatly
affect loan losses, and no assurances can be made that future charges to the allowance for loan




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losses will not be significant in relation to the amount provided during a particular period, or
that
future evaluations of the loan portfolio based on conditions then prevailing will not require
sizable charges to income. Management does, however, consider the allowance for loan losses to be
appropriate for the reported periods. The allowance for possible loan losses represents 1.31% of gross loans at March 31, 2005, as
compared to 1.29% at year-end 2004. Loans on which the accrual of interest had been discontinued has decreased to $987,402 at March 31,
2005, as compared to $1,201,692 at December 31, 2004. Net charged-off loans for the first three
months of 2005 were $103,000, as compared to $110,000 for the same period in 2004. Non-performing Assets: The following table sets forth the Corporations non-performing
assets at March 31, 2005 and December 31, 2004. Under the Corporations nonaccrual policy, a loan
is placed on nonaccrual status when collectibility of principal and interest is in doubt or when
principal and interest is 90 days or more past due except for credit cards, which continue to
accrue interest after ninety days. The amount of impaired loans determined under SFAS No. 114 and 118 has been considered in the
summary of non-performing assets below. These credits were considered in determining the adequacy
of the allowance for loan losses and are regularly monitored for changes within a particular
industry or general economic trends, which could cause the borrowers financial difficulties. At
March 31, 2005 the Bank had $928,625 in impaired loans, compared to $697,017 at December 31, 2004,
reflecting an increase in specific reserves on classified loans.




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##### Table of Contents



March 31, 2005
    
    December 31,2005
    
    2004(Dollars in Thousands)DescriptionA
    
    Loans accounted for on
a nonaccrual basis
    
    $
    987
    
    
    $
    1,202B
    
    Loans which are contractually
past due ninety days or more
as to interest or principal
payments (excluding balances
included in (A) above)
    
    $
    6
    
    
    $
    14C
    
    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.
    
    $
    327
    
    
    $
    351D
    
    Other non-performing assets
    
    $
    1,375
    
    
    $
    1,384
 Investment Securities Total investments available for sale have increased $17,144,183 at March 31, 2005 as compared to
December 31, 2004 due to the Bank investing federal funds into higher yields in the investment
portfolio. Premises and Equipment Premises and equipment increased $78,432 during the first quarter of 2005. Deposits Total deposits decreased $2,962,479, or 1.17%, at March 31, 2005 from December 31, 2004, including
a decrease of $4,537,407 on noninterest bearing deposits. Interest bearing deposits increased
$1,574,928 at March 31, 2005, from December 31, 2004.




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##### Table of Contents



Liquidity One of the Banks goals is to provide adequate funds to meet changes in loan demand or any
potential increase in the normal level of deposit withdrawals. This goal is accomplished primarily
by generating cash from operating activities and maintaining sufficient short-term assets. These
sources, coupled with a stable deposit base, allow the Bank to fund earning assets and maintain the
availability of funds. Management believes that the Banks traditional sources of maturing loans
and investment securities, cash from operating activities and a strong base of core deposits are
adequate to meet the Banks liquidity needs for normal operations. To provide additional liquidity,
the Bank utilizes short-term financing through the purchase of federal funds, and maintains a
borrowing relationship with the Federal Home Loan Bank to provide liquidity. Should the Banks
traditional sources of liquidity be constrained, forcing the Bank to pursue avenues of funding not
typically used, the Banks net interest margin could be impacted negatively. The Corporations bank
subsidiary has an Asset Liability Management Committee, which has as its primary objective the
maintenance of specific funding and investment strategies to achieve short-term and long-term
financial goals. The Corporations liquidity at March 31, 2005 is considered adequate by
management. Also see Item 3 below. Capital Adequacy The Corporation has generally relied primarily on internally generated capital growth to maintain
capital adequacy. Total stockholders equity on March 31, 2005, was $26,482,608, an increase of
$137,514, or 0.52%, from December 31, 2004. This net increase is a combination of current period
earnings, reduced by a decrease in the unrealized gains on securities available for sale. Primary capital to total assets at March 31, 2005, was 8.41%, as compared to 8.44% at year-end
2004. Total capital and allowances for loan losses to total assets at March 31, 2005, was 9.25%, as
compared to 9.27% at December 31, 2004. The Corporations risk based capital was $32,509,000, or
14.03% of risk adjusted assets, at March 31, 2005, as compared to $31,827,000, or 14.12%, at
year-end 2004. The minimum requirement is 8.00%. Based on managements projections, existing
internally generated capital and the capital previously raised by issuance of trust preferred
securities should be sufficient to satisfy capital requirements in the foreseeable future for
existing operations, and for some expansion efforts. Continued growth into new markets may require
the Corporation to further access external funding sources. There can be no assurance that such
funding sources will be available to the Corporation. 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk Market risk is the risk of loss from adverse changes in market prices and rates. The Banks market
risk arises principally from interest rate risk inherent in its lending, deposit and borrowing
activities. Management actively monitors and manages its interest rate risk exposure. Although the
Bank manages other risk, such as credit quality and liquidity risk, in the normal course of
business,




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management considers interest rate risk to be its most significant market risk. Interest rate risk
could potentially have the largest material effect on the Banks financial condition and results of
operations. Other types of market risks, such as foreign currency exchange rate risk, generally do
not arise in the Banks normal course of business activities to any significant extent. The Banks profitability is affected by fluctuations in interest rates. Managements goal is to
maintain a reasonable balance between exposure to interest rate fluctuations and earnings. A
sudden and substantial increase in interest rates may adversely impact the Banks earnings to the
extent that the interest rates on interest-earning assets and interest-bearing liabilities do not
change at the same speed, to the same extent or on the same basis. The Banks Asset Liability Management Committee (ALCO) monitors and considers methods of managing
the rate and sensitivity repricing characteristics of the balance sheet components consistent with
maintaining acceptable levels of changes in the net portfolio value (NPV) and net interest
income. NPV represents the market values of portfolio equity and is equal to the market value of
assets minus the market value of liabilities, with adjustments made for off- balance sheet items
over a range of assumed changes in market interest rates. A primary purpose of the Banks ALCO is
to manage interest rate risk to effectively invest the Banks capital and to preserve the value
created by its core business operations. As such, certain management monitoring processes are
designed to minimize the impact of sudden and sustained changes in interest rates on NPV and net
interest income. The Banks exposure to interest rate risk is reviewed on a quarterly basis by the Board of
Directors and the ALCO. Interest rate risk exposure is measured using interest rate sensitivity
analysis to determine the Banks change in NPV in the event of hypothetical changes in interest
rates. Further, interest rate sensitivity gap analysis is used to determine the repricing
characteristics of the Banks assets and liabilities. The ALCO is charged with the responsibility
to maintain the level of sensitivity of the Banks net interest margin within Board approved
limits. Interest rate sensitivity analysis is used to measure the Banks interest rate risk by computing
estimated changes in NPV of its cash flows from assets, liabilities, and off-balance sheet items in
the event of a range of assumed changes in market interest rates. This analysis assesses the risk
of loss in market risk sensitive instruments in the event of a sudden and sustained 100  300 basis
points increase or decrease in the market interest rates. The Bank uses the HNC Asset Liability
Model, which takes the current rate structure of the portfolio and shocks for each rate level and
calculates the new market value equity at each level. The Banks Board of Directors has adopted an
interest rate risk policy, which establishes maximum allowable decreases in net interest margin in
the event of a sudden and sustained increase or decrease in market interest rates. The following
table presents the Banks projected change in NPV for the various rate shock levels as of December
31, 2004, the most recent date for which the Corporation has a completed analysis. Management does
not expect the analysis as of March 31, 2005 to change materially from the December 31, 2004
analysis. All market risk sensitive instruments presented in this table are held to maturity or
available for sale. The Bank has no trading securities.




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##### Table of Contents



Change in Interest Rates
    
    
    
    
    
    Change in Market
    
    Change in Market(Basis Points)
    
    Market Value Equity
    
    Value Equity

    
    Value Equity %300
    
    
    62,661
    
    
    
    7,699
    
    
    
    25200
    
    
    59,449
    
    
    
    5,789
    
    
    
    19100
    
    
    55,215
    
    
    
    5,113
    
    
    
    100
    
    
    50,102
    
    
    
    
    
    
    
    -100
    
    
    44,151
    
    
    
    (5,951
    )
    
    
    (12
    )-200
    
    
    37,105
    
    
    
    (12,997
    )
    
    
    (26
    )-300
    
    
    29,308
    
    
    
    (20,794
    )
    
    
    (42
    )
 The preceding table indicates that at December 31, 2004, in the event of a sudden and sustained
increase in prevailing market interest rates, the Banks NPV would be expected to increase and that
in the event of a sudden decrease in prevailing market interest rates, the Banks NPV would be
expected to decrease. The recent growth in variable rate loans has caused the Corporation to
become more asset sensitive over the period of a year, but the net interest margin remains fairly
stable in all interest rate environments tested. Computation of prospective effects of hypothetical interest rate changes included in these
forward-looking statements are subject to certain risks, uncertainties, and assumptions including
relative levels of market interest rates, loan prepayments and deposit decay rates, and should not
be relied upon as indicative of actual results. Further, the computations do not contemplate any
actions the Bank could undertake in response to changes in interest rates. 
 Item 4. Controls and Procedures Based on evaluation of the Corporations disclosure controls and procedures (as such term is
defined in Rules 13a-4(c) under the Securities Exchange Act of 1934, as amended (the Exchange
Act)), as of the end of the period covered by this quarterly 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. The Corporation has engaged consultants to assist the Corporation in its evaluation of internal
controls in anticipation of the upcoming effectiveness of regulations under Section 404 of the
Sarbanes-Oxley Act of 2002. There was no change in the Corporations internal controls over




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##### Table of Contents



financial reporting during the period covered by this quarterly report that has materially
affected, or is reasonably likely to materially affect, the Corporations internal control over
financial reporting. Forward Looking Statements When used or incorporated by reference herein, the words anticipate, estimate, expect,
project, target, goal, and similar expressions, are intended to identify forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933. Such forward-looking
statements are subject to certain risk, uncertainties, and assumptions including those set forth
herein. Should one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those expected or projected.
These forward-looking statements speak only as of the date they are made. The Corporation
expressly disclaims any obligations or undertaking to publicly release any updates or revisions to
any forward-looking statement contained herein to reflect any change in the Corporations
expectations with regard to any change in events, conditions or circumstances on which any such
statement is based.




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##### Table of Contents



PART II  OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holder  (a)
    The Annual Meeting of Stockholders of United Bancorporation of Alabama, Inc.
was held on May 4, 2005.(b)
    The following nominees were elected as Directors of the Corporation, to serve
until the 2008 Annual Meeting of Stockholders, by the votes indicated: Nominee
    
    For
    
    
AgainstDale M. Ash
    
    
    1,433,183
    
    
    0Robert R. Jones, III
    
    
    1,433,175
    
    
    8
  The Directors of the Corporation whose terms of office continued after the 2004
Annual Meeting are as follows: To Serve Until the AnnualDirector
    
    Meeting of Stockholders in the yearMichael R. Andreoli
    
    
    2007David Swift
    
    
    2007L. Walter Crim
    
    
    2006H. Leon Esneul
    
    
    2006William J Justice
    
    
    2006
 
 Item 5. Other Information. On May 13, 2005, the Corporations wholly-owned subsidiary, United Bank (the Bank), mailed a
report of recent events and Bank financial results for the quarter ended March 31, 2005 to the
Corporations shareholders. The full text of the report is set forth in Exhibit 99.1 hereto. This
exhibit is furnished under this Item 5 in lieu of its being furnished under cover of and pursuant
to the instructions for Form 8-K. 
 Item 6. Exhibits  (a)
    Exhibits.  31.1
    Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 200231.2
    Certification of principal accounting 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 2002




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##### Table of Contents



32.2
    Certification of principal accounting 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 May 13, 2005 
 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized. UNITED BANCORPORATION OF ALABAMA, INC.Date: May 13, 2005/s/Robert R. Jones, IIIRobert R. Jones, IIIPresident and CEO




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##### Table of Contents



INDEX TO EXHIBITS EXHIBITNUMBER
    
    DESCRIPTION31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 200231.2
    
    Certification of principal accounting 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 May 13, 2005