##### 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
 September 30, 2005
 2-78572
 UNITED BANCORPORATION OF ALABAMA, INC.
 
  Delaware
    
    63-0833573(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification Number)200 East Nashville Avenue, Atmore, Alabama
    
    36502(Address of principal executive offices)
    
    (Zip Code)
  
  ü
 ü
 ü




---



##### Table of Contents



UNITED BANCORPORATION OF ALABAMA, INC.
 FORM 10-Q
  INDEX
 PART I  FINANCIAL INFORMATION
    
    PAGEItem 1. Financial StatementsCondensed Consolidated Balance Sheets
    
    
    3Condensed Consolidated Statements of Earnings
and Comprehensive Income
    
    
    4Condensed Consolidated Statements of Cash Flows
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    20Item 4. Controls and Procedures
    
    
    22PART II  OTHER INFORMATIONItem 6. Exhibits
    
    
    24
 2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 United Bancorporation of Alabama, Inc.
and Subsidiary
Condensed Consolidated
Balance Sheets
 September
    
    
    December 31,2005
    
    
    2004Unaudited
    
    
    AuditedAssets:Cash and due from banks
    
    $
    16,980,539
    
    
    $
    16,446,574Federal funds sold
    
    
    6,019,668
    
    
    
    27,494,426Cash and cash equivalents
    
    
    23,000,207
    
    
    
    43,941,000Securities available for sale (amortized cost of $69,137,850
and $54,502,411 respectively)
    
    
    68,652,300
    
    
    
    55,004,982Loans
    
    
    231,536,113
    
    
    
    199,160,445Allowance for loan losses
    
    
    2,920,189
    
    
    
    2,562,239Net loans
    
    
    228,615,924
    
    
    
    196,598,206Premises and equipment, net
    
    
    7,547,211
    
    
    
    7,192,202Interest receivable and other assets
    
    
    11,203,454
    
    
    
    9,094,834Total assets
    
    
    339,019,096
    
    
    
    311,831,224Liabilities and Stockholders Equity:Deposits:Non-interest bearing
    
    
    64,586,493
    
    
    
    68,763,895Interest bearing
    
    
    198,298,862
    
    
    
    184,174,772Total deposits
    
    
    262,885,355
    
    
    
    252,938,667Securities sold under agreements to repurchase
    
    
    31,593,129
    
    
    
    18,381,063Other borrowed funds
    
    
    11,143,555
    
    
    
    8,292,612Accrued expenses and other liabilities
    
    
    1,757,995
    
    
    
    1,881,143Note payable to Trust (net of issuance costs)
    
    
    4,000,223
    
    
    
    3,992,645Total liabilities
    
    
    311,380,257
    
    
    
    285,486,130Stockholders equity:Class A common stock. Authorized 5,000,000 shares of $.01 par value; 2,365,362 and 2,363,762 shares issued respectively
    
    
    23,654
    
    
    
    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
    
    
    5,491,713
    
    
    
    5,444,563Accumulated other comprehensive
income, net of tax
    
    
    (298,759
    )
    
    
    301,542Retained earnings
    
    
    23,260,143
    
    
    
    21,414,37028,476,751
    
    
    
    27,184,113Less: 143,922 and 146,432 treasury shares, at cost, respectively
    
    
    837,912
    
    
    
    839,019Total stockholders equity
    
    
    27,638,839
    
    
    
    26,345,094Total liabilities and stockholders equity
    
    $
    339,019,096
    
    
    $
    311,831,224
 See
Notes to Condensed Consolidated Financial Statements
 3




---



##### Table of Contents



United Bancorporation of Alabama, Inc.
And Subsidiary
Condensed Consolidated Statements of Earnings and Comprehensive Income
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember
    
    
    September2005
    
    
    2004
    
    
    2005
    
    
    2004Interest income:Interest and fees on loans
    
    $
    4,226,570
    
    
    $
    3,093,692
    
    
    $
    11,322,112
    
    
    $
    8,684,682Interest on investment securities
available for sale:Taxable
    
    
    456,235
    
    
    
    325,431
    
    
    
    1,319,024
    
    
    
    928,299Nontaxable
    
    
    262,855
    
    
    
    250,335
    
    
    
    771,048
    
    
    
    757,785Total investment income
    
    
    719,090
    
    
    
    575,766
    
    
    
    2,090,072
    
    
    
    1,686,084Other interest income
    
    
    44,881
    
    
    
    10,745
    
    
    
    264,669
    
    
    
    61,518Total interest income
    
    
    4,990,541
    
    
    
    3,680,203
    
    
    
    13,676,853
    
    
    
    10,432,284Interest expense:Interest on deposits
    
    
    1,254,004
    
    
    
    763,359
    
    
    
    3,223,605
    
    
    
    2,143,897Interest on other borrowed funds
    
    
    187,513
    
    
    
    146,300
    
    
    
    486,476
    
    
    
    429,338Total interest expense
    
    
    1,441,517
    
    
    
    909,659
    
    
    
    3,710,081
    
    
    
    2,573,235Net interest income
    
    
    3,549,024
    
    
    
    2,770,544
    
    
    
    9,966,772
    
    
    
    7,859,049Provision for loan losses
    
    
    295,000
    
    
    
    180,000
    
    
    
    685,000
    
    
    
    540,000Net interest income after
provision for loan losses
    
    
    3,254,024
    
    
    
    2,590,544
    
    
    
    9,281,772
    
    
    
    7,319,049Noninterest income:Service charge on deposits
    
    
    607,887
    
    
    
    581,286
    
    
    
    1,708,574
    
    
    
    1,756,406Commission on credit life
    
    
    7,862
    
    
    
    2,713
    
    
    
    36,808
    
    
    
    38,413Investment securities gains, net
    
    
    33,916
    
    
    
    167,610
    
    
    
    33,916
    
    
    
    170,898Other
    
    
    176,879
    
    
    
    124,587
    
    
    
    543,859
    
    
    
    455,232Total noninterest income
    
    
    826,544
    
    
    
    876,196
    
    
    
    2,323,157
    
    
    
    2,420,949Noninterest expense:Salaries and benefits
    
    
    1,679,867
    
    
    
    1,521,987
    
    
    
    4,846,597
    
    
    
    4,303,403Net occupancy expense
    
    
    465,893
    
    
    
    480,365
    
    
    
    1,448,986
    
    
    
    1,395,783Other
    
    
    823,507
    
    
    
    600,417
    
    
    
    2,427,235
    
    
    
    1,972,095Total noninterest expense
    
    
    2,969,267
    
    
    
    2,602,769
    
    
    
    8,722,818
    
    
    
    7,671,281Earnings before income tax expense
    
    
    1,111,301
    
    
    
    863,971
    
    
    
    2,882,111
    
    
    
    2,068,717Income tax expense
    
    
    251,035
    
    
    
    229,403
    
    
    
    739,462
    
    
    
    485,812Net earnings
    
    $
    860,266
    
    
    $
    634,568
    
    
    $
    2,142,649
    
    
    $
    1,582,905Basic earnings per share
    
    $
    0.39
    
    
    $
    0.29
    
    
    $
    0.96
    
    
    $
    0.71Diluted earnings per share
    
    $
    0.39
    
    
    $
    0.29
    
    
    $
    0.96
    
    
    $
    0.71Basic weighted average shares
outstanding *
    
    
    2,221,935
    
    
    
    2,217,330
    
    
    
    2,220,554
    
    
    
    2,215,599Diluted weighted average shares
outstanding *
    
    
    2,229,273
    
    
    
    2,219,679
    
    
    
    2,227,892
    
    
    
    2,217,948Cash dividend per share
    
    $
    
    
    
    $
    
    
    
    $
    0.15
    
    
    $
    0.15Statement of
Comprehensive IncomeNet Income
    
    
    860,266
    
    
    
    634,568
    
    
    $
    2,142,649
    
    
    $
    1,582,905Other
Comprehensive Income, net of tax:Unrealized
holding gain (loss) arising during the period
    
    
    (927,221
    )
    
    
    641,019
    
    
    
    (600,301
    )
    
    
    (59,969
    )Less:
Reclassification adjustment for gains included in net income
    
    
    20,350
    
    
    
    100,566
    
    
    
    20,350
    
    
    
    102,539Comprehensive
income (loss)
    
    $
    (87,305
    )
    
    $
    1,175,021
    
    
    $
    1,521,998
    
    
    $
    1,420,397
 See
Notes to Condensed Consolidated Financial Statements
 4




---



##### Table of Contents



United Bancorporation of Alabama, Inc.
and Subsidiary
Condensed Consolidated Statements of Cash Flows
For The Nine Months Ended September 2005 and 2004
(Unaudited)
 2005
    
    
    2004Operating ActivitiesNet Income
    
    $
    2,142,649
    
    
    
    1,582,904Adjustments to Reconcile Net Income to Net Cash
Provided by Operating ActivitiesProvision for Loan Losses
    
    
    685,000
    
    
    
    540,000Depreciation on Premises and Equipment
    
    
    658,865
    
    
    
    605,991Amortization of Investment Securities Available for Sale
    
    
    140,044
    
    
    
    128,766Gain on Investment Securities Available for Sale
    
    
    (33,916
    )
    
    
    (170,898
    )Gain on Sale of Other Real Estate
    
    
    (4,118
    )
    
    
    (897
    )Gain on Disposal of Premises and Equipment
    
    
    
    
    
    
    (4,850
    )Writedown of Other Real Estate
    
    
    103,201
    
    
    
    Increase in Interest Receivable
and Other Assets
    
    
    (2,409,627
    )
    
    
    (1,431,783
    )Increase (Decrease) in Accrued Expenses
and Other Liabilities
    
    
    403,455
    
    
    
    (517,509
    )Net Cash Provided by Operating Activities
    
    
    1,685,553
    
    
    
    731,724Investing ActivitiesProceeds From Sales of Investment Securities Available for Sale
    
    
    2,827,009
    
    
    
    4,340,737Proceeds From Maturities of Investment Securities Available for Sale
    
    
    10,227,853
    
    
    
    8,211,599Purchases of Investment Securities Available for Sale
    
    
    (27,796,428
    )
    
    
    (13,464,598
    )Net Increase in Loans
    
    
    (32,802,718
    )
    
    
    (35,003,862
    )Purchases of Premises and Equipment
    
    
    (1,013,874
    )
    
    
    (335,733
    )Proceeds From Sales of Premises and Equipment
    
    
    
    
    
    
    4,850Proceeds From Sales of Other Real Estate
    
    
    178,147
    
    
    
    5,000Net Cash Used in Investing Activities
    
    
    (48,380,011
    )
    
    
    (36,242,007
    )Financing ActivitiesNet Increase in Deposits
    
    
    9,947,321
    
    
    
    25,411,875Net Increase in securities sold under
agreement to repurchase
    
    
    13,212,066
    
    
    
    1,774,852Cash Dividends
    
    
    (288,579
    )
    
    
    (332,219
    )Net Transactions on Treasury Stock
    
    
    
    
    
    
    2,636Exercise of stock options
    
    
    12,800
    
    
    
    Proceeds from sale of common stock
    
    
    19,115
    
    
    
    38,207Increase
(Decrease) in Other Borrowed Funds
    
    
    2,850,942
    
    
    
    (1,879,698
    )Net Cash Provided by Financing Activities
    
    
    25,753,665
    
    
    
    25,015,653Decrease in Cash and Cash Equivalents
    
    
    (20,940,793
    )
    
    
    (10,494,630
    )Cash and Cash Equivalents at Beginning of Period
    
    
    43,941,000
    
    
    
    24,447,625Cash and Cash Equivalents at End of Period
    
    $
    23,000,207
    
    
    
    13,952,995Supplemental disclosuresCash paid during the year for:Interest
    
    $
    3,601,137
    
    
    $
    2,607,522Income Taxes
    
    $
    503,000
    
    
    $
    370,000Noncash transactionsTransfer of loans to other real estate through foreclosure
    
    $
    100,000
    
    
    $
    230,001Certification of CEO Pursuant to Section 302Certification of Interim Principal Accounting Officer Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of Interim Principal Accounting Officer Pursuant to Section 906
 See
Notes to Condensed Consolidated Financial Statements
 6




---



##### Table of Contents



7




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember
    
    
    September2005
    
    
    2004
    
    
    2005
    
    
    2004Diluted earnings per share
    
    $
    0.39
    
    
    $
    0.29
    
    
    $
    0.96
    
    
    $
    0.71Weighted average common
shares outstanding
    
    
    2,221,935
    
    
    
    2,217,330
    
    
    
    2,220,554
    
    
    
    2,215,599Effect of the assumed
exercise of
stock options based on the
treasury stock method using
average market price
    
    
    7,338
    
    
    
    2,349
    
    
    
    7,338
    
    
    
    2,349Total weighted average
common
shares and potential common
stock outstanding*
    
    
    2,229,273
    
    
    
    2,219,679
    
    
    
    2,227,892
    
    
    
    2,217,948
  8




---



##### Table of Contents



September 302005
    
    
    2004Balance at beginning of year
    
    
    2,562
    
    
    
    2,117Provision charged to expense
    
    
    685
    
    
    
    540Less Loans charged off
    
    
    368
    
    
    
    282Recoveries
    
    
    41
    
    
    
    59Balance at end of period
    
    
    2,920
    
    
    
    2,434
   Disclosures about Segments of an
Enterprise and Related Information,
  Consolidation of Variable Interest Entities Consolidation of Variable Interest Entities
 9




---



##### Table of Contents



Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
    10




---



##### Table of Contents



For the three months ended
    
    
    For the nine months endedSeptember 30
    
    
    September 302005
    
    
    2004
    
    
    2005
    
    
    2004Reported net earnings
    
    $
    860,266
    
    
    $
    634,568
    
    
    $
    2,142,649
    
    
    $
    1,582,904Compensation expense, net of taxes
    
    
    3,089
    
    
    
    5,020
    
    
    
    12,358
    
    
    
    15,059Pro forma net earnings
    
    
    857,177
    
    
    
    629,548
    
    
    
    2,130,291
    
    
    
    1,567,845Reported basic earnings per share
    
    $
    0.39
    
    
    $
    0.29
    
    
    $
    0.96
    
    
    $
    0.71Pro forma basic earnings per share
    
    $
    0.39
    
    
    $
    0.28
    
    
    $
    0.96
    
    
    $
    0.71Reported diluted earnings per
share
    
    $
    0.39
    
    
    $
    0.29
    
    
    $
    0.96
    
    
    $
    0.71Pro forma diluted earnings per
share
    
    $
    0.39
    
    
    $
    0.28
    
    
    $
    0.96
    
    
    $
    0.71
  11




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Critical Accounting Estimates
   Results of Operations
  Nine Months ended September 30, 2005 and 2004, Compared
 Summary
  Net Interest Income
  12




---



##### Table of Contents



Provision for Loan Losses
 Allowance for Loan Losses
 Noninterest Income
  Noninterest Expense
  13




---



##### Table of Contents



Income Taxes
  Three Months Ended September 30, 2005 and 2004, Compared
 Summary
  Net Interest Income
    Provision for Loan Losses
  14




---



##### Table of Contents



Allowance for Loan Losses
 Noninterest Income
  Noninterest Expense
  Income Taxes
  Financial Condition and Liquidity
  15




---



##### Table of Contents



Cash and Cash Equivalents
  Loans
  Allowance for Loan Losses
    16




---



##### Table of Contents



Non-performing Assets
  17




---



##### Table of Contents



September 30
    
    December 31,2005
    
    2004(Dollars in Thousands)A
    
    Description
Loans accounted for on
a nonaccrual basis
    
    $
    1,889
    
    
    $
    1,202B
    
    Loans which are contractually
past due ninety days or more
as to interest or principal
payments (excluding balances
included in (A) above)
    
    $
    2
    
    
    $
    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.
    
    $
    321
    
    
    $
    351D
    
    Other non-performing assets
    
    $
    1,206
    
    
    $
    1,384
 Investment Securities
  Premises and Equipment
  18




---



##### Table of Contents



Deposits
  Hurricanes Ivan, Dennis, and Katrina
   Liquidity
  19




---



##### Table of Contents



Capital Adequacy
   
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
    20




---



##### Table of Contents



Change in Interest Rates
    
    Market Value Equity
    
    Change in Market
    
    Change in Market(Basis Points)
    
    
    
    Value Equity
    
    Value Equity %300
    
    56,839
    
    10,211
    
    22200
    
    54,262
    
    7,634
    
    16100
    
    50,934
    
    4,306
    
    90
    
    46,628
    
    -
    
    -100
    
    41,058
    
    (5,570)
    
    (12)-200
    
    33,961
    
    (12,667)
    
    (27)-300
    
    25,740
    
    (20,888)
    
    (45)
  21




---



##### Table of Contents



Item 4. Controls and Procedures
   22




---



##### Table of Contents



Forward Looking Statements
  23




---



##### 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 interim 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 200232.2
    
    Certification of interim principal accounting 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 10, 2005 | By:                                    | /s/ Robert R. Jones, III | 
|                        |                                        | Robert R. Jones, III     | 
|                        |                                        | President and CEO        | 
|                       

24