##### 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 March 31, 2006
 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) 446-6000
 þ o
  o o þ
 o þ




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##### 



UNITED BANCORPORATION OF ALABAMA, INC.
 FORM 10-Q
  INDEX
 PAGEPART I  FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets
    
    
    3Consolidated Statements of Earnings
and Comprehensive Income
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    21PART II  OTHER INFORMATIONItem 1A. Risk FactorsItem 4. Submission of Matters to Vote of Security Holders
    
    
    22Item 6. Exhibits
    
    
    22Certification of CEO pursuant to Section 302Certification of PAO pursuant to Section 302Certification pursuant to Section 906Certification pursuant to Section 906
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PART IFINANCIAL INFORMATION
 
 Item 1. Financial Statements
 United Bancorporation of Alabama, Inc.
and Subsidiary
 
 Consolidated Balance Sheets
 (Unaudited)
 March 31,
    
    
    December 31,2006
    
    
    2005Unaudited
    
    
    AuditedAssets:Cash and due from banks
    
    $
    18,885,368
    
    
    $
    20,876,806Federal funds sold
    
    
    7,114,204
    
    
    
    29,990,037Cash and cash equivalents
    
    
    25,999,572
    
    
    
    50,866,843Securities available for sale (amortized cost of $75,718,951
and $71,770,277 respectively)
    
    
    74,474,440
    
    
    
    70,932,624Loans
    
    
    238,610,283
    
    
    
    230,310,857Allowance for loan losses
    
    
    3,210,126
    
    
    
    3,028,847Net loans
    
    
    235,400,157
    
    
    
    227,282,010Premises and equipment, net
    
    
    10,905,201
    
    
    
    9,849,934Interest Receivable
    
    
    2,841,486
    
    
    
    3,073,531Intangible Assets
    
    
    917,263
    
    
    
    917,263Other Assets
    
    
    6,723,123
    
    
    
    6,907,554Total assets
    
    
    357,261,242
    
    
    
    369,829,759Liabilities and Stockholders Equity:Deposits:Non-interest bearing
    
    
    65,147,849
    
    
    
    66,774,418Interest bearing
    
    
    210,560,244
    
    
    
    224,246,053Total deposits
    
    
    275,708,093
    
    
    
    291,020,471Securities sold under agreements to repurchase
    
    
    39,977,355
    
    
    
    34,429,374Advances from Federal Home Loan Bank of Atlanta
    
    
    7,055,465
    
    
    
    9,112,915Treasury, tax, and loan account
    
    
    61,357
    
    
    
    1,001,000Accrued expenses and other liabilities
    
    
    1,810,269
    
    
    
    2,468,890Note payable to Trust, net of debt issueance costs
of $118,725 and $121,251
in 2006 and 2005, respectively
    
    
    4,005,275
    
    
    
    4,002,749Total liabilities
    
    
    328,617,814
    
    
    
    342,035,399Stockholders equity:Class A common stock, $0.01 par value.
Authorized 5,000,000 shares; issued and outstanding,
2,366,871 and 2,366,871 shares in 2006 and 2005, respectively
    
    
    23,669
    
    
    
    23,669Class B common stock, $0.01 par value.
Authorized 250,000 shares; no shares issued or outstanding
    
    
    0
    
    
    
    0Preferred stock of $.01 par value. Authorized
250,000 shares; no shares issued or outstanding
    
    
    0
    
    
    
    0Additional paid in capital
    
    
    5,461,663
    
    
    
    5,445,822Accumulated other comprehensive
income (loss), net of tax
    
    
    (756,416
    )
    
    
    (512,299
    )Retained earnings
    
    
    24,682,328
    
    
    
    23,642,87929,411,244
    
    
    
    28,600,071Less: 140,431 and 143,301 treasury shares, at cost, respectively
    
    
    767,816
    
    
    
    805,711Total stockholders equity
    
    
    28,643,428
    
    
    
    27,794,360Total liabilities and stockholders equity
    
    $
    357,261,242
    
    
    $
    369,829,759
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United Bancorporation of Alabama, Inc.
And Subsidiary
 
 Consolidated Statements of Earnings
 and Comprehensive Income
 (Unaudited)
 Three Months EndedMarch2006
    
    
    2005Interest income:Interest and fees on loans
    
    $
    4,711,930
    
    
    $
    3,293,351Interest on investment securities available for sale:Taxable
    
    
    521,067
    
    
    
    382,672Nontaxable
    
    
    295,339
    
    
    
    246,810Total investment income
    
    
    816,406
    
    
    
    629,482Other interest income
    
    
    227,584
    
    
    
    158,655Total interest income
    
    
    5,755,920
    
    
    
    4,081,488Interest expense:Interest on deposits
    
    
    1,386,131
    
    
    
    913,426Interest on other borrowed funds
    
    
    512,737
    
    
    
    140,912Total interest expense
    
    
    1,898,868
    
    
    
    1,054,338Net interest income
    
    
    3,857,052
    
    
    
    3,027,150Provision for loan losses
    
    
    240,000
    
    
    
    195,000Net interest income after
provision for loan losses
    
    
    3,617,052
    
    
    
    2,832,150Noninterest income:Service charge on deposits
    
    
    632,217
    
    
    
    507,968Commission on credit life
    
    
    10,835
    
    
    
    6,151Investment securities gains (losses), net
    
    
    (8,765
    )
    
    
    0Other
    
    
    406,477
    
    
    
    187,198Total noninterest income
    
    
    1,040,764
    
    
    
    701,317Noninterest expense:Salaries and benefits
    
    
    1,795,761
    
    
    
    1,530,575Net occupancy expense
    
    
    516,198
    
    
    
    493,376Other
    
    
    926,986
    
    
    
    664,174Total noninterest expense
    
    
    3,238,945
    
    
    
    2,688,125Earnings before income tax expense
    
    
    1,418,871
    
    
    
    845,342Income tax expense
    
    
    377,338
    
    
    
    193,078Net earnings
    
    $
    1,041,533
    
    
    $
    652,264Basic earnings per share
    
    $
    0.47
    
    
    $
    0.29Diluted earnings per share
    
    $
    0.47
    
    
    $
    0.29Basic weighted average shares outstanding
    
    
    2,225,897
    
    
    
    2,217,330Diluted weighted average shares outstanding
    
    
    2,232,933
    
    
    
    2,219,679Cash dividend per share
    
    $
    
    
    
    $
    Statement of Comprehensive IncomeNet Earnings
    
    $
    1,041,533
    
    
    $
    652,264Other Comprehensive Income, net of tax:Unrealized holding gain (loss) arising during the period
    
    
    (244,117
    )
    
    
    (903,642
    )Less: Reclassification adjustment for losses
included in net earnings
    
    
    (5,259
    )
    
    
    Comprehensive income (loss)
    
    $
    802,675
    
    
    $
    (251,378
    )
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UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
 
    2006
    
    
    2005Cash flows from operating activitiesNet earnings
    
    $
    1,041,533
    
    
    $
    652,264Adjustments to reconcile net earnings to net
cash provided by operating activitiesProvision for loan losses
    
    
    240,000
    
    
    
    195,000Depreciation of premises and equipment
    
    
    243,981
    
    
    
    231,722Net amortization of premium on investment securities
    
    
    24,954
    
    
    
    48,851Losses on sales of investment securities available for sale, net
    
    
    8,765
    
    
    
    Loss (gain) on sale of other real estate
    
    
    (12,501
    )
    
    
    (2,776
    )Gain on disposal of equipment
    
    
    (3,987
    )
    
    
    Deferred income taxes (benefit)
    
    
    162,743
    
    
    
    Decrease in interest receivable
    
    
    232,045
    
    
    
    105,414Increase in other assets
    
    
    (14,656
    )
    
    
    Increase in accrued expenses and other liabilities
    
    
    (250,375
    )
    
    
    204,042Net cash provided by operating activities
    
    
    1,672,502
    
    
    
    1,434,517Cash flows from investing activitiesProceeds from maturities, calls, and principal
repayments of investment securities available for sale
    
    
    3,673,071
    
    
    
    2,641,445Proceeds from sales of investment securities available for sale
    
    
    1,743,150Purchases of investment securities available for sale
    
    
    (9,398,615
    )
    
    
    (20,738,121
    )Net increase in loans
    
    
    (8,358,147
    )
    
    
    (4,008,891
    )Purchases of premises and equipment, net
    
    
    (1,313,822
    )
    
    
    (186,154
    )Proceeds from sale of premises and equipmet
    
    
    24,832
    
    
    
    Proceeds from sale of other real estate
    
    
    177,501
    
    
    
    11,776Net cash used in investing activities
    
    $
    (13,452,030
    )
    
    $
    (22,279,945
    )Cash fows from financing activitiesNet decrease in deposits
    
    $
    (15,312,378
    )
    
    $
    (2,962,479
    )Net increase in securities sold under
agreements to repurchase
    
    
    5,547,981
    
    
    
    6,028,083Cash dividends
    
    
    (377,904
    )
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    (8,260
    )Proceeds from sale of treasury stock
    
    
    51,652
    
    
    
    Repayments of advances from FHLB Atlanta
    
    
    (2,057,450
    )
    
    
    Increase (decrease) in other borrowed funds
    
    
    (939,643
    )
    
    
    214,066Net cash provided by (used in) financing activites
    
    
    (13,087,742
    )
    
    
    3,271,410Net decrease in cash and cash equivalents
    
    
    (24,867,271
    )
    
    
    (17,574,018
    )Cash and cash equivalents, beginning of year
    
    
    50,866,843
    
    
    
    43,941,000Cash and cash equivalents, end of year
    
    $
    25,999,572
    
    
    $
    26,366,982Supplemental disclosuresCash paid during the year for:Interest
    
    $
    1,919,322
    
    
    $
    1,025,007Income taxes
    
    
    585,000
    
    
    
    138,000Noncash
transactionsTransfer of loans to other real estate
through foreclosure
    
    
    
    
    
    
    301,001
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Three Months EndedMarch 312006
    
    
    2005Diluted earnings per share
    
    $
    0.47
    
    
    $
    0.29Weighted average common
shares outstanding
    
    
    2,225,897
    
    
    
    2,217,330Effect of the assumed exercise of
stock options based on the
treasury stock method using
average market price
    
    
    7,036
    
    
    
    2,349Total weighted average common
shares and potential common
stock outstanding
    
    
    2,232,933
    
    
    
    2,219,679
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March 312006
    
    
    2005Balance at beginning of year
    
    
    3,029
    
    
    
    2,562Provision charged to expense
    
    
    240
    
    
    
    195Less Loans charged off
    
    
    77
    
    
    
    120Recoveries
    
    
    18
    
    
    
    17Balance at end of period
    
    
    3,210
    
    
    
    2,654
   Disclosures about Segments of an
Enterprise and Related Information,
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2005Net earnings, as reported
    
    $
    652,264Deduct:Total stock-based employee compensation expense
determined under fair value based method for all
option awards
    
    
    (4,119
    )Pro forma net earnings
    
    $
    648,145Basic Earnings Per ShareAs reported
    
    $
    0.29Pro forma
    
    
    0.29Diluted Earnings Per ShareAs reported
    
    $
    0.29Pro forma
    
    
    0.29
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For the three monthsendedMarch 312006
    
    2005Expected life (in years)
    
    
    5.0
    
    
    
    N/AExpected volatility
    
    
    20.00
    %
    
    
    N/ARisk-free interest rate
    
    
    5.02
    %
    
    
    N/AExpected dividend yield
    
    
    1.90
    %
    
    
    N/AWeighted-average fair value of options granted
during the year
    
    $
    3.56
    
    
    
    N/A
   Weighted-
    
    
    Weighted-Average
    
    
    AverageExercise
    
    
    RemainingNumber
    
    
    Price
    
    
    Contract LifeOptions outstanding, beginning of year
    
    
    70,200
    
    
    $
    14.50Granted
    
    
    2,000
    
    
    
    16.00Exercised
    
    
    0
    
    
    
    0Terminated
    
    
    (10,000
    )
    
    
    15.75Options outstanding, end of quarter
    
    
    62,200
    
    
    
    14.34
    
    
    5.2 yearsExercisable, end of quarter
    
    
    55,368
    
    
    
    14.16
    
    
    5.0 years
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Weighted-AverageGrant-DateNumber
    
    
    Fair ValueOptions outstanding, beginning of year
    
    
    6,832
    
    
    $
    3.00Granted
    
    
    2,000
    
    
    
    3.56Exercised
    
    
    0
    
    
    
    0Terminated
    
    
    (2,000
    )
    
    
    3.00Options outstanding, end of quarter
    
    
    6,832
    
    
    
    3.16
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Critical Accounting Estimates
   Results of Operations
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Three Months Ended March 31, 2006 and 2005, Compared
 Summary
  Net Interest Income
    Provision for Loan Losses
 Allowance for Loan Losses
 Noninterest Income
  12




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Noninterest Expense
  Income Taxes
  Financial Condition and Liquidity
 Deposits
 Cash and Cash Equivalents
 Deposits
 Loans
  Allowance for Loan Losses
  13




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Non-performing Assets
  March 31,
    
    
    December 31,2006
    
    
    2005(Dollars in Thousands)DescriptionA
    
    
    Loans accounted for on
a nonaccrual basis
    
    $
    2,220
    
    
    $
    1,406B
    
    
    Loans which are contractually
past due ninety days or more
as to interest or principal
payments (excluding balances
included in (A) above)
    
    $
    5
    
    
    $
    4C
    
    
    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
    
    $
    314
    
    
    $
    318D
    
    
    Other non-performing assets
    
    $
    966
    
    
    $
    1,131
 Investment Securities
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Premises and Equipment
  Intangible Assets
   Deposits
  Liquidity
  17




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Capital Adequacy
   
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
    18




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Change in Interest Rates
    
    
    
    
    
    Change in Market
    
    Change in Market(Basis Points)
    
    Market Value Equity
    
    Value Equity
    
    Value Equity %300
    
    
    70,721
    
    
    
    14,888
    
    
    
    27200
    
    
    66,780
    
    
    
    10,947
    
    
    
    20100
    
    
    61,843
    
    
    
    6,010
    
    
    
    110
    
    
    55,833
    
    
    
    
    
    
    
    -100
    
    
    48,864
    
    
    
    (6,969
    )
    
    
    (12
    )-200
    
    
    40,018
    
    
    
    (15,815
    )
    
    
    (28
    )-300
    
    
    29,751
    
    
    
    (26,082
    )
    
    
    (47
    )
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Derivative Financial Instruments
   20




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Item 4. Controls and Procedures
   Forward Looking Statements
  21




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(a)
    
    The Annual Meeting of Stockholders of United Bancorporation of Alabama, Inc.
was held on May 3, 2006.(b)
    
    The following nominees were elected as Directors of the Corporation, to serve
until the 2009 Annual Meeting of Stockholders, by the votes indicated:
 Nominee
    
    For
    
    AgainstL. Walter Crim
    
    
    1,362,736
    
    
    
    338William J. Justice
    
    
    1,355,075
    
    
    
    7,999J. Wayne Trawick
    
    
    1,362,736
    
    
    
    338
  To Serve Until the AnnualDirector
    
    Meeting of Stockholders in the yearMichael R. Andreoli
    
    
    2007David Swift
    
    
    2007Robert R. Jones, III
    
    
    2008Dale M. Ash
    
    
    2008
 
  (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
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UNITED BANCORPORATION OF ALABAMA, INC.Date: May 12, 2006/s/ Robert R. Jones, IIIRobert R. Jones, IIIPresident and CEOInterim Principal Accounting Officer
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EXHIBITNUMBER
    
    DESCRIPTION31.1
    
    
    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 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 2002
 24