UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
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Commission file number 2-78572
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UNITED BANCORPORATION OF ALABAMA, INC.
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(Exact name of registrant as specified in its charter)
Delaware 63-0833573
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
P.O. Drawer 8, Atmore, AL 36504
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(Address of principal executive offices)
251-368-2525
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(Registrant's telephone number, including area code:)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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 x No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of May 1, 2002.
Class A Common Stock....... 1,098,352 Shares
Class B Common Stock....... -0- Shares
UNITED BANCORPORATION OF ALABAMA, INC.
FORM 10-Q
For the Quarter Ended March 31, 2002
INDEX
PART I - FINANCIAL INFORMATION PAGE
------------------------------ ----
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations and Comprehensive Income 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Market Risk Disclosures 12
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. (a) Exhibits 15
(b) Reports on Form 8-K 15
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
March 31, December 31,
2002 2001
Unaudited Audited
Assets
Cash and due from banks $ 8,670,952 16,704,812
Federal funds sold 7,102,000 2,644,000
------------ ------------
Cash and cash equivalents 15,772,952 19,348,812
Interest bearing deposits with other
financial institutions -- --
Securities available for sale (amortized cost of $45,587,781 45,897,338 41,615,592
and 41,167,492 respectively)
Securities held to maturity (market values of $0 0 0
and $0 respectively)
Loans 151,215,651 149,045,609
Less: Unearned income 0 0
Allowance for loan losses 1,999,622 1,993,245
------------ ------------
Net loans 149,216,029 147,052,364
Premises and equipment, net 5,853,169 5,901,032
Interest receivable and other assets 5,368,986 6,037,732
------------ ------------
Total assets 222,108,474 219,955,532
============ ============
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing $ 35,688,819 33,406,633
Interest bearing 145,753,160 147,102,536
------------ ------------
Total deposits 181,441,979 180,509,169
Securities sold under agreements to repurchase 11,870,344 9,069,292
Other borrowed funds 5,817,689 6,235,327
Accrued expenses and other liabilities 799,010 2,295,251
------------ ------------
Total liabilities 199,929,022 198,109,039
Stockholders' equity:
Class A common stock. Authorized 5,000,000
shares of $.01 par value; 1,160,281 and 1,159,481
shares issued respectively 11,603 11,595
Class B common stock of $.01 par value
Authorized 250,000 shares;
-0- shares issued and outstanding 0 0
Preferred stock of $.01 par value. Authorized
250,000 shares; -0- shares issued
and outstanding 0 0
Surplus 5,050,620 5,056,304
Accumulated other comprehensive
income 185,734 268,863
Retained earnings 17,380,875 16,961,631
------------ ------------
22,628,832 22,298,393
Less 61,929 and 62,181 treasury shares, at cost respectively 449,380 451,900
------------ ------------
Total stockholders' equity 22,179,452 21,846,493
------------ ------------
Total liabilities and stockholders' equity 222,108,474 219,955,532
============ ============
3
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
March 31
2002 2001
Interest income:
Interest and fees on loans 2,929,058 3,331,818
Interest on investment securities available for sale:
Taxable 347,004 634,440
Nontaxable 222,255 256,987
Interest on investment securities held to maturity:
Taxable 0 0
Nontaxable 0 0
---------- ----------
Total investment income 569,259 891,427
Other interest income 54,725 145,654
---------- ----------
Total interest income 3,553,042 4,368,899
Interest expense:
Interest on deposits 1,139,701 1,960,742
Interest on other borrowed funds 136,665 278,087
---------- ----------
Total interest expense 1,276,366 2,238,829
Net interest income 2,276,676 2,130,070
Provision for loan losses 186,000 120,000
---------- ----------
Net interest income after
provision for loan losses 2,090,676 2,010,070
Noninterest income:
Service charge on deposits 375,778 366,763
Commission on credit life 11,868 11,867
Investment securities gains and (losses), net 0 65,671
Other 138,598 130,081
---------- ----------
Total noninterest income 526,244 574,382
Noninterest expense:
Salaries and benefits 1,093,934 1,026,690
Net occupancy expense 409,915 308,902
Other 589,130 569,058
---------- ----------
Total non-interest expense 2,092,979 1,904,650
Earnings before income tax expense 523,941 679,802
Income tax expense 127,617 179,997
---------- ----------
Net earnings 396,324 499,805
========== ==========
Basic earnings per share $ 0.36 $ 0.46
Diluted earnings per share $ 0.36 $ 0.45
Basic weighted average shares outstanding 1,098,352 1,095,706
========== ==========
Diluted weighted average shares outstanding 1,110,902 1,105,551
========== ==========
Statement of Comprehensive Income
Net Income 396,324 499,805
Other Comprehensive Income, net of tax:
Unrealized holding (losses) arising during the period (83,127) 572,500
Cumulative effect of a change in accounting for
investment securities (Note 2) -- 21,746
Less: Reclassification adjustment for gains (losses)
included in net income -- 65,671
---------- ----------
Comprehensive income 313,197 1,137,976
========== ==========
4
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED)
2002 2001
Operating Activities
Net Income $ 396,324 499,805
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Provision for Loan Losses 186,000 120,000
Depreciation on Premises and Equipment 215,965 126,705
Amortization of Investment Securities held to maturity -- --
Amortization of Investment Securities Available for Sale (810) (27,214)
(Gain) Loss on Sale of Investment Securities Available for Sale -- (65,671)
Writedown of Other Real Estate 17,135 --
(Increase) Decrease in Interest Receivable
and Other Assets 707,028 667,271
Decrease in Accrued Expenses
and Other Liabilities (2,545,802) (920,382)
------------ ------------
Net Cash Provided (Used) by Operating Activities (1,024,160) 400,514
------------ ------------
Investing Activities
Proceeds From Sales of Investment Securities Available for Sale -- 5,080,187
Proceeds From Maturities of Investment Securities held to maturity -- --
Proceeds From Maturities of Investment Securities Available for Sale 2,046,014 4,878,001
Purchases of Investment Securities held to maturity -- --
Purchases of Investment Securities Available for Sale (6,465,493) (3,300,209)
Net Increase in Loans (2,349,665) (1,529,084)
Purchases of Premises and Equipment (168,102) (476,057)
Purchases of Other Real Estate -- --
Proceeds From Sales of Other Real Estate -- --
------------ ------------
Net Cash Used by Investing Activities (6,937,246) 4,652,838
------------ ------------
Financing Activities
Net Increase in Deposits, 932,810 (21,617,488)
Net Increase in securities sold under
agreement to repurchase 2,801,052 1,879,467
Proceeds from Sale of Treasury Stock 6,963 12,453
Exercise of stock options 12,800 --
Proceeds from sale of common stock -- 25,521
Increase in Other Borrowed Funds 631,921 7,979,320
------------ ------------
Net Cash (Used) Provided by Financing Activities 4,385,546 (11,720,727)
------------ ------------
Decrease in Cash and Cash Equivalents (3,575,860) (6,667,374)
Cash and Cash Equivalents at Beginning of Period 19,348,812 20,360,173
------------ ------------
Cash and Cash Equivalents at End of Period 15,772,952 13,692,799
============ ============
Supplemental disclosures
Cash paid during the year for:
Interest 1,621,410 1,806,543
============ ============
Income Taxes -- --
============ ============
Transfer of Held to Maturity to Available for Sale -- 13,975,608
============ ============
5
UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(UNAUDITED)
Note 1 - General
This report includes interim consolidated financial statements of United
Bancorporation of Alabama, Inc. (the "Corporation" or "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, 2001.
NOTE 2 - New Accounting Pronouncements
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after September 30, 2001. Statement 141 also specifies criteria that
intangible assets acquired in a purchase method business combination must meet
to be recognized and reported separate from goodwill. Statement 142 require that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least annually in accordance
with the provisions of Statement 142. Statement 142 will also require that
intangible assets with estimable useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with FASB Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. The
Corporation adopted the provisions of Statement No. 141 in 2001 and Statement
142 effective January 1, 2002. The Corporation does not currently have any
goodwill capitalized on its balance sheet. Accordingly, the Company currently
does not expect the adoption of Statements 141 and 142 to have an impact on the
consolidated financial statements of the Corporation.
In July 2001, the FASB issued Statement No. 143, Accounting for Asset Retirement
Obligations. That standard requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. When a liability is initially recorded, the entity must capitalize the
cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. The Company is
required to adopt the provisions of Statement 143 for fiscal years beginning
after September 15, 2002. The Corporation is currently assessing whether
Statement 143 will have an impact on its consolidated financial statements.
In August 2001, the Financial Accounting Standards Board issued FASB Statement
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
(Statement 144), which supersedes both FASB Statement No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
(Statement 121) and the accounting and reporting provisions of APB Opinion No.
30, Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions (Opinion 30), for the disposal of a segment of a
business (as previously defined in that Opinion). Statement 144 retains the
fundamental provisions in Statement 121 for recognizing and measuring impairment
losses on
6
long-lived assets held for use and long-lived assets to be disposed of by sale,
while also resolving significant implementation issues associated with Statement
121. For example, Statement 144 provides guidance on how a long-lived asset that
is used, as part of a group, should be evaluated for impairment, establishes
criteria for when a long-lived asset is held for sale, and prescribes the
accounting for a long-lived asset that will be disposed of other than by sale.
Statement 144 retains the basic provisions of Opinion 30 on how to present
discontinued operations in the income statement but broadens that presentation
to include a component of an entity (rather than a segment of a business).
Unlike Statement 121, an impairment assessment under Statement 144 will never
result in a write-down of goodwill. Rather, goodwill is evaluated for impairment
under Statement No. 142, Goodwill and Other Intangible Assets.
The Company adopted the provisions of Statement 142 in the quarter ending March
31, 2002. The adoption of Statement 144 for long-lived assets held for use did
not have a material impact on the Company's financial statements because the
impairment assessment under Statement 144 is largely unchanged from Statement
121. The provisions of the Statement for assets held for sale or other disposal
did not have a material impact on the Company's financial statements.
NOTE 3 - Net Income per Share
Presented below is a summary of the components used to calculate diluted
earnings per share for the three months ended March 31, 2002 and 2001:
2002 2001
------------ ------------
Diluted earnings per share: .36 .45
Weighted average common shares
outstanding
1,098,352 1,095,706
Effect of the assumed exercise of stock
options based on the treasury stock
method using average market price 12,550 12,924
------------ ------------
Total weighted average common shares
and potential common stock outstanding
1,110,902 1,105,551
============ ============
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The following financial review is presented to provide a comparative analysis of
the results of operations of United Bancorporation of Alabama, Inc. (the
"Corporation") and its subsidiary for the three months ended March 31, 2001 and
2002. This review should be read in conjunction with the consolidated financial
statements included in this Form 10-Q.
Summary
Net income after taxes for the three months ended March 31, 2002 decreased
$103,481, or 20.70%, as compared to the same period in 2001.
Net Interest Income
Total interest income decreased by $815,857, or 18.67%, during the first quarter
of 2002 compared to the first quarter of 2001. Average interest-earning assets
were $201,305,792 for the first quarter of 2002 as compared to $209,946,137 for
the same period in 2001, a decrease of $8,640,345 or 4.12%, due to the loss of
public funds that average approximately $20,000,000, which were on deposit
during the first two months of 2001. The average rate earned in 2002 was 7.14%
as compared to 8.42% in 2001, reflecting a continuing impact of the decrease in
rates by the Federal Reserve Board during the latter part of 2001. The net
interest margin increased to 4.57% for the first quarter of 2002, as compared to
4.09% for the same period in 2001. This increase is attributed to the fact that
interest bearing liabilities repriced slower than the interest earning assets
during the falling rate environment of 2001. The fact that interest rates have
remained relatively low during 2002 allowed the slower repricing
interest-bearing liabilities to continue to reprice at lower rates. The Bank
expects this trend to reverse as if interest rates rise.
Total interest expense decreased by $962,463, or 42.99%, in 2002. The decrease
in interest expense is attributed to the decrease in the average rate paid
during the first quarter of 2002 as a result of the repricing discussed above.
The average rate paid during the first quarter of 2002 was 3.11% as compared to
5.20% for the same period in 2001. This rate decrease is due to the lowering of
CD rates over the past year which were the result of a decrease in federal funds
rates. Average interest bearing liabilities increased to $166,577,542 in 2002,
from $163,944,640 in 2001, an increase of $2,632,902, or 1.61%.
8
Noninterest Income
Total noninterest income decreased to $526,244 for the first quarter of 2002, as
compared to $574,382 for the same period of 2001, a decrease of $48,138, or
8.38%. This decrease was caused primarily by the sale of securities in 2001 of
$65,671, compared to no such sales in 2002.
Noninterest Expense
Total noninterest expense increased $188,329 or 9.89% during the first quarter
of 2002 partly due to increased salaries and benefits of $67,244. Most of the
salaries and benefits increase can be attributed to a new branch opening, which
also contributed to an increase in occupancy expense of $101,013. The Bank
increase in occupancy expense is also attributable to the Bank's conversion in
September of 2001 to house daily data processing expense of which is categorized
as occupancy expense as opposed to other noninterest expense, which rose
$20,072.
Income Taxes
Earnings before taxes for the first quarter of 2002 decreased $155,861, or
22.93%, compared to the same period of 2001. Income tax expense decreased to
$127,617 in 2002 from $179,997 in 2001, a decrease of $52,380, or 29.10%. The
effective tax rate decreased from 26.48% to 24.36%.
Financial Condition and Liquidity
Total assets on March 31, 2002 increased $2,152,942 or 0.98% as compared to
December 31, 2001. Average total assets for the first quarter of 2002 were
$219,628,247 as compared to $226,766,841 for the same period in 2001. The
decrease is largely attributable to public fund deposit that were lost in 2001
that averaged approximately $20,000,000 for the first two months of 2001, which
were not deposit in 2002.
Loans
Net loans increased by $2,163,665 or 1.47% at March 31, 2002, from December 31,
2001. Most of this growth in loans occurred in the Baldwin County region and in
agricultural lending in all markets. The net loan to deposit ratio on March 31,
2002 was 82.24%, as compared to 81.47% on December 31, 2001.
Allowance and Provision for Loan Losses
The allowance for loan losses represents 1.32% of gross loans at March 31, 2002,
as compared to 1.34% at year-end 2001. Loans on which the accrual of interest
had been discontinued amounted to $2,411,766 at March 31, 2002, as compared to
$2,184,316 at December 31, 2001. Part of this increase was due to one loan with
a balance of $117,617,
9
which had been classified nonaccrual during the first quarter of 2002.
Subsequent to quarter end, but which is now current and is performing per in
accordance with the loan agreement.
The provision for loan losses increased to $186,000 for the first three months
of 2002, as compared to $120,000 for the same period in 2001. Net charged-off
loans for the first quarter of 2002 were $179,623, as compared to $28,747 in for
the first quarter of 2001. Most of the net charge-off is attributable to one
loan to a borrower, which unexpectedly abandoned its business, resulting in a
net charge off $139,169 after liquidation of collateral.
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 classifications as follows: substandard (15%), doubtful (50%), and
loss (100%).
The nonclassified portion of the allowance is for inherent losses that probably
exist as of the evaluation date even though they may not have been identified by
the more objective processes for the classified portion of the allowance. This
is due to the risk of error, and inherent imprecision in the process,and the
timing of when the Corporation receives accurate financial information from
borrowers. 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, and general economic
environment in the Corporation's markets.
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 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.
10
Non-performing Assets: The following table sets forth the Corporation's
non-performing assets at March 31, 2002 and December 31, 2001. 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.
March December
Description 2002 2001
--------- ---------
(Dollars in Thousands)
(A) Loans accounted for on a $ 2,411 $ 2,184
nonaccrual basis
(B) Loans which are contractually
past due ninety days or more as
to interest or principal payments
(excluding balances included in
(A) above). 45 18
(C) Loans, the term 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. 0 0
(D) Other non-performing assets 182 556
Investment Securities
Investment securities available for sale increased by $4,281,746 or 10.29% in
the first quarter of 2002, from December 31, 2001.
Premises and Equipment
Premises and equipment decreased $47,863 during the first quarter of 2002 from
December 31,2001.
Deposits
Total deposits increased $932,810, or 0.52%, at March 31, 2002, from December
31, 2001. Non-interest bearing deposits increased $2,282,186 or 6.8% at quarter
end from the year-end total. Interest bearing deposits decreased $1,349,376, or
0.92%, at March 31, 2002, from December 31, 2001. The decrease in deposits was
the result of the Bank not renewing certain certificates of deposit that
matured. Average total deposits for the first quarter of 2002 were $180,796,674,
as compared to $184,177,956 for the same period in
11
2001, which can be traced primarily to the public funds that were on deposit for
the first two months of 2001, but not in 2002.
Other Borrowed Funds
Other borrowed funds decreased $417,638 or 6.70% due to the Bank's payment of a
FHLB advance, in 2002.
Capital Adequacy
The Corporation relies primarily on internally generated capital growth to
maintain capital adequacy. Total stockholders' equity on March 31, 2002, was
$22,179,452, an increase of $332,959, or 1.52%, from $21,846,493 at year-end
2001.
Primary capital to total assets at March 31, 2002, was 9.99%, as compared to
9.93% at year-end 2001. Total capital and allowances for loan losses to total
assets at March 31, 2002, were 10.89%, as compared to 10.84% at December 31,
2001. The Corporation had risk based capital of $23,993,000, or 14.63%, at March
31, 2002, as compared to $23,570,000, or 14.54% at year end 2001. The minimum
total capital requirement is 8.00%. Based on management's projections,
internally generated capital should be sufficient to satisfy capital
requirements in the foreseeable future for existing operations, but the growth
into new markets may require the Bank to access external funding sources.
Item 3. Market Risk Disclosures
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,
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
12
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 March 31, 2002. All market risk
sensitive instruments presented in this table are held to maturity or available
for sale. The Bank has no trading securities.
CHANGE IN CHANGE IN
CHANGE IN MARKET MARKET MARKET
INTEREST RATES VALUE VALUE VALUE
(BASIS POINTS) EQUITY EQUITY EQUITY (%)
-------------- ------ --------- ----------
300 45,271 3,784 9
200 44,420 2,933 7
100 43,156 1,669 4
0 41,487 0 0
(100) 39,585 (1,902) (5)
(200) 37,115 (4,372) (11)
(300) 34,073 (7,414) (18)
The preceding table indicates that at March 31, 2002, 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.
13
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.
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 risks, 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 Bank's
expectations with regard to any change in events, conditions or circumstances on
which any such statement is based.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of United Bancorporation of
Alabama, Inc. was held on May 1, 2002.
(b) The following nominees were elected as Directors of the Corporation,
to serve until the 2005 Annual Meeting of Stockholders, by the votes
indicated:
Nominee For Against
------------------- ----------- ---------------
Dale Ash 714,813 -0-
Robert R. Jones III 714,813 -0-
The Directors of the Corporation whose terms of office continued after
the 2001 Annual Meeting are as follows:
To Serve Until the Annual
Director Meeting of Stockholders in the year
-------------------- -----------------------------------
David Swift 2004
William C. Grissett 2004
L. Walter Crim 2003
H. Leon Esneul 2003
William J. Justice 2003
Item 6. Exhibits and Reports on Form 8-K.
(A) Exhibits. None
(B) During the quarter ended March 31, 2002, the Corporation did not file
a Form 8-K Current Report with the Securities and Exchange Commission.
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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.
Dated: May 14, 2002 /s/ Robert R. Jones III
------------ ------------------------------------
Robert R. Jones, III
President & CEO
16