impaired loans, other real estate, repossessions and intangible assets can have a significant impact on the value of the Corporation, as well as have an impact on the recorded values and subsequently reported net income.
Changes in interest rates is the primary determining factor in the fair value of investment securities, and the value at which these assets are reported in the Corporation's financial statements. Local economic conditions are often the key factor in the valuation of impaired loans, other real estate and repossessed assets. Changes in these factors can cause assets to be written down and have an impact on the financial results. The overall financial condition and results of operations of the banking unit is the primary determinant as to the value of recorded intangible assets.
Results of Operations
The following financial review is presented to provide an analysis of the results of operations of the Corporation and the Bank for the nine and three months ended September 30, 2009 and 2008, compared. This review should be used in conjunction with the condensed consolidated financial statements included in the Form 10-Q.
Nine Months Ended September 30, 2009 and 2008, Compared Summary
The Corporation recorded a net loss for the nine months ended September 30, 2009 of $1,474,212, a decrease of $2,109,179 from the profit of $634,967 recorded in the same period in 2008. Several factors contributed to the loss. Economic conditions have caused an increase in non performing loans; that is, loans that are having problems paying as agreed. The provision for possible loan losses on these credits was increased for the nine months ended September 30, 2009 to $4,500,000 which represents a significant increase as compared to the provision recorded in the nine months ended September 30, 2008 of $1,490,000. Also, as a result of the economic climate, the FDIC made an additional assessment (in addition to the usual, quarterly amounts charged based on deposits) of all banks to replenish the Deposit Insurance Fund. The amount of this assessment for the Bank was $240,000. In light of the current economic and financial environment, additional, similar assessments by the FDIC are possible and in fact anticipated. These items are discussed in detail below.
Total assets at September 30, 2009 were $466,683,217 vs. $550,045,007 at year end, 2008 representing a decrease of approximately $83 million. The reduction was anticipated as the two, temporary transactions that have been discussed in the 2008 Form 10-K and 2009 Form 10-Q filings came to their planned conclusions. The $36 million of deposits held for the local municipal government were dispersed for their intended use and the $62 million of deposits held for the local customer in the customer accommodation transaction has likewise been dispersed to fund the construction project. This decrease of $98 million has been offset by increases in deposits from local, core customers particularly concentrated in time deposits and savings deposits.

Net Interest Income
Total interest income for the first nine months of 2009 was $15,621,224. This represents a decrease of $ 3,458,226 (18.1%) from the same period in 2008. This decrease occurred during a period of significant rate reductions by the Federal Reserve, which produced declines in market rates. Specifically, the target Fed Funds rate was reduced 400 basis points to 0.25% during the period from January, 2008 through December, 2008 and negatively impacted prevailing market rates on various loans, including, but not limited to, the prime rate. This reduced the yield earned on loans whose interest rate adjusts with the level of the prime rate. As a result, the rate earned on loans for the 2009 period was 5.64% compared to 6.63% in the 2008 period. Also contributing to the decline in yield was the approximately $12,123,918 increase in nonaccrual loans at September 30, 2009 as compared to September 30, 2008.
Total interest expense for the first nine months of 2009 decreased by $2,944,746 (34.5%), to $5,593,882 for the 2009 nine month period, from $8,538,628 in the 2008 period. This was a function of the lower level of interest rates as time deposits matured and were reissued at lower interest rates.
The net interest margin for the nine months ended September 30, 2009 decreased to 3.20% from 3.38% in the same period in 2008. A substantial part of the decrease was caused by the customer accommodation transactions discussed above which were invested at a spread of approximately 25 basis points (0.25%). Without these temporary transactions, the net interest margin would have been approximately 3.42%.
Provision for Loan Losses
The provision for loan losses totaled $4,500,000 for the first nine months of 2009 as compared to $1,490,000 for the same period in 2008, an increase of $3,010,000. The increase to the provision reflects the growth of the loan portfolio, historical and current loan losses, the current assessment of nonaccrual loans, and the general economy. Based on an analysis of the increased level of both nonaccrual assets and charge offs experienced during the period, management determined that an additional provision to increase the level of the Allowance for Loan Losses was advisable. For a further, detailed discussion of these changes see Allowance for Loan Losses below. Noninterest Income
Total noninterest income increased $170,191 or 5.0% to $3,548,337 for the nine months ended September, 2009 from $3,378,146 for the same period in 2008. A one time gain on the disposal of the mortgage backed securities portfolio and increased revenue from service charges on deposit accounts offset decreased revenue from mortgage origination fees and financial services sales (securities and insurance).

The disposal of the mortgage backed securities portfolio was undertaken to assure the availability of liquid funds earlier in the year during the uncertain economic environment. In addition, the bank continues to be in a position to allow time deposits to depart should rates being paid by certain competitors draw funds away. The mortgage backed securities portfolio was chosen for liquidation as this type of security requires constant monitoring and a large commitment of management time, which could be better utilized. Noninterest Expense
Total noninterest expense for the first nine months of 2009 was $11,963,491, which was a decrease of $70,783, or 0.6%, from the $12,034,274 recorded in the same period of 2008. Between the two periods, the cost of FDIC deposit insurance increased by $493,792 to $635,000 (including the special assessment) as of September 30, 2009.
Salaries and benefits increased by $56,678 (0.9%) to $6,468,604. The majority of the increase is due to the opening of a new, previously planned and committed retail branch facility in Loxley, Alabama in late 2008.
Occupancy expenses were lower by $49,215 even considering the new Loxley branch and the placing into service of a new facility in Milton, Florida. Other expenses were lower by $78,246, despite the large increase in expense related to FDIC deposit insurance.
As discussed in previous reports, the Corporation has put in place expense control measures to identify and reduce expenditures that can be controlled. This initiative has shown results in several areas. Total headcount has been reduced to 184 at September 30, 2009 from 193 at September 30, 2008 as the Corporation has looked at the work processes and adjusted staffing as turnover has occurred. Capital expenditures have been controlled so that only expenditures that are mission critical have been undertaken. The result has been flat depreciation expense even after placing two new buildings in service. Other expenses show a reduction (after eliminating the increased FDIC expenses) which is the result of reduced spending on discretionary items. Expenses necessary to retain business and service customers continue, but the continuing review process has produced savings in advertising, legal and check clearing expenses. Income Taxes
Losses before taxes for the first nine months of 2009 were $2,887,812 as compared to earnings of $394,694 in the same period of 2008, a decrease of $3,282,506. The income tax benefit for the period ended September 30, 2009 was $1,413,600 compared to a benefit of $240,273 for the same period in 2008.

Three Months Ended September 30, 2009 and 2008, Compared Summary
Net loss for the three months ended September 30, 2009 was $679,388, compared to net income of $90,426 as of September 30, 2008, a decrease of $769,814. The major contributor to the loss was the provision for loan losses of $1,900,000 for the quarter, which was $1,150,000 greater than the $750,000 provided in the 2008 period.
Net Interest Income
Total interest income decreased $1,242,284 (19.4%) in the third quarter of 2009 as compared to 2008 as interest rates had declined significantly and nonaccrual loans increased. The average of loans outstanding decreased to $289 million from $294 million and the average rate earned during the third quarter of 2009 was 5.60% as compared to 6.59% in 2008, reflecting the substantial reduction in interest rates experienced since the third quarter of 2008 and the increase in the amount of loans on nonaccrual status.
Total interest expense decreased by $887,241, or 33.9%, in the third quarter of 2009 compared to the same period in 2008. Average interest bearing liabilities for the third quarter decreased $74,071,000 to $308,598,000 as compared to 2008. The decrease was the result of a change in the mix of liabilities as funds held as repurchase agreements in 2008 were converted to non-interest bearing demand deposits in 2009. This was done by the customers for two reasons. The rate paid on repurchase agreements to the Corporation's customers declined to zero, as a result of the Federal Reserve actions in reducing interest rates. At the same time, the FDIC put into place the Transaction Account Guarantee Program, which United Bank elected to join and the repurchase agreement customers chose unlimited FDIC insurance offered by demand accounts. As a result of the decline in rates and the change in funding mix, the average rate paid on interest bearing liabilities decreased to 2.22% in 2009 as compared to 2.71% in 2008. The net interest margin decreased to 3.22% for the third quarter of 2009, as compared to 3.56% for the same period in 2008. The reduction in the margin is a reflection of the reduction in the yield on loans that immediately reprice with movements in interest rates, with a slower reaction in the cost of funds as time deposits are repriced only as they reach maturity and are renewed. One effect of the customer accommodation transaction is a reduction of the percentage net interest margin. Without the temporary customer accommodation transaction, the percentage interest margin would have been approximately 3.35%. Provision for Loan Losses
The provision for loan losses totaled $1,900,000 for the third quarter of 2009 as compared to $750,000 for the same period in 2008. Based on an analysis of the increased level of both nonaccrual assets and charge offs experienced during the period, management determined that an

additional provision to increase the level of the Allowance for Loan Losses was needed. For further discussion of the provision for loan losses, see the Allowance for Loan Lossesdiscussion below. Noninterest Income
Total noninterest income increased $53,027 or 4.7% for the third quarter of 2009 and is largely the effect of a $34,342 increase attributable to service charges and fees on deposit accounts. A small gain related to the investment portfolio and slight increases in mortgage and investment activity also attributed to the overall increase.
Noninterest Expense
Total noninterest expense decreased $259,982, or 6.1%, during the third quarter of 2009 compared to the same quarter of 2008. Salaries and benefits decreased $77,999, or 3.6%, in the third quarter comparison primarily as the result of the reduction in headcount. Occupancy expense decreased $100,889 between the two periods. Other noninterest expense decreased $81,094. Income Taxes
Losses before taxes for the third quarter of 2009 were $1,267,800 as compared to losses of $75,766 in the third quarter of 2008, a decrease of $1,192,034. The income tax benefit for the third quarter of 2009 was $588,412 as compared to a benefit of $166,192 for the same period in 2008. Financial Condition and Liquidity
Total assets on September 30, 2009 were $466,683,217, a decrease of $83,361,790 or 15.2% from December 31, 2008. The reduction was anticipated as the two, temporary transactions that have been discussed in the 2008 Form 10-K and the 2009 Form 10-Q filings came to their planned conclusions. The $36 million of deposits held for the local municipal government were dispersed for their intended use and the $62 million of deposits held for the local customer in the customer accommodation transaction have likewise been dispersed to fund the construction project. This decrease of $98 million has been offset by increases in deposits from local, core customers particularly concentrated in time deposits and savings deposits. The liquidity position continues to be held at a higher than historic level because of the continued economic uncertainty. The ratio of loans (net of allowance) to deposits plus repurchase agreements on September 30, 2009 was 69.5% as compared to 56.2% at December 31, 2008. The increase is the result of the decrease in deposits as the customer accommodation transactions were completed and the associated deposits were withdrawn as planned.
Cash and Cash Equivalents
Cash and cash equivalents as of September 30, 2009 decreased by $96,402,000, or by 67.2%, from December 31, 2008. The decrease was a result of the conclusion of the customer accommodation transaction.

Investment Securities - Available for Sale Investment securities available for sale decreased $12,378,000, or 14.5%, during the first nine months of 2009 as new investments and a portion of maturing and called investment securities were reinvested in the Held to Maturity category. Investment Securities - Held to Maturity Investment securities held to maturity increased $15,388,000, or 234.9%, during the first nine months of 2009. The Corporation, in 2008, determined that a portion of the investment portfolio represented a permanent investment and purchased securities in that amount that were designated as held to maturity. Securities designated as held to maturity are not liquid or subject to sale. The Corporation will review the limits on this category regularly. Loans
Loans increased by $11,214,000 or 4.0% at September 30, 2009, from December 31, 2008. The Corporation continues to seek loans in the markets it serves that are high quality and well secured.
Allowance for Loan Losses
The allowance for losses on loans is maintained at levels that reflect the historic loss rate on the majority of the portfolio and the difference between the loan balance and the fair value for loans that are considered to be impaired. Loans are considered impaired when it is 1) probable that the Corporation will be unable to collect all amounts due according to the contractual terms of the loan agreements or 2) the loan terms have been renegotiated to provide a reduction or deferral of interest or principal because of deterioration in the financial position of the borrower. The historic loss rate is adjusted for the effects of: general economy, local economy, trends in nonaccrual loans and past due loans, growth in loans and peer levels of reserves. Loans that are deemed to be impaired are valued either at the present value of the cash flow anticipated or the value of the collateral, reduced by the estimated costs to sell. As of September 30, 2009, the reserve level of $5,425,934 is considered to be appropriate considering the reserves allocated on specifically identified credits and a general allowance based on historic losses adjusted as noted above. This reserve level is equivalent to 1.86% of gross loans and represents an increase from the 1.28% carried at December 31, 2008. Net charged-off loans for the first nine months of 2009 were $2,666,000, as compared to $2,321,000 for the same period in 2008. Substantially all of the loans charged off during the first nine months are among those previously identified as problem loans by management in accordance with regulatory guidance pertaining to the allowance for loan losses.
The Corporation has in place procedures to identify and deal with problem loans and potential problem loans. It is the goal of the Corporation to identify problems, to develop and execute strategies to deal with those identified and establish reserves to deal with identified and historic shortfalls. Although reserves may be considered appropriate at a point in time, future events may change the ability of a borrower to pay or the underlying value of collateral. The

Corporation will continue to monitor closely the condition of the portfolio and, in the current, uncertain economy, continue with its program to strengthen the level of reserves.
The following is a summary of information pertaining to the identified classifications of impaired and past due loans:

                                                                      As of the nine months ended
                                                                             September 30,
                                                                       2009                  2008
Impaired loans with a valuation allowance                         $    16,830,865        $  9,024,056
Impaired loans without a valuation allowance                            3,852,298           1,665,591

Total impaired loans                                              $    20,683,163        $ 10,689,647

Valuation allowance related to impaired loans                     $     3,218,044        $    722,275
Total nonaccrual loans                                                 18,612,640           6,488,722
Total loans past due ninety days or more and still accruing                36,102              28,435
Troubled debt restructured loans                                        2,164,521           1,634,033

Non-performing Assets: The following table sets forth the Corporation's non-performing assets at September 30, 2009 and December 31, 2008. Under the Corporation's nonaccrual policy, a loan is placed on nonaccrual status when collectibility of principal and interest is in doubt.

                                                                     September 30,          December 31,
                                                                         2009                   2008
       Description                                                         (Dollars in Thousands)
A      Loans accounted for on a nonaccrual basis                    $        18,613        $       14,700

B      Loans which are contractually past due ninety days or
       more as to interest or principal payments (excluding
       balances included in (A) above)                                           36                    28

C      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.                                              2,165                 1,106

D      Other non-performing assets                                            7,696                 5,524


       Total                                                        $        28,510        $       21,358

Premises and Equipment
Premises and equipment decreased $948,000 during the first nine months of 2009. The reduction is the result of assets being depreciated and not replaced as capital expenditures have been controlled in line with the expense control initiative discussed above. The Corporation has in place a process where the necessity of any capital expenditure is scrutinized closely. As a general rule, only expenditures that correct a potential negative impact on operations or customer service or create cost savings are being approved. Intangible Assets
As of September 30, 2009 and December 31, 2008, the Corporation had recorded $934,763 in intangible assets.
Florida Charter - On July 2, 2004, the Corporation acquired a State of Florida banking charter from a financial institution for $917,263. Subsequent to the purchase, the charter was terminated

but the Corporation retained the legal right to branch into Florida through its existing Alabama bank charter. The Corporation accounts for the charter cost as an indefinite lived intangible asset because the legal right acquired does not have an expiration date under Florida banking laws and there is no renewal process to keep the branching rights. The Corporation tests the intangible asset each September 30 for impairment. At September 30, 2009, the Corporation operated three branch offices in Florida.
Internet Domain Address - On March 21, 2007, the Bank purchased the rights to the internet domain name www.unitedbank.com for $17,500. This internet domain is defined as an intangible asset with an indefinite life and, as such, is not required to be amortized over any period of time.
For the nine months ended September 30, 2009 no impairment was recorded related to the intangible assets.
Deposits
Total deposits decreased $80,456,000 or 16.4%, at September 30, 2009 from December 31, 2008. The reduction was anticipated as the two, temporary transactions that have been discussed in the 2008 Form 10-K and 2009 Form 10-Q filings came to their planned conclusions. The $36 million of deposits held for the local municipal government were dispersed for their intended use and the $62 million of deposits held for the local customer in the customer accommodation transaction has likewise been dispersed to fund the construction project. This decrease of $98 million has been offset by increases in deposits from local, core customers particularly concentrated in time deposits and savings deposits totaling approximately $17.5 million.
Repurchase Agreements
There was no amount held in securities sold under agreement to repurchase as of September 30, 2009, as compared to the balance of $1,861,237 as of December 31, 2008. This decrease is the result of customers choosing to move their funds into deposit accounts instead of repurchase agreements due to deposit products that offered equal or higher interest rates, higher insurance coverage by the FDIC, or both.
Liquidity
One of the Corporation's goals is to provide an appropriate level of liquidity which is to say providing adequate funds to meet changes in loan demand or any potential increase in the normal level of deposit withdrawals. During the current economic unrest this goal has become more important and the Corporation has maintained liquidity at a higher level than usual. Liquidity 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 Corporation to fund earning assets and maintain the availability of funds. Management believes that the Corporation'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 Corporation's liquidity needs for normal operations. The stock of short term, liquid assets in the securities and short term investment

. . .