SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended		Commission File No. 000-25917
December 31, 2010

UNITED BANCORPORATION OF ALABAMA, INC.

(Exact name of registrant as specified in its charter)

Delaware		63-0833573
(State or other jurisdiction of		(I.R.S.Employer Identification No.)
incorporation or organization)

P.O. Drawer 8, Atmore, Alabama 36504

(Address of principal executive offices)

Registrant's telephone number, including area code: (251) 446-6000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Class A Common Stock, Par Value $.01 Per Share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act. Yes o No x

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 reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.

Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o

Non-accelerated filer o	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

Aggregate market value of voting and nonvoting common equity held by non affiliates as of March 29, 2011 was $28,745,724 computed by reference to the price reported to the registrant at which the common equity was last sold on or prior to that date and using beneficial ownership of stock rules adopted pursuant to Section 13 of the Securities Exchange Act of 1934 to exclude voting stock owned by directors and executive officers, some of whom might not be held to be affiliates upon judicial determination.

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.

Common Stock	Par Value	Outstanding at March 29, 2011
Class A $.01			2,325,162	Shares*
Class B. $.01			0	Shares

*Excludes 63,965 shares held as treasury stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement relating to the 2011 Annual Meeting of Stockholders are incorporated by reference in Part III of this report.

PART I

ITEM 1. BUSINESS

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 below under “Risk Factors” and elsewhere herein, as well as the possibilities of (i) increases in competitive pressures in the banking industry, particularly with respect to community banks; (ii) costs or difficulties in generating deposits or loans to counter cost increases resulting from the recent increase in the number of Bank offices; (iii) general economic conditions, either nationally or regionally, that are less favorable than expected, resulting in deterioration in loan demand, credit quality and/or borrower liquidity, among other things; (iv) changes which may occur in the regulatory environment, including but not limited to changes with respect to recent legislation discussed under “Supervision, Regulation and Government Policy” below; and (v) large and/or rapid changes in interest rates. 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.

United Bancorporation of Alabama, Inc. and United Bank

United Bancorporation of Alabama, Inc. (the "Corporation") is a one-bank, bank holding company, with headquarters in Atmore, Alabama. The Corporation was incorporated under the laws of Delaware on March 8, 1982 for the purpose of acquiring all of the issued and outstanding capital stock of The Bank of Atmore, Atmore, Alabama ("Atmore") and Peoples Bank, Frisco City, Alabama ("Peoples"). Atmore was merged into United Bank of Atmore, a wholly-owned subsidiary of the Corporation, and Peoples was merged into United Bank of Frisco City ("Frisco City"), also a wholly-owned subsidiary of the Corporation, in late 1982. Effective March 30, 1984, Frisco City merged into United Bank of Atmore, which had previously changed its name to simply "United Bank."

The Corporation and its subsidiary, United Bank (herein "United Bank" or the "Bank"), operate primarily in one business segment, commercial banking. United Bank contributes substantially all of the total operating revenues and consolidated assets of the Corporation. The Bank serves its customers from seventeen full service banking offices located in Atmore (2 offices), Frisco City, Monroeville, Flomaton, Foley, Lillian, Bay Minette (2 offices), Silverhill, Magnolia Springs, Spanish Fort, Summerdale, and Loxley, Alabama, and in Jay, Pace and Milton, Florida. Additionally, a loan production office is located in Loxley, Alabama.

United Bank offers a broad range of banking services. Services to business customers include providing remote deposit capabilities, checking accounts, money market deposit accounts, time deposit accounts, repurchase agreements, and various types of lending services. Services provided to individual customers include checking accounts, NOW accounts, money market deposit accounts, statement savings accounts, and various other time deposit savings programs and loans, including business, personal, automobile, home and home improvement loans. United Bank offers securities brokerage services, Visa multi-purpose, and nationally recognized credit card service. The Bank also offers internet banking, bill pay and access to online brokerage services at its web site, www.unitedbank.com. The Bank also owns an insurance agency, United Insurance Services, Inc., which opened and began business in 2001.

Competition - The commercial banking business is highly competitive and United Bank competes actively with state and national banks, savings and loan associations, insurance companies, brokerage houses, and credit unions in its market areas for deposits and loans. In addition, United Bank competes with other financial institutions, including personal loan companies, leasing companies, finance companies and certain governmental agencies, all of which engage in marketing various types of loans and other services. The regulatory environment affects competition in the bank business as well.

Employees - The Corporation and its subsidiary had approximately 180 full-time equivalent employees at December 31, 2010. All of the employees are engaged in the operations of United Bank, its subsidiary, or the Corporation. The Corporation considers its employee relations good, and has not experienced and does not anticipate any work stoppage attributable to labor disputes.

Supervision, Regulation and Government Policy – The following discussion of Supervision, Regulation and Government Policy should be read in conjunction with the discussion of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) below. Bank holding companies, banks and many of their non-bank affiliates are extensively regulated under both federal and state law. The following brief summary of certain statutes, rules and regulations affecting the Corporation and the Bank is qualified in its entirety by reference to the particular statutory and regulatory provisions referred to below, and is not intended to be an exhaustive description of the statutes or regulations applicable to the Corporation's business. Any change in applicable law or regulations could have a material effect on the business of the Corporation and its subsidiary. Supervision, regulation and examination of banks by bank regulatory agencies are intended primarily for the protection of depositors rather than holders of corporation common stock.

The Corporation is registered as a bank holding company (“BHC”) with the Board of Governors of the Federal Reserve System (the "Federal Reserve") under the Bank Holding Company Act of 1956, as amended (the "BHC Act"), having determined that continued registration as a financial holding company (“FHC”) was unnecessary in light of the Corporation’s current and anticipated operations. As such, the Corporation is subject to the supervision, examination, and reporting requirements in the BHC Act and the regulations of the Federal Reserve. See discussion of the Gramm-Leach-Bliley Financial Services Modernization Act below.

The BHC Act requires every bank holding company to obtain the prior approval of the Federal Reserve before it may acquire substantially all of the assets of any bank or control of any voting shares of any bank, if, after such acquisition, it would own or control, directly or indirectly, more than 5% of the voting shares of such bank. The BHC Act requires the Federal Reserve to consider, among other things, anticompetitive effects, financial and managerial resources and community needs in reviewing such a transaction.

With the prior approval of the Superintendent of the Alabama State Department of Banking ("Superintendent") and their primary federal regulators, state banks are entitled to expand by branching.

The Corporation is a legal entity separate and distinct from the Bank. Various legal limitations restrict the Bank from lending or otherwise supplying funds to the Corporation. Such transactions, including extensions of credit, sales of securities or assets and provision of services, also must be on terms and conditions consistent with safe and sound banking practices, including credit standards, that are substantially the same or at least as favorable to the Bank as prevailing at the time for transactions with unaffiliated companies. Also, as a subsidiary of a bank holding company, the Bank is generally prohibited from conditioning the extension of credit or other services, or conditioning the lease or sale of property, on the customer's agreement to obtain or furnish some additional credit, property or service from or to such subsidiary or an affiliate.

The Bank is a state bank, subject to state banking laws and regulation, supervision and regular examination by the Alabama State Department of Banking (the "Department"), and as a member of the Deposit Insurance Fund ("DIF") of the Federal Deposit Insurance Corporation (the "FDIC"), is also subject to FDIC regulation and examination. The Bank is not a member of the Federal Reserve System. Areas subject to federal and state regulation include dividend payments, reserves, investments, loans, interest rates, mergers and acquisitions, issuance of securities, borrowings, establishment of branches and other aspects of operation, including compliance with truth-in-lending and usury laws, and regulators have the right to prevent the development or continuance of unsafe or unsound banking practices regardless of whether the practice is specifically proscribed or otherwise violates law.

Dividends from United Bank constitute the major source of funds for the Corporation. United Bank is subject to state law restrictions on its ability to pay dividends, primarily that the prior written approval of the Superintendent is required if the total of all dividends declared in any calendar year exceeds the total of United Bank’s net earnings of that year combined with its retained net earnings of the preceding two years, less any required transfers to surplus. United Bank is subject to restrictions under Alabama law which also prohibits any dividends from being made from surplus without the Superintendent’s prior written approval and the general restriction that dividends in excess of 90% of United Bank's net earnings (as defined by statute), may not be declared or paid unless United Bank's surplus is at least equal to 20% of its capital. United Bank’s surplus is significantly in excess of 20% of its capital. Federal bank regulatory agencies also have the general authority to limit the dividends paid by insured banks and bank holding companies if such payment is deemed to constitute an unsafe and unsound practice. Federal law provides that no dividends may be paid which would render the Bank undercapitalized. United Bank's ability to make funds available to the Corporation also is subject to restrictions imposed by federal law on the ability of a bank to extend credit to its parent company, to purchase the assets thereof, to issue a guarantee, acceptance or letter of credit on behalf thereof or to invest in the stock or securities thereof or to take such stock or securities as collateral for loans to any borrower. By agreement with its primary regulators, consistent with the Bank’s determination to preserve capital, payments of dividends by the Bank to the Corporation are currently subject to prior review of the Alabama State Banking Department.

When the Corporation received a capital investment from the United States Department of the Treasury (“the Treasury”) under the Troubled Assets Relief Program ("TARP") Capital Purchase Program on December 23, 2008 (see Note 9 to the Consolidated Financial Statements), the Corporation became subject to additional limitations on the payment of dividends. These limitations require, among other things, that (i) all dividends related to the securities purchased under the TARP Capital Purchase Program be paid before other dividends can be paid and (ii) the Treasury must approve any increases in common stock dividends for three years following the Treasury's investment, unless Treasury’s investment is redeemed prior thereto. On September 3, 2010, as part of the Community Development Capital Initiative (“CDCI”) established by the Treasury, the Corporation exchanged the preferred shares issued to the Treasury on December 23, 2008 pursuant to the Corporation’s participation in the TARP Capital Purchase Program for preferred shares issued pursuant to the CDCI. The limitations under the TARP Capital Purchase Program described above remain in effect under the CDCI.

The Bank is also subject to the requirements of the Community Reinvestment Act of 1977 ("CRA"). The CRA and the regulations implementing the CRA are intended to encourage regulated financial institutions to help meet the credit needs of their local community, including low and moderate-income neighborhoods, consistent with the safe and sound operation of financial institutions. The regulatory agency's assessment of the Bank's CRA record is made available to the public.

The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") recapitalized the Bank Insurance Fund (“BIF”) and included numerous revised statutory provisions. FDICIA established five capital tiers for insured depository institutions: "well capitalized", "adequately capitalized”, “undercapitalized", "significantly undercapitalized", and "critically undercapitalized", as defined by regulations adopted by the Federal Reserve, the FDIC and other federal depository institution regulatory agencies. At December 31, 2010, the Bank was "adequately capitalized" and was not subject to restrictions imposed for failure to satisfy applicable capital requirements. BIF premiums for each member financial institution depend upon the risk assessment classification assigned to the institution by the FDIC.

Banking is a business that primarily depends on interest rate differentials. In general, the difference between the interest rate paid by a bank on its deposits and other borrowings and the interest rate received by the bank on its loans and securities holdings constitutes the major portion of the bank's earnings. As a result, the earnings and business of the Corporation are and will be affected by economic conditions generally, both domestic and foreign, and also by the policies of various regulatory authorities having jurisdiction over the Corporation and the Bank, especially the Federal Reserve. The Federal Reserve, among other functions, regulates the supply of credit and deals with general economic conditions within the United States. The instruments of monetary policy employed by the Federal Reserve for those purposes influence in various ways the overall level of investments, loans and other extensions of credit and deposits and the interest rates paid on liabilities and received on assets.

The enactment of the Gramm-Leach-Bliley Financial Services Modernization Act (the ”GLB Act”) on November 12, 1999 represented an important development in the powers of banks and their competitors in the financial services industry by removing many of the barriers between commercial banking, investment banking, securities brokerages and insurance. Inter-affiliation of many of these formerly separated businesses is now common. The GLB Act includes significant provisions regarding the privacy of financial information. These financial privacy provisions generally require a financial institution to adopt a privacy policy regarding its practices for sharing nonpublic personal information and to disclose such policy to their customers, both at the time the customer relationship is established and at least annually during the relationship. These provisions also prohibit the Corporation from disclosing nonpublic personal financial information to third parties unless customers have the opportunity to opt out of the disclosure.

On October 26, 2001, President Bush signed into law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA Patriot Act”). Among its provisions, the USA Patriot Act requires each financial institution: (i) to establish an anti-money laundering program, (ii) to establish due diligence policies, procedures and controls with respect to its private banking accounts and correspondent banking accounts involving foreign individuals and certain foreign banks and (iii) to avoid establishing, maintaining, administering, or managing correspondent accounts in the United States for, or on behalf of, a foreign bank that does not have a physical presence in any country. In addition, the USA Patriot Act contains a provision encouraging cooperation among financial institutions, regulatory authorities and law enforcement authorities with respect to individuals, entities and organizations engaged in, or reasonably suspected of engaging in, terrorist acts or money laundering activities. The USA Patriot Act has not had a significant impact on the financial condition or results of operations of the Corporation.

In July 2002 the Sarbanes-Oxley Act of 2002 (the "SOA") was enacted. The SOA established many new operational and disclosure requirements, with the stated goals of, among other things, increasing corporate responsibility and protecting investors by improving corporate disclosures. The SOA applies generally to companies that file periodic reports with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (the "Exchange Act"). As an Exchange Act reporting company, the Corporation is subject to some SOA provisions. Other SOA requirements apply only to companies which, unlike the Corporation, have stock traded on a national stock exchange or the NASDAQ.

In 2006, federal deposit insurance reform legislation was enacted that (i) required the FDIC to merge the Bank Insurance Fund and the Savings Association Insurance Fund into a newly created Deposit Insurance Fund; (ii) increased the amount of deposit insurance coverage for retirement accounts; (iii) allowed for deposit insurance coverage on individual accounts to be indexed for inflation starting in 2010; (iv) provided the FDIC more flexibility in setting and imposing deposit insurance assessments; and (v) provided eligible institutions credits on future assessments.

Through the Troubled Asset Relief Program (the “TARP”), the Treasury has the ability to purchase or insure up to $700 billion in troubled assets held by financial institutions. On October 14, 2008, the Treasury announced it would use up to $350 billion of these funds to purchase equity stakes in financial institutions under a Capital Purchase Program (the “CPP”). As such, the CPP provides direct equity investment of perpetual preferred stock by the Treasury in qualified financial institutions. The program is voluntary and requires an institution to comply with a number of restrictions and provisions, including limits on executive compensation, stock redemptions and declaration of dividends. For publicly traded companies, the CPP also requires the Treasury to receive warrants for common stock equal to 15% of the capital invested by the Treasury. The Corporation applied for and received $10.3 million in the CPP.

As a participant in the CPP and subsequently the CDCI programs, the Corporation is subject to compensation and corporate governance standards and restrictions under applicable legislation and Treasury regulations, which include but are not limited to (1) restrictions on bonus, incentive and retention awards, (2) a prohibition on severance and change-in-control payments to the Corporation’s executive officers and next five most highly-compensated employees, (3) ensuring that the Corporation’s compensation programs do not encourage unnecessary and excessive risks, (4) requiring the recovery or “clawback” of any incentive compensation paid to the Corporation’s executive officers and next 20 most highly-compensated employees if it is later determined that such payments were based on materially inaccurate financial or other performance criteria, (5) a prohibition on tax gross-ups paid to the Corporation’s executive officers and next 20 most highly-compensated employees (6) adoption of an excessive or luxury expenditures policy, and (7) certifications as to various matters by the Corporation’s CEO and CFO.

On October 22, 2009, the Federal Reserve issued a comprehensive proposal on incentive compensation policies (the "Incentive Compensation Proposal") intended to ensure that incentive compensation policies of banking organizations don't undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The Incentive Compensation Proposal, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization's incentive compensation arrangement should (i) provide incentives that do not encourage risk-taking beyond the organization's ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization's board of directors. Banking organizations were instructed to begin an immediate review of their incentive compensation policies to ensure that they do not encourage excessive risk-taking and implement corrective programs as needed.

The Federal Reserve reviews, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Corporation. These reviews aretailored to each organization based on the scope and complexity of the organization's activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives are included in reports of examination. Deficiencies are incorporated into the organization's supervisory ratings, which can affect the organization's ability to make acquisitions and take other actions. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization's safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.

In addition, on January 12, 2010, the FDIC announced that it would seek public comment on whether banks with compensation plans that encourage risky behavior should be charged at higher deposit assessment rates than such banks would otherwise be charged.

On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law. The Dodd-Frank Act will have a broad impact on the financial services industry, imposing significant regulatory and compliance changes, including the designation of certain financial companies as systemically significant, the imposition of increased capital, leverage, and liquidity requirements, and numerous other provisions designed to improve supervision and oversight of, and strengthen safety and soundness within, the financial services sector. Additionally, the Dodd-Frank Act establishes a new framework of authority to conduct systemic risk oversight within the financial system to be distributed among new and existing federal regulatory agencies, including the Financial Stability Oversight Council (“Council”), the Federal Reserve, the Office of the Comptroller of the Currency, and the FDIC.

The following items provide a brief description of certain provisions of the Dodd-Frank Act that may affect the Corporation.

The Dodd-Frank Act made permanent the general $250,000 deposit insurance limit for insured deposits. The Dodd-Frank Act also extended until January 1, 2013, federal deposit coverage for the full net amount held by depositors in non-interest bearing transaction accounts. Amendments to the FDIC Act also revised the assessment base against which an insured depository institution’s deposit insurance premiums paid to DIF will be calculated. Under the amendments, the assessment base would no longer be the institution’s deposit base, but would become its average consolidated total assets less its average tangible equity. Additionally, the Dodd-Frank Act changed the minimum designated reserve ratio of the DIF. The minimum reserve ratio increased from 1.15 percent to 1.35 percent of the estimated amount of total insured deposits, and eliminated the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds. Several of these provisions could increase the FDIC deposit insurance premiums paid by the Bank.

The Dodd-Frank Act authorized the establishment of the Consumer Financial Protection Bureau (“the CFPB”), which was given the power to issue rules governing all financial institutions that offer financial services and products to consumers. The CFPB was also given the authority to monitor markets for consumer financial products to ensure that consumers would be protected from abusive practices. Financial institutions expect to be subject to increased compliance and enforcement costs associated with regulations established by the CFPB.

The Dodd-Frank Act addressed many investor protection, corporate governance and executive compensation matters that may affect most U.S. registered companies. The Dodd-Frank Act (1) granted stockholders of U.S. publicly traded companies an advisory vote on executive compensation; (2) enhanced independence requirements for compensation committee members; (3) required companies listed on national securities exchanges to adopt incentive-based compensation clawback policies for executive officers; (4) provided the SEC with authority to adopt proxy access rules that would allow stockholders of publicly traded companies to nominate candidates for election as a director and have those nominees included in a company’s proxy materials; (5) prohibited uninstructed broker votes on election of directors, executive compensation matters (including say on pay advisory votes), and other significant matters, and (6) required disclosure on board leadership structure

Many of the requirements of the Dodd-Frank Act will be implemented over time and most will be subject to regulations implemented over the course of several years. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies and through regulations, the full extent of the impact such requirements will have on the Corporation is unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of business activities, require changes to certain business practices, impose more stringent capital, liquidity and leverage requirements or otherwise adversely affect the Corporation. These changes may also require the Corporation to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements. Failure to comply with the new requirements may negatively impact the results of operations and financial condition of the Corporation.

In 2010 the Treasury initiated the CDCI Program for bank holding companies, savings and loan holding companies and stand alone thrifts and banks that have been certified by the Treasury as Community Development Financial Institutions (“CDFI”). To be certified as a CDFI, a financial institution must demonstrate that it serves an eligible target market and that at least 60% of its activities are directed to that target market. A target market may consist of one or more of the following: i) an investment area, ii) a low income targeted population, or iii) another targeted population. An example of an investment area would be a state, county, census tract, etc. that has at least one of the following: i) a population poverty rate of at least 20%, ii) for a metropolitan area, an unemployment rate at least 1.5 times the national average, iii) a median family income at or below 80% of the metropolitan area’s or national metropolitan family income, iv) for counties outside of a metropolitan area, a county population loss during the period between the two most recent decennial censuses, or v) for counties outside of a metropolitan area, net migration loss during the 5-year period preceding the most recent decennial census of at least 5%. A qualifying financial institution may be eligible to apply for a CDCI capital investment of up to 5% of its total risk weighted assets (less any outstanding amount of CPP funding). If a financial institution has existing CPP funding, it may exchange that funding for CDCI funding. CDCI funding is in the form of preferred stock which will receive tier 1 capital treatment. The initial dividend rate is 2% and will increase to 9% after eight years. No additional warrants will be required. The financial institution will continue to be subject to the executive compensation restrictions of the TARP. In 2010 the Corporation applied for certification and was certified as a CDFI. As discussed above, the Treasury exchanged its CPP preferred shares for CDCI preferred shares in September of 2010.

New regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures, regulations, and competitive relationships of the nation's financial institutions. The Corporation cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which the Bank’s business may be affected by any new regulation or statute

Selected Statistical Information - The following tables set forth certain selected statistical information concerning the business and operations of the Corporation and its wholly-owned subsidiary, United Bank, as of December 31, 2010, 2009 and 2008. Averages referred to in the following statistical information are generally average daily balances.

Analysis of Net Interest Earnings: The following table sets forth interest earned and the average yield on the major categories of the Corporation's interest-earning assets and interest-bearing liabilities (dollars in thousands).

	Average Balance		Interest Income Expense		Average Rates Earned Paid
2010
Loans, net (1)	$	278,792	$	16,581		5.98	%
Taxable securities		67,354		1,692		2.51	%
Tax exempt securities (2)		18,463		741		5.90	%
Federal funds sold and repurchase agreements		74		1		0.19	%
Interest-bearing deposits with other financial institutions		61,910		156		0.25	%
Total interest-earning assets	$	426,593	$	19,171		4.60	%

Saving deposits and demand deposits interest-bearing	$	99,398	$	534		0.54	%
Time deposits		184,045		3,914		2.13	%
Other borrowed funds		12,206		289		2.35	%
Total interest-bearing liabilities	$	295,649	$	4,737		1.60	%
Net interest income/net yield on interest earning assets			$	14,434		3.47	%

	Average Balance		Interest Income Expense		Average Rates Earned Paid
2009
Loans, net (1)	$	286,548	$	17,014		5.96	%
Taxable securities		65,760		2,284		3.47	%
Tax exempt securities (2)		30,579		1,232		6.10	%
Federal funds sold and repurchase agreements		14,141		39		0.28	%
Interest-bearing deposits with other financial institutions		38,594		208		0.54	%
Total interest-earning assets	$	435,622	$	20,777		4.93	%

Saving deposits and demand deposits interest-bearing	$	106,441	$	703		0.66	%
Time deposits		196,591		6,067		3.09	%
Repurchase agreements		5		-		0.00	%
Other borrowed funds		12,210		359		2.94	%
Total interest-bearing liabilities	$	315,247	$	7,129		2.26	%
Net interest income/net yield on interest earning assets			$	13,648		3.28	%

	Average Balance		Interest Income Expense		Average Rates Earned Paid
2008
Loans, net (1)	$	287,491	$	19,557		6.80	%
Taxable securities		84,813		3,062		3.61	%
Tax exempt securities (2)		33,903		1,360		6.08	%
Federal funds sold and repurchase agreements		9,204		179		1.94	%
Interest-bearing deposits with other financial institutions		14,766		343		2.32	%
Total interest-earning assets	$	430,177	$	24,501		5.86	%

Saving deposits and demand deposits interest-bearing	$	99,969	$	1,429		1.43	%
Time deposits		194,524		7,944		4.08	%
Repurchase agreements		68,257		834		1.22	%
Other borrowed funds		12,648		672		5.31	%
Total interest-bearing liabilities	$	375,398	$	10,879		2.90	%
Net interest income/net yield on interest earning assets			$	13,622		3.33	%

(1)	Loans on nonaccrual status have been included in the computation of average balances.

(2)	Yields on tax-exempt obligations have been computed on a full federal tax-equivalent basis using an income tax rate of 34% for 2010, 2009, and 2008

Analysis of Changes in Interest Income and Interest Expense: The following is an analysis of the dollar amounts of

changes in interest income and interest expense due to changes in rates and volume for the periods indicated.

(Dollars in Thousands)

Average Balances					Interest Income Expense							Variance as to
2010		2009			2010		2009		Variance			Rate			Volume
$	278,792	$	286,548	Loans (Net)	$	16,581	$	17,014	$	(433	)	$	133		$	(566	)
	67,354		65,760	Taxable Securities AFS (1)		1,692		2,284		(592	)		(361	)		(231	)
	18,463		30,579	Tax Exempt Securities AFS (2)		741		1,232		(491	)		(4	)		(487	)
	74		14,141	Fed Funds Sold		1		39		(38	)		(10	)		(28	)
	61,910		38,594	Interest Bearing Deposits		156		208		(52	)		(143	)		91
$	426,593	$	435,622	Total Earning Assets	$	19,171	$	20,777	$	(1,606	)	$	(385	)	$	(1,221	)

				Savings and Interest Bearing
$	99,398	$	106,441	Demand Deposits	$	534	$	703	$	(169	)	$	(115	)	$	(54	)
	184,045		196,591	Time Deposits		3,914		6,067		(2,153	)		(1,866	)		(287	)
	-		5	Repurchase Agreements		-		-		-			-			-
	12,206		12,210	Other Borrowed Funds		289		359		(70	)		(60	)		(10	)
$	295,649	$	315,247	Total Interest Bearing Liabilities	$	4,737	$	7,129	$	(2,392	)	$	(2,041	)	$	(351	)

The variance of interest due to both rate and volume has been allocated proportionately to the rate and the volume components based on the relationship of the absolute dollar amounts of the change in each.

(1)	Available for Sale (AFS)

(2)	Yields on tax-exempt obligations have been computed on a full federal tax-equivalent basis using an income tax rate of 34% for 2010 and 2009.

Analysis of Changes in Interest Income and Interest Expense - The following is an analysis of the dollar amounts of changes in interest income and interest expense due to changes in rates and volume for the periods indicated.

(Dollars in Thousands)

Average Balances					Interest Income Expense							Variance as to
2009		2008			2009		2008		Variance			Rate			Volume
$	286,548	$	287,491	Loans (Net)	$	17,014	$	19,557	$	(2,543	)	$	(219	)	$	(2,324	)
	65,760		84,813	Taxable Securities AFS (1)		2,284		3,062		(778	)		(801	)		23
	30,579		33,903	Tax Exempt Securities AFS (2)		1,232		1,360		(128	)		(137	)		9
	14,141		9,204	Fed Funds Sold		39		179		(140	)		59			(199	)
	38,594		14,766	Interest Bearing Deposits		208		343		(135	)		281			(416	)
$	435,622	$	430,177	Total Earning Assets	$	20,777	$	24,501	$	(3,724	)	$	(817	)	$	(2,907	)

				Savings and Interest Bearing
$	106,441	$	99,969	Demand Deposits	$	703	$	1,429	$	(726	)	$	56		$	(782	)
	196,591		194,524	Time Deposits		6,067		7,944		(1,877	)		764			(2,641	)
	5		68,257	Repurchase Agreements		-		834		(834	)		(416	)		(418	)
	12,210		12,648	Other Borrowed Funds		359		672		(313	)		3			(316	)
$	315,247	$	375,398	Total Interest Bearing Liabilities	$	7,129	$	10,879	$	(3,750	)	$	407		$	(4,157	)

(1)	Available for Sale (AFS)

(2)	Yields on tax-exempt obligations have been computed on a full federal tax-equivalent basis using an income tax rate of 34% for 2009 and 2008.

Investments - The investment policy of United Bank provides that funds not otherwise needed to meet the loan demand of United Bank's market area can best be invested to earn maximum return for the Bank, yet still maintain sufficient liquidity to meet fluctuations in the Bank's loan demand and deposit structure. The Bank has identified that it will maintain a core investment portfolio, not needed to meet liquidity requirements, which will be accounted for as Held-to Maturity and, under this accounting, will reduce the volatility of total capital. The Bank will establish limits as to the holdings in this portfolio. At the time of purchase, the Bank designates whether a particular security will be accounted for as Held-to-Maturity or Available-for-Sale. The ratio of total loans to deposits as of December 31, 2010 was 62.77%. Growth in the loan portfolio is impacted by among other things, general economic conditions, the ability to accurately determine the current and future value of collateral and the availability of loans meeting the Bank's credit quality standards. Management expects that funding for any growth in the loan portfolio would come from deposit growth and reallocation of liquid funds or maturing investments.

Securities Portfolio - The Bank's investment policy, as approved by the Board of Directors, dictates approved types of securities and the conditions under which they may be held. Attention is paid to the maturity and risks associated with each investment. The distribution reflected in the tables below could vary with economic conditions, which could shorten or lengthen maturities. Management believes the level of credit and interest rate risks inherent in the securities portfolio is low.

The following table sets forth the distribution of contractual maturities of investment securities available for sale and their associated yields:

Maturity Distribution of Investment Securities Available for Sale

December 31, 2010, 2009, and 2008

(Dollars in Thousands)

	2010				2009				2008

U.S. Treasury securities
Within one year	$	4,036	0.98	%	$	-	0.00	%	$	-	0.00	%
1-5 years		11,238	1.24	%		3,027	1.06	%		-	0.00	%
5-10 years		3,955	2.04	%		-	0.00	%		-	0.00	%
After 10 years		-	0.00	%		-	0.00	%		-	0.00	%
Total	$	19,229	1.35	%	$	3,027	1.06	%	$	-	0.00	%

US Government sponsored agencies
Within one year	$	-	0.00	%	$	-	0.00	%	$	16,520	0.99	%
1-5 years		18,377	2.24	%		24,997	3.12	%		7,662	4.63	%
5-10 years		16,791	2.73	%		11,472	3.93	%		15,371	5.35	%
After 10 years		-	0.00	%		-	0.00	%		-	0.00	%
Total	$	35,168	2.47	%	$	36,469	3.37	%	$	39,553	3.39	%

Mortgage Backed Securities
Within one year	$	-	0.00	%	$	-	0.00	%	$	170	3.23	%
1-5 years		-	0.00	%		-	0.00	%		4,302	3.93	%
5-10 years		-	0.00	%		-	0.00	%		1,519	4.57	%
After 10 years		5,038	3.74	%		-	0.00	%		6,860	4.57	%
Total	$	5,038	3.74	%	$	-	0.00	%	$	12,851	4.35	%

State & Municipal (1)
Within one year	$	152	3.38	%	$	1,499	3.98	%	$	1,460	3.51	%
1-5 years		768	4.11	%		6,727	3.86	%		7,063	3.88	%
5-10 years		2,485	3.94	%		11,275	4.03	%		13,118	4.08	%
After 10 years		5,962	4.04	%		9,213	4.16	%		11,481	4.03	%
Total	$	9,367	4.01	%	$	28,714	4.03	%	$	33,122	3.99	%

Equity Securities
Within one year	$	7	1.00	%	$	3	1.00	%	$	-	0.00	%
Total	$	7	1.00	%	$	3	1.00	%	$	-	0.00	%
Totals	$	68,809	2.19	%	$	68,213	3.55	%	$	85,526	4.52	%

(1)	Yields on tax-exempt obligations have been computed on a full federal tax-equivalent basis using an income tax rate of 34% for 2010, 2009 and 2008.

The following table sets forth the distribution of maturities of investment securities held to maturity as of December 31, 2010, 2009 and 2008, respectively, and their associated yields:

Maturity Distribution of Investment Securities Held to Maturity

December 31, 2010, 2009 and 2008

(Dollars in Thousands)

	2010				2009				2008
US Government sponsored agencies
Within one year	$	-	0.00	%	$	-	0.00	%	$	-	0.00	%
1-5 years		7,469	2.28	%		6,025	2.97	%		3,050	4.34	%
5-10 years		9,834	2.53	%		9,399	3.52	%		3,000	4.48	%
After 10 years		-	0.00	%		-	0.00	%		-	0.00	%
Total	$	17,303	2.42	%	$	15,424	3.31	%	$	6,050	4.41	%

Other domestic debt securities
Within one year	$	-	0.00	%	$	235	5.25	%	$	-	0.00	%
1-5 years		-	0.00	%		-	0.00	%		500	5.25	%
5-10 years		-	0.00	%		-	0.00	%		-	0.00	%
After 10 years		-	0.00	%		-	0.00	%		-	0.00	%
Total	$	-	0.00	%	$	235	5.25	%	$	500	5.25	%

Totals	$	17,303	2.42	%	$	15,659	3.33	%	$	6,550	4.47	%

Relative Lending Risk - United Bank serves both rural and suburban markets. The rural market is composed primarily of lower to middle income families. The rural market economy is heavily influenced by timber and agricultural production. The suburban market is faster growing, more commercial and is composed of a higher income mix than the rural market. The Bank's loan portfolio mix is reflective of these markets. As of December 31, 2010, the Bank's ratio of loans to assets of 54.93% was lower than its peer banks serving similar markets (65.78%).

The risks associated with the Bank's lending are primarily 1) credit risks from economic conditions and concentrations of a loans secured by particular types of collateral or in a particular geographic area and 2) interest rate risk.

Small banks located in one community experience a much higher risk due to the dependence on the economic viability of that single community. United Bank is more geographically diverse than some of its local community banking competitors. With offices in fifteen communities, risks associated with the effects of major economic disruptions in one community are somewhat mitigated. This geographic diversity affects all types of loans and plays a part in the Bank's risk management.

One component of the management of interest rate risk regards the maturity distribution of the loan portfolio and method of pricing. The Bank's loan maturity distribution reflects 39.5% of the portfolio maturing in one year or less. In addition, 32.61% of all loans float with an interest rate index. The maturity distribution and floating rate loans are a component of interest rate risk management that helps protect the Bank from unexpected interest rate fluctuations.

Credit risk results from the inability of the borrower to repay the principal and interest on the loan. This inability could result from loss of employment, reduction in liquidity from adverse market movements or adverse changes in the cash flow from the business being financed.

The majority of all types of loans offered by the Bank are collateralized. Concentrations in loans secured by a particular type of collateral increase the Bank’s exposure to reductions in value of that collateral type. Additionally, the ability to accurately determine the value of any collateral currently, and over time, has an impact on the management of the portfolio of loans.

Loan concentrations present different risk profiles depending on the type of loan. Regardless of the type of loan, the repayment ability of the borrower and the value of any collateral are important considerations in a loan decision. The loan policy, as approved by the Board of Directors of the Bank, establishes collateral guidelines for each type of loan.

Each type of loan exhibits unique profiles of risk that could threaten repayment.

Commercial lending requires an understanding of the customers' business and financial performance. The Bank's commercial customers are primarily small to middle market enterprises. The larger commercial accounts are managed by Senior Commercial lenders. Risks in this category are primarily economic. Shifts in local and regional conditions could have an effect on individual borrowers; but as previously mentioned, the Bank attempts to spread this risk by serving multiple communities. As with the other categories, these loans are typically collateralized by assets of the borrower. In most situations, the personal assets of the business owners also collateralize the credit.

Agricultural lending is a specialized type of lending for the Bank. Due to the unique characteristics in this type of loan, the Bank has loan officers dedicated to this market. Collateral valuation and the experience of the borrower play heavily into the approval process. This loan category includes financing equipment, crop production, timber, dairy operations and others. Given the broad range of loans offered, it is difficult to generalize risks in agricultural lending. The area of greatest attention and risk is crop production loans. Risks associated with catastrophic crop losses are mitigated by crop insurance, government support programs, experience of the borrower, collateral other than the crop and the borrower's other financial resources. Routine visitations and contact with the borrower help inform the Bank about crop conditions.

Real estate loans, whether they are construction or mortgage, historically have had lower delinquency rates than other types of loans in the portfolio. This is no longer the case with the change in the real estate market. The Bank makes very few long term, fixed rate mortgage loans; however, it does offer loans with repayment terms based on amortization of up to 30 years with balloon payments of principal at a shorter term, such as three or five years. The Bank also offers several different long-term mortgage programs provided by third party processors.

Installment loans are generally collateralized. Given the small dollar exposure on each loan, the risk of a significant loss on any one credit is limited. Pricing and close monitoring of past due loans enhance the Bank's returns from this type of loan and minimize risks.

The average size loan in the loan portfolio at December 31, 2010 was $60,750, a decrease of $2,104 from the 2009 level of $62,854.

LOAN PORTFOLIO MATURITIES

Maturities and loan re-pricing indices in the Corporation's loan portfolio are as follows:

Remaining Maturity

December 31, 2010

(Dollars in Thousands)

	One year or less		One - five years		After five years		Total
Real estate:
Construction, land developmnt, and other land loans	$	21,405	$	15,185	$	236	$	36,826
Farmland		10,694		18,058		1,518		30,270
1-4 family residential mortgage		12,425		39,207		6,711		58,343
Multifamily		1,022		864		1,196		3,082
Commercial		23,249		48,182		2,369		73,800
Agriculture		5,619		6,667		348		12,634
Commercial		14,530		14,399		484		29,413
Consumer		5,921		7,510		167		13,598
States and political subdivisions		1,553		819		1,363		3,735
Other loans		52		18				70

Totals	$	96,470	$	150,909	$	14,392	$	261,771

Variable Rate Loans by Re-pricing Index

(Dollars in Thousands)

	Index

	Prime		LIBOR		Total

Real estate:
Construction, land developmnt, and other land loans	$	19,885	$	-	$	19,885
Farmland		10,341		-		10,341
1-4 family residential mortgage		17,764		-		17,764
Multifamily		-		-		-
Commercial		14,592		2,915		17,507
Agriculture		4,420		-		4,420
Commercial		12,994		2,230		15,224
Consumer		100		-		100
States and political subdivisions		50		70		120
Other loans		1		-		1

Totals	$	80,147	$	5,215	$	85,362

For additional information regarding interest rate sensitivity see INTEREST RATE RISK included in Item 1A below.

Impaired Loans - Management considers a loan to be impaired when it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is considered impaired, the amount of impairment is measured based on the net present value of expected future cash flows discounted at the note's effective interest rate, or, if the loan is collateral-dependent, the fair value of the collateral is used to determine the amount of impairment. Impaired loans are covered by the allowance for loan losses through a charge to the provision for loan losses. Subsequent recoveries are added to the allowance. Because of the severe economic downturn and the effect on borrowers’ ability to pay and collateral values, the Bank expanded the scope of its analysis of the loan portfolio beginning in 2009. At December 31, 2010, the Bank identified 39 impaired loans (as defined by FASB ASC 310) aggregating $21,600,559, compared with 66 impaired loans aggregating $49,039,811 as of December 31, 2009. Of the loans identified as impaired as of December 31, 2010, specific reserves in the amount of $2,275,207 were allocated.

Because of the severe economic downturn and the effect on borrowers’ ability to pay and collateral values, the Bank expanded the scope of its analysis of the loan portfolio during the fourth quarter of 2009. As a result the amount of impaired loans increased from $20,683,163 as of September 30, 2009 to $49,039,811 as of December 31, 2009. During the fourth quarter of 2010, $17,407,139 of impaired loans was removed from the impaired loan list due to improved financial performance throughout 2010.

Of the loans impaired as of December 31, 2009 approximately $4,179,000 was charged off against the allowance, $3,120,000 was foreclosed and recorded as ORE, and $3,600,000 was repaid. The remainder was not considered impaired in the 2010 analysis.

Non-performing Assets - Under the Corporation's nonaccrual policy, a loan is placed on nonaccrual status when the ability to collect the principal and interest is in doubt or when principal and interest is 90 days or more past due, unless, after analysis, it is determined that the interest is well secured and in the process of collection. Credit cards continue to accrue interest.

The following table sets forth the Corporation's non-performing assets at December 31, 2010, 2009, and 2008 (dollars in thousands).


	Descriptions	2010		2009		2008

A	Loans accounted for on
	a nonaccrual basis	$	17,545	$	18,993	$	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)		538		210		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.		383		1,657		1,106

D	Other non-performing assets		10,164		7,611		5,524

	Total	$	28,630	$	28,471	$	21,358

If nonaccrual loans in (A) above had been current throughout their term, interest income would have been increased by $857,222, $968,048 and $862,019 for 2010, 2009, and 2008 respectively. All of the assets in (D) above at the end of 2010, 2009, and 2008 were other real estate owned (ORE).

There may be additional loans in the Bank's portfolio that may become classified or impaired as conditions continue to change. Regulatory examiners may require the Bank to recognize additions to the allowance based upon their judgments about information available to them at the time of their examination.

Loan Concentrations - On December 31, 2010, the Bank had $42,903,692 of agriculture related loans as compared to $43,957,653 and $47,599,289 in 2009 and 2008, respectively. Real estate construction and 1-4 family residential mortgage loans were $36,825,855 and $58,342,993 respectively in 2010, $49,321,129 and $55,820,121 respectively in 2009 and $52,649,854 and $52,676,766 respectively in 2008.

Summary of Loan Loss Experience

(Dollars in Thousands)

	2010			2009			2008
Average amount of loans outstanding, net	$	278,792		$	286,548		$	287,491

Reserve for loan losses:
Beginning balance	$	7,435		$	3,591		$	3,981
Loans charged off:
Real estate:
Construction and land loans		(3,201	)		(2,421	)		(1,627	)
Farmland		(11	)		(26	)		(1	)
1-4 family residential mortgage		(778	)		(512	)		(68	)
Multifamily		-			-			-
Commercial		(529	)		(101	)		(615	)
Agriculture		(104	)		(246	)		(85	)
Commercial		(2,055	)		(1,047	)		(179	)
Consumer		(199	)		(165	)		(178	)
States and political subdivisions		-			-			-
Other loans		(1	)		(9	)		(2	)

Total Charged off		(6,878	)		(4,527	)		(2,755	)
Recoveries:
Real estate:
Construction and land loans		11			3			18
Farmland		2			-			-
1-4 family residential mortgage		41			4			-
Multifamily		-			-			-
Commercial		-			-			1
Agriculture		18			46			-
Commercial		45			3			11
Consumer		26			46			31
States and political subdivisions		-			-			-
Other loans		2			1			4
Total Recoveries		145			103			65
Loans Charged off, net		(6,733	)		(4,424	)		(2,690	)
Additions to the allowance charged to operations		4,438			8,268			2,300
Ending balance	$	5,140		$	7,435		$	3,591

Net chage offs to average loans		2.42	%		1.54	%		0.94	%

Of the approximately $6,878,000 of loans charged off in 2010, approximately $4,179,000 resulted from the resolution of loans identified as impaired at December 31, 2009.

Allowance for Loan Losses - The allowance for loan losses is maintained at a level which, in management's opinion, is appropriate to provide for estimated losses in the portfolio at the balance sheet date. Factors considered in determining the adequacy of the allowance include historical loan loss experience, the amount and trend of past due loans, loans classified from the most recent regulatory examinations and internal reviews, general economic conditions, the effect of lending policies and effectiveness of management and the current portfolio mix including concentrations. The amount charged to the provision 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 impaired portion and the non-impaired portion. The impaired portion is based on identified problem loans. Specific loss estimate amounts are included in the allowance based on an evaluation of the individual credits. Any loan categorized loss is charged off in the period which the loan is so categorized.

The non-impaired portion of the allowance is for probable inherent losses which exist as of the evaluation date even though they may not have been identified by the more objective processes for the impaired portion of the allowance. This is due to the risk of error and inherent imprecision in the process. This portion of the allowance is particularly subjective and requires judgments based upon qualitative factors, which do not lend themselves to exact mathematical calculations. Some of the factors considered are changes in credit concentrations, loan mix, historical loss experience, experience of loan management, effects of lending policies and general economic environment in the Corporation's markets. As mentioned above in Impaired Loans, the Bank responded to the severity of the economic downturn by expanding the scope of its analysis of the loan portfolio.

In the fourth quarter of 2010, the Corporation began to segment the loan portfolio by type of loan for analysis and to compute the needed reserve on non-impaired loans based on historical charge off performance for each segment. This will result in more precise information on these segments. This will also aid in identification of areas or segments requiring more attention. The effect on the calculated level of the reserve will be in direct proportion to the loss rate and volume of those sectors with loss rate histories either higher or lower than the average loss rate for the portfolio as a whole. In the case of the Corporation, balances outstanding on the segments with high loss rates, such as construction and land loans, have declined. The change has resulted in the reduction of approximately $400,000 in the level of reserves needed for non-impaired loans. In comparing the reserves not allocated to impaired loans as a percentage of total loans less impaired loans at December 31, 2010 and 2009, the percentage increased by 0.10% to 1.10% primarily because total loans declined by $21,575,000 between December 31, 2009 and December 31, 2010.

As of December 31, 2010, the allowance for loan losses allocated to impaired loans was approximately $2,275,000 and the amount allocated to non-impaired loans was approximately $2,865,000, or 1.10% of total loans less impaired loans.

As of December 31, 2009, the allowance for loan losses allocated to impaired loans was approximately $5,062,000 and the amount allocated to non-impaired loans was approximately $2,373,000, or 1.00% of total loans less impaired loans.

While the total allowance is described as consisting of a impaired and a non-impaired 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. The Corporation has allocated proportionately the non-impaired portion of the allowance to the individual loan categories for purposes of the loan loss allowance table below.

Management believes that the allowance for loan losses at December 31, 2010 is appropriate given past experience and the underlying strength of the loan portfolio.

The table below reflects an allocation of the allowance for the years ended December 31, 2010, 2009, and 2008. The allocation represents an estimate for each category of loans based upon historical experience and management's judgment and impairment evaluation.

(Dollars In Thousands)

	Allowance						Percentage of Loans toTotal Loans
	2010		2009		2008		2010			2009			2008
Real estate:
Construction and land loans	$	2,176	$	1,893	$	1,777		14.1	%		17.4	%		21.1	%
Farmland		119		-		-		11.6	%		10.7	%		13.8	%
1-4 family residential mortgage		576		629		64		22.3	%		19.7	%		21.1	%
Multifamily		7		-		-		1.2	%		1.5	%		1.4	%
Commercial		1,100		3,329		205		28.2	%		21.6	%		19.3	%
Agriculture		201		466		569		4.8	%		4.8	%		4.8	%
Commercial		772		975		844		11.2	%		18.3	%		10.9	%
Consumer		178		144		132		5.2	%		5.1	%		6.4	%
States and political subdivisions		9		-		-		1.5	%		0.9	%		1.2	%
Other loans		2		-		-		0.0	%		0.0	%		0.0	%
Totals	$	5,140	$	7,436	$	3,591		100.0	%		100.0	%		100.0	%

At December 31, 2010 the majority of the allowance for loan loss was allocated to construction and land loans and commercial real estate loans. As discussed above, these loans were dealt with through charge off, foreclosure or collection during 2010. After detailed analysis, the loans identified as impaired at December 31, 2010 and the related reserves were classified as indicated on the above table.

Delinquent Loan Policy - Installment loans are placed on nonaccrual when the loan is three payments past due. Single-date maturity notes are placed on nonaccrual status when such notes are delinquent for 90 days. Delinquent commercial loans are placed on nonaccrual status when the loan is 90 days past due or when it is determined that it is doubtful that the borrower has the capacity to pay interest. After analysis and review, a loan that is 90 days past due may return to accrual status if collection of interest is well secured. Exceptions may be made where there are extenuating circumstances, but any exception is subject to review by the Board of Directors of the Bank.

Loans are considered delinquent if payments of principal or interest have not been made by the end of periods ranging from one to ten days after the due date, depending upon the type of loan involved. Installment loans are considered delinquent if payments of principal and interest are past due for a period of ten days and commercial loans are considered delinquent if payments of principal and interest are past due for a period of one day. Single-date maturity loans are considered delinquent if payments are not made by the day following the due date of such loans.

Loans are reviewed for charge offs, as necessary, on a monthly basis. If necessary, loans can be charged off at any time with the approval of the Chief Executive Officer (CEO). The loan officer responsible for the particular loan initiates the charge off request which is reviewed by the Special Assets Officer and the Special Assets Committee. A recommendation is then made for approval by the CEO. All charged off loans are reviewed by the Board of Directors of the Bank at the monthly board meeting.

DEPOSITS

(Dollars in Thousands)

The following table sets forth the average amount of deposits for the years 2010, 2009, and 2008 by category.

	Deposits						Rate Paid
	2010		2009		2008		2010			2009			2008
Noninterest-bearing demand deposits	$	142,311	$	140,782	$	63,234		0	%		0	%		0	%

Interest - bearing
Demand	$	79,376	$	87,294	$	82,357		0.62	%		0.76	%		1.68	%
Savings		20,022		19,147		17,612		0.21	%		0.20	%		0.24	%
Time		184,045		196,591		194,524		2.13	%		2.94	%		4.08	%
	$	283,443	$	303,032	$	294,493		1.57	%		2.23	%		3.18	%

The following shows the amount of time deposits outstanding at December 31, 2010, classified by time remaining until maturity (in thousands).

	$100,000 or Greater Certificates of Deposit		Other Time Deposits
Maturity
Three months or less	$	17,738	$	23,972
Three to six months		18,460		28,368
Six to twelve months		19,605		27,179
Twelve months or more		15,991		23,192
Totals	$	71,794	$	102,711

The following table shows various amounts of repurchase agreements and other short term borrowings and their respective rates.

(Dollars in Thousands)

	Maximum Outstanding at any month end		Average balance		Average interest rate			Ending balance		Average interest rate at year end

2010

Securities sold under
agreements to repurchase	$	-	$	5		0.00	%	$	-		0.00	%

Other short term borrowings	$	944	$	540		0.00	%	$	944		0.00	%

2009

Securities sold under
agreements to repurchase	$	-	$	5		0.00	%	$	-		0.00	%

Other short term borrowings	$	947	$	379		0.00	%	$	624		0.00	%

2008

Securities sold under
agreements to repurchase	$	108,160	$	68,257		1.22	%	$	1,861		0.00	%

Other short term borrowings	$	661	$	663		1.59	%	$	496		0.19	%

Return on Equity and Assets - The following table shows the percentage return on equity and assets, the dividend pay-out ratio, and the ratio or average equity to average assets of the Corporation for the years ended December 31, 2010, 2009, and 2008.

	2010			2009			2008

Return on average assets		-0.28	%		-0.91	%		0.11	%

Return on average equity		-2.36	%		-10.97	%		1.67	%

Dividend pay-out ratio		0.00	%		0.00	%		125.00	%


Ratio of average equity to average assets		7.46	%		8.31	%		7.35	%

ITEM 1A. RISK FACTORS

The following discusses risks that management believes could have a negative impact on the Corporation’s financial performance. When analyzing an investment in the Corporation, the risks and uncertainties described below, together with all of the other information included or incorporated by reference in this report should be carefully considered. The risk factors relate primarily to the commercial banking operations of the Bank. This list should not be viewed as comprehensive and may not include all risks that may affect the financial performance of the Corporation:

Capital Risk

The Corporation is required by federal and state regulatory authorities to maintain adequate levels of capital to support its operations. The Corporation anticipates that capital resources will satisfy these requirements in the near term. However, the Corporation may need to raise additional capital to support growth or for other needs. The ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are beyond the Corporation’s control, as well as on the Corporation current and anticipated financial performance. Accordingly, there can be no assurances as to the Corporation’s ability to raise additional capital, if needed, on favorable terms or at all. In the event the Corporation is unable to raise capital when needed, its ability to further expand operations through internal capital generation (net earnings) and acquisitions could be impeded. In this case or should the Corporation identify a need for additional capital or a need to preserve capital, a reduction in or suspension of the dividend may be advisable.

The Corporation is a participant in the Community Development Capital Initiative (CDCI) from the United States Treasury. The Corporation was initially a participant in the Capital Purchase Program (CPP) of the United States Treasury. Under this program, the Corporation sold to the Treasury, preferred shares and a warrant that is convertible into common stock of the Corporation. Should the common stock warrants be converted, the impact of the conversion would be a dilutive effect on the current shareholders and would result in an additional 107,193 shares being issued representing 4.49% of the 2,389,127 outstanding at December 31, 2010. When the Corporation received a capital investment from the United States Department of the Treasury under the Troubled Assets Relief Program ("TARP") Capital Purchase Program on December 23, 2008 (see Note 9 to the Consolidated Financial Statements), the Corporation became subject to additional limitations on the payment of dividends. These limitations require, among other things, that (i) all dividends Related to the securities purchased under the TARP Capital Purchase Program be paid before other dividends can be paid and (ii) the Treasury must approve any increases in common dividends for three years following the Treasury's investment. In 2010 the Corporation was certified as a Community Development Financial Institution and was then eligible to participate in the CDCI program. In September of 2010, the CPP preferred shares were exchanged for CDCI preferred shares. The only differences in the two programs are that the dividend rate on the CDCI preferred shares is 2% (a decrease from 5% for the CPP preferred shares) and the time period until the dividend rate increases to 9% was extended by five years. Additionally, the Corporation must remain certified as a CDFI. The other terms and restrictions of the TARP Program remain in place.

Interest Rate

The Bank’s profitability is largely a function of the spread between the interest rates earned on earning assets and the interest rates paid on deposits and other interest-bearing liabilities. Like most financial institutions, the Bank’s net interest income and margin will be affected by general economic conditions, fiscal and monetary policies of the Federal government that influence market interest rates, the Bank’s ability to respond to changes in such rates and other factors that determine the level and direction of movement of interest rates. At any given time, the Bank’s assets and liabilities may be so positioned that they are affected differently by a change in the level or direction of interest rates. As a result, an increase or decrease in rates, loan terms, the mix of adjustable- and fixed-rate loans or investment securities in the Bank’s portfolio or the shape of the yield curve could have a positive or negative effect on its net income, capital and liquidity. Although management believes it has implemented strategies and guidelines to reduce the potential effects of changes in interest rates on results of operations, any precipitous, substantial and/or prolonged change in market interest rates could adversely affect operating results.

INTEREST RATE SENSITIVITY*

Interest Rate Sensitivity Analysis

Year Ended December 31, 2010

(Dollars in Thousands)

			Percent Change Interest Income/Expense
	Ending Balances as of 12/31/10		Down 200 Basis Points			Up 200 Basis Points
Earning Assets:
Cash & Short-term Investments	$	80,966		-99.60	%		809.37	%
Investment securities, held to maturity		17,263		-1.61	%		4.64	%
Investment securities, available for sale		68,808		-4.32	%		7.15	%
Loans		256,631		-2.70	%		15.91	%
Total Assets	$	423,668		-3.23	%		18.12	%

Interest Bearing Liabilities:
Interest Bearing Deposits	$	99,846		-10.38	%		78.78	%
Certificates of Deposit less than $100,000		102,711		-12.35	%		61.75	%
Certificates of Deposit greater than $100,000		71,794		-11.37	%		56.86	%
Total Interest Bearing Deposits		274,351		-11.72	%		62.41	%

Federal funds sold & securities
purchased under agreement to resale		0		0.00	%		0.00	%
Federal Home Loan Bank borrowings		1,280		-3.12	%		24.93	%
Total Purchased Funds		1,280

Total Liabilities	$	275,631		-11.52	%		61.53	%

Net Interest Income				-1.34	%		8.24	%

*Information pertains to the Bank only

As evidenced in the table, the Corporation is more interest rate sensitive in an increasing rate environment. A 200 basis point decline in prevailing market interest rates, such as the prime rate, would cause a 1.34% decline in net interest income; while a similar increase in interest rates would yield a 8.24% increase in net interest income. The comparable sensitivities at the end of 2009 were a decline in net interest income of 6.87% in a 200 basis point decline and an increase of 10.21% in a similar increase of rates. This effect is due to the Corporation’s mix of variable and fixed rate loans, investment portfolio, interest bearing deposits, and borrowed funds. The Corporation's sensitivity to changes in interest rates in conjunction with the structure of interest rate spreads determines the impact of change in interest rates on the Bank's performance.

Credit Risk

As a lender, the Bank is exposed to the risk that its borrowers may be unable to repay their loans and that any collateral securing the payment of their loans may not be sufficient to assure repayment in full. Credit losses are inherent in the lending business and could have a material adverse effect on the operating results of the Bank. Adverse changes in the economy or business conditions, either nationally or in the Bank’s market areas, could increase credit related losses or related expenses and/or limit growth. Substantially all of the Bank’s loans are to businesses and individuals in a limited geographic area and any economic decline in this local market could impact the Bank adversely. The Bank makes various assumptions and judgments about the collectability of its loan portfolio and provides an allowance for loan losses based on a number of factors. If these assumptions are incorrect, the allowance for loan losses may not be sufficient to cover losses, thereby having an adverse effect on operating results, and may cause the Bank to increase the allowance in the future by increasing the provision for loan losses. The Bank has adopted credit policies which when combined with underwriting and credit monitoring procedures produce a process that management believes is appropriate to control these risks. Such policies and procedures may not prevent unexpected losses that could have a material adverse affect on the Bank’s financial condition and/or results of operations. See “PROVISION FOR LOAN LOSSES” in Item 7 and “Summary of Loan Loss Experience” and “Allowance for Loan Losses” in Item 1.

Competition

The financial services industry is highly competitive. Competition for attracting and retaining deposits and attracting desirable loans comes from a wide array of financial companies, such as other banks, savings institutions, credit unions, mutual fund companies, insurance companies and, increasingly, other non-bank businesses. Some of the Bank’s competitors are much larger in terms of total assets and market capitalization, have a higher lending limit, and have greater access to capital and funding. The presence of one or more aggressive competitors in the Bank’s market area could have an adverse affect on the Bank’s financial condition and/or results of operations by increasing the cost of deposits, reducing the rates on loans or limiting access to quality borrowers. See “Competition” in Item 1.

Government Regulation and Supervision

The banking industry is heavily regulated under both federal and state law. Banking regulations, designed primarily for the safety of depositors, may limit a financial institution’s growth and the return to its investors, by restricting such activities as the payment of dividends, mergers with or acquisitions by other institutions, expansion of branch offices and the offering of securities. The Bank is also subject to capitalization guidelines established by federal law and could be subject to enforcement actions to the extent that its subsidiary bank is found, by regulatory examiners, to be undercapitalized. In 2009 discussions with its principal regulators capital and other benchmarks were agreed upon, as well as reporting with respect to those benchmarks, and the Bank agreed consistent with its earlier determination to suspend cash dividends to preserve capital and to consult with the Alabama State Banking Department prior to the payment of any cash dividend. The agreed upon benchmarks are consistent with those already established by the Bank. It is not possible to predict what changes, if any, will be made to existing federal and state legislation and regulations or the effect that such changes may have on the Bank’s future business and earnings prospects. Any substantial changes to applicable laws or regulations could also subject the Bank to additional costs, limit the types of financial services and products it may offer, and inhibit its ability to compete with other financial service providers. As a participant in the Treasury’s Community Development Capital Initiative, the Corporation is subject to potential additional regulations regarding executive compensation and any additional items as may be required in the future. See “Supervision, Regulation and Government Policy” in Item 1.

Attracting and Retaining Skilled Personnel

Attracting and retaining key personnel is critical to the Bank’s success, and difficulty finding qualified personnel could have a significant impact on the Bank’s business due to the lack of required skill sets and years of industry experience.

Local Economic Conditions

The Bank’s success depends primarily on the general economic conditions of the specific local markets in which the Bank operates. Unlike larger national or other regional banks that are more geographically diversified, the Bank provides banking and financial services to customers primarily in Escambia, Monroe, and Baldwin County, Alabama, and Santa Rosa County, Florida. The local economic conditions in these areas have a significant impact on the demand for the Bank’s products and services as well as the ability of the Bank’s customers to repay loans, the value of the collateral securing loans and the stability of the Bank’s deposit funding sources. A significant decline in general economic conditions, caused by inflation, recession, acts of terrorism, outbreak of hostilities or other international or domestic occurrences, unemployment, changes in securities markets or other factors could impact those local economic conditions and, in turn, have a material adverse effect on the Bank’s financial condition and results of operations. Deterioration of local economic conditions could also pose down side risks to the fair value of the Bank’s assets. See “Relative Lending Risk” in Item 1.

Growth Strategy

The Bank completed its previously discussed planned expansion in 2008 with the completion of its Loxley, AL retail branch. There can be no assurance that the Bank can expand its market presence or earning assets in its locations to the degree needed to overcome the added expense of operating the new locations.

Severe Weather, Natural Disasters, Acts of War or Terrorism And Other External Events Could Significantly Impact The Corporations Business

Severe weather, natural disasters, acts of war or terrorism and other adverse external events could have a significant impact on the Bank’s ability to conduct business. Such events could affect the stability of the Bank’s deposit base, restrict the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause the Bank to incur additional expenses. Although management has established disaster recovery policies and procedures, the occurrence of any such event could have a material adverse effect on the Bank’s business, which, in turn, could have a material adverse effect on the Bank’s financial condition and results of operations.

Information Systems Integrity

The Bank relies on modern data, communication, and network systems to conduct ongoing operations. These systems could be vulnerable to internal and external attacks to the physical equipment or the raw data stored within these systems. Failures to maintain the integrity of one or more of these systems could threaten the Bank’s ability to serve customers in an effective and timely manner. The Bank maintains policies and procedures governing the access to and use of these systems in order to insulate the systems from any sort of security breach. However, any breach could have a material adverse effect on the financial position and future earnings of the Bank.

Technological Advancement and Implementation

The future success of the Bank is directly related to the successful implementation of new technological advancements pertaining to the banking industry. Technology continues to offer the Bank new avenues to add products for customers, as well as increase the efficiency of the Bank’s internal operations. Failure to effectively manage the implementation of emerging technology could result in the loss of existing customers or limit the Bank’s ability to attract new customers, thus putting pressure on the Bank’s financial position and future earnings.

Internal Audit and Control Risk

The Bank incorporates the use of various internal audit review and internal controls to minimize the Bank’s exposure to material financial misstatement or fraudulent activity. Despite the presence of these systems, the Bank is exposed to the inherent risks that are present in any similar environment, including risks that a control, or controls, could be circumvented. The Bank attempts to revise its internal audit procedures and controls as its operations evolve. However rigorously the Bank undertakes its pursuit of internal controls, this process can only provide reasonable assurance that the Bank’s financial reporting doesn’t include material misstatement.

Industry Conditions

After the large declines experienced in late 2008 and 2009, national economic activity began to recover slowly in 2010. The pace of growth remains erratic but positive. Real estate values have slowed their decline and in some markets have begun to stabilize. Both residential and commercial real estate values, which have an effect on the value of collateral securing some bank loans, remains particularly weak with few transactions occurring. The unemployment rate has improved, but remains high by historical standards. In summary, the national economy appears to have stabilized and to be growing slowly. The expectation is for low inflationary pressure over the next two years with constant but erratic growth. The unemployment rate, nationally, will be slow to decline, but will be consistently lower through time. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on the Corporation and others in the financial services industry. In particular, the Corporation may face the following risks in connection with these events:

The Bank expects to face increased regulation of the industry, including the Dodd-Frank Act. Compliance with such regulations may increase the Bank’s costs and limit our ability to pursue business opportunities.

Regulatory changes have introduced price controls on products or services offered by the Bank. There is no assurance that the maximum price allowed under such regulation will be in excess of the Bank’s cost of providing the product or service.

Government stimulus packages and other responses to the financial crises may not stabilize the economy or financial system.

The ability to assess the creditworthiness of the Bank’s customers may be impaired if the approaches used to select, manage, and underwrite our customers become less predictive of future behaviors.

The process used to estimate losses requires difficult, subjective, and complex judgments, including forecasts of economic conditions and how these economic predictions might impair the ability of the Bank’s borrowers to repay their loans. The current economic conditions may make accurate estimation more difficult and negatively impact the reliability of this process.

The Bank may be required to pay higher Federal Deposit Insurance Corporation premiums because of its performance or because market developments significantly deplete the DIF of the FDIC and reduce the ratio of reserves to insured deposits below the statutory requirement.

The ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions and government sponsored entities.

If the aforementioned current levels of market disruption and volatility continue or worsen, there can be no assurance that the Corporation will not experience an adverse effect on the Bank’s financial position and future earnings.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

The Corporation's bank subsidiary operates seventeen full service branches and one loan production office housed in facilities either owned or leased. The offices are located in Escambia, Baldwin and Monroe Counties in Alabama and Santa Rosa County in Florida. All land, buildings and improvements held by the Corporation were transferred as a capital investment to the Bank during 2006.

Locations in Escambia County, Alabama include: Atmore (two full service banking locations) and Flomaton.

Locations in Baldwin County, Alabama include: Foley, Lillian, Bay Minette (2 full service locations), Silverhill, Magnolia Springs, Summerdale, Loxley (a full service branch and a loan production office) and Spanish Fort.

Locations in Monroe County, Alabama include: Monroeville and Frisco City.

Locations in Santa Rosa County, Florida include: Jay, Milton and Pace.

The Bank has acquired property on which it plans to locate a full service banking location in Spanish Fort, Alabama. The development of this location has been delayed until economic conditions improve.

ITEM 3. LEGAL PROCEEDINGS

There are presently no pending legal proceedings to which the Corporation or its subsidiary, United Bank, is a party or to which any of their property is subject, which management of the Corporation based upon consultation with legal counsel believes are likely to have a material adverse effect upon the financial position of the Corporation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the shareholders of the Corporation during the fourth quarter of the fiscal year.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

The Corporation's authorized common shares consist of the following:

(1)

5,000,000 shares of Class A common stock, $.01 par value per share, of which 2,389,127 shares are issued and 2,325,162 are outstanding and held by approximately 864 shareholders of record, as of March 29, 2011.

(2)

250,000 shares of Class B common stock, $.01 par value per share, none of which were issued, as of March 29, 2011.

The Corporation is informed that over-the-counter market quotations reflect inter-dealer prices, without retail mark-ups, markdowns, or commissions and may not necessarily reflect actual transactions. Because of the extremely limited number of transactions involving the Corporation’s common stock that have been reported on the OTCBB, the Corporation believes that any reported bid or asked price may not reflect a fair valuation of its common stock.

The Corporation declared no common stock cash dividends during 2010 or 2009. The payment of dividends is subject to the earnings and financial condition of the Corporation and other relevant factors. Dividends on the Corporation’s common stock are declared and paid based on a variety of considerations by the Corporation’s Board of Directors and there can be no assurance that the Corporation will continue to pay regular dividends or as to the amount of dividends if any. The payment of dividends is also subject to limitations related to the CDCI preferred stock investment by the Treasury. Payment of future common stock cash dividends will depend upon business conditions, operating results, capital and reserve requirements and the Board’s consideration of other relevant factors. In addition, the ability of the Corporation to pay dividends is totally dependent on dividends received from its banking subsidiary (see Note 17 to the consolidated financial statements) and is subject to statutory restrictions on dividends applicable to Delaware corporations, including the restrictions that dividends generally may be paid only from a corporation’s surplus or from its net profits for the fiscal year in which the dividend is declared and the preceding year.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

The following financial review is presented to provide an analysis of the consolidated results of operations of the Corporation and its subsidiary. This review should be read in conjunction with the consolidated financial statements included under Item 8.

OVERVIEW

This overview is a broad, high-level discussion of various financial measures addressed in detail in the following discussion and analysis. The items addressed, as such, do not have any more or less significance than the detailed discussion to follow.

United Bancorporation of Alabama, Inc. is a one-bank, bank holding company that competes in the commercial banking industry within the primary markets of Southwest Alabama and Northwest Florida. As a community bank, the Bank strives to meet the needs of the total markets it serves including, but not limited to, consumer and business banking needs, agricultural financing, mortgage products, and various insurance and investment needs.

At December 31, 2010 the Corporation had $467,220,694 of total assets, compared to $456,982,406 at December 31, 2009. Total deposits increased by $12,222,471 (3.02%) to $417,032,720, as compared to $404,810,249 at the end of 2009.

Loans at year end 2010 totaled $261,770,815, a decrease of $21,575,356 from the $283,346,171 recorded at December 31, 2009. The allowance for loan losses decreased by $2,295,511, to $5,139,998 from $7,435,509. The allowance coverage declined to 1.96% of total loans from 2.62% of total loans. The reduction in both reserves and the coverage was primarily the result of the resolution and/or charge off of loans which were specifically reserved.

Other Real Estate owned (ORE) increased to $10,163,992 at year end, 2010 from $7,610,689 at the same time in 2009. This was the result of the weakened economy and the foreclosing on several problem loans by the Bank as it continued efforts to resolve the problem credits.

The investment by the Corporation in premises and equipment at the end of 2010 was lower by $1,117,180 to $16,472,056 from $17,589,236 at the end of 2009. The Corporation did not add to its branch network during the year and this reduced the need for new purchases of equipment.

Net interest income was $14,433,179 for the year ended December 31, 2010, as compared with $13,647,585 for the year ended December 31, 2009, an increase of 5.76%. Net interest income for 2010 was higher than any year since 2006. Nonaccrual loans continued to be a drag on interest revenue. Net interest income increased in each quarter during 2010 over the prior quarter, primarily as the result of the continued lower interest rates paid on time deposits. Net interest income is discussed in more detail below under Net Interest Income.

The severe economic recession that the country experienced beginning in 2008 moderated in 2010. The amount of charge offs of loans with previously identified problems continued with charge off amounts rising to $6,878,006 in 2010 from $4,526,727 in 2009. During 2010, the level of loans declined to $261,770,815 at year end from $283,346,171 at year end 2009. After analysis of the loan portfolio, the losses, and level of loans, the needed level of the allowance was calculated resulting in a provision for the year of $4,438,000 in 2010. This is a decrease from the $8,267,561 recorded in 2009.

Noninterest income totaled $5,367,619 for 2010 as compared to $4,683,596 in 2009, an increase of $684,023 or 14.60%. Service charges and fees on deposit accounts showed a decrease of $223,238. Regulatory overdraft restrictions were partially responsible, but lower usage of this product was a major contributor. Gains recorded from disposition of investment portfolio securities were higher by $870,259 and origination fees on mortgage loans increased $198,204 in 2010. Other non interest income was lower by $161,202 primarily as the result of losses and valuation adjustments to ORE properties of $175,908.

Noninterest expense totaled $17,304,088 for the year ended December 31, 2010, as compared to $17,321,206 for the year ended December 31, 2009, a decrease of $17,118 or 0.10%. Salaries and benefits were higher by $99,487 to $8,617,345 (1.17%). Occupancy expense was lower by $199,671 as the Corporation restricted the purchase of new equipment and facilities resulting in lower depreciation. Other noninterest expense showed an increase of $83,066. Expenses over which the Corporation could exercise some control; such as advertising, donations and supplies; were lower. Included in the other expense category was a non-recurring, non-cash write-off of intangible assets in the amount of $938,000.

On a pre-tax basis, the Corporation reported a loss in 2010 of $1,941,290 as compared to the loss in 2009 of $7,257,586. Tax benefits of $1,101,432 and $3,228,241 were recognized in 2010 and 2009 respectively. The Corporation reported a net loss (prior to the payment of preferred dividends) for 2010 of $839,858 as compared to a net loss (prior to the payment of preferred dividends) of $4,029,345 for the year ended December 31, 2009. After considering the payment of preferred dividends and associated accretion of discount related to the preferred stock in the amounts of $518,442 in 2010 and $522,243 in 2009, the Net losses available to common shareholders were $1,358,300 in 2010 and $4,551,588 in 2009. Net losses on a per share basis were ($0.37) and ($1.79) for the periods ended December 31, 2010 and 2009 respectively.

CRITICAL ACCOUNTING ESTIMATES

The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States and with general practices within the banking industry, which require management to make estimates and assumptions (see Note 1 to Consolidated Financial Statements).

ALLOWANCE FOR LOAN LOSSES

Management believes that its determination of the allowance for loan losses involves a higher degree of judgment and complexity than the Bank’s other significant accounting policies. Further, these estimates can be materially impacted by changes in market conditions or the actual or perceived financial condition of the Bank’s borrowers, subjecting the Bank to significant volatility of earnings. The allowance for credit losses is established through a provision for loan losses, which is a charge against earnings. Provisions for loan losses are made to reserve for estimated probable losses on loans.

The allowance for loan losses is a significant estimate and is regularly evaluated by management for accuracy by taking into consideration factors such as changes in the nature and volume of the loan portfolio; trends in actual and forecasted portfolio credit quality, including delinquency, charge-off and bankruptcy rates; and current economic conditions that may affect borrowers’ ability to pay. The use of different estimates or assumptions could produce different provisions for loan losses. Because current economic conditions can change and future events are inherently difficult to predict, the anticipated amount of estimated loan losses, and therefore the appropriateness of the allowance, could change. Management believes the allowance for loan losses is appropriate and properly recorded in the financial statements. For further discussion of the allowance for loan losses, see “PROVISION FOR LOAN LOSSES” below, and “Summary of Loan Loss Experience” and “Allowance for Loan Losses” under “BUSINESS” above.

ESTIMATES OF FAIR VALUE

The estimation of fair value is significant to a number of the Corporation’s assets, including, but not limited to, investment securities, other real estate owned, and other repossessed assets. Investment securities available for sale are recorded at fair value while investment securities held to maturity are carried at cost. Other real estate owned and other repossessed assets are recorded at either cost or fair value, whichever is lower. Fair values for investment securities are based on quoted market prices, and if not available, quoted prices on similar instruments. The fair values of other real estate owned and repossessions are typically determined based on third-party appraisals less estimated costs to sell.

The estimation of fair value and subsequent changes of fair value of investment securities, other real estate owned, and repossessions 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, derivatives, 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 other real estate owned and repossessed assets. Changes in these factors can cause assets to be written down and have an impact on the financial results.

NET INTEREST INCOME

(Dollars in Thousands)

	2010		2009
Interest income (1)	$	19,552	$	21,411
Interest expense		4,737		7,129
Net interest income		14,815		14,282
Provision for loan losses		4,438		8,268
Net interest income after provision for loan losses on a tax equivalent basis		10,377		6,014
Less: tax equivalent adjustment		382		634
Net interest income after provision for loan losses	$	9,995	$	5,380

(1) Income on tax-exempt obligations has been computed on a full federal tax-equivalent (FTE) basis using an income tax rate of 34% for 2010 and 2009.

Total interest income (on an FTE basis) decreased to $19,552,415 in 2010, from $21,411,086 in 2009, a decrease of $1,858,671, or 8.68%. This decrease was primarily caused by the historically low Fed Funds overnight rate which was set at 0.25% for 2010. Average loans decreased $7,746,529 while the average rate earned increased 2 basis points causing an overall decrease in interest earned on loans of $433,077. The average interest rate (FTE) earned on all earning assets in 2010 decreased to 4.60% from 4.93% in 2009. The interest margin increased to 3.49% in 2010 from 3.28% in 2009. Average taxable investment securities for 2010 were $67,353,727, as compared to $65,760,188 for 2009, an increase of $1,593,539, or 2.42%. Average tax-exempt investment securities decreased $12,116,408, or 39.62%, to $18,463,023 in 2010 from $30,579,430 in 2009. During 2010, the Corporation undertook to restructure its investment portfolio. This was done to reduce the level of tax advantaged revenue and reduce the Corporation’s sensitivity to changes in interest rates. The result was the sale of a majority of the holdings of tax free municipal securities and the reinvestment of the proceeds in slightly longer term U. S. Government and U. S. Government Agency securities. The average volume of federal funds sold and interest bearing deposits in other banks increased to $61,984,654 in 2010 from $52,734,510 in 2009, an increase of $9,250,687 or 17.54%. The increase in fed funds sold and interest bearing deposits in other banks was primarily the result of elevated levels of temporary deposits from the Bank’s largest depositor.

Total interest expense decreased $2,391,609 or 33.55%, to $4,737,423 in 2010, from $7,129,032 in 2009. This decrease was a function of the decrease in interest rates paid on deposit accounts as prevailing rates were low throughout the year. The average rate paid on interest-bearing liabilities in 2010 was 1.60% as compared to 2.26% in 2009. Average interest-bearing liabilities decreased to $295,648,390 in 2010, from $315,247,208 in 2009, a decrease of $19,598,817, or 6.22%. Average savings and interest-bearing demand deposits decreased $7,043,221 or 6.62% to $99,397,662 in 2010. Average time deposits decreased to $184,045,177 in 2010, from $196,591,347 in 2009, a decrease of $12,546,170, or 6.38%. The average rate paid on time deposits decreased to 2.13% in 2010 from 3.09% in 2009. The Corporation issued $10,310,000 of subordinated debentures in September of 2006 at an interest rate of LIBOR plus 1.68%. The interest rate paid on the subordinated debentures was 2.05% in 2010, a reduction from the 2.61% paid in 2009.

PROVISION FOR LOAN LOSSES

The provision for loan losses is that amount necessary to maintain the allowance for loan losses at a level appropriate for the associated credit risk, as determined by management in accordance with generally accepted accounting principles (GAAP), in the current portfolio. The provision for loan losses decreased 46.32% for the year ended December 31, 2010 to $4,438,000 as compared to $8,267,561 for the year ended December 31, 2009. The change in the provision maintains the allowance at a level that is determined to be appropriate by management and the board of directors of the Bank.

The allowance for loan losses at December 31, 2010 represents 1.96% of gross loans, as compared to 2.62% at December 31, 2009.

While it is the Bank's policy to charge off loans when a loss is considered probable, there exists the risk of losses which cannot be quantified precisely or attributed to particular loans or classes of loans. Because this risk is continually changing in response to factors beyond the control of the Bank, management's judgment as to the appropriateness of the allowance for loan losses is necessarily approximate and imprecise. Adjustments to the allowance for loan losses may also be required by the FDIC or the Alabama Superintendent of Banks in the course of their examinations of the Bank. Accordingly, no assurances can be given that continued evaluations of the loan portfolio in light of economic conditions then prevailing, results of upcoming examinations, or other factors will not require significant changes to the allowance.

NONINTEREST INCOME

	2010		2009
Service Charge Income	$	1,386,816	$	1,364,164
Nonsufficient Fund Charges, net		1,924,441		2,170,331
Mortgage Origination Fees		357,756		159,552
Investment Securities Gains, (net)		1,046,575		176,316
Other		652,031		813,233
	$	5,367,619	$	4,683,596

Total noninterest income increased $684,023 or 14.6%, to $5,367,619 in 2010, as compared to $4,683,596 in 2009.

Service Charge Income shows a small increase in 2010 as opposed to 2009. This is comprised of two parts: Service charges on deposit accounts were lower by $81,000 as account activity was lower; offsetting this decline, ATM activity fees increased by $129,000 based on increased ATM usage. NSF charges were significantly lower as the service was used less because of new restrictions on the charging of overdraft fees implemented in the third quarter of 2010. Mortgage origination fees increased as the economic decline was moderating and rates were low. The Bank had restructured its origination department in 2009 and was in a better position to aid its customers as demand for mortgage loans increased. The decrease in other income is the net result of several smaller changes. The majority of the decline is created by the loss on the disposition of ORE and valuation adjustments in ORE assets in the amount of approximately $176,000.

Net gains on the sale of investment securities increased by $871,000 as the result of the restructure of the investment portfolio. Two considerations were responsible for this action: 1) Reduction of tax free revenue so that the deferred tax asset could be more quickly utilized and, 2) Reduction of sensitivity to movements of interest rates.

The length and depth of the recession had resulted in credit related losses to the Corporation and the recording of a deferred tax asset. Lowering the amount of tax advantaged revenue will allow this to be utilized more quickly. Adjustments to economic forecasts at mid-year indicated that interest rates were not anticipated to increase for several quarters. This change was not favorable to the Corporation’s balance sheet structure. The restructure was intended to address both of these concerns. The result was to reduce tax advantages revenue and to reduce sensitivity to 1.34% of net interest income at December, 2010 (assuming a negative 200 basis point shock) from 6.87% at December, 2009.

NONINTEREST EXPENSE

	2010		2009
Salaries and benefits	$	8,617,345	$	8,517,858
Net occupancy		2,219,242		2,418,913
Other		6,467,501		6,384,435
Total	$	17,304,088	$	17,321,206

Total noninterest expense decreased $17,118, or 0.1%, to $17,304,088 in 2010 from $17,321,206 in 2009.

Salaries and other compensation expense increased $99,487, or 1.17%. Salaries added $48,000 of the difference with benefits (mainly health insurance) adding the same amount. Net occupancy expenses decreased to $2,219,242 in 2010 from $2,418,913 in 2009, a decrease of $199,671 or 8.25%. Depreciation expenses decreased by $135,459 as the Corporation slowed its capital expenditures. Repairs and maintenance were lower by $47,419 as repairs were fewer and the Corporation had renewed several contracts on favorable terms. Other expenses increased to $6,467,501 in 2010, from $6,384,435 in 2009, an increase of $83,066, or 1.30%. The expense related to FDIC insurance assessments decreased by $251,433 or 19.4% and ORE expenses were reduced by $890,000 as there was not a repeat of the 2009 ORE reserve provision of $1,032,000 in 2010. Professional fees and audit and accounting fees increased by $63,000 and $65,000 respectively as additional resources were used or anticipated to be used relative to outside loan review services and accounting reviews. Included in this category is the write off of the intangible asset associated with the Bank’s branching into Florida. The Bank had purchased the charter that was required under Florida law to branch across the state line. The passage of the Dodd-Frank Act, among other things, allowed banks to branch across state lines with no need for a charter in the target state. This necessitated the write- down of the intangible asset associated with the charter and the Corporation recorded an expense of approximately $938,000.

Basic and diluted losses per share in 2010 were ($0.37), as compared to ($1.79) in 2009. Return on average assets was (0.28%) in 2010, as compared to (0.91%) in 2009. Return on average equity was (2.36%) in 2010, as compared to (10.97%) in 2009.

LOANS AT DECEMBER 31

	2010		2009
Real estate:
Construction, land developmnt, and other land loans	$	36,825,855	$	49,321,129
Farmland		30,269,876		30,391,410
1-4 family residential mortgage		58,342,993		55,820,121
Multifamily		3,082,066		4,374,432
Commercial		73,800,481		61,073,450
Agriculture		12,633,816		13,566,243
Commercial		29,413,147		51,989,325
Consumer		13,597,817		14,323,775
States and political subdivisions		3,735,144		2,378,040
Other loans		69,620		108,246
	$	261,770,815	$	283,346,171

Total loans decreased to $261,770,815 at December 31, 2010, from $283,346,171 at year end 2009, a decrease of $21,575,356, or 7.61%. The ratio of loans to deposits was 62.77% at December 31, 2010 vs. 70.00% at the same date in 2009. The decrease in the loan to deposit ratio was caused by the decrease in loans and a corresponding increase in deposits of $12 million. Of the decline noted above, resolutions of problem loans were responsible for a portion of the total decrease. Loans in the amount of $6,800,000 were charged off and loans in the amount of $4,300,000 were foreclosed and real estate transferred to ORE. The remainder was the result of repayments reducing balances in most categories of loans and these were not replaced as there was little demand for new loans in the markets served by the Bank.

LIQUIDITY

One of the Bank’s goals is to provide adequate funds to meet changes in loan demand or any potential increase in the normal level of deposit withdrawals. This goal is accomplished primarily by generating cash from operating activities and maintaining sufficient short-term assets. These sources, coupled with a stable deposit base, allow the Bank to fund earning assets and maintain the availability of funds. Management believes that the Bank’s traditional sources of maturing loans and investment securities, cash from operating activities and a strong base of core deposits are adequate to meet the Bank’s liquidity needs for normal operations. Should the Bank’s traditional sources of liquidity be constrained, forcing the Bank to pursue avenues of funding not typically used, the Bank’s net interest margin could be impacted negatively. Beginning early in 2008, Management identified that general systemic risks to liquidity and funding were beginning to be present in the marketplace. In response, the Corporation developed a liquidity plan that measured the ability to deal with expected cash flow needs and the ability to deal with a significantly more difficult environment or a stress case. The result has been that the Corporation has carried significantly higher levels of liquid assets since 2008.

Additionally, the Corporation requires cash for various operating needs including dividends to shareholders, the servicing of debt and general corporate expenses. The primary source of liquidity for the Corporation is dividends from the Bank as noted in Part I, Item 1. Business, Supervision, Regulation and Government Policy, the payment of dividends from the Bank is regulated by the Alabama State Banking Department and is dependent on earnings and credit losses. Recent earnings and loan losses create a restriction on the ability of the Bank to pay dividends. Future payments of dividends by the Bank to the Corporation will be dependent on earnings, loan losses and the approval of the Alabama State Banking Department and applicable federal regulators.

Asset and liability management functions not only serve to assure adequate liquidity in order to meet the needs of the Bank’s customers, but also to maintain an appropriate balance between interest-sensitive assets and interest-sensitive liabilities so that the Corporation can earn a return that meets the investment requirements of its shareholders. Daily monitoring of the sources and uses of funds is necessary to maintain an acceptable cash position that meets both requirements.

The asset portion of the balance sheet provides liquidity primarily through loan principal repayments, maturities of investment securities available for sale and, to a lesser extent, sales of investment securities available for sale. Other short-term investments such as federal funds sold, interest bearing deposits in other banks and securities purchased under agreements to resell, are additional sources of liquidity funding.

The liability portion of the balance sheet provides liquidity through various customers’ interest bearing and noninterest bearing deposit accounts. Federal funds purchased, securities sold under agreements to repurchase, out of market CD’s and other short-term borrowings are additional sources of liquidity. These sources of liquidity are short-term in nature and are used as necessary to fund asset growth and meet short-term liquidity needs.

The Corporation's bank subsidiary has an Asset Liability Committee, which has as its primary objective the maintenance of specific funding and investment strategies to achieve short-term and long-term financial goals.

The Corporation generates the majority of its cash flow from financing activities. Funds provided by financing activities were $11,921,658 in 2010. The investing activities of the Corporation provided $9,245,941 of cash flow, to fund the investment portfolio, loan portfolios, and the purchases of premises and equipment of the Bank. Operations provided $5,130,399 in cash flow for the year ended December 31, 2010.

CAPITAL RESOURCES

The Corporation has historically relied primarily on internally generated capital growth to maintain capital adequacy. The average equity to average assets ratio during 2010 was 7.46% as compared to 8.31% in 2009. Total stockholders’ equity on December 31, 2010 was $35,519,206, a decrease of $2,044,598, or 5.44%, from $37,563,804 at year end 2009. The Corporation's risk based capital of $43,955,515, or 15.14%, of risk adjusted assets at December 31, 2010, was well above the Corporation’s minimum risk based capital requirement of $23,233,016 or 8.0% of risk weighted assets.

In March of 2006, the Federal Reserve issued a final rule providing for the inclusion of Trust Preferred securities in Tier 1 risk weighted capital, up to a limit of 25% of total Tier 1 capital. These securities comprised 24.81% of the Corporation’s Tier 1 Capital as of December 31, 2010.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Corporation's consolidated financial statements as of December 31, 2010 and 2009 and for the years thus ended are included in the following pages shown in the index below.

Index to Financial Statements	Page(s)

Report of Independent Registered Public Accounting Firm		F1

Consolidated Balance Sheets as of December 31, 2010 and 2009		F2

Consolidated Statements of Operations for the years ended December 31, 2010 and 2009		F3

Consolidated Statements of Stockholders' Equity and Other Comprehensive Loss for the years ended December 31, 2010 and 2009		F4

Consolidated Statements of Cash Flows for the years ended December 31, 2010 and 2009		F5

Notes to Consolidated Financial Statements - December 31, 2010 and 2009		F6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

United Bancorporation of Alabama, Inc.

Atmore, Alabama

We have audited the consolidated balance sheets of United Bancorporation of Alabama, Inc. and subsidiary as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’ equity and comprehensive loss and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of United Bancorporation of Alabama, Inc. and subsidiary as of December 31, 2010 and 2009, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

Birmingham, Alabama

March 29, 2011

UNITED BANCORPORATION OF ALABAMA, INC.

AND SUBSIDIARY

Consolidated Balance Sheets

December 31, 2010 and 2009

Assets	2010			2009
Cash and due from banks	$	18,179,566		$	13,858,726
Interest bearing deposits in banks		62,786,543			40,809,385
Cash and short-term investments		80,966,109			54,668,111

Interest bearing deposits with other
Securities available for sale, at fair value (amortized cost of $69,518,789 and $67,627,174 at December 31, 2010 and 2009,respectively)		68,808,624			68,212,662

Securities held to maturity (market values of $17,302,864 and $15,715,993 at December 31, 2010 and 2009 respectively)

Loans		261,770,815			283,346,171
Less: Allowance for loan losses		5,139,998			7,435,509
Net Loans		256,630,817			275,910,662

Premises and equipment, net		16,472,056			17,589,236
Interest receivable		2,192,768			2,858,122
Intangible assets		-			934,763
Other assets		24,887,714			21,149,520

Total assets	$	467,220,694		$	456,982,406

Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing	$	142,681,749		$	121,753,295
Interest bearing		274,350,971			283,056,954
Total deposits		417,032,720			404,810,249

Advances from Federal Home Loan Bank of Atlanta		1,280,300			1,445,100
Treasury, tax, and loan account		944,078			624,143
Interest payable		402,953			620,867
Accrued expenses and other liabilities		1,731,437			1,608,243
Note payable to Trust		10,310,000			10,310,000
Total liabilities		431,701,488			419,418,602


Stockholders' equity:
Preferred stock of $.01 par value. Authorized 250,000 shares; 10,300 shares issued in 2010 and 2009 respectively		10,080,227			10,014,985
Class A common stock, $0.01 par value. Authorized 5,000,000 shares; issued and outstanding,2,389,127 and 2,388,992 shares in 2010 and 2009, respectively		23,891			23,890
Class B common stock, $0.01 par value. Authorized 250,000 shares; no shares issued or outstanding		-			-
Additional paid in capital		6,815,176			6,544,079
Accumulated other comprehensive income (loss), net of tax		(426,105	)		351,289
Retained earnings		19,721,667			21,685,478
		36,214,856			38,619,721

Less: 86,757 and 131,678 treasury shares, at cost, respectively		695,650			1,055,917
Total stockholders' equity		35,519,206			37,563,804
Total liabilities and stockholders' equity	$	467,220,694		$	456,982,406

See accompanying notes to consolidated financial statements

F-2

UNITED BANCORPORATION OF ALABAMA, INC.

AND SUBSIDIARY

Consolidated Statements of Operations

Years ended December 31, 2010 and 2009

	2010			2009

Interest income:
Interest and fees on loans	$	16,580,519		$	17,013,596
Interest on investment securities:
Taxable		1,692,469			2,283,501
Nontaxable		741,167			1,231,617
Total investment income		2,433,636			3,515,118
Other interest income		156,447			247,903
Total interest income		19,170,602			20,776,617

Interest expense:
Interest on deposits		4,447,947			6,770,052
Interest on other borrowed funds		289,476			358,980
Total interest expense		4,737,423			7,129,032

Net interest income		14,433,179			13,647,585

Provision for loan losses		4,438,000			8,267,561


Net interest income after provision for loan losses		9,995,179			5,380,024

Noninterest income:
Service charge on deposits		3,311,257			3,534,495
Investment securities gains, net		1,046,575			176,316
Mortgage loan and related fees		357,756			159,552
Other		652,031			813,233
Total noninterest income		5,367,619			4,683,596

Noninterest expense:
Salaries and benefits		8,617,345			8,517,858
Net occupancy expense		2,219,242			2,418,913
Other		6,467,501			6,384,435
Total noninterest expense		17,304,088			17,321,206

Loss before income tax benefits		(1,941,290	)		(7,257,586	)
Income tax benefits		(1,101,432	)		(3,228,241	)
Net losses		(839,858	)		(4,029,345	)
Preferred stock dividends		453,200			460,639
Accretion on preferred stock discount		65,242			61,604
Net losses available to common shareholders	$	(1,358,300	)	$	(4,551,588	)


Basic losses per share	$	(0.37	)	$	(1.79	)

Basic weighted average shares outstanding		2,288,829			2,245,098

Diluted losses per share	$	(0.37	)	$	(1.79	)

Diluted weighted average shares outstanding		2,288,829			2,245,098

See accompanying notes to consolidated financial statements

F-3

UNITED BANCORPORATION OF ALABAMA, INC.

AND SUBSIDIARY

Consolidated Statements of Stockholders' Equity and Comprehensive Loss

Years ended December 31, 2010 and 2009

	Preferred Stock		Common Shares		Common stock		Additional paid in capital		Retained earnings			Accumulated other comprehensive income (loss)			Treasury stock			Total stockholders' equity			Comprehensive loss
Balance December 31, 2008	$	9,953,381		2,388,125	$	23,881	$	6,342,423	$	26,572,188		$	480,584		$	(1,249,816	)	$	42,122,641

Net losses										(4,029,345	)								(4,029,345	)	$	(4,029,345	)

Other comprehensive loss (Note 18)													(129,295	)					(129,295	)		(129,295	)
Comprehensive loss																					$	(4,158,640	)
Sale of common stock (ESPP)				425		4		5,126											5,130
Treasury shares issued to dividend reinvestment plan								13,770								16,168			29,938
Treasury shares issued as stock dividend								151,360		(329,091	)					177,731			-
Cash portion of stock dividend (fractional shares)										(6,031	)								(6,031	)
Stock-based compensation				442		5		31,400											31,405
Accretion on preferred stock discount		61,604								(61,604	)								-
Preferred stock dividends paid										(460,639	)								(460,639	)

Balance December 31, 2009	$	10,014,985		2,388,992	$	23,890	$	6,544,079	$	21,685,478		$	351,289		$	(1,055,917	)	$	37,563,804

Net losses										(839,858	)								(839,858	)	$	(839,858	)

Other comprehensive loss (Note 18)													(777,394	)					(777,394	)		(777,394	)
Comprehensive loss																					$	(1,617,252	)
Treasury shares issued as stock dividend								242,496		(602,763	)					360,267			-
Cash portion of stock dividend (fractional shares)										(2,748	)								(2,748	)
Stock-based compensation				135		1		28,601											28,602
Accretion on preferred stock discount		65,242								(65,242	)								-
Preferred stock dividends paid										(453,200	)								(453,200	)

Balance December 31, 2010	$	10,080,227		2,389,127	$	23,891	$	6,815,176	$	19,721,667		$	(426,105	)	$	(695,650	)	$	35,519,206

See accompanying notes to conslidated financial statements

F-4

UNITED BANCORPORATION OF ALABAMA, INC.

AND SUBSIDIARY

Consolidated Statements of Cash Flows

Years ended December 31, 2010 and 2009

	2010			2009

Cash flows from operating activities
Net losses	$	(839,858	)	$	(4,029,345	)
Adjustments to reconcile net losses to net cash provided by operating activities
Provision for loan losses		4,438,000			8,267,561
Depreciation of premises and equipment		1,172,648			1,318,646
Net amortization of premuim on investment securities available for sale		323,775			138,424
Net amortization of premium on investment securities held to maturity		90,699			178,013
Gain on sales of investment securities available for sale, net		(1,046,575	)		(176,316	)
(Gain) loss on sale of other real estate		24,091			(8,797	)
Stock-based compensation		28,602			31,405
Loss on disposal of equipment		-			9,790
Increase in deferred income taxes		(1,194,038	)		(2,738,799	)
Provision for other real estate losses		-			1,032,000
Writedown of other real estate		175,908			4,500
Writeoff of intangible assets		934,763			-
Decrease in interest receivable		665,354			395,482
Increase (decrease) in other assets		(400,349	)		1,290,510
(Increase) decrease in Federal Deposit Insurance Corporation prepaid deposit assessment		852,099			(2,294,324	)
Decrease in interest payable		(217,914	)		(291,703	)
Increase in accrued expenses and other liabilities		123,194			30,782
Net cash provided by operating activities		5,130,399			3,157,829


Cash flows from investing activities
Proceeds from maturities, calls, and principal repayments of investment securities available for sale		22,709,629			41,456,614
Proceeds from maturities, calls, and principal repayments of investment securities held to maturity		6,235,925			13,315,000
Proceeds from sales of investment securities available for sale		36,069,589			10,849,262
Purchases of investment securities available for sale		(59,948,033	)		(35,187,842	)
Purchases of investment securities held to maturity		(7,929,900	)		(22,602,343	)
Net (increase) decrease in loans		10,554,356			(11,874,427	)
Purchases of premises and equipment, net		(55,468	)		(69,345	)
Proceeds from sale of premises and equipmet		-			8,000
Proceeds from sale of other real estate		1,609,843			767,310

UNITED BANCORPORATION OF ALABAMA INC 10-K