SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2007

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 þ

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 þ

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 þ 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. þ

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 þ

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

Aggregate market value of voting and nonvoting common equity held by non affiliates as of March 27, 2008 was $37,662,929 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 27, 2008
Class A		$	.01				2,251,164		Shares*
Class B		$	.01				0		Shares

DOCUMENTS INCORPORATED BY REFERENCE

The Registrant’s Proxy Statement relating to the 2008 Annual Meeting of Stockholders is 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 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, relating to the planned increase in the number of Bank offices, which are greater than expected based on prior experience; (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; 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 financial 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 sixteen full service banking offices located in Atmore (2 offices), Frisco City, Monroeville, Flomaton, Foley, Lillian, Bay Minette (2 offices), Silverhill, Magnolia Springs, Spanish Fort and Summerdale, 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 and time deposit accounts and various types of lending services. Services provided to individual customers include checking accounts, NOW accounts, money market deposit accounts, statement savings accounts, repurchase agreements 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 188 full-time equivalent employees at December 31, 2007. 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 — 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 financial holding company (“FHC”) 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”). As such, the Corporation is subject to the supervision, examination, and reporting requirements in the BHC Act and the regulations of the Federal Reserve. The Corporation is a “Financial Holding Company” (FHC). 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. Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, enacted in September 1994, bank holding companies were permitted to acquire banks located in any state without regard to whether the transaction is prohibited under any state law (except that states may establish a minimum age of not more than five years for local banks subject to interstate acquisitions by out-of-state bank holding companies), and interstate branching was permitted beginning June 1, 1997 in certain circumstances.

     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 Bank Insurance Fund (“BIF”) 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.

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 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, 2007, the Bank was “well 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. The GLB Act gives the Federal Reserve broad authority to regulate FHCs, but provides for functional regulation of subsidiary activities by the Securities Exchange Commission, Federal Trade Commission, state insurance and securities authorities and similar regulatory agencies.

     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.

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, 2007, 2006 and 2005. 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)
						Interest Income				Average Rates
		Average Balance				Expense				Earned Paid
2007
Loans, net (1)		$	251,348			$	21,195				8.43	%
Taxable securities available for sale			73,682				3,662				4.97	%
Tax exempt sec available for sale (2)			35,750				2,163				6.05	%
Federal funds sold and repurchase agreements			5,230				258				4.93	%
Interest-bearing deposits with other financial institutions			12,832				667				5.20	%
Total interest-earning assets		$	381,137			$	27,945				7.38	%
Saving deposits and demand deposits interest-bearing		$	90,123			$	2,052				2.28	%
Time deposits			174,009				8,407				4.83	%
Repurchase agreements			40,909				1,708				4.18	%
Other borrowed funds			18,318				1,396				7.62	%
Total interest-bearing liabilities		$	323,359			$	13,563				4.19	%
Net interest income/net yield on interest earning assets						$	14,382				3.8	%

						Interest Income				Average Rates
		Average Balance				Expense				Earned Paid
2006
Loans, net (1)		$	242,431			$	20,815				8.59	%
Taxable securities available for sale			43,275				2,112				4.88	%
Tax exempt sec available for sale (2)			31,870				1,912				6.00	%
Federal funds sold and repurchase agreements			8,535				434				5.08	%
Interest-bearing deposits with other financial institutions			10,369				427				4.12	%
Total interest-earning assets		$	336,480			$	25,700				7.64	%
Saving deposits and demand deposits interest-bearing		$	79,120			$	1,197				1.51	%
Time deposits			143,241				5,846				4.08	%
Repurchase agreements			41,745				1,661				3.98	%
Other borrowed funds			16,380				1,052				6.42	%
Total interest-bearing liabilities		$	280,486			$	9,756				3.48	%
Net interest income/net yield on interest earning assets						$	15,944				4.74	%

		Average Balance				Expense				Earned Paid
2005
Loans, net (1)		$	213,311			$	15,786				7.40	%
Taxable securities available for sale			42,604				1,822				4.28	%
Tax exempt sec available for sale (2)			26,117				1,575				6.03	%
Federal funds sold and repurchase agreements			9,784				243				2.48	%
Interest-bearing deposits with other financial institutions			6,847				204				2.98	%
Total interest-earning assets		$	298,663			$	19,630				6.57	%
Saving deposits and demand deposits interest-bearing		$	74,362			$	893				1.20	%
Time deposits			122,387				3,290				2.69	%
Repurchase agreements			27,580				642				2.33	%
Other borrowed funds			13,500				678				5.02	%
Total interest-bearing liabilities		$	237,829			$	5,503				2.31	%
Net interest income/net yield on interest earning assets						$	14,127				4.73	%

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)

										Interest Income
Average Balances										Expense												Variance as to
2007				2006						2007				2006				Variance				Rate				Volume
$	251,348			$	242,431			Loans (Net)		$	21,194			$	20,815			$	379			$	(368	)		$	747
	73,682				43,275			Taxable SecuritiesAFS (1)			3,692				2,112				1,580				122				1,458
	35,750				31,870			Tax Exempt Securities AFS (2)			2,164				1,912				252				20				232
	5,230				8,535			Fed Funds Sold			258				434				(176	)			(12	)			(164	)
	12,832				10,369			Interest Bearing Deposits			637				427				210				97				113
$	378,842			$	336,480			Total Earning Assets		$	27,945			$	25,700			$	2,245			$	(141	)		$	2,386
$	90,123			$	79,120			Savings and Interest Bearing Demand Deposits		$	2,052			$	1,197			$	855			$	312			$	543
	174,009				143,241			Time Deposits			8,407				5,846				2,561				1,368				1,193
	40,909				41,745			Repurchase Agreements			1,708				1,661				47				78				(31	)
	18,318				16,380			Other Borrowed Funds			1,396				1,052				344				138				205
$	323,359			$	280,486			Total Interest Bearing Liabilities		$	13,563			$	9,756			$	3,807			$	1,896			$	1,910

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.

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)

										Interest Income
Average Balances										Expense												Variance as to
2006				2005						2006				2005				Variance				Rate				Volume
$	242,431			$	213,311			Loans (Net)		$	20,815			$	15,786			$	5,029			$	2,684			$	2,345
	43,275				42,604			Taxable SecuritiesAFS (1)			2,112				1,822				290				30				260
	31,870				26,117			Tax Exempt Securities AFS (2)			1,912				1,575				337				(15	)			352
	8,535				9,784			Fed Funds Sold			434				243				191				(52	)			243
	10,369				6,847			Interest Bearing Deposits			427				204				223				132				91
$	336,480			$	298,663			Total Earning Assets		$	25,700			$	19,630			$	6,070			$	2,779			$	3,291
$	79,120			$	74,362			Savings and Interest Bearing Demand Deposits		$	1,197			$	893			$	304			$	255			$	49
	143,241				122,387			Time Deposits			5,846				3,290				2,556				1,732				824
	41,745				27,580			Repurchase Agreements			1,661				642				1,019				595				424
	16,380				13,500			Other Borrowed Funds			1,052				678				374				130				244
$	280,486			$	237,829			Total Interest Bearing Liabilities		$	9,756			$	5,503			$	4,253			$	2,712			$	1,541

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.

Investments — The investment policy of United Bank provides that funds that are 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. Since 2001 the Bank has moved all investments held to maturity to available for sale. The Bank’s current loan policy establishes the optimal ratio of total loans to the sum of deposits and repurchase agreements as being 85%. This ratio as of December 31, 2007 was 65.14%. Growth in the loan portfolio is driven by general economic conditions 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, repurchase agreement growth, reallocation of maturing investments and advances from the Federal Home Loan Bank of Atlanta (FHLB). Management intends to make use of longer term Out of Market CD’s and term FHLB advances to fund fixed rate loans with maturities in excess of one (1) year.

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 maturities of investment securities available for sale:

Maturity Distribution of Investment Securities Available for Sale
December 31, 2007, 2006, and 2005
(Dollars in Thousands)

		2007								2006								2005
US Government Agencies excluding Mortgage Backed securities Within one year		$	22,434				4.28	%		$	29,457				5.40	%		$	—				0.00	%
1-5 years			14,236				4.73	%			12,869				4.48	%			17,103				4.06	%
5-10 years			21,943				5.49	%			11,785				5.48	%			2,000				4.89	%
After 10 years			1,002				5.75	%			1,000				5.75	%			—				0.00	%
Total		$	59,615				4.86	%		$	55,111				5.21	%		$	19,103				4.15	%
Mortgage Backed Securities Within one year		$	728				3.60	%		$	—				0.00	%		$	—				0.00	%
1-5 years			2,356				4.05	%			3,980				4.02	%			4,292				3.83	%
5-10 years			4,620				4.05	%			6,000				4.05	%			8,358				4.06	%
After 10 years			9,208				4.74	%			11,435				4.66	%			11,123				4.98	%
Total		$	16,912				4.44	%		$	21,415				4.37	%		$	23,773				4.45	%
State & Municipal (1) Within one year		$	469				4.06	%		$	591				2.52	%		$	1,000				3.13	%
1-5 years			6,318				3.90	%			5,169				3.88	%			4,709				3.76	%
5-10 years			14,160				4.02	%			12,407				4.09	%			10,416				4.11	%
After 10 years			14,471				4.02	%			14,482				4.01	%			12,769				4.01	%
Total		$	35,418				4.00	%		$	32,649				3.99	%		$	28,894				3.97	%
Totals		$	111,945				4.52	%		$	109,175				4.68	%		$	71,770				4.18	%

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 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. The Bank’s ratio of loans to assets or deposits is comparable to its peer banks serving similar markets.

The risks associated with the Bank’s lending are primarily interest rate risk and credit risks from economic conditions and concentrations and/or quality of loans.

Interest rate risk is a function of the maturity of the loan and method of pricing. The Bank’s loan maturity distribution reflects 6.22% of the portfolio maturing in one year or less. In addition, 45.94% of all loans float with an interest rate index. The maturity distribution and floating rate loans help protect the Bank from unexpected interest rate changes.

Loan concentrations present different risk profiles depending on the type of loan. The majority of all types of loans offered by the Bank are collateralized. Regardless of the type of loan, repayment ability of the borrower and collateralized lending is based upon an evaluation of the collateral. Loan policy, as approved by the Board of Directors of the Bank, establishes collateral guidelines for each type of loan.

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.

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 features of shorter durations. 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.

An average loan in the loan portfolio at December 31, 2007 was approximately $65,219, an increase of $3,236 from the 2006 level.

LOAN PORTFOLIO MATURITIES

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

Remaining Maturity

December 31, 2007

(Dollars in Thousands)

		One year				One - five				After five
		or less				years				years				Total
Real estate — construction		$	9,045			$	56,955			$	2,699			$	68,699
Real estate — mortgage 1-4 family			615				27,264				13,860				41,739
Real estate — commercial			671				40,611				13,281				54,563
Real estate — other			1,201				16,959				13,377				31,537
Agricultural			490				7,719				1,045				9,254
Commercial			3,202				32,362				10,566				46,130
Other loans			1,412				11,494				2,310				15,216
Totals		$	16,636			$	193,364			$	57,138			$	267,138

Loans by Re-pricing Index

(Dollars in Thousands)

		Prime				LIBOR				Other				Total
Real estate — construction		$	49,275			$	4,517			$	—			$	53,792
Real estate — mortgage 1-4 family			16,035				—				—				16,035
Real estate — commercial			19,723				707								20,430
Real estate — other			11,087								425				11,512
Agricultural			1,920												1,920
Commercial			18,369				—				—				18,369
Other loans			667				—				—				667
Totals		$	117,076			$	5,224			$	425			$	122,725

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

Non-performing Assets: Management considers a loan to be impaired when it is probable that the Corporation 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. 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.

     At December 31, 2007, the Bank had impaired loans aggregating $11,710,174, compared with impaired loans totaling $1,766,960 as of December 31, 2006. The majority of this increase is due to seven commercial real estate loans comprising $10,959,402 which were determined to be impaired during 2007. Reserves in the amount of $1,825,820, or 16.65% of the aggregate outstanding balance of these loans, have been established. In March of 2008, the Bank was granted summary judgment with respect to the enforceability of the loan documents in connection with one of these loans that accounts for 30% of the total impaired loans. Subject to continuing litigation developments, management believes that this ruling will expedite the Bank’s efforts to collect on the loan. The remaining six loans are predominantly commercial real estate loans ranging from approximately $100,000 to approximately $3,000,000. Because the commercial real estate market both nationally and in the Bank’s specific market area is experiencing unusual weakness, management has focused additional attention on this segment of the portfolio.

The following table sets forth the Corporation’s non-performing assets at December 31, 2007, 2006, and 2005. 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, except for credit cards, which continue to accrue interest.

		Descriptions		2007				2006				2005
A		Loans accounted for on a nonaccrual basis		$	11,079			$	1,570			$	1,406
B		Loans which are contractually past due ninety days or more as to interest or principal payments (excluding balances included in (A) above)			26				9				4
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.			54				197				318
D		Other non-performing assets			551				621				1,131
		Total		$	11,710			$	2,397			$	2,859

If nonaccrual loans in (A) above had been current throughout their term, interest income would have been increased by $685,398, $123,917 and $165,159 for 2007, 2006, and 2005 respectively. All of the assets in (D) above at the end of 2007, 2006, and 2005 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, 2007, the Bank had $40,792,171 of agriculture related loans as compared to $36,937,617 and $35,407,000 in 2006 and 2005, respectively. Real estate construction and 1-4 family residential mortgage loans were $68,699,154 and $41,738,820 respectively in 2007 and $59,392,025 and $37,899,222 respectively in 2006 and 2005.

Summary of Loan Loss Experience
(Dollars in Thousands)

		2007				2006				2005
Average amount of loans outstanding, net		$	251,348			$	243,546			$	213,311
Allowance for loan losses beginning January 1		$	3,011			$	3,028			$	2,562
Loans Charged off:
Commercial, financial and agriculture			(226	)			(960	)			(365	)
Real estate — mortgage			—				—				—
Installment loans to individuals			(213	)			(95	)			(108	)
Total Charged off			(439	)			(1,055	)			(473	)
Recoveries during the period Commercial, financial and agriculture			12				35				2
Real estate — mortgage			—				—				—
Installment loans to individuals			17				45				57
Total Recoveries			29				80				59
Loans Charged off, net			(410	)			(975	)			(414	)
Other Adjustments							(102	)			—
Additions to the allowance charged to operations			1,380				1,060				880
		$	3,981			$	3,011			$	3,028
Ratio of net charge offs during the period to average loans outstanding			0.16	%			0.40	%			0.19	%

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 and the current portfolio mix. 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 classified portion and the nonclassified portion. The classified portion is based on identified problem loans and is determined based on an assessment of credit risk

related to those 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 nonclassified 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 classified 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, and general economic environment in the Corporation’s markets.

While the total allowance is described as consisting of a classified and a nonclassified portion, these terms are primarily used to describe a process. Both portions are available to support inherent losses in the loan portfolio. Management realizes that general economic trends greatly affect loan losses, and no assurances can be made that future charges to the allowance for loan losses will not be significant in relation to the amount provided during a particular period, or that future evaluations of the loan portfolio based on conditions then prevailing will not require sizable charges to income. Management does, however, consider the allowance for loan losses to be appropriate for the reported periods. The Corporation has allocated proportionately the nonclassified 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, 2007 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, 2007, 2006, and 2005. The allocation represents an estimate for each category of loans based upon historical experience and management’s judgment.

(Dollars In Thousands)

															Percentage of Loans to
		Allowance													Total Loans
		2007				2006				2005					2007				2006				2005
Commercial, financial and agricultural		$	2,964			$	2,173			$	2,271					53.5	%			54.2	%			70.1	%
Real estate — construction			336				116				91					25.7	%			24.2	%			8.5	%
Real estate — mortgage 1-4 family			554				563				454					15.6	%			15.4	%			15.6	%
Installment loans to individuals			127				159				212					5.2	%			6.2	%			5.8	%
Total		$	3,981			$	3,011			$	3,028					100.0	%			100.0	%			100.0	%

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 a loan is determined to be impaired. 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 then recommended 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 2007, 2006, and 2005 by category.

		Average													Average
		Deposits													Rate Paid
		2007				2006				2005					2007				2006				2005
Noninterest-bearing demand deposits		$	60,446			$	63,833			$	63,211					0	%			0	%			0	%
Interest — bearing
Demand			71,593				57,613				49,350					2.80	%			1.98	%			1.38	%
Savings			18,530				21,507				25,012					0.25	%			0.25	%			0.25	%
Time			174,009				143,241				122,387					4.83	%			4.08	%			2.68	%
		$	264,132			$	222,361			$	196,749					3.96	%			3.17	%			2.05	%

The following shows the amount of time deposits outstanding at December 31, 2007, classified by time remaining until maturity.

		$100,000 or Greater
		Certificates of				Other Time
		Deposit				Deposits
Maturity
Three months or less		$	31,338			$	28,895
Three to six months			14,496				23,163
Six to twelve months			27,995				26,611
Twelve months or more			13,595				20,242
Totals		$	87,424			$	98,911

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

(Dollars in Thousands)

		Maximum Outstanding				Average				Average interest				Ending				Average interest
		at any month end				balance				rate				balance				rate at year end
2007
Securities sold under agreements to repurchase		$	60,504			$	40,909				4.18	%		$	41,204				3.34	%
Other short term borrowings		$	1,044			$	422				6.09	%		$	692				1.02	%
2006
Securities sold under agreements to repurchase		$	47,133			$	41,745				3.98	%		$	44,410				4.17	%
Other short term borrowings		$	872			$	362				5.25	%		$	857				3.49	%
2005
Securities sold under agreements to repurchase		$	34,429			$	27,580				2.30	%		$	34,429				3.14	%
Other short term borrowings		$	1,001			$	346				3.45	%		$	1,001				3.45	%

Return on Equity and Assets: The following table shows the percentage return on equity and assets of the Corporation for the years ended December 31, 2007, 2006, and 2005.

		2007				2006				2005
Return on average assets			0.23	%			0.84	%			0.88	%
Return on average equity			3.28	%			11.08	%			10.93	%
Dividend pay-out ratio			65.22	%			21.43	%			23.08	%
Ratio of average equity to average assets			7.12	%			7.55	%			8.02	%

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.

Interest Rate Risk

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, 2007

		Ending Balances				Down 200				Up 200
		as of 12/31/07				Basis Points				Basis Points
Earning Assets:
Cash & Short-term Investments		$	36,547,422				-57.21	%			8.34	%
Investment securities, taxable			78,072,734				-1.96	%			7.47	%
Investment securities, tax-exempt			35,418,999				-6.16	%			-0.11	%
Loans			267,137,723				-18.58	%			18.28	%
Total Assets		$	417,176,878				-16.80	%			16.00	%
Interest Bearing Liabilities:
Interest Bearing Deposits		$	119,740,850				-39.74	%			38.70	%
Certificates of Deposit less than $100,000			93,890,301				-24.84	%			24.84	%
Certificates of Deposit greater than $100,000			92,424,525				-24.97	%			24.97	%
Total Interest Bearing Deposits			306,055,676				-27.86	%			27.65	%
Other short term borrowings & securities sold under agreements to repurchase			41,895,519				-85.78	%			114.88	%
Federal Home Loan Bank borrowings			1,774,700				0.68	%			-0.68	%
Total Purchased Funds			43,670,219				-74.64	%			99.98	%
Total Liabilities		$	349,725,895				-31.69	%			33.58	%
Net Interest Income							-7.55	%			5.08	%

As shown in the table above, the Corporation is interest rate sensitive, especially in a downward rate environment. A 200 basis point decline in interest rates would cause a 7.55% decline in net interest income; while a similar increase in interest rates would yield a 5.08% increase in net interest income. The comparable sensitivities at the end of 2006 were a decline in net interest income of 13.70% in a 200 basis point decline and an increase of 12.00% in a similar increase of rates. This effect is due to the Corporation’s mix of variable and fixed rate loans, interest bearing deposits, and borrowed funds. The Corporation took steps during 2007 to reduce the Corporation’s interest rate sensitivity.

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 collectibility 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. 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. 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. See “Relative Lending Risk” in Item 1.

Growth Strategy

The Bank intends to continue pursuing a profitable growth strategy. Growth prospects must be considered in light of the risks, expenses and difficulties associated with expansion of the Bank’s operation. There can be no assurance that the Bank will be able to expand its market presence in existing markets or successfully enter new markets or that any such expansion will not adversely affect the Bank’s business, future prospects, financial condition or results of operations.

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.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

The Corporation’s bank subsidiary operates sixteen full service branches and one loan production office, which the subsidiary owns or leases. The offices are located in Escambia County, Alabama (cities of Atmore (two offices) and Flomaton); Monroe County, Alabama (cities of Monroeville and Frisco City); Baldwin County, Alabama (cities of Foley, Lillian, Bay Minette (two offices), Magnolia Springs, Silverhill, Spanish Fort, Summerdale, and a loan production office in Loxley); and Santa Rosa County, Florida (cities of Jay, Pace and Milton), with the principal office located in Atmore, Alabama. All land, buildings, and fixed assets owned by the Corporation were transferred as an investment of capital to the Bank during 2006. The office in Atmore is a modern, three story building. This building and the adjacent AgriFinance Office and the Bank’s Information Systems Department facility were completely remodeled and updated following damage from Hurricanes Ivan and Dennis in 2004 and 2005. Following Hurricane Ivan in 2004, the Monroeville office received extensive remodeling and upgrades. The Bank completed construction of a full service office to replace the limited drive-thru location on the south side of Atmore during 2005. The Foley office was purchased in October of 2002. The office in Lillian is a modern two-story brick building. The Bank also owns a two story brick building in Bay Minette. The second office in Bay Minette was built in 2003 on Highway 59. The office in Silverhill is the original post office built in 1902, and is a two story wooden structure owned by the Bank. Construction was completed a new office located in Magnolia Springs on the corner of US Highway 98 and County Road 49 during the summer of 2006. The Bank has opened two new branches in Santa Rosa County, Florida. Currently, these facilities are located in rented offices in strip shopping centers, offering limited services. The Bank purchased, for use as a branch office in Pace, Florida, land and a building which was surplus in the merger of two larger banks. This office was place in service in late 2007. The Bank is currently planning the construction of two or three branches to be placed in service in late 2008 and early 2009.

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 EQUITY AND 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 2,384,171 shares are issued and 2,251,164 are outstanding and held by approximately 820 shareholders of record, as of March 27, 2008.
	(2)		250,000 shares of Class B common stock, $.01 par value per share, none of which were issued, as of March 27, 2008.

The Corporation in 2007 became aware that its common stock is quoted on the Over-the-Counter-Bulletin Board, or OTCBB, a regulated quotation service that is administered and regulated by the National Association of Securities Dealers, Inc., or NASD, under the trading symbol “UBAB.” The Corporation has neither applied for nor had contact with NASD with respect to the OTCBB or any other quotation service. The Corporation’s common stock is not listed on any exchange.

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. Although bid prices have apparently been posted on the OTCBB during 2007 and 2006, the Corporation believes that no transactions occurred in 2006. In 2007 there were 23 days having transactions at prices ranging from $14.05 to $17.50 per share. Because a limited number of transactions involving the Corporation’s common stock 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 total cash dividends per common share of $0.30 per common share in 2007 and 2006. The Corporation expects to continue to pay cash dividends, subject to the earnings and financial condition of the Corporation and other relevant factors; however, 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. Payment of future 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 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 serve the needs of the total market including, but not limited to, consumer and business banking needs, agricultural financing, mortgage products, and various insurance and investment needs.

At December 31, 2007 the Corporation had $457,301,960 of total assets, compared to $426,170,974 at December 31, 2006. The growth of loans and investment securities were the primary components of the increase from year to year. Total deposits increased $42,067,102 (12.87%) to $368,902,565, as compared to $326,835,463 at the end of 2006. The growth in deposits was the primary source of funding for the growth in both loans and investments. A portion of the growth was attributable to an increase in a seasonal deposit by a local government which added $10,000,000 in balances at year end 2007 over year end 2006. In building and adding new branches, the Corporation increased its investment in premises and equipment at the end of 2007 by $5,012,403 (42.49%) to $16,808,578 from $11,796,175 at the end of 2006.

Net interest income after provision for loan losses was $12,267,239 for the year ended December 31, 2007, as compared with $14,334,337 for the year ended December 31, 2006. The decrease of $2,067,098 was the result of several factors: 1) interest expense on deposits increased as the rate paid on the renewal of maturing time deposits was higher that the maturing rate; 2) interest expense on trust preferred securities increased as the Corporation, in anticipation of the growth in new branches, issued $10,000,000 of trust preferred securities in September of 2006; 3) the number and amount of non accrual loans grew throughout the year (had these loans been accruing interest throughout the entire year, an additional $685,398 would have been recorded in interest income in 2007); and 4) the Bank added an additional $510,000 to the loan loss provision to reflect the level of non performing and potential problem loans. Trust Preferred Securities in the amount of $10,000,000 were issued in late 2006 to provide capital to support the growth of loans and deposits that the Corporation anticipated from the expansion of the branch network. Additionally, the issuance was used to redeem the $4,000,000 of similar securities issued in 2002 at a much higher rate. The $4,000,000 outstanding at the end of 2006 from the 2002 issuance were redeemed on September 30, 2007

Noninterest income totaled $3,992,572 for 2007 as compared to $3,912,213 in 2006, an increase of $80,359. Service charges and fees on deposit accounts accounted for the majority of the increase as charges were reviewed and selectively increased so that they were more in line with market rates.

Noninterest expense was $15,453,384 for the year ended December 31, 2007, as compared to $14,088,598 for the year ended December 31, 2006, an increase of $1,364,786 or 9.69%. Salaries and benefits rose by $961,369 to $8,315,265 as additional personnel were employed to staff the new facilities and additional support personnel were added to properly support growth. Occupancy expense rose by $228,774 reflecting the added cost of placing the new facilities in to service. Other expenses rose by $174,643 as marketing and advertising expenses were increased

in support of the increased operations and there was a valuation write down of an ORE property in the amount of $90,000. Several other categories experienced small increases in cost.

Net Earnings for the year ended December 31, 2007 decreased 67.09% to $1,031,758, as compared to $3,135,070, for the year ended December 31 2006. The effective tax rates for 2007 and 2006 reflect tax benefits of 27.94% and tax expense of 24.60%, respectively. Diluted earnings per share were $0.46 and $1.40 for the periods ended December 31, 2007 and 2006 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 adequacy of the allowance, could change. Management believes the allowance for loan losses is adequate 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, derivatives, other real estate owned, intangible assets and other repossessed assets. Derivatives and investment securities are recorded at fair value while other real estate owned, intangible assets and other repossessed assets are recorded at either cost or fair value, whichever is lower. Fair values for investment securities and derivatives 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. Intangible assets, such as the charter cost, are periodically evaluated to determine if any impairment might exist.

The estimation of fair value and subsequent changes of fair value of investment securities, derivatives, other real estate owned, repossessions and intangible assets can have a significant impact on the value of the Corporation, as well as have an impact on the recorded values and subsequently reported net income.

Changes in interest rates is the primary determining factor in the fair value of investment securities, 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. The overall financial condition and results of operations of the banking unit is the primary determinant as to the value of recorded intangible assets.

NET INTEREST INCOME
(Dollars in Thousands)

		2007				2006
Interest income (1)		$	27,945			$	25,700
Interest expense			13,563				9,756
Net interest income			14,382				15,944
Provision for loan losses			1,380				960
Net interest income after provision for loan losses on a tax equivalent basis			13,002				14,984
Less: tax equivalent adjustment			735				650
Net interest income after provision for loan losses		$	12,267			$	14,334

Total interest income (on an FTE basis) increased to $27,945,650 in 2007, from $25,700,192 in 2006, an increase of $2,245,458, or 8.74%. This increase is a function of the change in average earning assets along with the rising interest rate environment that prevailed during the first seven months of 2006. The Bank expects this growth rate to slow as the Federal Reserve has and continues to reduce interest rates. Average loans increased $8,988,468 while the average rate earned decreased 26 basis points causing an overall increase in interest earned on loans of $487,925. The average interest rate (FTE) earned on all earning assets in 2007 decreased to 7.38% from 7.64% in 2006. The interest margin decreased to 3.80% in 2007 from 4.74% in 2006. Average taxable investment securities for 2007 were $73,682,029, as compared to $44,501,957 for 2006, an increase of $29,180,072, or 6.56%. Average tax-exempt investment securities increased $3,879,867, or 12.17%, to $35,749,510 in 2007 from $31,869,643 in 2006. The average volume of federal funds sold and interest bearing deposits in other banks decreased to $18,062,541 in 2007 from $18,904,043 in 2006, a decrease of $841,502 or 4.45%.

Total interest expense increased $3,806,771 or 38.88%, to $13,562,662 in 2007, from $9,755,891 in 2006. This increase was a function of an 18.78% increase in the volume of interest bearing deposits and the interest payments related to the Corporation’s Trust Preferred Securities. The Corporation expects interest expense to remain on a relatively high growth rate as the balance of time deposits continue to grow as customers move their lower interest bearing demand accounts into higher interest bearing time deposits. The average rate paid on interest-bearing liabilities in 2007 was 4.19% as compared to 3.48% in 2006. Average interest-bearing liabilities increased to

$323,359,653 in 2007, from $280,486,011 in 2006, an increase of $42,873,641, or 15.28%. Average savings and interest-bearing demand deposits increased $11,001,843 or 13.91% to $90,122,758 in 2007. Average time deposits increased to $174,009,411 in 2007, from $143,240,750 in 2006, an increase of $30,768,661, or 21.48%. The average rate paid on time deposits increased to 4.83% in 2007 from 4.08% in 2006. The Corporation issued $4,124,000 of subordinated debentures in June of 2002 at an interest rate of three month LIBOR plus 3.65%. The Corporation also issued $10,310,000 of subordinated debentures in September of 2006 at an interest rate of LIBOR plus 1.68%. The 2002 issue was redeemed in September, 2007 as planned. The interest rate paid on the subordinated debentures was 7.53% in 2007, a reduction from the 8.21% paid in 2006.

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 increased 43.75% for the year ended December 31, 2007 to $1,380,000 as compared to $960,000 for the year ended December 31, 2006. 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, 2007 represents 1.49% of gross loans, as compared to 1.23% at December 31, 2006.

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

		2007				2006
Service Charge Income		$	1,035,779			$	907,655
Nonsufficient Fund Charges, net			1,978,692				1,833,652
Mortgage Origination Fees			213,071				261,473
Investment Securities Gains, (net)			(3,780	)			(4,879	)
Other			768,810				914,312
		$	3,992,572			$	3,912,213

Total noninterest income increased $80,359 or 2.05%, to $3,992,572 in 2007, as compared to $3,912,213 in 2006.

Income from service charges on deposits and non sufficient funds increased to $3,014,471 in 2007, from $2,741,307 in 2006, an increase of $273,164, or 9.96% as the Bank added new locations, deposits increased, and a review of account fees conducted during the year resulted in fees being adjusted to more closely reflect those customarily charged in the local market.

NONINTEREST EXPENSE

		2007				2006
Salaries and benefits		$	8,315,265			$	7,353,896
Net occupancy			2,596,804				2,368,030
Other			4,541,315				4,366,672
Total		$	15,453,384			$	14,088,598

Total noninterest expense increased $1,364,786, or 9.69%, to $15,453,384 in 2007 from $14,088,598 in 2006. Salaries and other compensation expense increased $961,369, or 13.07%. Occupancy expenses increased to $2,596,804 in 2007 from $2,368,030 in 2006, an increase of $228,774 or 9.66%. The Bank expects its current growth strategy, which incorporates the construction or acquisition of approximately two to three locations per year, to continue into 2009 and to contribute to increases in noninterest expense. The impact of the growth strategy is evident in increased salaries and benefits, as new officers and staff members are required to be hired and trained in order to adequately open new locations and provide necessary support functions. Occupancy expense increased as the depreciation expense and the costs to operate these locations were incurred. The growth model, along with the Bank’s commitment to maximize current technology, also impacts other expense. Other expense increased to $4,541,315 in 2007, from $4,366,672 in 2006, an increase of $174,643, or 4.00%. Advertising and marketing expenses to promote new locations and services increased by $146,248. The cost of accounting, audit and other fees (including compliance with Sarbanes Oxley) increased by $232,112. Reductions in data processing expense of $41,646 and printing and supplies of $48,525 were experienced through expense control efforts. Additionally, write downs of ORE property were $188,000 less in 2007 than in 2006. The effective tax rate in 2007 was negative 27.94% as compared to 24.60% in 2006.

Basic earnings per share in 2007 were $0.46, as compared to basic earnings per share of $1.41 in 2006. Diluted earnings per share were $0.46 in 2007 and $1.40 in 2006. Return on average assets was 0.23% in 2007, as compared to 0.84% in 2006. Return on average equity was 3.28% in 2007, as compared to 11.08% in 2006. As the Bank continues to implement its growth strategy over the next few years these ratios may decline if the expenses from the growth strategy are realized prior to the realization of the expected increases in revenue.

LOANS AT DECEMBER 31

		2007				2006
Commercial, financial and agriculture		$	142,857,221			$	133,174,048
Real estate — construction			68,699,154				59,392,025
Real estate — mortgage			41,738,820				37,899,222
Installment loans to indiviuals			13,842,528				15,173,427
Totals		$	267,137,723			$	245,638,722

Total loans increased to $267,137,723 at December 31, 2007, from $245,638,722 at year end 2006, an increase of $21,499,001, or 8.75%. All categories of loans increased, except installment loans, as the Bank entered new markets and increased the size of the lending staff during 2007. The ratio of loans to deposits plus repurchase agreements is 65.14% at December 31, 2007 vs. 66.17% at the same date in 2006. Bank Management believes that this ratio will increase as the Bank’s loan portfolio expands with the additions of new markets and other cyclical fluctuations of agricultural loans and public deposits.

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. 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.

 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. The Bank utilizes this

short-term financing and maintains a borrowing relationship with the Federal Home Loan Bank to provide 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. Financing activities provided $28,873,471 in cash flow in 2007, as the result of an increase in deposits. The investing activities of the Corporation used $29,831,317 of cash flow, to fund the investment portfolio, loan portfolios, and the purchases of premises and equipment of the Bank. Operations provided $3,872,916 in cash flow for the year ended December 31, 2007.

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 2007 was 7.12% as compared to 7.55% in 2006. Total stockholders’ equity on December 31, 2007 was $31,921,390, an increase of $1,196,670, or 3.89%, from $30,724,720 at year end 2006. This increase is the result of the Corporation’s net earnings during 2007, decreased by dividends declared to stockholders of $672,379, and increased by another comprehensive gain of $597,583 as reflected in the Consolidated Statements of Stockholders’ Equity and Comprehensive Income. The Corporation’s risk based capital of $44,846,444, or 14.35%, of risk adjusted assets at December 31, 2007, was well above the Corporation’s minimum risk based capital requirement of $25,003,490 or 8.0% of risk weighted assets. Based on management’s projections, internally generated capital should be sufficient to satisfy capital requirements for existing operations into the foreseeable future; however, continued growth into new markets may require the Bank to access external funding sources.

In March of 2005, 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 24.47% of the Corporation’s Tier 1 Capital as of December 31, 2007.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Corporation’s consolidated financial statements as of December 31, 2007 and 2006 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, 2007 and 2006		F2
Consolidated Statements of Operations for the years ended December 31, 2007 and 2006		F3
Consolidated Statements of Stockholders’ Equity and Other Comprehensive Income for the years ended December 31, 2007 and 2006		F4
Consolidated Statements of Cash Flows for the years ended December 31, 2007 and 2006		F5
Notes to Consolidated Financial Statements — December 31, 2007 and 2006		F6

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable

ITEM 9A(T). CONTROLS AND PROCEDURES

(a) Based on evaluation of the Corporation’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this annual report, the principal executive officer and the principal financial officer of the Corporation have concluded that as of such date the Corporation’s disclosure controls and procedures were effective to ensure that information the Corporation is required to disclose in its filings under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that information required to be disclosed by the Corporation in the reports that it files under the Exchange Act is accumulated and communicated to the Corporation’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

(b) There were no significant changes in the Corporation’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referred to in (a) above.

(c) This annual report does not include an attestation report of the Corporation’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permits the Corporation to provide only management’s report in this annual report.

(d) The Corporation’s management, including its principal executive officer and principal financial officer, has conducted an evaluation of the effectiveness of the Corporation’s internal control over financial reporting as of the end of the period covered by this report based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

ITEM 9B. OTHER INFORMATION

None

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The Board of Directors of the Corporation has determined that Dale M. Ash and Michael R. Andreoli are the Audit Committee Financial Experts. Mrs. Ash and Mr. Andreoli are independent as defined in the listing standards of the National Association of Security Dealers. Additional information required by this item is incorporated herein by reference to the Corporation’s definitive Proxy Statement relating to the Corporation’s 2008 Annual Meeting of Stockholders to be filed not later than 120 days after the year ended December 31, 2007 pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference to the Corporation’s definitive Proxy Statement relating to the Corporation’s 2008 Annual Meeting of Stockholders to be filed not later than 120 days after the year ended December 31, 2007 pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated herein by reference to the Corporation’s definitive Proxy Statement relating to the Corporation’s 2008 Annual Meeting of Stockholders to be filed not later than 120 days after the year ended December 31, 2007 pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended.

ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated herein by reference to the Corporation’s definitive Proxy Statement relating to the Corporation’s 2008 Annual Meeting of Stockholders to be filed not later than 120 days after the year ended December 31, 2007 pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is incorporated herein by reference to the Corporation’s definitive Proxy Statement relating to the Corporation’s 2008 Annual Meeting of Stockholders to be filed not later than 120 days after the year ended December 31, 2007 pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)			(1	)		The financial statements listed in the Index to Financial Statements contained in Item 8 hereof are filed as part of this Annual Report on Form 10-K.
			(2	)		Financial statement schedules have been omitted as inapplicable.
			(3	)		The Exhibits listed below are filed as part of this Report. Management contracts and compensatory plans and arrangements required to be filed pursuant to Item 15(b) are identified by an asterisk (*).
			1.1			Purchase Agreement, dated as of September 27, 2006, among the Registrant, United Bancorp Capital Trust II and TWE, Ltd., as Purchaser (Incorporated by reference herein from Exhibit 1.1 to Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2006).
			3.1			Restated Certificate of Incorporation of the Registrant (Incorporated by reference herein from Exhibit 3a to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1988).
			3.1.1			Certificate of Amendment to Restated Certificate of Incorporation Of the Registrant (Incorporated by reference herein from Exhibit 3.1.1 to Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1999).
			3.2			Amended and Restated Bylaws of the Registrant (Incorporated by reference herein from Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1992).
			4.1			Junior Subordinated Indenture, dated as of September 27, 2006, by and between the Registrant and Wilmington Trust Company, as Trustee (Incorporated by reference herein from Exhibit 4.1 to Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2006).
			4.2			United Bancorp Capital Trust II Amended and Restated Trust Agreement, dated as of September 27, 2006, among the Registrant, as Depositor, Wilmington Trust Company, as Property Trustee, Wilmington Trust Company, as Delaware Trustee and Robert R. Jones, III and Allen O. Jones, as Administrative Trustees (Incorporated by reference herein from Exhibit 4.2 to Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2006).
			4.3			United Bancorp Capital Trust II Guarantee Agreement, dated as of September 27, 2006, by and between the Registrant, as Guarantor and Wilmington Trust Company, as Guarantee Trustee (Incorporated by reference herein from Exhibit 4.3 to Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2006).

			4.4			Common Securities Subscription Agreement, dated as of September 27, 2006, by and between United Bancorp Capital Trust II and the Registrant (Incorporated by reference herein from Exhibit 4.4 to Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2006).
			4.5			Junior Subordinated Note Subscription Agreement, dated as of September 27, 2006, by and between United Bancorp Capital Trust II and the Registrant (Incorporated by reference herein from Exhibit 4.5 to Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2006).
			10.1			Form of Employment Agreement between United Bank and Robert R. Jones, III(Incorporated by reference herein from Exhibit 10.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997).*
			10.2			Supplemental Agreement between United Bank, the Registrant, and Robert R. Jones, III (Incorporated by reference herein from Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998)*.
			10.3			1998 Stock Option Plan of United Bancorporation of Alabama, Inc. (Incorporated by reference herein from Exhibit 3.1.1 to Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1999).
			10.4			1999 Employee Stock Purchase Plan of United Bancorporation of Alabama, Inc. (incorporated herein by reference from Appendix A to the Registrants definitive proxy statement dated April 10, 2000)*.
			10.5			Supplemental Compensation and Amendment Agreement between United Bank and Robert R. Jones, III (Incorporated by reference herein from Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2001).*
			10.6			Placement Agreement for Floating Rate Cumulative Trust Preferred Securities of United Bancorp Capital Trust I effective as of June 27, 2002 among the Registrant, United Bancorp Capital Trust I and SAMCO Capital Markets, a division of Service Asset Management Company (Incorporated by reference herein from Exhibit 1.1 to the Registrant’s report on Form 8-K dated June 27, 2002).
			10.7			Indenture effective as of June 27, 2002, by and between the Registrant and Wells Fargo Bank, National Association, as Trustee (Incorporated by reference herein from Exhibit 4.1 to the Registrant’s report on Form 8-K dated June 27, 2002).
			10.8			United Bancorp Capital Trust I Amended and Restated Trust Agreement effective as of June 27, 2002, among the Registrant as Depositor, Wells Fargo Bank, National Association, as Property Trustee, Wells Fargo Delaware Trust Company, as Resident Trustee and Robert R. Jones, III, Mitchell D. Staples and Charles E. Karrick, as Administrative Trustees (Incorporated by reference herein from Exhibit 4.2 to the Registrant’s report on Form 8-K dated June 27, 2002).

			10.9			Trust Preferred Securities Guarantee Agreement effective as of June 27, 2002, by and between the Registrant and Wells Fargo Bank, National Association (Incorporated by reference herein from Exhibit 4.3 to the Registrant’s report on Form 8-K dated June 27, 2002).
			10.10			United Bancorporation of Alabama, Inc. 2007 Equity Incentive Plan (Incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 9, 2007.*
			10.11			First Amendment to Supplemental Compensation and Amendment Agreement between the Registrant and Robert R. Jones, III, dated as of December 12, 2007 and effective January 1, 2008 (Incorporated by reference herein from Exhibit 10.12 to the Registrant’s report on Form 8-K dated December 12, 2007).*
			10.12			Employment Agreement between United Bank and Allen O. Jones, Jr. (filed herewith).
			21			Subsidiaries of the Registrant.
			23			Consent of Independent Registered Public Accounting Firm (Mauldin & Jenkins, LLC)
			31.1			Certification of Chief Executive Officer under Securities Exchange Act Rules 13a-15(e) and 15d- 15(e)
			31.2			Certification of Chief Financial Officer under Securities Exchange Act Rules 13a-15(e) and 15d- 15(e)
			32.1			Certificate pursuant to 18 U.S.C Section 1350
			32.2			Certificate pursuant to 18 U.S.C Section 1350

SIGNATURES

Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

SIGNATURES		CAPACITY IN WHICH SIGNED		DATE
/s/ Robert R. Jones, III		President, Chief Executive Officer, and Director		March 27, 2008
Robert R. Jones, III
/s/ Allen O. Jones, Jr.        Allen O. Jones, Jr.		Senior Vice President Chief Financial Officer (Principal Financial and Principal Accounting Officer)		March 27, 2008
/s/ William J. Justice		Director		March 27, 2008
William J. Justice
/s/ David D. Swift        David D. Swift		Director		March 27, 2008
/s/ Dale M. Ash        Dale M. Ash		Director		March 27, 2008
/s/ Michael Andreoli        Michael Andreoli		Director		March 27, 2008
/s/ L. Walter Crim        L. Walter Crim		Director		March 27, 2008
/s/ J. W. Trawick        J. W. Trawick		Director		March 27, 2008

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, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity and comprehensive income 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, 2007 and 2006, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

We were not engaged to examine management’s assertion about the effectiveness of United Bancorporation of Alabama, Inc.’s internal control over financial reporting as of December 31, 2007 included in the accompanying Item 9A (T), “Controls and Procedures” and, accordingly, we do not express an opinion thereon.

/s/ Mauldin & Jenkins, LLC

Birmingham, Alabama
March 27, 2008

F-1

UNITED BANCORPORATION OF ALABAMA, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 2007 and 2006

		2007				2006
Assets
Cash and due from banks		$	17,571,893			$	19,558,529
Interest bearing deposits in banks			31,547,422				31,645,717
Federal funds sold			5,000,000				0
Cash and short-term investments			54,119,315				51,204,246
Interest bearing deposits with other Securities available for sale, at fair value (amortized cost of $111,718,759 and $109,175,484 at December 31, 2007 and 2006, respectively)			111,945,701				108,410,473
Loans			267,137,723				245,638,722
Less: Allowance for loan losses			3,981,922				3,011,731
Net loans			263,155,801				242,626,991
Premises and equipment, net			16,808,578				11,796,175
Interest receivable			3,952,077				3,579,922
Intangible assets			934,763				917,263
Other assets			6,385,725				7,635,904
Total assets		$	457,301,960			$	426,170,974
Liabilities and Stockholders’ Equity
Deposits:
Non-interest bearing		$	62,854,927			$	64,993,029
Interest bearing			306,047,638				261,842,434
Total deposits			368,902,565				326,835,463
Securities sold under agreements to repurchase			41,203,851				44,410,101
Advances from Federal Home Loan Bank of Atlanta			1,774,700				6,939,500
Treasury, tax, and loan account			691,668				857,015
Interest Payable			1,161,362				937,314
Accrued expenses and other liabilities			1,336,424				1,144,008
Notes payable to Trusts, net of debt issuance costs of $111,147 in 2006			10,310,000				14,322,853
Total liabilities			425,380,570				395,446,254
Stockholders’ equity:
Class A common stock, $0.01 par value. Authorized 5,000,000 shares; issued and outstanding, 2,383,097 and 2,375,471 shares in 2007 and 2006, respectively			23,831				23,755
Class B common stock, $0.01 par value. Authorized 250,000 shares; no shares issued or outstanding			0				0
Preferred stock of $.01 par value. Authorized 250,000 shares; no shares issued or outstanding			0				0
Additional paid in capital			5,916,367				5,673,088
Unearned stock based compensation			(51,403	)			0
Accumulated other comprehensive income (loss), net of tax			122,105				(475,478	)
Retained earnings			26,700,500				26,341,116
			32,711,400				31,562,481
Less: 134,654 and 142,789 treasury shares, at cost, respectively			790,010				837,761
Total stockholders’ equity			31,921,390				30,724,720
Total liabilities and stockholders’ equity		$	457,301,960			$	426,170,974