UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2011

OR

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

For the transition period from             to             

Commission File Number: 0-14549

United Security Bancshares, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	63-0843362
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)
131 West Front Street
Post Office Box 249
Thomasville, AL	36784
(Address of Principal Executive Offices)	(Zip Code)

(334) 636-5424

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x            No  ¨

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

Yes  x             No  ¨

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 (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨             No  x

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

Class	Outstanding at August 12, 2011
Common Stock, $0.01 par value	6,010,737 shares

UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES

	PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Financial Condition at June  30, 2011 (Unaudited) and December 31, 2010		4
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June  30, 2011 and 2010 (Unaudited)		5
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2011 and 2010 (Unaudited)		6
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June  30, 2011 and 2010 (Unaudited)		7
Notes to Condensed Consolidated Financial Statements (Unaudited)		8
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		27
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		31
ITEM 4. CONTROLS AND PROCEDURES		32
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS		33
ITEM 1A. RISK FACTORS		33
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		34
ITEM 6. EXHIBITS		35
Signature Page		35

2

FORWARD-LOOKING STATEMENTS

Statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995). In addition, United Security Bancshares, Inc. and its subsidiaries (the “Company” or “USBI”), through its senior management, from time to time makes forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995) concerning its expected future operations and performance and other developments. The words “estimate,” “project,” “intend,” “anticipate,” “expect,” “believe” and similar expressions are indicative of forward-looking statements. Such forward-looking statements are necessarily estimates reflecting the Company’s best judgment based upon current information and involve a number of risks and uncertainties, and various factors could cause results to differ materially from those contemplated by such forward-looking statements. Such factors could include those identified from time to time in the Company’s Securities and Exchange Commission (“SEC”) filings and other public announcements, including the risk factors described in Part I, Item 1A of the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2010. With respect to the adequacy of the allowance for loan losses for the Company, these factors include, but are not limited to, the rate of growth (or lack thereof) in the economy, the relative strength and weakness in the consumer and commercial credit sectors and in the real estate markets and collateral values. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to revise forward-looking statements to reflect circumstances or events that occur after the dates on which the forward-looking statements are made, except as required by law.

3

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in Thousands, Except Per Share Data)

	June 30, 2011			December 31, 2010
	(Unaudited)
ASSETS
Cash and Due from Banks	$	9,995		$	10,330
Interest Bearing Deposits in Banks		22,147			3,201
Total Cash and Cash Equivalents		32,142			13,531
Investment Securities Available-for-Sale, at fair market value		136,186			135,877
Investment Securities Held-to-Maturity, at cost		1,210			1,210
Federal Home Loan Bank Stock, at cost		4,034			5,093
Loans, net of allowance for loan losses of $19,010 and $20,936, respectively		390,652			387,478
Premises and Equipment, net		9,193			16,609
Cash Surrender Value of Bank-Owned Life Insurance		12,711			12,499
Accrued Interest Receivable		4,384			5,110
Goodwill		4,098			4,098
Investment in Limited Partnerships		1,495			1,766
Other Real Estate Owned		25,270			25,632
Other Assets		11,312			12,836
Total Assets	$	632,687		$	621,739
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits	$	524,703		$	503,530
Accrued Interest Expense		882			2,235
Short-Term Borrowings		1,111			970
Long-Term Debt		20,000			30,000
Other Liabilities		8,090			10,481
Total Liabilities		554,786			547,216
Commitments and Contingencies (See Note 13)
Shareholders’ Equity:
Common Stock, par value $0.01 per share, 10,000,000 shares authorized; 7,317,560 shares issued; 6,010,737 and 6,011,012 shares outstanding, respectively		73			73
Surplus		9,233			9,233
Accumulated Other Comprehensive Income, net of tax		3,926			3,412
Retained Earnings		85,889			84,408
Less Treasury Stock: 1,306,823 and 1,306,548 shares at cost, respectively		(21,208	)		(21,205	)
Noncontrolling Interest		(12	)		(1,398	)
Total Shareholders’ Equity		77,901			74,523
Total Liabilities and Shareholders’ Equity	$	632,687		$	621,739

The accompanying notes are an integral part of these Condensed Consolidated Statements.

4

UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Thousands, Except Per Share Data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
	(Unaudited)						(Unaudited)
INTEREST INCOME:
Interest and Fees on Loans	$	9,270		$	9,540		$	18,357		$	18,846
Interest on Investment Securities		1,337			1,645			2,694			3,593
Total Interest Income		10,607			11,185			21,051			22,439
INTEREST EXPENSE:
Interest on Deposits		1,579			1,975			3,176			3,958
Interest on Borrowings		200			556			470			1,496
Total Interest Expense		1,779			2,531			3,646			5,454
NET INTEREST INCOME		8,828			8,654			17,405			16,985
PROVISION FOR LOAN LOSSES		1,609			3,682			2,914			5,425
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		7,219			4,972			14,491			11,560
NON-INTEREST INCOME:
Service and Other Charges on Deposit Accounts		722			796			1,438			1,449
Credit Life Insurance Income		218			211			340			342
Other Income		1,256			436			1,607			5,248
Total Non-Interest Income		2,196			1,443			3,385			7,039
NON-INTEREST EXPENSE:
Salaries and Employee Benefits		3,851			3,625			7,421			7,086
Occupancy Expense		467			479			943			928
Furniture and Equipment Expense		317			326			620			626
Impairment on Other Real Estate		402			237			886			400
Loss on Sale of Other Real Estate		169			290			508			512
Other Expense		2,945			2,284			5,208			4,914
Total Non-Interest Expense		8,151			7,241			15,586			14,466
INCOME (LOSS) BEFORE INCOME TAXES		1,264			(826	)		2,290			4,133
PROVISION FOR (BENEFIT FROM) INCOME TAXES		361			(478	)		568			1,321
NET INCOME (LOSS)	$	903		$	(348	)	$	1,722		$	2,812
Less: Net Loss Attributable to Noncontrolling Interest		(1	)		—			(1	)		(125	)
NET INCOME (LOSS) ATTRIBUTABLE TO USBI	$	904		$	(348	)	$	1,723		$	2,937
BASIC AND DILUTED NET INCOME (LOSS) ATTRIBUTABLE TO USBI PER SHARE	$	0.15		$	(0.06	)	$	0.29		$	0.49
DIVIDENDS PER SHARE	$	—		$	0.11		$	0.04		$	0.22

The accompanying notes are an integral part of these Condensed Consolidated Statements.

5

UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in Thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
	(Unaudited)						(Unaudited)
Net income (loss) attributable to USBI	$	904		$	(348	)	$	1,723		$	2,937
Other comprehensive income:
Change in unrealized holding gains on available-for-sale securities arising during period, net of tax tax of $364, $180, $459 and $290, respectively		608			300			766			483
Reclassification adjustment for net gains realized on available-for-sale securities realized in net income, net of tax of $150, $2, $149 and $95, respectively		(251	)		(4	)		(252	)		(158	)
Other comprehensive income		357			296			514			325
Comprehensive income (loss) attributable to USBI	$	1,261		$	(52	)	$	2,237		$	3,262
Net loss attributable to noncontrolling interest		(1	)		—			(1	)		(125	)
Total comprehensive income (loss)	$	1,260		$	(52	)	$	2,236		$	3,137

The accompanying notes are an integral part of these Condensed Consolidated Statements.

6

UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

	Six Months Ended June 30,
	2011			2010
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,722		$	2,812
Less net loss attributable to noncontrolling interest		(1	)		(125	)
Net income attributable to USBI	$	1,723		$	2,937
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation		350			383
Amortization of premiums and discounts, net		385			399
Provision for loan losses		2,914			5,425
Gain on sale of securities, net		(401	)		(253	)
Impairment of other real estate owned		886			400
Loss on sale of other real estate owned		508			512
Loss on sale of fixed assets, net		—			96
Net other operating activities		1,995			577
Total adjustments		6,637			7,539
Net cash provided by operating activities		8,360			10,476
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and prepayments of investment securities		23,248			36,579
Proceeds from sales of investment securities		6,178			12,683
Proceeds from redemption of Federal Home Loan Bank stock		1,059			—
Proceeds from the sale of other real estate		2,721			2,559
Purchase of premises and equipment, net		(300	)		(60	)
Purchase of investment securities available-for-sale		(28,895	)		(16,449	)
Net increase in federal funds sold		—			(10,775	)
Net change in loan portfolio		(9,841	)		(12,724	)
Net effect of deconsolidating of variable interest entity		5,010			—
Net cash (used in) provided by investing activities		(820	)		11,813
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in customer deposits		21,174			10,719
Dividends paid		(241	)		(1,327	)
Decrease in borrowings		(9,859	)		(31,217	)
Purchase of treasury stock		(3	)		(73	)
Net cash provided by (used in) financing activities		11,071			(21,898	)
NET INCREASE IN CASH AND CASH EQUIVALENTS		18,611			391
CASH AND CASH EQUIVALENTS, beginning of period		13,531			12,449
CASH AND CASH EQUIVALENTS, end of period	$	32,142		$	12,840
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest	$	5,242		$	5,549
Income Taxes		498			666
NON-CASH TRANSACTIONS:
Other real estate acquired in settlement of loans	$	3,754		$	8,122

The accompanying notes are an integral part of these Condensed Consolidated Statements.

7

UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. GENERAL

The accompanying unaudited interim condensed consolidated financial statements include the accounts of United Security Bancshares, Inc. and its subsidiaries (the “Company” or “USBI”). All significant intercompany transactions and accounts have been eliminated.

The interim condensed consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the periods presented. Such adjustments are of a normal, recurring nature. The results of operations for any interim period are not necessarily indicative of results expected for the fiscal year ending December 31, 2011. While certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), management believes that the disclosures herein are adequate to make the information presented not misleading. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, as amended. The accounting policies followed by the Company are set forth in Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, as amended. In preparing the condensed consolidated financial statements, management evaluated subsequent events through the date on which the condensed consolidated financial statements were issued.

2. RECENT ACCOUNTING PRONOUNCEMENTS

The Accounting Standards Codification (“ASC”) Topic 860 Transfers and Servicing amended previous guidance on accounting for transfers of financial assets. The amended guidance eliminates the concept of qualifying special-purpose entities and requires that these entities be evaluated for consolidation under applicable accounting guidance, and it also removes the exception that permitted sale accounting for certain mortgage securitizations when control over the transferred assets had not been surrendered. Based on this new standard, many types of transferred financial assets that previously would have been derecognized will now remain on the transferor’s financial statements. The guidance also requires enhanced disclosures about transfers of financial assets and the transferor’s continuing involvement with those assets and related risk exposure. The new standard became effective for the Company on January 1, 2010 and did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

ASC Topic 810 Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities was issued in June 2009 and amended then-existing guidance on accounting for Variable Interest Entities (“VIEs”). This guidance replaces the quantitative-based risks and rewards calculation for determining which enterprise might have a controlling financial interest in a VIE. The new, more qualitative evaluation focuses on who has the power to direct the significant economic activities of the VIE and also has the obligation to absorb losses or rights to receive benefits from the VIE. It also requires an ongoing reassessment of whether an enterprise is the primary beneficiary of a VIE and calls for certain expanded disclosures about an enterprise’s involvement with variable interest entities. The new guidance became effective for the Company on January 1, 2010 and did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In January 2010, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) (ASU No. 2010-06, Improving Disclosures about Fair Value Measurements) impacting ASC 820-10, Fair Value Measurements and Disclosures. The amendments in this update require new disclosures about significant transfers in and out of Level 1 and Level 2 fair value measurements. The amendments also require a reporting entity to provide information about activity for purchases, sales, issuances and settlements in Level 3 fair value measurements and to clarify disclosures about the level of disaggregation and disclosures about inputs and valuation techniques. This update became effective for the Company for interim and annual reporting periods beginning after December 15, 2009 and did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

8

In April 2010, the FASB issued ASU No. 2010-18, Receivables (Topic 310): Effect of a Loan Modification When the Loan Is Part of a Pool That is Accounted for as a Single Asset, which clarifies the accounting for acquired loans that have evidence of a deterioration in credit quality since origination (referred to as “Subtopic 310-30 Loans”). Under this ASU, an entity may not apply troubled debt restructuring (“TDR”) accounting guidance to individual Subtopic 310-30 Loans that are part of a pool, even if the modification of those loans would otherwise be considered a troubled debt restructuring. Once a pool is established, individual loans should not be removed from the pool unless the entity sells, forecloses or writes off the loan. Entities would continue to consider whether the pool of loans is impaired if expected cash flows for the pool change. Subtopic 310-30 Loans that are accounted for individually would continue to be subject to TDR accounting guidance. A one-time election to terminate accounting for loans as a pool, which may be made on a pool-by-pool basis, is provided upon adoption of the ASU. This ASU became effective for the Company for interim and annual reporting periods beginning September 30, 2010 and did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

On July 21, 2010, the FASB issued ASU No. 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, which requires significant new disclosures about the allowance for credit losses and the credit quality of financing receivables. The requirements are intended to enhance transparency regarding credit losses and the credit quality of loan and lease receivables. Under this statement, allowance for credit losses and fair value are to be disclosed by portfolio segment, while credit quality information, impaired financing receivables and nonaccrual status are to be presented by class of financing receivable. Disclosure of the nature and extent, financial impact and segment information of troubled debt restructurings was also required. The disclosures are to be presented at the level of disaggregation that management uses when assessing and monitoring the portfolio’s risk and performance. This ASU became effective for the Company for interim and annual reporting periods beginning after December 15, 2010 and did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

ASU No. 2010-28, “Intangibles - Goodwill and Other (Topic 350) - When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.” ASU 2010-28 modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist, such as if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. ASU 2010-28 became effective for the Company on January 1, 2011 and did not have a material impact on the Company’s financial position, results of operations or cash flows.

ASU No. 2011-02, “Receivables (Topic 310) - A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” ASU 2011-02 clarifies which loan modifications constitute troubled debt restructurings and is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude, under the guidance clarified by ASU 2011-02, that both of the following exist: (a) the restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties. ASU 2011-02 became effective for the Company on July 1, 2011 and applies retrospectively to restructurings occurring on or after January 1, 2011. Adoption of ASU 2011-02 did not have a material impact on the Company’s financial position, results of operations or cash flows.

In April 2011, the FASB issued ASU No. 2011-03, “Reconsideration of Effective Control for Repurchase Agreements.” ASU No. 2011-03 affects all entities that enter into agreements to transfer financial assets that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity. The amendments in ASU No. 2011-03 remove from the assessment of effective control the criterion relating to the transferor’s ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee. ASU No. 2011-03 also eliminates the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. The guidance is effective for the Company’s reporting period ending March 31, 2012. The guidance will be applied prospectively to transactions or modifications of existing transactions that occur on or after January 1, 2012. The Company is evaluating the impact that adoption will have on its consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The standards set forth in ASU 2011-04 supersede most of the accounting guidance currently found in Topic 820 of FASB’s ASC and previously known as Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. The amendments will improve comparability of fair value measurements presented and disclosed in financial statements

9

prepared with GAAP and International Financial Reporting Standards (“IFRS”). The amendments also clarify the application of existing fair value measurement requirements. These amendments include (1) the application of the highest and best use and valuation premise concepts, (2) measuring the fair value of an instrument classified in a reporting entity’s shareholders’ equity and (3) disclosing quantitative information about the unobservable inputs used within the Level 3 hierarchy. The guidance is effective for the Company’s interim and annual periods beginning after December 15, 2011 and will be applied prospectively. The Company is evaluating the impact that adoption will have on its consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, which amends existing standards to allow an entity the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under both options, an entity is required to present each component of net income along with total net income; each component of other comprehensive income along with a total for other comprehensive income; and a total amount for comprehensive income. Any changes pursuant to the options allowed in the amendments should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The Company is evaluating its timing of adoption but will adopt the amendments retrospectively by the effective date. The Company is evaluating the impact that adoption will have on its consolidated financial statements.

3. NET INCOME (LOSS) ATTRIBUTABLE TO USBI PER SHARE

Basic net income (loss) attributable to USBI per share is computed by dividing net income (loss) attributable to USBI by the weighted average shares during the three- and six-month periods ended June 30, 2011 and 2010. Diluted net income (loss) attributable to USBI per share for each of the three- and six-month periods ended June 30, 2011 and 2010 is computed based on the weighted average shares outstanding during the period plus the dilutive effect of all potentially dilutive instruments outstanding. There were no outstanding potentially dilutive instruments during the periods ended June 30, 2011 or 2010, and, therefore, basic and diluted weighted average shares outstanding were the same.

The following table represents the basic and diluted net income (loss) attributable to USBI per share calculations for the three- and six-month periods ended June 30, 2011 and 2010 (dollars in thousands, except per share data):

	Net Income (Loss) Attributable to USBI			Weighted Average Shares Outstanding		Basic and Diluted Net Income (Loss) Attributable to USBI Per Share
For the Three Months Ended:
June 30, 2011	$	904			6,010,749	$	0.15
June 30, 2010	$	(348	)		6,015,894	$	(0.06	)
For the Six Months Ended:
June 30, 2011	$	1,723			6,010,803	$	0.29
June 30, 2010	$	2,937			6,016,695	$	0.49

4. COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) consists of net income (loss) attributable to USBI, the change in the unrealized gains or losses on the Company’s available-for-sale securities portfolio arising during the period and the change in the effective portion of cash flow hedges marked to market. In the calculation of comprehensive income (loss), certain reclassification adjustments are made to avoid double counting items that are displayed as part of net income (loss) for a period that also had been displayed as part of other comprehensive income (loss) in that period or earlier periods.

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company follows the provisions of ASC Topic 820 Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements. ASC Topic 820 requires disclosure of fair value information about financial instruments, whether or not recognized on the face of the consolidated statements of financial condition, for which it is practicable to estimate that value. The assumptions used in the estimation of the fair value of the Company’s financial instruments are detailed below. Where quoted prices are not available, fair values are based on estimates using discounted cash flows and other valuation techniques. The use of discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following disclosures should not be considered a surrogate of the liquidation value of the Company, but rather represent a good-faith estimate of the increase or decrease in value of financial instruments held by the Company since purchase, origination or issuance.

10

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. In determining fair value, the Company uses various methods, including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

• Level 1 — Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Level 1 also includes equity securities in banks that are publicly traded. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

• Level 2 — Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.

• Level 3 — Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer or broker-traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:

Cash, due from banks and federal funds sold: The carrying amount of cash, due from banks and federal funds sold approximates fair value.

Federal Home Loan Bank: Based on the redemption provision of the Federal Home Loan Bank (“FHLB”), the stock has no quoted market value and is carried at cost.

Securities: Fair values of securities are based on quoted market prices where available. If quoted market prices are not available, estimated fair values are based on market prices of comparable instruments.

Accrued interest: The carrying amount of accrued interest approximates fair value.

Loans, net: For variable-rate loans, fair values are based on carrying values. Fixed-rate commercial loans, other installment loans and certain real estate mortgage loans were valued using discounted cash flows. The discount rate used to determine the present value of these loans is based on interest rates currently being charged by the Company on comparable loans as to credit risk and term.

Demand and savings deposits: The fair values of demand deposits are equal to the carrying value of such deposits. Demand deposits include non-interest bearing demand deposits, savings accounts, NOW accounts and money market demand accounts.

Time deposits: The fair value of relatively short-term time deposits is equal to their carrying values. Discounted cash flows are used to value long-term time deposits. The discount rate used is based on interest rates currently being offered by the Company on comparable deposits as to amount and term.

Short-term borrowings: These borrowings may consist of federal funds purchased, securities sold under agreements to repurchase, floating rate borrowings from the FHLB and the U.S. Treasury Tax and Loan account. Due to the short-term nature of these borrowings, fair values approximate carrying values.

Long-term debt: The fair value of this debt is estimated using discounted cash flows based on the Company’s current incremental borrowing rate for similar types of borrowing arrangements as of June 30, 2011 and December 31, 2010.

Off-balance sheet instruments: The carrying amount of commitments to extend credit and standby letters of credit approximates fair value. The carrying amount of the off-balance sheet financial instruments is based on fees currently charged to enter into such agreements.

11

Financial assets measured at fair value on a recurring basis at June 30, 2011 and December 31, 2010 are summarized below.

	Fair Value Measurements at June 30, 2011 Using
	Totals at June 30, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Mortgage-backed securities	$	111,225		—	$	111,225		—
Obligations of states, counties and political subdivisions		23,742		—		23,742		—
U.S. agencies		1,001		—		1,001		—
Equity securities		218		218		—		—
	Fair Value Measurements at December 31, 2010 Using
	Totals At December 31, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in Thousands)
Mortgage-backed securities	$	113,398	$	—	$	113,398	$	—
Obligations of states, counties and political subdivisions		22,186		—		22,186		—
Equity securities		213		213		—		—
U.S. treasury securities		80		—		80		—

Assets Measured at Fair Value on a Recurring Basis

The following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying balance sheet, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Available-for-Sale Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. Level 2 securities include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset-backed and other securities. Level 2 fair values are obtained from quoted prices of securities with similar characteristics. Currently, all of the Company’s available-for-sale securities are considered to be Level 2 securities, except for $217,585 in equity securities that are considered to be Level 1 securities.

Financial Assets Measured at Fair Value on a Nonrecurring Basis

The Company is required to measure certain assets at fair value on a nonrecurring basis, including impaired loans. Loan impairment is reported when full payment under the loan terms is not expected. Impaired loans are carried at the present value of estimated future cash flows using the loan’s existing rate or the fair value of collateral if the loan is collateral dependent. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. If these allocations cause the allowance for loan losses to increase, such increase is reported as a component of the provision for loan losses. Loan losses are charged against the allowance when management believes that the uncollectibility of a loan is confirmed. Loans, net of specific

12

allowances, subject to this evaluation amounted to $17,709,917 and $19,900,745 as of June 30, 2011 and December 31, 2010, respectively. This valuation would be considered Level 3, consisting of appraisals of underlying collateral and discounted cash flow analysis.

Non-Financial Assets and Non-Financial Liabilities Measured at Fair Value

The Company has no non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Certain non-financial assets and non-financial liabilities measured at fair value on a non-recurring basis include foreclosed assets (upon initial recognition or subsequent impairment), non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment.

During 2011, certain foreclosed assets, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for loan losses based upon the fair value of the foreclosed asset. The fair value of a foreclosed asset, upon initial recognition, is estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria. Foreclosed assets measured at fair value upon initial recognition totaled $2,811,584 and $7,084,265 (utilizing Level 3 valuation inputs) during 2011 and 2010, respectively. In connection with the measurement and initial recognition of the foregoing foreclosed assets, the Company has recognized charge-offs of the allowance for possible loan losses totaling approximately $1,828,724 and $4,268,544 during 2011 and 2010, respectively. There were no foreclosed assets remeasured at fair value subsequent to initial recognition during 2011.

The estimated fair value and related carrying or notional amounts of the Company’s financial instruments at June 30, 2011 and December 31, 2010 were as follows:

	June 30, 2011				December 31, 2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(Dollars in Thousands)
Assets:
Cash and cash equivalents	$	32,142	$	32,142	$	13,531	$	13,531
Investment securities available-for-sale		136,186		136,186		135,877		135,877
Investment securities held-to-maturity		1,210		1,210		1,210		1,197
Federal Home Loan Bank stock		4,034		4,034		5,093		5,093
Accrued interest receivable		4,384		4,384		5,110		5,110
Loans, net of unearned		390,652		389,603		387,478		387,594
Liabilities:
Deposits		524,703		525,788		503,530		505,521
Short-term borrowings		1,111		1,111		970		970
Long-term debt		20,000		20,646		30,000		31,362
Accrued interest payable		882		882		2,235		2,235

6. INVESTMENT SECURITIES

Details of investment securities available-for-sale and held-to-maturity at June 30, 2011 and December 31, 2010 are as follows:

	Available-for-Sale
	June 30, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in Thousands)
Mortgage-backed securities	$	106,223	$	5,079	$	(77	)	$	111,225
Obligations of states, counties and political subdivisions		22,550		1,197		(5	)		23,742
U.S. agencies		999		2		—			1,001
Equity securities		132		115		(29	)		218
Total	$	129,904	$	6,393	$	(111	)	$	136,186

13

	Held-to-Maturity
	June 30, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(Dollars in Thousands)
Obligations of states, counties and political subdivisions	$	1,210	$	—	$	—	$	1,210

	Available-for-Sale
	December 31, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in Thousands)
Mortgage-backed securities	$	108,410	$	5,140	$	(152	)	$	113,398
Obligations of states, counties and political subdivisions		21,797		527		(138	)		22,186
Equity securities		132		116		(35	)		213
U.S. treasury securities		80		—		—			80
Total	$	130,419	$	5,783	$	(325	)	$	135,877

	Held-to-Maturity
	December 31, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in Thousands)
Obligations of states, counties and political subdivisions	$	1,210	$	—	$	(13	)	$	1,197

The scheduled maturities of investment securities available-for-sale and held-to-maturity at June 30, 2011 are presented in the following table:

	Available-for Sale				Held-to-Maturity
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(Dollars in Thousands)
Maturing within one year	$	2,870	$	2,954	$	40	$	40
Maturing after one to five years		5,224		5,471		185		185
Maturing after five to fifteen years		79,138		83,604		635		635
Maturing after fifteen years		42,540		43,940		350		350
Equity securities and Preferred Stock		132		218		—		—
Total	$	129,904	$	136,186	$	1,210	$	1,210

For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on the weighted-average contractual maturities of underlying collateral. The mortgage-backed securities generally mature earlier than their weighted-average contractual maturities because of principal prepayments.

The following table reflects the Company’s investments’ gross unrealized losses and market value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2011 and December 31, 2010. Management evaluates securities for other-than-temporary impairment no less frequently than quarterly and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) whether the Company does not intend to sell these securities, and it is not more likely than not that the Company will be required to sell the securities before recovery of their amortized cost bases. At June 30, 2011, based on the aforementioned considerations, management did not record an other-than-temporary impairment on any security that was in an unrealized loss position.

14

	Available-for-Sale
	June 30, 2011
	Less than 12 Months					12 Months or More
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)
Mortgage-backed securities	$	2,438	$	(68	)	$	398	$	(9	)
Obligations of states, counties and political subdivisions		245		(5	)		—		—
Equity Securities		—		—			45		(29	)
Total	$	2,683	$	(73	)	$	443	$	(38	)

	Available-for-Sale
	December 31, 2010
	Less than 12 Months					12 Months or More
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)
Mortgage-backed securities	$	6,463	$	(137	)	$	637	$	(15	)
Obligations of states, counties and political subdivisions		5,288		(138	)		—		—
Equity Securities		—		—			40		(35	)
Total	$	11,751	$	(275	)	$	677	$	(50	)

	Held-to-Maturity
	December 31, 2010
	Less than 12 Months					12 Months or More
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)
Obligations of states, counties and political subdivisions	$	812	$	(13	)	$	—	$	—

Investment securities available-for-sale with a carrying amount of $75.0 million and $74.1 million at June 30, 2011 and December 31, 2010, respectively, were pledged to secure public deposits and for other purposes.

The following chart represents the gross gains and losses realized on securities (dollars in thousands):

	Gross Gains		Gross Losses		Net Gains (Losses)
	(Dollars in Thousands)
Three Months Ended:
June 30, 2011	$	401	$	—	$	401
June 30, 2010	$	6	$	—	$	6
Six Months Ended:
June 30, 2011	$	401	$	—	$	401
June 30, 2010	$	253	$	—	$	253

7. INVESTMENTS IN LIMITED PARTNERSHIPS

The Company has limited partnership investments in affordable housing projects for which it provides funding as a limited partner and receives tax credits related to its investments in the projects based on its partnership share. The Company has invested in limited partnerships of affordable housing projects, both as direct investments and investments in funds that invest solely in affordable housing projects. The Company has determined that these structures meet the definition of a variable interest entity (“VIE”) under ASC Topic 810 Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. The Company consolidates one of the funds in which it is the sole limited partner. The resulting financial impact to the Company of the consolidation was a net

15

increase to total assets of approximately $150,000 as of June 30, 2011. Unconsolidated investments in these partnerships are accounted for under the cost method as allowed under ASC Topic 325 Accounting for Tax Benefits Resulting from Investments in Affordable Housing Projects. The Company amortizes the excess of carrying value of the investment over its estimated residual value during the period in which tax credits are allocated to the investors. The Company’s maximum exposure to future loss related to these limited partnerships is limited to the $1.5 million recorded investment.

The assets and liabilities of these partnerships consist primarily of apartment complexes and related mortgages. The Bank’s carrying value approximates cost or its underlying equity in the net assets of the partnerships. Market quotations are not available for any of the aforementioned partnerships. Management has no knowledge of intervening events since the date of the partnerships’ financial statements that would have had a material effect on the Company’s consolidated financial position or results of operations.

The Bank had no remaining cash commitments to these partnerships at June 30, 2011.

Prior to June 30, 2011, the Company consolidated La Vista Foundation I, LP, which is one of the affordable housing projects in which Guilford Corporate Tax Credit Fund XVII, LTD, a consolidated VIE, owns a 9.9% limited partnership interest. The Company was deemed to be the primary beneficiary of the VIE because of a $5.0 million mortgage loan from La Vista Foundation I, LP payable to the Bank. During the second quarter of 2011, the mortgage loan was refinanced with another financial institution. The Company reassessed whether it is the primary beneficiary of the VIE and determined that, as of June 30, 2011, it was not. Thus, the June 30, 2011 financials reflect the deconsolidation of La Vista Foundation I, LP. This deconsolidation resulted in a change in noncontrolling interest of $1.4 million, which resulted in an increase in shareholders’ equity of $1.4 million. The balance sheet impact was a decrease to total assets of $2.4 million. This included a $7.4 million decrease in premises and equipment and an increase in loans of $5.0 million. There was no gain or loss and, thus, no income statement impact. The only indirect retained investment is the 9.9% limited partnership interest held by Guilford Corporate Tax Credit Fund XVII, LTD. The deconsolidation did not involve a related party.

8. LOANS AND ALLOWANCE FOR LOAN LOSSES

At June 30, 2011 and December 31, 2010, the composition of the loan portfolio by reporting segment and portfolio segment was as follows (dollars in thousands):

	June 30, 2011
	FUSB		ALC		Total
Real estate loans:
Construction, land development and other land loans	$	33,089	$	—	$	33,089
Secured by 1-4 family residential properties		40,603		43,141		83,744
Secured by multi-family residential properties		27,010		—		27,010
Secured by nonfarm, nonresidential properties		157,210		—		157,210
Other		926		—		926
Commercial and industrial loans		46,148		—		46,148
Consumer loans		20,242		42,425		62,667
Other loans		3,359		—		3,359
Total loans	$	328,587	$	85,566	$	414,153
Less: Unearned Interest		326		4,165		4,491
Allowance for loan losses		15,260		3,750		19,010
Net loans	$	313,001	$	77,651	$	390,652

	December 31, 2010
	FUSB		ALC		Total
Real estate loans:
Construction, land development and other land loans	$	43,839	$	—	$	43,839
Secured by 1-4 family residential properties		39,330		47,059		86,389
Secured by multi-family residential properties		27,237		—		27,237
Secured by nonfarm, nonresidential properties		146,074		—		146,074
Other		179		—		179
Commercial and industrial loans		44,393		—		44,393
Consumer loans		21,192		41,832		63,024
Other loans		1,888		—		1,888
Total loans	$	324,132	$	88,891	$	413,023
Less: Unearned Interest		351		4,258		4,609
Allowance for loan losses		17,027		3,909		20,936
Net loans	$	306,754	$	80,724	$	387,478

The Company grants commercial, real estate and installment loans to its customers. Although the Company has a diversified loan portfolio, 72.9% of the portfolio is concentrated in loans secured by real estate.

In the ordinary course of business, the Bank makes loans to certain officers and directors of the Company and the Bank, including companies with which they are associated. These loans are made on the same terms as those prevailing for comparable transactions with others. Such loans do not represent more than normal risk of

16

collectibility, nor do they present other unfavorable features. The amounts of such related party loans and commitments at June 30, 2011 and December 31, 2010 were $2,450,038 and $2,138,530, respectively. During the period ended June 30, 2011, new loans to these parties totaled $449,601, and repayments were $138,093.

The following table details loans individually and collectively evaluated for impairment at June 30, 2011 and December 31, 2010 (dollars in thousands).

	June 30, 2011
	Loans Evaluated for Impairment
	Individually		Collectively		Total
Real estate loans:
Construction, land development and other land loans	$	21,937	$	11,152	$	33,089
Secured by 1-4 family residential properties		—		83,744		83,744
Secured by multi-family residential properties		2,884		24,126		27,010
Secured by nonfarm, nonresidential properties		18,161		139,049		157,210
Other		—		926		926
Commercial and industrial loans		1,642		44,506		46,148
Consumer loans		—		62,667		62,667
Other loans		—		3,359		3,359
Total loans	$	44,624	$	369,529	$	414,153

	December 31, 2010
	Loans Evaluated for Impairment
	Individually		Collectively		Total
Real estate loans:
Construction, land development and other land loans	$	24,339	$	19,501	$	43,840
Secured by 1-4 family residential properties		—		86,389		86,389
Secured by multi-family residential properties		3,956		23,281		27,237
Secured by nonfarm, nonresidential properties		21,035		125,039		146,074
Other		—		179		179
Commercial and industrial loans		1,642		42,750		44,392
Consumer loans		—		63,024		63,024
Other loans		—		1,888		1,888
Total loans	$	50,972	$	362,051	$	413,023

Changes in the allowance for loan losses by reporting segment and portfolio segment were as follows (dollars in thousands):

	FUSB
	June 30, 2011
	Commercial		Commercial Real Estate		Consumer		Residential Real Estate		Other		Total
Beginning balance	$	988	$	15,205	$	375	$	360	$	99	$	17,027
Charge-offs		237		2,611		227		509		—		3,584
Recoveries		34		24		54		2		—		114
Net charge-offs		203		2,587		173		507		—		3,470
Provision		238		685		152		568		60		1,703
Ending balance	$	1,023	$	13,303	$	354	$	421	$	159	$	15,260

	ALC
	June 30, 2011
	Commercial		Commercial Real Estate		Consumer		Residential Real Estate		Other		Total
Beginning balance	$	—	$	—	$	2,663	$	1,246	$	—	$	3,909
Charge-offs		—		—		1,271		536		—		1,807
Recoveries		—		—		384		54		—		438
Net charge-offs		—		—		887		482		—		1,369
Provision		—		—		762		448		—		1,210
Ending balance	$	—	$	—	$	2,538	$	1,212	$	—	$	3,750

17

	FUSB & ALC
	June 30, 2011
	Commercial		Commercial Real Estate		Consumer		Residential Real Estate		Other		Total
Beginning balance	$	988	$	15,205	$	3,038	$	1,606	$	99	$	20,936
Charge-offs		237		2,611		1,498		1,045		—		5,391
Recoveries		34		24		438		56		—		552
Net charge-offs		203		2,587		1,060		989		—		4,839
Provision		238		685		914		1,016		60		2,913
Ending balance	$	1,023	$	13,303	$	2,892	$	1,633	$	159	$	19,010

	FUSB
	December 31, 2010
	Commercial		Commercial Real Estate		Consumer		Residential Real Estate		Other		Total
Beginning balance	$	752	$	4,053	$	428	$	259	$	96	$	5,588
Charge-offs		773		4,096		405		420		1		5,695
Recoveries		82		102		118		24		1		327
Net charge-offs		691		3,994		287		396		—		5,368
Provision		927		15,146		234		497		3		16,807
Ending balance	$	988	$	15,205	$	375	$	360	$	99	$	17,027

	ALC
	December 31, 2010
	Commercial		Commercial Real Estate		Consumer		Residential Real Estate		Other		Total
Beginning balance	$	—	$	—	$	3,040	$	1,376	$	—	$	4,416
Charge-offs		—		—		2,458		1,189		—		3,647
Recoveries		—		—		653		164		—		817
Net charge-offs		—		—		1,805		1,025		—		2,830
Provision		—		—		1,428		895		—		2,323
Ending balance	$	—	$	—	$	2,663	$	1,246	$	—	$	3,909

	FUSB & ALC
	December 31, 2010
	Commercial		Commercial Real Estate		Consumer		Residential Real Estate		Other		Total
Beginning balance	$	752	$	4,053	$	3,468	$	1,635	$	96	$	10,004
Charge-offs		773		4,096		2,863		1,609		1		9,342
Recoveries		82		102		771		188		1		1,144
Net charge-offs		691		3,994		2,092		1,421		—		8,198
Provision		927		15,146		1,662		1,392		3		19,130
Ending balance	$	988	$	15,205	$	3,038	$	1,606	$	99	$	20,936

	FUSB & ALC
	June 30, 2010
	Commercial		Commercial Real Estate		Consumer		Residential Real Estate		Other			Total
Beginning balance	$	752	$	4,053	$	3,468	$	1,635	$	96		$	10,004
Charge-offs		561		3,650		1,469		672		—			6,352
Recoveries		59		9		455		49		1			573
Net charge-offs		502		3,641		1,014		623		(1	)		5,779
Provision		684		3,206		727		765		43			5,425
Ending balance	$	934	$	3,618	$	3,181	$	1,777	$	140		$	9,650

18

Impaired loans totaled $44.6 million, $51.0 million and $32.0 million as of June 30, 2011, December 31, 2010 and June 30, 2010, respectively. There was approximately $10.3 million, $12.6 million and $0.9 million in the allowance for loan losses specifically allocated to these impaired loans at June 30, 2011, December 31, 2010 and June 30, 2010, respectively. Impaired loans totaling $16.6 million, $18.4 million and $18.2 million for June 30, 2011, December 31, 2010 and June 30, 2010, respectively, have no measurable impairment, and no allowance for loan losses is specifically allocated to these loans. The average recorded investment in impaired loans for June 30, 2011, December 31, 2010 and June 30, 2010 was approximately $46.3 million, $37.0 million and $34.1 million, respectively.

The Company evaluates the allowance for loans individually and collectively. Loans evaluated on an individual basis resulted in a related allowance of $10.3 million, $12.6 million and $0.9 million at June 30, 2011, December 31, 2010 and June 30, 2010, respectively. The remaining allowance of $8.7 million, $8.3 million and $8.7 million at June 30, 2011, December 31, 2010 and June 30, 2010, respectively, were evaluated collectively.

At June 30, 2011, the carrying amount of impaired loans consisted of the following (dollars in thousands):

	June 30, 2011
	Carrying Amount		Unpaid Principal Balance		Related Allowances
Impaired loans with no related allowance recorded
Loans secured by real estate
Construction, land development and other land loans	$	3,069	$	3,069	$	—
Secured by multi-family residential properties		2,884		2,884		—
Secured by nonfarm, nonresidential properties		8,990		8,990		—
Commercial and industrial		1,642		1,642		—
Total loans with no related allowance recorded	$	16,585	$	16,585	$	—
Impaired loans with an allowance recorded
Loans secured by real estate
Construction, land development and other land loans	$	18,868	$	18,868	$	9,148
Secured by multi-family residential properties		—		—		—
Secured by nonfarm, nonresidential properties		9,171		9,171		1,183
Total loans with an allowance recorded	$	28,039	$	28,039	$	10,331
Total impaired loans
Loans secured by real estate
Construction, land development and other land loans	$	21,937	$	21,937	$	9,148
Secured by multi-family residential properties		2,884		2,884		—
Secured by nonfarm, nonresidential properties		18,161		18,161		1,183
Commercial and industrial		1,642		1,642		—
Total impaired loans	$	44,624	$	44,624	$	10,331

19

At December 31, 2010, the carrying amount of impaired loans consisted of the following (dollars in thousands):

	December 31, 2010
	Carrying Amount		Unpaid Principal Balance		Related Allowances
Impaired loans with no related allowance recorded
Loans secured by real estate
Construction, land development and other land loans	$	1,193	$	1,193	$	—
Secured by multi-family residential properties		2,128		2,128		—
Secured by nonfarm, nonresidential properties		13,470		13,470		—
Commercial and industrial		1,642		1,642		—
Total loans with no related allowance recorded	$	18,433	$	18,433	$	—
Impaired loans with an allowance recorded
Loans secured by real estate
Construction, land development and other land loans	$	23,146	$	23,146	$	10,470
Secured by multi-family residential properties		1,828		1,828		472
Secured by nonfarm, nonresidential properties		7,565		7,565		1,696
Total loans with an allowance recorded	$	32,539	$	32,539	$	12,638
Total impaired loans
Loans secured by real estate
Construction, land development and other land loans	$	24,339	$	24,339	$	10,470
Secured by multi-family residential properties		3,956		3,956		472
Secured by nonfarm, nonresidential properties		21,035		21,035		1,696
Commercial and industrial		1,642		1,642		—
Total impaired loans	$	50,972	$	50,972	$	12,638

The Bank has established a credit risk rating system to assess and manage the risk in the loan portfolio. It establishes a uniform framework and common language for assessing and monitoring risk in the portfolio. There have been no changes to the credit risk rating system since December 31, 2010.

The table below illustrates the carrying amount of loans by credit quality indicator at June 30, 2011 (dollars in thousands).

	FUSB
	Pass 1-4		Special Mention 5		Substandard 6		Doubtful 7		Total
Loans secured by real estate:
Construction, land development and other land loans	$	17,244	$	1,276	$	14,398	$	171	$	33,089
Secured by 1-4 family residential properties		34,579		2,467		3,511		46		40,603
Secured by multi-family residential properties		24,126		—		2,884		—		27,010
Secured by nonfarm, nonresidential properties		115,842		7,152		34,216		—		157,210
Other		926		—		—		—		926
Commercial and industrial loans		42,232		742		3,152		22		46,148
Consumer loans		18,897		697		608		40		20,242
Other loans		3,359		—		—		—		3,359
Total	$	257,205	$	12,334	$	58,769	$	279	$	328,587

	ALC
	Performing		Nonperforming		Total
Loans secured by real estate:
Secured by 1-4 family residential properties	$	41,195	$	1,946	$	43,141
Consumer loans		40,682		1,743		42,425
Total	$	81,877	$	3,689	$	85,566

20

The table below illustrates the carrying amount of loans by credit quality indicator at December 31, 2010 (dollars in thousands).

	FUSB
	Pass 1-4		Special Mention 5		Substandard 6		Doubtful 7		Total
Loans secured by real estate:
Construction, land development and other land loans	$	28,537	$	2,763	$	12,397	$	142	$	43,839
Secured by 1-4 family residential properties		32,712		2,444		3,959		215		39,330
Secured by multi-family residential properties		23,281		894		3,062		—		27,237
Secured by nonfarm, nonresidential properties		104,071		5,641		35,665		697		146,074
Other		179		—		—		—		179
Commercial and industrial loans		40,210		918		3,131		133		44,392
Consumer loans		19,702		727		643		121		21,193
Other loans		1,888		—		—		—		1,888
Total	$	250,580	$	13,387	$	58,857	$	1,308	$	324,132

	ALC
	Performing		Nonperforming		Total
Loans secured by real estate:
Secured by 1-4 family residential properties	$	44,485	$	2,574	$	47,059
Consumer loans		40,485		1,347		41,832
Total	$	84,970	$	3,921	$	88,891

The following table provides an aging analysis of past due loans and nonaccruing loans by class at June 30, 2011 (dollars in thousands).

	FUSB
	Past Due
			Greater than						Current		Total
	30-89 Days		90 Days		Total		Nonaccrual		Loans		Loans
Loans secured by real estate:
Construction, land development and other land loans	$	383	$	198	$	581	$	8,952	$	23,556	$	33,089
Secured by 1-4 family residential properties		868		121		989		1,282		38,332		40,603
Secured by multi-family residential properties		—		—		—		2,884		24,126		27,010
Secured by nonfarm, nonresidential properties		1,550		827		2,377		14,073		140,760		157,210
Other		—		—		—		—		926		926
Commercial and industrial loans		376		2		378		157		45,613		46,148
Consumer loans		529		20		549		131		19,562		20,242
Other loans		—		—		—		—		3,359		3,359
Total past due loans	$	3,706	$	1,168	$	4,874	$	27,479	$	296,234	$	328,587

	ALC
	Past Due
			Greater than						Current		Total
	30-89 Days		90 Days		Total		Nonaccrual		Loans		Loans
Loans secured by real estate:
Secured by 1-4 family residential properties	$	1,265	$	1,341	$	2,606	$	605	$	39,930	$	43,141
Consumer loans		1,298		893		2,191		850		39,384		42,425
Total past due loans	$	2,563	$	2,234	$	4,797	$	1,455	$	79,314	$	85,566

21

The following table provides an aging analysis of past due loans and nonaccruing loans by class at December 31, 2010 (dollars in thousands).

	FUSB
	Past Due
			Greater than						Current		Total
	30-89 Days		90 Days		Total		Nonaccrual		Loans		Loans
Loans secured by real estate:
Construction, land development and other land loans	$	708	$	333	$	1,041	$	1,045	$	41,753	$	43,839
Secured by 1-4 family residential properties		1,535		127		1,662		1,701		35,967		39,330
Secured by multi-family residential properties		—		—		—		3,073		24,164		27,237
Secured by nonfarm, nonresidential properties		8,781		2,085		10,866		6,087		129,121		146,074
Other		—		—		—		—		179		179
Commercial and industrial loans		1,003		37		1,040		225		43,128		44,393
Consumer loans		900		29		929		145		20,118		21,192
Other loans		—		—		—		—		1,888		1,888
Total past due loans	$	12,926	$	2,612	$	15,538	$	12,276	$	296,318	$	324,132

	ALC
	Past Due
			Greater than						Current		Total
	30-89 Days		90 Days		Total		Nonaccrual		Loans		Loans
Loans secured by real estate:
Secured by 1-4 family residential properties	$	1,830	$	1,989	$	3,819	$	585	$	42,655	$	47,059
Consumer loans		1,373		636		2,009		711		39,112		41,832
Total past due loans	$	3,203	$	2,625	$	5,828	$	1,296	$	81,767	$	88,891

9. SHORT-TERM BORROWINGS

Short-term borrowings consist of federal funds purchased, treasury tax and loan deposits and securities sold under repurchase agreements. Federal funds purchased generally mature within one to four days. None were outstanding at June 30, 2011 or December 31, 2010. Treasury tax and loan deposits totaled $557,766 and $778,294 at June 30, 2011 and December 31, 2010, respectively. These deposits are withdrawable on demand.

Securities sold under repurchase agreements, which are secured borrowings, generally are reflected at the amount of cash received in connection with the transaction. The Company may be required to provide additional collateral based on the fair value of the underlying securities. The Company monitors the fair value of the underlying securities on a daily basis. Securities sold under repurchase agreements at June 30, 2011 and December 31, 2010 were $553,512 and $192,139, respectively.

At June 30, 2011, the Bank had $7.8 million in available federal fund lines from correspondent banks.

10. LONG-TERM DEBT

The Company uses FHLB advances as an alternative to funding sources with similar maturities, such as certificates of deposit or other deposit programs. These advances generally offer more attractive rates when compared to other mid-term financing options. They are also flexible, allowing the Company to quickly obtain the necessary maturities and rates that best suit its overall asset/liability strategy. At June 30, 2011 and December 31, 2010, investment securities and mortgage loans amounting to $23,929,248 and $45,533,914, respectively, were pledged to secure these borrowings.

At June 30, 2011, the Bank had $169.5 million in available credit from the FHLB.

22

11. INCOME TAXES

The consolidated tax provision differed from the amount computed by applying the federal statutory income tax rate of 34.0%, as described in the following table:

	June 30, 2011			June 30, 2010
	(Dollars in Thousands)
Income tax expense at federal statutory rate	$	779		$	1,405
Increase (decrease) resulting from:
Tax-exempt interest		(202	)		(200	)
State income tax expense, net of federal income tax benefit		43			132
Low income housing tax credits		—			(36	)
Other		(52	)		20
Total	$	568		$	1,321

12. SEGMENT REPORTING

Under ASC Topic 280 Segment Reporting, certain information is disclosed for the two reportable operating segments of the Company. The reportable segments were determined using the internal management reporting system. They are composed of the Company’s and the First United Security Bank’s (the “Bank” or “FUSB”) significant subsidiaries. The accounting policies for each segment are the same as those described in Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the period ended December 31, 2010, as amended. The segment results include certain overhead allocations and intercompany transactions that were recorded at current market prices. All intercompany transactions have been eliminated to determine the consolidated balances. The results for the two reportable segments of the Company are included in the following table:

23

	FUSB		ALC		All Other			Eliminations			Consolidated
	(Dollars in Thousands)
For the three months ended June 30, 2011:
Net interest income	$	5,553	$	3,260	$	14		$	—		$	8,828
Provision for loan losses		885		724		—			—			1,609
Total non-interest income		1,475		676		1,325			(1,280	)		2,196
Total non-interest expense		5,288		2,675		360			(173	)		8,151
Income before income taxes		855		537		979			(1,107	)		1,264
Provision for income taxes		151		205		5			—			361
Net income	$	704	$	332	$	974		$	(1,107	)	$	903
Less: Net loss attributable to noncontrolling interest		—		—		(1	)		—			(1	)
Net income attributable to USBI	$	704	$	332	$	975		$	(1,107	)	$	904
Other significant items:
Total assets	$	632,232	$	86,882	$	83,939		$	(170,366	)	$	632,687
Total investment securities		137,189		—		207			—			137,396
Total loans, net		385,552		77,651		—			(72,551	)		390,652
Goodwill		3,111		—		987			—			4,098
Investment in subsidiaries		1,365		—		77,603			(78,963	)		5
Fixed asset addition		150		150		—			—			300
Depreciation and amortization expense		141		35		—			—			176
Total interest income from external customers		6,075		4,532		—			—			10,607
Total interest income from affiliates		1,272		—		14			(1,286	)		—
For the six months ended June 30, 2011:
Net interest income	$	10,928	$	6,452	$	25		$	—		$	17,405
Provision for loan losses		1,703		1,211		—			—			2,914
Total non-interest income		2,543		851		2,386			(2,395	)		3,385
Total non-interest expense		10,321		5,059		555			(349	)		15,586
Income before income taxes		1,447		1,033		1,856			(2,046	)		2,290
Provision for income taxes		165		395		8			—			568
Net income		1,282		638		1,848			(2,046	)		1,722
Less: Net loss attributable to noncontrolling interest		—		—		(1	)		—			(1	)
Net income attributable to USBI	$	1,282	$	638	$	1,849		$	(2,046	)	$	1,723
Other significant items:
Fixed asset addition	$	150	$	150	$	—		$	—		$	300
Depreciation and amortization expense		284		66		—			—			350
Total interest income from external customers		12,025		9,024		2			—			21,051
Total interest income from affiliates		2,572		—		23			(2,595	)		—

24

	FUSB			ALC		All Other			Eliminations			Consolidated
	(Dollars in Thousands)
For the three months ended June 30, 2010:
Net interest income	$	5,507		$	3,130	$	17		$	—		$	8,654
Provision for loan losses		3,455			227		—			—			3,682
Total non-interest income (loss)		1,162			237		(35	)		79			1,443
Total non-interest expense		4,785			2,386		237			(167	)		7,241
Income (loss) before income taxes		(1,571	)		754		(255	)		246			(826	)
Provision for (benefit from) income taxes		(771	)		288		5			—			(478	)
Net income (loss)	$	(800	)	$	466	$	(260	)	$	246		$	(348	)
Less: Net loss attributable to noncontrolling interest		—			—		—			—			—
Net income (loss) attributable to USBI	$	(800	)	$	466	$	(260	)	$	246		$	(348	)
Other significant items:
Total assets	$	666,472		$	92,887	$	98,196		$	(183,907	)	$	673,648
Total investment securities		163,301			—		259			—			163,560
Total loans, net		404,800			82,034		—			(85,147	)		401,687
Goodwill		3,111			—		987			—			4,098
Investment in subsidiaries		14,604			63		84,070			(98,661	)		76
Fixed asset addition		36			—		—			—			36
Depreciation and amortization expense		153			39		—			—			192
Total interest income from external customers		6,659			4,524		2			—			11,185
Total interest income from affiliates		1,394			—		15			(1,409	)		—
For the six months ended June 30, 2010:
Net interest income	$	10,893		$	6,063	$	29		$	—		$	16,985
Provision for loan losses		4,462			963		—			—			5,425
Total non-interest income		2,786			4,233		3,514			(3,494	)		7,039
Total non-interest expense		9,629			4,555		603			(321	)		14,466
Income (loss) before income taxes		(412	)		4,778		2,940			(3,173	)		4,133
Provision for (benefit from) income taxes		(517	)		1,830		8			—			1,321
Net income		105			2,948		2,932			(3,173	)		2,812
Less: Net loss attributable to noncontrolling interest		—			—		(125	)		—			(125	)
Net income attributable to USBI	$	105		$	2,948	$	3,057		$	(3,173	)	$	2,937
Other significant items:
Fixed asset addition	$	59		$	1	$	—		$	—		$	60
Depreciation and amortization expense		306			77		—			—			383
Total interest income from external customers		13,496			8,939		4			—			22,439
Total interest income from affiliates		2,876			—		24			(2,900	)		—

25

13. GUARANTEES, COMMITMENTS AND CONTINGENCIES

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and in connection with its interest rate risk management, investing and trading activities. These financial instruments include commitments to extend credit and standby letters of credit.

The Bank’s exposure to credit loss in the event of nonperformance by the other party for commitments to make loans and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making these commitments as it does for on-balance sheet instruments. For interest rate swap transactions and commitments to purchase or sell securities for forward delivery, the contract or notional amounts do not represent exposure to credit loss. The Bank controls the credit risk of these derivative instruments through credit approvals, limits and monitoring procedures. Certain derivative contracts have credit risk for the carrying value plus the amount to replace such contracts in the event of counterparty default. All of the Bank’s financial instruments are held for risk management and not for trading purposes. During the period ended June 30, 2011, there were no credit losses associated with derivative contracts.

In the normal course of business, there are outstanding commitments and contingent liabilities, such as commitments to extend credit, letters of credit and others, that are not included in the consolidated financial statements. The financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the financial statements. A summary of these commitments and contingent liabilities is presented below:

	June 30, 2011		December 31, 2010
	(Dollars in Thousands)
Standby Letters of Credit	$	1,328	$	1,127
Commitments to Extend Credit	$	32,128	$	36,560

Standby letters of credit are contingent commitments issued by the Bank generally to guarantee the performance of a customer to a third party. The Bank has recourse against the customer for any amount that it is required to pay to a third party under a standby letter of credit. Revenues are recognized over the lives of the standby letters of credit. The potential amount of future payments that the Bank could be required to make under its standby letters of credit at June 30, 2011 was $1.3 million, representing the Bank’s total credit risk.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties.

Commitments to purchase securities for delayed delivery require the Bank to purchase a specified security at a specified price for delivery on a specified date. Similarly, commitments to sell securities for delayed delivery require the Bank to sell a specified security at a specified price for delivery on a specified date. Market risk arises from potential movements in security values and interest rates between the commitment and delivery dates. At June 30, 2011, there were no outstanding commitments to purchase and sell securities for delayed delivery.

Litigation

On September 27, 2007, Malcomb Graves Automotive, LLC (“Graves Automotive”), Malcomb Graves and Tina Graves filed a lawsuit in the Circuit Court of Shelby County, Alabama against the Company, the Bank, the Bank’s subsidiary, Acceptance Loan Company (“ALC”), and their respective directors and officers seeking an unspecified amount of compensatory and punitive damages. A former employee of ALC, Corey Mitchell, was named as a co-defendant, and ALC and the Bank filed a crossclaim against him seeking, among other relief, defense and indemnification for any damages suffered in the underlying lawsuit. The underlying complaint alleged that the defendants committed fraud in misrepresenting to Graves Automotive the amounts that Graves Automotive owed on certain loans and failing to credit Graves Automotive properly for certain loans. The defendants moved to compel arbitration, and the trial court denied the defendants’ motion. The defendants appealed this decision, and, on September 29, 2010, the Alabama Supreme Court affirmed the trial court’s denial of defendants’ motion. Following

26

the return of the case to the active docket, on November 30, 2010, ALC and the Bank moved to dismiss the lawsuit. In response to this motion to dismiss, on June 15, 2011, the Circuit Court dismissed all claims against the Company, the Bank and their respective directors and officers and all claims that were brought by Malcomb Graves and Tina Graves in their individual capacities. The Circuit Court also dismissed Graves Automotive’s claims for conversion and negligent supervision against ALC and ordered Graves Automotive to re-plead its fraud allegations against ALC with more particularity. As a result, the only counts that remain pending are Graves Automotive’s claims against ALC for breach of contract and unjust enrichment and potentially Graves Automotive’s fraud claim against ALC, once re-pled. ALC continues to deny the allegations against it in the underlying lawsuit and intends to vigorously defend itself in this matter. Given the requirement that Graves Automotive re-plead its fraud claims and the lack of discovery conducted, it is too early to assess the likelihood of a resolution of the remaining claims in this matter or the possibility of an unfavorable outcome.

On February 17, 2011, Wayne Allen Russell, Jr. (“Russell”) filed a lawsuit in the Circuit Court of Tuscaloosa County, Alabama against the Bank and Bill Morgan, who currently serves as the Bank’s Business Development Officer. The allegations in the lawsuit relate to a mortgage on a parcel of real estate, executed by Russell in favor of the Bank as security for a loan, and certain related transactions, including foreclosure proceedings executed by the Bank. Additionally, on June 17, 2011, Mr. Russell’s wife, Rebecca Russell, in response to a lawsuit filed against Ms. Russell by the Bank, filed a counterclaim against the Bank seeking compensatory and punitive damages, asserting that she was induced to mortgage a rental dwelling owned by her, the proceeds of which were paid upon certain obligations owed to the Bank by her husband, and that the Bank had orally agreed to refinance her loan as a part of an alleged refinancing promise by the Bank with respect to the obligations of Mr. Russell. The Court granted the motion to strike the jury demand in both cases and has consolidated the matters for a non-jury trial. Once the consolidation order is entered, the Bank intends to seek the dismissal of Mr. Russell’s complaint and Ms. Russell’s counterclaim. Although the defendants intend to vigorously defend themselves in these matters, it is too early to assess the likelihood of a resolution of these matters or the possibility of an unfavorable outcome.

The Company and its subsidiaries also are parties to other litigation and intend to vigorously defend themselves in all such litigation. In the opinion of management, based on review and consultation with legal counsel, the outcome of such other litigation should not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

14. RESTATEMENT OF 2010 FORM 10-K

Between the end of the quarter ended March 31, 2011 and the filing of the first quarter 2011 Form 10-Q, as reported by the Company in a Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on May 11, 2011, subsequent to the March 14, 2011 filing of the Annual Report on Form 10-K for the year ended December 31, 2010 (the “Initial Form 10-K”), management of the Company was made aware of certain material adjustments to the current appraised values of several properties securing impaired loans held by the Bank. The adjustments were not factored into the Company’s provision for loan losses in the previously issued consolidated financial statements and accompanying footnotes as of and for the year ended December 31, 2010 (the “2010 Financials”). As a result, management and the Audit Committee of the Company’s Board of Directors determined that the Initial Form 10-K and accompanying 2010 Financials should be amended and restated. Therefore, on May 20, 2010, the Company’s management filed Amendment No. 1 to the Initial Form 10-K to reflect the amendment and restatement of the 2010 Financials.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and consolidated financial information are presented to aid in an understanding of the current consolidated financial position, changes in financial position, results of operations and cash flows of United Security Bancshares, Inc. (the “Company” or “USBI”). The Company is the parent holding company of First United Security Bank (the “Bank” or “FUSB”). The Bank operates a finance company, Acceptance Loan Company, Inc. (“ALC”). The Company has no operations of any consequence other than the ownership of its subsidiaries.

The accounting principles and reporting policies of the Company, and the methods of applying these principles, conform with accounting principles generally accepted in the United States of America (“GAAP”) and with general practices within the financial services industry. Critical accounting policies relate to securities, loans, allowance for loan losses, derivatives and hedging. A description of these estimates, which significantly affect the determination of financial position, results of operations and cash flows, is set forth in Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, as amended.

The emphasis of this discussion is a comparison of assets, liabilities and shareholders’ equity as of June 30, 2011 to year-end 2010, while comparing income and expense for the three- and six-month periods ended June 30, 2011 and 2010.

27

All yields and ratios presented and discussed herein are based on the accrual basis and not on the tax-equivalent basis, unless otherwise indicated.

This information should be read in conjunction with the Company’s unaudited consolidated financial statements and related notes appearing elsewhere in this report and Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, as amended.

COMPARING THE THREE- AND SIX-MONTH PERIODS ENDED JUNE 30, 2011 TO THE THREE- AND SIX-MONTH PERIODS ENDED JUNE 30, 2010

Net income attributable to USBI for the second quarter of 2011 was $904,000, compared to net loss attributable to USBI of $348,000 for the same period in 2010, resulting in an increase of basic net income per share from $(0.06) to $0.15. Net income decreased from $2.9 million for the six months ended June 30, 2010 to $1.7 million for the six months ended June 30, 2011, resulting in a decrease in basic net income per share to $0.29 from $0.49. Annualized return on assets was 0.56% for the first six months of 2011, compared to 0.87% for the same period in 2010. Average return on shareholders’ equity decreased to 4.54% for the first six months of 2011 from 7.13% for the first six months of 2010.

For the three-month period ended June 30, 2011, the Bank had net income of $704,000, compared to a net loss of $800,000 for the same quarter in 2010. For the six-month period ended June 30, 2011, the Bank had net income of $1.3 million, compared to net income of $105,000 for the same period in 2010. Increases in net income for the Bank primarily resulted from a lower level of charge-offs and provision for loan losses in both periods.

For the three-month period ending June 30, 2011, ALC had net income of $332,000, compared to $466,000 for the same three-month period in 2010. For the six months ended June 30, 2011, ALC had net income of $638,000, compared to $2.9 million in 2010. In the second quarter of 2010, net income at ALC benefited from the net proceeds in the amount of $3.8 million from a settlement in connection with a fidelity insurance policy and bond issued by The Cincinnati Insurance Company.

Interest income for the 2011 second quarter decreased $578,000, or 5.2%, compared to the second quarter of 2010. The decrease in interest income was primarily due to a decrease in interest earned on loans and investment securities resulting from an overall decrease in the average yield on loans and investment securities. For the six months ended June 30, 2011, interest income decreased $1.4 million, or 6.2%, compared with the same period last year. This decrease in interest income was primarily due to a decrease in interest earned on loans resulting from an overall decrease in the average yield on loans and a decrease in the average yield and volume of investment securities. Interest income at the Bank for the 2011 second quarter decreased $584,000 compared to the second quarter of 2010. For the six months ended June 30, 2011, interest income decreased $1.5 million. These decreases were due to an overall decrease in the average yield and average volume of loans and investment securities. Loan demand continues to be weak due to continuing difficult economic conditions. Cash flows from loans and investment securities were reinvested at lower rates, resulting in lower interest income. Interest income at ALC increased $8,000 for the second quarter of 2011 compared to the same quarter in 2010. Interest income increased $85,000 for the six-month period ended June 30, 2011 compared to the same period in 2010.

Interest expense for the 2011 second quarter decreased $752,000, or 29.7%, compared to the second quarter of 2010. Interest expense decreased $1.8 million, or 33.1%, to $3.6 million for the first six months of 2011, compared to $5.5 million for the first six months of 2010. These decreases were the result of lower interest rates paid on certificates of deposit and borrowed funds for these periods in 2011. As longer term certificates of deposit mature, they reprice at lower rates, as rates remain at record lows.

Net interest income increased $174,000, or 2.0%, for the second quarter of 2011 and increased $420,000, or 2.5%, for the first six months of 2011 compared to the same periods in 2010, respectively. The net interest margin improved from 5.61% for the six months ended June 30, 2010 to 6.18% for the six months ended June 30, 2011 and from 5.73% for the second quarter of 2010 to 6.17% for the second quarter of 2011. Loan and investment yields declined for the three- and six-month periods ended June 30, 2011 compared to the same periods in 2010. The cost of funds declined due to a decline in interest rates paid on interest bearing deposits and borrowed funds. Asset yields and funds costs have stabilized, and the net interest margin is expected to remain near current levels until the Federal Reserve adjusts rates.

28

The provision for loan losses was $1.6 million, or 1.6% annualized of average loans, in the second quarter of 2011, compared to $3.7 million, or 3.5% annualized of average loans, in the second quarter of 2010. The provision for loan losses decreased to $2.9 million for the six months ended June 30, 2011, compared to $5.4 million for the same period in 2010. The annualized provision as a percent of average loans was 1.4% and 2.6% for each of the first six months of 2011 and 2010, respectively. Charge-offs exceeded recoveries by $4.8 million for the six months ended June 30, 2011, a decrease of approximately $1.0 million over the same period in the prior year. See “CREDIT QUALITY.” The provision for loan losses at the Bank decreased to $1.7 million for the six months ended June 30, 2011, compared to $4.5 million for the same period in 2010. Despite continued weakness in residential and commercial real estate and high unemployment levels in our market areas, the year-to-date net charge-offs and the provisions for loan losses have declined when compared to the first six months of 2010. The provision for loan losses at ALC increased to $1.2 million for the six months ended June 30, 2011, compared to $1.0 million for the same period in 2010. For the quarter ended June 30, 2011, the provision for loan losses was $724,000, compared to $227,000 for the same quarter of 2010. Net charge-offs for the second quarter of 2011 were $749,000 compared to $411,000 for the same quarter of 2010.

Total non-interest income increased $753,000, or 52.2%, for the second quarter of 2011 and decreased $3.7 million, or 51.9%, for the first six months of 2011. Service charges on deposit accounts and credit life insurance income showed very little change for the three and six months ended June 30, 2011 compared to the same periods in 2010. All other fees increased $820,000 for the 2011 second quarter due primarily to the reimbursement of attorney fees by the fidelity bond carrier paid in previous years in the amount of $258,000 and the net gain on the sale of investment securities in the amount of $401,000. All other income decreased $3.6 million for the six months ended June 30, 2011 compared to the same period of 2010 as a result of the settlement with The Cincinnati Insurance Company of $4.2 million in the first quarter of 2010.

Total non-interest expense increased $910,000, or 12.6%, for the 2011 second quarter and increased $1.1 million, or 7.7%, for the six months ended June 30, 2011, compared to the same periods in 2010. Salary and employee benefits increased $226,000, when comparing second quarter 2011 to the same period in 2010, and increased $335,000 for the six months ended June 30, 2011 compared to the same period in 2010. For the 2011 second quarter, impairment on other real estate increased $165,000, and realized loss on the sale of other real estate owned decreased $121,000. For the six months ended June 30, 2011, impairment on other real estate owned increased $486,000, and realized loss on the sale of other real estate decreased $4,000. Legal and professional fees declined $31,000 for the 2011 second quarter and declined $407,000 from the six months ended June 30, 2011, when compared to the same periods in 2010. All other expense increased $661,000 for the 2011 second quarter and $294,000 for the six month period ending June 30, 2011 when compared to the same periods in 2010.

Income tax expense for the second quarter of 2011 was $361,000, compared to income tax benefit of $478,000 in 2010. Income tax expense for the first six months of 2011 decreased $753,000 over the first six months of 2010. The increase during the first three months of 2011 compared to 2010 resulted from higher levels of taxable income. Management estimates the effective tax rate for the Company to be approximately 30.0% of pre-tax income for the period ending December 31, 2011.

COMPARING THE JUNE 30, 2011 STATEMENTS OF FINANCIAL CONDITION TO DECEMBER 31, 2010

In comparing consolidated financial condition at June 30, 2011 to December 31, 2010, total assets increased $10.9 million to $632.7 million, while liabilities increased $7.6 million to $554.8 million. Shareholders’ equity increased $3.4 million as a result of an increase in other comprehensive income of $514,000, earnings in excess of dividends of $1.5 million and a $1.4 million increase related to the deconsolidation of a variable interest entity (see Note 7 to the Condensed Consolidated Financial Statements).

Investment securities increased $309,000, or 0.2%, during the first six months of 2011. Investments provide the Company with a stable form of liquidity while maximizing earnings yield. Loans, net of unearned income, increased $1.3 million, from $408.4 million at December 31, 2010 to $409.7 million at June 30, 2011. Loan growth at the Bank has been flat due to the slowdown in construction and real estate development in the trade areas served by the Company and the Bank. Deposits increased $21.2 million, or 4.2%, during the first six months of 2011. Loans, net of unearned income at ALC, decreased $3.2 million, from $84.6 million at December 31, 2010 to $81.4 million at June 30, 2011. Loans at the Bank, after consolidation eliminations, increased $4.5 million from $323.8 million at December 31, 2010 to $328.3 million at June 30, 2011.

The Company maintains the allowance for loan losses at a level deemed adequate by management to absorb possible losses from loans in the portfolio. In determining the adequacy of the allowance for loan losses, management considers numerous factors, including, but not limited to, management’s estimate of: (a) future economic conditions, (b) the financial condition and liquidity of certain loan customers and (c) collateral values of property securing certain loans. Because these factors and others involve the use of management’s estimation and judgment, the

29

allowance for loan losses is inherently subject to adjustment at future dates. Unfavorable changes in the factors used by management to determine the adequacy of the allowance, including increased loan delinquencies and subsequent charge-offs, or the availability of new information, could require additional provisions, in excess of normal provisions, to the allowance for loan losses in future periods. There can be no assurance that loan losses in future periods will not exceed the allowance for loan losses or that additions to the allowances will not be required.

At June 30, 2011, the allowance for loan losses was $19.0 million, or 4.6% of loans net of unearned income, compared to $9.7 million, or 2.4% of loans net of unearned income, at June 30, 2010, and $20.9 million, or 5.1% of loans net of unearned income, at December 31, 2010. The coverage ratio of the allowance for loan losses to non-performing assets decreased to 33.0% at June 30, 2011, compared to 47.1% at December 31, 2010. At June 30, 2011, loans on non-accrual increased $15.4 million, accruing loans past due 90 days or more decreased $1.8 million and real estate acquired in settlement of loans decreased $363,000, each as compared to December 31, 2010.

Net charge-offs as of the quarter ended June 30, 2011 were $4.8 million, or 2.4% of average loans on an annualized basis, a decrease of 0.4%, or $1.0 million, from the charge-offs of $5.8 million, or 2.8% of average loans on an annualized basis, reported a year earlier. The provision for loan losses for the first six months of 2011 was $2.9 million, compared to $5.4 million in the first six months of 2010.

Non-performing assets were as follows (dollars in thousands):

	Consolidated
	June 30, 2011			December 31, 2010			June 30, 2010
Loans Accounted for on a Non-Accrual Basis	$	28,934		$	13,572		$	10,634
Accruing Loans Past Due 90 Days or More		3,402			5,237			5,174
Real Estate Acquired in Settlement of Loans		25,270			25,632			27,056
Total	$	57,606		$	44,441		$	42,864
Non-Performing Assets as a Percentage of Net Loans and Other Real Estate		13.24	%		10.24	%		9.78	%
	FUSB
	June 30, 2011			December 31, 2010			June 30, 2010
Loans Accounted for on a Non-Accrual Basis	$	27,479		$	12,276		$	7,521
Accruing Loans Past Due 90 Days or More		1,168			2,612			1,918
Real Estate Acquired in Settlement of Loans		19,141			19,002			20,195
Total	$	47,788		$	33,890		$	29,634
Non-Performing Assets as a Percentage of Net Loans and Other Real Estate		13.76	%		9.89	%		6.88	%
	ALC
	June 30, 2011			December 31, 2010			June 30, 2010
Loans Accounted for on a Non-Accrual Basis	$	1,455		$	1,296		$	3,113
Accruing Loans Past Due 90 Days or More		2,234			2,625			3,256
Real Estate Acquired in Settlement of Loans		6,129			6,630			6,861
Total	$	9,818		$	10,551		$	13,230
Non-Performing Assets as a Percentage of Net Loans and Other Real Estate		11.22	%		11.56	%		14.22	%

Non-performing assets as a percentage of net loans and other real estate was 13.2% at June 30, 2011 and 10.2% at December 31, 2010. Loans on non-accrual status increased $15.4 million, accruing loans past due 90 days or more decreased $1.8 million and real estate acquired in settlement of loans decreased $363,000 from December 31, 2010. The substantial increase in non-accrual loans resulted from placing twelve commercial real estate loans totaling $19.7 million on non-accrual status in the first six months of 2011. The Company forecasts that adverse economic conditions and the severely depressed real estate market will continue to put downward pressure on real estate collateral values and will impact our ability to reduce non-performing assets. Other real estate acquired as of June 30, 2011 consisted of seven residential properties totaling $194,413 and fifty-three commercial properties totaling $18.9 million at the Bank and one hundred forty-five residential properties totaling $5.6 million and fifteen commercial properties totaling $486,938 at ALC. Every effort is made to dispose of these properties in a timely manner, but these efforts continue to be hampered by poor economic conditions. Real estate values continue to

30

decline, and the real estate market remains severely depressed in all of our market areas. Management reviews these non-performing assets and reports to the Board of Directors of the Bank monthly. Loans past due 90 days or more and still accruing are reviewed by management and are allowed to continue accruing only when management believes that underlying collateral values and the financial strength of the borrowers are sufficient to protect the Bank from loss. If at any time management determines that there may be a loss of interest or principal, these loans will be changed to non-accrual status and their asset values downgraded.

LIQUIDITY AND CAPITAL RESOURCES

The Bank’s primary sources of funds are customer deposits, FHLB advances, repayments of loan principal and interest from loans and investments. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition, making them less predictable. The Bank manages the pricing of its deposits to maintain a desired deposit balance. In addition, the Bank invests in short-term interest-earning assets, which provide liquidity to meet lending requirements.

The Bank currently has up to $169.5 million in borrowing capacity from the FHLB and $7.8 million in established federal funds lines.

The Bank is required to maintain certain levels of regulatory capital. At June 30, 2011 and December 31, 2010, the Company and the Bank were in compliance with all regulatory capital requirements.

Management is not aware of any condition that currently exists that would have an adverse effect on the liquidity, capital resources or operation of the Company. However, the Company is a defendant in certain claims and legal actions arising in the ordinary course of business. See Note 13 to Item 1, “Guarantees, Commitments and Contingencies,” for a discussion of such claims and legal actions.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary functions of asset and liability management are to (1) assure adequate liquidity, (2) maintain an appropriate balance between interest-sensitive assets and interest-sensitive liabilities, (3) maximize the profit of the Bank and (4) reduce risks to the Bank’s capital. Liquidity management involves the ability to meet day-to-day cash flow requirements of the Bank’s customers, whether they are depositors wishing to withdraw funds or borrowers requiring funds to meet their credit needs. Without proper liquidity management, the Bank would not be able to perform a primary function under its role as a financial intermediary and would not be able to meet the needs of the communities that it serves. Interest rate risk management focuses on the maturity structure and repricing characteristics of its assets and liabilities when changes occur in market interest rates. Effective interest rate sensitivity management ensures that both assets and liabilities respond to changes in interest rates within an acceptable time frame, thereby minimizing the effect of such interest rate movements on short- and long-term net interest margin and net interest income.

The asset portion of the balance sheet provides liquidity primarily from two sources. These are principal payments and maturities of loans and maturities and principal payments from the investment portfolio. Other short-term investments such as federal funds sold are additional sources of liquidity. Loans maturing or repricing in one year or less amounted to $195.0 million at December 31, 2010 and $149.0 million at June 30, 2011.

Investment securities forecasted to mature or reprice over the next twelve months ending June 30, 2012 are estimated to be $8.6 million, or about 6.3%, of the investment portfolio as of June 30, 2011. For comparison, principal payments on investment securities totaled $23.3 million, or 16.9%, of the investment portfolio at June 30, 2011.

Although the majority of the securities portfolio has legal final maturities longer than 10 years, a substantial percentage of the portfolio provides monthly principal and interest payments and consists of securities that are readily marketable and easily convertible into cash on short notice. As of June 30, 2011, the bond portfolio had an expected average maturity of 4.5 years, and approximately 66.8% of the $137.4 million in bonds was expected to be repaid within 5 years. However, management does not rely solely upon the investment portfolio to generate cash flows to fund loans, capital expenditures, dividends, debt repayment and other cash requirements. Instead, these activities are funded by cash flows from loan payments, as well as increases in deposits and short-term borrowings.

31

The liability portion of the balance sheet provides liquidity through interest bearing and non-interest bearing deposit accounts. Federal funds purchased, FHLB advances, securities sold under agreements to repurchase and short-term and long-term borrowings are additional sources of liquidity. Liquidity management involves the continual monitoring of the sources and uses of funds to maintain an acceptable cash position. Long-term liquidity management focuses on considerations related to the total balance sheet structure.

The Bank, at June 30, 2011, had long-term debt and short-term borrowings that, on average, represented 4.4% of total liabilities and equity, compared to 8.3% at year-end 2010.

Interest rate sensitivity is a function of the repricing characteristics of the portfolio of assets and liabilities. These repricing characteristics are the time frames during which the interest-bearing assets and liabilities are subject to changes in interest rates, either at replacement or maturity, during the life of the instruments. Measuring interest rate sensitivity is a function of the differences in the volume of assets and the volume of liabilities that are subject to repricing in future time periods. These differences are known as interest sensitivity gaps and are usually calculated for segments of time and on a cumulative basis.

Measuring Interest Rate Sensitivity: Gap analysis is a technique used to measure interest rate sensitivity at a particular point in time. Assets and liabilities are placed in gap intervals based on their repricing dates. Assets and liabilities for which no specific repricing dates exist are placed in gap intervals based on management’s judgment concerning their most likely repricing behaviors.

A net gap for each time period is calculated by subtracting the liabilities repricing in that interval from the assets repricing. A positive gap – more assets repricing than liabilities – will benefit net interest income if rates are rising and will detract from net interest income in a falling rate environment. Conversely, a negative gap – more liabilities repricing than assets – will benefit net interest income in a declining interest rate environment and will detract from net interest income in a rising interest rate environment.

Gap analysis is the simplest representation of the Bank’s interest rate sensitivity. However, it cannot reveal the impact of factors such as administered rates, pricing strategies on consumer and business deposits, changes in balance sheet mix or the effect of various options embedded in balance sheet instruments, such as refinancing rates within the loan and bond portfolios.

Simple gap analysis is no longer considered to be as accurate a tool for measuring interest rate risk as pro forma income simulation because it does not make an allowance for how much an item reprices as interest rates change, only that it is possible that the item could reprice. Accordingly, the Bank does not rely on gap analysis but instead measures changes in net interest income and net interest margin through income simulation over +/- 1%, 2% and 3% interest rate shocks. Our estimates have consistently shown that the Bank has very limited, if any, net interest margin and net interest income risk to rising interest rates.

On a monthly basis, the Bank simulates how changes in short- and long-term interest rates will impact future profitability, as reflected by changes in the Bank’s net interest margin.

Also on a monthly basis, the Bank calculates how changes in interest rates would impact the market value of its assets and liabilities, as well as changes in long-term profitability. The process is similar to assessing short-term risk but emphasizes and is measured over a five-year time period, which allows for a more comprehensive assessment of longer-term repricing and cash flow imbalances that may not be captured by short-term net interest margin simulation. The results of these calculations are representative of long-term interest rate risk, both in terms of changes in the present value of the Bank’s assets and liabilities, as well as long-term changes in core profitability.

ITEM 4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures designed to provide reasonable assurance of achieving the objective that information in its reports filed with the SEC under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified and pursuant to the requirements of the SEC’s rules and forms. Disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act) include controls and procedures designed to ensure that information required to be disclosed by the Company in the reports filed or submitted under the Exchange Act is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer (or those individuals performing the functions of such officer positions), as appropriate, to allow timely decisions regarding required disclosure. It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met.

32

The management of the Company carried out an evaluation, under the supervision and with the participation of the members of the Company’s Executive Management Committee* and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934) as of June 30, 2011, pursuant to the evaluation of these controls and procedures required by Rule 13a-15 of the Securities Exchange Act of 1934. Based upon that evaluation, the Company’s management concluded, as of June 30, 2011, that the Company’s disclosure controls and procedures are effective to ensure that the information required to be disclosed in the Company’s periodic filings with the SEC is recorded, processed, summarized and reported within the time periods specified.

* In accordance with the Management Succession Policy of the Company and the Bank, an Executive Management Committee, under the leadership of a Chairman, is currently managing the Company and the Bank until the Board of Directors identifies and engages a permanent successor to R. Terry Phillips, who resigned as President and Chief Executive Officer of the Company and the Bank as of June 30, 2011. The functions of the Company’s Principal Executive Officer are, therefore, currently being performed by the Executive Management Committee and its members, including Julius Daniel Matheson, III, the Bank’s Chief Investment Officer, who serves as the Chairman of the Executive Management Committee; the Bank’s Chief Financial Officer, Robert Donald Steen; the Bank’s Chief Credit Officer, Craig Bradley Nelson; the Bank’s Senior Loan Officer, Donald Phillip Maughan, II; the Bank’s Executive Vice President, Branch Administration, and Senior Loan Officer, Eric Hudson Mabowitz; and ALC’s Chief Executive Officer and President, William Christopher Mitchell.

Changes in Internal Control Over Financial Reporting.

The management of the Company previously concluded that, as of March 31, 2011, the Company’s disclosure controls and procedures were not effective due to the material weakness that existed in the Company’s internal control over financial reporting relating to the system of monitoring the real estate collateral values of certain impaired loans at the Bank. In certain instances, reductions in collateral values on impaired loans based on recent appraisals had not been communicated to management responsible for financial reporting on a timely basis. In May 2011, after management discovered the material weakness in its internal control over financial reporting described above, management implemented the following internal control procedures to ensure timely reporting of changes in collateral values on impaired loans to management responsible for financial reporting of the Company:

1. The Chief Credit Officer (“CCO”) of the Bank has been assigned the additional responsibility for monitoring all assets classified as impaired. The CCO will also be responsible for determining when appraisals or evaluations will be needed on impaired loans, and for reporting any reductions in collateral values to the Chief Financial Officer on a quarterly basis prior to the filing of the quarterly and annual reports with the SEC.

2. A third party appraisal firm has been engaged to provide appraisals on real estate securing all loans over $500,000, and those of lesser amounts which require more than an evaluation.

3. Each appraisal will be accompanied by an independent appraisal review, also performed by an independent third party.

4. When appraisals are received from the third party appraisal firm, a copy of the appraisal will promptly be provided to the Loan Officer and the Loan Operations Manager, each of whom will be responsible to promptly place the appraisal in the customer file and forward a copy to both the Senior Loan Officer and the CCO.

5. The Asset Quality Committee comprised of the Company’s Chief Executive Officer (or the individual(s) performing the functions of such position), Chief Financial Officer, CCO, North and South Senior Regional Lenders, Corporate Secretary, Manager of Loan Operations, Credit Administration Analyst and Special Assets Manager has been formed. The Asset Quality Committee will meet at least quarterly to discuss loan portfolio and problem asset quality, and review and discuss all impaired assets greater than $500,000 in order to assist the CCO in determining appropriate impairment valuation and related recommendation of any additional impairment charge.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 13 to Item 1, “Guarantees, Commitments and Contingencies,” for information regarding certain litigation matters relating to the Company and its subsidiaries.

The Company and its subsidiaries also are parties to litigation other than as described in Note 13 to Item 1, and the Company intends to vigorously defend itself in all such litigation. In the opinion of the Company, based on review and consultation with legal counsel, the outcome of such litigation should not have a material adverse effect on the Company’s consolidated financial statements or results of operations.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2010, as amended, that could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K, as amended, are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

33

The following update to our risk factors should be read in conjunction with the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2010, as amended:

We are dependent on our management and other key personnel, and the failure to attract and retain such individuals could adversely affect our business, financial condition and results of operations.

Our future success depends to a significant degree on the skills, experience and continued service of our executives and other and key personnel and the identification of suitable successors for them. Changes in key leadership positions within the Company and the Bank can be disruptive, and, if we lose the services of our executives or other key personnel, or if we are unable to identify suitable successors for them, our business, financial condition and results of operations could be materially adversely affected, and we could have difficulty in implementing our business strategy.

We are currently experiencing significant changes in our executive leadership. On June 30, 2011, R. Terry Phillips resigned as President and Chief Executive Officer of the Company and the Bank. Pursuant to the Management Succession Policy of the Company and the Bank, an Executive Management Committee, under the leadership of a Chairman, will manage the Company and the Bank until the Board of Directors identifies and engages a permanent successor. While we hope to recruit a new President and Chief Executive Officer as soon as possible, we do not know how long the process will take or when it will be concluded. There can be no assurance that the Executive Management Committee will function successfully to implement our business strategy in the interim. If the committee is unable to do so, or if we are unable to find a suitable permanent successor in a timely manner, our business, consolidated financial condition and results of operations could be materially adversely affected.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth purchases made by or on behalf of the Company or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act, of shares of the Company’s common stock.

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased			Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs (1)		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Programs(1)
April 1 – April 30		11,617	(2)	$	8.17		—		242,303
May 1 – May 31		3,400	(3)	$	6.91		—		242,303
June 1 – June 30		3,200	(4)	$	7.00		—		242,303
Total		18,217		$	7.73		—		242,303

(1) On December 17, 2010, the Board of Directors of the Company extended the share repurchase program previously approved by the Board on January 19, 2006. Under the repurchase program, the Company is authorized to repurchase up to 642,785 shares of common stock before December 31, 2011, the expiration date of the extended repurchase program.

(2) 11,517 shares were purchased in open-market transactions by an independent trustee for the United Security Bancshares, Inc. Employee Stock Ownership Plan (With 401(k) Provisions), and 100 shares were purchased by a trust, which is part of the Company’s general assets, subject to the claims of its creditors, established in connection with the United Security Bancshares, Inc. Non-Employee Directors’ Deferred Compensation Plan.

(3) 3,400 shares were purchased in open-market transactions by an independent trustee for the United Security Bancshares, Inc. Employee Stock Ownership Plan (With 401(k) Provisions).

(4) 3,200 shares were purchased in open-market transactions by an independent trustee for the United Security Bancshares, Inc. Employee Stock Ownership Plan (With 401(k) Provisions).

34

ITEM 6. EXHIBITS

The exhibits listed in the Index to Exhibits below are filed herewith and are incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

UNITED SECURITY BANCSHARES, INC.

DATE: August 12, 2011

BY:	/s/    ROBERT STEEN
	Robert Steen
	Its Vice President, Treasurer and Assistant Secretary, Chief Financial Officer and Principal Accounting Officer (Duly Authorized Officer and Principal Financial Officer)

INDEX TO EXHIBITS

Exhibit No.	Description
3.1	Certificate of Incorporation of United Security Bancshares, Inc., incorporated herein by reference to the Exhibits to Form 10-Q for the quarter ended September 30, 1999.
3.2	Amended and Restated Bylaws of United Security Bancshares, Inc., incorporated herein by reference to Exhibit 3(ii) to the Current Report on Form 8-K filed August 29, 2007.
10.1	Second Amendment to the First United Security Bank Salary Continuation Agreement for R. Terry Phillips dated June 30, 2011.
31.1	Certification of Julius Daniel Matheson, III pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.2	Certification of Robert Donald Steen pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.3	Certification of Craig Bradley Nelson pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.4	Certification of Donald Phillip Maughan, II pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.5	Certification of Eric Hudson Mabowitz pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.6	Certification of William Christopher Mitchell pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
32	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Interactive Data File

35