Cash

Investments at fair value:

Common stock of United Community Banks, Inc.

Shares of registered investment company mutual funds

 

Total investments

 

 

Receivables:

Employer’s contributions

Accrued dividends

Due from brokers

 

Total receivables

 

Total assets

 

 

Amounts due to brokers

 

Total liabilities

 

 

Investment income:

Interest and dividends

 

Total investment income

 

 

Contributions:

Employer match

Employee deferrals

Employee rollovers and other

 

Total contributions

 

Total additions

 

 

Net depreciation in fair value of investments

Distributions paid to participants

Administrative expenses

 

Total deductions

 

 

Beginning of year

 

End of year

 

The following description of United Community Banks, Inc. Profit Sharing Plan (the “Plan”) provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions.

The Plan is a defined contribution plan, and was formed to provide benefits exclusively for the employees of United Community Banks, Inc. and its subsidiaries (the “Company”). Employees are eligible to participate in the Plan on the next immediate enrollment date following employment, but are eligible to participate in the matching portion of the Plan after the completion of one year of service with the Company as defined in the Plan documents. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).

Employees of the Company participating in the Plan are entitled to make pre-tax contributions to the Plan in amounts from 2% to 75% of their annual base salary and commissions. The Company’s matching contribution is up to 5% of a participant’s annual base salary and commissions for those who have completed at least one year of service and have elected to make deferred contributions. The Company may also make an additional discretionary contribution in any Plan year. Contributions are subject to certain limitations.

Participants are immediately vested in their contributions to the Plan. Participants vest in the Company’s contributions according to the following schedule:

Less Than

 

 

More Than

Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. The participants affected by the termination or discontinuance of contributions will immediately become 100% vested in their accounts.

The accompanying financial statements have been prepared on the accrual basis of accounting and present the net assets available for benefits and changes in those assets of the Plan. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of net assets available for plan benefits and changes therein, and disclosure of contingent assets and liabilities. Accordingly, actual results may differ from those estimates.

The Plan’s investments are stated at fair value. The Company’s stock trades on the Nasdaq Global Select Market, and the value of the Company’s stock is based on a quoted market price. Investments in mutual funds are valued at fair value based on quoted market prices of the underlying fund securities. The Plan holds investments at December 31, 2007 and 2006 in the Plan sponsor common stock amounting to $22,363,557 and $42,412,566, respectively. This investment represents 31% and 49% of total investments at December 31, 2007 and 2006, respectively. A significant decline in the market value of the Plan Sponsor’s common stock would significantly affect the net assets available for benefits.

The Plan provides for investments in various investment securities, which are exposed to various risks such as interest rate, credit and overall market volatility risks. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such change could materially affect the amounts reported in the statements of net assets available for plan benefits.

The net gain or loss from investment activity includes realized and unrealized gains and losses from investment activity as well as earnings on investments. Unrealized gains and losses are calculated as the difference between the current value of securities as of the end of the plan year and either the current value at the end of the preceding year or the actual cost if such investments were purchased during the current year. Realized gains or losses on sales of investments are calculated as the difference between sales proceeds and the current value of investments at the beginning of the year or the actual cost if such investments were purchased during the year. Earnings on investments include interest and dividends received on the Company’s common stock and mutual fund shares.

Securities transactions are recorded on the trade date. Dividend income is recorded on the ex-dividend date.

The following table represents investments at December 31, 2007 and 2006.

 

Cash

 

 

United Community Banks, Inc. common stock (1,415,415 and 1,312,270 shares at December 31, 2007 and 2006, respectively)

 

 

Mutual funds:

American Beacon Select Money Market

NestEgg Dow Jones U.S. 2040 Fund

NestEgg Dow Jones U.S. 2030 Fund

NestEgg Dow Jones U.S. 2020 Fund

NestEgg Dow Jones U.S. 2010 Fund

NestEgg Dow Jones U.S. 2015 Fund

American Independence International Equity Fund

Federated Max-Cap Fund

Franklin Strategic Small MIDCAP Growth Fund

Vanguard Windsor II Fund

Vanguard Explorer Fund

Vanguard 500 Index Fund

Royce Low Priced Stock Fund

Goldman Sachs Mid Cap Value Fund

Morgan Stanley Mid Cap Growth Fund

Northern Small Cap Value Fund

T Rowe Price Growth Fund

PIMCO Total Return Bond Fund

 

Total mutual funds

 

 

Net change in investments at fair value as determined by quoted market price:

Mutual funds

United Community Banks, Inc. common stock

 

Net change in fair value

 

Single investments representing more than 5% of the Plan’s net assets as of December 31, 2007 and/or 2006, are separately identified.

 

United Community Banks, Inc. common stock

NestEgg Dow Jones U.S. 2040 Fund

NestEgg Dow Jones U.S. 2030 Fund

NestEgg Dow Jones U.S. 2020 Fund

The Plan obtained its latest determination letter on October 4, 2002, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code (“IRC”). The Plan was amended effective December 21, 2006; however, the Plan sponsor and the Plan’s tax counsel believe the Plan is currently designed and being operated in compliance with the applicable requirements of the IRC. Therefore, no provision for income taxes has been included in the Plan’s financial statements.

During the course of the year, the Plan enters into certain party-in-interest transactions with the Company and INTRUST Bank, N.A. (the “Trustee”). The Company, as the plan sponsor, declares cash dividends on its common stock on a quarterly basis throughout the year. In 2007, the Plan received cash dividends of approximately $468,889 on its investment in the Company’s stock. Additionally, the Company provides a discretionary contribution to the Plan’s participants, which is based on the diluted earnings per share of the Company. The contribution receivable was $2,075,236 as of December 31, 2006. No discretionary contribution was made for the 2007 plan year, and therefore there was no contribution receivable as of December 31, 2007.

The Plan regularly purchases shares of the Company’s common stock directly from the Company based on the average of the high and low price for United Community Banks, Inc. common stock as reported by Nasdaq on the date of transaction. During 2007 and 2006, the Plan purchased 71,577 and 111,485 shares, respectively, directly from the Company.

The Trustee functions as the trustee, custodian and record keeper for the Plan. The cost for these services totaled $321,257 for 2007 and is presented on the statement of changes in net assets available for plan benefits as administrative expenses. The fees for 2007 for trustee and custodial services amounted to $273,592 and for record keeping amounted to $47,665.

On June 1, 2007, the Company acquired Gwinnett Commercial Group, Inc. and its wholly owned subsidiary, First Bank of the South. Contributions to Gwinnett Commercial Group, Inc.’s defined contribution plan ceased at the acquisition date. Gwinnett Commercial Group, Inc.’s defined contribution plan is in the process of being merged into the Plan, pending approval from the Department of Labor. No assets or transactions of the Gwinnett Commercial Group, Inc. plan are included in these financial statements.

 

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