SEC Filing | United Community Banks, Inc.

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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 March 31, 2014

o 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 001-35095

	UNITED COMMUNITY BANKS, INC.
	(Exact name of registrant as specified in its charter)

Georgia		58-1807304
(State of Incorporation)		(I.R.S. Employer Identification No.)

125 Highway 515 East
Blairsville, Georgia		30512
Address of Principal		(Zip Code)
Executive Offices

	(706) 781-2265
(Telephone Number)

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 o

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

YES x NO o

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 definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x		Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller Reporting Company o

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

YES o NO x

Common stock, par value $1 per share 50,012,974 shares voting and 10,080,787 shares non-voting outstanding as of April 30, 2014.

INDEX

	PART I - Financial Information

		Item 1.	Financial Statements.

			Consolidated Statement of Income (unaudited) for the Three Months Ended March 31, 2014 and 2013	3

			Consolidated Statement of Comprehensive Income (unaudited) for the Three Months Ended March 31, 2014 and 2013	4

			Consolidated Balance Sheet (unaudited) at March 31, 2014, December 31, 2013 and March 31, 2013	5

			Consolidated Statement of Changes in Shareholders’ Equity (unaudited) for the Three Months Ended March 31, 2014 and 2013	6

			Consolidated Statement of Cash Flows (unaudited) for the Three Months Ended March 31, 2014 and 2013	7

			Notes to Consolidated Financial Statements	8

		Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	36

		Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	58

		Item 4.	Controls and Procedures.	58

	PART II - Other Information

		Item 1.	Legal Proceedings.	59
		Item 1A.	Risk Factors.	59
		Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	59
		Item 3.	Defaults Upon Senior Securities.	59
		Item 4.	Mine Safety Disclosures.	59
		Item 5.	Other Information.	59
		Item 6.	Exhibits.	60

Part I – Financial Information

Item 1 – Financial Statements

UNITED COMMUNITY BANKS, INC.
Consolidated Statement of Income (Unaudited)
	Three Months Ended
	March 31,
(in thousands, except per share data)	2014		2013
Interest revenue:
Loans, including fees	$	47,688	$	50,935
Investment securities, including tax exempt of $188 and $212		11,607		9,944
Deposits in banks and short-term investments		843		870
Total interest revenue		60,138		61,749
Interest expense:
Deposits:
NOW		440		454
Money market		563		562
Savings		20		36
Time		1,771		3,291
Total deposit interest expense		2,794		4,343
Short-term borrowings		840		516
Federal Home Loan Bank advances		58		19
Long-term debt		2,634		2,662
Total interest expense		6,326		7,540
Net interest revenue		53,812		54,209
Provision for credit losses		2,500		11,000
Net interest revenue after provision for credit losses		51,312		43,209
Fee revenue:
Service charges and fees		7,898		7,403
Mortgage loan and other related fees		1,354		2,655
Brokerage fees		1,177		767
Securities gains, net		217		116
Other		1,530		1,970
Total fee revenue		12,176		12,911
Total revenue		63,488		56,120
Operating expenses:
Salaries and employee benefits		24,396		23,592
Communications and equipment		3,239		3,046
Occupancy		3,378		3,367
Advertising and public relations		626		938
Postage, printing and supplies		776		863
Professional fees		1,427		2,366
Foreclosed property		116		2,333
FDIC assessments and other regulatory charges		1,353		2,505
Amortization of intangibles		387		705
Other		3,352		4,055
Total operating expenses		39,050		43,770
Net income before income taxes		24,438		12,350
Income tax expense		9,038		585
Net income		15,400		11,765
Preferred stock dividends and discount accretion		439		3,052
Net income available to common shareholders	$	14,961	$	8,713
Earnings per common share
Basic	$	.25	$	.15
Diluted		.25		.15
Weighted average common shares outstanding
Basic		60,059		58,081
Diluted		60,061		58,081

See accompanying notes to consolidated financial statements.

UNITED COMMUNITY BANKS, INC.
Consolidated Statement of Comprehensive Income (Unaudited)
	Three Months Ended
	March 31,
(in thousands)	2014									2013
				Tax									Tax
	Before-tax			(Expense)			Net of Tax			Before-tax			(Expense)			Net of Tax
	Amount			Benefit			Amount			Amount			Benefit			Amount

Net income		24,438			(9,038	)		15,400			12,350			(585	)		11,765
Other comprehensive income:
Unrealized gains on available-for-sale securities:
Unrealized holding gains arising during
period		3,869			(1,441	)		2,428			1,641			(621	)		1,020
Reclassification adjustment for gains included in net income		(217	)		92			(125	)		(116	)		45			(71	)
Valuation allowance for the change in deferred taxes arising from unrealized gains and losses on available-for-sale securities		—			—			—			—			576			576
Net unrealized gains		3,652			(1,349	)		2,303			1,525			—			1,525
Amortization of losses (gains) included in net income
on available-for-sale securities transferred to held-to-
maturity		330			(123	)		207			(319	)		124			(195	)
Valuation allowance for the change in deferred taxes
arising from the amortization of gains and losses
included in net income on available-for-sale
securities transferred to held-to-maturity		—			—			—			—			(124	)		(124	)
Net unrealized gains (losses)		330			(123	)		207			(319	)		—			(319	)
Amortization of gains included in net income on
terminated derivative financial instruments that
were previously accounted for as cash flow hedges		97			(38	)		59			(538	)		209			(329	)
Unrealized (losses) gains on derivative financial
instruments accounted for as cash flow hedges		(2,832	)		1,102			(1,730	)		430			(167	)		263
Valuation allowance for the change in deferred taxes
arising from unrealized gains and losses and
amortization of gains included in net income on cash
flow hedges		—			—			—			—			(42	)		(42	)
Net unrealized losses		(2,735	)		1,064			(1,671	)		(108	)		—			(108	)
Net actuarial gain (loss) on defined benefit pension plan		296			(115	)		181			(415	)		161			(254	)
Amortization of prior service cost and actuarial losses
included in net periodic pension cost for defined
benefit pension plan		91			(35	)		56			132			(51	)		81
Valuation allowance for the change in deferred taxes
arising from reclassification of unamortized prior
service cost and actuarial losses and amortization of
prior service cost and actuarial losses		—			—			—			—			(110	)		(110	)
Net defined benefit pension plan activity		387			(150	)		237			(283	)		—			(283	)
Total other comprehensive income		1,634			(558	)		1,076			815			—			815
Comprehensive income		26,072			(9,596	)		16,476			13,165			(585	)		12,580

See accompanying notes to consolidated financial statements.

UNITED COMMUNITY BANKS, INC.
Consolidated Balance Sheet (Unaudited)

	March 31,			December 31,			March 31,
(in thousands, except share and per share data)	2014			2013			2013
ASSETS
Cash and due from banks	$	52,813		$	71,230		$	57,638
Interest-bearing deposits in banks		110,529			119,669			107,390
Short-term investments		49,999			37,999			82,000
Cash and cash equivalents		213,341			228,898			247,028
Securities available for sale		1,837,676			1,832,217			1,909,426
Securities held to maturity (fair value $473,136, $485,585 and $247,087)		464,697			479,742			231,087
Mortgage loans held for sale		10,933			10,319			18,290
Loans, net of unearned income		4,355,708			4,329,266			4,193,560
Less allowance for loan losses		(75,223	)		(76,762	)		(105,753	)
Loans, net		4,280,485			4,252,504			4,087,807
Assets covered by loss sharing agreements with the FDIC		21,353			22,882			42,096
Premises and equipment, net		161,540			163,589			168,036
Bank owned life insurance		80,790			80,670			82,114
Accrued interest receivable		18,572			19,598			18,302
Intangible assets		3,093			3,480			4,805
Foreclosed property		5,594			4,221			16,734
Net deferred tax asset		243,683			258,518			—
Derivative financial instruments		21,563			23,833			601
Other assets		34,917			44,948			23,042
Total assets	$	7,398,237		$	7,425,419		$	6,849,368
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand	$	1,471,781		$	1,388,512		$	1,298,425
NOW		1,392,863			1,427,939			1,281,454
Money market		1,235,429			1,227,575			1,165,836
Savings		270,910			251,125			243,347
Time:
Less than $100,000		833,188			892,961			1,019,396
Greater than $100,000		572,889			588,689			685,174
Brokered		470,481			424,704			332,220
Total deposits		6,247,541			6,201,505			6,025,852
Short-term borrowings		123,075			53,241			51,999
Federal Home Loan Bank advances		50,125			120,125			125
Long-term debt		129,865			129,865			124,825
Derivative financial instruments		42,309			46,232			14,556
Unsettled securities purchases		63,999			29,562			—
Accrued expenses and other liabilities		37,593			49,174			39,793
Total liabilities		6,694,507			6,629,704			6,257,150

Shareholders’ equity:
Preferred stock, $1 par value; 10,000,000 shares authorized;
Series A; $10 stated value; 0, 0 and 21,700 shares issued and outstanding		—			—			217
Series B; $1,000 stated value; 0, 105,000 and 180,000 shares issued and outstanding		—			105,000			178,937
Series D; $1,000 stated value; 0, 16,613 and 16,613 shares issued and outstanding		—			16,613			16,613
Common stock, $1 par value; 100,000,000 shares authorized;
50,011,094, 46,243,345 and 43,063,761 shares issued and outstanding		50,011			46,243			43,064
Common stock, non-voting, $1 par value; 26,000,000 shares authorized;
10,080,787, 13,188,206 and 14,703,636 shares issued and outstanding		10,081			13,188			14,704
Common stock issuable; 237,763, 241,832 and 133,469 shares		3,840			3,930			2,726
Capital surplus		1,091,696			1,078,676			1,059,222
Accumulated deficit		(433,130	)		(448,091	)		(700,440	)
Accumulated other comprehensive loss		(18,768	)		(19,844	)		(22,825	)
Total shareholders’ equity		703,730			795,715			592,218
Total liabilities and shareholders’ equity	$	7,398,237		$	7,425,419		$	6,849,368

See accompanying notes to consolidated financial statements.

UNITED COMMUNITY BANKS, INC.
Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)
For the Three Months Ended March 31,
																							Accumulated
	Preferred Stock										Non-Voting			Common									Other
(in thousands, except share and per share data)	Series		Series			Series			Common		Common			Stock			Capital			Accumulated			Comprehensive
(in thousands, except share and per share data)		A		B			D		Stock		Stock			Issuable			Surplus			Deficit			Loss			Total
Balance, December 31, 2012	$	217	$	178,557		$	16,613		$	42,424	$	15,317		$	3,119		$	1,057,951		$	(709,153	)	$	(23,640	)	$	581,405
Net income																					11,765						11,765
Other comprehensive income																								815			815
Common stock issued to
dividend reinvestment
plan and to employee
benefit plans (18,170 shares)										18								171									189
Conversion of non-voting
common stock to voting
(613,158 shares)										613		(613	)														—
Amortization of stock options
and restricted stock awards																		626									626
Vesting of restricted stock
(4,042 shares issued,
259 shares deferred)										4								40									44
Deferred compensation plan,
net, including dividend
equivalents															46												46
Shares issued from deferred
compensation plan
(4,521 shares)										5					(439	)		434									—
Preferred stock dividends:
Series A																					(3	)					(3	)
Series B				380																	(2,630	)					(2,250	)
Series D																					(419	)					(419	)
Balance, March 31, 2013	$	217	$	178,937		$	16,613		$	43,064	$	14,704		$	2,726		$	1,059,222		$	(700,440	)	$	(22,825	)	$	592,218
Balance, December 31, 2013	$	—	$	105,000		$	16,613		$	46,243	$	13,188		$	3,930		$	1,078,676		$	(448,091	)	$	(19,844	)	$	795,715
Net income																					15,400						15,400
Other comprehensive income																								1,076			1,076
Redemption of Series B
preferred stock (105,000
shares)				(105,000	)																						(105,000	)
Redemption of Series D
preferred stock (16,613
shares)							(16,613	)																			(16,613	)
Common stock issued at
market (640,000 shares)										640								11,566									12,206
Common stock issued to
dividend reinvestment
plan and to employee
benefit plans (11,837
shares)										12								197									209
Conversion of non-voting
common stock to voting
(3,107,419 shares)										3,107		(3,107	)														—
Amortization of stock options
and restricted stock awards																		1,120									1,120
Vesting of restricted stock,
net of shares surrendered
to cover payroll taxes
(1,096 shares issued,
0 shares deferred)										1								(2	)								(1	)
Deferred compensation plan,
net, including dividend
equivalents															57												57
Shares issued from deferred
compensation plan
(7,397 shares)										8					(147	)		139									—
Preferred stock dividends:
Series B																					(159	)					(159	)
Series D																					(280	)					(280	)
Balance, March 31, 2014	$	—	$	—		$	—		$	50,011	$	10,081		$	3,840		$	1,091,696		$	(433,130	)	$	(18,768	)	$	703,730

See accompanying notes to consolidated financial statements.

UNITED COMMUNITY BANKS, INC.
Consolidated Statement of Cash Flows (Unaudited)

	Three Months Ended
	March 31,
(in thousands)	2014			2013
Operating activities:
Net income	$	15,400		$	11,765
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		4,927			7,505
Provision for credit losses		2,500			11,000
Stock based compensation		1,120			626
Deferred income tax expense		9,776			—
Securities gains, net		(217	)		(116	)
Net (gains) losses on sales of foreclosed property		(244	)		1,146
Changes in assets and liabilities:
Other assets and accrued interest receivable		6,607			7,915
Accrued expenses and other liabilities		(12,230	)		3,225
Mortgage loans held for sale		(614	)		10,531
Net cash provided by operating activities		27,025			53,597
Investing activities:
Investment securities held-to-maturity:
Proceeds from maturities and calls		15,007			17,501
Purchases		—			(4,993	)
Investment securities available-for-sale:
Proceeds from sales		153,316			15,751
Proceeds from maturities and calls		56,757			132,211
Purchases		(173,024	)		(219,349	)
Net increase in loans		(34,027	)		(36,224	)
Funds collected from FDIC under loss sharing agreements		1,623			2,452
Proceeds from sales of premises and equipment		509			550
Purchases of premises and equipment		(618	)		(2,001	)
Proceeds from sale of other real estate		2,417			5,726
Net cash provided by (used in) investing activities		21,960			(88,376	)
Financing activities:
Net change in deposits		46,036			73,712
Net change in short-term borrowings		69,834			(575	)
Proceeds from Federal Home Loan Bank advances		355,000			185,000
Repayment of Federal Home Loan Bank advances		(425,000	)		(225,000	)
Proceeds from issuance of common stock for dividend reinvestment and employee benefit plans		209			189
Retirement of preferred stock		(121,613	)		—
Issuance of common stock		12,206			—
Cash dividends on preferred stock		(1,214	)		(2,668	)
Net cash (used in) provided by financing activities		(64,542	)		30,658
Net change in cash and cash equivalents		(15,557	)		(4,121	)
Cash and cash equivalents at beginning of period		228,898			251,149
Cash and cash equivalents at end of period	$	213,341		$	247,028
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	7,449		$	8,025
Income taxes		1,321			1,659
Unsettled securities purchases		34,437			—
Transfers of loans to foreclosed property		4,367			6,288

See accompanying notes to consolidated financial statements.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 1 – Accounting Policies

The accounting and financial reporting policies of United Community Banks, Inc. (“United”) and its subsidiaries conform to accounting principles generally accepted in the United States of America (“GAAP”) and general banking industry practices. The accompanying interim consolidated financial statements have not been audited. All material intercompany balances and transactions have been eliminated. A more detailed description of United’s accounting policies is included in its Annual Report on Form 10-K for the year ended December 31, 2013.

In management’s opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying financial statements have been made. These adjustments are normal and recurring accruals considered necessary for a fair and accurate presentation. The results for interim periods are not necessarily indicative of results for the full year or any other interim periods.

Reclassifications

Certain 2013 amounts have been reclassified to conform to the 2014 presentation. During the fourth quarter of 2013, United reclassified hedge ineffectiveness gains and losses from other fee revenue to net interest revenue. The impact of the reclassification has been reflected in all periods and was not material to any period.

Note 2 –Accounting Standards Updates and Recently Adopted Standards

In April 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASU limits the definition of discontinued operations to disposals of components of an entity that represent strategic shifts that have a major effect on an entity’s operations and financial results. It also requires expanded disclosures for discontinued operations. The standard is effective for disposals that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. This guidance is not expected to have a material impact on United’s financial position or results of operations.

Note 3 – Balance Sheet Offsetting

United enters into reverse repurchase agreements in order to invest short-term funds. In addition, United enters into repurchase agreements and reverse repurchase agreements with the same counterparty in transactions commonly referred to as collateral swaps that are subject to master netting agreements under which the balances are netted in the balance sheet in accordance with ASC 210-20, Offsetting.

The following table presents a summary of amounts outstanding under reverse repurchase agreements and derivative financial instruments including those entered into in connection with the same counterparty under master netting agreements as of March 31, 2014, December 31, 2013 and March 31, 2013 (in thousands).


				Gross Amounts Offset on the Balance Sheet
	Gross Amounts of Recognized Assets								Gross Amounts not Offset in the Balance Sheet
									Gross Amounts not Offset in the Balance Sheet
							Net Asset Balance		Financial Instruments			Collateral Received
March 31, 2014							Net Asset Balance		Financial Instruments			Collateral Received			Net Amount

Repurchase agreements / reverse repurchase agreements	$	397,000		$	(350,000	)	$	47,000	$	—		$	(51,243	)	$	—
Derivatives		21,563			—			21,563		(3,896	)		(704	)		16,963
Total	$	418,563		$	(350,000	)	$	68,563	$	(3,896	)	$	(51,947	)	$	16,963
Weighted average interest rate of reverse repurchase agreements		1.09	%


	Gross Amounts of Recognized Liabilities			Gross Amounts Offset on the Balance Sheet
									Gross Amounts not Offset in the Balance Sheet
							Net Liability Balance		Financial Instruments			Collateral Pledged			Net Amount

Repurchase agreements / reverse repurchase agreements	$	350,000		$	(350,000	)	$	—	$	—		$	—		$	—
Derivatives		42,309			—			42,309		(3,896	)		(35,754	)		2,659
Total	$	392,309		$	(350,000	)	$	42,309	$	(3,896	)	$	(35,754	)	$	2,659
Weighted average interest rate of repurchase agreements		.28	%

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Gross

Amounts of

Recognized

Assets

Gross

Amounts

Offset on the

Balance

Sheet

Gross Amounts not Offset

in the Balance Sheet

December 31, 2013

Net Asset

Balance

Financial

Instruments

Collateral

Received

Net Amount


Repurchase agreements / reverse repurchase agreements	$	385,000		$	(350,000	)	$	35,000	$	—		$	(38,982	)	$	—
Derivatives		23,833			—			23,833		(4,378	)		(2,912	)		16,543
Total	$	408,833		$	(350,000	)	$	58,833	$	(4,378	)	$	(41,894	)	$	16,543
Weighted average interest rate of reverse repurchase agreements		1.09	%

Gross

Amounts of

Recognized

Liabilities

Gross

Amounts

Offset on the

Balance

Sheet

Gross Amounts not Offset

in the Balance Sheet

Net Liability

Balance

Financial

Instruments

Collateral

Pledged

Net Amount


Repurchase agreements / reverse repurchase agreements	$	350,000		$	(350,000	)	$	—	$	—		$	—		$	—
Derivatives		46,232			—			46,232		(4,378	)		(38,145	)		3,709
Total	$	396,232		$	(350,000	)	$	46,232	$	(4,378	)	$	(38,145	)	$	3,709
Weighted average interest rate of repurchase agreements		.27	%

Gross

Amounts of

Recognized

Assets

Gross

Amounts

Offset on the

Balance

Sheet

Gross Amounts not Offset

in the Balance Sheet

March 31, 2013

Net Asset

Balance

Financial

Instruments

Collateral

Received

Net Amount


Repurchase agreements / reverse repurchase agreements	$	332,000		$	(250,000	)	$	82,000	$	—		$	(87,470	)	$	—
Derivatives		602			—			602		(57	)		—			545
Total	$	332,602		$	(250,000	)	$	82,602	$	(57	)	$	(87,470	)	$	545
Weighted average interest rate of reverse repurchase agreements		1.28	%

Gross

Amounts of

Recognized

Liabilities

Gross

Amounts

Offset on the

Balance

Sheet

Gross Amounts not Offset

in the Balance Sheet

Net Liability

Balance

Financial

Instruments

Collateral

Pledged

Net Amount


Repurchase agreements / reverse repurchase agreements	$	250,000		$	(250,000	)	$	—	$	—		$	—		$	—
Derivatives		14,556			—			14,556		(57	)		(14,585	)		—
Total	$	264,556		$	(250,000	)	$	14,556	$	(57	)	$	(14,585	)	$	—
Weighted average interest rate of repurchase agreements		.37	%

Note 4 – Securities

Realized gains and losses are derived using the specific identification method for determining the cost of securities sold. The following table summarizes securities sales activity for the three months ended March 31, 2014 and 2013 (in thousands).


	Three Months Ended March 31,
	2014			2013
Proceeds from sales	$	153,316		$	15,751
Gross gains on sales	$	410		$	116
Gross losses on sales		(193	)		—
Net gains on sales of securities	$	217		$	116
Income tax expense attributable to sales	$	92		$	45

Securities with a carrying value of $1.48 billion, $1.53 billion and $1.25 billion were pledged to secure public deposits and other secured borrowings at March 31, 2014, December 31, 2013 and March 31, 2013, respectively. Substantial borrowing capacity remains available under borrowing arrangements with the Federal Home Loan Bank of Atlanta (“FHLB”) with currently pledged securities.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

In the fourth quarter of 2013, securities available-for-sale with a fair value of $301 million were transferred to held-to-maturity. The securities were transferred at their fair value on the date of transfer. The unrealized loss of $8.31 million on the transferred securities is being amortized into interest revenue as an adjustment to the yield on those securities over the remaining life of the transferred securities.

The cost basis, gross unrealized gains and losses and fair value of securities held-to-maturity at March 31, 2014, December 31, 2013 and March 31, 2013 are as follows (in thousands).


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
As of March 31, 2014	Cost		Gains		Losses		Value

State and political subdivisions	$	51,257	$	3,430	$	13	$	54,674
Mortgage-backed securities (1)		413,440		6,877		1,855		418,462

Total	$	464,697	$	10,307	$	1,868	$	473,136

As of December 31, 2013

State and political subdivisions	$	51,733	$	2,718	$	42	$	54,409
Mortgage-backed securities (1)		428,009		6,690		3,523		431,176

Total	$	479,742	$	9,408	$	3,565	$	485,585

As of March 31, 2013

State and political subdivisions	$	51,768	$	5,663	$	—	$	57,431
Mortgage-backed securities (1)		179,319		10,388		51		189,656

Total	$	231,087	$	16,051	$	51	$	247,087
(1) All are residential type mortgage-backed securities

The following table summarizes held-to-maturity securities in an unrealized loss position as of March 31, 2014, December 31, 2013 and March 31, 2013 (in thousands).


	Less than 12 Months				12 Months or More				Total
As of March 31, 2014	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss

State and political subdivisions	$	1,628	$	13	$	—	$	—	$	1,628	$	13
Mortgage-backed securities		200,284		1,721		1,644		134		201,928		1,855
Total unrealized loss position	$	201,912	$	1,734	$	1,644	$	134	$	203,556	$	1,868

As of December 31, 2013

State and political subdivisions	$	1,595	$	42	$	—	$	—	$	1,595	$	42
Mortgage-backed securities		259,870		3,523		—		—		259,870		3,523
Total unrealized loss position	$	261,465	$	3,565	$	—	$	—	$	261,465	$	3,565

As of March 31, 2013

Mortgage-backed securities	$	4,929	$	51	$	—	$	—		4,929		51
Total unrealized loss position	$	4,929	$	51	$	—	$	—	$	4,929	$	51

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, among other factors. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports. No impairment charges were recognized during the three months ended March 31, 2014 or 2013.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The cost basis, unrealized gains and losses, and fair value of securities available-for-sale at March 31, 2014, December 31, 2013 and March 31, 2013 are presented below (in thousands).


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
As of March 31, 2014	Cost		Gains		Losses		Value

State and political subdivisions	$	22,244	$	842	$	80	$	23,006
Mortgage-backed securities (1)		1,126,227		13,213		11,328		1,128,112
Corporate bonds		255,238		1,616		4,930		251,924
Asset-backed securities		429,492		3,003		433		432,062
Other		2,572		—		—		2,572

Total	$	1,835,773	$	18,674	$	16,771	$	1,837,676

As of December 31, 2013

State and political subdivisions	$	22,558	$	823	$	139	$	23,242
Mortgage-backed securities (1)		1,145,800		13,296		13,749		1,145,347
Corporate bonds		255,316		1,304		6,324		250,296
Asset-backed securities		409,086		2,535		988		410,633
Other		2,699		—		—		2,699

Total	$	1,835,459	$	17,958	$	21,200	$	1,832,217

As of March 31, 2013

State and political subdivisions	$	22,711	$	1,330	$	4	$	24,037
Mortgage-backed securities (1)		1,450,645		21,210		3,544		1,468,311
Corporate bonds		190,843		2,035		4,084		188,794
Asset-backed securities		223,827		2,420		377		225,870
Other		2,414		—		—		2,414

Total	$	1,890,440	$	26,995	$	8,009	$	1,909,426

(1) All are residential type mortgage-backed securities

The following table summarizes available-for-sale securities in an unrealized loss position as of March 31, 2014, December 31, 2013 and March 31, 2013 (in thousands).


	Less than 12 Months				12 Months or More				Total
As of March 31, 2014	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss

State and political subdivisions	$	3,595	$	80	$	—	$	—	$	3,595	$	80
Mortgage-backed securities		342,886		3,817		186,290		7,511		529,176		11,328
Corporate bonds		82,337		2,393		75,320		2,537		157,657		4,930
Asset-backed securities		136,076		433		—		—		136,076		433
Total unrealized loss position	$	564,894	$	6,723	$	261,610	$	10,048	$	826,504	$	16,771

As of December 31, 2013

State and political subdivisions	$	4,539	$	139	$	—	$	—	$	4,539	$	139
Mortgage-backed securities		334,996		6,480		175,865		7,269		510,861		13,749
Corporate bonds		137,318		4,494		54,130		1,830		191,448		6,324
Asset-backed securities		164,933		722		22,370		266		187,303		988
Total unrealized loss position	$	641,786	$	11,835	$	252,365	$	9,365	$	894,151	$	21,200

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements


	Less than 12 Months				12 Months or More				Total
As of March 31, 2013	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss

State and political subdivisions	$	1,185	$	2	$	10	$	2	$	1,195	$	4
Mortgage-backed securities		399,263		3,544		—		—		399,263		3,544
Corporate bonds		21,323		145		77,007		3,939		98,330		4,084
Asset-backed securities		72,064		377		—		—		72,064		377
Total unrealized loss position	$	493,835	$	4,068	$	77,017	$	3,941	$	570,852	$	8,009

At March 31, 2014, there were 113 available-for-sale securities and 35 held-to-maturity securities that were in an unrealized loss position. United does not intend to sell nor believes it will be required to sell securities in an unrealized loss position prior to the recovery of their amortized cost basis. Unrealized losses at March 31, 2014 and December 31, 2013 were primarily attributable to changes in interest rates. Unrealized losses at March 31, 2013 were primarily related to changes in interest rates; however, the unrealized losses in corporate bonds also reflect downgrades in the underlying securities ratings since the time of acquisition. The bonds remain above investment grade and have recovered much of their initial market value loss. Therefore, United does not consider them to be impaired.

The amortized cost and fair value of held-to-maturity and available-for-sale securities at March 31, 2014, by contractual maturity, are presented in the following table (in thousands).


	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value

State and political subdivisions:
Within 1 year	$	6,290	$	6,404	$	763	$	759
1 to 5 years		12,496		13,043		15,850		16,992
5 to 10 years		2,610		2,667		22,698		24,262
More than 10 years		848		892		11,946		12,661
		22,244		23,006		51,257		54,674

Corporate bonds:
1 to 5 years		38,316		38,592		—		—
5 to 10 years		206,144		203,053		—		—
More than 10 years		10,778		10,279		—		—
		255,238		251,924		—		—

Asset-backed securities:
Within 1 year		9,980		9,975		—		—
1 to 5 years		71,360		72,443		—		—
5 to 10 years		317,888		319,417		—		—
More than 10 years		30,264		30,227		—		—
		429,492		432,062		—		—

Other:
More than 10 years		2,572		2,572		—		—
		2,572		2,572		—		—

Total securities other than mortgage-backed securities:
Within 1 year		16,270		16,379		763		759
1 to 5 years		122,172		124,078		15,850		16,992
5 to 10 years		526,642		525,137		22,698		24,262
More than 10 years		44,462		43,970		11,946		12,661

Mortgage-backed securities		1,126,227		1,128,112		413,440		418,462

	$	1,835,773	$	1,837,676	$	464,697	$	473,136

Expected maturities may differ from contractual maturities because issuers and borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 5 – Loans and Allowance for Loan Losses

Major classifications of loans as of March 31, 2014, December 31, 2013 and March 31, 2013, are summarized as follows (in thousands).


	March 31,			December 31,			March 31,
	2014			2013			2013

Commercial (secured by real estate)	$	1,765,621		$	1,756,710		$	1,804,030
Commercial & industrial		495,178			471,961			453,764
Commercial construction		148,454			148,903			152,410
Total commercial		2,409,253			2,377,574			2,410,204
Residential mortgage		866,615			875,077			849,802
Home equity lines of credit		446,705			440,887			396,173
Residential construction		317,749			328,579			371,733
Consumer installment		106,991			111,045			110,796
Indirect auto		208,395			196,104			54,852
Total loans		4,355,708			4,329,266			4,193,560
Less allowance for loan losses		(75,223	)		(76,762	)		(105,753	)
Loans, net	$	4,280,485		$	4,252,504		$	4,087,807

At March 31, 2014, December 31, 2013 and March 31, 2013, loans with a carrying value of $2.07 billion, $1.77 billion and $1.94 billion, respectively, were pledged as collateral to secure FHLB advances and other contingent funding sources.

During the second quarter of 2013, United executed a plan to accelerate the disposition of classified assets including performing classified loans, nonperforming loans and foreclosed properties. The purpose of the accelerated classified asset disposition plan was to resolve legacy credit problems remaining from the recent financial crisis and to accelerate the improvement of United’s credit measures toward pre-crisis levels. The classified asset sales included individual note and foreclosed property sales and a large bulk sale of classified assets to a single investor. The bulk sale included performing and nonperforming classified loans and foreclosed properties. The assets were divided into four separate pools that were bid separately by potential buyers. A single purchaser was the high bidder for each of the four pools. The table below shows the allocation among impaired loans, loans that were not considered impaired and foreclosed properties, including United’s recorded investment in those assets, the sales proceeds and the resulting net charge-offs of assets sold in the bulk sale transaction (in thousands).


	Recorded Investment		Net Sales Proceeds		Net Charge-Off
Loans considered impaired	$	96,829	$	56,298	$	(40,531	)
Loans not considered impaired		25,687		15,227		(10,460	)
Foreclosed properties		8,398		5,933		(2,465	)
Total assets sold	$	130,914	$	77,458	$	(53,456	)

The loans considered impaired in the table above were assigned specific reserves of $6.86 million in the most recent analysis of the allowance for loan losses prior to the sale. Because the assets were sold at liquidation prices in a bulk transaction with no recourse, the sales price was generally lower than the appraised value of the foreclosed properties and loan collateral. Although the classified asset sales increased charge-offs during the second quarter of 2013, they accomplished management’s goal of moving classified asset levels toward the pre-crisis range.

The allowance for loan losses represents management’s estimate of probable incurred losses in the loan portfolio as of the end of the period. In 2013, United established an allowance for unfunded commitments separate from the allowance for loan losses due to significant growth in unfunded loan commitments. The allowance for unfunded commitments is included in other liabilities in the consolidated balance sheet. Combined, the allowance for loan losses and allowance for unfunded commitments are referred to as the allowance for credit losses.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following table presents the balance and activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2014 and 2013 (in thousands).

Three Months Ended March 31, 2014	Beginning Balance		Charge- Offs			Recoveries		Allocation of Unallocated			Provision			Ending Balance

Commercial (secured by real estate)	$	24,338	$	(572	)	$	89	$	1,966		$	5,397		$	31,218
Commercial & industrial		6,527		(963	)		541		318			(2,176	)		4,247
Commercial construction		3,669		—			—		388			(80	)		3,977
Residential mortgage		15,446		(1,581	)		66		1,452			584			15,967
Home equity lines of credit		5,528		(1,003	)		10		391			1,194			6,120
Residential construction		12,532		(304	)		93		1,728			(1,868	)		12,181
Consumer installment		1,353		(676	)		327		—			(287	)		717
Indirect auto		1,126		(77	)		11		—			(264	)		796
Unallocated		6,243		—			—		(6,243	)		—			—
Total allowance for loan losses		76,762		(5,176	)		1,137		—			2,500			75,223
Allowance for unfunded commitments		2,165		—			—		—			—			2,165
Total allowance for credit losses	$	78,927	$	(5,176	)	$	1,137	$	—		$	2,500		$	77,388

Three Months Ended March 31, 2013		Beginning Balance		Charge- Offs			Recoveries		Allocation of Unallocated			Provision			Ending Balance

Commercial (secured by real estate)	$	27,847	$	(5,454	)	$	211	$	—		$	7,804		$	30,408
Commercial & industrial		5,537		(1,823	)		322		—			1,590			5,626
Commercial construction		8,389		(45	)		49		—			(285	)		8,108
Residential mortgage		19,117		(1,797	)		162		—			1,741			19,223
Home equity lines of credit		7,525		(559	)		47		—			692			7,705
Residential construction		26,662		(2,982	)		9		—			(363	)		23,326
Consumer installment		2,527		(665	)		181		—			(263	)		1,780
Indirect auto		220		(42	)		2		—			132			312
Unallocated		9,313		—			—		—			(48	)		9,265
Total allowance for loan losses		107,137		(13,367	)		983		—			11,000			105,753
Allowance for unfunded commitments		—		—			—		—			—			—
Total allowance for credit losses	$	107,137	$	(13,367	)	$	983	$	—		$	11,000		$	105,753

The following table represents the recorded investment in loans by portfolio segment and the balance of the allowance for loan losses assigned to each segment based on the method of evaluating the loans for impairment as of March 31, 2014, December 31, 2013 and March 31, 2013 (in thousands).


	Allowance for Loan Losses
	March 31, 2014						December 31, 2013						March 31, 2013
	Individually evaluated for impairment		Collectively evaluated for impairment		Ending Balance		Individually evaluated for impairment		Collectively evaluated for impairment		Ending Balance		Individually evaluated for impairment		Collectively evaluated for impairment		Ending Balance

Commercial (secured by real estate)	$	3,259	$	27,959	$	31,218	$	2,013	$	22,325	$	24,338	$	5,089	$	25,319	$	30,408
Commercial & industrial		253		3,994		4,247		66		6,461		6,527		1,026		4,600		5,626
Commercial construction		469		3,508		3,977		112		3,557		3,669		2,093		6,015		8,108
Residential mortgage		3,079		12,888		15,967		2,914		12,532		15,446		1,804		17,419		19,223
Home equity lines of credit		67		6,053		6,120		5		5,523		5,528		—		7,705		7,705
Residential construction		1,253		10,928		12,181		688		11,844		12,532		1,945		21,381		23,326
Consumer installment		19		698		717		224		1,129		1,353		14		1,766		1,780
Indirect auto		—		796		796		—		1,126		1,126		—		312		312
Unallocated		—		—		—		—		6,243		6,243		—		9,265		9,265
Total allowance for loan losses		8,399		66,824		75,223		6,022		70,740		76,762		11,971		93,782		105,753
Allowance for unfunded commitments		—		2,165		2,165		—		2,165		2,165		—		—		—
Total allowance for credit losses	$	8,399	$	68,989	$	77,388	$	6,022	$	72,905	$	78,927	$	11,971	$	93,782	$	105,753

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

	Loans Outstanding
	March 31, 2014						December 31, 2013						March 31, 2013
	Individually evaluated for impairment		Collectively evaluated for impairment		Ending Balance		Individually evaluated for impairment		Collectively evaluated for impairment		Ending Balance		Individually evaluated for impairment		Collectively evaluated for impairment		Ending Balance

Commercial (secured by real estate)	$	55,006	$	1,710,615	$	1,765,621	$	60,208	$	1,696,502	$	1,756,710	$	86,978	$	1,717,052	$	1,804,030
Commercial & industrial		4,167		491,011		495,178		4,217		467,744		471,961		50,347		403,417		453,764
Commercial construction		11,390		137,064		148,454		13,715		135,188		148,903		38,970		113,440		152,410
Residential mortgage		21,303		845,312		866,615		20,167		854,910		875,077		21,916		827,886		849,802
Home equity lines of credit		505		446,200		446,705		505		440,382		440,887		240		395,933		396,173
Residential construction		12,409		305,340		317,749		14,808		313,771		328,579		31,936		339,797		371,733
Consumer installment		340		106,651		106,991		999		110,046		111,045		407		110,389		110,796
Indirect auto		—		208,395		208,395		—		196,104		196,104		—		54,852		54,852
Total loans	$	105,120	$	4,250,588	$	4,355,708	$	114,619	$	4,214,647	$	4,329,266	$	230,794	$	3,962,766	$	4,193,560

United considers all substandard loan relationships that are on nonaccrual with a balance of $500,000 or greater and all troubled debt restructurings (“TDRs”) to be individually impaired. In addition, United reviews all accruing substandard loan relationships greater than $2 million to determine if the loan is individually impaired. A loan is considered individually impaired when, based on current events and circumstances, it is probable that all amounts due, according to the contractual terms of the loan, will not be collected. All TDRs are considered individually impaired regardless of accrual status. Impairment is measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. A specific reserve is established for individually impaired loans for the amount of calculated impairment. Interest payments received on individually impaired nonaccrual loans are applied as a reduction of the outstanding principal balance. For impaired loans not on nonaccrual status, interest is accrued according to the terms of the loan agreement. Loans are evaluated for individual impairment quarterly and specific reserves are established in the allowance for loan losses for any measured specific impairment on individually impaired loans.

Each quarter, United’s management prepares an analysis of the allowance for credit losses to determine the appropriate balance that measures and quantifies the amount of probable incurred loss in the loan portfolio. The allowance is comprised of specific reserves on individually impaired loans, which are determined as described above and general reserves which are determined based on historical loss experience as adjusted for current trends and economic conditions multiplied by a loss emergence period factor. United uses eight quarters of historical loss experience weighted toward the most recent four quarters to determine the loss factors to be used in the reserve calculation for loans evaluated in the aggregate. Eight quarters has been determined to be an appropriate time period as it is recent enough to be relevant to current conditions and covers a length of time sufficient to minimize distortions caused by nonrecurring and unusual activity that might otherwise influence a shorter time period. In previous periods, the weighted average was calculated by multiplying each quarter’s annualized historical net charge-off rate by 1 through 8, with 8 representing the most recent quarter and 1 representing the oldest quarter. United adopted this method of weighting quarterly loss rates to capture the rapidly deteriorating credit conditions in its loss factors during the financial crisis. Now that credit conditions have begun to stabilize, management concluded in the first quarter of 2014 that it was appropriate to apply a more level weighting to capture the full range and impacts of credit losses experienced during the most recent economic and credit cycle. Therefore in the first quarter of 2014, United applied different weighting factors to the eight quarters of losses. For the four most recent quarters, United applied a weighting factor of 1.75. For the four oldest quarters, United applied a weighting of 1.00 for each quarterly loss factor. Management believes the current weightings are more appropriate to measure the unconfirmed losses incurred within the loan portfolio.

Also, beginning in the first quarter of 2014, United updated its measurement of the loss emergence period in the calculation of the allowance for credit losses. The rapidly deteriorating credit conditions during the peak of the credit cycle shortened the length of time between management’s estimation of the incurrence of a loss and its recognition as a charge off. In most cases, the loss emergence period was within a twelve month period which made the use of annualized loss factors appropriate for measuring the amount of incurred yet unconfirmed credit losses within the loan portfolio. As United has moved out beyond the peak of the financial crisis, management has observed that the loss emergence period has extended. United calculates the loss emergence period for each pool of loans based on the average length of time between the date a loan first exceeds 30 days past due and the date the loan is charged off.

The updates to the weightings of the eight quarters of loss history and the update to our estimation of the loss emergence period did not have a material effect on the total allowance for loan losses or the provision for loan losses for the first quarter of 2014. These updates resulted in the full allocation of the previously unallocated portion of the allowance for loan losses.

On junior lien home equity loans, United has limited ability to monitor the delinquency status of the first lien unless the first lien is also held by United. As a result, United applies the weighted average historical loss factor for this category and appropriately adjusts it to reflect the increased risk of loss from these credits.

Management carefully reviews the resulting loss factors for each category of the loan portfolio and evaluates whether qualitative adjustments are necessary to take into consideration recent credit trends such as increases or decreases in past due, nonaccrual, criticized and classified loans, acceleration or delays in timing of recognition of losses that may affect historical loss emergence periods, and other macro environmental factors such as changes in unemployment rates, lease vacancy rates and trends in property values and absorption rates.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

United’s management believes that its method of determining the balance of the allowance for loan losses provides a reasonable and reliable basis for measuring and reporting losses that are inherent in the loan portfolio as of the reporting date.

When a loan officer determines that a loan is uncollectible, he or she is responsible for recommending that the loan be charged off. Full or partial charge-offs may also be recommended by the Collections Department, the Special Assets Department and the Foreclosure / OREO department. Nonaccrual real estate loans that are collateral dependent are generally charged down to 80% of the appraised value of the underlying collateral at the time they are placed on nonaccrual status.

A committee consisting of the Chief Risk Officer, Senior Risk Officer and the Senior Credit Officers meets monthly to review charge-offs that have occurred during the previous month.

Closed-end retail loans (installment and residential mortgage loans) and open-end (revolving) retail loans past due 90 cumulative days are charged off unless the loan is secured and in process of collection (within the next 90 days).

The following table presents loans individually evaluated for impairment by class of loans as of March 31, 2014, December 31, 2013 and March 31, 2013 (in thousands).

	March 31, 2014						December 31, 2013						March 31, 2013
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Commercial (secured by real estate)	$	24,716	$	17,850	$	—	$	30,361	$	24,205	$	—	$	50,386	$	37,202	$	—
Commercial & industrial		2,417		1,851		—		2,252		2,252		—		73,196		46,895		—
Commercial construction		390		390		—		974		974		—		23,486		16,703		—
Total commercial		27,523		20,091		—		33,587		27,431		—		147,068		100,800		—
Residential mortgage		7,292		5,364		—		4,496		3,634		—		7,522		6,066		—
Home equity lines of credit		—		—		—		—		—		—		240		240		—
Residential construction		6,474		5,174		—		9,462		7,807		—		19,026		15,223		—
Consumer installment		82		82		—		—		—		—		—		—		—
Indirect auto		—		—		—		—		—		—		—		—		—
Total with no related allowance recorded		41,371		30,711		—		47,545		38,872		—		173,856		122,329		—
With an allowance recorded:
Commercial (secured by real estate)		39,377		37,156		3,259		36,085		36,003		2,013		52,363		49,777		5,089
Commercial & industrial		2,598		2,316		253		2,248		1,965		66		3,562		3,451		1,026
Commercial construction		11,079		11,000		469		12,821		12,741		112		23,150		22,267		2,093
Total commercial		53,054		50,472		3,981		51,154		50,709		2,191		79,075		75,495		8,208
Residential mortgage		16,688		15,939		3,079		17,119		16,533		2,914		16,104		15,850		1,804
Home equity lines of credit		505		505		67		505		505		5		—		—		—
Residential construction		8,615		7,235		1,253		8,469		7,001		688		17,244		16,713		1,945
Consumer installment		360		258		19		999		999		224		420		407		14
Indirect auto		—		—		—		—		—		—		—		—		—
Total with an allowance recorded		79,222		74,409		8,399		78,246		75,747		6,022		112,843		108,465		11,971
Total	$	120,593	$	105,120	$	8,399	$	125,791	$	114,619	$	6,022	$	286,699	$	230,794	$	11,971

There were no loans more than 90 days past due and still accruing interest at March 31, 2014, December 31, 2013 or March 31, 2013. Nonaccrual loans include both homogeneous loans that are collectively evaluated for impairment and individually evaluated impaired loans. United’s policy is to place loans on nonaccrual status when, in the opinion of management, the principal and interest on a loan is not likely to be repaid in accordance with the loan terms or when the loan becomes 90 days past due and is not well secured and in the process of collection. When a loan is classified on nonaccrual status, interest previously accrued but not collected is reversed against current interest revenue. Principal and interest payments received on a nonaccrual loan are applied to reduce outstanding principal.

The gross additional interest income that would have been earned if the loans classified as nonaccrual had performed in accordance with the original terms was approximately $460,000, and $1.14 million for the three months ended March 31, 2014 and 2013, respectively. The gross additional interest income that would have been earned in for the three months ended March 31, 2014 and 2013 had performing TDRs performed in accordance with the original terms is immaterial.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The average balances of impaired loans and income recognized on impaired loans while they were considered impaired is presented below for the three months ended March 31, 2014 and 2013 (in thousands).

	Three Months Ended March 31,
	2014						2013
	Average Balance		Interest Revenue Recognized During Impairment		Cash Basis Interest Revenue Received		Average Balance		Interest Revenue Recognized During Impairment		Cash Basis Interest Revenue Received
Commercial (secured by real estate)	$	54,969	$	670	$	713	$	91,631	$	946	$	1,000
Commercial & industrial		4,560		53		51		43,694		156		629
Commercial construction		12,714		112		135		39,208		151		232
Total commercial		72,243		835		899		174,533		1,253		1,861
Residential mortgage		21,321		229		238		19,912		238		220
Home equity lines of credit		505		5		6		502		3		3
Residential construction		13,037		145		150		40,592		326		428
Consumer installment		448		6		9		276		6		6
Indirect auto		—		—		—		—		—		—
Total	$	107,554	$	1,220	$	1,302	$	235,815	$	1,826	$	2,518

The following table presents the recorded investment (unpaid principal less amounts charged off) in nonaccrual loans by loan class as of March 31, 2014, December 31, 2013 and March 31, 2013 (in thousands).

	Nonaccrual Loans
	March 31, 2014			December 31, 2013			March 31, 2013
Commercial (secured by real estate)	$	5,146		$	8,340		$	17,304
Commercial & industrial		822			427			29,545
Commercial construction		479			361			22,359
Total commercial		6,447			9,128			69,208
Residential mortgage		13,307			11,730			10,901
Home equity lines of credit		1,106			1,448			916
Residential construction		3,805			4,264			14,592
Consumer installment		291			249			389
Indirect auto		294			—			—
Total	$	25,250		$	26,819		$	96,006

Balance as a percentage of unpaid principal		65.8	%		65.3	%		66.3	%

The following table presents the aging of the recorded investment in past due loans as of March 31, 2014, December 31, 2013 and March 31, 2013 by class of loans (in thousands).

	Loans Past Due								Loans Not
As of March 31, 2014	30 - 59 Days		60 - 89 Days		> 90 Days		Total		Past Due		Total
Commercial (secured by real estate)	$	2,310	$	1,446	$	1,865	$	5,621	$	1,760,000	$	1,765,621
Commercial & industrial		1,468		231		589		2,288		492,890		495,178
Commercial construction		313		46		366		725		147,729		148,454
Total commercial		4,091		1,723		2,820		8,634		2,400,619		2,409,253
Residential mortgage		7,295		3,520		4,806		15,621		850,994		866,615
Home equity lines of credit		1,554		551		502		2,607		444,098		446,705
Residential construction		1,440		30		782		2,252		315,497		317,749
Consumer installment		677		495		60		1,232		105,759		106,991
Indirect auto		263		179		137		579		207,816		208,395
Total loans	$	15,320	$	6,498	$	9,107	$	30,925	$	4,324,783	$	4,355,708

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Loans Past Due

Loans Not

As of December 31, 2013

30 - 59 Days

60 - 89 Days

> 90 Days

Total

Past Due

Total

Commercial (secured by real estate)	$	5,724	$	2,797	$	2,547	$	11,068	$	1,745,642	$	1,756,710
Commercial & industrial		2,349		223		88		2,660		469,301		471,961
Commercial construction		94		190		235		519		148,384		148,903
Total commercial		8,167		3,210		2,870		14,247		2,363,327		2,377,574
Residential mortgage		9,011		2,832		4,140		15,983		859,094		875,077
Home equity lines of credit		2,056		430		941		3,427		437,460		440,887
Residential construction		1,335		588		1,375		3,298		325,281		328,579
Consumer installment		1,058		358		24		1,440		109,605		111,045
Indirect auto		185		65		42		292		195,812		196,104
Total loans	$	21,812	$	7,483	$	9,392	$	38,687	$	4,290,579	$	4,329,266
As of March 31, 2013
Commercial (secured by real estate)	$	7,402	$	2,304	$	5,750	$	15,456	$	1,788,574	$	1,804,030
Commercial & industrial		1,485		419		219		2,123		451,641		453,764
Commercial construction		856		—		5,530		6,386		146,024		152,410
Total commercial		9,743		2,723		11,499		23,965		2,386,239		2,410,204
Residential mortgage		10,293		2,395		4,014		16,702		833,100		849,802
Home equity lines of credit		1,606		272		145		2,023		394,150		396,173
Residential construction		2,310		2,371		2,373		7,054		364,679		371,733
Consumer installment		672		100		109		881		109,915		110,796
Indirect auto		10		52		—		62		54,790		54,852
Total loans	$	24,634	$	7,913	$	18,140	$	50,687	$	4,142,873	$	4,193,560

As of March 31, 2014, December 31, 2013, and March 31, 2013, $8.25 million, $5.64 million and $8.12 million, respectively, of specific reserves were allocated to customers whose loan terms have been modified in TDRs. United committed to lend additional amounts totaling up to $12,000, $6,000 and $613,000 as of March 31, 2014, December 31, 2013 and March 31, 2013, respectively, to customers with outstanding loans that are classified as TDRs.

The modification of the terms of the TDRs included one or a combination of the following: a reduction of the stated interest rate of the loan or an extension of the amortization period that would not otherwise be considered in the current market for new debt with similar risk characteristics; a permanent reduction of the principal amount; a restructuring of the borrower’s debt into an A/B note structure where the A note would fall within the borrower’s ability to pay and the remainder would be included in the B note, or a mandated bankruptcy restructuring.

The following table presents information on TDRs including the number of loan contracts restructured and the pre- and post-modification recorded investment (dollars in thousands).

	March 31, 2014						December 31, 2013						March 31, 2013
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial (sec by RE)		78	$	45,130	$	40,959		77	$	44,964	$	40,667		97	$	80,618	$	74,675
Commercial & industrial		35		3,574		3,292		36		3,527		3,245		41		8,944		8,834
Commercial construction		14		11,678		11,598		13		13,122		13,042		25		36,491		32,614
Total commercial		127		60,382		55,849		126		61,613		56,954		163		126,053		116,123
Residential mortgage		148		21,163		19,657		133		20,117		18,852		119		19,661		18,783
Home equity lines of credit		3		505		505		3		505		505		1		240		240
Residential construction		52		10,400		9,518		57		12,459		10,452		71		25,651		23,345
Consumer installment		26		442		340		26		203		203		46		282		269
Indirect auto		—		—		—		—		—		—		—		—		—
Total loans		356		92,892		85,869		345		94,897	$	86,966		400		171,887		158,760

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Loans modified under the terms of a TDR during the three months ended March 31, 2014 and 2013 are presented in the table below. In addition, the following table presents loans modified under the terms of a TDR that became 90 days or more delinquent during the three months ended March 31, 2014 and 2013, that were initially restructured within one year prior to becoming delinquent (dollars in thousands).

New Troubled Debt Restructurings for the Three Months Ended March 31, 2014	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Troubled Debt Restructurings Modified Within the Previous Twelve Months that Have Subsequently Defaulted During the Three Months Ended March 31, 2014
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts		Recorded Investment
Commercial (secured by real estate)		4	$	1,138	$	1,138		1	$	104
Commercial & industrial		1		224		224		2		54
Commercial construction		1		231		231		—		—
Total commercial		6		1,593		1,593		3		158
Residential mortgage		14		1,132		1,132		4		452
Home equity lines of credit		—		—		—		—		—
Residential construction		—		—		—		—		—
Consumer installment		2		142		142		—		—
Indirect auto		—		—		—		—		—
Total loans		22	$	2,867	$	2,867		7	$	610

New Troubled Debt Restructurings for the Three Months Ended March 31, 2013	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Troubled Debt Restructurings Modified Within the Previous Twelve Months that Have Subsequently Defaulted During the Three Months Ended March 31, 2013
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts		Recorded Investment
Commercial (secured by real estate)		8	$	3,568	$	3,568	$	1	$	432
Commercial & industrial		9		815		709		1		35
Commercial construction		—		—		—		2		1,454
Total commercial		17		4,383		4,277		4		1,921
Residential mortgage		11		2,115		2,115		1		68
Home equity lines of credit		—		—		—		—		—
Residential construction		5		784		655		2		117
Consumer installment		4		21		21		3		20
Indirect auto		—		—		—		—		—
Total loans		37	$	7,303	$	7,068		10	$	2,126

Collateral dependent TDRs that subsequently default and are placed on nonaccrual are charged down to the fair value of the collateral consistent with United’s policy for nonaccrual loans. Impairment on TDRs that are not collateral dependent continues to be measured on discounted cash flows regardless of whether the loan has subsequently defaulted.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

As of March 31, 2014, December 31, 2013 and March 31, 2013, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands).

					Substandard				Doubtful /
As of March 31, 2014	Pass		Watch		Performing		Nonaccrual		Loss		Total
Commercial (secured by real estate)	$	1,637,299	$	38,851	$	84,325	$	5,146	$	—	$	1,765,621
Commercial & industrial		481,310		4,905		8,141		822		—		495,178
Commercial construction		138,560		4,134		5,281		479		—		148,454
Total commercial		2,257,169		47,890		97,747		6,447		—		2,409,253
Residential mortgage		799,145		10,591		43,572		13,307		—		866,615
Home equity lines of credit		437,908		29		7,662		1,106		—		446,705
Residential construction		292,032		8,935		12,977		3,805		—		317,749
Consumer installment		104,379		11		2,310		291		—		106,991
Indirect auto		207,504		—		597		294		—		208,395
Total loans	$	4,098,137	$	67,456	$	164,865	$	25,250	$	—	$	4,355,708
As of December 31, 2013
Commercial (secured by real estate)	$	1,630,521	$	40,124	$	77,725	$	8,340	$	—	$	1,756,710
Commercial & industrial		456,563		5,382		9,589		427		—		471,961
Commercial construction		120,852		10,932		16,758		361		—		148,903
Total commercial		2,207,936		56,438		104,072		9,128		—		2,377,574
Residential mortgage		793,381		25,944		44,022		11,730		—		875,077
Home equity lines of credit		426,052		5,420		7,967		1,448				440,887
Residential construction		298,685		11,526		14,104		4,264		—		328,579
Consumer installment		107,029		1,229		2,538		249		—		111,045
Indirect auto		196,104		—		—		—		—		196,104
Total loans	$	4,029,187	$	100,557	$	172,703	$	26,819	$	—	$	4,329,266
As of March 31, 2013
Commercial (secured by real estate)	$	1,593,193	$	65,413	$	128,120	$	17,304	$	—	$	1,804,030
Commercial & industrial		397,124		6,775		20,320		29,545		—		453,764
Commercial construction		104,413		7,176		18,462		22,359		—		152,410
Total commercial		2,094,730		79,364		166,902		69,208		—		2,410,204
Residential mortgage		758,185		26,722		53,994		10,901		—		849,802
Home equity lines of credit		381,064		4,084		10,109		916				396,173
Residential construction		296,029		23,230		37,882		14,592		—		371,733
Consumer installment		106,725		888		2,794		389		—		110,796
Indirect auto		54,852		—		—		—		—		54,852
Total loans	$	3,691,585	$	134,288	$	271,681	$	96,006	$	—	$	4,193,560

Risk Ratings

United categorizes commercial loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current industry and economic trends, among other factors. United analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a continuous basis. United uses the following definitions for its risk ratings:

Watch. Loans in this category are presently protected from apparent loss; however, weaknesses exist that could cause future impairment, including the deterioration of financial ratios, past due status and questionable management capabilities. These loans require more than the ordinary amount of supervision. Collateral values generally afford adequate coverage, but may not be immediately marketable.

Substandard. These loans are inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged. Specific and well-defined weaknesses exist that may include poor liquidity and deterioration of financial ratios. The loan may be past due and related deposit accounts experiencing overdrafts. There is the distinct possibility that United will sustain some loss if deficiencies are not corrected. If possible, immediate corrective action is taken.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Doubtful. Specific weaknesses characterized as Substandard that are severe enough to make collection in full highly questionable and improbable. There is no reliable secondary source of full repayment.

Loss. Loans categorized as Loss have the same characteristics as Doubtful; however, probability of loss is certain. Loans classified as Loss are charged off.

Consumer Purpose Loans. Beginning in the first quarter of 2014, United began to apply a pass / fail grading system to all consumer purpose loans. Under the pass / fail grading system, consumer purpose loans meeting the criteria of substandard are classified as “fail” and all other loans are classified as “pass”. For reporting purposes, consumer purpose loans classified as “fail” are reported in the performing substandard or nonaccrual columns and all other consumer purpose loans are reported in the “pass” column. The first quarter grading change resulted in decreases in loans categorized as “watch” for the consumer installment, residential mortgage and home equity lines of credit loan classifications. Loan balances reported in the “watch” column for residential mortgage in the first quarter are generally commercial purpose loans secured by the borrower’s residence.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

Note 6 – Foreclosed Property

Major classifications of foreclosed properties at March 31, 2014, December 31, 2013 and March 31, 2013 are summarized as follows (in thousands).

	March 31,			December 31,			March 31,
	2014			2013			2013
Commercial real estate	$	3,336		$	1,287		$	6,658
Commercial construction		—			—			3,027
Total commercial		3,336			1,287			9,685
Residential mortgage		2,599			3,380			3,768
Residential construction		700			736			8,260
Total foreclosed property		6,635			5,403			21,713
Less valuation allowance		(1,041	)		(1,182	)		(4,979	)
Foreclosed property, net	$	5,594		$	4,221		$	16,734
Balance as a percentage of original loan unpaid principal		53.9	%		44.5	%		45.0	%

In the second quarter of 2013, United completed the accelerated sales of classified assets including performing and nonperforming classified loans and foreclosed properties. The classified asset sales resulted in a much lower balance of foreclosed property at March 31, 2014 and December 31, 2013.

Activity in the valuation allowance for foreclosed property for the three months ended March 31, 2014 and 2013 is presented in the following table (in thousands).

	Three Months Ended
	March 31,
	2014			2013
Balance at beginning of year	$	1,182		$	6,954
Additions charged to expense		277			1,041
Disposals		(418	)		(3,016	)
Balance at end of period	$	1,041		$	4,979

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Expenses related to foreclosed property for the three months ended March 31, 2014 and 2013 is presented in the following table (in thousands).

	Three Months Ended
	March 31,
	2014			2013
Net (gain)/loss on sales	$	(521	)	$	105
Provision for unrealized losses		277			1,041
Operating expenses		360			1,187
Total foreclosed property expense	$	116		$	2,333

Note 7 – Reclassifications Out of Accumulated Other Comprehensive Income

The following table presents the details regarding amounts reclassified out of accumulated other comprehensive income for the three months ended March 31, 2014 and 2013 (in thousands).

	Amounts Reclassified from Accumulated Other Comprehensive Income
Details about Accumulated Other Comprehensive Income Components	For the three months ended March 31,						Affected Line Item in the Statement Where Net Income is Presented
	2014			2013

Realized gains on sales of available-for-sale securities:
	$	217		$	116		Securities gains, net
		(92	)		(45	)	Tax expense
	$	125		$	71		Net of tax

Amortization of (losses) gains included in net income on available-for-sale securities transferred to held to maturity:
	$	(330	)	$	319		Investment securities interest revenue
		123			(124	)	Tax benefit (expense)
	$	(207	)	$	195		Net of tax

Gains included in net income on derivative financial instruments accounted for as cash flow hedges:
Effective portion of interest rate contracts	$	—		$	537		Loan interest revenue
Effective portion of interest rate contracts	$	(97	)	$	—		Brokered deposit interest expense
Ineffective portion of interest rate contracts		—			1		Loan interest revenue
		(97	)		538		Total before tax
		38			(209	)	Tax or benefit (expense)
	$	(59	)	$	329		Net of tax

Amortization of prior service cost and actuarial losses included in net periodic pension cost for defined benefit pension plan
Prior service cost	$	(91	)	$	(90	)	Salaries and employee benefits expense
Actuarial losses		—			(42	)	Salaries and employee benefits expense
		(91	)		(132	)	Total before tax
		35			51		Tax benefit
	$	(56	)	$	(81	)	Net of tax

Total reclassifications for the period	$	(197	)	$	514		Net of tax

Amounts shown above in parentheses reduce earnings

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 8 – Earnings Per Share

United is required to report on the face of the consolidated statement of income, earnings per common share with and without the dilutive effects of potential common stock issuances from instruments such as options, convertible securities and warrants. Basic earnings per common share is based on the weighted average number of common shares outstanding during the period while the effects of potential common shares outstanding during the period are included in diluted earnings per common share.

During the three months ended March 31, 2014 and 2013, United accrued dividends on preferred stock, including accretion of discounts, as shown in the following table (in thousands).

	Three Months Ended
	March 31,
	2014		2013
Series A - 6% fixed	$	—	$	3
Series B - 5% fixed until December 6, 2013, 9% thereafter		159		2,630
Series D - LIBOR plus 9.6875%, resets quarterly		280		419
Total preferred stock dividends	$	439	$	3,052

All preferred stock dividends are payable quarterly.

Series B preferred stock was issued at a discount. Dividend amounts shown include discount accretion for each period.

The preferred stock dividends were subtracted from net income in order to arrive at net income available to common shareholders. There were no dilutive securities outstanding for the three months ended March 31, 2013.

The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2014 and 2013 (in thousands, except per share data).

	Three Months Ended
	March 31,
	2014		2013
Net income available to common shareholders	$	14,961	$	8,713

Weighted average shares outstanding:
Basic		60,059		58,081
Effect of dilutive securities
Convertible securities		—		—
Stock options		2		—
Warrants		—		—
Diluted		60,061		58,081
Net income per common share:
Basic	$	.25	$	.15
Diluted	$	.25	$	.15

At March 31, 2014, United had the following potentially dilutive stock options and warrants outstanding: a warrant to purchase 219,909 common shares at $61.40 per share originally issued to the U.S. Treasury; 348,860 common shares issuable upon exercise of stock options granted to employees with a weighted average exercise price of $98.02; 1.10 million shares issuable upon completion of vesting of restricted stock awards; and warrants to purchase common stock equivalent junior preferred stock that would be convertible into 1,411,765 common shares exercisable at $21.25 per share granted to Fletcher International Ltd. (“Fletcher”) in connection with a 2010 asset purchase and sale agreement. Pursuant to a settlement agreement with Fletcher, United has agreed to repurchase the warrant and resolve all claims between the parties. The settlement agreement and the transactions contemplated thereby have been approved by the bankruptcy court but remain subject to an appeal.

At March 31, 2013, United had the following potentially dilutive stock options and warrants outstanding: a warrant to purchase 219,909 common shares at $61.40 per share originally issued to the U.S. Treasury; 129,670 common shares issuable upon exercise of warrants attached to trust preferred securities with an exercise price of $100 per share; 476,311 common shares issuable upon exercise of stock options granted to employees with a weighted average exercise price of $97.85; 497,800 shares issuable upon completion of vesting of restricted stock awards; warrants to purchase common stock equivalent junior preferred stock that would be convertible into 1,411,765 common shares exercisable at $21.25 per share granted to Fletcher in connection with a 2010 asset purchase and sale agreement; and 1,551,126 common shares issuable upon exercise of warrants granted in connection with United’s tax benefits preservation plan, exercisable at $12.50 per share.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 9 – Derivatives and Hedging Activities

Risk Management Objective of Using Derivatives

United is exposed to certain risks arising from both its business operations and economic conditions. United principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. United manages interest rate risk primarily by managing the amount, sources, and duration of its investment securities portfolio and wholesale funding and through the use of derivative financial instruments. Specifically, United enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. United’s derivative financial instruments are used to manage differences in the amount, timing, and duration of United’s known or expected cash receipts and its known or expected cash payments principally related to United’s loans, investment securities, wholesale borrowings and deposits.

In conjunction with the Financial Accounting Standards Board’s fair value measurement guidance, United made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a gross basis.

The table below presents the fair value of United’s derivative financial instruments as well as their classification on the consolidated balance sheet as of March 31, 2014, December 31, 2013 and March 31, 2013 (in thousands).

Derivatives designated as hedging instruments under ASC 815
		Fair Value
Interest Rate Products	Balance Sheet Location	March 31, 2014		December 31, 2013		March 31, 2013
Cash flow hedge of money market deposits	Other assets	$	2,971	$	4,782	$	—
Fair value hedge of corporate bonds	Other assets		2,655		3,939		21
		$	5,626	$	8,721	$	21

Cash flow hedge of short-term debt	Other liabilities	$	3,650	$	3,368	$	4,614
Cash flow hedge of money market deposits	Other liabilities		678		—		3,694
Fair value hedge of brokered CD’s	Other liabilities		14,119		19,970		5,384
Fair value hedge of corporate bonds	Other liabilities		2,729		2,308		272
		$	21,176	$	25,646	$	13,964

Derivatives not designated as hedging instruments under ASC 815
		Fair Value
Interest Rate Products	Balance Sheet Location	March 31, 2014		December 31, 2013		March 31, 2013
Customer swap positions	Other assets	$	1,359	$	898	$	617
Dealer offsets to customer swap positions	Other assets		825		1,347		36
Bifurcated embedded derivatives	Other assets		13,753		12,867		—
		$	15,937	$	15,112	$	653

Customer swap positions	Other liabilities	$	825	$	1,347	$	36
Dealer offsets to customer swap positions	Other liabilities		1,377		915		627
Dealer offsets to bifurcated embedded derivatives	Other liabilities		18,931		18,324		—
		$	21,133	$	20,586	$	663

Derivative contracts that are not accounted for as hedging instruments under ASC 815, Derivatives and Hedging, and are described as “customer derivatives,” are between United and certain commercial loan customers with offsetting positions to dealers under a back-to-back swap program. United also has three interest rate swap contracts that are not designated as hedging instruments but are economic hedges of market linked brokered certificates of deposit. The market linked brokered certificates of deposit contain embedded derivatives that are bifurcated from the host instruments and marked to market through earnings. The marks on the market linked swaps and the bifurcated embedded derivatives tend to move in opposite directions with changes in 90-day LIBOR and therefore provide an effective economic hedge.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Cash Flow Hedges of Interest Rate Risk

United’s objectives in using interest rate derivatives are to add stability to net interest revenue and to manage its exposure to interest rate movements. To accomplish this objective, United primarily uses interest rate swaps as part of its interest rate risk management strategy. At March 31, 2014, United’s interest rate swaps designated as cash flow hedges involved the payment of fixed-rate amounts to a counterparty in exchange for United receiving variable-rate payments over the life of the agreements without exchange of the underlying notional amount. United’s current cash flow hedges are for the purpose of converting variable rate deposits and wholesale borrowings to a fixed rate to protect United in a rising rate environment. The swaps are forward starting with $100 million in notional becoming effective in the first quarter of 2014 and the rest becoming effective later in 2014 and in 2015. United had three swap contracts outstanding with a total notional amount of $200 million that were designated as cash flow hedges of three-month brokered deposits or other LIBOR based floating rate wholesale borrowings and three swap contracts outstanding with a total notional amount of $375 million that were designated as cash flow hedges of indexed money market accounts at March 31, 2014 and December 31, 2013. At March 31, 2013, United had three swap contracts outstanding with a notional amount of $200 million that were designated as cash flow hedges of future issuances of three-month brokered deposits or other LIBOR based floating-rate wholesale borrowings and two swap contracts outstanding with a total notional amount of $200 million that were designated as cash flow hedges of indexed money market accounts.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense when the swaps become effective, as interest payments are made on United’s LIBOR based, variable-rate wholesale borrowings and indexed deposit accounts. United’s active cash flow hedges of floating rate liabilities began to become effective in the first quarter of 2014. United recognized $35,000 in hedge ineffectiveness gains in deposit interest expense on active cash flow hedges during the first quarter of 2014. No such hedge ineffectiveness gains or losses were recognized on active cash flow hedges during the first quarter of 2013. United expects that $5.02 million will be reclassified as an increase to deposit interest expense over the next twelve months related to these cash flow hedges.

During the three months ended March 31, 2013, United accelerated the reclassification of $1,000 in gains from terminated positions, as a result of the forecasted transactions becoming probable not to occur. These amounts are recognized in loan interest revenue as hedge ineffectiveness. At March 31, 2014, there were no remaining unamortized balances from terminated positions.

Fair Value Hedges of Interest Rate Risk

United is exposed to changes in the fair value of certain of its fixed rate investments and obligations due to changes in interest rates. United uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in interest rates. Interest rate swaps designated as fair value hedges of brokered deposits involve the receipt of fixed-rate amounts from a counterparty in exchange for United making variable rate payments over the life of the agreements without the exchange of the underlying notional amount. Interest rate swaps designated as fair value hedges of fixed rate investments involve the receipt of variable-rate amounts from a counterparty in exchange for United making fixed rate payments over the life of the instrument without the exchange of the underlying notional amount. At March 31, 2014, United had 24 interest rate swaps with an aggregate notional amount of $285 million that were designated as fair value hedges of interest rate risk. Eight of the interest rate swaps outstanding at March 31, 2014 with an aggregate notional amount of $86 million were receive-variable / pay-fixed swaps that were used for the purpose of hedging changes in the fair value of corporate bonds resulting from changes in interest rates. The other 16 were pay-variable / receive-fixed swaps hedging changes in the fair value of fixed rate brokered time deposits resulting from changes in interest rates. At March 31, 2013, United had 18 interest rate swaps with an aggregate notional amount of $220 million that were designated as fair value hedges. Two of the interest rate swaps with an aggregate notional amount of $21 million were receive-variable / pay-fixed swaps that were used for the purpose of hedging changes in the fair value of corporate bonds resulting from changes in interest rates. The other 16 were pay-variable / receive-fixed swaps hedging changes in fair value of fixed rate brokered time deposits resulting from changes in interest rates.

For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in earnings. United includes the gain or loss on the hedged items in the same income statement line item as the offsetting loss or gain on the related derivatives. During the three months ended March 31, 2014 and 2013 United recognized net losses of $389,000 and net losses of $86,000, respectively, related to ineffectiveness of the fair value hedging relationships. United also recognized net reductions of interest expense of $1.21 million and $1.06 million, respectively, for the three months ended March 31, 2014 and 2013 related to United’s fair value hedges of brokered time deposits, which include net settlements on the derivatives. United recognized reductions of interest revenue on securities during the first quarter of 2014 and 2013 in the amounts of $530,000 and $12,000, respectively, related to United’s fair value hedges of corporate bonds.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Tabular Disclosure of the Effect of Derivative Instruments on the Income Statement

The tables below present the effect of United’s derivative financial instruments on the consolidated statement of operations for the three months ended March 31, 2014 and 2013.

Derivatives in Fair Value Hedging Relationships (in thousands).


	Location of Gain	Amount of Gain (Loss)						Amount of Gain (Loss)
	(Loss) Recognized	Recognized in Income						Recognized in Income
	in Income on	on Derivative						on Hedged Item
	Derivative	2014			2013			2014			2013
Three Months Ended March 31,
Fair value hedges of brokered CD’s	Interest expense	$	5,853		$	(1,844	)	$	(6,034	)	$	1,779
Fair value hedges of corporate bonds	Interest revenue		(1,704	)		(232	)		1,496			211
		$	4,149		$	(2,076	)	$	(4,538	)	$	1,990

In certain cases, the estate of deceased brokered certificate of deposit holders may put the certificate of deposit back to the issuing bank at par upon the death of the holder. When these death puts occur, a gain or loss is recognized for the difference between the fair value and the par amount of the deposits put back. The change in the fair value of brokered time deposits that are being hedged in fair value hedging relationships reported in the table above includes gains and losses from death puts and such gains and losses are included in the amount of reported ineffectiveness gains or losses.

Derivatives in Cash Flow Hedging Relationships (in thousands).


	Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative (Effective Portion)					Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion)						Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)
	2014			2013		Location	2014			2013		Location	2014			2013
Three Months Ended March 31,
						Interest revenue	$	—		$	539
						Interest Expense		(97	)		—
Interest rate swaps	$	(2,833	)	$	430	Total	$	(97	)	$	539	Interest expense	$	(35	)	$	—

Credit-Risk-Related Contingent Features

United manages its credit exposure on derivatives transactions by entering into a bilateral credit support agreement with each counterparty. The credit support agreements require collateralization of exposures beyond specified minimum threshold amounts. The details of these agreements, including the minimum thresholds, vary by counterparty. As of March 31, 2014, collateral totaling $35.8 million was pledged toward derivatives in a liability position.

United’s agreements with each of its derivative counterparties contain a provision where if either party defaults on any of its indebtedness, then it could also be declared in default on its derivative obligations. The agreements with derivatives counterparties also include provisions that if not met, could result in United being declared in default. United has agreements with certain of its derivative counterparties that contain a provision where if United fails to maintain its status as a well-capitalized institution or is subject to a prompt corrective action directive, the counterparty could terminate the derivative positions and United would be required to settle its obligations under the agreements.

Note 10 – Stock-Based Compensation

United has an equity compensation plan that allows for grants of incentive stock options, nonqualified stock options, restricted stock and restricted stock unit awards (also referred to as “nonvested stock” awards), stock awards, performance share awards or stock appreciation rights. Options granted under the plan can have an exercise price no less than the fair market value of the underlying stock at the date of grant. The general terms of the plan include a vesting period (usually four years) with an exercisable period not to exceed ten years. Certain options, restricted stock and restricted stock unit awards provide for accelerated vesting if there is a change in control (as defined in the plan). As of March 31, 2014, 525,800 additional awards could be granted under the plan. Through March 31, 2014, incentive stock options, nonqualified stock options, restricted stock and restricted stock unit awards, base salary stock grants and performance share awards have been granted under the plan.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following table shows stock option activity for the first three months of 2014.


Options	Shares			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)		Aggregate Intrinisic Value ($000)

Outstanding at December 31, 2013		350,772		$	97.87
Expired		(1,912	)		69.61
Outstanding at March 31, 2014		348,860			98.02		3.1	$	104

Exercisable at March 31, 2014		338,785			100.55		2.9		42

No stock options were granted during the three months ended March 31, 2014 or 2013. Most of United’s outstanding stock options were granted prior to the economic downturn during which time United’s stock price decreased sharply. The lower stock price has rendered most of United’s outstanding options severely out of the money and potentially worthless to the grantee. Therefore, historical exercise patterns do not provide a reasonable basis for determining the expected life of new option grants. United therefore uses the formula provided by the SEC in Staff Accounting Bulletin No. 107 to determine the expected life of options.

United recognized no compensation expense related to stock options in the three months ended March 31, 2014. Compensation expense relating to stock options of $64,000 was included in earnings for the three months ended March 31, 2013. The amount of compensation expense was determined based on the fair value of the options at the time of grant, multiplied by the number of options granted that were expected to vest, which was then amortized over the vesting period. The forfeiture rate for new options issued is estimated to be approximately 3% per year. No options were exercised during the first three months of 2014 or 2013.

The table below presents restricted stock activity for the first three months of 2014.


Restricted Stock	Shares			Weighted- Average Grant- Date Fair Value

Outstanding at December 31, 2013		1,073,676		$	13.73
Granted		25,750			19.14
Excercised		(1,667	)		10.77
Cancelled		(833	)		13.16
Outstanding at March 31, 2014		1,096,926			13.86

Vested at March 31, 2014		22,462			10.11

Compensation expense for restricted stock is based on the fair value of restricted stock awards at the time of grant, which is equal to the value of United’s common stock on the date of grant. The value of restricted stock grants that are expected to vest is amortized into expense over the vesting period. For the three months ended March 31, 2014 and 2013, compensation expense of $1.10 million and $445,000, respectively, was recognized related to restricted stock awards. In addition, for the three months ended March 31, 2014 and 2013, $25,000 and $17,000, respectively, was recognized in other operating expense for restricted stock units granted to members of United’s board of directors. The total intrinsic value of restricted stock was $21.4 million at March 31, 2014.

As of March 31, 2014, there was $11.9 million of unrecognized compensation cost related to non-vested stock options and restricted stock awards granted under the plan. That cost is expected to be recognized over a weighted-average period of 3.32 years. The aggregate grant date fair value of options and restricted stock awards that vested during the three months ended March 31, 2014, was $20,000.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 11 – Common and Preferred Stock Issued / Common Stock Issuable

United sponsors a Dividend Reinvestment and Share Purchase Plan (“DRIP”) that allows participants who already own United’s common stock to purchase additional shares directly from United. The DRIP also allows participants to automatically reinvest their quarterly dividends in additional shares of common stock without a commission. The DRIP is currently suspended and no shares were issued in 2013 or the first quarter of 2014.

United’s 401(k) retirement plan regularly purchases shares of United’s common stock directly from United. In addition, United has an Employee Stock Purchase Program that allows eligible employees to purchase shares of common stock at a 5% discount, with no commission charges. For the three months ended March 31, 2014 and 2013, United issued 11,837 and 18,170 shares, respectively, and increased capital by $209,000 and $189,000, respectively, through these programs.

United offers its common stock as an investment option in its deferred compensation plan. United also allows for the deferral of restricted stock awards. The common stock component of the deferred compensation plan is accounted for as an equity instrument and is reflected in the consolidated financial statements as common stock issuable. The deferred compensation plan does not allow for diversification once an election is made to invest in United stock and settlement must be accomplished in shares at the time the deferral period is completed. At March 31, 2014 and 2013, 237,763 and 133,469 shares, respectively, were issuable under the deferred compensation plan.

Note 12 – Income Taxes

The income tax provision for the three months ended March 31, 2014 was $9.04 million which represents an effective tax rate of 37.0%. The income tax provision for the three months ended March 31, 2013 was $585,000 which represents an effective tax rate of 4.7%. The first quarter 2013 tax provision was lower due to the full valuation allowance in United’s net deferred tax asset, most of which was reversed in the second quarter of 2013. At March 31, 2014, December 31, 2013 and March 31, 2013, the valuation allowance on deferred tax assets was $4.08 million, $4.10 million and $271 million, respectively. Management assesses the valuation allowance recorded against deferred tax assets at each reporting period. The determination of whether a valuation allowance for deferred tax assets is appropriate is subject to considerable judgment and requires an evaluation of all the positive and negative evidence.

In the second quarter of 2013, United reversed $272 million of its valuation allowance on its net deferred tax asset. United established a full valuation allowance on its net deferred tax asset in 2010 due to the realization of significant losses and uncertainty about United’s future earnings forecasts.

United evaluated the need for a valuation allowance again at March 31, 2014. Based on the assessment of all the positive and negative evidence, management concluded that it is more likely than not that nearly all of the net deferred tax asset will be realized based upon future taxable income. The remaining valuation allowance of $4.08 million is related to specific state income tax credits that have short carryforward periods and are expected to expire unused. The positive evidence considered by management in arriving at the conclusion that a full valuation allowance is not necessary included consecutive profitable quarters beginning with the fourth quarter of 2011, United’s strong pre-crisis earnings history and growth in pre-tax, pre-credit earnings, which demonstrate demand for United’s products and services, and United’s significant improvement in credit measures, which improve both the sustainability of profitability and management’s ability to forecast future credit losses. The negative evidence previously considered by management included a three-year cumulative loss position and informal memorandum of understanding (“MOU”) with the banking regulatory agencies. The MOUs were terminated in the fourth quarter of 2013 and first quarter of 2014 and United exited the three-year cumulative loss position in the first quarter of 2014, based on a rolling twelve quarters.

The valuation allowance could fluctuate in future periods based on the assessment of the positive and negative evidence. Management’s conclusion at March 31, 2014 that it was more likely than not that the net deferred tax assets of $244 million will be realized is based upon management’s estimate of future taxable income. Management’s estimate of future taxable income is based on internal forecasts that consider historical performance, various internal estimates and assumptions, as well as certain external data all of which management believes to be reasonable although inherently subject to significant judgment. If actual results differ significantly from the current estimates of future taxable income, even if caused by adverse macro-economic conditions, the valuation allowance may need to be increased for some or all of the deferred tax asset. Such an increase to the deferred tax asset valuation allowance could have a material adverse effect on United’s financial condition and results of operations.

United is subject to income taxation in the United States and various state jurisdictions. United’s federal and state income tax returns are filed on a consolidated basis. Currently, no years for which United filed a federal income tax return are under examination by the IRS, and there are no state tax examinations currently in progress. United is no longer subject to income tax examinations from state and local income tax authorities for years before 2010. Although United is unable to determine the ultimate outcome of future examinations, United believes that the liability recorded for uncertain tax positions is appropriate.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

At March 31, 2014, December 31, 2013 and March 31, 2013, unrecognized income tax benefits totaled $4.59 million, $4.50 million and $5.20 million, respectively. In the first quarter of 2014, United adopted the provisions of ASU 2013-11, Presentations of an Unrecognized Tax Benefit when a Net Operating Loss Carryfoward, a Similar Tax Loss, or a Tax Credit Carryforward exists. ASU 2013-11 requires unrecognized tax benefits to be presented as a reduction of a deferred tax asset unless certain conditions are present. Prior to adoption, unrecognized tax benefits were presented as a component of the current tax liabilty payable. Upon adoption, United reclassified $4.59 million in unrecognized tax benefits from other liabilities to its net deferred tax asset. The reclassification resulted in decreases in United’s net deferred tax asset and other liabilities.

Note 13 – Assets and Liabilities Measured at Fair Value

Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, United uses a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Fair Value Hierarchy

Level 1 Valuation is based upon quoted prices (unadjusted) in active markets for identical assets or liabilities that United has the ability to access.

Level 2 Valuation is based upon quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals.

Level 3 Valuation is generated from model-based techniques that use at least one significant assumption based on unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. United’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The following is a description of the valuation methodologies used for assets and liabilities recorded at fair value.

Securities Available-for-Sale

Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds, corporate debt securities and asset-backed securities and are valued based on observable inputs that are observable in the market and can be corroborated by observable market data for substantially the full term of the securities. Securities classified as Level 3 are valued based on estimates obtained from broker-dealers.

Deferred Compensation Plan Assets and Liabilities

Included in other assets in the Consolidated Balance Sheet are assets related to employee deferred compensation plans. The assets associated with these plans are invested in mutual funds and classified as Level 1. Deferred compensation liabilities, also classified as Level 1, are carried at the fair value of the obligation to the employee, which mirrors the fair value of the invested assets and is included in other liabilities in the consolidated balance sheet.

Mortgage Loans Held for Sale

Mortgage loans held for sale are carried at the lower of cost or market value. The fair value of mortgage loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics.

Loans

United does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except that as a practical expedient, a creditor may measure impairment based on a loan’s observable market price, or the fair value of the collateral if repayment of the loan is dependent upon the sale of the underlying collateral. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. Impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, United records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, United records the impaired loan as nonrecurring Level 3.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Foreclosed Assets

Foreclosed assets are adjusted to fair value, less cost to sell, upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, United records the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, United records the foreclosed asset as nonrecurring Level 3.

Derivative Financial Instruments

United uses interest rate swaps and interest rate floors to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

The fair values of interest rate options are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates fell below the strike rate of the floors. The variable interest rates used in the calculation of projected receipts on the floor are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. To comply with the provisions of ASC 820, United incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, United has considered the effect of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although United has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of September 30, 2013, United had assessed the significance of the effect of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, United has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The table below presents United’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2014, December 31, 2013 and March 31, 2013, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands).

March 31, 2014	Level 1		Level 2		Level 3		Total
Assets:
Securities available for sale:
State and political subdivisions	$	—	$	23,006	$	—	$	23,006
Mortgage-backed securities		—		1,128,112		—		1,128,112
Corporate bonds		—		251,574		350		251,924
Asset-backed securities		—		432,062		—		432,062
Other		—		2,572		—		2,572
Deferred compensation plan assets		3,468		—		—		3,468
Derivative financial instruments		—		21,563		—		21,563
Total assets	$	3,468	$	1,858,889	$	350	$	1,862,707
Liabilities:
Deferred compensation plan liability	$	3,468	$	—	$	—	$	3,468
Brokered certificates of deposit		—		177,726		—		177,726
Derivative financial instruments		—		42,309		—		42,309
Total liabilities	$	3,468	$	220,035	$	—	$	223,503

December 31, 2013	Level 1		Level 2		Level 3		Total
Assets:
Securities available for sale
State and political subdivisions	$	—	$	23,242	$	—	$	23,242
Mortgage-backed securities		—		1,145,347		—		1,145,347
Corporate bonds		—		249,946		350		250,296
Asset-backed securities		—		410,633		—		410,633
Other		—		2,699		—		2,699
Deferred compensation plan assets		3,496		—		—		3,496
Derivative financial instruments		—		23,833		—		23,833
Total assets	$	3,496	$	1,855,700	$	350	$	1,859,546
Liabilities:
Deferred compensation plan liability	$	3,496	$	—	$	—	$	3,496
Brokered certificates of deposit		—		173,657		—		173,657
Derivative financial instruments		—		46,233		—		46,233
Total liabilities	$	3,496	$	219,890	$	—	$	223,386

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

March 31, 2013	Level 1		Level 2		Level 3		Total
Assets:
Securities available for sale:
State and political subdivisions	$	—	$	24,037	$	—	$	24,037
Mortgage-backed securities		—		1,468,311		—		1,468,311
Corporate bonds		—		188,444		350		188,794
Asset-backed securities		—		225,870		—		225,870
Other		—		2,414		—		2,414
Deferred compensation plan assets		3,037		—		—		3,037
Derivative financial instruments		—		602		—		602
Total assets	$	3,037	$	1,909,678	$	350	$	1,913,065
Liabilities:
Deferred compensation plan liability	$	3,037	$	—	$	—	$	3,037
Brokered certificates of deposit		—		194,415		—		194,415
Derivative financial instruments		—		14,556		—		14,556
Total liabilities	$	3,037	$	208,971	$	—	$	212,008

The following table shows a reconciliation of the beginning and ending balances for assets measured at fair value on a recurring basis using significant unobservable inputs that are classified as Level 3 values (in thousands).

	Securities Available for Sale
	Three Months Ended
	March 31,
Securities Available for Sale	2014		2013
Balance at beginning of period	$	350	$	350
Amounts included in earnings		—		—
Paydowns		—		—
Balance at end of period	$	350	$	350

At March 31, 2014, United had two securities that have Level 3 valuations. They are trust preferred securities in community banks that have shown deteriorating financial condition during the financial crisis, and both are currently deferring interest payments. Since both investments are not actively traded, there is no recent trade activity upon which to assess value. The values assigned to the investments are based on sales price estimates from brokers. Both investments have a par amount of $1 million. One was considered impaired in 2010 and was written down to $50,000 with a $950,000 impairment charge to earnings. The other is carried at its original cost basis of $1 million with a $700,000 negative mark to fair value through other comprehensive income. United does not consider this investment to be other-than-temporarily impaired, as the community bank was recapitalized by a private equity investment that management believes will result in full payment at maturity.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

United may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. The table below presents United’s assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2014, December 31, 2013 and March 31, 2013, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands).

March 31, 2014	Level 1		Level 2		Level 3		Total
Assets
Loans	$	—	$	—	$	79,918	$	79,918
Foreclosed properties		—		—		3,120		3,120
Total	$	—	$	—	$	83,038	$	83,038

December 31, 2013
Assets
Loans	$	—	$	—	$	82,798	$	82,798
Foreclosed properties		—		—		3,747		3,747
Total	$	—	$	—	$	86,545	$	86,545

March 31, 2013
Assets
Loans	$	—	$	—	$	170,767	$	170,767
Foreclosed properties		—		—		14,716		14,716
Total	$	—	$	—	$	185,483	$	185,483

Loans that are reported above as being measured at fair value on a non-recurring basis are generally impaired loans that have either been partially charged off or have specific reserves assigned to them. Nonaccrual impaired loans that are collateral dependent are generally written down to 80% of appraised value which considers the estimated costs to sell. Specific reserves are established for impaired loans based on appraised value of collateral or discounted cash flows. Foreclosed properties that are included above as measured at fair value on a nonrecurring basis are those properties that resulted from a loan that had been charged down or have been written down subsequent to foreclosure. Foreclosed properties are generally recorded at the lower of 80% of appraised value or 90% of the asking price which considers the estimated cost to sell.

Assets and Liabilities Not Measured at Fair Value

For financial instruments that have quoted market prices, those quotes are used to determine fair value. Financial instruments that have no defined maturity, have a remaining maturity of 180 days or less, or reprice frequently to a market rate, are assumed to have a fair value that approximates the reported book value, after taking into consideration any applicable credit risk. If no market quotes are available, financial instruments are valued by discounting the expected cash flows using an estimated current market interest rate for the financial instrument. For off-balance sheet derivative instruments, fair value is estimated as the amount that United would receive or pay to terminate the contracts at the reporting date, taking into account the current unrealized gains or losses on open contracts.

The short maturity of United’s assets and liabilities results in having a significant number of financial instruments whose fair value equals or closely approximates carrying value. Such financial instruments are reported in the following balance sheet captions: cash and cash equivalents, mortgage loans held for sale and short-term borrowings. The fair value of securities available-for-sale equals the balance sheet value. Due to the short-term settlement of accrued interest receivable and payable, the carrying amount closely approximates fair value.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect the premium or discount on any particular financial instrument that could result from the sale of United’s entire holdings. Because no ready market exists for a significant portion of United’s financial instruments, fair value estimates are based on many judgments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include the mortgage banking operation, brokerage network, deferred income taxes, premises and equipment and goodwill. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

Off-balance sheet financial instruments (commitments to extend credit and standby letters of credit) are generally short-term and at variable rates. Therefore, both the carrying amount and the estimated fair value associated with these instruments are immaterial.

The carrying amount and fair values for other financial instruments that are not measured at fair value on a recurring basis in United’s balance sheet at March 31, 2014, December 31, 2013, and March 31, 2013 are as follows (in thousands).

	Carrying		Fair Value Level
March 31, 2014	Amount		Level 1		Level 2		Level 3		Total
Assets:
Securities held to maturity	$	464,697	$	—	$	473,136	$	—	$	473,136
Loans, net		4,280,485		—		—		4,201,255		4,201,255
Mortgage loans held for sale		10,933		—		11,121		—		11,121
Liabilities:
Deposits		6,247,541		—		6,238,927		—		6,238,927
Federal Home Loan Bank advances		50,125		—		50,125		—		50,125
Long-term debt		129,865		—		—		130,636		130,636

December 31, 2013
Assets:
Securities held to maturity	$	479,742	$	—	$	485,585	$	—	$	485,585
Loans, net		4,252,504		—		—		4,165,591		4,165,591
Mortgage loans held for sale		10,319		—		10,529		—		10,529
Liabilities:
Deposits		6,201,505		—		6,204,815		—		6,204,815
Federal Home Loan Bank advances		120,125		—		120,125		—		120,125
Long-term debt		129,865		—		—		130,262		130,262

March 31, 2013
Assets:
Securities held to maturity	$	231,087	$	—	$	247,087	$	—	$	247,087
Loans, net		4,087,807		—		—		3,980,932		3,980,932
Mortgage loans held for sale		18,290		—		18,803		—		18,803
Liabilities:
Deposits		6,025,852		—		6,034,103		—		6,034,103
Federal Home Loan Bank advances		125		—		125		—		125
Long-term debt		124,825		—		—		123,402		123,402

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 14 – Commitments and Contingencies

United and the Bank are parties to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of their customers. These financial instruments include commitments to extend credit and letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The contract amounts of these instruments reflect the extent of involvement the Bank has in particular classes of financial instruments. The exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit written is represented by the contractual amount of these instruments. United uses the same credit policies in making commitments and conditional obligations as it uses for underwriting on-balance sheet instruments. In most cases, collateral or other security is required to support financial instruments with credit risk.

The following table summarizes, as of March 31, 2014, December 31, 2013 and March 31, 2013, the contractual amount of off-balance sheet instruments (in thousands):

	March 31, 2014		December 31, 2013		March 31, 2013
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	720,891	$	747,170	$	565,685
Letters of credit		19,960		19,846		12,818

United, in the normal course of business, is subject to various pending and threatened lawsuits in which claims for monetary damages are asserted. Although it is not possible to predict the outcome of these lawsuits, or the range of any possible loss, management, after consultation with legal counsel, does not anticipate that the ultimate aggregate liability, if any, arising from these lawsuits will have a material adverse effect on United’s financial position or results of operations.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), about United and its subsidiaries. These forward-looking statements are intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, and can be identified by the use of forward-looking terminology such as “believes”, “expects”, “may”, “will”, “could”, “should”, “projects”, “plans”, “goal”, “targets”, “potential”, “estimates”, “pro forma”, “seeks”, “intends”, or “anticipates”, the negative thereof or comparable terminology. Forward-looking statements include discussions of strategy, financial projections, guidance and estimates (including their underlying assumptions), statements regarding plans, objectives, expectations or consequences of various transactions or events, and statements about the future performance, operations, products and services of United and its subsidiaries. We caution our shareholders and other readers not to place undue reliance on such statements.

Our businesses and operations are and will be subject to a variety of risks, uncertainties and other factors. Consequently, actual results and experiences may differ materially from those contained in any forward-looking statements. Such risks, uncertainties and other factors that could cause actual results and experiences to differ from those projected include, but are not limited to, the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2013 as well as the following factors:

●	the condition of the general business and economic environment;

●	the results of our most recent internal credit stress test may not accurately predict the impact on our financial condition if the economy were to deteriorate;

●	our ability to maintain profitability;

●	our ability to fully realize our deferred tax asset balances, including net operating loss carry-forwards;

●	the risk that we may be required to increase the valuation allowance on our deferred tax asset in future periods;

●	the condition of the banking system and financial markets;

●	our ability to raise capital as may be necessary;

●	our ability to maintain liquidity or access other sources of funding;

●	changes in the cost and availability of funding;

●	the success of the local economies in which we operate;

●	our lack of geographic diversification;

●	our concentrations of residential and commercial construction and development loans and commercial real estate loans are subject to unique risks that could adversely affect our earnings;

●	changes in prevailing interest rates may negatively affect our net income and the value of our assets;

●	our accounting and reporting policies;

●	if our allowance for loan losses is not sufficient to cover actual loan losses;

●	losses due to fraudulent and negligent conduct of our loan customers, third party service providers or employees;

●	our reliance on third parties to provide key components of our business infrastructure;

●	competition from financial institutions and other financial service providers;

●	risks with respect to future expansion and acquisitions;

●	if the conditions in the stock market, the public debt market and other capital markets deteriorate;

●	the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and related regulations;

●	changes in laws and regulations or failures to comply with such laws and regulations;

●	changes in regulatory capital requirements;

●	the costs and effects of litigation, examinations, investigations, or similar matters, or adverse facts and developments related thereto, including possible dilution;

●	regulatory or judicial proceedings, board resolutions, informal memorandums of understanding or formal enforcement actions imposed by regulators that may occur; and

●	changes in tax laws, regulations and interpretations or challenges to our income tax provision.

Additional information with respect to factors that may cause actual results to differ materially from those contemplated by such forward-looking statements may also be included in other reports that United files with the Securities and Exchange Commission (the “SEC”). United cautions that the foregoing list of factors is not exclusive and not to place undue reliance on forward-looking statements. United does not intend to update any forward-looking statement, whether written or oral, relating to the matters discussed in this Form 10-Q.

Overview

The following discussion is intended to provide insight into the results of operations and financial condition of United Community Banks, Inc. (“United”) and its subsidiaries and should be read in conjunction with the consolidated financial statements and accompanying notes.

United is a bank holding company registered with the Board of Governors of the Federal Reserve under the Bank Holding Company Act of 1956 that was incorporated under the laws of the state of Georgia in 1987 and commenced operations in 1988. At March 31, 2014, United had total consolidated assets of $7.40 billion and total loans of $4.36 billion (excluding the loans acquired from Southern Community Bank (“SCB”) that are covered by loss sharing agreements). United also had total deposits of $6.25 billion and shareholders’ equity of $704 million.

United’s activities are primarily conducted by its wholly-owned Georgia banking subsidiary, United Community Bank (the “Bank”). The Bank’s operations are conducted under a community bank model that operates 28 “community banks” with local bank presidents and boards in north Georgia, the Atlanta-Sandy Springs-Roswell, Georgia metropolitan statistical area, the Gainesville, Georgia metropolitan statistical area, coastal Georgia, western North Carolina, east Tennessee and the Greenville-Anderson-Mauldin, South Carolina metropolitan statistical area.

Included in management’s discussion and analysis are certain non-GAAP (accounting principles generally accepted in the United States of America (“GAAP”)) performance measures. United’s management believes that non-GAAP performance measures are useful in analyzing United’s financial performance trends and therefore this section will refer to non-GAAP performance measures. A reconciliation of these non-GAAP performance measures to GAAP performance measures is included in the table on page 40.

United reported net income of $15.4 million for the first quarter of 2014. This compared to net income of $11.8 million for the first quarter of 2013. Diluted earnings per common share was $.25 for the first quarter of 2014, compared to diluted earnings per common share of $.15 for the first quarter of 2013. The increase in net income reflected a lower provision for credit losses and lower operating expenses. The increase in earnings per share also reflected a significant decrease in preferred stock dividends following the redemption of all of United’s preferred stock.

Taxable equivalent net interest revenue was $54.2 million for the first quarter of 2014, compared to $54.6 million for the same period of 2013. The decrease in net interest revenue was primarily the result of continued lower yields on the loan portfolio, which were due to loan pricing competition. Net interest margin decreased from 3.37% for the three months ended March 31, 2013 to 3.21% for the same period in 2014.

United’s provision for loan losses was $2.50 million for the three months ended March 31, 2014, compared to $11.0 million for the same period in 2013. Net charge-offs for the first quarter of 2014 were $4.04 million, compared to $12.4 million for the first quarter of 2013. The lower level of charge-offs and provision for loan losses in 2014 are the result of the accelerated disposition of classified assets in the second quarter of 2013 and generally improving credit conditions.

As of March 31, 2014, United’s allowance for loan losses was $75.2 million, or 1.73% of loans, compared to $106 million, or 2.52% of loans, at March 31, 2013. Nonperforming assets of $30.8 million, which excludes assets that are covered by loss sharing agreements with the FDIC, decreased to .42% of total assets at March 31, 2014 from 1.65% as of March 31, 2013, mostly due to the second quarter 2013 classified asset sales. During the first quarter of 2014, $9.30 million in loans were placed on nonaccrual compared with $9.67 million in the first quarter of 2013.

Fee revenue of $12.2 million decreased $735,000, or 6%, from the first quarter of 2013. The quarterly decrease was due primarily to a $1.30 million, or 49% decrease in mortgage loan and related fees and a $195,000 decrease in customer derivative fees. Mortgage refinancing activity continued to decline with rising long-term interest rates. These revenue decreases were offset by a $410,000, or 53% increase in brokerage fees and a $495,000, or 7% increase in service charges and fees.

For the first quarter of 2014, operating expenses of $39.1 million were down $4.72 million from the first quarter of 2013. The decrease was primarily related to a decrease of $2.22 million in foreclosed property expense, driven by decreased volume due to the classified asset sales in the second quarter of 2013. In addition, lower workout and collection costs and lower costs of operating our ATM network, resulted in lower other expense for the first quarter of 2014 compared to the same period in 2013. Professional fees decreased $939,000 from the first quarter of 2013, and FDIC assessments and regulatory charges decreased $1.15 million from the same period a year ago. Management continues its efforts to reduce costs and improve operating efficiency.

Recent Developments

On March 25, 2014, the Company completed the sale of 640,000 shares of common stock and received approximately $12.2 million in net proceeds after discounts and expenses. The proceeds will be used for general corporate purposes, including the repurchase of the warrant originally issued to Fletcher International, Ltd. (“Fletcher”) and resolution of all other claims in connection with the settlement agreement with the Chapter 11 Trustee for Fletcher.

On January 10, 2014, United redeemed the remaining $105 million of its Series B Preferred Stock. The Series B Preferred Stock was originally issued to the U.S. Department of the Treasury under the Troubled Asset Relief Program Capital Purchase Program. The redemption price for shares of the Series B Preferred Stock was the stated liquidation value of $1,000 per share, plus accrued and unpaid dividends that had been earned thereon to, but not including, the redemption date.

On March 3, 2014, United redeemed all of its $16.6 million in outstanding Series D Preferred Stock at its par value. Following the redemption, United no longer has any preferred stock outstanding.

Critical Accounting Policies

The accounting and reporting policies of United are in accordance with GAAP and conform to general practices within the banking industry. The more critical accounting and reporting policies include United’s accounting for the allowance for loan losses, fair value measurements, and income taxes which involve the use of estimates and require significant judgments to be made by management. Different assumptions in the application of these policies could result in material changes in United’s consolidated financial position or consolidated results of operations. See “Asset Quality and Risk Elements” herein for additional discussion of United’s accounting methodologies related to the allowance for loan losses.

GAAP Reconciliation and Explanation

This Form 10-Q contains non-GAAP financial measures, which are performance measures determined by methods other than in accordance with GAAP. Such non-GAAP financial measures include, among others the following: taxable equivalent interest revenue, taxable equivalent net interest revenue, tangible book value per share, tangible equity to assets, tangible common equity to assets and tangible common equity to risk-weighted assets. Management uses these non-GAAP financial measures because it believes they are useful for evaluating our operations and performance over periods of time, as well as in managing and evaluating our business and in discussions about our operations and performance. Management believes these non-GAAP financial measures provide users of our financial information with a meaningful measure for assessing our financial results and credit trends, as well as comparison to financial results for prior periods. These non-GAAP financial measures should not be considered as a substitute for operating results determined in accordance with GAAP and may not be comparable to other similarly titled financial measures used by other companies. A reconciliation of these operating performance measures to GAAP performance measures is included in on the table on page 40.


Table 1 - Financial Highlights
Selected Financial Information
																First
	2014			2013												Quarter
(in thousands, except per share	First			Fourth			Third			Second			First			2014-2013
data; taxable equivalent)	Quarter			Quarter			Quarter			Quarter			Quarter			Change
INCOME SUMMARY
Interest revenue	$	60,495		$	61,695		$	61,426		$	62,088		$	62,114
Interest expense		6,326			5,816			7,169			7,157			7,540
Net interest revenue		54,169			55,879			54,257			54,931			54,574			(1	) %
Provision for credit losses		2,500			3,000			3,000			48,500			11,000
Fee revenue		12,176			13,519			14,225			15,943			12,911			(6	)
Total revenue		63,845			66,398			65,482			22,374			56,485
Operating expenses		39,050			41,614			40,097			48,823			43,770			(11	)
Income (loss) before income taxes		24,795			24,784			25,385			(26,449	)		12,715			95
Income tax expense (benefit)		9,395			8,873			9,885			(256,413	)		950
Net income		15,400			15,911			15,500			229,964			11,765			31
Preferred dividends and discount accretion		439			2,912			3,059			3,055			3,052
Net income available to common shareholders	$	14,961		$	12,999		$	12,441		$	226,909		$	8,713			72
PERFORMANCE MEASURES
Per common share:
Diluted income	$	.25		$	.22		$	.21		$	3.90		$	.15			67
Book value		11.66			11.30			10.99			10.90			6.85			70
Tangible book value (2)		11.63			11.26			10.95			10.82			6.76			72
Key performance ratios:
Return on common equity (1)(3)		8.64	%		7.52	%		7.38	%		197.22	%		8.51	%
Return on assets (3)		.85			.86			.86			13.34			.70
Net interest margin (3)		3.21			3.26			3.26			3.33			3.37
Efficiency ratio		59.05			60.02			58.55			68.89			64.97
Equity to assets		9.52			11.62			11.80			11.57	(4)		8.60
Tangible equity to assets (2)		9.50			11.59			11.76			11.53	(4)		8.53
Tangible common equity to assets (2)		9.22			8.99			9.02			8.79	(4)		5.66
Tangible common equity to risk- weighted assets (2)		13.57			13.17			13.34			13.16			8.45
ASSET QUALITY *
Non-performing loans	$	25,250		$	26,819		$	26,088		$	27,864		$	96,006
Foreclosed properties		5,594			4,221			4,467			3,936			16,734
Total non-performing assets (NPAs)		30,844			31,040			30,555			31,800			112,740
Allowance for loan losses		75,223			76,762			80,372			81,845			105,753
Net charge-offs		4,039			4,445			4,473			72,408			12,384
Allowance for loan losses to loans		1.73	%		1.77	%		1.88	%		1.95	%		2.52	%
Net charge-offs to average loans (3)		.38			.41			.42			6.87			1.21
NPAs to loans and foreclosed properties		.71			.72			.72			.76			2.68
NPAs to total assets		.42			.42			.42			.44			1.65
AVERAGE BALANCES ($ in millions)
Loans	$	4,356		$	4,315		$	4,250		$	4,253		$	4,197			4
Investment securities		2,320			2,280			2,178			2,161			2,141			8
Earning assets		6,827			6,823			6,615			6,608			6,547			4
Total assets		7,384			7,370			7,170			6,915			6,834			8
Deposits		6,197			6,190			5,987			5,983			5,946			4
Shareholders’ equity		703			856			846			636			588			20
Common shares - basic (thousands)		60,059			59,923			59,100			58,141			58,081
Common shares - diluted (thousands)		60,061			59,925			59,202			58,141			58,081
AT PERIOD END ($ in millions)
Loans *	$	4,356		$	4,329		$	4,267		$	4,189		$	4,194			4
Investment securities		2,302			2,312			2,169			2,152			2,141			8
Total assets		7,398			7,425			7,243			7,163			6,849			8
Deposits		6,248			6,202			6,113			6,012			6,026			4
Shareholders’ equity		704			796			852			829			592			19
Common shares outstanding (thousands)		60,092			59,432			59,412			57,831			57,767

(1) Net income available to common shareholders, which is net of preferred stock dividends, divided by average realized common equity, which excludes accumulated other comprehensive income (loss). (2) Excludes effect of acquisition related intangibles and associated amortization. (3) Annualized. (4) Calculated as of period-end.

* Excludes loans and foreclosed properties covered by loss sharing agreements with the FDIC.


Table 1 Continued - Non-GAAP Performance Measures Reconciliation
Selected Financial Information

	2014			2013
(in thousands, except per share	First			Fourth			Third			Second			First
data; taxable equivalent)	Quarter			Quarter			Quarter			Quarter			Quarter
Interest revenue reconciliation
Interest revenue - taxable equivalent	$	60,495		$	61,695		$	61,426		$	62,088		$	62,114
Taxable equivalent adjustment		(357	)		(380	)		(370	)		(368	)		(365	)
Interest revenue (GAAP)	$	60,138		$	61,315		$	61,056		$	61,720		$	61,749
Net interest revenue reconciliation
Net interest revenue - taxable equivalent	$	54,169		$	55,879		$	54,257		$	54,931		$	54,574
Taxable equivalent adjustment		(357	)		(380	)		(370	)		(368	)		(365	)
Net interest revenue (GAAP)	$	53,812		$	55,499		$	53,887		$	54,563		$	54,209
Total revenue reconciliation
Total operating revenue	$	63,845		$	66,398		$	65,482		$	22,374		$	56,485
Taxable equivalent adjustment		(357	)		(380	)		(370	)		(368	)		(365	)
Total revenue (GAAP)	$	63,488		$	66,018		$	65,112		$	22,006		$	56,120
Income (loss) before taxes reconciliation
Income (loss) before taxes	$	24,795		$	24,784		$	25,385		$	(26,449	)	$	12,715
Taxable equivalent adjustment		(357	)		(380	)		(370	)		(368	)		(365	)
Income (loss) before taxes (GAAP)	$	24,438		$	24,404		$	25,015		$	(26,817	)	$	12,350
Income tax expense (benefit) reconciliation
Income tax expense (benefit)	$	9,395		$	8,873		$	9,885		$	(256,413	)	$	950
Taxable equivalent adjustment		(357	)		(380	)		(370	)		(368	)		(365	)
Income tax expense (benefit) (GAAP)	$	9,038		$	8,493		$	9,515		$	(256,781	)	$	585
Book value per common share reconciliation
Tangible book value per common share	$	11.63		$	11.26		$	10.95		$	10.82		$	6.76
Effect of goodwill and other intangibles		.03			.04			.04			.08			.09
Book value per common share (GAAP)	$	11.66		$	11.30		$	10.99		$	10.90		$	6.85
Average equity to assets reconciliation
Tangible common equity to assets		9.22	%		8.99	%		9.02	%		8.79	%		5.66	%
Effect of preferred equity		.28			2.60			2.74			2.74			2.87
Tangible equity to assets		9.50			11.59			11.76			11.53			8.53
Effect of goodwill and other intangibles		.02			.03			.04			.04			.07
Equity to assets (GAAP)		9.52	%		11.62	%		11.80	%		11.57	%		8.60	%
Tangible common equity to risk-weighted assets reconciliation
Tangible common equity to risk-weighted assets		13.57	%		13.17	%		13.34	%		13.16	%		8.45	%
Effect of other comprehensive income		.36			.39			.49			.29			.49
Effect of deferred tax limitation		(3.91	)		(4.25	)		(4.72	)		(4.99	)		—
Effect of trust preferred		1.03			1.04			1.09			1.11			1.15
Effect of preferred equity		—			2.38			4.01			4.11			4.22
Tier I capital ratio (Regulatory)		11.05	%		12.73	%		14.21	%		13.68	%		14.31	%

Results of Operations

United reported net income of $15.4 million for the first quarter of 2014. This compared to net income of $11.8 million for the same period in 2013. For the first quarter of 2014, diluted earnings per common share was $.25 compared to $.15 for the first quarter of 2013.

Net Interest Revenue (Taxable Equivalent)

Net interest revenue (the difference between the interest earned on assets and the interest paid on deposits and borrowed funds) is the single largest component of total revenue. United actively manages this revenue source to provide optimal levels of revenue while balancing interest rate, credit and liquidity risks. Taxable equivalent net interest revenue for the three months ended March 31, 2014 was $54.2 million, down $405,000, or 1%, from the first quarter of 2013. The decrease in net interest revenue for the first quarter of 2014 compared to the first quarter of 2013 was mostly due to lower yields on the loan portfolio offset partially by higher investment securities interest revenue and lower deposit costs. United continues to focus on loan and deposit pricing in an effort to maintain a steady level of net interest revenue.

While average loans increased $159 million, or 4%, from the first quarter of last year, the yield on loans decreased 47 basis points, reflecting the continuing effect of the low interest rate environment and competition for a limited number of quality lending opportunities. Although residential real estate loans increased primarily as the result of the promotion of a new home equity line product beginning in mid-2012 and the introduction of a new low-cost mortgage product in early 2013, the low introductory rate on these products also contributed to the lower yield on average loans. United discontinued the introductory rates on these products in late 2013.

Average interest-earning assets for the first quarter of 2014 increased $280 million, or 4%, from the same period in 2013, due primarily to the increase in loans and securities. Average investment securities for the first quarter of 2014 increased $180 million from a year ago consistent with general growth in the balance sheet as management has maintained the investment portfolio at approximately 31 percent of total assets over the last year. The average yield on the investment portfolio increased 14 basis points from a year ago. Early in the first quarter management sold approximately $100 million in low-yielding variable-rate CMO’s to fund a portion of the dividend paid from the bank to the holding company. The proceeds from the dividend were used to redeem preferred stock. Later in the quarter, accumulating liquidity resulting from strong core deposit growth led management to purchase higher yielding CLO’s and fixed rate securities. These transactions, along with slowing prepayment activity in United’s mortgage backed securities, which were mostly purchased at a premium, increased the overall yield in the investment portfolio. The higher investment securities yields did not completely offset the decline in loan yields, which drove the average yield on interest-earning assets for the first quarter of 2014 to 3.58%, down 26 basis points from 3.84% in the first quarter of 2013. The yield on other interest-earning assets increased 42 basis points although the average balance declined from the first quarter of 2013. United utilizes reverse repurchase agreements including collateral swap transactions where the company enters into a repurchase agreement and reverse repurchase agreement simultaneously with the same counterparty subject to a master netting agreement. In these transactions, the offsetting balances are netted on the balance sheet.

Average interest-bearing liabilities increased $230 million, or 5%, from the first quarter of 2013. Much of the increase in interest-bearing liabilities was a result of funding the redemption of United’s preferred stock. United redeemed all $196 million in preferred stock in a series of transactions beginning late in the fourth quarter and extending to early March. Average noninterest bearing deposits increased $159 million from the first quarter of 2013 to the first quarter of 2014. The average cost of interest-bearing liabilities for the first quarter of 2014 was .50% compared to .62% for the same period of 2013, reflecting United’s concerted efforts to reduce deposit pricing. Also contributing to the overall lower rate on interest-bearing liabilities was a shift in the mix of deposits away from more expensive time deposits toward lower-rate transaction deposits. United was able to reduce the effective rate on brokered deposits in the first quarter of 2014 to a negative .23% by swapping the fixed rates on longer-term brokered time deposits to LIBOR minus a spread.

The banking industry uses two ratios to measure relative profitability of net interest revenue. The net interest spread measures the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities. The interest rate spread eliminates the effect of non-interest-bearing deposits and gives a direct perspective on the effect of market interest rate movements. The net interest margin is an indication of the profitability of a company’s balance sheet, and is defined as net interest revenue as a percent of average total interest-earning assets, which includes the positive effect of funding a portion of interest-earning assets with customers’ non-interest-bearing deposits and stockholders’ equity.

For the three months ended March 31, 2014 and 2013, the net interest spread was 3.08% and 3.22%, respectively, while the net interest margin was 3.21% and 3.37%, respectively. The decline in both ratios is due to lower yields on loans, which were not completely offset by the decrease in rates paid for deposits and other interest bearing liabilities.

The following table shows the relationship between interest revenue and expense, and the average amounts of interest-earning assets and interest-bearing liabilities for the three months ended March 31, 2014 and 2013.

Table 2 - Average Consolidated Balance Sheets and Net Interest Analysis
For the Three Months Ended March 31,

	2014									2013
	Average						Avg.			Average					Avg.
(dollars in thousands, taxable equivalent)	Balance			Interest			Rate			Balance			Interest		Rate
Assets:
Interest-earning assets:
Loans, net of unearned income (1)(2)	$	4,355,572		$	47,868			4.46	%	$	4,196,757		$	51,000		4.93	%
Taxable securities (3)		2,300,316			11,419			1.99			2,119,085			9,732		1.84
Tax-exempt securities (1)(3)		20,173			308			6.11			21,733			347		6.39
Federal funds sold and other interest-earning assets		150,841			900			2.39			209,674			1,035		1.97

Total interest-earning assets		6,826,902			60,495			3.58			6,547,249			62,114		3.84
Non-interest-earning assets:
Allowance for loan losses		(77,491	)								(110,941	)
Cash and due from banks		62,054									64,294
Premises and equipment		162,788									169,280
Other assets (3)		410,175									164,250
Total assets	$	7,384,428								$	6,834,132

Liabilities and Shareholders’ Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
NOW	$	1,416,119			440			.13		$	1,303,308			454		.14
Money market		1,376,993			563			.17			1,257,409			562		.18
Savings		259,548			20			.03			234,110			36		.06
Time less than $100,000		877,695			1,013			.47			1,039,707			1,749		.68
Time greater than $100,000		578,190			918			.64			694,553			1,477		.86
Brokered time deposits		287,979			(160	)		(.23	)		175,128			65		.15
Total interest-bearing deposits		4,796,524			2,794			.24			4,704,215			4,343		.37
Federal funds purchased and other borrowings		112,583			840			3.03			72,157			516		2.90
Federal Home Loan Bank advances		125,069			58			.19			33,069			19		.23
Long-term debt		129,865			2,634			8.23			124,816			2,662		8.65
Total borrowed funds		367,517			3,532			3.90			230,042			3,197		5.64

Total interest-bearing liabilities		5,164,041			6,326			.50			4,934,257			7,540		.62
Non-interest-bearing liabilities:
Non-interest-bearing deposits		1,400,619									1,241,527
Other liabilities		116,667									70,839
Total liabilities		6,681,327									6,246,623
Shareholders’ equity		703,101									587,509
Total liabilities and shareholders’ equity	$	7,384,428								$	6,834,132

Net interest revenue				$	54,169								$	54,574
Net interest-rate spread								3.08	%							3.22	%

Net interest margin (4)								3.21	%							3.37	%

(1) Interest revenue on tax-exempt securities and loans has been increased to reflect comparable interest on taxable securities and loans. The rate used was 39%, reflecting the statutory federal income tax rate and the federal tax adjusted state income tax rate.

(2) Included in the average balance of loans outstanding are loans where the accrual of interest has been discontinued and loans that are held for sale.

(3) Securities available for sale are shown at amortized cost. Pretax unrealized losses of $4.6 million in 2014 and pretax unrealized gains of $17.1 million in 2013 are included in other assets for purposes of this presentation.

(4) Net interest margin is taxable equivalent net-interest revenue divided by average interest-earning assets.

The following table shows the relative effect on net interest revenue for changes in the average outstanding amounts (volume) of interest-earning assets and interest-bearing liabilities and the rates earned and paid on such assets and liabilities (rate). Variances resulting from a combination of changes in rate and volume are allocated in proportion to the absolute dollar amounts of the change in each category.

Table 3 - Change in Interest Revenue and Expense on a Taxable Equivalent Basis
(in thousands)

	Three Months Ended March 31, 2014
	Compared to 2013
	Increase (decrease)
	Due to Changes in
	Volume			Rate			Total
Interest-earning assets:
Loans	$	1,878		$	(5,010	)	$	(3,132	)
Taxable securities		867			820			1,687
Tax-exempt securities		(24	)		(15	)		(39	)
Federal funds sold and other interest-earning assets		(325	)		190			(135	)
Total interest-earning assets		2,396			(4,015	)		(1,619	)

Interest-bearing liabilities:
NOW accounts		37			(51	)		(14	)
Money market accounts		51			(50	)		1
Savings deposits		4			(20	)		(16	)
Time deposits less than $100,000		(244	)		(492	)		(736	)
Time deposits greater than $100,000		(222	)		(337	)		(559	)
Brokered time deposits		20			(245	)		(225	)
Total interest-bearing deposits		(354	)		(1,195	)		(1,549	)
Federal funds purchased & other borrowings		301			23			324
Federal Home Loan Bank advances		43			(4	)		39
Long-term debt		105			(133	)		(28	)
Total borrowed funds		449			(114	)		335
Total interest-bearing liabilities		95			(1,309	)		(1,214	)

Increase in net interest revenue	$	2,301		$	(2,706	)	$	(405	)

Provision for Credit Losses

The provision for credit losses is based on management’s evaluation of probable incurred losses in the loan portfolio and corresponding analysis of the allowance for credit losses at quarter-end. The provision for credit losses was $2.50 million for the first quarter of 2014, compared to $11.0 million for the same period in 2013. The amount of provision recorded in each period was the amount required such that the total allowance for loan losses reflected the appropriate balance, in the estimation of management, and was sufficient to cover incurred losses in the loan portfolio. The first quarter of 2014 loan loss provision was lower due to improved credit quality metrics compared to the first quarter of 2013, following the second quarter of 2013 classified asset disposition. For the three months ended March 31, 2014, net loan charge-offs as an annualized percentage of average outstanding loans were .38% compared to 1.21% for the same period in 2013.

In the fourth quarter of 2013, United established an allowance for unfunded loan commitments which is included in other liabilities in the consolidated balance sheet. The allowance for unfunded commitments represents probable incurred losses on unfunded loan commitments that are expected to result in outstanding loan balances. The allowance for unfunded loan commitments was established through the provision for credit losses.

Over the past two years, United has experienced significant improvement in credit quality and corresponding credit measures. During the second quarter of 2013 United sold classified assets totaling approximately $172 million, including a bulk sale of $131 million. The classified asset sales and a general improving trend reduced United’s nonperforming assets to $30.8 million as of March 31, 2014. Additional discussion on credit quality and the allowance for loan losses is included in the “Asset Quality and Risk Elements” section of this report on page 43.

Fee Revenue

Fee revenue for the three months ended March 31, 2014 was $12.2 million, a decrease of $735,000, or 6%, compared to the first quarter of 2013. The following table presents the components of fee revenue for the first quarters of 2014 and 2013.

Table 4 - Fee Revenue
(in thousands)
	Three Months Ended
	March 31,				Change
	2014		2013		Amount			Percent

Overdraft fees	$	2,920	$	2,991	$	(71	)		(2	)
ATM and debit card fees		3,531		3,227		304			9
Other service charges and fees		1,447		1,185		262			22
Service charges and fees		7,898		7,403		495			7
Mortgage loan and related fees		1,354		2,655		(1,301	)		(49	)
Brokerage fees		1,177		767		410			53
Customer derivatives		57		252		(195	)		(77	)
Securities gains, net		217		116		101
Other		1,473		1,718		(245	)		(14	)
Total fee revenue	$	12,176	$	12,911	$	(735	)		(6	)

Service charges and fees of $7.90 million were up $495,000, or 7%, from the first quarter of 2013. The increase resulted from higher debit card and interchange fees as well as higher other service charges and fees. Effective January 1, 2014, United initiated new service fees that led to the increase over 2013. Overdraft fees continue to decline as customer utilization of our courtesy overdraft services decreases.

Mortgage loans and related fees for the first quarter of 2014 were down $1.30 million, or 49%, from the same period in 2013. In the first quarter of 2014, United closed 289 loans totaling $46.0 million compared with 464 loans totaling $69.8 million in the first quarter of 2013. Mortgage refinancing activity has slowed due to rising long-term interest rates. United had $30.3 million in new purchase money mortgage originations in the first quarter of 2014, compared with $26.4 million a year ago. Purchase money mortgages increased as a percentage of total production due to lower refinancing activity but also due to an increase in the amount of purchase money mortgages. The volume of new purchase money mortgages in the first quarter was 66% compared with 43% in the first quarter of 2013.

Brokerage fees increased $410,000, or 53%, from the first quarter of 2013, as customer balances increased, due to heightened customer demand for income products stemming from continued low interest rates. Also, referrals and overall activity in this area have increased as United intensified its focus on growing this line of business. A portion of United’s brokerage fee revenue is derived from the value of assets under management which increased with the overall improvement in the market, further contributing to the increased revenue.

Customer derivative fees of $57,000 were down $195,000 from first quarter 2013. Management believes the decrease is a reflection of the interest rate environment resulting in a temporary weakening of customer demand.

United recognized net securities gains of $217,000 for the three months ended March 31, 2014, compared to net securities gains of $116,000 in the first quarter of 2013.

Other fee revenue of $1.47 million for the first quarter of 2014 was down $245,000 from the first quarter of 2013, primarily due to lower earnings on deferred compensation plan assets and lower earnings on bank owned life insurance policies.

Operating Expenses

The following table presents the components of operating expenses for the three months ended March 31, 2014 and 2013.


Table 5 - Operating Expenses
(in thousands)
	Three Months Ended
	March 31,					Change
	2014			2013		Amount			Percent

Salaries and employee benefits	$	24,396		$	23,592	$	804			3
Communications and equipment		3,239			3,046		193			6
Occupancy		3,378			3,367		11			—
Advertising and public relations		626			938		(312	)		(33	)
Postage, printing and supplies		776			863		(87	)		(10	)
Professional fees		1,427			2,366		(939	)		(40	)
FDIC assessments and other regulatory charges		1,353			2,505		(1,152	)		(46	)
Amortization of intangibles		387			705		(318	)		(45	)
Other		3,352			4,055		(703	)		(17	)
Total excluding foreclosed property expenses		38,934			41,437		(2,503	)		(6	)
Net (gains) losses on sales of foreclosed properties		(521	)		105		(626	)
Foreclosed property write downs		277			1,041		(764	)
Foreclosed property maintenance expenses		360			1,187		(827	)		(70	)
Total operating expenses	$	39,050		$	43,770	$	(4,720	)		(11	)

Operating expenses for the first quarter of 2014 totaled $39.1 million, down $4.72 million, or 11%, from the first quarter of 2013. The decrease mostly reflects lower foreclosed property expenses, losses and write downs associated with the declining volume of foreclosed properties following the classified asset sales in the second quarter of 2013. Excluding foreclosed property costs, total operating expenses were $38.9 million for the three months ended March 31, 2014, down $2.50 million, or 6%, from the first quarter of 2013.

Salaries and employee benefits for the first quarter of 2014 were $24.4 million, up $804,000, or 3%, from the same period of 2013. The increase was due to higher brokerage incentives, bonuses and higher stock based compensation expense in the first quarter of 2014. Headcount totaled 1,488 at March 31, 2014, compared to 1,540 at March 31, 2013, a decrease of 52 positions.

Communications and equipment expense of $3.24 million for the first quarter of 2014 was up $193,000, or 6%, from the first quarter of 2013. The increases reflect higher software costs resulting from new technology solutions to improve operating efficiency and customer service as well as higher telecommunications charges.

Occupancy expense of $3.38 million for the first quarter of 2014 was flat compared to the same period of 2013.

Professional fees for the first quarter of 2014 of $1.43 million were down $939,000, or 40%, from the same period in 2013. The decrease was primarily due to lower legal fees and fewer consulting projects that are in process.

FDIC assessments and other regulatory charges of $1.35 million is down $1.15 million reflecting a lower deposit insurance assessment rate following the termination of our informal memorandum of understanding with the FDIC and the Georgia Department of Banking and Finance late in the fourth quarter of 2013.

Amortization of intangibles continues to decrease as core deposit intangibles related to past acquisitions become fully amortized.

Other expense of $3.35 million for the first quarter of 2014 decreased $703,000 from the first quarter of 2013. The decrease for the quarter was primarily due to lower appraisal and lending support costs as well as lower ATM network provider costs.

Net gains on sales of foreclosed property totaled $521,000 for the first quarter of 2014, compared to net losses on sale of $105,000 for the first quarter of 2013. Foreclosed property write-downs for the first quarter of 2014 were $277,000 compared to $1.04 million a year ago. Foreclosed property maintenance expenses include legal fees, property taxes, marketing costs, utility services, maintenance and repair charges and totaled $360,000 for the first quarter of 2014 compared with $1.19 million a year ago. These costs continue to decline with the decrease in the number of foreclosed properties held by United.

Income Taxes

Income tax expense for the first quarter of 2014 was $9.04 million as compared with income tax expense of $585,000 for the first quarter of 2013. The effective tax rate (as a percentage of pre-tax earnings) for the three months ended March 31, 2014 was 37.0%. The effective tax rate for the first quarter of 2013 was not meaningful due to the full valuation allowance on United’s deferred tax asset that was reversed in the second quarter of 2013. For the remainder of the year, United expects to record income tax expense at an effective tax rate of approximately 37.0%.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts and their respective tax bases including operating losses and tax credit carryforwards. Net deferred tax assets (deferred tax assets net of deferred tax liabilities and valuation allowance) are reported in the consolidated balance sheet as a component of total assets.

Accounting Standards Codification Topic 740, Income Taxes, requires that companies assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. The determination of whether a valuation allowance for deferred tax assets is appropriate is subject to considerable judgment and requires an evaluation of all positive and negative evidence with more weight given to evidence that can be objectively verified. Each quarter, management considers both positive and negative evidence and analyzes changes in near-term market conditions as well as other factors which may impact future operating results.

At March 31, 2013, United reported no net deferred tax asset due to a full valuation allowance of $271 million. However, during the second quarter of 2013, based on the weight of all the positive and negative evidence at such date, management concluded that it was more likely than not that $272 million of the net deferred tax assets will be realized based upon future taxable income and therefore, reversed $272 million of the valuation allowance. Thus, at March 31, 2014, United reported a net deferred tax asset of $244 million, net of a valuation allowance of $4.08 million that related to specific state income tax credits that have short carryforward periods and therefore are expected to expire before they can be utilized.

The deferred tax asset valuation allowance was reversed in the second quarter of 2013 following the achievement of six consecutive quarters of positive operating results. The recent positive earnings results and improving credit measures provide an objective basis for a conclusion that profitability is sustainable and improving. In addition, the second quarter 2013 sale of classified assets improved United’s ability to project credit costs and forecast profitability going forward by removing the assets that were most likely to drive future credit losses. As a result of this discretionary distressed asset sale, United’s classified asset ratio (classified assets as a percentage of Tier 1 capital and the allowance for loan losses) improved to 27% at March 31, 2014 and December 31, 2013 compared to 49% at March 31, 2013.

Based on all evidence considered, as of March 31, 2014, management again concluded it was more likely than not that our net deferred tax asset would be realized. With continuous improvements in credit quality, quarterly earnings for the past ten quarters have closely followed management’s forecast for these periods, excluding the impact of the discretionary sales of classified assets in the second quarter 2013. The improvement in management’s ability to produce reliable forecasts, continuous and significant improvements in credit quality, and a sustained period of profitability were given appropriate weighting in our analysis, and such evidence was considered sufficient to overcome the weight of the negative evidence related to the significant operating losses in prior years.

In addition to such positive evidence at March 31, 2014, United has also reduced the amount of credit risk inherent in its loan portfolio by reducing its concentration of construction loans and improving its overall loan portfolio diversification. These changes place United in a strong position to manage through the ongoing weakness in the economy. United also has a long record of positive earnings and accurate earnings forecasts prior to the recent economic downturn and is currently in a strong capital position. Effective in the first quarter of 2014, based on a rolling twelve quarters, United is no longer in a three-year cumulative loss position which had previously been considered a significant piece of negative evidence.

Management expects to generate higher levels of future taxable income and believes this will allow for full utilization of United’s net operating loss carryforwards within five to seven years, which is well within the statutory carryforward periods. In determining whether management’s projections of future taxable income are reliable, management considered objective evidence supporting the forecast assumptions as well as recent experience demonstrating management’s ability to reasonably project future results of operations. Further, while the banking environment is expected to remain challenging due to economic and other uncertainties, management believes that it can confidently forecast future taxable income at sufficient levels over the future period of time that United has available to realize its March 31, 2014 deferred tax asset.

As of February 22, 2011, United adopted a tax benefits preservation plan designed to protect its ability to utilize its substantial tax assets. Those tax assets include net operating losses that it could utilize in certain circumstances to offset taxable income and reduce its federal income tax liability and the future tax benefits from potential net unrealized built-in losses. United’s ability to use its tax benefits would be substantially limited if it were to experience an ownership change as defined under Section 382 of the Internal Revenue Code. In general, an ownership change would occur if United’s “5-percent shareholders,” as defined under Section 382, collectively increase their ownership in United by more than 50% over a rolling three-year period. The tax benefits preservation plan was designed to reduce the likelihood that United will experience an ownership change by discouraging any person or group from becoming a beneficial owner of 4.99% or more of United’s common stock then outstanding. The tax benefits preservation plan expired in the first quarter of 2014.

Additional information regarding income taxes, including a reconciliation of the differences between the recorded income tax provision and the amount of income tax computed by applying the statutory federal income tax rate to income before income taxes, can be found in Note 17 to the consolidated financial statements filed with United’s Annual Report on Form 10-K for the year ended December 31, 2013.

Balance Sheet Review

Total assets at March 31, 2014, December 31, 2013 and March 31, 2013 were $7.40 billion, $7.43 billion and $6.85 billion, respectively. Average total assets for the first quarter of 2014 were $7.38 billion, up from $6.83 billion in the first quarter of 2013.

The following table presents a summary of the loan portfolio.


Table 6 - Loans Outstanding (excludes loans covered by loss share agreement)
(in thousands)
	March 31,			December 31,			March 31,
	2014			2013			2013
By Loan Type
Commercial (secured by real estate)	$	1,765,621		$	1,756,710		$	1,804,030
Commercial & industrial		495,178			471,961			453,764
Commercial construction		148,454			148,903			152,410
Total commercial		2,409,253			2,377,574			2,410,204
Residential mortgage		866,615			875,077			849,802
Home equity lines of credit		446,705			440,887			396,173
Residential construction		317,749			328,579			371,733
Consumer installment		106,991			111,045			110,796
Indirect auto		208,395			196,104			54,852
Total loans	$	4,355,708		$	4,329,266		$	4,193,560

As a percentage of total loans:
Commercial (secured by real estate)		41	%		41	%		43	%
Commercial & industrial		12			11			11
Commercial construction		3			3			3
Total commercial		56			55			57
Residential mortgage		20			20			20
Home equity lines of credit		10			10			10
Residential construction		7			8			9
Consumer installment		2			3			3
Indirect auto		5			4			1
Total		100	%		100	%		100	%

By Geographic Location
North Georgia	$	1,204,672		$	1,240,234		$	1,362,479
Atlanta MSA		1,289,630			1,275,139			1,262,109
North Carolina		563,317			571,971			575,063
Coastal Georgia		424,654			423,045			398,047
Gainesville MSA		261,616			254,655			259,385
East Tennessee		272,493			279,587			281,625
South Carolina / Corporate		130,931			88,531			—
Other (Indirect Auto)		208,395			196,104			54,852
Total loans	$	4,355,708		$	4,329,266		$	4,193,560

Substantially all of United’s loans are to customers located in the immediate market areas of its community banks in Georgia, North Carolina, Tennessee and South Carolina, including customers who have a seasonal residence in United’s market areas. More than 80% of the loans are secured by real estate. At March 31, 2014, total loans, excluding loans that are covered by loss sharing agreements with the FDIC, were $4.36 billion, an increase of $162 million, or 4%, from March 31, 2013. Despite the weak economy and lagging loan demand, United has continued to pursue lending opportunities. Home equity loans increased primarily due to a successful home equity line promotion that has gained traction in United’s footprint and residential mortgage loans increased due to a low closing cost mortgage product that began being offered in the first quarter of 2013. Indirect auto loans have increased due to additional purchases of loan pools for this portfolio. United also had an increase in commercial and industrial loan production during the first quarter of 2014.

Asset Quality and Risk Elements

United manages asset quality and controls credit risk through review and oversight of the loan portfolio as well as adherence to policies designed to promote sound underwriting and loan monitoring practices. United’s credit administration function is responsible for monitoring asset quality and Board-approved portfolio limits, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures among all of the community banks. Additional information on the credit administration function is included in Item 1 under the heading Loan Review and Nonperforming Assets in United’s Annual Report on Form 10-K for the year ended December 31, 2013.

United classifies performing loans as “substandard” when there are well-defined weaknesses that jeopardize the repayment by the borrower and there is a distinct possibility that United could sustain some loss if the deficiency is not corrected.

United’s home equity lines generally require the payment of interest only for a set period after origination. After this initial period, the outstanding balance begins amortizing and requires the payment of both principal and interest. At March 31, 2014, December 31, 2013 and March 31, 2013, the funded portion of home equity lines totaled $447 million, $441 million, and $396 million, respectively.

Approximately 3% of the home equity loans at March 31, 2014 were amortizing. Of the $447 million in balances outstanding at March 31, 2014, $282 million, or 63%, were first liens. At March 31, 2014, 60% of the total available home equity lines were drawn upon.

United monitors the performance of its home equity loans and lines secured by second liens similar to other consumer loans and utilizes assumptions specific to these loans in determining the necessary allowance. United also receives notification when the first lien holder is in the process of foreclosure and upon that notification, United obtains valuations to determine if any additional charge-offs or reserves are warranted.

The table below presents performing substandard loans for the last five quarters.


Table 7 - Performing Substandard Loans
(dollars in thousands)
	March 31,		December 31,		September 30,		June 30,		March 31,
	2014		2013		2013		2013		2013
By Category
Commercial (secured by real estate)	$	84,325	$	77,725	$	75,542	$	78,750	$	128,120
Commercial & industrial		8,141		9,589		10,342		11,458		20,320
Commercial construction		5,281		16,758		16,911		15,766		18,462
Total commercial		97,747		104,072		102,795		105,974		166,902
Residential mortgage		43,572		44,022		45,493		43,874		53,994
Home equity		7,662		7,967		7,679		7,348		10,109
Residential construction		12,977		14,104		15,552		16,631		37,882
Consumer installment		2,310		2,538		2,147		2,505		2,794
Indirect auto		597		—		—		—		—
Total	$	164,865	$	172,703	$	173,666	$	176,332	$	271,681
By Market
North Georgia	$	69,584	$	69,510	$	74,456	$	68,272	$	107,798
Atlanta MSA		32,008		43,171		44,650		48,574		74,064
North Carolina		21,735		18,954		20,768		23,440		30,391
Coastal Georgia		18,354		18,561		10,729		8,391		17,496
Gainesville MSA		14,911		14,916		14,820		19,734		28,514
East Tennessee		7,676		7,591		8,243		7,921		13,418
South Carolina / Corporate		—		—		—		—		—
Indirect auto		597		—		—		—		—
Total loans	$	164,865	$	172,703	$	173,666	$	176,332	$	271,681

At March 31, 2014, performing substandard loans totaled $165 million and decreased $7.84 million from the prior quarter-end, and decreased $107 million from a year ago. The decrease from the second quarter of 2013 reflects a general declining trend and the decrease from a year ago also reflects the second quarter 2013 classified asset sales. Performing substandard loans had been on a downward trend as credit conditions have continued to improve as problem credits are resolved.

Reviews of substandard performing and nonperforming loans, troubled debt restructures, past due loans and larger credits, are conducted on a quarterly basis with management and are designed to identify risk migration and potential charges to the allowance for loan losses. These reviews are presented by the responsible lending officers and specific action plans are discussed along with the financial strength of borrowers, the value of the applicable collateral, past loan loss experience, anticipated loan losses, changes in risk profile, the effect of prevailing economic conditions on the borrower along with other factors specific to the borrower and its industry. In addition to United’s internal loan review, United also uses external loan review to ensure the independence of the loan review process.

The following table presents a summary of the changes in the allowance for loan losses for the three months ended March 31, 2014 and 2013.


Table 8 - Allowance for Loan Losses
(in thousands)
	Three Months Ended March 31,
	2014			2013
Allowance for loan losses at beginning of period	$	76,762		$	107,137
Charge-offs:
Commercial (secured by real estate)		572			5,454
Commercial & industrial		963			1,823
Commercial construction		—			45
Residential mortgage		1,581			1,797
Home equity lines of credit		1,003			559
Residential construction		304			2,982
Consumer installment		676			665
Indirect auto		77			42
Total loans charged-off		5,176			13,367
Recoveries:
Commercial (secured by real estate)		89			211
Commercial & industrial		541			322
Commercial construction		—			49
Residential mortgage		66			162
Home equity lines of credit		10			47
Residential construction		93			9
Consumer installment		327			181
Indirect auto		11			2
Total recoveries		1,137			983
Net charge-offs		4,039			12,384
Provision for loan losses		2,500			11,000
Allowance for loan losses at end of period	$	75,223		$	105,753
Allowance for unfunded commitments at beginning of period	$	2,165		$	—
Provision for losses on unfunded commitments		—			—
Allowance for unfunded commitments at end of period		2,165			—
Allowance for credit losses	$	77,388		$	105,753
Total loans: *
At period-end	$	4,355,708		$	4,193,560
Average		4,335,724			4,166,225
Allowance for loan losses as a percentage of period-end loans		1.73	%		2.52	%
As a percentage of average loans (annualized):
Net charge-offs		.38			1.21
Provision for loan losses		.23			1.07
Allowance for loan losses as a percentage of non-performing loans		298			110
* Excludes loans covered by loss sharing agreements with the FDIC

The provision for credit losses charged to earnings was based upon management’s judgment of the amount necessary to maintain the allowance at a level appropriate to probable incurred losses in the loan portfolio at the balance sheet date. The amount each quarter is dependent upon many factors, including growth and changes in the composition of the loan portfolio, net charge-offs, delinquencies, management’s assessment of loan portfolio quality, the value of collateral, and other macro-economic factors and trends. The evaluation of these factors is performed quarterly by management through an analysis of the appropriateness of the allowance for loan losses. The decreases in the provision and the level of the allowance for loan losses compared to the previous periods reflects stabilizing trends in substandard loans, leading to an expectation that charge-off levels will continue to decline. Further, the declining balance of the allowance for loan losses over the last several quarters reflects an overall improving trend in credit quality of the loan portfolio. A general improvement in economic conditions in United’s market also contributed to the lower level of provision and allowance for loan losses.

The allowance for credit losses, which includes a portion related to unfunded commitments, totaled $77.4 million at March 31, 2014, compared with $78.9 million at December 31, 2013, and $106 million at March 31, 2013. At March 31, 2014, the allowance for loan losses was $75.2 million, or 1.73% of loans, compared with $76.8 million, or 1.77% of total loans, at December 31, 2013 and $106 million, or 2.52% of loans, at March 31, 2013.

Management believes that the allowance for loan losses at March 31, 2014 reflects the probable incurred losses in the loan portfolio and unfunded loan commitments. This assessment involves uncertainty and judgment; therefore, the adequacy of the allowance for credit losses cannot be determined with precision and may be subject to change in future periods. The amount of any changes could be significant if management’s assessment of loan quality or collateral values change substantially with respect to one or more loan relationships or portfolios. In addition, bank regulatory authorities, as part of their periodic examination of the Bank, may require adjustments to the provision for credit losses in future periods if, in their opinion, the results of their review warrant such additions. See the “Critical Accounting Policies” section for additional information on the allowance for loan losses.

Nonperforming Assets

The table below summarizes nonperforming assets, excluding assets covered by the loss-sharing agreements with the FDIC. Those assets have been excluded from nonperforming assets, as the loss-sharing agreements with the FDIC and purchase price adjustments to reflect credit losses effectively eliminate the likelihood of recognizing any losses on the covered assets.


Table 9 - Nonperforming Assets
(in thousands)
	March 31,			December 31,			March 31,
	2014			2013			2013
Nonperforming loans	$	25,250		$	26,819		$	96,006
Foreclosed properties (OREO)		5,594			4,221			16,734
Total nonperforming assets	$	30,844		$	31,040		$	112,740
Nonperforming loans as a percentage of total loans		.58	%		.62	%		2.29	%
Nonperforming assets as a percentage of total loans and OREO		.71			.72			2.68
Nonperforming assets as a percentage of total assets		.42			.42			1.65

At March 31, 2014, nonperforming loans were $25.3 million compared to $26.8 million at December 31, 2013 and $96.0 million at March 31, 2013. Nonperforming loans have steadily decreased in dollar amount and as a percentage of total loans following the classification of United’s largest lending relationship in the third quarter of 2011. In addition, the second quarter of 2013 sales of classified assets, which included United’s largest lending relationship, further reduced nonperforming assets. Nonperforming assets, which include nonperforming loans and foreclosed real estate, totaled $30.8 million at March 31, 2014 compared with $31.0 million at December 31, 2013 and $113 million at March 31, 2013. United sold $3.24 million of foreclosed properties during the first quarter of 2014; however, these sales of foreclosed properties were offset by $4.37 million in new foreclosures for the quarter.

United’s policy is to place loans on nonaccrual status when, in the opinion of management, the principal and interest on a loan is not likely to be repaid in accordance with the loan terms or when the loan becomes 90 days past due and is not well secured and in the process of collection. When a loan is classified on nonaccrual status, interest previously accrued but not collected is reversed against current interest revenue. Principal and interest payments received on a nonaccrual loan are applied to reduce outstanding principal.

The following table summarizes nonperforming assets by category and market. As with Tables 6, 7, 8 and 9, assets covered by the loss-sharing agreements with the FDIC related to the acquisition of Southern Community Bank (“SCB”) are excluded from this table.

Table 10 - Nonperforming Assets by Quarter (1)
(in thousands)
	March 31, 2014									December 31, 2013									March 31, 2013
	Nonaccrual			Foreclosed			Total			Nonaccrual			Foreclosed			Total			Nonaccrual			Foreclosed			Total
	Loans			Properties			NPAs			Loans			Properties			NPAs			Loans			Properties			NPAs
BY CATEGORY
Commercial (sec. by RE)	$	5,146		$	2,812		$	7,958		$	8,340		$	832		$	9,172		$	17,304		$	5,584		$	22,888
Commercial & industrial		822			—			822			427			—			427			29,545			—			29,545
Commercial construction		479			—			479			361			—			361			22,359			3,027			25,386
Total commercial		6,447			2,812			9,259			9,128			832			9,960			69,208			8,611			77,819
Residential mortgage		13,307			2,146			15,453			11,731			2,684			14,415			10,901			3,463			14,364
Home equity		1,106			362			1,468			1,447			389			1,836			916			—			916
Residential construction		3,805			274			4,079			4,264			316			4,580			14,592			4,660			19,252
Consumer installment		291			—			291			249			—			249			389			—			389
Indirect auto		294			—			294			—			—			—			—			—			—
Total NPAs	$	25,250		$	5,594		$	30,844		$	26,819		$	4,221		$	31,040		$	96,006		$	16,734		$	112,740
Balance as a % of
Unpaid Principal		65.8	%		53.9	%		63.2	%		65.3	%		44.5	%		61.4	%		66.3	%		45.0	%		62.0	%
BY MARKET
North Georgia	$	12,166		$	2,058		$	14,224		$	12,352		$	2,494		$	14,846		$	63,210		$	6,616		$	69,826
Atlanta MSA		2,916			904			3,820			2,830			684			3,514			17,380			3,524			20,904
North Carolina		6,501			866			7,367			6,567			683			7,250			8,519			2,533			11,052
Coastal Georgia		800			1,607			2,407			2,342			173			2,515			3,523			1,449			4,972
Gainesville MSA		1,145			—			1,145			928			—			928			911			370			1,281
East Tennessee		1,428			159			1,587			1,800			187			1,987			2,463			2,242			4,705
South Carolina		—			—			—			—			—			—			—			—			—
Indirect auto		294			—			294			—			—			—			—			—			—
Total NPAs	$	25,250		$	5,594		$	30,844		$	26,819		$	4,221		$	31,040		$	96,006		$	16,734		$	112,740

(1) Excludes non-performing loans and foreclosed properties covered by the loss-sharing agreement with the FDIC, related to the acquisition of SCB.

Nonperforming assets in the residential construction category were $4.08 million at March 31, 2014, compared with $19.3 million at March 31, 2013, a decrease of $15.2 million, or 79%. Commercial nonperforming assets decreased from $77.8 million at March 31, 2013 to $9.26 million at March 31, 2014. Residential mortgage nonperforming assets of $15.5 million increased $1.09 million from March 31, 2013. The second quarter of 2013 classified asset sales contributed to the decreases in most categories of nonperforming assets.

At March 31, 2014, December 31, 2013, and March 31, 2013, United had $85.9 million, $87.0 million and $159 million, respectively, in loans with terms that have been modified in troubled debt restructurings (“TDRs”). Included therein were $7.98 million, $8.25 million and $32.8 million, respectively, of TDRs that were not performing in accordance with their modified terms and were included in nonperforming loans. The remaining TDRs with an aggregate balance of $77.9 million, $78.7 million and $126 million, respectively, were performing according to their modified terms and are therefore not considered to be nonperforming assets.

At March 31, 2014, December 31, 2013 and March 31, 2013, there were $105 million, $115 million and $231 million, respectively, of loans classified as impaired under the definition outlined in the Accounting Standards Codification, including TDRs which are by definition considered impaired. Included in impaired loans at March 31, 2014, December 31, 2013 and March 31, 2013 was $30.7 million, $38.9 million and $122 million, respectively, that did not require specific reserves or had previously been charged down to net realizable value. The balance of impaired loans at March 31, 2014, December 31, 2013 and March 31, 2013 of $74.4 million, $75.7 million and $108 million, respectively, had specific reserves that totaled $8.40 million, $6.02 million and $12.0 million, respectively. The average recorded investment in impaired loans for the first quarters of 2014 and 2013 was $108 million and $236 million, respectively. For the three months ended March 31, 2014, United recognized $1.22 million in interest revenue on impaired loans compared to $1.83 million for the same period of the prior year. United’s policy is to discontinue the recognition of interest revenue for loans classified as impaired under ASC 310-10-35, Receivables, when a loan meets the criteria for nonaccrual status. Impaired loans decreased 54% from March 31, 2013 to March 31, 2014, primarily due to the second quarter 2013 classified asset sales.

The table below summarizes activity in nonperforming assets by quarter. Assets covered by loss sharing agreements with the FDIC, related to the acquisition of SCB, are not included in this table.

Table 11 - Activity in Nonperforming Assets
(in thousands)
	First Quarter 2014 (1)									First Quarter 2013(1)
	Nonaccrual			Foreclosed			Total			Nonaccrual			Foreclosed			Total
	Loans			Properties			NPAs			Loans			Properties			NPAs

Beginning Balance	$	26,819		$	4,221		$	31,040		$	109,894		$	18,264		$	128,158
Loans placed on non-accrual		9,303			—			9,303			9,665			—			9,665
Payments received		(1,666	)		—			(1,666	)		(6,809	)		—			(6,809	)
Loan charge-offs		(4,839	)		—			(4,839	)		(10,456	)		—			(10,456	)
Foreclosures		(4,367	)		4,367			—			(6,288	)		6,288			—
Capitalized costs		—			—			—			—			54			54
Property sales		—			(3,238	)		(3,238	)		—			(6,726	)		(6,726	)
Write downs		—			(277	)		(277	)		—			(1,041	)		(1,041	)
Net losses on sales		—			521			521			—			(105	)		(105	)
Ending Balance	$	25,250		$	5,594		$	30,844		$	96,006		$	16,734		$	112,740

(1) Excludes non-performing loans and foreclosed properties covered by the loss-sharing agreement with the FDIC, related to the acquisition of SCB.

Foreclosed property is initially recorded at fair value, less estimated costs to sell. If the fair value, less estimated costs to sell at the time of foreclosure, is less than the loan balance, the deficiency is charged against the allowance for loan losses. If the lesser of fair value, less estimated costs to sell or the listed selling price, less the costs to sell, of the foreclosed property decreases during the holding period, a valuation allowance is established with a charge to foreclosed property expense. When the foreclosed property is sold, a gain or loss is recognized on the sale for the difference between the sales proceeds and the carrying amount of the property. Financed sales of foreclosed property are accounted for in accordance with ASC 360-20, Real Estate Sales. For the first quarter of 2014, United transferred $4.37 million of loans into foreclosed property through foreclosures. During the same period, proceeds from sales of foreclosed property were $3.24 million, which includes $821,000 in sales that were financed by United.

Investment Securities

The composition of the investment securities portfolio reflects United’s investment strategy of maintaining an appropriate level of liquidity while providing a relatively stable source of revenue. The investment securities portfolio also provides a balance to interest rate risk and credit risk in other categories of the balance sheet while providing a vehicle for the investment of available funds, furnishing liquidity, and supplying securities to pledge as required collateral for certain deposits and borrowings, including repurchase agreements. Total investment securities at March 31, 2014 increased $162 million from a year ago.

At March 31, 2014, December 31, 2013 and March 31, 2013, United had securities held-to-maturity with a carrying amount of $465 million, $480 million, and $231 million, respectively, and securities available-for-sale totaling $1.84 billion, $1.83 billion, and $1.91 billion, respectively. At March 31, 2014, December 31, 2013, and March 31, 2013, the securities portfolio represented approximately 31% of total assets.

The investment securities portfolio primarily consists of U.S. government sponsored agency mortgage-backed securities, non-agency mortgage-backed securities, corporate securities, municipal securities and asset-backed securities. Mortgage-backed securities rely on the underlying pools of mortgage loans to provide a cash flow of principal and interest. The actual maturities of these securities will differ from contractual maturities because loans underlying the securities can prepay. Decreases in interest rates will generally cause an acceleration of prepayment levels. In a declining or prolonged low interest rate environment, United may not be able to reinvest the proceeds from these prepayments in assets that have comparable yields. In a rising rate environment, the opposite occurs - prepayments tend to slow and the weighted average life extends. This is referred to as extension risk which can lead to lower levels of liquidity due to the delay of cash receipts and can result in the holding of a below market yielding asset for a longer period of time. United’s asset-backed securities include securities that are backed by student loans and collateralized loan obligations.

Management evaluates its securities portfolio each quarter to determine if any security is considered to be other than temporarily impaired. In making this evaluation, management considers its ability and intent to hold securities to recover current market losses. Losses on United’s fixed income securities at March 31, 2014 primarily reflect the effect of changes in interest rates. United did not recognize any other than temporary impairment losses on its investment securities during the first quarters of 2014 or 2013.

At March 31, 2014, December 31, 2013 and March 31, 2013, 39%, 41% and 34%, respectively, of the securities portfolio was invested in floating-rate securities or fixed-rate securities that were swapped to floating rates in order to manage exposure to rising interest rates.

Other Intangible Assets

United’s core deposit intangibles representing the value of United’s acquired deposit base, are amortizing intangible assets that are required to be tested for impairment only when events or circumstances indicate that impairment may exist. There were no events or circumstances that led management to believe that any impairment exists in United’s other intangible assets.

Deposits

United has initiated several programs to improve core earnings by growing customer transaction deposit accounts and lowering overall pricing on deposit accounts to improve its net interest margin and increase net interest revenue. The programs were successful in increasing core transaction deposit accounts and allowing for the reduction of more costly time deposit balances as United’s funding needs decreased due to lower loan demand. United’s high level of service, as evidenced by its strong customer satisfaction scores, has been instrumental in attracting and retaining deposits.

Total customer deposits, excluding brokered deposits, as of March 31, 2014 were $5.78 billion, an increase of $83.4 million from March 31, 2013. Total core deposits (demand, NOW, money market and savings deposits, excluding public funds deposits) of $3.57 billion increased $278 million, or 8%, from a year ago, due to the success of core deposit programs.

Total time deposits, excluding brokered deposits, as of March 31, 2014 were $1.41 billion, down $298 million from March 31, 2013. Time deposits less than $100,000 totaled $833 million, a decrease of $186 million, or 18%, from a year ago. Time deposits of $100,000 and greater totaled $573 million as of March 31, 2014, a decrease of $112 million, or 16%, from March 31, 2013. United continued to offer low rates on certificates of deposit, allowing balances to decline as United’s funding needs declined due to weak loan demand and a shift to lower cost transaction account deposits.

Brokered deposits totaled $470 million as of March 31, 2014, an increase of $138 million from a year ago. United has actively added long-term deposits to diversify our funding base. These are typically swapped to LIBOR minus a spread, which achieves low cost funding within our interest rate risk parameters.

Wholesale Funding

The Bank is a shareholder in the Federal Home Loan Bank of Atlanta (“FHLB”). Through this affiliation, FHLB secured advances totaled $50.1 million, $120 million and $125,000, respectively, as of March 31, 2014, December 31, 2013 and March 31, 2013. United anticipates continued use of this short and long-term source of funds. Additional information regarding FHLB advances is provided in Note 12 to the consolidated financial statements included in United’s Annual Report on Form 10-K for the year ended December 31, 2013.

At March 31, 2014, December 31, 2013 and March 31, 2013, United had $123 million, $53.2 million and $52.0 million, respectively, in other short-term borrowings outstanding. Included in the balance at March 31, 2014 was $40 million in balances outstanding on United’s holding company line of credit. United takes advantage of these additional sources of liquidity when rates are favorable compared to other forms of short-term borrowings, such as FHLB advances and brokered deposits.

Contractual Obligations

There have not been any material changes to United’s contractual obligations since December 31, 2013.

Interest Rate Sensitivity Management

The absolute level and volatility of interest rates can have a significant effect on United’s profitability. The objective of interest rate risk management is to identify and manage the sensitivity of net interest revenue to changing interest rates, in order to achieve United’s overall financial goals. Based on economic conditions, asset quality and various other considerations, management establishes tolerance ranges for interest rate sensitivity and manages within these ranges.

United’s net interest revenue, and the fair value of its financial instruments, are influenced by changes in the level of interest rates. United limits its exposure to fluctuations in interest rates through policies developed by the Asset/Liability Management Committee (“ALCO”) and approved by the Board of Directors. ALCO meets periodically and has responsibility for formulating and recommending asset/liability management policies to the Board of Directors, formulating and implementing strategies to improve balance sheet positioning and/or earnings, and reviewing United’s interest rate sensitivity.

One of the tools management uses to estimate and manage the sensitivity of net interest revenue to changes in interest rates is an asset/liability simulation model. Resulting estimates are based upon a number of assumptions for each scenario, including loan and deposit re-pricing characteristics and the rate of prepayments. ALCO periodically reviews the assumptions for accuracy based on historical data and future expectations; however, actual net interest revenue may differ from model results. The primary objective of the simulation model is to measure the potential change in net interest revenue over time using multiple interest rate scenarios. The base scenario assumes rates remain flat and is the scenario to which all others are compared in order to measure the change in net interest revenue. Policy limits are based on immediate rate shock scenarios, as well as gradually rising and falling rate scenarios, which are all compared to the base scenario. Another commonly analyzed scenario is a most-likely scenario that projects the expected change in rates based on the slope of the forward yield curve. Other scenarios analyzed may include delayed rate shocks, yield curve steepening or flattening, or other variations in rate movements. While the primary policy scenarios focus on a twelve month time frame, longer time horizons are also modeled. All policy scenarios assume a static balance sheet.

United’s policy is based on the 12-month impact on net interest revenue of interest rate shocks and ramps that increase or decrease from 100 to 400 basis points from the base scenario. In the shock scenarios, rates immediately change the full amount at the scenario onset. In the ramp scenarios, rates change by 25 basis points per month. United’s policy limits the change in net interest revenue over the first 12 months to a 5% decrease for each 100 basis point change in the increasing and decreasing rate ramp and shock scenarios. Historically low rates on March 31, 2014 and 2013 made use of the down scenarios problematic. The following table presents United’s interest sensitivity position at March 31, 2014 and 2013.

Table 12 - Interest Sensitivity

	Increase (Decrease) in Net Interest Revenue from Base Scenario at March 31,
	2014						2013
Change in Rates	Shock			Ramp			Shock			Ramp
200 basis point increase		5.8			5.6	%		2.9	%		3.9	%
25 basis point decrease		(2.0	)		(2.0	)		(1.4	)		(1.4	)

Interest rate sensitivity is a function of the re-pricing characteristics of the portfolio of assets and liabilities. These re-pricing characteristics are the time frames within which the interest-earning assets and interest-bearing liabilities are subject to change in interest rates either at replacement, re-pricing or maturity during the life of the instruments. Interest rate sensitivity management focuses on the maturity structure of assets and liabilities and their re-pricing characteristics during periods of changes in market interest rates. Effective interest rate sensitivity management seeks to ensure that both assets and liabilities respond to changes in interest rates on a net basis within an acceptable timeframe, thereby minimizing the effect of interest rate changes on net interest revenue.

United may have some discretion in the extent and timing of deposit re-pricing depending upon the competitive pressures in the markets in which it operates. Changes in the mix of earning assets or supporting liabilities can either increase or decrease the net interest margin without affecting interest rate sensitivity. The interest rate spread between an asset and its supporting liability can vary significantly even when the timing of re-pricing for both the asset and the liability remains the same, due to the two instruments re-pricing according to different indices. This is commonly referred to as basis risk.

In order to manage interest rate sensitivity, United periodically enters into off-balance sheet contracts that are considered derivative financial instruments. Derivative financial instruments can be a cost-effective and capital-effective means of modifying the re-pricing characteristics of on-balance sheet assets and liabilities. These contracts generally consist of interest rate swaps under which United pays a variable rate (or fixed rate, as the case may be) and receives a fixed rate (or variable rate, as the case may be).

United’s derivative financial instruments that are designated as accounting hedges are classified as either cash flow or fair value hedges. The change in fair value of cash flow hedges is recognized in other comprehensive income. Fair value hedges recognize in earnings both the effect of the change in the fair value of the derivative financial instrument and the offsetting effect of the change in fair value of the hedged asset or liability associated with the particular risk of that asset or liability being hedged. United has other derivative financial instruments that are not designated as accounting hedges but are used for interest rate risk management purposes and as an effective economic hedge. Derivative financial instruments that are not accounted for as an accounting hedge are marked to market through earnings.

In addition to derivative instruments, United uses a variety of balance sheet instruments to manage interest rate risk such as Investment Portfolio holdings, wholesale funding, and bank-issued deposits.

The following table presents United’s outstanding derivative positions at March 31, 2014.

Table 13 - Derivative Financial Instruments
(in thousands)

	Number of					Fair Value (F)
Type of Instrument	Contracts		Notional		Purpose	Asset		Liability
Fair value hedges of fixed rate brokered deposit (accounting hedge)
Receive fixed cancellable swaps (1)		16	$	199,000	Low cost funding	$	—	$	14,119
Fair value hedges of fixed rate corporate bonds (accounting hedge)
Pay fixed swaps (2)		8		86,000	Protection from rising interest rates		2,655		2,729
Cash flow hedges of floating rate borrowings (accounting hedge)
Pay fixed swaps (3)		3		200,000	Protection from rising interest rates		—		3,650
Cash flow hedges of LIBOR indexed money market deposits (accounting hedge)
Pay fixed swaps (4)		3		375,000	Protection from rising interest rates		2,971		678
Customer swap positions
Receive fixed swaps (5)		55		173,663	Provide customer with fixed rate loan		1,359		825
Dealer offset to customer swap positions
Pay fixed swaps (5)		55		173,663	Protection from rising interest rates		825		1,377
Bifurcated derivatives embedded in hybrid host instruments
Pay steepener rate cancellable swap (6)		3		99,000	Low cost funding		13,753		—
Interest rate swaps not designated as accounting hedges
Receive steepener rate cancellable swap (6)		3		101,500	Low cost funding		—		18,931
			$	1,407,826		$	21,563	$	42,309

(1) United uses these swaps as part of a program to provide a low cost non-collateralized source of funds. The swaps hedge fixed rate brokered deposits with step up rates that increase over time that are mirrored in the receive rate of the swaps. The variable pay rates on these swaps are based on three-month LIBOR at spreads of minus 20 to minus 65 basis points. The counterparties have the right to call the instruments at any time generally after six months to one year following inception. United has a similar option in the hedged brokered deposit.

(2) These swaps convert fixed rate corporate bonds to three-month LIBOR and are used for protection against rising interest rates. The pay rates match the fixed rates of the hedged corporate bonds.

(3) These swaps are forward starting and become effective in the first and second quarters of 2014. They convert three month LIBOR-based floating rate borrowings to fixed rates for a three-year term. They are used for protection against rising interest rates.

(4) These swaps are forward starting and become effective in the second and third quarters of 2014 and the second quarter of 2015. They convert one month LIBOR-based money market deposits to fixed rates for terms of three to eight years. They are used for protection against rising interest rates.

(5) United offers interest rate swaps to customers seeking fixed rate loans under a back to back swap program. United enters into offsetting swap positions with qualified dealers simultaneously with the customer swap. Customer swaps and the offsetting dealer swap positions are marked to market through other fee revenue.

(6) United offers market linked certificates of deposit through broker dealers. The rate paid on these hybrid instruments is based on a formula derived from the spread betweeen the long and short ends of the constant maturity swap (“CMS”) rate curve. This type of instrument is referred to as a steepener since it derives its value from the slope of the CMS curve. United has determined that these hybrid instruments contain an embedded swap contract which has been bifurcated from the host contract. United enters into a swap with a swap dealer simultaneously where the receive rate on the swap mirrors the pay rate on the brokered deposit. The bifurcated derivative and the stand alone swap are both marked to market through other fee revenue. Although these instruments are not treated as an accounting hedge, the swap acts as an effective economic hedge of the steepener index in the brokered deposit.

From time to time, United will terminate swap or floor positions when conditions change and the position is no longer necessary to manage United’s overall sensitivity to changes in interest rates. In those situations where the terminated contract was in an effective hedging relationship at the time of termination and the hedging relationship is expected to remain effective throughout the original term of the contract, the resulting gain or loss is amortized over the remaining life of the original contract. For swap contracts, the gain or loss is amortized over the remaining original contract term using the straight line method of amortization. In addition, United’s forward starting active cash flow hedges of floating rate liabilities have become or will begin to become effective over the next twelve months. United expects that $5.02 million will be reclassified as an increase to deposit interest expense over the next twelve months related to these cash flow hedges.

During the fourth quarter of 2013, United reclassified hedge ineffectiveness gains and losses from other fee revenue to net interest revenue. This reclassification has been reflected in all prior period results.

United’s policy requires all non-customer facing derivative financial instruments be used only for asset/liability management through the hedging of specific transactions or positions, and not for trading or speculative purposes. Management believes that the risk associated with using derivative financial instruments to mitigate interest rate risk sensitivity is minimal and should not have any material unintended effect on our financial condition or results of operations. In order to mitigate potential credit risk, from time to time United may require the counterparties to derivative contracts to pledge securities as collateral to cover the net exposure.

Liquidity Management

The objective of liquidity management is to ensure that sufficient funding is available, at a reasonable cost, to meet the ongoing operational cash needs and to take advantage of revenue producing opportunities as they arise. While the desired level of liquidity will vary depending upon a variety of factors, it is the primary goal of United to maintain a sufficient level of liquidity in all expected economic environments. To assist in determining the adequacy of its liquidity, United performs a variety of liquidity stress tests including idiosyncratic, systematic and combined scenarios for both moderate and sever events. Liquidity is defined as the ability to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management involves maintaining United’s ability to meet the daily cash flow requirements of the Bank’s customers, both depositors and borrowers. United maintains a unencumbered liquid asset reserve to ensure its ability to meet its obligations. The size of the reserve is determined through severe liquidity stress testing and covers a 30 day period.

In addition, because United is a separate entity and apart from the Bank, it must provide for its own liquidity. United is responsible for the payment of dividends declared for its common and preferred shareholders, and interest and principal on any outstanding debt or trust preferred securities. United currently has internal capital resources to meet these obligations. Substantially all of United’s liquidity is obtained from subsidiary service fees and dividends from the Bank, which are limited by applicable law. In recent years, when the bank was unable to pay dividends to United, liquidity was obtained from external sources (debt and equity issuances) to meet its needs. United has committed in its Risk Appetite Statement to maintaining a cash reserve to cover a minimum of 18 months of cash operating needs at the holding company.

Two key objectives of asset/liability management are to provide for adequate liquidity in order to meet the needs of customers and to maintain an optimal balance between interest-sensitive assets and interest-sensitive liabilities to optimize net interest revenue. Daily monitoring of the sources and uses of funds is necessary to maintain a position that meets both requirements.

The asset portion of the balance sheet provides liquidity primarily through loan principal repayments and the maturities and sales of securities, as well as the ability to use these as collateral for borrowings on a secured basis. We also maintain excess funds in short-term interest-bearing assets that provide additional liquidity. Mortgage loans held for sale totaled $10.9 million at March 31, 2014, and typically turn over every 45 days as the closed loans are sold to investors in the secondary market.

The liability section of the balance sheet provides liquidity through interest-bearing and noninterest-bearing deposit accounts. Federal funds purchased, Federal Reserve short-term borrowings, FHLB advances and securities sold under agreements to repurchase are additional sources of liquidity and represent United’s incremental borrowing capacity. These sources of liquidity are generally short-term in nature and are used as necessary to fund asset growth and meet other short-term liquidity needs.

At March 31, 2014, United had cash and cash equivalent balances of $213 million and had sufficient qualifying collateral to increase FHLB advances by $959 billion and Federal Reserve discount window capacity of $651 million. United also has the ability to raise substantial funds through brokered deposits. In addition to these wholesale sources, United has the ability to attract retail deposits at any time by competing more aggressively on pricing.

As disclosed in United’s consolidated statement of cash flows, net cash provided by operating activities was $27.0 million for the three months ended March 31, 2014. The net income of $15.4 million for the three month period included the deferred income tax expense of $9.78 million, and non-cash expenses for the following: provision for loan losses of $2.5 million and depreciation, amortization and accretion of $4.93 million. In addition, other assets decreased $6.61 million. Mortgage loans held for sale increased $614,000. Net cash provided by investing activities of $22.0 million consisted primarily of proceeds from sales, maturities and calls of securities of $225 million, and proceeds from sales of foreclosed properties of $2.4 million partially offset by a $34.0 million increase in loans and purchases of investment securities totaling $173 million. Net cash used in financing activities of $64.5 million consisted primarily of $122 million in payments to redeem preferred stock and a $70 million net decrease in FHLB advances. This was partially offset by a $46.0 million increase in deposits, a $69.8 increase in short-term borrowings, and $12.2 million from the issuance of common stock. In the opinion of management, United’s liquidity position at March 31, 2014, was sufficient to meet its expected cash flow requirements.

Capital Resources and Dividends

Shareholders’ equity at March 31, 2014 was $704 million, a decrease of $92.0 million from December 31, 2013. Accumulated other comprehensive loss, which includes unrealized gains and losses on securities available-for-sale, the unrealized gains and losses on derivatives qualifying as cash flow hedges and unamortized prior service cost and actuarial gains and losses on United’s modified retirement plan, is excluded in the calculation of regulatory capital adequacy ratios. Excluding the change in the accumulated other comprehensive income, shareholders’ equity decreased $93.1 million from December 31, 2013.

United accrued $159,000 and $280,000, respectively, in dividends, including accretion of discounts, on Series B and Series D preferred stock in the first quarter of 2014. As of March 31, 2014, United no longer had any preferred stock outstanding.

On December 27, 2013, United redeemed $75 million of its $180 million in outstanding Series B Preferred Stock. The redemption price for shares of the Series B Preferred Stock called for redemption was the stated liquidation value of $1,000 per share, plus any accrued and unpaid dividends that had been earned thereon to, but not including, the redemption date. The remaining $105 million of United’s Series B Preferred Stock was redeemed on January 10, 2014 on comparable terms. United funded both redemptions by utilizing cash on hand, cash dividends from the Bank and short-term debt. On March 3, 2014, United redeemed all of its outstanding $16.6 million in Series D Preferred Stock for $16.6 million.

In 2010, United granted a warrant to Fletcher to purchase common stock equivalent junior preferred stock that would be convertible into 1,411,765 common shares, exercisable at a price equivalent to $21.25 per share (the “Warrant”). United has received purported partial warrant exercise notices from Fletcher with respect to the Warrant that include incorrect calculations of the number of settlement shares Fletcher would receive upon exercise. On June 17, 2011, United completed a reclassification of its common stock in the form of 1-for-5 reverse stock split, or recombination. United believes that any current exercise of the Warrant would not result in the issuance of any settlement shares because the Warrant may only be exercised for net shares via a cashless exercise formula, and the reverse stock split-adjusted market price component of that formula does not exceed the exercise price to yield any net shares. United responded to Fletcher with United’s calculations related to the Warrant.

On March 5, 2014, United announced that it and the Chapter 11 Trustee for Fletcher had agreed to settle all potential claims and counterclaims between them relating to or arising out of (i) their dispute concerning their respective rights and obligations under the Warrant and a Securities Purchase Agreement, dated April 1, 2010, between United and Fletcher (the “Securities Purchase Agreement”), and (ii) an Asset Purchase Agreement, dated April 1, 2010, between Fletcher International, Inc. and its affiliates (which are separate related entities of Fletcher not under its control) and United (the “Asset Purchase Agreement”). The transactions contemplated by the Securities Purchase Agreement, the Warrant and the Asset Purchase Agreement are referred to herein collectively as the “2010 Transactions”. United believes that the Fletcher settlement will finally resolve all remaining claims by Fletcher related to the 2010 Transactions and will terminate the warrants and all contractual obligations of United to Fletcher with respect to the 2010 Transactions.

Pursuant to the settlement, United has agreed to deliver 640,000 shares of its common stock and cash that, together with the common stock, will have a combined fair value of $12 million for the repurchase of the Warrant and to resolve all claims by Fletcher. The settlement amount was the approximate fair value of the Warrant at the time the settlement terms were agreed upon.

On March 25, 2014, the Company completed the sale of 640,000 shares of common stock and received approximately $12.2 million in net proceeds after discounts and expenses. The settlement agreement and the transactions contemplated thereby have been approved by the bankruptcy court but remain subject to an appeal.

The Federal Reserve has issued guidelines for the implementation of risk-based capital requirements by U.S. banks and bank holding companies. These risk-based capital guidelines take into consideration risk factors, as defined by regulators, associated with various categories of assets, both on and off-balance sheet. Under the guidelines, capital strength is measured in two tiers that are used in conjunction with risk-weighted assets to determine the risk-based capital ratios. The guidelines require an 8% total risk-based capital ratio, of which 4% must be Tier 1 capital. However, to be considered well-capitalized under the guidelines, a 10% total risk-based capital ratio is required, of which 6% must be Tier 1 capital.

Under the risk-based capital guidelines, assets and credit equivalent amounts of derivatives and off-balance sheet items are assigned to one of several broad risk categories based on the obligor, or the guarantor, if relevant, or the nature of the collateral. The aggregate dollar amount in each risk category is then multiplied by the risk weight associated with the category. The resulting weighted values from each of the risk categories are added together, and generally this sum is the company’s total risk weighted assets. Risk-weighted assets for purposes of United’s capital ratios are calculated under these guidelines.

A minimum leverage ratio is required in addition to the risk-based capital standards and is defined as Tier 1 capital divided by average assets adjusted for goodwill and deposit-based intangibles. Although a minimum leverage ratio of 3% is required, the Federal Reserve requires a bank holding company to maintain a leverage ratio greater than 3% if it is experiencing or anticipating significant growth or is operating with less than well-diversified risks in the opinion of the Federal Reserve. The Federal Reserve uses the leverage and risk-based capital ratios to assess capital adequacy of banks and bank holding companies.

United’s Tier 1 capital excludes other comprehensive income, and consists of shareholders’ equity and qualifying capital securities, less goodwill and deposit-based intangibles. Tier 2 capital components include supplemental capital items such as a qualifying allowance for loan losses and qualifying subordinated debt. Tier 1 capital plus Tier 2 capital components is referred to as Total Risk-Based capital.

The following table shows United’s capital ratios, as calculated under regulatory guidelines, at March 31, 2014, December 31, 2013 and March 31, 2013.

Table 14 - Capital Ratios
(dollars in thousands)
	Regulatory Guidelines						United Community Banks, Inc. (Consolidated)									United Community Bank
				Well			March 31,			December 31,			March 31,			March 31,			December 31,			March 31,
	Minimum			Capitalized			2014			2013			2013			2014			2013			2013
Risk-based ratios:
Tier I capital		4.0	%		6.0	%		11.05	%		12.74	%		14.31	%		12.64	%		13.55	%		14.72	%
Total capital		8.0			10.0			12.30			13.99			15.87			13.90			14.80			15.98
Leverage ratio		3.0			5.0			7.96			9.08			9.71			9.07			9.61			10.00

Tier I capital							$	571,418		$	649,162		$	663,415		$	650,609		$	686,687		$	681,843
Total capital								636,236			713,063			735,965			715,089			750,216			740,329

United’s common stock trades on the Nasdaq Global Select Market under the symbol “UCBI”. Below is a quarterly schedule of high, low and closing stock prices and average daily volume for 2014 and 2013.

Table 15 - Stock Price Information

	2014								2013
	High		Low		Close		Avg Daily Volume		High		Low		Close		Avg Daily Volume
First quarter	$	20.28	$	15.74	$	19.41		494,205	$	11.57	$	9.59	$	11.34		195,803
Second quarter										12.94		10.15		12.42		184,922
Third quarter										16.04		12.15		14.99		341,270
Fourth quarter										18.56		14.82		17.75		421,948

Effect of Inflation and Changing Prices

A bank’s asset and liability structure is substantially different from that of an industrial firm in that primarily all assets and liabilities of a bank are monetary in nature with relatively little investment in fixed assets or inventories. Inflation has an important effect on the growth of total assets and the resulting need to increase equity capital at higher than normal rates in order to maintain an appropriate equity to assets ratio.

United’s management believes the effect of inflation on financial results depends on United’s ability to react to changes in interest rates, and by such reaction, reduce the inflationary effect on performance. United has an asset/liability management program to manage interest rate sensitivity. In addition, periodic reviews of banking services and products are conducted to adjust pricing in view of current and expected costs.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

There have been no material changes in United’s quantitative and qualitative disclosures about market risk as of March 31, 2014 from that presented in the Annual Report on Form 10-K for the year ended December 31, 2013. The interest rate sensitivity position at March 31, 2014 is included in management’s discussion and analysis on page 53 of this report.

Item 4. Controls and Procedures

United’s management, including the Chief Executive Officer and Chief Financial Officer, supervised and participated in an evaluation of United’s disclosure controls and procedures as of March 31, 2014. Based on, and as of the date of that evaluation, United’s Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective in accumulating and communicating information to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures of that information under the SEC’s rules and forms and that the disclosure controls and procedures are designed to ensure that the information required to be disclosed in reports that are filed or submitted by United under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

There were no significant changes in the internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

Part II. Other Information

Item 1. Legal Proceedings

In the ordinary course of operations, United and the Bank are defendants in various legal proceedings. Additionally, in the ordinary course of business, United and the Bank are subject to regulatory examinations and investigations. Based on our current knowledge and advice of counsel, in the opinion of management there is no such pending or threatened legal matter in which an adverse decision could result in a material adverse change in the consolidated financial condition or results of operations of United.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in United’s Annual Report on Form 10-K for the year ended December 31, 2013.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds – None

Item 3. Defaults upon Senior Securities – None

Item 4. Mine Safety Disclosures – None

Item 5. Other Information – None

Item 6. Exhibits

Exhibit No.	Description

10.1	Form of Stock Option Award Agreement (Incentive Stock Option).

10.2	Form of Stock Option Award Agreement (Incentive Stock Option – Key Employee).

10.3	Form of Stock Option Award Agreement (Nonqualified Stock Option).

10.4	Form of Stock Option Award Agreement (Nonqualified Stock Option – Key Employee).

10.5	Form of Restricted Stock Unit Award Agreement.

10.6	Form of Restricted Stock Unit Award Agreement (Key Employee).

10.7	Form of Restricted Stock Unit Award Agreement (Key Employee – Retirement Eligible).

10.8	Form of Change in Control Severance Agreement.

31.1	Certification by Jimmy C. Tallent, President and Chief Executive Officer of United Community Banks, Inc., as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification by Rex S. Schuette, Executive Vice President and Chief Financial Officer of United Community Banks, Inc., as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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 COMMUNITY BANKS, INC.


	/s/ Jimmy C. Tallent
	Jimmy C. Tallent
	President and Chief Executive Officer
	(Principal Executive Officer)


	/s/ Rex S. Schuette
	Rex S. Schuette
	Executive Vice President and
	Chief Financial Officer
	(Principal Financial Officer)


	/s/ Alan H. Kumler
	Alan H. Kumler
	Senior Vice President and Controller
	(Principal Accounting Officer)

	Date: May 9, 2014

Exhibit 10.1

UNITED COMMUNITY BANKS, INC.

AMENDED AND RESTATED

2000 KEY EMPLOYEE STOCK OPTION PLAN

STOCK OPTION AWARD AGREEMENT

(Incentive Stock Option)


Optionee:

Number of Shares:			Shares

Option Exercise Price:

per Share


Date of Grant:

Vesting Schedule:		Per attached Optionee Statement referred to herein as “Exhibit B”

Territory:		Any county and any contiguous county and any metropolitan statistical area in which any of the Company’s subsidiary banks has an office as of the date hereof.

THIS AGREEMENT (the “Agreement”) is entered into as of the ______ day of____________, ________, by and between UNITED COMMUNITY BANKS, INC., a Georgia corporation (the “Company”), and the individual designated above (the “Optionee”).

WHEREAS, the United Community Banks, Inc. Amended and Restated 2000 Key Employee Stock Option Plan (the “Plan”) was adopted by the Company, effective March 15, 2007;

WHEREAS, the Optionee performs valuable services for the Company or a Subsidiary; and

WHEREAS, the Board of Directors of the Company or the committee responsible for the administration of the Plan has determined to grant the Option to the Optionee as provided herein;

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Grant of the Option.

1.1 Option. An option to purchase shares of the Company’s Common Stock, par value $1.00 per share (the “Shares”), is hereby granted to the Optionee (the “Option”).

1.2 Number of Shares. The number of Shares that the Optionee can purchase upon exercise of the Option is set forth above.

1.3 Option Exercise Price. The price the Optionee must pay to exercise the Option (the “Option Exercise Price”) is set forth above. The Option Exercise Price per Share may not be less than one hundred percent (100%) of the Fair Market Value of a Share on the Date of Grant (one hundred and ten percent (110%) of the Fair Market Value of a Share if the Participant owns (within the meaning of Section 424(d) of the Code) stock of the Company or any Subsidiary possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or Subsidiary).

1.4 Date of Grant. The date that the Option is granted (the “Date of Grant”) is set forth above.

1.5 Type of Option. Subject to Section 6.1 of the Plan, the Option is intended to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code; provided, however, that nothing in this Agreement shall be interpreted as a representation, guarantee or other undertaking on the part of the Company that the Option is or will be determined to be an Incentive Stock Option within the meaning of Section 422 of the Code. To the extent this Option is not treated as an Incentive Stock Option, it will be treated as a Nonqualified Stock Option. If the Option (including all other Options under the Plan and all other incentive stock options of the Company or any Subsidiary) are first exercisable in any calendar year for Shares having an aggregate Fair Market Value (determined as of the Date of Grant) that exceeds one hundred thousand dollars ($100,000), the Option shall be treated as a Nonqualified Stock Option to the extent required by Section 422 of the Code with respect to such excess Shares.

1.6 Construction. This Agreement shall be construed in accordance and consistent with, and subject to, the provisions of the Plan (the provisions of which are incorporated herein by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan.

1.7 Execution of Agreement. The Option is evidenced by this Agreement. If the Optionee does not execute this Agreement within thirty (30) days of receiving the Agreement, the Committee may in its discretion cancel the Option and this Agreement.

2. Duration.

The Option shall be exercisable to the extent and in the manner provided herein for a period of ten (10) years from the Date of Grant (five (5) years from the Date of Grant if the Participant owns (within the meaning of Section 424(d) of the Code) stock of the Company or any Subsidiary possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or Subsidiary) (the “Exercise Term”); provided, however, that the Exercise Term may end earlier as provided in Sections 5 and 13 hereof.

3. Vesting.

The Option shall vest and become exercisable in accordance with the vesting schedule specified in Exhibit B. The Optionee may exercise the Option to the extent it is vested during the Exercise Term, subject to any limitations on exercise contained in Section 7 hereof.

4. Manner of Exercise and Payment.

4.1 Delivery. To exercise the Option, the Optionee must deliver a completed copy of the Option Exercise Form, attached hereto as Exhibit A and incorporated herein by reference, to the address indicated on such Form or such other address designated by the Company from time to time. The Committee may establish a minimum number of Shares (e.g., 100) for which the Option may be exercised at a particular time. Contemporaneously with the delivery of the Option Exercise Form, the Optionee shall tender to the Company the aggregate Option Exercise Price for the Shares as to which the Optionee is exercising the Option by (i) cash, check, or wire transfer, (ii) delivering or properly attesting to ownership of Shares (that have been owned by the Optionee for such period as may be required by the Committee) with a Fair Market Value at the date of exercise equal to the aggregate Option Exercise Price for the Shares as to which the Optionee is exercising the Option, (iii) delivery of a proper notice electing a Net Exercise, (iv) a broker-assisted cashless exercise transaction through a brokerage firm designated by the Optionee, (v) such other method of payment as may be acceptable to the Committee pursuant to the Plan or (vi) any combination of the foregoing. The Company shall deliver to the Optionee certificates evidencing the Shares as to which the Option was exercised within thirty (30) days of the date on which the Optionee delivers the Option Exercise Form and makes payment of the aggregate Option Exercise Price to the Company or shall make such Shares available for electronic delivery in the U.S. to an account the Optionee designates in writing within three (3) business days after the date on which the Optionee delivers the Option Exercise Form and makes payment of the aggregate Option Exercise Price to the Company, and in either case such Shares shall be free and clear of all liens, security interests, pledges or other claims or charges, except those provided in this Agreement or the Plan, or any other agreement affecting the Shares. Notwithstanding the foregoing, if the Optionee is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, the Optionee may not exercise any Option prior to the date that is six (6) months after the Date of Grant unless the Optionee’s employment has terminated due to death, Disability, or Retirement or unless a Change in Control has occurred after the Date of Grant.

4.2 No Rights as Shareholder. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to any Shares subject to the Option until (i) the Option shall have been exercised pursuant to the terms of this Agreement and the Optionee shall have paid the full purchase price for the number of Shares in respect of which the Option was exercised, (ii) the Company shall have issued and delivered the Shares to the Optionee, and (iii) the Optionee’s name shall have been entered as a shareholder of record on the books of the Company, whereupon the Optionee shall have full voting and other ownership rights with respect to such Shares, subject to divestment pursuant to Section 13.

5. Termination of Employment.

5.1 Termination of Employment for Cause. If the Optionee’s employment is terminated by the Company for Cause, the outstanding Option shall expire immediately, and the Optionee’s right to exercise the outstanding Option (whether or not vested) shall terminate immediately upon the date of the Optionee’s termination of employment.

5.2 Termination of Employment by Death. In the event the Optionee dies while actively employed by the Company, the outstanding unvested portion of the Option shall immediately vest, and thereafter the Option shall remain exercisable at any time prior to its expiration date, or for one (1) year after the date of death, whichever period is shorter, (i) by such person(s) who have acquired the Optionee’s rights by will or the laws of descent and distribution, or (ii) if no such person in (i) exists, by the executor or representative of the Optionee’s estate.

5.3 Termination of Employment by Disability. In the event the employment of the Optionee with the Company is terminated by reason of Disability (as defined in the Plan), the outstanding unvested portion of the Option shall expire as of the date the employment of the Optionee is terminated by reason of Disability, and the outstanding vested portion of the Option as of that date shall remain exercisable at any time prior to its expiration date or for one (1) year after the termination of the Optionee’s employment by reason of Disability, whichever period is shorter.

5.4 Termination of Employment Without Cause or Voluntary Termination. If the Optionee’s employment with the Company is terminated involuntarily by the Company without Cause, or the Optionee voluntarily terminates his or her employment with the Company (including upon Retirement), the unvested portion of the Option shall expire, and the outstanding vested portion of the Option as of the date of termination of employment shall remain exercisable at any time prior to its expiration date or for three (3) months (one (1) year in the case of Retirement) after the date of termination of employment, whichever period is shorter.

5.5 Change In Control. If a Change in Control (as defined in the Plan) occurs during the term of this Agreement and Optionee’s employment is terminated within six (6) months prior to or eighteen (18) months following the date of the Change in Control, and if such termination is an involuntary termination by the Company without Cause (as defined in the Plan), and does not arise as a result of Executive’s death or Disability (as defined in the Plan), or a termination by Optionee for Good Reason, the unvested portion of the Option shall fully vest immediately upon the Change in Control and become immediately exercisable. The Option shall remain exercisable in accordance with the other provisions of this Agreement, provided that, notwithstanding the other provisions of this Agreement, the Option shall remain exercisable at any time prior to its expiration date or for a period of one (1) year after the date of termination of employment, whichever period is shorter.

For purposes of this Section 5.5, a “Good Reason” for termination by Optionee of Optionee’s employment shall mean the occurrence (without the Optionee’s express written consent), within six (6) months prior to or eighteen (18) months following the date of the Change in Control, of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraphs (i), (iii), or (iv) below, such

act or failure to act is corrected prior to the date of termination specified in the notice of termination given in respect thereof:

(i) the substantial adverse change in Optionee’s responsibilities at the Company from those in effect immediately prior to the date that is six (6) months prior to the date of a Change in Control (the “Measurement Date”);

(ii) the required relocation of Optionee to a location outside of the market area of the Company on the Measurement Date;

(iii) a material reduction from those in effect on the Measurement Date in the levels of coverage of Optionee under the Company’s director and officer liability insurance policy or indemnification commitments; or

(iv) after the Measurement Date, a reduction in Optionee’s base salary, a reduction in his incentive compensation or the failure by the Company to continue to provide Optionee with benefits substantially similar to those enjoyed by Optionee under any of the Company’s pension, deferred compensation, life insurance, medical, health and accident or disability plans in which Optionee was participating at the Measurement Date, the taking of any action by the Company which would directly or indirectly reduce any of such benefits or deprive Optionee of any material fringe benefit enjoyed by Optionee at the Measurement Date.

Optionee’s right to terminate the Optionee’s employment for Good Reason shall not be affected by the Optionee’s incapacity due to physical or mental illness, except for a Disability. Optionee’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.

5.6 Employment by Subsidiary. For purposes of this Section and Sections 8 and 13, employment with the Company includes employment with any Subsidiary and service as a member of the Board of Directors of the Company or a Subsidiary. A change of employment between the Company and any Subsidiary or between Subsidiaries or a change in the nature of the Optionee’s service relationship with the Company and the Subsidiaries (e.g., from employee to Director or Director to employee) without any interruption in the Optionee’s provision of services is not a termination of employment under this Agreement.

6. Nontransferability.

7. Securities Laws Restrictions.

The Option may not be exercised at any time unless, in the opinion of counsel for the

Company, the issuance and sale of the Shares issued upon such exercise is exempt from registration under the Securities Act of 1933, as amended, or any other applicable federal or state securities law, rule or regulation, or the Shares have been duly registered under such laws. The Company intends to register the Shares issuable upon the exercise of the Option; however, until the Shares have been registered under all applicable laws, the Optionee shall represent, warrant and agree, as a condition to the exercise of any Option, that the Shares are being purchased for investment only and without a view to any sale or distribution of such Shares and that such Shares shall not be transferred or disposed of in any manner without registration under such laws, unless it is the opinion of counsel for the Company that such a disposition is exempt from such registration. The Optionee acknowledges that an appropriate legend giving notice of the foregoing restrictions may appear conspicuously on all certificates evidencing the Shares issued upon the exercise of the Option.

8. No Right to Continued Employment.

Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Optionee any right with respect to continuance of employment by the Company, nor shall this Agreement or the Plan interfere in any way with the right of the Company to terminate the Optionee’s employment at any time.

9. Adjustments; Company Transactions.

9.1 In the event of a change in capitalization, the Committee shall make appropriate adjustments in accordance with the provisions of Section 4.3 of the Plan. The adjustment shall be effective and final, binding and conclusive for all purposes of the Plan and this Agreement.

9.2 In the event of a proposed sale of all or substantially all of the assets or stock of the Company, the merger of the Company with or into another corporation such that shareholders of the Company immediately prior to the merger exchange their Shares of stock in the Company for cash and/or shares of another entity or any other Change in Control or corporate transaction to which the Committee deems this provision applicable (any such event is referred to as a “Transaction”), the Committee may, in its discretion, without consent of the Optionee:

(i) cause the Option to be assumed, or arrange for the substitution, in exchange for the Option, of options to purchase equity securities other than Shares (including, if appropriate, equity securities of an entity other than the Company), on such terms and conditions as the Committee determines are appropriate;

(ii) accelerate the vesting of or right to exercise the Option, in whole or in part, immediately prior to or in connection with the closing or completion of any such Transaction, and cause the expiration of the Option to the extent not vested, or not timely exercised or purchased by the date of the closing or completion of any such Transaction or other date thereafter designated by the Committee; or

thereof being canceled (an Option whose purchase price equals or exceeds the Fair Market Value of the Shares may be canceled without any payment therefor).

10. Withholding of Taxes.

10.1 Prior to the issuance of Shares to the Optionee upon exercise of the Option, the Optionee shall pay the federal, state, and local income taxes and other amounts as may be required by law to be withheld (the “Withholding Taxes”) (if any) to the Company in cash or by check or wire transfer. In satisfaction of the Withholding Taxes, the Optionee may make a written election (the “Tax Election”) to satisfy such withholding obligation by a broker-assisted cashless exercise transaction through a brokerage firm designated by the Optionee, by delivering Shares (that have been owned by the Optionee for such period as may be required by the Committee) or by having the Company retain from the Shares to be delivered a number of Shares having an aggregate Fair Market Value equal to the Withholding Taxes, provided that, if the Optionee may be subject to liability under Section 16(b) of the Exchange Act, the election must comply with the requirements applicable to Share transactions by the Optionee, and Shares may only be used to pay the minimum required withholdings. The Company shall have the right to deduct from any amounts payable to the Optionee for salary, bonuses or otherwise an amount equal to Withholding Taxes with respect to the Option.

10.2 If the Optionee makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to him pursuant to his exercise of the Option within the two-year period commencing on the day after the Date of Grant or within the one-year period commencing on the day after the date of transfer of such Share or Shares to the Optionee pursuant to such exercise, the Optionee shall, within ten (10) days of such disposition, notify the Company thereof, by delivery of written notice to the Company at its principal executive office, and immediately deliver to the Company the amount of Withholding Taxes (if any).

11. Optionee Bound by the Plan.

The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof.

12. Modification of Agreement.

Except as expressly otherwise provided herein, this Agreement may not be modified, amended, suspended or terminated, and any terms or conditions may not be waived, except by a written instrument executed by the parties hereto.

13. Cancellation and Rescission of Awards; Return of Profits.

during the period six (6) months prior to and one (1) year after the Date of Termination at a per Share repurchase price equal to the Option Exercise Price, and require the Optionee to pay to the Company any gain realized by Optionee from the sale of Shares issued to the Optionee pursuant to exercise of the Option during such period.

13.2 The Optionee will not directly or indirectly, individually, or on behalf of any Person other than the Company or a Subsidiary:

(i) solicit any Customers for the purpose of providing services identical to or reasonably substitutable for the Company’s Business;

(ii) solicit or induce, or in any manner attempt to solicit or induce, any Person employed by the Company to leave such employment, whether or not such employment is pursuant to a written contract with the Company or any Subsidiary or is at will;

(iii) engage in any Restricted Activities within the Territory or from a business location servicing any part of the Territory;

(iv) manage any personnel engaging in any Restricted Activities within the Territory; or

(v) knowingly or intentionally damage or destroy the goodwill and esteem of the Company, any Subsidiary, the Company’s Business or the Company’s or any Subsidiary’s suppliers, employees, patrons, customers , and others who may at any time have or have had relations with the Company or any Subsidiary.

The Optionee further agrees that he or she will not, except as necessary to carry out his duties as an employee of the Company, disclose or use Confidential Information. The Optionee further agrees that, upon termination or expiration of employment with the Company for any reason whatsoever or at any time, the Optionee will upon request by the Company deliver promptly to the Company all materials (including electronically-stored materials), documents, plans, records, notes, or other papers, and any copies in the Optionee’s possession or control, relating in any way to the Company’s Business, which at all times shall be the property of the Company.

13.3 For purposes of this Section 13, the following terms shall have the meanings specified below:

(i) “Company’s Business” means the business of operating a commercial or retail bank, savings association, mutual thrift, credit union, trust company, securities brokerage or insurance agency.

identifying information about customers), whether or not in writing. Confidential Information includes information disclosed to the Company or any Subsidiary by third parties that the Company or any Subsidiary is obligated to maintain as confidential. Confidential Information subject to this Agreement may include information that is not a trade secret under applicable law, but information not constituting a trade secret only shall be treated as Confidential Information under this Agreement for a two (2) year period after the Date of Termination.

(iii) “Customers” means all Persons that (1) the Optionee serviced or solicited on behalf of the Company or any Subsidiary, (2) whose dealings with the Company or any Subsidiary were coordinated or supervised, in whole or in part, by the Optionee, or (3) about whom the Optionee obtained Confidential Information, in each case during the term of this Agreement or while otherwise employed by the Company.

(iv) “Date of Termination” means the date upon which the Optionee’s employment with the Company ceases for any reason.

(v) “Person” means any individual, corporation, bank, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or other entity.

(vi) “Restricted Activities” means serving as a director, officer, executive, manager, employee or business consultant for a commercial or retail bank, savings association, mutual thrift, credit union, trust company, securities brokerage or insurance agency.

14. Severability; Scope of Restrictions.

Should any provision of this Agreement, including Section 13, be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms. If any court of competent jurisdiction shall determine that the restrictions set forth in any provision of Section 13 are overbroad or unreasonable as applied to Optionee, the parties hereto acknowledge their mutual intention and agreement that those restrictions be enforced to the fullest extent the court deems reasonable, and the Agreement shall be modified to that extent.

15. Governing Law.

The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the United States and the laws of the State of Georgia without giving effect to the conflicts of laws principles thereof.

16. Successors in Interest.

This Agreement shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and, subject to Section 9.2, upon any person acquiring, whether by merger, consolidation, reorganization, purchase of stock or assets, or otherwise, all or substantially all of the Company’s assets and business. This Agreement shall inure to the benefit of the Optionee’s heirs and legal representatives. All obligations imposed upon the Optionee and all rights granted to the Company under this Agreement shall be final, binding and conclusive upon the Optionee’s heirs,

executors, administrators and successors.

17. Entire Agreement.

18. Resolution of Disputes.

18.1 Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement and the Plan shall be determined by the Committee. Any determination made by the Committee shall be final, binding and conclusive on the Optionee and the Company and their successors, assigns, heirs, executors, administrators and legal representatives for all purposes.

18.2 To the extent permitted by applicable law, any dispute, disagreement or claim which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement or the Plan, any breach hereof or thereof, or relating to the enforcement or arbitrability of any provision hereof or thereof, shall be settled by binding arbitration in Atlanta, Georgia by the American Arbitration Association. Judgment on the arbitrator’s award shall be final and may be entered in any court having jurisdiction thereof. Except as may otherwise be determined by the arbitrator(s), each party shall be solely responsible for any expenses (including attorneys’ fees and disbursements, court costs and expert witness fees) incurred by it or on its behalf in investigating and enforcing any rights under this Agreement, and each party shall bear one-half of the fees and expenses of the arbitrator(s) in connection with any arbitration or other proceeding.

18.3 THIS AGREEMENT CONTAINS AN ARBITRATION CLAUSE. BY SIGNING THIS AGREEMENT, THE PARTIES AGREE THAT EACH PARTY TO THIS AGREEMENT IS GIVING UP THE RIGHT TO SUE THE OTHER PARTY IN COURT, INCLUDING THE RIGHT TO A TRIAL BY JURY. ARBITRATION AWARDS ARE GENERALLY FINAL AND BINDING; A PARTY’S ABILITY TO HAVE A COURT REVERSE OR MODIFY AN ARBITRATION AWARD IS VERY LIMITED. THE ABILITY OF THE PARTIES TO OBTAIN DOCUMENTS, WITNESS STATEMENTS AND OTHER DISCOVERY IS GENERALLY MORE LIMITED IN ARBITRATION THAN IN COURT PROCEEDINGS. THE ARBITRATOR(S) DO NOT HAVE TO EXPLAIN THE REASON(S) FOR THEIR AWARD. THE ARBITRATION RULES MAY IMPOSE TIME LIMITS FOR BRINGING A CLAIM IN ARBITRATION. IN SOME CASES, A CLAIM THAT IS INELIGIBLE FOR ARBITRATION COULD HAVE OTHERWISE BEEN BROUGHT IN COURT.

19. Legal Construction.

The legal construction and interpretation of this Agreement (including, but not limited to, issues of gender, plural or singular, governing law and severability) shall be governed by the

provisions of Article 19 of the Plan.

20. Section 409A.

This Option is intended to be exempt from the requirements of Section 409A of the Internal Revenue Code of 1986, as amended and the standards, regulations or other guidance promulgated hereunder (“Section 409A”). Any action that may be taken (and, to the extent possible, any action actually taken) by the Company shall not be taken (or shall be void and without effect), if such action results in the Option becoming subject to and violating the requirements of Section 409A. Any provision in this Agreement that is determined to result in the Option becoming subject to and violating the requirements of Section 409A shall be void and without effect. In addition, any provision that is required to appear in this Agreement to conform the Option’s exemption from Section 409A that is not expressly set forth herein shall be deemed to be set forth herein, and the Agreement shall be administered in all respects as if such provision were expressly set forth.

[EXECUTION PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.


	UNITED COMMUNITY BANKS, INC.

	By:

	Name:

	Title:

By signing below, the Optionee hereby accepts the Option subject to all its terms and provisions and agrees to be bound by the terms and provisions of this Agreement and the Plan. The Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board of Directors of the Company, or the Compensation Committee or other Committee responsible for the administration of the Plan, upon any questions arising under the Plan. The Optionee authorizes the Company to withhold, in accordance with applicable law, from any compensation payable to him or her, any taxes required to be withheld by federal, state, local or foreign law as a result of the grant, existence or exercise of the Option, or subsequent sale of the Shares.


	OPTIONEE

	By:

	Name:

[EXHIBITS FOLLOW]

Exhibit 10.2

UNITED COMMUNITY BANKS, INC.

AMENDED AND RESTATED

2000 KEY EMPLOYEE STOCK OPTION PLAN

STOCK OPTION AWARD AGREEMENT

(Incentive Stock Option – Key Employee)


Optionee:


Number of Shares:			Shares


Option Exercise Price:	$		per Share


Date of Grant:

Vesting Schedule:	Per attached Optionee Statement referred to herein as “Exhibit B”

Territory:	Any county and any contiguous county and any metropolitan statistical area in which any of the Company’s subsidiary banks has an office as of the date hereof.

THIS AGREEMENT (the “Agreement”) is entered into as of the ___ day of ________________, _______, by and between UNITED COMMUNITY BANKS, INC., a Georgia corporation (the “Company”), and the individual designated above (the “Optionee”).

WHEREAS, the United Community Banks, Inc. Amended and Restated 2000 Key Employee Stock Option Plan (the “Plan”) was adopted by the Company, effective March 15, 2007;

WHEREAS, the Optionee performs valuable services for the Company or a Subsidiary; and

WHEREAS, the Board of Directors of the Company or the committee responsible for the administration of the Plan has determined to grant the Option to the Optionee as provided herein;

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Grant of the Option.

1.1 Option. An option to purchase shares of the Company’s Common Stock, par value $1.00 per share (the “Shares”), is hereby granted to the Optionee (the “Option”).

1.2 Number of Shares. The number of Shares that the Optionee can purchase upon exercise of the Option is set forth above.

1.4 Date of Grant. The date that the Option is granted (the “Date of Grant”) is set forth above.

2. Duration.

3. Vesting.

4. Manner of Exercise and Payment.

5. Termination of Employment.

5.1 Termination of Employment for Cause. If the Optionee’s employment is terminated by the Company for Cause, the outstanding Option shall expire immediately, and the Optionee’s right to exercise the outstanding Option (whether vested or not vested) shall terminate immediately upon the date of the Optionee’s termination of employment.

5.2 Termination of Employment Without Cause or For Good Reason.

(1) If the Optionee’s employment with the Company is terminated involuntarily by the Company without Cause or is terminated by the Optionee for Good Reason (as defined in subsection (2) below), the Option shall continue to vest in accordance with the original vesting schedule set forth in this Agreement (just as if the Optionee had remained employed) and shall remain exercisable at any time prior to the expiration of the term of the Option. In the event of the Optionee’s death after a termination covered by this subsection 5.2, the Option shall continue to vest and be exercisable in accordance with this subsection 5.2 as if the Optionee had lived and the Option shall be exercisable by the persons described in Section 5.4.

(2) For purposes of this Option, the Optionee shall be entitled to terminate his employment with the Company for Good Reason in the event, without the Optionee’s express written consent, of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraphs (i), (iii), or (iv) below, such act or failure to act is corrected prior to the Optionee’s date of termination:

(i) a material reduction in the Optionee’s responsibilities at the Company; or

(ii) the required relocation of the Optionee’s employment to a location outside of the market area of the Company; or

(iii) a material reduction in the levels of coverage of the Optionee under the Company’s director and officer liability insurance policy or indemnification commitments; or

(iv) a substantial reduction in the Optionee’s base salary, a material reduction in his incentive compensation or the taking of any action by the Company which would, directly or indirectly, materially reduce any of the benefits provided to the Optionee under any of the Company’s pension, 401(k) deferred compensation, life insurance, medical, accident or disability plans in which the Optionee is participating.

The Optionee’s right to terminate employment for Good Reason shall not be affected by the Optionee’s incapacity due to physical or mental illness, except for a Disability as defined in the Plan. The Optionee’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.

5.3 Termination of Employment Following a Change in Control When Eligible for Retirement. If the Optionee’s employment with the Company is terminated following a Change in Control and the Optionee is eligible for Retirement as of the date of such termination, the outstanding unvested portion of the Option shall immediately vest and the Option shall remain exercisable at any time prior to the expiration of the term of the Option.

5.4 Termination of Employment Due to Death. If the Optionee dies while actively employed by the Company, the outstanding unvested portion of the Option shall immediately vest, and thereafter the Option shall remain exercisable at any time prior to its expiration date or for one (1) year after the date of death, whichever period is shorter, (i) by such person(s) who have acquired the Optionee’s rights by will or the laws of descent and distribution, or (ii) if no such person in (i) exists, by the executor or representative of the Optionee’s estate.

5.5 Termination of Employment by Disability. In the event the employment of the Optionee with the Company is terminated by reason of Disability (as defined in the Plan), the outstanding unvested portion of the Option shall expire as of the date the employment of the Optionee is terminated by reason of Disability, and the outstanding vested portion of the Option as of that date shall remain exercisable at any time prior to its expiration date, or for one (1) year after the termination of the Optionee’s employment by reason of Disability, whichever period is shorter.

5.6 Voluntary Termination of Employment or Retirement. If the Optionee voluntarily terminates his or her employment with the Company (except for Good Reason), including upon Retirement that does not follow a Change in Control, the outstanding unvested portion of the Option shall expire as of the date of termination of employment, and the vested portion of the Option as of the date of termination of employment shall remain exercisable (i) if the Optionee is not eligible for Retirement as of the date of such termination, at any time prior to its expiration date or for three (3) months after the date of termination of employment, whichever period is shorter, or (ii) if the Optionee is eligible for Retirement as of the date of such termination, at any time prior to its expiration date.

5.7 Employment by Subsidiary. For purposes of this Section and Sections 8 and 13, employment with the Company includes employment with any Subsidiary and service as a member of the Board of Directors of the Company or a Subsidiary. A change of employment between the Company and any Subsidiary or between Subsidiaries or a change in the nature of the Optionee’s service relationship with the Company and the Subsidiaries (e.g., from employee to Director or Director to employee) without any interruption in the Optionee’s provision of services is not a termination of employment under this Agreement.

6. Nontransferability.

7. Securities Laws Restrictions.

The Option may not be exercised at any time unless, in the opinion of counsel for the Company, the issuance and sale of the Shares issued upon such exercise is exempt from registration under the Securities Act of 1933, as amended, or any other applicable federal or state securities law, rule or regulation, or the Shares have been duly registered under such laws. The Company intends to register the Shares issuable upon the exercise of the Option; however, until the Shares have been registered under all applicable laws, the Optionee shall represent, warrant and agree, as a condition to the exercise of any Option, that the Shares are being purchased for investment only and without a view to any sale or distribution of such Shares and that such Shares shall not be transferred or disposed of in any manner without registration under such laws, unless it is the opinion of counsel for the Company that such a disposition is exempt from such registration. The Optionee acknowledges that an appropriate legend giving notice of the foregoing restrictions may appear conspicuously on all certificates evidencing the Shares issued upon the exercise of the Option.

8. No Right to Continued Employment.

9. Adjustments; Company Transactions.

(iii) cancel or arrange for the cancellation of all or any portion of the Option in exchange for a cash payment of the excess, if any, of the Fair Market Value of the Shares or portion thereof being canceled over the purchase price with respect to the Option or portion thereof being canceled (an Option whose purchase price equals or exceeds the Fair Market Value of the Shares may be canceled without any payment therefor).

10. Withholding of Taxes.

11. Optionee Bound by the Plan.

The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof.

12. Modification of Agreement.

13. Cancellation and Rescission of Awards; Return of Profits.

vested), and (ii) repurchase any Shares issued to the Optionee pursuant to exercise of the Option during the period six (6) months prior to and one (1) year after the Date of Termination at a per Share repurchase price equal to the Option Exercise Price, and require the Optionee to pay to the Company any gain realized by Optionee from the sale of Shares issued to the Optionee pursuant to exercise of the Option during such period.

13.2 The Optionee will not directly or indirectly, individually, or on behalf of any Person other than the Company or a Subsidiary:

(i) solicit any Customers for the purpose of providing services identical to or reasonably substitutable for the Company’s Business;

(iii) engage in any Restricted Activities within the Territory or from a business location servicing any part of the Territory;

(iv) manage any personnel engaging in any Restricted Activities within the Territory; or

13.3 For purposes of this Section 13, the following terms shall have the meanings specified below:

(i) “Company’s Business” means the business of operating a commercial or retail bank, savings association, mutual thrift, credit union, trust company, securities brokerage or insurance agency.

patterns, compilations (including compilations of customer information), programs, devices, methods, techniques, processes, financial data or lists of actual or potential customers (including identifying information about customers), whether or not in writing. Confidential Information includes information disclosed to the Company or any Subsidiary by third parties that the Company or any Subsidiary is obligated to maintain as confidential. Confidential Information subject to this Agreement may include information that is not a trade secret under applicable law, but information not constituting a trade secret only shall be treated as Confidential Information under this Agreement for a two (2) year period after the Date of Termination.

(iv) “Date of Termination” means the date upon which the Optionee’s employment with the Company ceases for any reason.

(v) “Person” means any individual, corporation, bank, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or other entity.

14. Severability; Scope of Restrictions.

15. Governing Law.

16. Successors in Interest.

17. Entire Agreement.

18. Resolution of Disputes.

IMPOSE TIME LIMITS FOR BRINGING A CLAIM IN ARBITRATION. IN SOME CASES, A CLAIM THAT IS INELIGIBLE FOR ARBITRATION COULD HAVE OTHERWISE BEEN BROUGHT IN COURT.

19. Legal Construction.

The legal construction and interpretation of this Agreement (including, but not limited to, issues of gender, plural or singular, governing law and severability) shall be governed by the provisions of Article 19 of the Plan.

20. Section 409A.

[EXECUTION PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.


	UNITED COMMUNITY BANKS, INC.

	By:

	Name:

	Title:


	OPTIONEE

	By:

	Name:

[EXHIBITS FOLLOW]

Exhibit 10.3

UNITED COMMUNITY BANKS, INC.

AMENDED AND RESTATED

2000 KEY EMPLOYEE STOCK OPTION PLAN

STOCK OPTION AWARD AGREEMENT

(Nonqualified Stock Option)


Optionee:


Number of Shares:


Option Exercise Price:	$		per Share


Date of Grant:

Vesting Schedule:	Per attached Optionee Statement referred to herein as “Exhibit B”

Territory:	Any county and any contiguous county and any metropolitan statistical area in which any of the Company’s subsidiary banks has an office as of the date hereof.

THIS AGREEMENT (the “Agreement”) is entered into as of the ____ day of________________, by and between UNITED COMMUNITY BANKS, INC., a Georgia corporation (the “Company”), and the individual designated above (the “Optionee”).

WHEREAS, the United Community Banks, Inc. Amended and Restated 2000 Key Employee Stock Option Plan (the “Plan”) was adopted by the Company, effective March 15, 2007;

WHEREAS, the Optionee performs valuable services for the Company or a Subsidiary; and

WHEREAS, the Board of Directors of the Company or the committee responsible for the administration of the Plan has determined to grant the Option to the Optionee as provided herein;

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Grant of the Option.

1.1 Option. An option to purchase shares of the Company’s Common Stock, par value $1.00 per share (the “Shares”), is hereby granted to the Optionee (the “Option”).

1.2 Number of Shares. The number of Shares that the Optionee can purchase upon exercise of the Option is set forth above.

1.4 Date of Grant. The date that the Option is granted (the “Date of Grant”) is set forth above.

1.5 Type of Option. The Option is intended to be a Nonqualified Stock Option. It is not intended to qualify as an Incentive Stock Option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended from time to time, or any successor provision thereto.

2. Duration.

The Option shall be exercisable to the extent and in the manner provided herein for a period of ten (10) years from the Date of Grant (the “Exercise Term”); provided, however, that the Exercise Term may end earlier as provided in Sections 5 and 13 hereof.

3. Vesting.

4. Manner of Exercise and Payment.

such period as may be required by the Committee) with a Fair Market Value at the date of exercise equal to the aggregate Option Exercise Price for the Shares as to which the Optionee is exercising the Option, (iii) delivery of a proper notice electing a Net Exercise, (iv) a broker-assisted cashless exercise transaction through a brokerage firm designated by the Optionee, (iv) such other method of payment as may be acceptable to the Committee pursuant to the Plan or (vi) any combination of the foregoing. The Company shall deliver to the Optionee certificates evidencing the Shares as to which the Option was exercised within thirty (30) days of the date on which the Optionee delivers the Option Exercise Form and makes payment of the aggregate Option Exercise Price to the Company or shall make such Shares available for electronic delivery in the U.S. to an account the Optionee designates in writing within three (3) business days after the date on which the Optionee delivers the Option Exercise Form and makes payment of the aggregate Option Exercise Price to the Company, and in either case such Shares shall be free and clear of all liens, security interests, pledges or other claims or charges, except those provided in this Agreement or the Plan, or any other agreement affecting the Shares. Notwithstanding the foregoing, if the Optionee is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, the Optionee may not exercise any Option prior to the date that is six (6) months after the Date of Grant unless the Optionee’s employment has terminated due to death, Disability, or Retirement or unless a Change in Control has occurred after the Date of Grant.

5. Termination of Employment.

Optionee is terminated by reason of Disability, and the outstanding vested portion of the Option as of that date shall remain exercisable at any time prior to its expiration date or for one (1) year after the termination of the Optionee’s employment by reason of Disability, whichever period is shorter.

(ii) the required relocation of Optionee to a location outside of the market area of the Company on the Measurement Date;

(iv) after the Measurement Date, a reduction in Optionee’s base salary, a reduction in his incentive compensation or the failure by the Company to continue to

provide Optionee with benefits substantially similar to those enjoyed by Optionee under any of the Company’s pension, deferred compensation, life insurance, medical, health and accident or disability plans in which Optionee was participating at the Measurement Date, the taking of any action by the Company which would directly or indirectly reduce any of such benefits or deprive Optionee of any material fringe benefit enjoyed by Optionee at the Measurement Date.

5.6 Employment by Subsidiary. For purposes of this Section 5 and Sections 8 and 13, employment with the Company includes employment with any Subsidiary and service as a member of the Board of Directors of the Company or a Subsidiary. A change of employment between the Company and any Subsidiary or between Subsidiaries or a change in the nature of the Optionee’s service relationship with the Company and the Subsidiaries (e.g., from employee to Director or Director to employee) without any interruption in the Optionee’s provision of services is not a termination of employment under this Agreement.

6. Nontransferability.

The Option shall not be transferable other than by will or by the laws of descent and distribution, and, during the lifetime of the Optionee, the Option shall be exercisable only by the Optionee except as provided in Section 5.2. Notwithstanding the foregoing, any portion or all of the Option which is vested may be transferred, in whole or in part, without consideration, to another person or entity to the extent permitted by the Plan (a “Permitted Transferee”). Appropriate evidence of any such transfer to the Permitted Transferees shall be delivered to the Company on such forms as the Committee or Company shall prescribe and shall comply with and indicate the Optionee’s (if during the lifetime of the Optionee) and the Permitted Transferee’s agreement to abide by the Company’s then current stock option transfer guidelines. If all or part of the Option is transferred to a Permitted Transferee, the Permitted Transferee shall remain subject to all terms and conditions applicable to such Option prior to the transfer.

7. Securities Laws Restrictions.

for the Company that such a disposition is exempt from such registration. The Optionee acknowledges that an appropriate legend giving notice of the foregoing restrictions may appear conspicuously on all certificates evidencing the Shares issued upon the exercise of the Option.

8. No Right to Continued Employment.

9. Adjustments; Company Transactions.

10. Withholding of Taxes.

Prior to the issuance of Shares to the Optionee upon exercise of the Option, the Optionee shall pay the federal, state, and local income taxes and other amounts as may be required by law to be withheld (the “Withholding Taxes”) (if any) to the Company in cash or by check or wire

transfer. In satisfaction of the Withholding Taxes, the Optionee may make a written election (the “Tax Election”) to satisfy such withholding obligation by a broker-assisted cashless exercise transaction through a brokerage firm designated by the Optionee, by delivering Shares (that have been owned by the Optionee for such period as may be required by the Committee) or by having the Company retain from the Shares to be delivered a number of Shares having an aggregate Fair Market Value equal to the Withholding Taxes, provided that, if the Optionee may be subject to liability under Section 16(b) of the Exchange Act, the election must comply with the requirements applicable to Share transactions by the Optionee, and Shares may only be used to pay the minimum required withholdings. The Company shall have the right to deduct from any amounts payable to the Optionee for salary, bonuses or otherwise an amount equal to Withholding Taxes with respect to the Option.

11. Optionee Bound by the Plan.

The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof.

12. Modification of Agreement.

13. Cancellation and Rescission of Awards; Return of Profits.

13.1 If, during his employment with the Company or at any time during the one (1) year period after the Date of Termination, the Optionee violates the restrictive covenants set forth in Section 13.2 below, then the Committee shall, notwithstanding any other provision in this Agreement to the contrary, (i) cancel any outstanding portion of the Option (whether or not vested), and (ii) repurchase any Shares issued to the Optionee pursuant to exercise of the Option during the period six (6) months prior to and one (1) year after the Date of Termination at a per Share repurchase price equal to the Option Exercise Price, and require the Optionee to pay to the Company any gain realized by Optionee from the sale of Shares issued to the Optionee pursuant to exercise of the Option during such period.

13.2 The Optionee will not directly or indirectly, individually, or on behalf of any Person other than the Company or a Subsidiary:

(i) solicit any Customers for the purpose of providing services identical to or reasonably substitutable for the Company’s Business;

(iii) engage in any Restricted Activities within the Territory or from a business location servicing any part of the Territory;

(iv) manage any personnel engaging in any Restricted Activities within the Territory; or

13.3 For purposes of this Section 13, the following terms shall have the meanings specified below:

(i) “Company’s Business” means the business of operating a commercial or retail bank, savings association, mutual thrift, credit union, trust company, securities brokerage or insurance agency.

(ii) “Confidential Information” means information, without regard to form, relating to the Company’s or any Subsidiary’s customers, operation, finances, and business that derives economic value, actual or potential, from not being generally known to other Persons, including, but not limited to, technical or non-technical data (including personnel data), formulas, patterns, compilations (including compilations of customer information), programs, devices, methods, techniques, processes, financial data or lists of actual or potential customers (including identifying information about customers), whether or not in writing. Confidential Information includes information disclosed to the Company or any Subsidiary by third parties that the Company or any Subsidiary is obligated to maintain as confidential. Confidential Information subject to this Agreement may include information that is not a trade secret under applicable law, but information not constituting a trade secret only shall be treated as Confidential Information under this Agreement for a two (2) year period after the Date of Termination.

(iv) “Date of Termination” means the date upon which the Optionee’s employment with the Company ceases for any reason.

(v) “Person” means any individual, corporation, bank, partnership, joint

venture, association, joint-stock company, trust, unincorporated organization or other entity.

14. Severability; Scope of Restrictions.

15. Governing Law.

16. Successors in Interest.

17. Entire Agreement. This Agreement and the Plan contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and supersede all prior communications, representations and negotiations in respect thereto.

18. Resolution of Disputes.

enforcement or arbitrability of any provision hereof or thereof, shall be settled by binding arbitration in Atlanta, Georgia by the American Arbitration Association. Judgment on the arbitrator’s award shall be final and may be entered in any court having jurisdiction thereof. Except as may otherwise be determined by the arbitrator(s), each party shall be solely responsible for any expenses (including attorneys’ fees and disbursements, court costs and expert witness fees) incurred by it or on its behalf in investigating and enforcing any rights under this Agreement, and each party shall bear one-half of the fees and expenses of the arbitrator(s) in connection with any arbitration or other proceeding.

19. Legal Construction.

20. Section 409A.

[EXECUTION PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

	UNITED COMMUNITY BANKS, INC.

	By:

	Name:

	Title:

	OPTIONEE

	By:

	Name:

Exhibit 10.4

UNITED COMMUNITY BANKS, INC.

AMENDED AND RESTATED

2000 KEY EMPLOYEE STOCK OPTION PLAN

STOCK OPTION AWARD AGREEMENT

(Nonqualified Stock Option – Key Employee)


Optionee:


Number of Shares:			Shares


Option Exercise Price:	$		per Share


Date of Grant:

Vesting Schedule:	Per attached Optionee Statement referred to herein as “Exhibit B”

Territory:	Any county and any contiguous county and any metropolitan statistical area in which any of the Company’s subsidiary banks has an office as of the date hereof.

THIS AGREEMENT (the “Agreement”) is entered into as of the ____ day of ______________, _______, by and between UNITED COMMUNITY BANKS, INC., a Georgia corporation (the “Company”), and the individual designated above (the “Optionee”).

WHEREAS, the United Community Banks, Inc. Amended and Restated 2000 Key Employee Stock Option Plan (the “Plan”) was adopted by the Company, effective March 15, 2007;

WHEREAS, the Optionee performs valuable services for the Company or a Subsidiary; and

WHEREAS, the Board of Directors of the Company or the committee responsible for the administration of the Plan has determined to grant the Option to the Optionee as provided herein;

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Grant of the Option.

1.1 Option. An option to purchase shares of the Company’s Common Stock, par value $1.00 per share (the “Shares”), is hereby granted to the Optionee (the “Option”).

1.2 Number of Shares. The number of Shares that the Optionee can purchase upon

exercise of the Option is set forth above.

1.4 Date of Grant. The date that the Option is granted (the “Date of Grant”) is set forth above.

2. Duration.

3. Vesting.

4. Manner of Exercise and Payment.

date of exercise equal to the aggregate Option Exercise Price for the Shares as to which the Optionee is exercising the Option, (iii) delivery of a proper notice electing a Net Exercise, (iv) a broker-assisted cashless exercise transaction through a brokerage firm designated by the Optionee, (v) such other method of payment as may be acceptable to the Committee pursuant to the Plan or (vi) any combination of the foregoing. The Company shall deliver to the Optionee certificates evidencing the Shares as to which the Option was exercised within thirty (30) days of the date on which the Optionee delivers the Option Exercise Form and makes payment of the aggregate Option Exercise Price to the Company or shall make such Shares available for electronic delivery in the U.S. to an account the Optionee designates in writing within three (3) business days after the date on which the Optionee delivers the Option Exercise Form and makes payment of the aggregate Option Exercise Price to the Company, and in either case such Shares shall be free and clear of all liens, security interests, pledges or other claims or charges, except those provided in this Agreement or the Plan, or any other agreement affecting the Shares. Notwithstanding the foregoing, if the Optionee is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, the Optionee may not exercise any Option prior to the date that is six (6) months after the Date of Grant unless the Optionee’s employment has terminated due to death, Disability, or Retirement after the Date of Grant.

5. Termination of Employment.

5.1 Termination of Employment for Cause. If the Optionee’s employment is terminated by the Company for Cause, the outstanding Option shall expire immediately, and the Optionee’s right to exercise the outstanding Option (whether vested or not vested) shall terminate immediately upon the date of the Optionee’s termination of employment.

5.2 Termination of Employment Without Cause or For Good Reason.

(i) a material reduction in the Optionee’s responsibilities at the Company; or

(ii) the required relocation of the Optionee’s employment to a location outside of the market area of the Company; or

(iii) a material reduction in the levels of coverage of the Optionee under the Company’s director and officer liability insurance policy or indemnification commitments; or

(iv) a substantial reduction in the Optionee’s base salary, a material reduction in his incentive compensation or the taking of any action by the Company which would, directly or indirectly, materially reduce any of the benefits provided to the Optionee under any of the Company’s pension, 401(k), deferred compensation, life insurance, medical, accident or disability plans in which the Optionee is participating.

of that date shall remain exercisable at any time prior to its expiration date or for one (1) year after the termination of the Optionee’s employment by reason of Disability, whichever period is shorter.

5.7 Employment by Subsidiary. For purposes of this Section 5 and Sections 8 and 13, employment with the Company includes employment with any Subsidiary and service as a member of the Board of Directors of the Company or a Subsidiary. A change of employment between the Company and any Subsidiary or between Subsidiaries or a change in the nature of the Optionee’s service relationship with the Company and the Subsidiaries (e.g., from employee to Director or Director to employee) without any interruption in the Optionee’s provision of services is not a termination of employment under this Agreement.

6. Nontransferability.

The Option shall not be transferable other than by will or by the laws of descent and distribution, and, during the lifetime of the Optionee, the Option shall be exercisable only by the Optionee except as provided in Section 5.4. Notwithstanding the foregoing, any portion or all of the Option which is vested may be transferred, in whole or in part, without consideration, to another person or entity to the extent permitted by the Plan (a “Permitted Transferee”). Appropriate evidence of any such transfer to the Permitted Transferees shall be delivered to the Company on such forms as the Committee or Company shall prescribe and shall comply with and indicate the Optionee’s (if during the lifetime of the Optionee) and the Permitted Transferee’s agreement to abide by the Company’s then current stock option transfer guidelines. If all or part of the Option is transferred to a Permitted Transferee, the Permitted Transferee shall remain subject to all terms and conditions applicable to such Option prior to the transfer.

7. Securities Laws Restrictions.

disposed of in any manner without registration under such laws, unless it is the opinion of counsel for the Company that such a disposition is exempt from such registration. The Optionee acknowledges that an appropriate legend giving notice of the foregoing restrictions may appear conspicuously on all certificates evidencing the Shares issued upon the exercise of the Option.

8. No Right to Continued Employment.

9. Adjustments; Company Transactions.

10. Withholding of Taxes.

Prior to the issuance of Shares to the Optionee upon exercise of the Option, the Optionee shall pay the federal, state, and local income taxes and other amounts as may be required by law to be

withheld (the “Withholding Taxes”) (if any) to the Company in cash or by check or wire transfer. In satisfaction of the Withholding Taxes, the Optionee may make a written election (the “Tax Election”) to satisfy such withholding obligation by a broker-assisted cashless exercise transaction through a brokerage firm designated by the Optionee, by delivering Shares (that have been owned by the Optionee for such period as may be required by the Committee) or by having the Company retain from the Shares to be delivered a number of Shares having an aggregate Fair Market Value equal to the Withholding Taxes, provided that, if the Optionee may be subject to liability under Section 16(b) of the Exchange Act, the election must comply with the requirements applicable to Share transactions by the Optionee, and Shares may only be used to pay the minimum required withholdings. The Company shall have the right to deduct from any amounts payable to the Optionee for salary, bonuses or otherwise an amount equal to Withholding Taxes with respect to the Option.

11. Optionee Bound by the Plan.

The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof.

12. Modification of Agreement.

13. Cancellation and Rescission of Awards; Return of Profits.

13.2 The Optionee will not directly or indirectly, individually, or on behalf of any Person other than the Company or a Subsidiary:

(i) solicit any Customers for the purpose of providing services identical to or reasonably substitutable for the Company’s Business;

(iii) engage in any Restricted Activities within the Territory or from a business

location servicing any part of the Territory;

(iv) manage any personnel engaging in any Restricted Activities within the Territory; or

13.3 For purposes of this Section 13, the following terms shall have the meanings specified below:

(i) “Company’s Business” means the business of operating a commercial or retail bank, savings association, mutual thrift, credit union, trust company, securities brokerage or insurance agency.

(iv) “Date of Termination” means the date upon which the Optionee’s employment with the Company ceases for any reason.

(v) “Person” means any individual, corporation, bank, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or other entity.

14. Severability; Scope of Restrictions.

15. Governing Law.

16. Successors in Interest.

17. Entire Agreement.

18. Resolution of Disputes.

19. Legal Construction.

20. Section 409A.

[EXECUTION PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

	UNITED COMMUNITY BANKS, INC.

	By:

	Name:

	Title:

	OPTIONEE

	By:

	Name:

[EXHIBITS FOLLOW]

Exhibit 10.5

UNITED COMMUNITY BANKS, INC.

AMENDED AND RESTATED

2000 KEY EMPLOYEE STOCK OPTION PLAN

RESTRICTED STOCK UNIT AWARD AGREEMENT


Grantee:

Number of RSUs:		RSUs

Date of Grant:

Vesting Schedule:	Per attached Grantee Statement referred to herein as “Exhibit A”

Territory:	Any county, any contiguous county and any metropolitan statistical area in which any of the Company’s subsidiary banks has an office as of the date hereof.

THIS AGREEMENT (the “Agreement”) is entered into as of the ____ day of _______________ by and between UNITED COMMUNITY BANKS, INC., a Georgia corporation (the “Company”), and the individual designated above (the “Grantee”).

WHEREAS, the Company maintains the United Community Banks, Inc. Amended and Restated 2000 Key Employee Stock Option Plan (the “Plan”), and the Grantee has been selected by the Committee to receive a Restricted Stock Unit Award under the Plan;

NOW, THEREFORE, IT IS AGREED, by and between the Company and the Grantee, as follows:

1. Award of Restricted Stock Units

1.1 The Company hereby grants to the Grantee an award of Restricted Stock Units (“RSUs”) in the amount set forth above, subject to, and in accordance with, the restrictions, terms, and conditions set forth in this Agreement and the Plan. The grant date of this award of RSUs is set forth above (the “Date of Grant”).

1.2 This Agreement (including any Exhibits) shall be construed in accordance and consistent with, and subject to, the provisions of the Plan (the provisions of which are incorporated herein by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan.

1.3 This Award is conditioned on the Grantee’s execution of this Agreement. If this Agreement is not executed by the Grantee and returned to the Company within two days

of the Date of Grant, it may be canceled by the Committee resulting in the immediate forfeiture of all RSUs.

2. Vesting and Termination of Employment

2.1 Vesting. Subject to Sections 2.2 through 2.4 below and Section 8, if the Grantee remains employed by the Company, the RSUs shall vest in accordance with the provisions of Exhibit A. Each date on which the RSUs vest is hereinafter referred to as a “Vesting Date”.

Except as otherwise provided below, on the Vesting Date, a number of Shares equal to the number of vested RSUs shall be issued to the Grantee free and clear of all restrictions imposed by this Agreement (except those imposed by Sections 3.3 and 8 below). The Company shall transfer such Shares to an unrestricted account in the name of the Grantee as soon as practical (and no later than thirty (30) days) after the Vesting Date. For purposes of this Agreement, employment with a Subsidiary of the Company or service as a member of the Board of Directors of the Company or a Subsidiary shall be considered employment with the Company.

2.2 Termination of Employment Due to Death or Disability. If the Grantee’s employment is terminated by the Company as a result of death or Disability, the unvested RSUs shall immediately vest, and a number of Shares equal to the number of vested RSUs shall be transferred to the Grantee or, in the event of the Grantee’s death, to the Grantee’s surviving spouse or, if none, to his estate.

2.3 Change In Control. If a Change in Control (as defined in the Plan) occurs and Grantee’s employment is terminated within six (6) months prior to or eighteen (18) months following the date of the Change in Control, and if such termination is an involuntary termination by the Company without Cause (as defined in the Plan), and does not arise as a result of Executive’s death or Disability (as defined in the Plan), or a termination by Grantee for Good Reason, the unvested RSUs shall fully vest immediately upon the later of (i) the Change in Control, or (ii) the termination of Grantee’s employment, and a number of Shares equal to the number of vested RSUs shall be transferred to the Grantee in the manner provided in Section 2.1.

For purposes of this Section 2.3, a “Good Reason” for termination by Grantee of Grantee’s employment shall mean the occurrence (without the Grantee’s express written consent), within six (6) months prior to or eighteen (18) months following the date of the Change in Control, of any one of the following acts by the Company, or failures by the Company to act:

(i) the substantial adverse change in Grantee’s responsibilities at the Company from those in effect immediately prior to the date that is six (6) months prior to the date of a Change in Control (the “Measurement Date”);

(ii) the required relocation of Grantee to a location outside of the market area of the Company on the Measurement Date;

(iii) a material reduction from those in effect on the Measurement Date in the levels of coverage of Grantee under the Company’s director and officer liability insurance policy or indemnification commitments; or

(iv) after the Measurement Date, a reduction in Grantee’s base salary, a reduction in his incentive compensation or the failure by the Company to continue to provide Grantee with benefits substantially similar to those enjoyed by Grantee under any of the Company’s pension, deferred compensation, life insurance, medical, health and accident or disability plans in which Grantee was participating at the Measurement Date, the taking of any action by the Company which would directly or indirectly reduce any of such benefits or deprive Grantee of any material fringe benefit enjoyed by Grantee at the Measurement Date.

Grantee must give the Company notice of any event or condition that would constitute “Good Reason” within thirty (30) days of the event or condition, and upon receipt of such notice, the Company shall have thirty (30) days to remedy such event or condition. If such event or condition is not remedied within such 30-day period, any termination of employment by Grantee for “Good Reason” must occur within thirty (30) days after the period for remedying the event or condition has expired.

Grantee’s right to terminate the Grantee’s employment for Good Reason shall not be affected by the Grantee’s incapacity due to physical or mental illness, except for a Disability. Grantee’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.

2.4 Termination of Employment for Other Reasons. If the Grantee’s employment is terminated by the Company (whether with or without Cause) other than within six (6) months prior to or eighteen (18) months following the date of the Change in Control, or the Grantee voluntarily terminates his or her employment (including upon Retirement) other than for “Good Reason” within six (6) months prior to or eighteen (18) months following the date of the Change in Control, the outstanding unvested RSUs shall immediately be forfeited as of the date of termination of employment.

2.5 Nontransferability. The RSUs may not be sold, assigned, transferred, pledged, or otherwise encumbered prior to the date the Grantee becomes vested in the RSUs and the Shares are issued.

2.6 Section 409A Compliance. To the extent applicable, this Agreement shall at all times be interpreted and operated in compliance with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended and the standards, regulations or other guidance promulgated thereunder (“Section 409A”). Any action that may be taken (and, to the extent possible, any action actually taken) by the Company shall not be taken (or shall be void and without effect), if such action violates the requirements of Section 409A. Any provision in this Agreement that is determined to violate the requirements of Section 409A shall be void and without effect. In addition, any provision that is required to appear in this Agreement in accordance with Section 409A that is not expressly set forth herein shall be deemed to be set forth herein, and the Agreement shall be administered in all respects as if such provision were

expressly set forth. The Company shall delay the commencement of any delivery of Shares that are payable to Grantee upon his separation from service if Grantee is a “key employee” of the Company (as determined by the Company in accordance with procedures established by the Company that are consistent with Section 409A) to the date which is immediately following the earlier of (i) six months after the date of Grantee’s separation from service or (ii) Grantee’s death, to the extent such delay is required under the provisions of Section 409A to avoid imposition of additional income and other taxes, provided that the Company and Grantee agree to take into account any exemptions available under Section 409A. For purposes of this Agreement, termination of employment shall be construed consistent with the meaning of a separation from service within the meaning of Section 409A.

3. Change in Capitalization; Deferral Rights

3.1 During the period the RSUs are not vested, the Grantee shall be credited with dividend equivalents or other distributions declared on the Share represented by the RSUs in the manner determined by the Committee. Within thirty (30) days after a Vesting Date, Grantee shall be paid in cash the dividend equivalents or other distributions with respect to the vested RSUs to which the dividend equivalents or other distributions relate.

3.2 In the event of a change in capitalization, the Committee shall make appropriate adjustments in accordance with Section 4.3 of the Plan to reflect the change in capitalization, provided that any such additional Shares or additional or different shares or securities reflected in any such adjustment shall remain subject to the restrictions in this Agreement.

3.3 The Grantee represents and warrants that he is acquiring the Shares under this Agreement for investment purposes only, and not with a view to distribution thereof. The Grantee is aware that the Shares may not be registered under the federal or any state securities laws and that in that event, in addition to the other restrictions on the Shares, they will not be able to be transferred unless an exemption from registration is available or the Shares are registered. By making this award of RSUs, the Company is not undertaking any obligation to register the RSUs under any federal or state securities laws.

3.4 To the extent the Grantee is eligible to participate in a deferred compensation plan established for such purpose, the Grantee may elect to defer delivery of the Shares that would otherwise be due by virtue of the lapse or waiver of the vesting requirements as set forth in Section 2. If such deferral election is made, the Committee shall, in its sole discretion, establish the rules and procedures for such deferrals which shall be in compliance with Section 409A.

4. No Right to Continued Employment

Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Grantee any right with respect to continuance of employment by the Company, nor shall this Agreement or the Plan interfere in any way with the right of the Company to terminate the Grantee’s employment at any time.

5. Taxes and Withholding

The Grantee shall be responsible for all federal, state, and local income taxes payable with respect to this award of RSUs and any dividends paid on such RSUs. The Company and the Grantee agree to report the value of the RSUs in a consistent manner for federal income tax purposes. The Company shall have the right to retain and withhold from any payment of Shares (but only for the minimum required withholdings) or cash the amount of taxes required by any government to be withheld or otherwise deducted and paid with respect to such payment. At its discretion, the Company may require the Grantee to reimburse the Company for any such taxes required to be withheld and may withhold any distribution in whole or in part until the Company is so reimbursed. In lieu thereof, the Company shall have the right to withhold from any other cash amounts due to the Grantee an amount equal to such taxes required to be withheld or withhold and cancel (but only for the minimum required withholdings) (in whole or in part) a number of Shares having a market value not less than the amount of such taxes.

6. Grantee Bound By The Plan

The Grantee hereby acknowledges receipt of a copy of the Plan and the prospectus for the Plan, and agrees to be bound by all the terms and provisions thereof.

7. Modification of Agreement; Severability

This Agreement may be modified, amended, suspended, or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms.

8. Cancellation and Rescission of Award; Return of Shares

8.1 If, during his employment with the Company or at any time during the one (1) year period after the Date of Termination, the Grantee violates the restrictive covenants set forth in Section 8.2 below, then the Committee shall, notwithstanding any other provision in this Agreement to the contrary, (i) cancel the outstanding RSUs that are not yet vested or with respect to which Shares have not yet been issued to the Grantee, and (ii) require the Grantee to return to the Company any Shares issued to the Grantee pursuant to vesting of the RSUs (or to pay to the Company the then current value of any such Shares) that occurred (or will occur) during the period six (6) months prior to and one (1) year after the Date of Termination.

8.2 The Grantee will not directly or indirectly, individually, or on behalf of any Person other than the Company or a Subsidiary:

(i) solicit any Customers for the purpose of providing services identical to or reasonably substitutable for the Company’s Business;

(iii) engage in any Restricted Activities within the Territory or from a business location servicing any part of the Territory;

(iv) manage any personnel engaging in any Restricted Activities within the Territory; or

If any term of this Section 8 shall be held to be illegal or invalid by a court of competent jurisdiction, the remaining terms shall remain in full force and effect. If any court of competent jurisdiction shall determine that the restrictions set forth in any provision of this Section 8 or the application thereof are unenforceable in whole or in part because of the time, geographic area or scope of such restriction or provision, the parties hereto agree that such court in making such determination shall have the power to modify the time, geographic area or scope of such restriction or provision to the extent necessary to make it enforceable, and that the restriction or provision in its modified form shall be valid and enforceable to the full extent permitted by law.

The Grantee further agrees that he or she will not, except as necessary to carry out his duties as an employee of the Company, disclose or use Confidential Information. The Grantee further agrees that, upon termination or expiration of employment with the Company for any reason whatsoever or at any time, the Grantee will upon request by the Company deliver promptly to the Company all materials (including electronically-stored materials), documents, plans, records, notes, or other papers, and any copies in the Grantee’s possession or control, relating in any way to the Company’s Business, which at all times shall be the property of the Company.

8.3 For purposes of this Section 8, the following terms shall have the meanings specified below:

(i) “Company’s Business” means the business of operating a commercial or retail bank, savings association, mutual thrift, credit union, trust company, securities brokerage or insurance agency.

information), programs, devices, methods, techniques, processes, financial data or lists of actual or potential customers (including identifying information about customers), whether or not in writing. Confidential Information includes information disclosed to the Company or any Subsidiary by third parties that the Company or any Subsidiary is obligated to maintain as confidential. Confidential Information subject to this Agreement may include information that is not a trade secret under applicable law, but information not constituting a trade secret only shall be treated as Confidential Information under this Agreement for a two (2) year period after the Date of Termination.

(iii) “Customers” means all Persons that (1) the Grantee serviced or solicited on behalf of the Company or any Subsidiary, (2) whose dealings with the Company or any Subsidiary were coordinated or supervised, in whole or in part, by the Grantee, or (3) about whom the Grantee obtained Confidential Information, in each case during the term of this Agreement or while otherwise employed by the Company.

(iv) “Date of Termination” means the date upon which the Grantee’s employment with the Company ceases for any reason.

(v) “Person” means any individual, corporation, bank, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or other entity.

9. Governing Law

The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the state of Georgia without giving effect to the conflicts of laws principles thereof.

10. Successors in Interest

This Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and assigns, whether by merger, consolidation, reorganization, sale of assets, or otherwise. This Agreement shall inure to the benefit of the Grantee’s legal representatives. All obligations imposed upon the Grantee and all rights granted to the Company under this Agreement shall be final, binding, and conclusive upon the Grantee’s heirs, executors, administrators, and successors.

11. Entire Agreement

this Agreement, personal pronouns shall be deemed to include the other genders and the singular to include the plural. Wherever used in this Agreement, the term “including” means “including, without limitation.”

12. Resolution of Disputes

12.1 Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement and the Plan shall be determined by the Committee. Any determination made by the Committee shall be final, binding and conclusive on the Grantee and the Company and their successors, assigns, heirs, executors, administrators and legal representatives for all purposes.

12.2 To the extent permitted by applicable law, any dispute, disagreement or claim which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement or the Plan, any breach hereof or thereof, or relating to the enforcement or arbitrability of any provision hereof or thereof, shall be settled by binding arbitration in Atlanta, Georgia by the American Arbitration Association. Judgment on the arbitrator’s award shall be final and may be entered in any court having jurisdiction thereof. Except as may otherwise be determined by the arbitrator(s), each party shall be solely responsible for any expenses (including attorneys’ fees and disbursements, court costs and expert witness fees) incurred by it or on its behalf in investigating and enforcing any rights under this Agreement, and each party shall bear one-half of the fees and expenses of the arbitrator(s) in connection with any arbitration or other proceeding.

12.3 THIS AGREEMENT CONTAINS AN ARBITRATION CLAUSE. BY SIGNING THIS AGREEMENT, THE PARTIES AGREE THAT EACH PARTY TO THIS AGREEMENT IS GIVING UP THE RIGHT TO SUE THE OTHER PARTY IN COURT, INCLUDING THE RIGHT TO A TRIAL BY JURY. ARBITRATION AWARDS ARE GENERALLY FINAL AND BINDING; A PARTY’S ABILITY TO HAVE A COURT REVERSE OR MODIFY AN ARBITRATION AWARD IS VERY LIMITED. THE ABILITY OF THE PARTIES TO OBTAIN DOCUMENTS, WITNESS STATEMENTS AND OTHER DISCOVERY IS GENERALLY MORE LIMITED IN ARBITRATION THAN IN COURT PROCEEDINGS. THE ARBITRATOR(S) DO NOT HAVE TO EXPLAIN THE REASON(S) FOR THEIR AWARD. THE ARBITRATION RULES MAY IMPOSE TIME LIMITS FOR BRINGING A CLAIM IN ARBITRATION. IN SOME CASES, A CLAIM THAT IS INELIGIBLE FOR ARBITRATION COULD HAVE OTHERWISE BEEN BROUGHT IN COURT.

[EXECUTION PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.


	UNITED COMMUNITY BANKS, INC.

	By:

	Name:

	Title:

By signing below, the Grantee hereby accepts the RSU grant subject to all its terms and provisions and agrees to be bound by the terms and provisions of this Agreement, including Exhibit A and Section 8, and the Plan. The Grantee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board of Directors of the Company, or the Compensation Committee or other Committee responsible for the administration of the Plan, upon any questions arising under the Plan.


	GRANTEE

	By:

	Name:

[EXHIBIT A FOLLOWS]

Exhibit 10.6

UNITED COMMUNITY BANKS, INC.

AMENDED AND RESTATED

2000 KEY EMPLOYEE STOCK OPTION PLAN

RESTRICTED STOCK UNIT AWARD AGREEMENT

(Key Employee)


Grantee:


Number of RSUs:		RSUs

Date of Grant:

Vesting Schedule:	Per attached Grantee Statement referred to herein as “Exhibit A”

Territory:	Any county and any contiguous county and any metropolitan statistical area in which any of the Company’s subsidiary banks has an office as of the date hereof.

THIS AGREEMENT (the “Agreement”) is entered into as of the _____day of ______, _________, by and between UNITED COMMUNITY BANKS, INC., a Georgia corporation (the “Company”), and the individual designated above (the “Grantee”).

NOW, THEREFORE, IT IS AGREED, by and between the Company and the Grantee, as follows:

1. Award of Restricted Stock Units

1.3 This Award is conditioned on the Grantee’s execution of this Agreement. If this Agreement is not executed by the Grantee and returned to the Company within two days of

the Date of Grant, it may be canceled by the Committee resulting in the immediate forfeiture of all RSUs.

2. Vesting and Termination of Employment

2.1 Vesting. Subject to Sections 2.2 through 2.6 below and Section 8, if the Grantee remains employed by the Company, the RSUs shall vest in accordance with the provisions of Exhibit A. Each date on which the RSUs vest is hereinafter referred to as a “Vesting Date”. Notwithstanding the foregoing, no Vesting Date can be any earlier than the day immediately after the day which is twelve (12) months and thirty (30) days following the Date of Grant (the period from the Date of Grant until the day which is twelve (12) months and thirty (30) days following the Date of Grant being hereinafter referred to as the “Initial Restriction Period”).

2.2 Termination for Cause. If the Grantee’s employment is terminated by the Company for Cause (as defined in the Plan), the unvested RSUs shall be forfeited immediately as of the date of termination of employment.

2.3 Termination of Employment Without Cause or For Good Reason.

(1) If the Grantee’s employment with the Company is terminated involuntarily by the Company without Cause (as defined in the Plan) or is terminated by the Grantee for Good Reason (as defined in subsection (2) below), in either event after the expiration of the Initial Restriction Period, the unvested RSUs shall continue to vest in accordance with the original vesting schedule and shall be subject to performance criteria, if provided for, in Exhibit A (just as if the Grantee had remained employed). In the event of the Grantee’s death after a termination covered by this Section 2.3, the unvested RSUs shall continue to vest as if the Grantee had lived and upon vesting, a number of Shares equal to the number of vested RSUs shall be transferred to the Grantee’s surviving spouse or, if none, to his estate.

(2) For purposes of this Agreement, the Grantee shall be entitled to terminate his or her employment with the Company for Good Reason in the event of, without the Grantee’s express written consent, any one of the acts by the Company set forth below, after the expiration of the Initial Restriction Period, and satisfaction of the following conditions: (a) Grantee provides notice to Company of such Good Reason condition within 90 days of his learning of its initial existence; (b) Company is given 30 days to remedy the Good Reason condition and fails to do so; and (c) Grantee terminates employment within 6 months of his learning of the initial existence of the Good Reason condition. The Good Reason conditions are:

(i) a material reduction in the Grantee’s responsibilities at the Company; or

(ii) the required relocation of the Grantee’s employment to a location outside of the market area of the Company; or

(iii) a material reduction in the levels of coverage of the Grantee under the Company’s director and officer liability insurance policy or indemnification commitments; or

(iv) a substantial reduction in the Grantee’s base salary, a material reduction in his incentive compensation or the taking of any action by the Company which would, directly or indirectly, materially reduce any of the benefits provided to the Grantee under any of the Company’s pension, 401(k), deferred compensation, life insurance, medical, accident or disability plans in which the Grantee is participating.

The Grantee’s right to terminate employment for Good Reason shall not be affected by the Grantee’s incapacity due to physical or mental illness, except for a Disability as defined in the Plan. The Grantee’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.

2.4 Termination of Employment Following a Change in Control When Eligible for Retirement. Subject to Exhibit A (just as if the Grantee had remained employed) and without regard to any performance criteria provided for therein, if the Grantee’s employment with the Company is terminated by the Company after the expiration of the Initial Restriction Period and within two years following the date of a Change in Control and the Grantee is eligible for Retirement as of the date of such termination, the outstanding unvested portion of the RSUs shall continue to vest in accordance with the original vesting schedule set forth in Exhibit A (just as if the Grantee had remained employed) (but disregarding any performance criteria, if provided for, on Exhibit A attached hereto). In the event of the Grantee’s death after a termination covered by this Section 2.4, the unvested RSUs shall continue to vest as if the Grantee had lived and upon vesting, a number of Shares equal to the number of vested RSUs shall be transferred to the Grantee’s surviving spouse or, if none, to his estate.

2.5 Termination of Employment Due to Retirement (other than under Section 2.4), Death or Disability. Subject to Exhibit A (just as if the Grantee had remained employed), if the Grantee’s employment is terminated by the Company as a result of Retirement (excluding as provided for within Section 2.4), death, or Disability (and in case of Retirement after the expiration of the Initial Restriction Period), the unvested portion of the grant for the current year, if any, and the unvested portion of the grant for the subsequent year following termination, shall remain outstanding and payable upon attainment of the original vest date(s), and shall be subject to performance criteria, if provided for, on Exhibit A attached hereto. All remaining unvested RSUs shall be immediately forfeited. In the event Grantee’s employment is terminated as a

result of death, the number of outstanding RSUs shall be transferred to the Grantee’s surviving spouse or, if none, to his estate upon attainment of the original vest date(s), and subject to performance criteria, if provided for, on Exhibit A attached hereto.

2.6 Termination of Employment for Other Reasons (other than Retirement under Sections 2.4 or 2.5). If the Grantee voluntarily terminates his or her employment (except for Good Reason or upon Retirement under Sections 2.4 or 2.5), the outstanding unvested RSUs shall immediately be forfeited as of the date of termination of employment.

2.7 Nontransferability. The RSUs may not be sold, assigned, transferred, pledged, or otherwise encumbered prior to the date the Grantee becomes vested in the RSUs and the Shares are issued.

2.8 Section 409A Compliance. To the extent applicable, this Agreement shall at all times be interpreted and operated in compliance with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended and the standards, regulations or other guidance promulgated thereunder (“Section 409A”). Any action that may be taken (and, to the extent possible, any action actually taken) by the Company shall not be taken (or shall be void and without effect), if such action violates the requirements of Section 409A. Any provision in this Agreement that is determined to violate the requirements of Section 409A shall be void and without effect. In addition, any provision that is required to appear in this Agreement in accordance with Section 409A that is not expressly set forth herein shall be deemed to be set forth herein, and the Agreement shall be administered in all respects as if such provision were expressly set forth. The Company shall delay the commencement of any delivery of Shares that are payable to Grantee upon his separation from service if Grantee is a “key employee” of the Company (as determined by the Company in accordance with procedures established by the Company that are consistent with Section 409A) to the date which is immediately following the earlier of (i) six months after the date of Grantee’s separation from service or (ii) Grantee’s death, to the extent such delay is required under the provisions of Section 409A to avoid imposition of additional income and other taxes, provided that the Company and Grantee agree to take into account any exemptions available under Section 409A. For purposes of this Agreement, termination of employment shall be construed consistent with the meaning of a separation from service within the meaning of Section 409A.

3. Change in Capitalization; Deferral Rights

3.1 During the period the RSUs are not vested, the Grantee shall be credited with dividend equivalents or other distributions declared on the Shares represented by the RSUs in the manner determined by the Committee. Within thirty (30) days after a Vesting Date and subject to Exhibit A, Grantee shall be paid in cash the dividend equivalents or other distributions with respect to the vested RSUs to which the dividend equivalents or other distributions relate.

Agreement.

4. No Right to Continued Employment

5. Taxes and Withholding

6. The Grantee Bound By The Plan

The Grantee hereby acknowledges receipt of a copy of the Plan and the prospectus for the Plan, and agrees to be bound by all the terms and provisions thereof.

7. Modification of Agreement; Severability

8. Cancellation and Rescission of Award; Return of Shares

8.1 If, during his employment with the Company or at any time during the one (1) year period after the Date of Termination, the Grantee violates the restrictive covenants set forth in Section 8.2 below, then the Committee shall, notwithstanding any other provision in this Agreement to the contrary, (i) cancel the outstanding RSUs that are not yet vested or with respect to which Shares have not yet been issued to the Grantee, and (ii) require the Grantee to return to the Company any Shares issued to the Grantee pursuant to vesting of the RSUs (or to pay to the Company the then current value of such Shares) that occurred (or will occur) during the period six (6) months prior to and one (1) year after the Date of Termination.

8.2 The Grantee will not directly or indirectly, individually, or on behalf of any Person other than the Company or a Subsidiary:

(i) solicit any Customers for the purpose of providing services identical to or reasonably substitutable for the Company’s Business;

(iii) engage in any Restricted Activities within the Territory or from a business location servicing any part of the Territory;

(iv) manage any personnel engaging in any Restricted Activities within the Territory; or

restriction or provision to the extent necessary to make it enforceable, and that the restriction or provision in its modified form shall be valid and enforceable to the full extent permitted by law.

8.3 For purposes of this Section 8, the following terms shall have the meanings specified below:

(i) “Company’s Business” means the business of operating a commercial or retail bank, savings association, mutual thrift, credit union, trust company, securities brokerage or insurance agency.

(iv) “Date of Termination” means the date upon which the Grantee’s employment with the Company ceases for any reason.

(v) “Person” means any individual, corporation, bank, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or other entity.

(vi) “Restricted Activities” means serving as a director, officer,

executive, manager, employee or business consultant for a commercial or retail bank, savings association, mutual thrift, credit union, trust company, securities brokerage or insurance agency.

9. Governing Law

The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the state of Georgia without giving effect to the conflicts of laws principles thereof.

10. Successors in Interest

11. Entire Agreement

This Agreement and the Plan contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and supersede all prior communications, representations and negotiations in respect thereto. Wherever appropriate in this Agreement, personal pronouns shall be deemed to include the other genders and the singular to include the plural. Wherever used in this Agreement, the term “including” means “including, without limitation.”

12. Resolution of Disputes

[EXECUTION PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.


	UNITED COMMUNITY BANKS, INC.

	By:

	Name:

	Title:


	GRANTEE

	By:

	Name:

[EXHIBIT A FOLLOWS]

Exhibit 10.7

UNITED COMMUNITY BANKS, INC.

AMENDED AND RESTATED

2000 KEY EMPLOYEE STOCK OPTION PLAN

RESTRICTED STOCK UNIT AWARD AGREEMENT

(Key Employee – Retirement Eligible)


Grantee:

Number of RSUs:		RSUs

Date of Grant:

Vesting Schedule:	Per attached Grantee Statement referred to herein as “Exhibit A”

Territory:	Any county and any contiguous county and any metropolitan statistical area in which any of the Company’s subsidiary banks has an office as of the date hereof.

THIS AGREEMENT (the “Agreement”) is entered into as of the _____ day of _____, ______, by and between UNITED COMMUNITY BANKS, INC., a Georgia corporation (the “Company”), and the individual designated above (the “Grantee”).

NOW, THEREFORE, IT IS AGREED, by and between the Company and the Grantee, as follows:

1. Award of Restricted Stock Units

1.3 This Award is conditioned on the Grantee’s execution of this Agreement. If this Agreement is not executed by the Grantee and returned to the Company within two days of

the Date of Grant, it may be canceled by the Committee resulting in the immediate forfeiture of all RSUs.

2. Vesting and Termination of Employment

2.3 Termination of Employment Without Cause or For Good Reason.

(i) a material reduction in the Grantee’s responsibilities at the Company; or

(ii) the required relocation of the Grantee’s employment to a location outside of the market area of the Company; or

(iii) a material reduction in the levels of coverage of the Grantee under the Company’s director and officer liability insurance policy or indemnification commitments; or

2.4 Termination of Employment Following a Change in Control When Eligible for Retirement. Subject to Exhibit A (just as if the Grantee had remained employed) and without regard to any performance criteria provided for therein, if the Grantee’s employment with the Company is terminated by the Company after the expiration of the Initial Restriction Period and within two years following the date of a Change in Control and the Grantee is eligible for Retirement as of the date of such termination, the outstanding unvested portion of the RSUs shall continue to vest in accordance with the original vesting schedule set forth in Exhibit A (just as if the Grantee had remained employed) (but disregarding any performance criteria, if provided for, on Exhibit A attached hereto). In the event of the Grantee’s death after a termination covered by this Section 2.4, the unvested RSUs shall continue to vest as if the Grantee had lived and upon vesting, a number of shares equal to the number of vested RSUs shall be transferred to the Grantee’s surviving spouse or, if none, to his estate.

2.5 Termination of Employment Due to Death or Disability. Subject to Exhibit A (just as if the Grantee had remained employed), if the Grantee’s employment is terminated by the Company as a result of the Grantee’s death or Disability, the unvested portion of the grant for the current year, if any, and the unvested portion of the grant for the subsequent year following termination, shall remain outstanding and payable upon attainment of the original vest date(s), and shall be subject to performance criteria, if provided for, on Exhibit A attached hereto. All remaining unvested RSUs shall be immediately forfeited. In the event of death, the number of outstanding RSUs shall be transferred to the Grantee’s surviving spouse or, if none, to his estate upon attainment of the original vest date(s), and subject to performance criteria, if

provided for, on Exhibit A attached hereto.

2.6 Termination of Employment for Other Reasons, Including Retirement (other than under Section 2.4). If the Grantee voluntarily terminates his or her employment for other reasons including Retirement (except for Good Reason or Retirement under Section 2.4), the outstanding unvested RSUs shall immediately be forfeited as of the date of termination of employment.

2.7 Nontransferability. The RSUs may not be sold, assigned, transferred, pledged, or otherwise encumbered prior to the date the Grantee becomes vested in the RSUs and the Shares are issued.

3. Change in Capitalization; Deferral Rights

4. No Right to Continued Employment

5. Taxes and Withholding

6. The Grantee Bound By The Plan

The Grantee hereby acknowledges receipt of a copy of the Plan and the prospectus for the Plan, and agrees to be bound by all the terms and provisions thereof.

7. Modification of Agreement; Severability

This Agreement may be modified, amended, suspended, or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties

hereto. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms.