United Community Banks, Inc.
UNITED COMMUNITY BANKS INC (Form: 10-Q, Received: 08/08/2007 16:15:38)
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2007
OR
     
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 0-21656
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.)
     
63 Highway 515
Blairsville, Georgia
  30512
     
Address of Principal
Executive Offices
  (Zip Code)
(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  þ       NO   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated filer   þ       Accelerated filer   o       Non-accelerated filer   o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
YES  þ       NO   o
Common stock, par value $1 per share: 48,781,351 shares
outstanding as of June 30, 2007
 
 

 


 

INDEX
         
       
 
       
       
 
       
    2  
 
       
    3  
 
       
    4  
 
       
    5  
 
       
    6  
 
       
    11  
 
       
    28  
 
       
    28  
 
       
       
 
       
    29  
 
       
    29  
 
       
    29  
 
       
    29  
 
       
    29  
 
       
    29  
 
       
    30  
  EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
  EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
  EX-32 SECTION 906 CERTIFICATIONS OF THE CEO/CFO

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Table of Contents

Part I — Financial Information
Item 1 — Financial Statements
UNITED COMMUNITY BANKS, INC.
Consolidated Statement of Income
(unaudited)
                                 
 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
(in thousands, except per share data)   2007     2006     2007     2006  
 
 
                               
Interest revenue:
                               
Loans, including fees
  $ 119,799     $ 95,242     $ 233,872     $ 181,848  
Investment securities:
                               
Taxable
    15,476       11,521       29,444       22,839  
Tax exempt
    438       509       885       1,023  
Federal funds sold and deposits in banks
    80       162       138       320  
 
                       
Total interest revenue
    135,793       107,434       264,339       206,030  
 
                       
 
Interest expense:
                               
Deposits:
                               
NOW
    11,470       7,342       22,097       13,329  
Money market
    3,540       1,614       6,080       2,814  
Savings
    374       226       683       454  
Time
    41,979       29,599       83,604       54,985  
 
                       
Total deposit interest expense
    57,363       38,781       112,464       71,582  
Federal funds purchased, repurchase agreements, & other short-term borrowings
    3,671       2,078       5,488       3,560  
Federal Home Loan Bank advances
    5,035       6,380       9,836       13,009  
Long-term debt
    2,201       2,168       4,405       4,321  
 
                       
Total interest expense
    68,270       49,407       132,193       92,472  
 
                       
Net interest revenue
    67,523       58,027       132,146       113,558  
Provision for loan losses
    18,700       3,700       22,400       7,200  
 
                       
Net interest revenue after provision for loan losses
    48,823       54,327       109,746       106,358  
 
                       
 
Fee revenue:
                               
Service charges and fees
    7,975       6,828       15,228       13,181  
Mortgage loan and other related fees
    2,476       1,708       4,699       3,221  
Consulting fees
    2,241       1,572       3,988       3,156  
Brokerage fees
    1,192       796       2,136       1,646  
Securities gains (losses), net
    1,386             1,593       (3 )
Losses on prepayment of borrowings
    (1,164 )     (290 )     (1,164 )     (290 )
Other
    2,448       1,362       4,456       2,823  
 
                       
Total fee revenue
    16,554       11,976       30,936       23,734  
 
                       
Total revenue
    65,377       66,303       140,682       130,092  
 
                       
 
Operating expenses:
                               
Salaries and employee benefits
    30,022       24,469       58,339       48,353  
Communications and equipment
    3,845       3,731       7,657       7,107  
Occupancy
    3,316       2,916       6,507       5,848  
Advertising and public relations
    2,098       1,948       4,114       3,836  
Postage, printing and supplies
    1,680       1,289       3,340       2,805  
Professional fees
    2,010       1,069       3,489       2,230  
Amortization of intangibles
    633       503       1,197       1,006  
Other
    4,098       3,720       7,900       6,923  
 
                       
Total operating expenses
    47,702       39,645       92,543       78,108  
 
                       
Income before income taxes
    17,675       26,658       48,139       51,984  
Income taxes
    5,764       9,729       16,883       19,016  
 
                       
Net income
  $ 11,911     $ 16,929     $ 31,256     $ 32,968  
 
                       
Net income available to common shareholders
  $ 11,906     $ 16,924     $ 31,246     $ 32,958  
 
                       
 
Earnings per common share:
                               
Basic
  $ .26     $ .42     $ .71     $ .82  
Diluted
    .26       .41       .70       .80  
Dividends per common share
    .09       .08       .18       .16  
Weighted average common shares outstanding:
                               
Basic
    44,949       40,156       43,980       40,122  
Diluted
    45,761       41,328       44,842       41,259  
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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Table of Contents

UNITED COMMUNITY BANKS, INC.
Consolidated Balance Sheet
                         
 
    June 30,     December 31,     June 30,  
(in thousands, except share and per share data)   2007     2006     2006  
 
    (unaudited)     (audited)     (unaudited)  
ASSETS
                       
 
                       
Cash and due from banks
  $ 171,095     $ 158,348     $ 159,954  
Interest-bearing deposits in banks
    23,146       12,936       21,948  
 
                 
Cash and cash equivalents
    194,241       171,284       181,902  
 
                       
Securities available for sale
    1,213,659       1,107,153       974,524  
Mortgage loans held for sale
    30,615       35,325       24,000  
Loans, net of unearned income
    5,999,093       5,376,538       4,810,277  
Less allowance for loan losses
    92,471       66,566       58,508  
 
                 
Loans, net
    5,906,622       5,309,972       4,751,769  
 
                       
Premises and equipment, net
    171,327       139,716       124,018  
Accrued interest receivable
    64,538       58,291       44,187  
Goodwill and other intangible assets
    326,467       167,058       117,646  
Other assets
    180,198       112,450       113,090  
 
                 
Total assets
  $ 8,087,667     $ 7,101,249     $ 6,331,136  
 
                 
 
                       
LIABILITIES AND SHAREHOLDERS’ EQUITY
                       
Liabilities:
                       
Deposits:
                       
Demand
  $ 773,435     $ 659,892     $ 662,463  
NOW
    1,447,789       1,307,654       1,106,988  
Money market
    504,730       255,862       198,491  
Savings
    207,468       175,631       173,985  
Time:
                       
Less than $100,000
    1,651,486       1,650,906       1,388,009  
Greater than $100,000
    1,428,841       1,397,245       1,106,359  
Brokered
    347,520       325,696       340,355  
 
                 
Total deposits
    6,361,269       5,772,886       4,976,650  
 
                       
Federal funds purchased, repurchase agreements, and other short-term borrowings
    238,429       65,884       249,552  
Federal Home Loan Bank advances
    499,060       489,084       458,587  
Long-term debt
    113,151       113,151       111,869  
Accrued expenses and other liabilities
    47,027       43,477       38,181  
 
                 
Total liabilities
    7,258,936       6,484,482       5,834,839  
 
                 
 
Shareholders’ equity:
                       
Preferred stock, $1 par value; $10 stated value; 10,000,000 shares authorized; 32,200, 32,200 and 32,200 shares issued and outstanding
    322       322       322  
Common stock, $1 par value; 100,000,000 shares authorized; 48,781,351, 42,890,863 and 40,178,533 shares issued and outstanding
    48,781       42,891       40,179  
Common stock issuable; 60,761, 29,821 and 19,712 shares
    1,816       862       544  
Capital surplus
    461,226       270,383       197,235  
Retained earnings
    329,229       306,261       277,086  
Accumulated other comprehensive loss
    (12,643 )     (3,952 )     (19,069 )
 
                 
Total shareholders’ equity
    828,731       616,767       496,297  
 
                 
Total liabilities and shareholders’ equity
  $ 8,087,667     $ 7,101,249     $ 6,331,136  
 
                 
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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Table of Contents

UNITED COMMUNITY BANKS, INC.
Consolidated Statement of Changes in Shareholders’ Equity   (unaudited)
For the Six Months Ended June 30,
 
                                                         
                                            Accumulated        
                    Common                     Other        
    Preferred     Common     Stock     Capital     Retained     Comprehensive        
(in thousands, except share and per share data)   Stock     Stock     Issuable     Surplus     Earnings     Income (Loss)     Total  
 
 
                                                       
Balance, December 31, 2005
  $ 322     $ 40,020     $ 271     $ 193,355     $ 250,563     $ (11,845 )   $ 472,686  
 
                                                       
Comprehensive income:
                                                       
Net income
                                    32,968               32,968  
Other comprehensive loss:
                                                       
Unrealized holding losses on available for sale securities, net of deferred tax benefit and reclassification adjustment
                                            (7,238 )     (7,238 )
Unrealized gains on derivative financial instruments qualifying as cash flow hedges, net of deferred tax expense
                                            14       14  
 
                                                       
 
                                                 
Comprehensive income
                                    32,968       (7,224 )     25,744  
Cash dividends declared on common stock ($.16 per share)
                                    (6,435 )             (6,435 )
Exercise of stock options (57,020 shares)
            58               450                       508  
Common stock issued to Dividend Reinvestment Plan and employee benefit plans (79,178 shares)
            79               2,116                       2,195  
Amortization of stock option and restricted stock awards
                            1,336                       1,336  
Vesting of restricted stock (22,482 shares)
            22               (22 )                      
Deferred compensation plan, net, including dividend equivalents
                    273                               273  
Dividends declared on preferred stock ($.30 per share)
                                    (10 )             (10 )
 
                                         
 
                                                       
Balance, June 30, 2006
  $ 322     $ 40,179     $ 544     $ 197,235     $ 277,086     $ (19,069 )   $ 496,297  
 
                                         
Balance, December 31, 2006
  $ 322     $ 42,891     $ 862     $ 270,383     $ 306,261     $ (3,952 )   $ 616,767  
 
                                                       
Comprehensive income:
                                                       
Net income
                                    31,256               31,256  
Other comprehensive income:
                                                       
Unrealized holding losses on available for sale securities, net of deferred tax benefit and reclassification adjustment
                                            (5,517 )     (5,517 )
Unrealized losses on derivative financial instruments qualifying as cash flow hedges, net of deferred tax benefit
                                            (3,174 )     (3,174 )
 
                                                       
 
                                                 
Comprehensive income
                                    31,256       (8,691 )     22,565  
Cash dividends declared on common stock ($.18 per share)
                                    (8,278 )             (8,278 )
Common stock issued for acquisitions (5,691,948 shares)
            5,692               185,649                       191,341  
Exercise of stock options (78,228 shares)
            78               722                       800  
Common stock issued to Dividend Reinvestment Plan and employee benefit plans (90,002 shares)
            90               2,791                       2,881  
Amortization of stock options and restricted stock
                            1,630                       1,630  
Vesting of restricted stock (30,310 shares issued, 2,750 shares deferred)
            30       81       (111 )                      
Deferred compensation plan, net, including dividend equivalents
                    873                               873  
Tax benefit from options exercised
                            162                       162  
Dividends declared on preferred stock ($.30 per share)
                                    (10 )             (10 )
 
                                         
 
                                                       
Balance, June 30, 2007
  $ 322     $ 48,781     $ 1,816     $ 461,226     $ 329,229     $ (12,643 )   $ 828,731  
 
                                         
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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Table of Contents

UNITED COMMUNITY BANKS, INC.
Consolidated Statement of Cash Flows (unaudited)
 
                 
    Six Months Ended  
    June 30,  
(in thousands)   2007     2006  
 
Operating activities, net of effect of business combinations:
               
Net income
  $ 31,256     $ 32,968  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation, amortization and accretion
    6,728       7,408  
Provision for loan losses
    22,400       7,200  
Stock based compensation
    1,630       1,336  
(Gain) loss on sale of securities available for sale
    (1,593 )     3  
Gain on sale of other assets
    (210 )     (184 )
Loss on prepayment of borrowings
    1,164       290  
Changes in assets and liabilities:
               
Other assets and accrued interest receivable
    (5,732 )     (18,026 )
Accrued expenses and other liabilities
    (13,319 )     (7,046 )
Mortgage loans held for sale
    4,710       (1,665 )
 
           
Net cash provided by operating activities
    47,034       22,284  
 
           
 
               
Investing activities, net of effect of business combinations:
               
Proceeds from sales of securities available for sale
    44,150       7,649  
Proceeds from maturities and calls of securities available for sale
    187,556       58,992  
Purchases of securities available for sale
    (300,857 )     (62,766 )
Net increase in loans
    (113,609 )     (417,495 )
Purchase of Bank Owned Life Insurance (BOLI)
    (50,000 )      
Proceeds from sales of premises and equipment
    662       1,289  
Purchases of premises and equipment
    (20,357 )     (17,079 )
Net cash paid for acquisitions
    (4,346 )      
Proceeds from sale of other real estate
    7,799       1,359  
 
           
Net cash used by investing activities
    (249,002 )     (428,051 )
 
           
 
               
Financing activities, net of effect of business combinations:
               
Net change in deposits
    20,538       499,050  
Net change in federal funds purchased, repurchase agreements, and other short-term borrowings
    209,200       126,671  
Proceeds from FHLB advances
    750,000       224,710  
Repayments of FHLB advances
    (751,164 )     (402,000 )
Proceeds from exercise of stock options
    800       508  
Proceeds from issuance of common stock for dividend reinvestment and employee benefit plans
    2,881       2,195  
Cash dividends on common stock
    (7,320 )     (6,025 )
Cash dividends on preferred stock
    (10 )     (10 )
 
           
Net cash provided by financing activities
    224,925       445,099  
 
           
 
               
Net change in cash and cash equivalents
    22,957       39,332  
 
               
Cash and cash equivalents at beginning of period
    171,284       142,570  
 
           
 
               
Cash and cash equivalents at end of period
  $ 194,241     $ 181,902  
 
           
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5


Table of Contents

United Community Banks, Inc.
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 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 the 2006 annual report filed on Form 10-K.
     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.
Note 2 — Stock-Based Compensation
     United has an equity compensation plan that allows for grants of incentive stock options, nonqualified stock options, restricted stock 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 option and restricted stock awards provide for accelerated vesting if there is a change in control (as defined in the plan). As of June 30, 2007, approximately 1,863,000 additional awards could be granted under the plan. Through June 30, 2007, only incentive stock options, nonqualified stock options and restricted stock awards and units had been granted under the plan.
The following table shows stock option activity for the first six months of 2007.
                                 
                    Weighted-        
                    Average        
            Weighted-     Remaining     Aggregate  
            Average Exercise     Contractual     Intrinisic  
Options   Shares     Price     Term (Years)     Value ($000)  
 
                               
Outstanding at December 31, 2006
    2,549,823     $ 19.05                  
Granted
    595,700       30.70                  
Exercised
    (78,228 )     10.24                  
Forfeited
    (28,775 )     26.38                  
Expired
    (1,250 )     28.02                  
 
                             
Outstanding at June 30, 2007
    3,037,270     $ 21.49       6.7     $ 17,720  
 
                       
 
                               
Exercisable at June 30, 2007
    1,792,627     $ 16.66       5.2     $ 16,883  
 
                       
     The weighted average fair value of stock options granted in the second quarter of 2007 and 2006 was $8.30 and $8.63, respectively. The fair value of each option granted was estimated on the date of grant using the Black-Scholes model. The key assumptions used to determine the fair value of stock options are presented in the table below.
                 
    Six Months Ended
    June 30,
    2007   2006
 
               
Expected volatility
      20 %   22 %
Expected dividend yield
  1.1% to 1.2 % 1.1% to 1.2 %
Expected life (in years)
      6.25 to 6.50     6.25  
Risk-free rate
  4.6% to 4.9 % 4.3% to 5.1 %

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     United’s stock trading history began in March of 2002 when United listed on the Nasdaq National Market. For 2007 and 2006, expected volatility was determined using United’s historical monthly volatility over the period beginning in March of 2002 through the end of the last completed year. Compensation expense for stock options was $1,013,000 and $873,000 for the six months ended June 30, 2007 and 2006, respectively, which was net of deferred tax benefits of $293,000 and $111,000, respectively. The amount of compensation expense for both periods 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, net of any applicable tax benefit, over the vesting period. The forfeiture rate for options is estimated to be approximately 3% per year. The total intrinsic value of options exercised during the first six months of 2007 and 2006 was $1,761,000 and $1,108,000, respectively.
     The table below presents the activity in restricted stock for the first six months of 2007.
                 
            Weighted-  
            Average Grant-  
Restricted Stock   Shares     Date Fair Value  
 
               
Outstanding at December 31, 2006
    78,440     $ 25.85  
Granted
    48,400       30.96  
Vested
    (33,060 )     24.35  
 
             
Outstanding at June 30, 2007
    93,780     $ 29.02  
 
           
     Compensation expense for restricted stock is based on the fair 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 six months ended June 30, 2007 and 2006, compensation expense of $324,000 and $352,000, respectively, was recognized related to restricted stock awards. The total intrinsic value of the restricted stock was $2,428,000 at June 30, 2007.
     As of June 30, 2007, there was $10,626,000 of unrecognized compensation cost related to nonvested stock options and restricted stock awards granted under the plan. That cost is amortized into expense over the vesting period, which is usually 48 months and is expected to be recognized over a weighted-average period of 1.7 years. The aggregate grant date fair value of options and restricted stock awards that vested during the six months ended June 30, 2007, was $3,171,000.
Note 3 — Common Stock Issued / Common Stock Issuable
     United provides a Dividend Reinvestment and Share Purchase Plan (DRIP) to its shareholders. Under the plan, shareholders of record can voluntarily reinvest all or a portion of their cash dividends into shares of United’s common stock, as well as purchase additional stock through the plan for cash. 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 (ESPP) that allows eligible employees to purchase shares of common stock at a 5% discount, with no commission charges. For the six months ended June 30, 2007 and June 30, 2006, United issued 90,002 shares and 79,178 shares, respectively, and increased capital by $2.9 million and $2.2 million, respectively, through these programs.
     United offers its common stock as an investment option in its deferred compensation plan. 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. At June 30, 2007 and June 30, 2006, 60,761 shares and 19,712 shares, respectively, were issuable under the deferred compensation plan.

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Note 4 — Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30.
(in thousands, except per share data)
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2007     2006     2007     2006  
Basic earnings per share:
                               
Weighted average shares outstanding
    44,949       40,156       43,980       40,122  
Net income available to common shareholders
  $ 11,906     $ 16,924     $ 31,246     $ 32,958  
 
                       
Basic earnings per share
  $ .26     $ .42     $ .71     $ .82  
 
                       
Diluted earnings per share:
                               
Weighted average shares outstanding
    44,949       40,156       43,980       40,122  
Net effect of the assumed exercise of stock options based on the treasury stock method using average market price for the period
    760       781       819       749  
Common stock issuable under deferred compensation plan
    52       19       43       16  
Effect of conversion of subordinated debt
          372             372  
 
                       
Total weighted average shares and common stock equivalents outstanding
    45,761       41,328       44,842       41,259  
 
                       
Net income available to common shareholders
  $ 11,906     $ 16,924     $ 31,246     $ 32,958  
Income effect of conversion of subordinated debt, net of tax
          41             79  
 
                       
Net income, adjusted for effect of conversion of subordinated debt, net of tax
  $ 11,906     $ 16,965     $ 31,246     $ 33,037  
 
                       
Diluted earnings per share
  $ .26     $ .41     $ .70     $ .80  
 
                       
Note 5 — Mergers and Acquisitions
     On June 1, 2007, United acquired 100 percent of the outstanding common shares of Gwinnett Commercial Group, Inc. (Gwinnett), a community bank holding company headquartered in Lawrenceville, Georgia. Gwinnett’s results of operations are included in consolidated financial results from the acquisition date. Gwinnett was the parent company of First Bank of the South, a community bank with five full service banking offices serving the north metro Atlanta counties of Gwinnett, DeKalb and north Fulton and a commercial loan office in Walton County. United has continued to expand its presence in metropolitan Atlanta and the acquisition of Gwinnett accomplishes a long standing strategic goal of encircling metro Atlanta. The aggregate purchase price was approximately $222.9 million, including 5,691,948 shares of United’s common stock and $31.5 million in cash that was exchanged for all of the outstanding common shares and options to purchase common shares of Gwinnett. The value of the common stock issued of $33.62 per share was determined based on the average of the closing market price of United’s common shares over the period beginning two days before and ending two days after the terms of the acquisition were agreed to and announced.

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     The following table summarizes the estimated fair values of assets acquired and liabilities assumed on the acquisition date (in thousands):
         
    Gwinnett  
    Commercial  
    Group  
Assets acquired:
       
Cash and cash equivalents
  $ 16,472  
Federal funds sold
    36,655  
Investment securities
    48,157  
Loans, net
    526,629  
Premises and equipment
    16,690  
Core deposit intangible
    6,874  
Goodwill
    154,076  
Other assets
    3,425  
 
     
Total assets acquired
    808,978  
 
     
Liabilities assumed:
       
Deposits
    567,845  
Other borrowed funds
    10,000  
Other liabilities
    8,274  
 
     
Total liabilities assumed
    586,119  
 
     
Net assets acquired
  $ 222,859  
 
     
     The financial information below presents the pro forma earnings of United assuming that the results of operations of Gwinnett and Southern Bancorp, Inc., acquired on December 1, 2006, were included in consolidated earnings as of the beginning of the earliest reported period (in thousands):
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2007   2006   2007   2006
 
                               
Total revenue
  $ 69,221     $ 77,553     $ 151,930     $ 151,078  
Net income
    13,016       21,054       35,514       40,357  
 
                               
Diluted earnings per share
    .26       .43       .72       .82  
     At June 30, 2007, accrued merger costs of $3,223,000 remained unpaid relating to acquisitions closed in 2007, 2006 and 2004. The severance and related costs include change in control payments for which payment had been deferred, the majority of which will be paid in January of 2008. Professional fees include legal fees, investment banker fees, and fees for other professional services related to the business combinations. Contract termination costs include amounts claimed by service providers as a result of early termination of service contracts related to the acquisitions. During the first quarter, the one contract termination charge that was in dispute was resolved, and goodwill was reduced accordingly. A reconciliation of the activities in 2007 related to accrued merger costs is below (in thousands):
Activity with accrued merger cost
For the Six Months Ended June 30, 2007
                                         
                    Amounts              
    Beginning     Purchase     Charged to     Amounts     Ending  
    Balance     Adjustments     Earnings     Paid     Balance  
 
                                       
Severance and related costs
  $ 577     $ 2,261     $     $ (328 )   $ 2,510  
Professional fees
    47       705             (39 )     713  
Contract termination costs
    804       (785 )           (19 )      
 
                             
Totals
  $ 1,428     $ 2,181     $     $ (386 )   $ 3,223  
 
                             

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Note 6 — Reclassification
     Certain amounts for the comparative periods of 2006 have been reclassified to conform to the 2007 presentation.
Note 7 — Recent Accounting Pronouncements
     In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 159 (SFAS No. 159), The Fair Value for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115 . This statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement is expected to expand the use of fair value measurement, which is consistent with the FASB’s long-term measurement objective for accounting for financial instruments. This statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply SFAS No. 157, Fair Value Measurements . United expects to adopt this standard beginning January 1, 2008. The financial statement impact is being evaluated; however, it is not expected to be material to United’s financial position, results of operations or disclosures.
     United adopted Financial Interpretation No. (“FIN”) 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109, on January 1, 2007. The adoption of FIN 48 had no affect on United’s financial statements. The amount of unrecognized tax benefits as of January 1, 2007 totaled $2.0 million. All of this amount would increase income from continuing operations, and thus impact United’s effective tax rate, if ultimately recognized into income. Unrecognized state income tax benefits are reported net of their related deferred federal income tax benefit.
     It is United’s policy to recognize interest and penalties accrued relative to unrecognized tax benefits in their respective federal or state income taxes accounts. As of January 1, 2007, $403,000 in interest and penalties had been accrued.
     United and its subsidiaries file a consolidated U.S. federal income tax return, as well as filing various returns in the states where its banking offices are located. The Company’s filed income tax returns are no longer subject to examination by taxing authorities for years before 2003.
Note 8 — Special Fraud Related Loan Loss Provision
     The second quarter 2007 provision for loan losses included a special $15 million provision for fraud related loan losses in two real estate developments located near Spruce Pine, North Carolina. During the second quarter of 2007, the North Carolina Attorney General obtained a receiver to take custody the developers’ assets citing possible fraud on the part of the developers. United has loans outstanding to 83 individual borrowers that total $23.6 million secured by undeveloped lots in these developments. United was one of twelve banks that had loaned money to borrowers to finance the purchase of lots. The loans were made to appropriately qualified borrowers in accordance with United’s standard underwriting procedures. At the time the loans were made, we were not aware that most of the borrowers were simultaneously obtaining loans for additional lots at other banks and thereby taking on debt possibly beyond their repayment ability. We were also unaware that the borrowers’ down payments were not paid in cash as indicated on the closing statements but were financed by a second mortgage from the developer and that the developer agreed to service the borrowers’ debts. We have also subsequently learned that the appraisals relied upon in the underwriting process had been inflated by using comparable sales that were not at arms length to persons related to the developer and that many of the lots were subdivided into parcels that are too small to be used for their intended purpose. Based on our findings and our internal estimate of expected losses, we recorded a $15 million special provision for loan losses. We are working with the receiver, the other banks involved, the borrowers and our insurance carrier in order to minimize our losses. None of the loans have been charged off, but all were placed on non-accrual status as of June 30, 2007 and included in nonperforming assets.

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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 regarding United Community Banks, Inc. (“United”), including, without limitation, statements relating to United’s expectations with respect to revenue, credit losses, levels of nonperforming assets, expenses, earnings and other measures of financial performance. Words such as “may”, “could”, “would”, “should”, “believes”, “expects”, “anticipates”, “estimates”, “intends”, “plans”, “targets” or similar expressions are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties that are subject to change based on various factors (many of which are beyond United’s control). The following factors, among others, could cause United’s financial performance to differ materially from the expectations expressed in such forward-looking statements:
    our recent operating results may not be indicative of future operating results;
 
    our business is subject to the success of the local economies in which we operate;
 
    we may face risks with respect to future expansion and acquisitions or mergers;
 
    changes in prevailing interest rates may negatively affect our net income and the value of our assets;
 
    our concentration of construction and land development loans is subject to unique risks that could adversely affect our earnings;
 
    if our allowance for loan losses is not sufficient to cover actual loan losses, our earnings would decrease;
 
    competition from financial institutions and other financial service providers may adversely affect our profitability;
 
    business increases, productivity gains and other investments are lower than expected or do not occur as quickly as anticipated;
 
    competitive pressures among financial services companies increase significantly;
 
    the strength of the United States economy in general and/or the strength of the local economies of the states in which United conducts operations changes;
 
    trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, change;
 
    inflation or market conditions fluctuate;
 
    conditions in the stock market, the public debt market and other capital markets deteriorate;
 
    financial services laws and regulations change;
 
    technology changes and United fails to adapt to those changes;
 
    consumer spending and saving habits change;
 
    unanticipated regulatory or judicial proceedings occur; and
 
    United is unsuccessful at managing the risks involved in the foregoing.
     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. 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.

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Overview
     The following discussion is intended to provide insight into the financial condition and results of operations of 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 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 June 30, 2007, United had total consolidated assets of $8.1 billion, total loans of $6.0 billion, total deposits of $6.4 billion and stockholders’ equity of $828.7 million.
     United’s activities are primarily conducted by its wholly owned Georgia and North Carolina banking subsidiaries (which are collectively referred to as the “Banks” in this discussion) and Brintech, Inc., a consulting firm providing professional services to the financial services industry.
     Reported earnings of $11.9 million during the quarter ended June 30, 2007 included a special $15.0 million provision for fraud related loan losses involving two halted real estate developments near Spruce Pine, North Carolina. The after-tax impact of this provision was $9.2 million, or $.20 per diluted share. Because management believes these losses are an isolated and non-recurring event we will highlight operating earnings information, which excludes the special provision to provide a better understanding of our ongoing earnings and credit trends.
     Net operating income was $21.1 million during the second quarter of 2007, an increase of 24% from the $16.9 million earned during the second quarter of 2006. Diluted operating earnings per common share was $.46 for the second quarter of 2007, compared to $.41 for the second quarter of 2006, an increase of 12%. Operating return on tangible equity for the second quarter of 2007 was 17.54%, compared to 17.68% for the second quarter of 2006. Operating return on assets for the second quarter of 2007 was 1.12% as compared to 1.10% for the second quarter of 2006.
     For the first six months of 2007, net operating income was $40.4 million compared to $33.0 million for the same period in 2006, an increase of 23%. Diluted operating earnings per share was $.90 for the six months ended June 30, 2007, compared with $.80 for 2006, an increase of 13%. Operating return on tangible equity for the first six months of 2007 was 17.36% compared to 17.67% for 2006. Operating return on assets for the six months of 2007 was 1.12% compared to 1.10% for 2006.
     Operating earnings were driven by strong revenue growth over the past twelve months. During the first half of 2007, United saw a slow down in loan growth, particularly construction loans for acquisition and development projects. During 2007, competitive pressures drove pricing on certificates of deposit above rates for similar structured wholesale borrowings leading to a shift in funding toward lower priced wholesale borrowed funds.
     Although both net charge offs and nonperforming assets increased from a year ago and last quarter, credit quality remains solid with net charge offs as a percentage of average loans of 15 basis points remaining low by historical measures. Nonperforming assets as a percentage of total assets rose to 54 basis points from 14 basis points a year ago and 20 basis points at the end of the first quarter. Included in nonperforming assets are $23.6 million in loans in the halted real estate developments near Spruce Pine, North Carolina. Excluding the Spruce Pine lot loans, the ratio of nonperforming assets to total assets of 25 basis points is more in line with our long-term trend of 20-35 basis points.
     Fee revenue rose a strong 38% reflecting increases in every category compared to the second quarter of 2006. For the first six months of 2007, fee revenue increased 30% versus 2006. Operating expenses were up 20% from the second quarter of 2006 and up 18% for the first six months of 2007 as compared with the same period a year ago. The increase in operating expenses reflects the added operating expenses of recently acquired banks and the significant de novo expansion activity over the last 18 months.
Critical Accounting Policies
     The accounting and reporting policies of United Community Banks and its subsidiaries are in accordance with accounting principles generally accepted in the United States 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. In particular, United’s accounting policies relating to the allowance for loan losses involve the use of estimates and require significant judgment 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.

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Non-GAAP Earnings Measures
     The presentation of United’s financial results herein highlight net operating income, which is a measure of performance determined by methods other than in accordance with accounting principles generally accepted in the United States, or GAAP. Management included non-GAAP net operating income because it believes it is useful for evaluating United’s operations and performance over periods of time, and uses net operating income in managing and evaluating United’s business and intends to use it in discussions about United’s operations and performance.
     Net operating income excludes the pre-tax effect of the special $15 million fraud related provision for loan losses recorded in the second quarter of 2007 involving lot loans near Spruce Pine, North Carolina because management feels that the circumstances leading to the taking of the special provision were isolated, non-recurring events and do not reflect overall trends in the Registrant’s earnings. Management believes this non-GAAP net operating income provides users of the Registrant’s financial information with a meaningful measure for assessing the Registrant’s financial results and credit trends and comparing financial results to prior periods.
     A reconciliation of operating earnings measures to reported earnings measures using GAAP is presented below:
Table 1 — Operating Earnings to GAAP Earnings Reconciliation
(in thousands, except per share data)
                 
    Second     Six Months Ended  
    Quarter     June 30,  
    2007     2007  
Special provision for fraud related loan losses
  $ 15,000     $ 15,000  
Income tax effect of special provision
    5,835       5,835  
 
           
After-tax effect of special provision
  $ 9,165     $ 9,165  
 
           
 
               
Net Income Reconciliation
               
Operating net income
  $ 21,076     $ 40,421  
After-tax effect of special provision
    (9,165 )     (9,165 )
 
           
Net income (GAAP)
  $ 11,911     $ 31,256  
 
           
 
               
Basic Earnings Per Share Reconciliation
               
Basic operating earnings per share
  $ .47     $ .92  
Per share effect of special provision
    (.21 )     (.21 )
 
           
Basic earnings per share (GAAP)
  $ .26     $ .71  
 
           
 
               
Diluted Earnings Per Share Reconciliation
               
Diluted operating earnings per share
  $ .46     $ .90  
Per share effect of special provision
    (.20 )     (.20 )
 
           
Diluted earnings per share (GAAP)
  $ .26     $ .70  
 
           

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Table 2 — Financial Highlights
Selected Financial Information
                                                                         
 
                                            Second              
    2007     2006     Quarter     For the Six     YTD  
(in thousands, except per share   Second     First     Fourth     Third     Second     2007-2006     Months Ended     2007-2006  
data; taxable equivalent)   Quarter     Quarter     Quarter     Quarter     Quarter     Change     2007     2006     Change  
INCOME SUMMARY
                                                                       
Interest revenue
  $ 136,237     $ 129,028     $ 123,463     $ 116,304     $ 107,890             $ 265,265     $ 206,928          
Interest expense
    68,270       63,923       60,912       55,431       49,407               132,193       92,472          
 
                                                         
Net interest revenue
    67,967       65,105       62,551       60,873       58,483       16 %     133,072       114,456       16 %
Provision for loan losses (1)
    3,700       3,700       3,700       3,700       3,700               7,400       7,200          
Fee revenue
    16,554       14,382       13,215       12,146       11,976       38       30,936       23,734       30  
 
                                                         
Total operating revenue
    80,821       75,787       72,066       69,319       66,759       21       156,608       130,990       20  
Operating expenses
    47,702       44,841       42,521       41,441       39,645       20       92,543       78,108       18  
 
                                                         
Income before taxes
    33,119       30,946       29,545       27,878       27,114       22       64,065       52,882       21  
Income taxes
    12,043       11,601       11,111       10,465       10,185               23,644       19,914          
 
                                                         
Net operating income
    21,076       19,345       18,434       17,413       16,929       24       40,421       32,968       23  
Fraud loss provision, net of tax (1)
    9,165                                       9,165                
 
                                                         
Net income
  $ 11,911     $ 19,345     $ 18,434     $ 17,413     $ 16,929       (30 )   $ 31,256     $ 32,968       (5 )
 
                                                         
OPERATING PERFORMANCE (1)
                                                                       
Earnings per common share:
                                                                       
Basic
  $ .47     $ .45     $ .45     $ .43     $ .42       12     $ .92     $ .82       12  
Diluted
    .46       .44       .44       .42       .41       12       .90       .80       13  
Return on tangible equity (2)(3)(4)
    17.54 %     17.18 %     17.49 %     17.29 %     17.68 %             17.36 %     17.67 %        
Return on assets (4)
    1.12       1.11       1.10       1.09       1.10               1.12       1.10          
Dividend payout ratio
    19.15       20.00       17.78       18.60       19.05               19.57       19.51          
 
GAAP PERFORMANCE MEASURES
                                                                       
Per common share:
                                                                       
Basic earnings
  $ .26     $ .45     $ .45     $ .43     $ .42       (38 )   $ .71     $ .82       (13 )
Diluted earnings
    .26       .44       .44       .42       .41       (37 )     .70       .80       (13 )
Cash dividends declared
    .09       .09       .08       .08       .08       13       .18       .16       13  
Book value
    16.98       14.83       14.37       13.07       12.34       38       16.98       12.34       38  
Tangible book value (3)
    10.44       11.06       10.57       10.16       9.50       10       10.44       9.50       10  
Key performance ratios:
                                                                       
Return on equity (2)(4)
    7.05       12.48       13.26       13.22       13.41               9.64       13.33          
Return on assets (4)
    .64       1.11       1.10       1.09       1.10               .86       1.10          
Net interest margin (4)
    3.94       3.99       3.99       4.07       4.07               3.96       4.07          
Efficiency ratio
    56.59       56.56       55.93       56.46       56.04               56.57       56.40          
Dividend payout ratio
    34.62       20.00       17.78       18.60       19.05               25.35       19.51          
Equity to assets
    8.94       8.80       8.21       8.04       7.95               8.87       7.99          
Tangible equity to assets (3)
    6.65       6.66       6.46       6.35       6.22               6.65       6.23          
 
ASSET QUALITY (5)
                                                                       
Allowance for loan losses
  $ 92,471     $ 68,804     $ 66,566     $ 60,901     $ 58,508             $ 92,471     $ 58,508          
Non-performing assets
    43,601       14,290       13,654       9,347       8,805               43,601       8,805          
Net charge-offs
    2,124       1,462       1,930       1,307       1,042               3,586       2,287          
Allowance for loan losses to loans
    1.54 %     1.27 %     1.24 %     1.23 %     1.22 %             1.54 %     1.22 %        
Non-performing assets to total assets
    .54       .20       .19       .14       .14               .54       .14          
Net charge-offs to average loans (4)
    .15       .11       .15       .11       .09               .13       .10          
 
AVERAGE BALANCES
                                                                       
Loans
  $ 5,619,950     $ 5,402,860     $ 5,134,721     $ 4,865,886     $ 4,690,196       20     $ 5,512,005     $ 4,598,355       20  
Investment securities
    1,242,448       1,153,208       1,059,125       1,029,981       1,039,707       19       1,198,075       1,039,198       15  
Earning assets
    6,915,134       6,599,035       6,225,943       5,942,710       5,758,697       20       6,757,959       5,667,213       19  
Total assets
    7,519,392       7,092,710       6,669,950       6,350,205       6,159,152       22       7,307,231       6,060,526       21  
Deposits
    5,945,633       5,764,426       5,517,696       5,085,168       4,842,389       23       5,855,530       4,728,730       24  
Shareholders’ equity
    672,348       624,100       547,419       510,791       489,821       37       648,358       484,420       34  
Common shares — basic
    44,949       43,000       41,096       40,223       40,156               43,980       40,122          
Common shares — diluted
    45,761       43,912       42,311       41,460       41,328               44,842       41,259          
 
AT PERIOD END
                                                                       
Loans
  $ 5,999,093     $ 5,402,198     $ 5,376,538     $ 4,965,365     $ 4,810,277       25     $ 5,999,093     $ 4,810,277       25  
Investment securities
    1,213,659       1,150,424       1,107,153       980,273       974,524       25       1,213,659       974,524       25  
Total assets
    8,087,667       7,186,602       7,101,249       6,455,290       6,331,136       28       8,087,667       6,331,136       28  
Deposits
    6,361,269       5,841,687       5,772,886       5,309,219       4,976,650       28       6,361,269       4,976,650       28  
Shareholders’ equity
    828,731       638,456       616,767       526,734       496,297       67       828,731       496,297       67  
Common shares outstanding
    48,781       43,038       42,891       40,269       40,179               48,781       40,179          
 
(1)   Excludes effect of special $15 million fraud related provision for loan losses recorded in the second quarter of 2007.
 
(2)   Net income available to common shareholders, which excludes preferred stock dividends, divided by average realized common equity, which excludes accumulated other comprehensive income (loss).
 
(3)   Excludes effect of acquisition related intangibles and associated amortization.
 
(4)   Annualized.
 
(5)   Asset Quality measures for the second quarter and first six months of 2007 include $23.6 million in nonperforming loans and a special $15 million fraud loss provision that relate to two real estate developments. This fraud-related matter was isolated and considered to be non-recurring. Excluding the non-recurring amounts, the allowance for loan losses would be $77,471, the allowance for loan losses to loans ratio would be 1.29%, non-performing assets would be $19,968 and the ratio of non-performing assets to total assets would be .25% at June 30, 2007.

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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 an optimal level of revenue while balancing interest rate, credit and liquidity risks. Net interest revenue for the second quarter 2007 was $68.0 million, up $9.5 million, or 16% over last year. The increase from the second quarter of 2006 was driven by strong loan growth in the second half of 2006 that was funded primarily by customer deposits. Average loans increased $929.8 million, or 20%, from the second quarter of last year, mostly reflecting acquisitions completed over the last twelve months. Excluding acquired loans, loan growth was 8% from June 30, 2006. The quarter-end loan balances increased $596.9 million compared with March 31, 2007 of which $533.7 million resulted from the acquisition of First Bank of the South. Excluding the acquisition, second quarter loan growth was $63.2 million or an annualized rate of 5%, which was up slightly from the first quarter but down from recent historical growth trends. Year over year loan growth occurred in all of United’s markets with increases of $79.2 million in north Georgia, $98.9 million in western North Carolina (including $8.1 million in loans acquired through branch acquisitions), $58.0 million in east Tennessee, $60.7 million in the coastal Georgia markets and $892.0 million in the Atlanta Region (including $800.2 million from acquisitions).
     Average interest-earning assets for the second quarter of 2007 increased $1.156 billion, or 20%, over the same period in 2006. The increase reflects organic loan growth and the acquisition of First Bank of the South during the second quarter of 2007 and the acquisition of Southern National Bank in the fourth quarter of 2006, as well as an increase in the investment securities portfolio. The majority of the increase in interest-earning assets was funded by interest-bearing sources resulting in increases in average interest-bearing liabilities of approximately $1.086 billion as compared with June 30, 2006.
     The banking industry uses two ratios to measure relative profitability of net interest revenue. The net interest rate 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 impact of non-interest-bearing deposits and gives a direct perspective on the effect of market interest rate movements. The net interest margin is defined as net interest revenue as a percent of average total interest-earning assets and takes into account the positive impact of investing non interest-bearing deposits and capital.
     For the three months ended June 30, 2007 and 2006, the net interest spread was 3.38% and 3.53%, respectively, while the net interest margin was 3.94% and 4.07%, respectively. Since the Federal Reserve’s last rate increase in June of 2006, rates paid on deposits have continued to rise with loan yields beginning to flatten out thereby compressing the net interest spread and the net interest margin. During most of 2006, rates on certificates of deposit lagged the increase in wholesale borrowing rates allowing us to fund loan growth at a favorable spread to wholesale borrowings. Competition for time deposits pushed rates above wholesale borrowings in early 2007 making wholesale borrowings more attractive for funding loan growth.
     Most of United’s loan portfolio accrues interest at a floating rate. At June 30, 2007, United had approximately $3.1 billion in loans indexed to the daily Prime Rate published in the Wall Street Journal compared with $2.8 billion a year ago. At June 30, 2007 and 2006, United had receive-fixed swap contracts with a total notional value of $530 million and $314 million, respectively, which were used to reduce United’s exposure to changes in interest rates that were accounted for as cash flow hedges of prime-based loans. United also has receive-fixed/pay 1-month LIBOR interest rate swap contracts with an aggregate notional amount of $90 million that are being accounted for as fair value hedges of brokered time deposits and fixed rate Federal Home Loan Bank advances. In addition to the swap contracts, United has purchased interest rate floors having a total notional amount of $500 million for which it paid premiums totaling $13 million that are being accounted for as cash flow hedges of daily repricing, primed-based loans. While the swap contracts hedge our portfolio against the risks of lower interest rates, they will reduce the benefit of interest rate increases in the future. The use of interest rate derivative contracts is more fully explained in the Interest Rate Sensitivity Management section of this report beginning on page 23.
     The average yield on interest-earning assets for the second quarter of 2007 was 7.90%, compared with 7.51% in the second quarter of 2006. The average yield on interest earning assets for the first six months of 2007 was 7.91%, compared with 7.36% for the first six months of 2006. Loan yields were up 39 basis points, compared with the second quarter of 2006, due primarily to the effect of the Federal Reserve’s rate increases during the first half of 2006.
     The average cost of interest-bearing liabilities for the second quarter was 4.52%, an increase of 54 basis points from the same period in 2006. For the six months ended June 30, 2007 the average cost of interest bearing liabilities was 4.51% an increase of 70 basis points. The increase reflects the impact of rising rates on United’s floating rate sources of funding and increased deposit pricing in selected products and markets.

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     The following table shows the relationship between interest revenue and expense and the average balances of interest-earning assets and interest-bearing liabilities for the three months ended June 30, 2007 and 2006.
Table 3 — Average Consolidated Balance Sheets and Net Interest Analysis
For the Three Months Ended June 30,
                                                 
 
    2007     2006  
    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)
  $ 5,619,950     $ 119,569       8.53 %   $ 4,690,196     $ 95,127       8.14 %
Taxable securities (3)
    1,200,268       15,476       5.16       991,701       11,521       4.65  
Tax-exempt securities (1) (3)
    42,180       721       6.83       48,006       837       6.97  
Federal funds sold and other interest-earning assets
    52,736       471       3.57       28,794       405       5.63  
 
                                       
 
Total interest-earning assets
    6,915,134       136,237       7.90       5,758,697       107,890       7.51  
 
                                       
Non-interest-earning assets:
                                               
Allowance for loan losses
    (73,323 )                     (57,654 )                
Cash and due from banks
    130,046                       129,389                  
Premises and equipment
    158,290                       120,870                  
Other assets (3)
    389,245                       207,850                  
 
                                           
Total assets
  $ 7,519,392                     $ 6,159,152                  
 
                                           
 
                                               
Liabilities and Shareholders’ Equity:
                                               
Interest-bearing liabilities:
                                               
Interest-bearing deposits:
                                               
NOW
  $ 1,379,423     $ 11,470       3.34     $ 1,102,041     $ 7,342       2.67  
Money market
    354,815       3,540       4.00       180,757       1,614       3.58  
Savings
    186,490       374       .80       174,533       226       .52  
Time less than $100,000
    1,627,708       19,978       4.92       1,344,861       14,066       4.20  
Time greater than $100,000
    1,372,410       17,892       5.23       1,061,249       12,147       4.59  
Brokered
    332,857       4,109       4.95       327,962       3,386       4.14  
 
                                       
Total interest-bearing deposits
    5,253,703       57,363       4.38       4,191,403       38,781       3.71  
 
                                       
Federal funds purchased and other borrowings
    275,319       3,671       5.35       165,563       2,078       5.03  
Federal Home Loan Bank advances
    419,287       5,035       4.82       506,531       6,380       5.05  
Long-term debt
    113,270       2,201       7.79       111,869       2,168       7.77  
 
                                       
Total borrowed funds
    807,876       10,907       5.42       783,963       10,626       5.44  
 
                                       
 
Total interest-bearing liabilities
    6,061,579       68,270       4.52       4,975,366       49,407       3.98  
 
                                           
Non-interest-bearing liabilities:
                                               
Non-interest-bearing deposits
    691,930                       650,986                  
Other liabilities
    93,535                       42,979                  
 
                                           
Total liabilities
    6,847,044                       5,669,331                  
Shareholders’ equity
    672,348                       489,821                  
 
                                           
Total liabilities and shareholders’ equity
  $ 7,519,392                     $ 6,159,152                  
 
                                           
 
Net interest revenue
          $ 67,967                     $ 58,483          
 
                                           
Net interest-rate spread
                    3.38 %                     3.53 %
 
                                           
 
Net interest margin (4)
                    3.94 %                     4.07 %
 
                                           
 
(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.
 
(3)   Securities available for sale are shown at amortized cost. Pretax unrealized losses of $7.8 million in 2007 and $21.6 million in 2006 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.

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     The following table shows the relationship between interest revenue and expense and the average balances of interest-earning assets and interest bearing liabilities for the six months ended June 30, 2007 and 2006.
Table 4 — Average Consolidated Balance Sheets and Net Interest Analysis
For the Six Months Ended June 30,
                                                 
    2007     2006  
    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)
  $ 5,512,005     $ 233,437       8.54 %   $ 4,598,355     $ 181,622       7.96 %
Taxable securities (3)
    1,155,308       29,444       5.10       990,698       22,839       4.61  
Tax-exempt securities (1) (3)
    42,767       1,456       6.81       48,500       1,683       6.94  
Federal funds sold and other interest-earning assets
    47,879       928       3.88       29,660       784       5.29  
 
                                       
 
Total interest-earning assets
    6,757,959       265,265       7.91       5,667,213       206,928       7.36  
 
                                       
Non-interest-earning assets:
                                               
Allowance for loan losses
    (70,769 )                     (56,247 )                
Cash and due from banks
    125,367                       125,957                  
Premises and equipment
    152,593                       118,245                  
Other assets (3)
    342,081                       205,358                  
 
                                           
Total assets
  $ 7,307,231                     $ 6,060,526                  
 
                                           
 
Liabilities and Shareholders’ Equity:
                                               
Interest-bearing liabilities:
                                               
Interest-bearing deposits:
                                               
NOW
  $ 1,351,277     $ 22,097       3.30     $ 1,092,245     $ 13,329       2.46  
Money Market
    308,541       6,080       3.97       172,128       2,814       3.30  
Savings
    180,913       683       .76       175,161       454       .52  
Time less than $100,000
    1,634,569       39,774       4.91       1,307,676       26,101       4.03  
Time greater than $100,000
    1,378,870       35,808       5.24       1,020,682       22,556       4.46  
Brokered
    333,800       8,022       4.85       321,562       6,328       3.97  
 
                                       
Total interest-bearing deposits
    5,187,970       112,464       4.37       4,089,454       71,582       3.53  
 
                                       
 
Federal funds purchased & other borrowings
    207,663       5,488       5.33       147,185       3,560       4.88  
Federal Home Loan Bank advances
    407,583       9,836       4.87       546,405       13,009       4.80  
Long-term debt
    113,251       4,405       7.84       111,868       4,321       7.79  
 
                                       
Total borrowed funds
    728,497       19,729       5.46       805,458       20,890       5.23  
 
                                       
 
Total interest-bearing liabilities
    5,916,467       132,193       4.51       4,894,912       92,472       3.81  
 
                                           
Non-interest-bearing liabilities:
                                               
Non-interest-bearing deposits
    667,560                       639,276                  
Other liabilities
    74,846                       41,918                  
 
                                           
Total liabilities
    6,658,873                       5,576,106                  
 
                                           
Shareholders’ equity
    648,358                       484,420                  
 
                                           
Total liabilities and shareholders’ equity
                                               
 
  $ 7,307,231                     $ 6,060,526                  
 
                                           
Net interest revenue
          $ 133,072                     $ 114,456          
 
                                           
Net interest-rate spread
                    3.40 %                     3.55 %
 
                                           
 
Net interest margin (4)
                    3.96 %                     4.07 %
 
                                           
 
(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 incom tax rate.
 
(2)   Included in the average balance of loans outstanding are loans where the accrual of interest has been discontinued.
 
(3)   Securities available for sale are shown at amortized cost. Pretax unrealized losses of $8.9 million in 2007 and $17.9 million in 2006 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.

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     The following table shows the relative impact on net interest revenue for changes in the average outstanding balances (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 5 — Change in Interest Revenue and Expense on a Taxable Equivalent Basis
(in thousands)
                                                 
    Three Months Ended June 30, 2007     Six Months Ended June 30, 2007  
    Compared to 2006     Compared to 2006  
    Increase (decrease)     Increase (decrease)  
    Due to Changes in     Due to Changes in  
    Volume     Rate     Total     Volume     Rate     Total  
Interest-earning assets:
                                               
Loans
  $ 19,597     $ 4,845     $ 24,442     $ 37,999     $ 13,816     $ 51,815  
Taxable securities
    2,598       1,357       3,955       4,040       2,565       6,605  
Tax-exempt securities
    (100 )     (16 )     (116 )     (196 )     (31 )     (227 )
Federal funds sold and other interest-earning assets
    251       (185 )     66       684       (540 )     144  
 
                                   
 
Total interest-earning assets
    22,346       6,001       28,347       42,527       15,810       58,337  
 
                                   
 
Interest-bearing liabilities:
                                               
NOW accounts
    2,079       2,049       4,128       3,603       5,165       8,768  
Money market accounts
    1,717       209       1,926       2,594       672       3,266  
Savings deposits
    16       132       148       15       214       229  
Time deposits less than $100,000
    3,240       2,672       5,912       7,287       6,386       13,673  
Time deposits greater than $100,000
    3,897       1,848       5,745       8,840       4,412       13,252  
Brokered deposits
    51       672       723       249       1,445       1,694  
 
                                   
Total interest-bearing deposits
    11,000       7,582       18,582       22,588       18,294       40,882  
 
                                   
Federal funds purchased & other borrowings
    1,456       137       1,593       1,573       355       1,928  
Federal Home Loan Bank advances
    (1,059 )     (286 )     (1,345 )     (3,348 )     175       (3,173 )
Long-term debt
    27       6       33       54       30       84  
 
                                   
Total borrowed funds
    424       (143 )     281       (1,721 )     560       (1,161 )
 
                                   
Total interest-bearing liabilities
    11,424       7,439       18,863       20,867       18,854       39,721  
 
                                   
 
Increase in net interest revenue
  $ 10,922     $ (1,438 )   $ 9,484     $ 21,660     $ (3,044 )   $ 18,616  
 
                                   
Provision for Loan Losses
     The provision for loan losses was $18.7 million for the second quarter of 2007, compared with $3.7 million for the same period in 2006. The second quarter 2007 provision for loan losses included a special $15 million provision for fraud related loan losses in two real estate developments located near Spruce Pine, North Carolina. During the second quarter of 2007, the North Carolina Attorney General obtained a receiver to take custody the developers’ assets citing possible fraud on the part of the developers. United has loans outstanding to 83 individual borrowers that total $23.6 million secured by undeveloped lots in these developments. United was one of thirteen banks that had loaned money to borrowers to finance the purchase of lots. The loans were made to appropriately qualified borrowers in accordance with our standard underwriting procedures. At the time the loans were made, we were not aware that most of the borrowers were simultaneously obtaining loans for additional lots at other banks and thereby taking on debt possibly beyond their repayment ability. We were also unaware that the borrowers’ down payments were not paid in cash as indicated on the closing statements, but were financed by a second mortgage from the developer and that the developer agreed to service the borrowers’ debts. We have also subsequently learned that the appraisals relied upon in the underwriting process had been inflated by using comparable sales that were not at arms length to persons related to the developer and that many of the lots were subdivided into parcels that are too small to be used for their intended purpose. Based on our findings and our internal estimate of expected losses, we recorded a $15 million special provision for loan losses. We are working with the receiver, the other banks involved, the borrowers and our insurance carrier in order to minimize our losses. None of the loans have been charged off, but were placed on non-accrual status as of June 30, 2007 and included in nonperforming assets.
     Net loan charge-offs as an annualized percentage of average outstanding loans for the three months ended June 30, 2007 was .15%, as compared with .09% for the second quarter of 2006. For the first six months of 2007 net loan charge offs as an annualized percentage of average outstanding loans was .13% versus .10% for 2006. Net loan charge-offs continued at low levels in the second quarter but will likely exceed the Company’s historical six-year range of .11% to .25% in the next few quarters as loans in the two developments near Spruce Pine, North Carolina become delinquent and are charged off. Excluding expected charge offs related to the Spruce Pine developments, net charge offs are expected to remain within our historical range.

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     The provision for loan losses is based on management’s evaluation of losses inherent in the loan portfolio and the corresponding analysis of the allowance for loan losses at quarter-end. Additional discussion on loan quality and the allowance for loan losses is included in the Asset Quality section of this report.
Fee Revenue
     Fee revenue for the second quarter of 2007 totaled $16.6 million, an increase of $4.6 million, or 38% from 2006. Fee revenue accounted for approximately 20% of total revenue for the second quarter of 2007, compared with 18% for the second quarter of 2006. During the first six months of 2007, fee revenue totaled $30.9 million compared with $23.7 million for 2006, an increase of 30%. This strong growth is the result of United’s continued focus on increasing fee revenue through new products and services. The following table presents the components of fee revenue for the second quarter of 2007 and 2006.
Table 6 — Fee Revenue
For the Three and Six Months Ended June 30,
(dollars in thousands)
                                                 
    Three Months Ended             Six Months Ended        
    June 30,             June 30,        
    2007     2006     Change     2007     2006     Change  
Service charges and fees
  $ 7,975     $ 6,828       17 %   $ 15,228     $ 13,181       16 %
Mortgage loan and other related fees
    2,476       1,708       45       4,699       3,221       46  
Consulting fees
    2,241       1,572       43       3,988       3,156       26  
Brokerage fees
    1,192       796       50       2,136       1,646       30  
Securities gains (losses), net
    1,386                     1,593       (3 )        
Loss on prepayments of borrowings
    (1,164 )     (290 )             (1,164 )     (290 )        
Other
    2,448       1,362       80       4,456       2,823       58  
 
                                       
Total
  $ 16,554     $ 11,976       38     $ 30,936     $ 23,734       30  
 
                                       
     Service charges and fees for the second quarter of 2007 increased $1.1 million, or 17% from 2006. This increase was primarily due to growth in transactions and new accounts resulting from core deposit programs, growth in overdraft products, and the cross-selling of other products and services. Also included in service charges and fees were ATM and debit card usage fees which rose $350,000 from a year ago, primarily the result of a larger customer base added through acquisitions, de novo growth and core deposit programs.
     Mortgage loans and related fees of $2.5 million for the quarter were up $768,000, or 45%, from 2006. The increase is due to a rise in the amount of originations assisted by improved pricing. In the second quarter of 2007, United originated 659 loans totaling $122 million compared with 510 loans totaling $92 million in the second quarter of 2006. Substantially all originated residential mortgages were sold into the secondary market, including the right to service these loans.
     Consulting fees of $2.2 million were up $669,000, a 43% increase from the second quarter of 2006. The increase was primarily due to growth in advisory services.
     Brokerage fees of $1.2 million were up $396,000, or 50%, from the second quarter of 2006. This increase was due primarily to an increase in trading activity resulting from a strong market.
     During the second quarter, as part of its balance sheet management activities, United prepaid a $25 million Federal Home Loan Bank advance and incurred a charge of $1.2 million. The interest rate on the advance was approximately 100 basis points above market. The loss on the prepayment of the Federal Home Loan Bank advance was offset with $1.4 million in gains from the sale of equity securities.
     Other fee revenue of $2.4 million increased $1,086,000, or 80% from 2006. This increase is primarily due to purchase of additional Bank Owned Life Insurance that added $632,000 of fee revenue for second quarter 2007 related to earnings recognized on the cash surrender value of the assets.

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Operating Expenses
     For the three months ended June 30, 2007, total operating expenses were $47.7 million, an increase of 20%, compared with $39.6 million in 2006. Operating expenses from First Bank of the South, acquired on June 1, 2007 and Southern National Bank, acquired on December 1, 2006 accounted for approximately for approximately $2.3 million of the $8.1 million increase. The following table presents the components of operating expenses for the three and six months ended June 30, 2007 and 2006.
Table 7 — Operating Expenses
For the Three and Six Months Ended June 30,
(dollars in thousands)
                                                 
    Three Months Ended             Six Months Ended        
    June 30,             June 30,        
    2007     2006     Change     2007     2006     Change  
 
Salaries and employee benefits
  $ 30,022     $ 24,469       23 %   $ 58,339     $ 48,353       21 %
Communications and equipment
    3,845       3,731       3       7,657       7,107       8  
Occupancy
    3,316       2,916       14       6,507       5,848       11  
Advertising and public relations
    2,098       1,948       8       4,114       3,836       7  
Postage, printing and supplies
    1,680       1,289       30       3,340       2,805       19  
Professional fees
    2,010       1,069       88       3,489       2,230       56  
Amortization of intangibles
    633       503       26       1,197       1,006       19  
Other
    4,098       3,720       10       7,900       6,923       14  
 
                                       
Total
  $ 47,702     $ 39,645       20     $ 92,543     $ 78,108       18  
 
                                       
     Salaries and employee benefits for the second quarter of 2007 totaled $30.0 million, an increase of $5.6 million, or 23%, over the same period in 2006. Acquisitions accounted for approximately $1.5 million of the increase, with the remainder primarily due to the cost of staffing de novo locations and business growth. At June 30, 2007, total staff was 2,017, an increase of 244 employees from the second quarter of 2006. Of this increase, 64 staff members, representing 26% of the increase in staff, were added for de novo expansion and 118 staff members, representing 48% of the increase in staff, were added through acquisitions.
     Communication and equipment expense for the second quarter of 2007 was up $114,000, or 3%, from 2006. This increase is the result of acquisitions offset by lower depreciation and maintenance charges.
     Occupancy expense for the second quarter of 2007 was up $400,000, or 14%, from 2006. The majority of this increase was the result of higher facilities costs and maintenance expenses resulting from additional banking offices added through de novo expansion and acquisitions.
     Advertising and public relations expense for the second quarter of 2007 was up $150,000, or 8%, from 2006. A portion of the increase relates to additional costs of sponsorships designed to increase brand awareness, while the remainder of the increase reflects the cost associated with initiatives designed to raise core deposits, ongoing efforts to generate brand awareness in new markets added by de novo expansion and by the recent acquisitions of First Bank of the South and Southern National Bank.
     Postage, printing and supplies expense for the second quarter of 2007 was up $391,000, or 30%, from 2006. The increase is primarily from higher cost of postage and courier costs resulting from the growing number of offices, both through acquisitions and de novo expansion.
     Professional fees increased $941,000, or 88%, from 2006. Increasing legal costs associated with the loan workouts and other corporate initiatives, along with the higher cost of outsourced services contributed to this increase.
     Other expense increased by $378,000, or 10%, from 2006. The majority of this increase is the result of higher costs of ATMs and internet banking activities associated with continued business growth within existing markets and de novo expansion.
     The efficiency ratio measures total operating expenses as a percentage of total revenue, excluding the provision for loan losses, gains or losses from prepayment of borrowings, and net securities gains or losses. United’s efficiency ratio for the second quarter was 56.59% compared with 56.04% for the second quarter of 2006. United’s efficiency ratio remained within management’s long-term efficiency goal of 56% - 58%.

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Income Taxes
     Income tax expense was $5.8 million for the second quarter, as compared with $9.7 million for the second quarter of 2006, representing a 32.6% and 36.5% effective tax rate, respectively. For the first six months of 2007 and 2006, income tax expense was $16.9 million and $19.0 million, respectively. The effective tax rate for the same periods was 35.1% and 36.6%, respectively. The effective tax rates were lower than the statutory tax rates primarily due to interest and revenue on certain investment securities and loans that are exempt from income taxes, tax exempt fee revenue and tax credits received on affordable housing investments. The tax rates for 2007 are lower than 2006 primarily as a result of the $15 million special provision for fraud related loan losses which resulted in a deferred tax benefit at the blended federal and state statutory tax rate of 38.9%. This special provision reduced taxable income without a proportionate decrease in revenue from tax exempt sources. Absent the special provision, the second quarter 2007 effective tax rate would have been 35.5% which is down from a year ago mostly due to an additional $50 million investment in Bank Owned Life Insurance in the second quarter of 2007. Additional information regarding income taxes can be found in Note 14 to the consolidated financial statements filed with United’s 2006 Form 10-K.
Balance Sheet Review
     Total assets at June 30, 2007 were $8.1 billion, compared with $6.3 billion at June 30, 2006. Average total assets for the second quarter of 2007 were $7.5 billion, up $1.4 billion from average assets in the second quarter of 2006. Much of the growth in assets was the result of the acquisitions of First Bank of the South on June 1, 2007 with total assets of $809 million, including intangible assets, and Southern National Bank on December 1, 2006 with total assets of $416 million in assets, including intangible assets. Loan growth was strong in the second half of 2006 but slowed in the first half of 2007 primarily due to a surplus of housing and finished lot inventory within United’s markets. Much of United’s loan growth over the years has come from construction and land development projects and, in the first half of 2007, many developers were delaying development projects until housing and finished lot inventories return to more normal levels. Also, because of the longer expected marketing times and concern for a price correction, United’s own internal underwriting standards were tightened.
Loans
     The following table presents a summary of the loan portfolio.
Table 8 — Loans Outstanding
(dollars in thousands)
                         
    June 30,     December 31,     June 30,  
    2007     2006     2006  
 
                       
Commercial (commercial and industrial)
  $ 420,608     $ 295,698     $ 255,546  
Commercial (secured by real estate)
    1,461,286       1,229,910       1,129,973  
 
                 
Total commercial
    1,881,894       1,525,608       1,385,519  
Construction and land development
    2,522,097       2,333,585       1,994,860  
Residential mortgage
    1,412,597       1,337,728       1,261,107  
Installment
    182,505       179,617       168,791  
 
                 
Total loans
  $ 5,999,093     $ 5,376,538     $ 4,810,277  
 
                 
 
                       
As a percentage of total loans:
                       
Commercial (commercial and industrial)
    7 %     6 %     5 %
Commercial (secured by real estate)
    24       23       24  
 
                 
Total commercial
    31       29       29  
Construction and land development
    42       43       41  
Residential mortgage
    24       25       26  
Installment
    3       3       4  
 
                 
Total
    100 %     100 %     100 %
 
                 
     At June 30, 2007, total loans were $6.0 billion, an increase of $1.2 billion, or 25%, from June 30, 2006. During 2006, United experienced strong loan growth in all markets, with particular strength in construction and land development loans. That growth slowed in the first half of 2007. With the acquisition of First Bank of the South, United gained additional expertise in commercial lending that United plans to leverage to better diversify the loan portfolio and boost overall loan growth. The addition of First Bank of the South pushed commercial loans to 31% of the loan portfolio at June 30, 2007 from 29% at December 31, 2006.

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Asset Quality and Risk Elements
     United manages asset quality and controls credit risk through close 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, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures at all of United’s community banks. Additional information on the credit administration function is included in Item 1 under the heading Loan Review and Non-performing Assets in United’s Annual Report on Form 10-K.
     The provision for loan losses charged to earnings was based upon management’s judgment of the amount necessary to maintain the allowance at a level adequate to absorb probable losses at quarter-end. The amount each period 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 economic factors and trends. The evaluation of these factors is performed quarterly by management through an analysis of the adequacy of the allowance for loan losses.
     Reviews of non-performing loans, past due loans and larger credits, designed to identify potential charges to the allowance for loan losses, as well as determine the adequacy of the allowance, are conducted on a regular basis during the quarter. These reviews are performed by the responsible lending officers, as well as a separate loan review department, and consider such factors as the financial strength of borrowers, the value of the applicable collateral, past loan loss experience, anticipated loan losses, growth in the loan portfolio, prevailing economic conditions and other factors. United also uses external loan review to supplement the activities of the loan review department and 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-month and six-month periods ended June 30, 2007 and 2006.
Table 9 — Summary of Loan Loss Experience
(dollars in thousands)
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2007     2006     2007     2006  
 
                               
Balance beginning of period
  $ 68,804     $ 55,850     $ 66,566     $ 53,595  
Allowance from acquisitions
    7,091             7,091        
Loans charged-off
    (2,751 )     (1,530 )     (4,717 )     (3,413 )
Recoveries
    627       488       1,131       1,126  
 
                       
Net charge-offs
    (2,124 )     (1,042 )     (3,586 )     (2,287 )
Provision for loan losses
    18,700       3,700       22,400       7,200  
 
                       
Balance end of period
  $ 92,471     $ 58,508     $ 92,471     $ 58,508  
 
                       
 
                               
Total loans:
                               
At period end
  $ 5,999,093     $ 4,810,277     $ 5,999,093     $ 4,810,277  
Average
    5,619,950       4,690,196       5,512,005       4,598,355  
As a percentage of average loans (annualized):
                               
Net charge-offs
    .15 %     .09 %     .13 %     .10 %
Provision for loan losses
    1.33       .32       .81       .31  
Allowance as a percentage of period end loans
    1.54       1.22       1.54       1.22  
Allowance as a percentage of period end non-performing loans
    300       898       300       898  
     Management believes that the allowance for loan losses at June 30, 2007 is adequate to absorb losses inherent in the loan portfolio. This assessment involves uncertainty and judgment; therefore, the adequacy of the allowance for loan losses cannot be determined with precision and may be subject to change in future periods. In addition, bank regulatory authorities, as part of their periodic examination of the Banks, may require adjustments to the provision for loan losses in future periods if, in their opinion, the results of their review warrant such additions.

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Non-performing Assets
     The table below summarizes non-performing assets.
Table 10 — Non-Performing Assets
(dollars in thousands)
                         
    June 30,     December 31,     June 30,  
    2007     2006     2006  
Non-accrual loans
  $ 30,849     $ 12,458     $ 6,518  
Loans past due 90 days or more and still accruing
                 
 
                 
 
Total non-performing loans
    30,849       12,458       6,518  
Other real estate owned
    12,752       1,196       2,287  
 
                 
 
Total non-performing assets
  $ 43,601     $ 13,654     $ 8,805  
 
                 
 
                       
Non-performing loans as a percentage of total loans
    .51 %     .23 %     .14 %
 
Non-performing assets as a percentage of total assets
    .54       .19       .14  
     Non-performing loans totaled $30.8 million at June 30, 2007, compared with $12.5 million at December 31, 2006 and $6.5 million at June 30, 2006. The increase in non-performing loans at June 30, 2007 is due to the $23.6 million in lot loans in the two real estate developments in Spruce Pine, North Carolina that were placed in the custody of a receiver by the North Carolina Attorney General. Excluding those loans the ratio of non-performing loans to total loans would be 12 basis points at June 30, 2007, down from both June 30, 2006 and December 31, 2006. Non-performing assets, which include non-performing loans and foreclosed real estate, totaled $43.6 million at June 30, 2007, compared with $13.7 million at December 31, 2006 and $8.8 million at June 30, 2006.
     United’s policy is to place loans on non-accrual 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 placed on non-accrual status, interest previously accrued, but not collected, is reversed against current interest revenue. Depending on management’s evaluation of the borrower and loan collateral, interest revenue on a non-accrual loan may be recognized on a cash basis as payments are received. There were no commitments to lend additional funds to customers whose loans were on non-accrual status at June 30, 2007.
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.
     Total investment securities available for sale at quarter-end increased $239 million from a year ago. The growth in the investment securities portfolio was consistent with growth in the rest of the balance sheet. At June 30, 2007 and June 30, 2006, the securities portfolio accounted for approximately 15% of total assets. At December 31, 2006, the securities portfolio as a percentage of assets was 16%.
     The investment securities portfolio primarily consists of U.S. Government agency securities, U.S. Government sponsored agency mortgage-backed securities, non-agency mortgage-backed securities, and municipal 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 the contractual maturities because loans underlying the securities may prepay. Decreases in interest rates will generally cause an acceleration of prepayment levels. In a declining 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 timing of cash receipts and can result in the holding of a below market yielding asset for a longer time period.

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Deposits
     Total deposits at June 30, 2007 were $6.4 billion, an increase of $1.4 billion, or 28%, from June 30, 2006. Total non-interest-bearing demand deposit accounts of $773 million increased $111 million, or 17%, NOW accounts of $1.4 billion increased $341 million, or 31%, money market accounts of $505 million increased $306 million, or 154%, and savings accounts of $207 million increased $33 million, or 19% reflecting the acquisitions of First Bank of the South, Southern National Bank and two branches in western North Carolina and the ongoing success of United’s initiatives to raise core deposits. Excluding acquisitions, demand, NOW, money market and savings accounts increased $243 million, or 11%, from June 30, 2006.
     Total time deposits as of June 30, 2007 were $3.1 billion, an increase of $586 million, or 23%, from the second quarter of 2006. Time deposits less than $100,000 totaled $1.7 billion, compared with $1.4 billion a year ago, an increase of 19%. Time deposits of $100,000 and greater totaled $1.4 billion compared with $1.1 billion at June 30, 2006, an increase of 29%. Although much of the increase was the result of the acquisitions, in 2006 time deposit rates lagged the rise in rates on comparable wholesale borrowings allowing us to aggressively fund our balance sheet with certificates of deposits at rates as much as 100 basis points below wholesale borrowing rates. In late 2006 and into early 2007, competition for time deposits drove rates above wholesale borrowings leading us to allow non-relationship time deposits to leave the bank in favor of lower priced wholesale funding sources. Despite the shift in funding toward wholesale borrowings, our loan to deposit ratio remains below 100%.
     United utilizes “brokered” time deposits, issued in certificates of less than $100,000, as an alternative source of cost-effective funding. Brokered time deposits outstanding at June 30, 2007 were $348 million compared with $340 million at June 30, 2006, an increase of 2%.
Wholesale Funding
     At June 30, 2007, both of the Banks were shareholders in a Federal Home Loan Bank (“FHLB”). Through this affiliation, FHLB secured advances totaled $499 million and $459 million at June 30, 2007 and 2006, respectively. United anticipates continued utilization of this short and long-term source of funds. FHLB advances outstanding at June 30, 2007 had both fixed and floating interest rates ranging from 2.85% to 6.59%. Additional information regarding FHLB advances, including scheduled maturities, is provided in Note 10 to the consolidated financial statements included in United’s 2006 Form 10-K.
Interest Rate Sensitivity Management
     The absolute level and volatility of interest rates can have a significant impact 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.
     Net interest revenue is influenced by changes in the level of interest rates. United manages its exposure to fluctuations in interest rates through policies established by the Asset/Liability Management Committee (“ALCO”). ALCO meets regularly and has responsibility for approving asset/liability management policies, formulating and implementing strategies to improve balance sheet positioning and/or earnings, and reviewing United’s interest rate sensitivity.
     One of the tools management utilizes to estimate the sensitivity of net interest revenue to changes in interest rates is an interest rate simulation model. Such estimates are based upon a number of assumptions for various scenarios, including the level of balance sheet growth, deposit repricing characteristics and the rate of prepayments. The simulation model measures the potential change in net interest revenue over a twelve-month period under various interest rate scenarios. United’s baseline scenario assumes rates remain flat (“flat rate scenario”) over the next twelve months and is the scenario that all others are compared to in order to measure the change in net interest revenue. United runs ramp scenarios that assume gradual increases and decreases of 200 basis points each over the next twelve months. United’s policy for net interest revenue simulation is limited to a change from the flat rate scenario of less than 10% for the up or down 200 basis point ramp scenarios over twelve months. At June 30, 2007, United’s simulation model indicated that a 200 basis point increase in rates over the next twelve months would cause an approximate 1.7% increase in net interest revenue and a 200 basis point decrease in rates over the next twelve months would cause an approximate .8% decrease in net interest revenue.
     In order to manage its interest rate sensitivity, United uses off-balance sheet contracts that are considered derivative financial instruments. Derivative financial instruments can be a cost and capital effective means of modifying the repricing characteristics of on-balance sheet assets and liabilities. At June 30, 2007, United was a party to interest rate swap contracts under which it pays a variable rate and receives a fixed rate, and interest rate floor contracts in which United pays a premium to a counterparty who agrees to pay United the difference between a variable rate and a strike rate if the variable rate falls below the strike rate.

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     The following table presents the interest rate swap contracts outstanding at June 30, 2007.
Table 11 — Derivative Financial Instruments
As of June 30, 2007
(dollars in thousands)
                                 
            Rate              
    Notional     Received /              
Type/Maturity   Amount     Floor Rate     Rate Paid     Fair Value (8)  
Fair Value Hedges:
                               
LIBOR Swaps (Brokered CDs)
                               
September 29, 2008 (1)
  $ 10,000       5.25 %     5.31 %   $ (13 )
June 18, 2008 (2)
    20,000       5.15       4.98       8  
November 3, 2008 (3)
    10,000       5.00       5.05       (10 )
 
                       
Total:
    40,000       5.14       5.08       (15 )
 
                       
LIBOR Swaps (FHLB Advances)
                               
January 5, 2009 (4)
    25,000       5.06       5.21       (46 )
March 2, 2009 (5)
    25,000       4.90       5.19       (83 )
 
                       
Total:
    50,000       4.98       5.20       (129 )
 
                       
Total Fair Value Hedges
    90,000       5.05       5.15       (144 )
 
                       
Cash Flow Hedges:
                               
Prime Swaps (Prime Loans) (6)
                               
November 5, 2007
    50,000       8.41       8.25       (15 )
February 1, 2008
    50,000       8.40       8.25       (20 )
April 17, 2008
    50,000       8.25       8.25       (60 )
April 17, 2008
    50,000       8.25       8.25       (61 )
May 1, 2008
    50,000       8.33       8.25       (16 )
May 1, 2008
    50,000       8.34       8.25       (12 )
August 4, 2008
    50,000       8.32       8.25       (24 )
November 4, 2008
    100,000       8.32       8.25       (51 )
February 1, 2009
    25,000       8.31       8.25       (17 )
May 4, 2009
    30,000       8.29       8.25       (14 )
June 11, 2010
    25,000       8.26       8.25       77  
 
                       
Total:
    530,000       8.32       8.25       (213 )
 
                       
Prime Floors (Prime Loans) (7)
                               
February 1, 2009
    25,000       8.75               249  
May 1, 2009
    25,000       8.75               293  
August 1, 2009
    75,000       8.75               1,013  
November 1, 2009
    75,000       8.75               1,141  
February 4, 2010
    100,000       8.75               1,696  
May 4, 2010
    100,000       8.75               1,863  
August 1, 2010
    50,000       8.75               1,015  
August 4, 2010
    50,000       8.75               1,017  
 
                           
Total:
    500,000                       8,287  
 
                           
Total Cash Flow Hedges:
    1,030,000                       8,074  
 
                           
Total Derivative Contracts
  $ 1,120,000                     $ 7,930  
 
                           
 
(1)   Rate Paid equals 1-Month LIBOR minus .0075
 
(2)   Rate Paid equals 1-Month LIBOR minus .2725
 
(3)   Rate Paid equals 1-Month LIBOR minus .3435
 
(4)   Rate Paid equals 1-Month LIBOR minus .1101
 
(5)   Rate Paid equals 1-Month LIBOR minus .1280
 
(6)   Rate Paid equals Prime rate as of June 30, 2007
 
(7)   Floor contracts receive cash payments equal to the floor rate less the prime rate.
 
(8)   Excludes accrued interest

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     United’s derivative financial instruments 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 currently in earnings both the impact of the change in the fair value of the derivative financial instrument and the offsetting impact of the change in fair value of the hedged asset or liability. At June 30, 2007, United had interest rate swap contracts with a total notional amount of $530 million that were designated as cash flow hedges of prime based loans. United had interest rate floor contracts with a total notional of $500 million that were also designated as cash flow hedges of prime based loans. United also has five receive fixed, pay LIBOR swap contracts with a total notional of $90 million that were accounted for as fair value hedges of brokered deposits and fixed rate FHLB advances.
     United’s policy requires all 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 impact on the 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 reasonable cost, to meet 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. 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 Banks’ customers, both depositors and borrowers.
     The primary 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; so that United can also meet the investment requirements of its shareholders as market interest rates change. 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. Mortgage loans held for sale totaled $30.6 million at June 30, 2007, 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, 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.
     United has available a line of credit and a joint credit agreement at its holding company with other financial institutions totaling $75 million. At June 30, 2007, United had no outstanding balances on these credit facilities. United had sufficient qualifying collateral to increase FHLB advances by $425 million at June 30, 2007. United’s internal policy limits brokered deposits to 25% of total non-brokered deposits. At June 30, 2007, United had the capacity to increase brokered deposits by $1.156 billion and still remain within this limit.
     As disclosed in United’s consolidated statement of cash flows, net cash provided by operating activities was $47.0 million for the six months ended June 30, 2007. The major contributors in this category were net income of $31.3 million plus non cash expenses for depreciation, amortization and accretion of $6.7 million, provision for loan losses of $22.4 million, stock based compensation of $1.6 million, a decrease in mortgage loans held for sale of $4.7 million. Those sources were offset by uses including a decrease in accrued expenses and other liabilities of $13.3 million and an increase in other assets and accrued interest receivable of $5.7 million. Net cash used by investing activities of $249.0 million consisted primarily of a net increase in loans totaling $113.6 million, purchases of investment securities of $301 million, the purchase of Bank Owned Life Insurance of $50 million, purchases of premises and equipment of $20.4 million and cash paid for acquisitions of $4.3 million. Net cash provided by financing activities of $224.9 million consisted primarily of a net increase in deposits of $20.5 million and a net increase in federal funds purchased, repurchase agreements, and other short-term borrowings of $209.2 million that were offset by the use of cash for dividends paid of $7.3 million. In the opinion of management, the liquidity position at June 30, 2007 is sufficient to meet its expected cash flow requirements.

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Capital Resources and Dividends
     Shareholders’ equity at June 30, 2007 was $828.7 million, an increase of $332.4 million, or 67%, from June 30, 2006. Accumulated other comprehensive income (loss) is not included in the calculation of regulatory capital adequacy ratios. Excluding the change in the accumulated other comprehensive income (loss), shareholders’ equity increased $326 million, or 63%, from June 30, 2006. Dividends of $8.3 million, or $.18 per share, were declared on common stock during the first six months of 2007, an increase of 29% from the amount declared in the same period in 2006 due to a 13% increase in the dividend rate and an increase in the number of outstanding shares primarily resulting from the acquisitions of First Bank of the South and Southern National Bank. The dividend payout ratio was 19% for the second quarters of 2007 and 2006 based on basic operating earnings per share. The dividend payout ratio for the second quarter of 2007 was 35% based on basic earnings per share determined in accordance with GAAP. Although, United retains a portion of its earnings in order to provide a cost-effective source of capital for continued growth and expansion, the company recognizes that cash dividends are an important component of shareholder value, and therefore, provides for cash dividends when earnings and capital levels permit.
     United had in place a Board approved repurchase authorization of 1,000,000 shares of its outstanding common stock that expires on December 31, 2007. No purchases had been made under that authorization during the first half of 2007. At its July 19, 2007 meeting, United’s Board of Directors increased the authorization to 2,000,000 shares.
     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 2007 and 2006.
Table 12 — Stock Price Information
                                                                 
    2007   2006
                            Avg Daily                           Avg Daily
    High   Low   Close   Volume   High   Low   Close   Volume
First quarter
  $ 34.98     $ 30.81     $ 32.79       232,269     $ 29.64     $ 26.02     $ 28.15       59,252  
Second quarter
    33.03       25.80       25.89       266,682       31.26       27.02       30.44       92,937  
Third quarter
                                    33.10       27.51       30.05       86,495  
Fourth quarter
                                    33.37       29.03       32.32       87,626  
     The increase in the average daily trading volume in the first half of 2007 resulted from United’s inclusion in Standard & Poors’ SmallCap 600 index on March 9, 2007.
     The following table presents the quarterly cash dividends declared in 2007 and 2006 and the respective payout ratios as a percentage of basic operating earnings per share, which excludes the effect of a $15 million special fraud-related loan loss provision in the second quarter of 2007.
Table 13 — Dividend Payout Information
                                 
    2007   2006
    Dividend   Payout %   Dividend   Payout %
         
 
                               
First quarter
  $ .09       20     $ .08       20  
Second quarter
    .09       19 *     .08       19  
Third quarter
                    .08       19  
Fourth quarter
                    .08       18  
 
*   Based on basic operating earnings per share which excludes the effect of the $15 million special fraud-related provision for loan losses. Including the special provision, the dividend payout ratio was 35% for the second quarter of 2007.

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     The Board of Governors of the Federal Reserve System 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-adjusted assets to determine the risk based capital ratios. The guidelines require an 8% total risk-based capital ratio, of which 4% must be Tier I capital. To be considered well capitalized under the guidelines, a 10% total risk-based capital ratio is required, of which 6% must be Tier I capital.
     A minimum leverage ratio is required in addition to the risk-based capital standards and is defined as Tier I capital divided by average assets adjusted for goodwill and deposit-based intangibles. Although a minimum leverage ratio of 3% is required for the highest-rated bank holding companies which are not undertaking significant expansion programs, the Federal Reserve Board 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 Board. The Federal Reserve Board uses the leverage and risk-based capital ratios to assess capital adequacy of banks and bank holding companies.
     The following table shows United’s capital ratios, as calculated under regulatory guidelines, at June 30, 2007 and 2006.
Table 14 — Capital Ratios
(dollars in thousands)
                                 
    2007   2006
    Actual   Regulatory   Actual   Regulatory
    Amount   Minimum   Amount   Minimum
         
 
                               
Tier I Leverage:
                               
Amount
  $ 567,478     $ 216,007     $ 443,094     $ 181,376  
Ratio
    7.88 %     3.00 %     7.33 %     3.00 %
 
Tier I Risk-Based:
                               
Amount
  $ 567,478     $ 253,182     $ 443,094     $ 202,567  
Ratio
    8.97 %     4.00 %     8.75 %     4.00 %
 
Total Risk-Based:
                               
Amount
  $ 713,237     $ 506,365     $ 571,202     $ 405,134  
Ratio
    11.27 %     8.00 %     11.28 %     8.00 %
     United’s Tier I capital excludes other comprehensive income, and consists of stockholders’ equity and qualifying capital securities less goodwill and deposit-based intangibles. Tier II capital components include supplemental capital items such as a qualifying allowance for loan losses and qualifying subordinated debt. Tier I capital plus Tier II capital components is referred to as Total Risk-Based capital.
     The capital ratios of United and the Banks currently exceed the minimum ratios as defined by federal regulators. United monitors these ratios to ensure that United and the Banks remain above regulatory minimum guidelines.
Impact 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 impact 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 impact of inflation on financial results depends on United’s ability to react to changes in interest rates and, by such reaction, reduce the inflationary impact 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 June 30, 2007 from that presented in the Annual Report on Form 10-K for the year ended December 31, 2006. The interest rate sensitivity position at June 30, 2007 is included in management’s discussion and analysis on page 23 of this report.
Item 4. Controls and Procedures

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     United’s management, including the Chief Executive Officer and Chief Financial Officer, supervised and participated in an evaluation of the company’s disclosure controls and procedures as of June 30, 2007. 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 Securities and Exchange Commission’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 Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
     There were no changes in United’s internal controls over financial reporting that occurred during United’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, United’s internal controls over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
In the ordinary course of operations, United and the Banks are defendants in various legal proceedings. In the opinion of management, there is no pending or threatened proceeding 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 Form 10-K for the year ended December 31, 2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds — None
Item 3. Defaults upon Senior Securities — None
Item 4. Submission of Matters to a Vote of Security Holders
United held its annual meeting of shareholders on April 25, 2007.
At the annual meeting, the shareholders elected Jimmy C. Tallent, Robert L. Head, Jr., W.C. Nelson, Jr., A. William Bennett, Robert H. Blalock, Guy W. Freeman, Thomas C. Gilliland, Charles E. Hill, Hoyt O. Holloway, Clarence W. Mason, Sr., and Tim Wallis as directors to serve until the next annual meeting and until their successors are elected and qualified. Of the 43,026,669 shares outstanding on the record date, 34,028,084 shares were voted representing 79% of the outstanding shares. The elections were approved by the votes set forth in the following table.
                 
Election of Directors   Shares Voted in Favor   Shares Withheld
Jimmy C. Tallent
    33,423,855       604,229  
Robert L. Head, Jr.
    33,161,802       866,282  
W.C. Nelson, Jr.
    33,186,769       841,315  
A. William Bennett
    33,381,791       646,293  
Robert H. Blalock
    33,788,243       239,841  
Guy W. Freeman
    33,182,172       845,912  
Thomas C. Gilliland
    33,269,168       758,916  
Charles E. Hill
    33,573,789       454,295  
Hoyt O. Holloway
    33,479,946       548,138  
Clarence W. Mason, Sr.
    33,580,605       447,479  
Tim Wallis
    33,787,574       240,510  
Shareholders also voted on proposals to approve the Amended and Restated 2000 Key Employee Stock Option Plan and to implement a new Management Incentive Plan. Both proposals were approved by the votes set forth in the following table.
                         
Other Proposals   Shares Voted in Favor   Shares Voted Against   Shares Withheld
Amended and Restated 2000 Key Employee Stock Option Plan
    26,889,660       1,015,469       6,122,956  
 
                       
Management Annual Incentive Plan
    33,033,737       717,961       276,386  
Item 5. Other Information — None

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Item 6. Exhibits
     
3.1
  Restated Articles of Incorporation of United Community Banks, Inc., (incorporated herein by reference to Exhibit 3.1 to United Community Banks, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001, File No. 0-21656, filed with the Commission on August 14, 2001).
 
   
3.2
  Amendment to the Restated Articles of Incorporation of United Community Banks, Inc. (incorporated herein by reference to Exhibit 3.3 to United Community Banks, Inc.’s Registration Statement on Form S-4, File No. 333-118893, filed with the Commission on September 9, 2004).
 
   
3.3
  Amended and Restated Bylaws of United Community Banks, Inc., dated September 12, 1997 (incorporated herein by reference to Exhibit 3.1 to United Community Banks, Inc.’s Annual Report on Form 10-K, for the year ended December 31, 1997, File No. 0-21656, filed with the Commission on March 27, 1998).
 
   
4.1
  See Exhibits 3.1, 3.2 and 3.3 for provisions of the Restated Articles of Incorporation, as amended, and Amended and Restated Bylaws, which define the rights of the Shareholders.
 
   
10.1
  Amendment No. 1 to United Community Banks, Inc.’s Amended and Restated 2000 Key Employee Stock Option Plan (incorporated herein by reference to Exhibit 10.1 to United Community Banks, Inc.’s Form 8-K date April 13, 2007, File No. 0-21656, filed with the Commission on April 13, 2007).
 
   
10.2
  United Community Banks, Inc.’s Amended and Restated 2000 Key Employee Stock Option Plan (incorporated herein by reference to Exhibit 10.1 to United Community Banks, Inc.’s Form 8-K dated May 1, 2007, File No. 0-21656, filed with the Commission on May 1, 2007).
 
   
10.3
  United Community Banks, Inc.’s Management Incentive Plan (incorporated herein by reference to Exhibit 10.5 to United Community Banks, Inc.’s Form 8-K dated May 1, 2007, File No. 0-21656, filed with the Commission on May 1, 2007).
 
   
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.

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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: August 8, 2007   
 

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Exhibit 31.1
I, Jimmy C. Tallent, President and Chief Executive Officer of United Community Banks, Inc. (the “registrant”), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the registrant;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a - 15(f) and 15d - 15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
         
     
  By:   /s/ Jimmy C. Tallent    
    Jimmy C. Tallent   
    President and Chief Executive Officer
 
 
  Date:  August 8, 2007  
 

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Exhibit 31.2
I, Rex S. Schuette, Executive Vice President and Chief Financial Officer of United Community Banks, Inc. (the “registrant”), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the registrant;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a - 15(f) and 15d - 15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
         
     
  By:   /s/ Rex S. Schuette    
    Rex S. Schuette   
    Executive Vice President and Chief Financial Officer
 
 
  Date:  August 8, 2007  
 

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Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of United Community Banks, Inc. (“United”) on Form 10-Q for the period ending June 30, 2007 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jimmy C. Tallent, President and Chief Executive Officer of United, and I, Rex S. Schuette, Executive Vice President and Chief Financial Officer of United, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
  (1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
  (2)   The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of United.
         
     
  By:   /s/ Jimmy C. Tallent    
    Jimmy C. Tallent   
    President and Chief Executive Officer   
 
     
  By:   /s/ Rex S. Schuette    
    Rex S. Schuette   
    Executive Vice President and Chief Financial Officer   
 
  Date:  August 8, 2007  
 

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