SEC Filing | United Community Banks, Inc.

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UNITED COMMUNITY BANKS, INC.

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, 2005


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		58-180-7304

(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 an accelerated filer (as defined in Rule 12b-2 of the Act).

YES þ NO o

Common stock, par value $1 per share: 38,283,209 shares
outstanding as of June 30, 2005

INDEX


PART I — Financial Information

Item 1. Financial Statements

Consolidated Statement of Income (unaudited) for the Three and Six Months Ended June 30, 2005 and 2004			2

Consolidated Balance Sheet at June 30, 2005 (unaudited), December 31, 2004 (audited) and June 30, 2004 (unaudited)			3

Consolidated Statement of Changes in Stockholders’ Equity (unaudited) for the Six Months Ended June 30, 2005 and 2004			4

Consolidated Statement of Cash Flows (unaudited) for the Six Months Ended June 30, 2005 and 2004			5

Notes to Consolidated Financial Statements			6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			8

Item 3. Quantitative and Qualitative Disclosures About Market Risk			25

Item 4. Controls and Procedures			25

PART II — Other Information

Item 1. Legal Proceedings			25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			25
Item 3. Defaults Upon Senior Securities			25
Item 4. Submission of Matters to a Vote of Security Holders			25
Item 5. Other Information			26
Item 6. Exhibits			26
EX-31.1 SECTION 302, CERTIFICATION OF THE PRESIDENT AND CEO
EX-31.2 SECTION 302, CERTIFICAION OF THE VICE PRESIDENT AND CFO
EX-32 SECTION 906, CERTIFICATION OF THE CEO AND CFO

Part I – Financial Information

Item 1 – Financial Statements

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Income
For the Three and Six Months Ended June 30,



	Three Months Ended					Six Months Ended
	June 30,					June 30,
(in thousands, except per share data)	2005			2004		2005			2004
	(Unaudited)			(Unaudited)		(Unaudited)			(Unaudited)
Interest revenue:
Loans, including fees	$	69,446		$	49,326	$	132,913		$	96,748
Federal funds sold and deposits in banks		150			66		409			177
Investment securities:
Taxable		10,190			6,339		19,204			12,408
Tax exempt		528			545		1,053			1,111

Total interest revenue		80,314			56,276		153,579			110,444

Interest expense:
Deposits:
Demand		4,379			1,920		7,906			3,714
Savings		174			93		342			176
Time		15,019			9,773		28,027			19,070
Federal funds purchased		1,106			499		1,977			770
Other borrowings		8,772			5,147		16,565			10,474

Total interest expense		29,450			17,432		54,817			34,204

Net interest revenue		50,864			38,844		98,762			76,240
Provision for loan losses		2,800			1,800		5,200			3,600

Net interest revenue after provision for loan losses		48,064			37,044		93,562			72,640

Fee revenue:
Service charges and fees		6,280			5,312		11,894			10,335
Mortgage loan and other related fees		1,742			1,585		3,225			2,865
Consulting fees		1,685			1,402		3,167			2,529
Brokerage fees		768			515		1,210			1,223
Securities losses, net		(2	)		—		(2	)		(4	)
Other		1,706			833		2,885			1,977

Total fee revenue		12,179			9,647		22,379			18,925

Total revenue		60,243			46,691		115,941			91,565

Operating expenses:
Salaries and employee benefits		25,274			18,662		47,509			36,788
Occupancy		2,718			2,273		5,386			4,555
Communications and equipment		3,115			2,677		6,097			5,224
Postage, printing and supplies		1,369			1,068		2,720			2,210
Professional fees		1,071			795		2,109			1,632
Advertising and public relations		1,699			991		3,062			1,755
Amortization of intangibles		503			395		1,006			766
Merger-related charges		—			464		—			464
Other		3,059			2,502		5,698			4,609

Total operating expenses		38,808			29,827		73,587			58,003

Income before income taxes		21,435			16,864		42,354			33,562
Income taxes		7,662			5,815		15,140			11,575

Net income	$	13,773		$	11,049	$	27,214		$	21,987

Net income available to common stockholders	$	13,767		$	11,048	$	27,201		$	21,970

Earnings per common share:
Basic	$	.36		$	.31	$	.71		$	.62
Diluted		.35			.30		.69			.60
Weighted average common shares outstanding (in thousands):
Basic		38,270			35,633		38,234			35,477
Diluted		39,436			36,827		39,412			36,655

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

UNITED COMMUNITY BANKS, INC.

Consolidated Balance Sheet

For the period ended



	June 30,			December 31,			June 30,
(in thousands, except per share data)	2005			2004			2004
	(Unaudited)			(Audited)			(Unaudited)
ASSETS
Cash and due from banks	$	117,478		$	99,742		$	147,793
Interest-bearing deposits in banks		17,451			35,098			39,186

Cash and cash equivalents		134,929			134,840			186,979

Securities available for sale		990,500			879,978			739,667
Mortgage loans held for sale		34,095			37,094			18,610
Loans, net of unearned income		4,072,811			3,734,905			3,338,309
Less — allowance for loan losses		49,873			47,196			42,558

Loans, net		4,022,938			3,687,709			3,295,751

Premises and equipment, net		105,469			103,679			92,497
Accrued interest receivable		31,909			27,923			23,150
Intangible assets		119,617			121,207			87,657
Other assets		100,785			95,272			81,135

Total assets	$	5,540,242		$	5,087,702		$	4,525,446


LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand	$	590,306		$	532,879		$	479,439
Interest-bearing demand		1,141,115			1,055,192			935,489
Savings		177,822			171,898			160,550
Time		2,049,983			1,920,547			1,764,370

Total deposits		3,959,226			3,680,516			3,339,848

Federal funds purchased and repurchase agreements		213,148			130,921			181,439
Federal Home Loan Bank advances		800,316			737,947			535,343
Other borrowings		117,939			113,879			113,877
Accrued expenses and other liabilities		33,619			27,351			24,481

Total liabilities		5,124,248			4,690,614			4,194,988


Stockholders’ equity:
Preferred stock, $1 par value; $10 stated value; 10,000,000 shares authorized; 37,200, 44,800 and 48,300 shares issued and outstanding		372			448			483
Common stock, $1 par value; 100,000,000 shares authorized; 38,407,874, 38,407,874 and 36,620,754 shares issued		38,408			38,408			36,621
Capital surplus		154,480			155,076			116,129
Retained earnings		226,546			204,709			184,572
Treasury stock; 124,665, 240,346 and 374,362 shares, at cost		(2,517	)		(4,413	)		(6,393	)
Accumulated other comprehensive (loss) income		(1,295	)		2,860			(954	)

Total stockholders’ equity		415,994			397,088			330,458

Total liabilities and stockholders’ equity	$	5,540,242		$	5,087,702		$	4,525,446

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Changes in Stockholders’ Equity
For the Six Months Ended June 30,



															Accumulated
															Other
	Preferred			Common		Capital			Retained			Treasury			Comprehensive
(in thousands, except per share data)	Stock			Stock		Surplus			Earnings			Stock			Income (Loss)			Total

Balance, December 31, 2003	$	559		$	35,707	$	95,951		$	166,887		$	(7,120	)	$	7,389		$	299,373

Comprehensive income:
Net income										21,987									21,987
Other comprehensive loss:
Unrealized holding losses on available for sale securities, net of deferred tax benefit and reclassification adjustment																(6,057	)		(6,057	)
Unrealized losses on derivative financial instruments qualifying as cash flow hedges, net of deferred tax benefit																(2,286	)		(2,286	)


Comprehensive income										21,987						(8,343	)		13,644
Retirement of preferred stock (7,600 shares)		(76	)																(76	)
Cash dividends declared on common stock ($.12 per share)										(4,293	)								(4,293	)
Redemption of fractional shares related to stock split (446 shares)																			—
Common stock issued for acquisitions (914,627 shares)					914		20,586												21,500
Exercise of stock options (43,163 shares)							(232	)					727						495
Amortization of restricted stock awards							16												16
Tax benefit from options exercised							(192	)											(192	)
Dividends declared on preferred stock ($.30 per share)										(9	)								(9	)


Balance, June 30, 2004	$	483		$	36,621	$	116,129		$	184,572		$	(6,393	)	$	(954	)	$	330,458


Balance, December 31, 2004	$	448		$	38,408	$	155,076		$	204,709		$	(4,413	)	$	2,860		$	397,088

Comprehensive income:
Net income										27,214									27,214
Other comprehensive loss:
Unrealized holding losses on available for sale securities, net of deferred tax benefit and reclassification adjustment																(2,435	)		(2,435	)
Unrealized losses on derivative financial instruments qualifying as cash flow hedges, net of deferred tax benefit																(1,720	)		(1,720	)


Comprehensive income										27,214						(4,155	)		23,059
Retirement of preferred stock (7,600 shares)		(76	)																(76	)
Cash dividends declared on common stock ($.14 per share)										(5,364	)								(5,364	)
Exercise of stock options (111,619 shares)							(711	)					1,832						1,121
Amortization of restricted stock awards							180												180
Vesting of restricted stock awards (4,062 shares)							(65	)					64						(1	)
Dividends declared on preferred stock ($.30 per share)										(13	)								(13	)


Balance, June 30, 2005	$	372		$	38,408	$	154,480		$	226,546		$	(2,517	)	$	(1,295	)	$	415,994

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Cash Flows

For the Six Months Ended June 30,



(in thousands)	2005			2004

Operating activities:
Net income	$	27,214		$	21,987
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		7,965			7,651
Provision for loan losses		5,200			3,600
Loss on sale of securities available for sale		2			4
Gain on sale of other assets		(556	)		(125	)
Changes in assets and liabilities:
Other assets and accrued interest receivable		(13,936	)		(7,021	)
Accrued expenses and other liabilities		3,342			7,155
Mortgage loans held for sale		2,999			(7,854	)

Net cash provided by operating activities		32,230			25,397


Investing activities, net of purchase adjustments:
Proceeds from sales of securities available for sale		40,705			55,939
Proceeds from maturities and calls of securities available for sale		78,380			141,286
Purchases of securities available for sale		(226,551	)		(254,123	)
Net increase in loans		(342,800	)		(231,444	)
Proceeds from sales of premises and equipment		2,756			1,216
Purchases of premises and equipment		(8,508	)		(8,816	)
Net cash received from acquisitions		—			5,439
Proceeds from sale of other real estate		710			1,222

Net cash used by investing activities		(455,308	)		(289,281	)


Financing activities, net of purchase adjustments:
Net change in deposits		278,710			306,452
Net change in federal funds purchased and repurchase agreements		82,227			137,993
Proceeds from other borrowings		5,000			—
Repayments of other borrowings		(940	)		(45,029	)
Proceeds from FHLB advances		438,600			675,100
Repayments of FHLB advances		(376,100	)		(780,350	)
Proceeds from exercise of stock options		1,121			495
Retirement of preferred stock		(76	)		(76	)
Cash dividends on common stock		(5,362	)		(3,906	)
Cash dividends on preferred stock		(13	)		(9	)

Net cash provided by financing activities		423,167			290,670


Net change in cash and cash equivalents		89			26,786

Cash and cash equivalents at beginning of period		134,840			160,193


Cash and cash equivalents at end of period	$	134,929		$	186,979


Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	52,899		$	33,411
Income taxes		15,369			13,098

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

United Community Banks, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1 — Accounting Policies

The accounting and financial reporting policies of United Community Banks, Inc. (“United”) and its subsidiaries conform to accounting principles generally accepted in the United States of America 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 2004 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 considered 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 Split

On April 28, 2004, United had a three-for-two split of its common stock. All financial statements and per share amounts included in the financial statements and accompanying notes have been restated to reflect the change in the number of shares outstanding as of the beginning of the earliest period presented.

Note 3 — Stock-Based Compensation

United’s stock-based compensation plans are accounted for based on the intrinsic value method set forth in Accounting Principles Board (APB) Opinion 25, Accounting for Stock Issued to Employees, and related interpretations. Compensation expense for restricted share awards is recognized over the restricted period based on the fair value of the stock on the date of grant. Compensation expense for employee stock options has not been recognized, since the exercise price of the options equaled the fair value of the stock on the date of grant. Compensation expense for restricted share awards is ratably recognized over the period of service, usually the restricted period, based on the fair value of the stock on the date of grant. Had compensation costs been determined based upon the fair value of the options at the grant dates consistent with the method of SFAS No. 123, United’s net income and earnings per common share would have reflected the pro forma amounts below (in thousands, except per share data):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2005		2004		2005		2004
Net income available to common shareholders:
As reported	$	13,767	$	11,048	$	27,201	$	21,970
Pro forma		13,360		10,845		26,454		21,613

Basic earnings per common share:
As reported		.36		.31		.71		.62
Pro forma		.35		.30		.69		.61

Diluted earnings per common share:
As reported		.35		.30		.69		.60
Pro forma		.34		.30		.67		.59

The weighted average fair value of options granted in the second quarter of 2005 and 2004 was $5.69 and $5.94, respectively. The weighted average fair value of options granted during the first six months of 2005 and 2004 was $5.69 and $5.91, respectively. The fair value of each option granted was estimated on the date of grant using the Black-Scholes model with the following weighted average assumptions: dividend yield of 1.08% to 1.26% in 2005 and 1.00% in 2004; a risk free interest rate ranging from 3.82% to 4.36% in 2005 and from 3.61% to 4.57% in 2004; expected volatility of 20% in 2005 and 15% in 2004; and, an expected life of 6.25 years in 2005, and 7 years in 2004. United’s stock trading history began in March of 2002 when United listed on Nasdaq. For 2005, expected volatility was determined using United’s historical weekly volatility over a two-year period. For 2004, the Nasdaq Bank Index was used to determine expected volatility. Compensation expense, included in the pro forma results, was determined based on the fair value of the options at the time of grant, multiplied by the number of options granted, which was then amortized, net of tax, over the vesting period. In December 2004, FAS 123(R) was released. The standards original effective date for United was for periods beginning July 1, 2005. The SEC has now delayed this standard until January 1, 2006. United plans to adopt this standard effective January 1, 2006.

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,
	2005		2004		2005		2004
Basic earnings per share:
Weighted average shares outstanding		38,270		35,633		38,234		35,477
Net income available to common shareholders	$	13,767	$	11,048	$	27,201	$	21,970

Basic earnings per share	$	.36	$	.31	$	.71	$	.62


Diluted earnings per share:
Weighted average shares outstanding		38,270		35,633		38,234		35,477
Net effect of the assumed exercise of stock options based on the treasury stock method using average market price for the period		794		822		806		806
Effect of conversion of subordinated debt		372		372		372		372

Total weighted average shares and common stock equivalents outstanding		39,436		36,827		39,412		36,655

Net income available to common shareholders	$	13,767	$	11,048	$	27,201	$	21,970
Income effect of conversion of subordinated debt, net of tax		32		21		60		42

Net income, adjusted for effect of conversion of subordinated debt, net of tax	$	13,799	$	11,069	$	27,261	$	22,012

Diluted earnings per share	$	.35	$	.30	$	.69	$	.60

Note 5 — Mergers and Acquisitions

At June 30, 2005, accrued merger costs of $1.4 million remained unpaid relating to acquisitions closed in 2004 and 2003. The severance and related costs include change in control payments for which payment had been deferred. Professional fees include remaining legal fees related to the two business combinations completed during the fourth quarter of 2004. Contract termination costs include amounts owed to service providers as a result of early termination of service contracts related to the acquisitions completed during 2004 and 2003. At June 30, 2005, $825,000 remained unpaid, which primarily related to one contract termination charge that is in dispute. All of these charges are expected to be paid in 2005. The purchase adjustments resulted in a reduction of recorded goodwill. A reconciliation of the activities in 2005 related to accrued merger costs is below (in thousands):

Activity with accrued merger cost
For the Six Months Ended June 30, 2005


						Amounts
	Beginning		Purchase			Charged to		Amounts			Ending
	Balance		Adjustments			Earnings		Paid			Balance
Severance and related costs	$	764	$	—		$	—	$	(387	)	$	377
Professional fees		754		(29	)		—		(600	)		125
Contract termination costs		3,854		(594	)		—		(2,435	)		825
Other merger-related expenses		247		—			—		(154	)		93

Totals	$	5,619	$	(623	)	$	—	$	(3,576	)	$	1,420

Note 6 — Reclassification

Certain amounts for the comparative periods of 2004 have been reclassified to conform to the 2005 presentation.

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 corporate culture has contributed to our success and, if we cannot maintain this culture as we grow, we could lose the productivity fostered by our culture, which could harm our business;

	•		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.

Overview

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, 2005, United had total consolidated assets of $5.5 billion, total loans of $4.1 billion, total deposits of $4.0 billion and stockholders’ equity of $416 million.

United’s activities are primarily conducted by its wholly-owned 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.

This discussion reflects the three-for-two stock split effective on April 28, 2004 to shareholders of record on April 14, 2004, as of the beginning of the periods covered by this report.

Recent Mergers and Acquisitions

On June 1, 2004, United completed the acquisition of Fairbanco Holding Company, Inc. (“Fairbanco”), a bank holding company headquartered in Fairburn, Georgia, and its wholly-owned Georgia subsidiary, 1^st Community Bank. On June 1, 2004, 1^st Community Bank had assets of $210 million, including purchase accounting related intangibles. United exchanged 914,627 shares of its common stock valued at $20.9 million and approximately $2.7 million in cash for all of the outstanding shares. 1^st Community Bank was merged into United Community Bank-Georgia and operates as a separate community bank.

On November 1, 2004, United completed the acquisition of Eagle National Bank. (“Eagle”), a bank headquartered in Stockbridge, Georgia. On November 1, 2004, Eagle had assets of $78 million, including purchase accounting related intangibles. United exchanged 414,462 shares of its common stock valued at $9.5 million and approximately $2.4 million in cash for all of the outstanding shares. Eagle was merged into United Community Bank-Georgia and operates as a separate community bank.

On December 1, 2004, United completed the acquisition of Liberty National Bancshares, Inc. (“Liberty”), a bank holding company headquartered in Conyers, Georgia, and its wholly-owned subsidiary, Liberty National Bank. On December 1, 2004, Liberty had assets of $212 million, including purchase accounting related intangibles. United exchanged 1,372,658 shares of its common stock valued at $32.5 million and approximately $3.0 million in cash for all of the outstanding shares. Liberty National Bank was merged into United Community Bank-Georgia and operates as a separate community bank.

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 loans and 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 judgments to be made by management. Different assumptions in the application of these policies could result in material changes in United’s consolidated financial position or consolidated results of operations. See “Asset Quality and Risk Elements” herein for a complete discussion of United’s accounting methodologies related to the allowance.

Table 1 — Financial Highlights
FINANCIAL HIGHLIGHTS TABLE
UNITED COMMUNITY BANKS, INC.
Selected Financial Information
For the Three and Six Months Ended June 30, 2005


																Second
	2005						2004									Quarter			For the Six						YTD
(in thousands, except per share	Second			First			Fourth			Third			Second			2005-2004			Months Ended						2005-2004
data; taxable equivalent)	Quarter			Quarter			Quarter			Quarter			Quarter			Change			2005			2004			Change

INCOME SUMMARY
Interest revenue	$	80,701		$	73,649		$	66,761		$	61,358		$	56,680					$	154,350		$	111,267
Interest expense		29,450			25,367			21,448			19,142			17,432						54,817			34,204

Net interest revenue		51,251			48,282			45,313			42,216			39,248			31	%		99,533			77,063			29	%
Provision for loan losses		2,800			2,400			2,000			2,000			1,800						5,200			3,600
Fee revenue		12,179			10,200			10,757			9,857			9,647			26			22,379			18,925			18

Total revenue		60,630			56,082			54,070			50,073			47,095			29			116,712			92,388			26
Operating expenses ⁽¹⁾		38,808			34,779			33,733			31,296			29,363			32			73,587			57,539			28

Income before taxes		21,822			21,303			20,337			18,777			17,732			23			43,125			34,849			24
Income taxes		8,049			7,862			7,427			6,822			6,379						15,911			12,558

Net operating income		13,773			13,441			12,910			11,955			11,353			21			27,214			22,291			22
Merger-related charges, net of tax		—			—			261			—			304						—			304

Net income	$	13,773		$	13,441		$	12,649		$	11,955		$	11,049			25		$	27,214		$	21,987			24


OPERATING PERFORMANCE ⁽¹⁾
Earnings per common share:
Basic	$	.36		$	.35		$	.35		$	.33		$	.32			13		$	.71		$	.63			13
Diluted		.35			.34			.34			.32			.31			13			.69			.61			13
Return on tangible equity ^(2)(3)(4)		19.21	%		19.86	%		19.96	%		19.41	%		19.70	%					19.52	%		19.79	%
Return on assets ⁽⁴⁾		1.03			1.06			1.07			1.05			1.07						1.04			1.07
Efficiency ratio		61.18			59.47			60.20			60.11			60.05						60.36			59.94
Dividend payout ratio		19.44			20.00			17.14			18.18			18.75						19.72			19.05

GAAP PERFORMANCE
Per common share:
Basic earnings	$	.36		$	.35		$	.34		$	.33		$	.31			16		$	.71		$	.62			15
Diluted earnings		.35			.34			.33			.32			.30			17			.69			.60			15
Cash dividends declared		.07			.07			.06			.06			.06			17			.14			.12			17
Book value		10.86			10.42			10.39			9.58			9.10			19			10.86			9.10			19
Tangible book value ⁽³⁾		7.85			7.40			7.34			7.28			6.77			16			7.85			6.77			16

Key performance ratios:
Return on equity ⁽²⁾⁽⁴⁾		13.46	%		13.68	%		14.15	%		14.20	%		14.40	%					13.57	%		14.63	%
Return on assets ⁽⁴⁾		1.03			1.06			1.05			1.05			1.04						1.04			1.06
Net interest margin ⁽⁴⁾		4.12			4.05			4.05			3.99			3.95						4.09			3.97
Dividend payout ratio		19.44			20.00			17.65			18.18			19.35						19.72			19.35
Equity to assets		7.65			7.71			7.54			7.50			7.30						7.68			7.38
Tangible equity to assets ⁽³⁾		5.62			5.58			5.75			5.76			5.74						5.60			5.81

ASSET QUALITY
Allowance for loan losses	$	49,873		$	48,453		$	47,196		$	43,548		$	42,558					$	49,873		$	42,558
Non-performing assets		13,495			13,676			8,725			10,527			8,812						13,495			8,812
Net charge-offs		1,380			1,143			1,183			1,010			789						2,523			1,424
Allowance for loan losses to loans		1.22	%		1.25	%		1.26	%		1.27	%		1.27			%			1.22	%		1.27			%
Non-performing assets to total assets		.24			.26			.17			.23			.19						.24			.19
Net charge-offs to average loans ⁽³⁾		.14			.12			.13			.12			.10						.13			.09

AVERAGE BALANCES
Loans	$	3,942,077		$	3,797,479		$	3,572,824		$	3,384,281		$	3,235,262			22		$	3,870,177		$	3,165,569			22
Investment securities		996,096			946,194			805,766			762,994			715,586			39			971,283			684,226			42
Earning assets		4,986,339			4,819,961			4,456,403			4,215,472			3,991,797			25			4,903,610			3,900,337			26
Total assets		5,338,398			5,164,464			4,781,018			4,521,842			4,274,442			25			5,251,913			4,179,664			26
Deposits		3,853,884			3,717,916			3,500,842			3,351,188			3,178,776			21			3,786,276			3,067,251			23
Stockholders’ equity		408,352			398,164			360,668			338,913			311,942			31			403,286			308,434			31
Common shares outstanding:
Basic		38,270			38,198			37,056			36,254			35,633						38,234			35,477
Diluted		39,436			39,388			38,329			37,432			36,827						39,412			36,655

AT PERIOD END
Loans	$	4,072,811		$	3,877,575		$	3,734,905		$	3,438,417		$	3,338,309			22		$	4,072,811		$	3,338,309			22
Investment securities		990,500			928,328			879,978			726,734			739,667			34			990,500			739,667			34
Earning assets		5,161,067			4,907,743			4,738,389			4,280,643			4,172,049			24			5,161,067			4,172,049			24
Total assets		5,540,242			5,265,771			5,087,702			4,592,655			4,525,446			22			5,540,242			4,525,446			22
Deposits		3,959,226			3,780,521			3,680,516			3,341,525			3,339,848			19			3,959,226			3,339,848			19
Stockholders’ equity		415,994			398,886			397,088			347,795			330,458			26			415,994			330,458			26
Common shares outstanding		38,283			38,249			38,168			36,255			36,246						38,283			36,246


(1)		Excludes pre-tax merger-related charges totaling $406,000 or $.01 per diluted common share and $464,000 or $.01 per diluted common share in the fourth and second quarters, respectively of 2004.

(2)		Net income available to common stockholders, which excludes preferred stock dividends, divided by average realized common equity, which excludes accumulated other comprehensive income.

(3)		Excludes effect of acquisition related intangibles and associated amortization.

(4)		Annualized.

Merger—Related Charges

The presentation of operating earnings includes financial results determined by methods other than in accordance with generally accepted accounting principles, or GAAP. Net operating income excludes pre-tax merger-related and restructuring charges of $406,000 and $464,000 for the fourth and second quarters of 2004, respectively. These charges decreased net income by $261,000 and $304,000, respectively, for the fourth and second quarters of 2004 or about $.01 per diluted share each. These charges are discussed further in Note 5 to the Consolidated Financial Statements in this Form 10-Q and Note 3 to the Consolidated Financial Statements included in Form 10-K for the year ended December 31, 2004.

These charges are excluded because management believes that these non-GAAP operating results provide a helpful measure for assessing United’s financial performance. Net operating income should not be viewed as a substitute for net income determined in accordance with GAAP, and is not necessarily comparable to non-GAAP performance measures that may be presented by other companies. The following is a reconciliation of net operating income to GAAP net income for the applicable periods:

Table 2 — Operating Earnings to GAAP Earnings Reconciliation
(in thousands, except per share data)


	Fourth			Second			Six months ended
	Quarter			Quarter			June 30,
	2004			2004			2004
Merger charges included in expenses	$	406		$	464		$	464
Income tax effect of charges		145			160			160

After-tax effect of merger-related charges	$	261		$	304		$	304


Net Income Reconciliation
Operating net income	$	12,910		$	11,353		$	22,291
After-tax effect of merger-related charges		(261	)		(304	)		(304	)

Net income (GAAP)	$	12,649		$	11,049		$	21,987


Basic Earnings Per Share Reconciliation
Basic operating earnings per share	$	.35		$	.32		$	.63
Per share effect of merger-related charges		(.01	)		(.01	)		(.01	)

Basic earnings per share (GAAP)	$	.34		$	.31		$	.62


Diluted Earnings Per Share Reconciliation
Diluted operating earnings per share	$	.34		$	.31		$	.61
Per share effect of merger-related charges		(.01	)		(.01	)		(.01	)

Diluted earnings per share (GAAP)	$	.33		$	.30		$	.60

Results of Operations

Net operating income was $13.8 million for the three months ended June 30, 2005, an increase of $2.4 million, or 21%, from the same period in 2004. Diluted operating earnings per share were $.35 for the quarter ended June 30, 2005, compared with $.31 for the same period in 2004, an increase of 13%. Operating return on tangible equity for the second quarter of 2005 was 19.21%, compared with 19.70% for 2004. Operating return on assets for the quarter ended June 30, 2005 was 1.03%, compared with 1.07% for 2004.

Year-to-date through June 30, net operating income was $27.2 million compared to $22.3 million for the first six months of 2004, an increase of 22%. Diluted operating earnings per share were $.69 for the first six months ended June 30, 2005, compared with $.61 for the same period in 2004, an increase of 13%. Operating return on tangible equity for the first six months of 2005 was 19.52% compared to 19.79% for the first six months of 2004. Operating return on assets for the first six months ended June 30, 2005 was 1.04% compared to 1.07% for the first six months ended June 30, 2004.

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 three months ended June 30, 2005 was $51.3 million, up 31%, over last year. Year-to-date, net interest revenue was $99.5 million, up 29% over the same period in 2004. The increase for the second quarter of 2005 was driven by strong loan growth and a 17 basis point widening of the net interest margin to 4.12%. Average loans increased $707 million, or 22%, from the second quarter of last year and year-to-date average loans were up $705 million. This loan growth was due to the continued high loan demand across all of United’s markets and the acquisitions of 1^st Community Bank, Eagle National Bank and Liberty National Bank, which collectively added $281 million to the second quarter 2005 average balances. The quarter-end loan balances increased $735 million as compared to June 30, 2004. Of this increase, $235 million was in the north Georgia markets (which includes $92 million in United’s new Gainesville bank), $43 million in western North Carolina, $352 million in the metro Atlanta market (which includes $206 million related to the Eagle National Bank and Liberty National Bank acquisitions in 2004), $40 million in east Tennessee, and $65 million in the coastal Georgia markets.

Average interest-earning assets for the second quarter and first six months of 2005 increased $995 million, or 25%, and $1.0 billion or 26%, respectively, over the same periods in 2004. The increase reflects the strong organic and acquired loan growth, 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 for the quarter and year-to-date of approximately $848 million and $856 million, respectively, as compared to the same periods in 2004.

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, 2005 and 2004, the net interest spread was 3.76% and 3.70%, respectively, while the net interest margin was 4.12% and 3.95%, respectively. For the first six months of 2005 and 2004, the net interest spread was 3.75% and 3.71%, respectively, while the net interest margin was 4.09% and 3.97%, respectively. Since June of 2004, the Federal Reserve has increased the federal funds rate 225 basis points. This had a positive impact on net interest revenue and net interest margin due to United’s slightly asset sensitive balance sheet. The rise in the average rate on interest-earning assets exceeded the rise in the average rate on interest-bearing liabilities by 6 basis points when comparing the three month period ended June 30, 2005 with the three months ended June 30, 2004, resulting in the higher net interest spread. The same can be said for the six month period ended June 30, 2005 when compared with the same period in 2004, which resulted in a higher net interest spread by 4 basis points. Because the competitive environment allowed United to keep deposit pricing from reflecting the full impact of rising short-term interest rates, the spread between interest rates earned on loans and interest rates paid on deposits widened.

The increase in the federal funds rate, which effects variable rate assets and liabilities, along with the loan growth mentioned above were the two primary reasons for the increases in the net interest margin and net interest revenue. Most of the loan growth added over the last year has been prime-based, adjusted daily. At June 30, 2005, United had approximately $2.3 billion in loans indexed to the daily Prime Rate published in the Wall Street Journal compared with $1.6 billion a year ago. At June 30, 2005 and 2004, United had receive-fixed swap contracts with a total notional value of $538 million and $512 million, respectively, that were accounted for as cash flow hedges of prime-based loans. The swap contracts reduced loan interest revenue by $128,000 during the second quarter of 2005 and added $1.3 million during the second quarter of 2004 to loan interest revenue. For the six months ended June 30, 2005 and 2004, the swap contracts added $405,000 and $2.2 million, respectively, to loan interest revenue. This resulted in a decrease in the average loan yield of 1 basis point for the second quarter of 2005 compared to an increase of 16 basis points for the second quarter of 2004. On a year-to-date basis the increase in the average loan yield was 2 basis points and 14 basis points, respectively, for 2005 and 2004.

The average yield on interest-earning assets for the second quarter of 2005 was 6.49%, compared with 5.71% in the second quarter of 2004. The year-to-date yield on interest-earning assets was 6.34%, compared to 5.73% for the first six months of 2004. The main driver of this increase was loan yields, which were up 91 basis points for the quarter and 75 basis points on a year-to-date basis due to the growing level of prime daily loans and the significant number of Federal Reserve increases to the federal funds rate in the last half of 2004 and the first half of 2005.

The average cost of interest-bearing liabilities for the second quarter was 2.73%, an increase of 72 basis points from the same period in 2004. The average cost of interest-bearing liabilities for the first six months of 2005 was 2.59%, an increase of 57 basis points from a year ago. 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.

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, 2005 and 2004.

Table 3 — Average Consolidated Balance Sheets and Net Interest Analysis
For the Three Months Ended June 30,
(In thousands, taxable equivalent)


	2005								2004
	Average					Avg.			Average					Avg.
	Balance			Interest		Rate			Balance			Interest		Rate

Assets:
Interest-earning assets:
Loans, net of unearned income ⁽¹⁾⁽²⁾	$	3,942,077		$	69,130		7.03	%	$	3,235,262		$	49,221		6.12	%
Taxable securities ⁽³⁾		946,543			10,190		4.31			667,027			6,339		3.80
Tax-exempt securities ⁽¹⁾		49,553			869		7.01			48,559			897		7.39
Federal funds sold and other interest-earning assets		48,166			512		4.25			40,949			223		2.18


Total interest-earning assets		4,986,339			80,701		6.49			3,991,797			56,680		5.71

Non-interest-earning assets:
Allowance for loan losses		(49,576	)							(41,418	)
Cash and due from banks		94,488								89,759
Premises and equipment		103,439								89,126
Other assets		203,708								145,178

Total assets	$	5,338,398							$	4,274,442


Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
Transaction accounts	$	1,109,861		$	4,379		1.58		$	892,809		$	1,920		.86
Savings deposits		176,624			174		.40			153,061			93		.24
Certificates of deposit		1,998,383			15,019		3.01			1,677,161			9,773		2.34

Total interest-bearing deposits		3,284,868			19,572		2.39			2,723,031			11,786		1.74


Federal funds purchased		142,900			1,106		3.10			132,259			499		1.52
Federal Home Loan Bank advances		785,523			6,565		3.35			517,744			3,196		2.48
Long-term debt and other borrowings		118,406			2,207		7.48			110,421			1,951		7.11

Total borrowed funds		1,046,829			9,878		3.78			760,424			5,646		2.99


Total interest-bearing liabilities		4,331,697			29,450		2.73			3,483,455			17,432		2.01

Non-interest-bearing liabilities:
Non-interest-bearing deposits		569,016								455,745
Other liabilities		29,333								23,300

Total liabilities		4,930,046								3,962,500

Stockholders’ equity		408,352								311,942

Total liabilities and stockholders’ equity	$	5,338,398							$	4,274,442

Net interest revenue				$	51,251							$	39,248

Net interest-rate spread							3.76	%							3.70	%


Net interest margin ⁽⁴⁾							4.12	%							3.95	%


(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 tax rate and the federal tax adjusted state 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 $782,000 in 2005 and pretax unrealized gains of $3.3 million in 2004 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.

Table 3 — Average Consolidated Balance Sheets and Net Interest Analysis (continued)
For the Six Months Ended June 30,
(In thousands, taxable equivalent)


	2005								2004
	Average					Avg.			Average					Avg.
	Balance			Interest		Rate			Balance			Interest		Rate

Assets:
Interest-earning assets:
Loans, net of unearned income ⁽¹⁾⁽²⁾	$	3,870,177		$	132,266		6.89	%	$	3,165,569		$	96,602		6.14	%
Taxable securities ⁽³⁾		921,564			19,204		4.17			634,589			12,408		3.91
Tax-exempt securities ⁽¹⁾		49,719			1,733		6.97			49,637			1,828		7.37
Federal funds sold and other interest-earning assets		62,150			1,147		3.69			50,542			429		1.70


Total interest-earning assets		4,903,610			154,350		6.34			3,900,337			111,267		5.73

Non-interest-earning assets:
Allowance for loan losses		(48,869	)							(40,434	)
Cash and due from banks		93,446								83,968
Premises and equipment		102,927								88,029
Other assets		200,799								147,764

Total assets	$	5,251,913							$	4,179,664


Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
Transaction accounts	$	1,092,181		$	7,906		1.46		$	876,072		$	3,714		.85
Savings deposits		175,033			342		.39			147,530			176		.24
Certificates of deposit		1,966,709			28,027		2.87			1,609,089			19,070		2.38

Total interest-bearing deposits		3,233,923			36,275		2.26			2,632,691			22,960		1.75


Federal funds purchased		140,359			1,977		2.84			138,148			770		1.12
Federal Home Loan Bank advances		778,160			12,222		3.17			531,783			6,368		2.41
Long-term debt and other borrowings		116,042			4,343		7.55			109,574			4,106		7.54

Total borrowed funds		1,034,561			18,542		3.61			779,505			11,244		2.90


Total interest-bearing liabilities		4,268,484			54,817		2.59			3,412,196			34,204		2.02

Non-interest-bearing liabilities:
Non-interest-bearing deposits		552,354								434,563
Other liabilities		27,789								24,471

Total liabilities		4,848,627								3,871,230

Stockholders’ equity		403,286								308,434

Total liabilities and stockholders’ equity	$	5,251,913							$	4,179,664

Net interest revenue				$	99,533							$	77,063

Net interest-rate spread							3.75	%							3.71	%


Net interest margin ⁽⁴⁾							4.09	%							3.97	%


(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 tax rate and the federal tax adjusted state 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 gains of $1.1 million in 2005 and $7.2 million in 2004 are included in other assets for purposes of this presentation.

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

The following table shows the relative 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 4 — Change in Interest Revenue and Expense on a Taxable Equivalent Basis
(in thousands)


	Three Months Ended June 30, 2005								Six Months Ended June 30, 2005
	Compared to 2004								Compared to 2004
	Increase (decrease)								Increase (decrease)
	due to changes in								due to changes in
	Volume		Rate			Total			Volume		Rate			Total
Interest-earning assets:
Loans	$	11,720	$	8,189		$	19,909		$	23,178	$	12,486		$	35,664
Taxable securities		2,924		927			3,851			5,933		863			6,796
Tax-exempt securities		18		(46	)		(28	)		9		(104	)		(95	)
Federal funds sold and other interest-earning assets		45		244			289			117		601			718

Total interest-earning assets		14,707		9,314			24,021			29,237		13,846			43,083


Interest-bearing liabilities:
Transaction accounts		555		1,904			2,459			1,084		3,108			4,192
Savings deposits		16		65			81			38		128			166
Certificates of deposit		2,088		3,158			5,246			4,687		4,270			8,957

Total interest-bearing deposits		2,659		5,127			7,786			5,809		7,506			13,315
Federal funds purchased		43		564			607			13		1,194			1,207
Federal Home Loan Bank advances		2,000		1,369			3,369			3,500		2,354			5,854
Long-term debt and other borrowings		145		111			256			242		(5	)		237

Total borrowed funds		2,188		2,044			4,232			3,755		3,543			7,298

Total interest-bearing liabilities		4,847		7,171			12,018			9,564		11,049			20,613


Increase in net interest revenue	$	9,860	$	2,143		$	12,003		$	19,673	$	2,797		$	22,470

Provision for Loan Losses

The provision for loan losses was $2.8 million for the second quarter of 2005, compared with $1.8 million for the same period in 2004. Provision for the first six months of 2005 was $5.2 million, compared to $3.6 million for the first six months of 2004. Net loan charge-offs as a percentage of average outstanding loans for the three months ended June 30, 2005 were .14%, as compared with .10% for the second quarter of 2004. Year-to-date, net loan charge-offs as a percentage of average outstanding loans were .13%, compared to .09% for the first six months of 2004. Net loan charge-offs continue at relatively low levels, and as a percentage of average outstanding loans, continues to move in line with management’s expectation and within the Company’s historical range of high to low loss percentages for the past five years of .25% to .11%.

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. 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 and the first six months of 2005, totaled $12.2 million and $22.4 million, respectively, compared with $9.6 million and $18.9 million, respectively, for the same periods in 2004. This is a 26% increase over the second quarter of 2004, and an 18% increase over the comparable six months a year ago. Fee revenue for the second quarter of 2005 and 2004 was approximately 20% of total revenue; and on a year-to-date basis, fee revenue was approximately 19% of total revenue in 2005 and 20% in 2004. United continues to increase fee revenue through new products and services. The following table presents the components of fee revenue for the second quarter and the first six months of 2005 and 2004.

Table 5 — Fee Revenue
For the Three and Six Months Ended June 30,
(in thousands, taxable equivalent)


	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2005			2004		Change			2005			2004			Change
Service charges and fees	$	6,280		$	5,312		18	%	$	11,894		$	10,335			15	%
Mortgage loan and related fees		1,742			1,585		10			3,225			2,865			13
Consulting fees		1,685			1,402		20			3,167			2,529			25
Brokerage fees		768			515		49			1,210			1,223			(1	)
Securities losses, net		(2	)		—					(2	)		(4	)
Loss on prepayments of borrowings		—			—					—			—
Other		1,706			833		105			2,885			1,977			46

Total	$	12,179		$	9,647		26		$	22,379		$	18,925			18

Earnings for acquired companies are included in consolidated results beginning on their respective acquisition dates. Therefore, comparability between current and prior periods is affected by acquisitions completed over the last 18 months.

Service charges on deposit accounts of $6.3 million, were up $968,000, or 18%, over the second quarter of 2004. Year-to-date service charges were up $1.6 million or 15% over the same period in 2004. The increase in service charges and fees was due, about equally, from an increase in the number of accounts and transaction activity resulting from successful internal efforts to increase core deposits and from acquisitions. Included is ATM and debit card revenue which was up $411,000 compared to the same quarter a year ago; a 61% increase. This results primarily from having a higher volume of ATM transactions and more debit cards in customer hands through new account openings and successful cross selling.

Mortgage loan and related fees of $1.7 million for the quarter were up $157,000, or 10%, from the same period in 2004. Mortgage loan originations of $98 million for the second quarter 2005 were up $27 million from the second quarter of 2004. This increase was due to the addition of mortgage lenders and new products offered by United. Substantially all of these originated residential mortgages were sold into the secondary market, including the right to service these loans.

Consulting fees for the second quarter of 2005 of $1.7 million were up $283,000 from the same period in 2004. This increase was due to the increase in fee revenue from two new practices offered and growth in general consulting revenue. On a year-to-date basis, consulting fees were up 25% or $638,000.

Brokerage fees of $768,000 were up $253,000, or 49% from the level achieved in the second quarter of 2004 and were up $326,000 from the first quarter of 2005. On a year-to-date basis, brokerage fees were relatively flat compared with the prior year.

Other fee revenue increased $873,000 from the second quarter of 2004, due primarily to gains from the sale of two former banking offices of $530,000, and the sale of SBA loans of $235,000. Other fees were also up compared to the first quarter by $527,000 driven primarily by the gains on the sale of the former banking offices.

Operating Expenses

For the three and six months ended June 30, 2005, total operating expenses, excluding merger-related charges, were $38.8 million and $73.6 million, respectively, compared with $29.4 million and $57.5 million, respectively, for the same period in 2004. The percentage growth for the three and six months was 32% and 28%, respectively. The following table presents the components of operating expenses for the three and six months ended June 30, 2005 and 2004.

Table 6 — Operating Expenses
For the Three and Six Months Ended June 30,
(in thousands)


	Three Months Ended							Six Months Ended
	June 30,							June 30,
	2005		2004		Change			2005		2004		Change
Salaries and employee benefits	$	25,274	$	18,662		35	%	$	47,509	$	36,788		29	%
Occupancy		2,718		2,273		20			5,386		4,555		18
Communications and equipment		3,115		2,677		16			6,097		5,224		17
Postage, printing and supplies		1,369		1,068		28			2,720		2,210		23
Professional fees		1,071		795		35			2,109		1,632		29
Advertising and public relations		1,699		991		71			3,062		1,755		74
Amortization of intangibles		503		395					1,006		766
Other		3,059		2,502		22			5,698		4,609		24

		38,808		29,363		32			73,587		57,539		28
Merger-related charges		—		464					—		464

Total	$	38,808	$	29,827		30		$	73,587	$	58,003		27

Salaries and benefits for the second quarter of 2005 totaled $25.3 million, an increase of $6.6 million, or 35% over the same period in 2004. Acquisitions and de novo locations accounted for nearly 60% of the increase, with the remainder due to an increase in staff to support business growth, along with related hiring and relocation costs, and normal merit increases. At June 30, 2005, total staff was 1,659, an increase of 216 from a year ago. Nearly 60% of the increase, or 125 staff was added through acquisitions and de novo offices, with the Gainesville de novo adding 57 employees during the second quarter of 2005. Excluding acquisitions and de novo locations, the growth in staff was approximately 6% over last year, an increase of 91 employees. In addition, the ratio of total assets to full-time equivalent (FTE) employees grew from $3.2 million, at June 30, 2004, to $3.4 million, at June 30, 2005.

Occupancy expenses for the second quarter were up $445,000 or 20%, from the second quarter of 2004, and the increase for the six months ended June 30, 2005 over the same period in 2004 was $831,000, or 18%, primarily reflecting the cost of operating banking offices added through acquisitions and de novo expansion. The increases are in all categories of occupancy expense including utilities, maintenance, rent, taxes and depreciation charges.

Communication and equipment costs of $3.1 million for the second quarter and $6.1 million for the first six months of 2005 were up $438,000, or 16%, and $873,000 or 17%, respectively, over the same periods in 2004, primarily due to acquisitions and further investment in technology equipment to support business growth and enhance operating efficiencies.

Postage, printing and supplies costs for the second quarter of 2005 were up $301,000, or 28%, from the same period in 2004. On a year-to-date basis, these cost were up $510,000, or 23%, compared with the prior year. Most of the increase was due to additional postage and courier expense resulting from geographic expansion into new markets through acquisitions and de novo offices.

Professional fees for the second quarter were up $276,000, or 35%, from the second quarter of 2004. The increase in professional fees on a year-to-date basis was $477,000, or 29%. This increase is primarily due to increasing legal costs associated with new loans, higher costs of external loan review and the cost of various consulting projects.

Advertising and public relations expenses for the second quarter of 2005 of $1.7 million were up $708,000, or 71%, over the second quarter of 2004. On a year-to-date basis, this expense was up $1.3 million, or 74%, over the prior year. This was due to costs associated with United’s efforts to increase core deposit accounts and brand promotion within the new markets added recently through mergers and de novo offices.

The increase of $108,000 for the quarter in intangible amortization is due to the Liberty and Eagle acquisitions, which closed during the fourth quarter of 2004 and are reflected in the 2005 results, but not in 2004.

Other expense increased by $557,000, or 22%, from the second quarter of 2004. On a year-to-date basis, other expense increased $1.1 million, or 24%. This increase is being driven primarily by acquisitions and business growth.

The efficiency ratio measures total operating expenses, excluding merger-related charges, as a percentage of total revenue, excluding the provision for loan losses and net securities gains or losses. Based on operating income, United’s efficiency ratio for the second quarter was 61.18% compared with 60.05% for the second quarter of 2004. Year-to-date, the efficiency ratio was 60.36% compared with 59.94% for the first six months of 2004. The increases for both periods were primarily due to the expansion costs for the new de novo bank in Gainesville during the second quarter of 2005.

Income Taxes

Income tax expense, net of tax benefits relating to merger charges, was $7.7 million for the second quarter, as compared with $5.8 million for the second quarter of 2004, representing a 35.7% and 34.5% effective tax rate, respectively. The effective tax rates were lower than the statutory tax rate primarily due to interest revenue on certain investment securities and loans that are exempt from income taxes and tax credits received on affordable housing investments. The effective tax rate has increased as tax-exempt interest revenue on securities and loans has declined as a percentage of pre-tax earnings. Additional information regarding income taxes can be found in Note 13 to the Consolidated Financial Statements filed with United’s 2004 Form 10-K.

Balance Sheet Review

Total assets at June 30, 2005 were $5.5 billion, 9% higher than the $5.1 billion at December 31, 2004 and 22% higher than the $4.5 billion at June 30 , 2004. Average total assets for the second quarter of 2005 were $5.3 billion, up $1.1 billion from average assets in the second quarter of 2004.

Loans

The following table presents a summary of the loan portfolio.

Table 7 — Loans Outstanding
(in thousands)


	June 30,			December 31,			June 30,
	2005			2004			2004
Commercial (commercial and industrial)	$	222,452		$	211,850		$	183,941
Commercial (secured by real estate)		1,016,700			966,558			853,956

Total commercial		1,239,152			1,178,408			1,037,897
Construction		1,480,664			1,304,526			1,106,359
Residential mortgage		1,194,724			1,101,653			1,050,561
Installment		158,271			150,318			143,492

Total loans	$	4,072,811		$	3,734,905		$	3,338,309


As a percentage of total loans:
Commercial (commercial and industrial)		6	%		6	%		6	%
Commercial (secured by real estate)		25			26			26

Total commercial		31			32			32
Construction		36			35			33
Residential mortgage		29			29			31
Installment		4			4			4

Total		100	%		100	%		100	%

At June 30, 2005, total loans were $4.1 billion, an increase of $735 million, or 22%, from June 30, 2004 and an increase of $338 million, or 9%, from December 31, 2004. Over the past year, United has experienced strong loan growth in all markets, with particular strength in loans secured by real estate. Substantially all loans are to customers located in Georgia, North Carolina and Tennessee, the immediate market areas of the Banks. The acquisitions of Eagle National Bank, which closed on November 1, 2004 and Liberty National Bank, which closed on December 1, 2004, added approximately $206 million in balances to the loan portfolio. Approximately $374 million of the increase from a year ago occurred in construction and land development loans. Growth continues to be strong in residential real estate loans and commercial loans , which grew $144 million and $201 million, respectively, from June 30, 2004. In May 2005, United expanded into the Gainesville, Georgia market with a new de novo bank, which added $92 million in loans spread across all of the loan categories.

Asset Quality and Risk Elements

United manages asset quality and controls credit risk through close supervision of the loan portfolio and the application of 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 the 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 is based upon management’s judgment of the amount necessary to maintain the allowance at a level adequate to absorb probable losses. 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 economic factors and trends. The evaluation of these factors is performed by the credit administration department 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 year. 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 sources as necessary to support the activities of the loan review department and to ensure the independence of the loan review process.

The following table presents a summary of changes in the allowance for loan losses for the three and six-month periods ended June 30, 2005 and 2004.

Table 8 — Summary of Loan Loss Experience
For the Three and Six Months Ended June 30,
(in thousands)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
Balance beginning of period	$	48,453		$	39,820		$	47,196		$	38,655
Allowance from acquisitions		—			1,727			—			1,727
Loans charged-off		(1,706	)		(1,008	)		(3,109	)		(2,028	)
Recoveries		326			219			586			604

Net charge-offs		(1,380	)		(789	)		(2,523	)		(1,424	)
Provision for loan losses		2,800			1,800			5,200			3,600

Balance end of period	$	49,873		$	42,558		$	49,873		$	42,558


Total loans:
At period end	$	4,072,811		$	3,338,309		$	4,072,811		$	3,338,309
Average		3,942,077			3,235,262			3,870,177			3,165,569
As a percentage of average loans (annualized):
Net charge-offs		.14	%		.10	%		.13	%		.09	%
Provision for loan losses		.28			.22			.27			.23
Allowance as a percentage of period end loans		1.22			1.27			1.22			1.27
Allowance as a percentage of non-performing loans		435			593			435			593

Management believes that the allowance for loan losses at June 30, 2005 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.

Non-performing Assets

The table below summarizes non-performing assets.

Table 9 — Non-Performing Assets
(in thousands)


	June 30,			December 31,			June 30,
	2005			2004			2004
Non-accrual loans	$	11,465		$	8,031		$	7,169
Loans past due 90 days or more and still accruing		—			—			3

Total non-performing loans		11,465			8,031			7,172
Other real estate owned		2,030			694			1,640

Total non-performing assets	$	13,495		$	8,725		$	8,812

Non-performing loans as a percentage of total loans		.28	%		.22	%		.21	%
Non-performing assets as a percentage of total assets		.24			.17			.19

Non-performing loans, which include non-accrual loans and accruing loans past due over 90 days, totaled $11.5 million at June 30, 2005, compared with $8.0 million at December 31, 2004 and $7.2 million at June 30, 2004. At June 30, 2005, the ratio of non-performing loans to total loans was .28%, compared with .22% at December 31, 2004 and .21% at June 30, 2004. Non-performing assets, which include non-performing loans and foreclosed real estate, totaled $13.5 million at June 30, 2005, compared with $8.7 million at December 31, 2004 and $8.8 million at June 30, 2004.

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, 2005.

At June 30, 2005 and 2004, there were $6.9 million and $1.1 million, respectively, of loans classified as impaired under the definition outlined in SFAS No. 114. Specific reserves allocated to these impaired loans totaled $1.7 million at June 30, 2005, and $281,000 at June 30, 2004. The average recorded investment in impaired loans for the quarters ended June 30, 2005 and 2004, was $7.0 million and $546,000, respectively. Interest revenue recognized on loans while they were impaired for the second quarter and first half of 2005 was $9,000 and $13,000, respectively, compared with $12,000 and $15,000 for the same periods in 2004.

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 at quarter-end increased $251 million from second quarter of 2004, and $111 million from December 31, 2004. The investment portfolio is used to help stabilize interest rate sensitivity and increase net interest revenue. The growth in the investment securities portfolio is consistent with growth in the rest of the balance sheet. At June 30, 2005, the securities portfolio accounts for approximately 18% of total assets, and is comparable with 17% at December 31, 2004, and 16% at June 30, 2004.

The investment securities portfolio primarily consists of U.S. Government and agency securities, municipal securities and U.S. Government sponsored agency mortgage-backed securities. Mortgage-backed securities rely on the underlying pools of mortgage loans to provide a cash flow of principal and interest. The actual maturities of these securities will differ from the contractual maturities because the loans underlying the security may prepay. Decreases in interest rates will generally cause an acceleration of prepayment levels. In a declining interest rate environment, United generally will 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.

Deposits

Total deposits at June 30, 2005 were $4.0 billion, an increase of $619 million from June 30, 2004, approximately $238 million resulting from the acquisitions of Eagle National Bank on November 1, 2004, and Liberty National Bank on December 1, 2004. Total non-interest-bearing demand deposit accounts increased $111 million and interest-bearing demand and savings accounts increased $223 million. Total time deposits as of June 30, 2005 were $2.05 billion, an increase of $286 million from the second quarter of 2004.

Time deposits of $100,000 and greater totaled $697 million at June 30, 2005, compared with $455 million at June 30, 2004. 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, 2005 and June 30, 2004 were $311 million and $422 million, respectively.

Wholesale Funding

At June 30, 2005, each of the Banks were shareholders in the Federal Home Loan Bank. Through this affiliation, secured advances totaling $800.3 million were outstanding at rates competitive with time deposits of like maturities. United anticipates continued utilization of this short and long term source of funds. FHLB advances outstanding at June 30, 2005 had both fixed and floating interest rates ranging from 2.12% 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 2004 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 six interest rate scenarios. The first 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. The second scenario is a most likely scenario that projects the most likely change in rates over the next twelve months based on the slope of the yield curve. 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, 2005, United’s simulation model indicated that a 200 basis point increase in rates over the next twelve months would cause an approximate 3.5% increase in net interest revenue and a 200 basis point decrease in rates over the next twelve months would cause an approximate 6.6% 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, 2005, United was a party to interest rate swap contracts under which it pays a variable rate and receives a fixed rate.

The following table presents the interest rate swap contracts outstanding at June 30, 2005.

Table 10 — Interest Rate Swap Contracts
As of June 30, 2005
(in thousands)


	Notional		Rate			Rate			Fair
Type/Maturity	Amount		Received			Paid ⁽¹⁾			Value
Cash Flow Contracts
October 3, 2005		25,000		5.78			6.25			(53	)
October 24, 2005		22,000		5.57			6.25			(75	)
December 30, 2005		25,000		5.55			6.25			(130	)
December 30, 2005		25,000		5.70			6.25			(125	)
December 30, 2005		50,000		5.80			6.25			(198	)
December 30, 2005		100,000		5.57			6.25			(560	)
April 3, 2006		25,000		6.00			6.25			(146	)
September 30, 2006		10,000		7.04			6.25			19
October 12, 2006		15,000		6.94			6.25			11
December 4, 2006		15,000		5.85			6.25			(218	)
December 17, 2006		30,000		5.99			6.25			(385	)
January 18, 2007		25,000		6.51			6.25			(149	)
March 21, 2007		25,000		7.00			6.25			42
April 19, 2007		15,000		5.85			6.25			(280	)
May 13, 2007		25,000		6.47			6.25			(194	)
May 14, 2007		15,000		6.47			6.25			(120	)
May 14, 2007		10,000		6.47			6.25			(80	)
October 23, 2007		81,000		6.08			6.25			(835	)


Total Cash Flow Contracts	$	538,000		6.00	%		6.25	%	$	(3,476	)


(1)		Based on prime rate at June 30, 2005.

All of United’s derivative financial instruments are classified as cash flow hedges. The change in fair value of cash flow hedges is recognized in other comprehensive income. Cash flow hedges consist of interest rate swap contracts that are designated as hedges of daily repricing prime based loans. Under these contracts, United receives a fixed interest rate and pays a floating rate based on the Prime Rate as posted in the Wall Street Journal.

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 the ongoing operational cash needs and to take advantage of revenue producing opportunities as they arise. While the desired level of liquidity will vary depending upon a variety of factors, it is the primary goal of United to maintain a sufficient level of liquidity in all expected economic environments. 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 $34.1 million at June 30, 2005, 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 two lines of credit at its holding company with other financial institutions totaling $85 million. At June 30, 2005, $5.0 million has been drawn and is outstanding, and United had sufficient qualifying collateral to increase FHLB advances by $224 million. Subsequent to June 30, 2005, United changed the internal policy limits related to brokered deposits from 20% to 25% of total non-brokered deposits. At June 30, 2005, United had the capacity to increase brokered deposits by $418 million and still remain within this limit. With the change in policy from 20% to 25%, United’s capacity to increase brokered deposits is now $601 million based upon total non-brokered deposits at June 30, 2005. In addition to these wholesale sources, United has the ability to attract retail deposits at any time by competing more aggressively on pricing.

As disclosed in United’s Consolidated Statement of Cash Flows, net cash provided by operating activities was $32.2 million for the six months ended June 30, 2005. The major contributors in this category were net income of $27.2 million, depreciation, amortization and accretion of $8.0 million, provision for loan losses of $5.2 million, a decrease in mortgage loans held for sale of $3.0 million, partially offset by an increase in other assets of $13.9 million. Net cash used by investing activities of $455.0 million consisted primarily of a net increase in loans totaling $342.8 million, purchases of premises and equipment of $8.5 million, and $226.6 million used to purchase investment securities, partially offset by proceeds from sales of securities of $40.7 million, maturities and calls of investment securities of $78.4 million, and sales of premises, equipment and other real estate of $3.5 million. Net cash provided by financing activities consisted primarily of a net increase in deposits of $278.7 million, short-term borrowing from United’s line of credit of $5.0 million, and a net increase in federal funds purchased and repurchase agreements of $82.2 million, and a net increase in FHLB advances of $62.5 million; partially offset by cash dividends paid of $5.4 million. In the opinion of management, the liquidity position at June 30, 2005 is sufficient to meet its expected cash flow requirements.

Capital Resources and Dividends

Stockholders’ equity at June 30, 2005 was $416.0 million, an increase of $85.5 million from June 30, 2004. 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), stockholders’ equity increased $85.9 million, or 26%, from June 30, 2004, of which $42.0 million was the result of shares exchanged for the acquisitions in the fourth quarter of 2004. Dividends of $2.7 million, or $.07 per share, were declared on common stock during the second quarter of 2005, an increase of 17% from the amount declared in the same period in 2004. On an operating basis, the dividend payout ratios for the second quarters of 2005 and 2004 were the same at 19%. United has historically retained the majority of its earnings in order to provide a cost effective source of capital for continued growth and expansion. However, in recognition that cash dividends are an important component of shareholder value, United has instituted a dividend program that provides for increased cash dividends when earnings and capital levels permit.

United’s Board of Directors has authorized the repurchase of up to 2,250,000 shares of the Company’s common stock through December 31, 2005. Through June 30, 2005, a total of 1,332,000 shares have been purchased under this program. No shares were purchased during the second quarter of 2005.

United’s common stock trades on the NASDAQ National Market under the symbol “UCBI”. The closing price for the period ended June 30, 2005 was $26.02. Below is a quarterly schedule of high, low and closing stock prices and average daily volume for 2005 and 2004.

Table 11 — Stock Price Information


	2005								2004
	High		Low		Close		Avg Volume		High		Low		Close		Avg Volume

First quarter	$	27.92	$	23.02	$	23.73		42,662	$	24.62	$	21.37	$	23.73		26,905
Second quarter		26.44		21.70		26.02		63,805		25.36		21.89		25.18		43,316
Third quarter										25.45		21.75		24.27		30,366
Fourth quarter										29.60		23.17		26.93		39,082

The following table presents the quarterly cash dividends declared in 2005 and 2004 and the respective payout ratios as a percentage of basic operating earnings per share, which excludes merger-related charges.

Table 12 — Dividend Payout Information (based on operating earnings)


	2005				2004
	Dividend		Payout %		Dividend		Payout %

First quarter	$	.07		20	$	.06		19
Second quarter		.07		19		.06		19	⁽¹⁾
Third quarter						.06		18
Fourth quarter						.06		17	⁽¹⁾


(1)		Dividend payout ratios for the second and fourth quarters of 2004 were 19% and 18%, respectively, when calculated using GAAP earnings per share.

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 which 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.

The following table shows United’s capital ratios, as calculated under regulatory guidelines, at June 30, 2005 and 2004.

Table 13 — Capital Ratios
(in thousands)


	2005						2004
	Actual			Regulatory			Actual			Regulatory
	Amount			Minimum			Amount			Minimum

Tier I Leverage:
Amount	$	343,649		$	156,713		$	287,907		$	125,698
Ratio		6.58	%		3.00	%		6.87	%		3.00	%
Tier I Risk-Based:
Amount	$	343,649		$	170,815		$	287,907		$	136,936
Ratio		8.05	%		4.00	%		8.41	%		4.00	%
Total Risk-Based:
Amount	$	463,122		$	341,629		$	399,601		$	273,873
Ratio		10.85	%		8.00	%		11.67	%		8.00	%

United’s Tier I capital, which excludes other comprehensive income, consists of stockholders’ equity and qualifying capital securities less goodwill and deposit-based intangibles, totaled $343.6 million at June 30, 2005. 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 and was $463 million at June 30, 2005.

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. United’s leverage ratio at June 30, 2005 and 2004 was 6.58% and 6.87%, respectively.

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, 2005 from that presented in the Annual Report on Form 10-K for the year ended December 31, 2004. The interest rate sensitivity position at June 30, 2005 is included in management’s discussion and analysis on page 21 of this report.

Item 4. Controls and Procedures

United’s management, including the Chief Executive Officer and Chief Financial Officer, supervised and participated in an evaluation of the company’s disclosure controls and procedures as of June 30, 2005. 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 significant changes in the internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

Part II. Other Information

Item 1. Legal Proceedings

In the ordinary course of operations, United and the 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 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 Securities Holders

United held its annual meeting of shareholders on April 27, 2005.

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. 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		28,942,059		187,042
Robert L. Head, Jr.		27,436,000		1,693,101
W. C. Nelson, Jr.		28,886,182		242,919
A. William Bennett		28,969,818		159,283
Robert H. Blalock		29,017,396		111,705
Guy W. Freeman		28,993,054		136,047
Thomas C. Gilliland		28,993,622		135,479
Charles E. Hill		28,996,484		132,617
Hoyt O. Holloway		28,996,571		132,530
Clarence W. Mason, Sr.		28,996,484		132,617
Tim Wallis		27,507,119		1,621,982

Item 5. Other Information — None

Item 6. Exhibits


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

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 5, 2005

EX-31.1, CERTIFICATION OF THE CEO

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, as amended, 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 5, 2005

EX-31.2 CERTIFICATION OF THE CFO

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, as amended, of the registrant;

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:

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 5, 2005

EX-32 SECTION 906, CERTIFICATION OF THE CEO & CFO

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, 2005 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 5, 2005

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