SEC Filing | United Community Banks, Inc.

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the Quarterly Period Ended June 30, 2009

OR

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

For the Transition Period from ___________ to ___________

Commission file number 0-21656


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

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

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

	(706) 781-2265
	(Telephone Number)

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

YES x NO o

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

YES o NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer o		Accelerated filer x

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

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

YES o NO x

Common stock, par value $1 per share: 48,966,262 shares
outstanding as of July 31, 2009

INDEX


PART I - Financial Information

	Item 1.	Financial Statements.

	Consolidated Statement of Income (unaudited) for the Three and Six Months Ended June 30, 2009 and 2008		2


	Consolidated Balance Sheet at June 30, 2009 (unaudited), December 31, 2008 (audited) and June 30, 2008 (unaudited)		3


	Consolidated Statement of Changes in Shareholders’ Equity (unaudited) for the Six Months Ended June 30, 2009 and 2008		4


	Consolidated Statement of Cash Flows (unaudited) for the Six Months Ended June 30, 2009 and 2008		5


	Notes to Consolidated Financial Statements		6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	18

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	39

	Item 4.	Controls and Procedures.	39


PART II - Other Information

	Item 1.	Legal Proceedings.	39
	Item 1A.	Risk Factors.	40
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	40
	Item 3.	Defaults Upon Senior Securities.	40
	Item 4.	Submission of Matters to a Vote of Security Holders.	40
	Item 5.	Other Information.	41
	Item 6.	Exhibits.	41

Part I – Financial Information

Item 1 – Financial Statements


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

	Three Months Ended June 30,					Six Months Ended June 30,
(in thousands, except per share data)	2009			2008		2009			2008

Interest revenue:
Loans, including fees	$	81,691		$	97,051	$	163,571		$	206,317
Investment securities, including tax exempt of $309, $398, $628 and $792		20,485			19,277		41,237			38,299
Federal funds sold, commercial paper and deposits in banks		98			50		540			272
Total interest revenue		102,274			116,378		205,348			244,888

Interest expense:
Deposits:
NOW		2,843			7,216		6,180			15,803
Money market		2,269			2,310		4,506			5,223
Savings		121			180		248			407
Time		32,064			38,828		68,117			77,712
Total deposit interest expense		37,297			48,534		79,051			99,145
Federal funds purchased, repurchase agreements and other short-term borrowings		595			1,820		1,148			6,138
Federal Home Loan Bank advances		1,203			2,818		2,277			8,563
Long-term debt		2,760			2,059		5,529			4,139
Total interest expense		41,855			55,231		88,005			117,985
Net interest revenue		60,419			61,147		117,343			126,903
Provision for loan losses		60,000			15,500		125,000			23,000
Net interest revenue after provision for loan losses		419			45,647		(7,657	)		103,903

Fee revenue:
Service charges and fees		7,557			7,957		14,591			15,770
Mortgage loan and other related fees		2,825			2,202		5,476			4,165
Consulting fees		1,745			2,252		2,766			4,059
Brokerage fees		497			814		1,186			1,907
Securities (losses) gains, net		(711	)		357		(408	)		357
Gain from acquisition		11,390			—		11,390			—
Other		1,137			1,523		2,285			3,044
Total fee revenue		24,440			15,105		37,286			29,302
Total revenue		24,859			60,752		29,629			133,205

Operating expenses:
Salaries and employee benefits		28,058			28,753		56,897			57,507
Communications and equipment		3,645			3,852		7,374			7,684
Occupancy		3,853			3,704		7,660			7,420
Advertising and public relations		1,191			2,009		2,300			3,360
Postage, printing and supplies		1,294			1,448		2,476			3,040
Professional fees		2,806			1,679		5,099			3,600
Foreclosed property		5,737			2,852		10,056			3,763
FDIC assessments and other regulatory charges		6,810			1,265		9,492			2,531
Amortization of intangibles		739			745		1,478			1,512
Other		1,215			3,454		5,085			6,873
Goodwill impairment		—			—		70,000			—
Severance costs		—			—		2,898			—
Total operating expenses		55,348			49,761		180,815			97,290
(Loss) income before income taxes		(30,489	)		10,991		(151,186	)		35,915
Income tax (benefit) expense		(14,488	)		3,898		(31,412	)		12,744
Net (loss) income		(16,001	)		7,093		(119,774	)		23,171
Preferred stock dividends, including discount accretion		2,559			4		5,113			8
Net (loss) income available to common shareholders	$	(18,560	)	$	7,089	$	(124,887	)	$	23,163

Basic (loss) earnings per common share	$	(.38	)	$	.15	$	(2.57	)	$	.49
Diluted (loss) earnings per common share		(.38	)		.15		(2.57	)		.49
Cash dividends per common share		—			.09		—			.18
Stock dividends per common share (new shares issued per shares held)	1 for 130				—	2 for 130				—
Weighted average common shares outstanding - Basic		48,794			47,158		48,560			47,105
Weighted average common shares outstanding - Diluted		48,794			47,249		48,560			47,260

See notes to Consolidated Financial Statements

UNITED COMMUNITY BANKS, INC.

Consolidated Balance Sheet


(in thousands, except share and per share data)	June 30, 2009		December 31, 2008			June 30, 2008
	(unaudited)		(audited)			(unaudited)
ASSETS

Cash and due from banks	$	110,943	$	116,395		$	176,240
Interest-bearing deposits in banks		70,474		8,417			12,455
Federal funds sold, commercial paper and short-term investments		—		368,609			—
Cash and cash equivalents		181,417		493,421			188,695

Securities available for sale		1,816,787		1,617,187			1,430,588
Mortgage loans held for sale		42,185		20,334			27,094
Loans, net of unearned income		5,513,087		5,704,861			5,933,141
Less allowance for loan losses		145,678		122,271			91,035
Loans, net		5,367,409		5,582,590			5,842,106

Covered assets		230,125		—			—
Premises and equipment, net		178,983		179,160			181,395
Accrued interest receivable		41,405		46,088			50,399
Goodwill and other intangible assets		251,821		321,798			323,296
Other assets		292,914		260,187			220,478
Total assets	$	8,403,046	$	8,520,765		$	8,264,051

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand	$	714,630	$	654,036		$	696,575
NOW		1,273,368		1,543,385			1,541,609
Money market		573,463		466,750			418,935
Savings		180,368		170,275			187,088
Time:
Less than $100,000		1,992,056		1,953,235			1,747,763
Greater than $100,000		1,351,527		1,422,974			1,573,078
Brokered		763,348		792,969			531,408
Total deposits		6,848,760		7,003,624			6,696,456

Federal funds purchased, repurchase agreements, and other short-term borrowings		252,493		108,411			288,650
Federal Home Loan Bank advances		283,292		235,321			285,807
Long-term debt		150,026		150,986			107,996
Accrued expenses and other liabilities		13,203		33,041			47,252
Total liabilities		7,547,774		7,531,383			7,426,161

Shareholders’ equity:
Preferred stock, $1 par value; 10,000,000 shares authorized;
Series A; $10 stated value; 21,700, 25,800 and 25,800 shares issued and outstanding		217		258			258
Series B; $1,000 stated value; 180,000 shares issued and outstanding		173,785		173,180			—
Common stock, $1 par value; 100,000,000 shares authorized;48,933,383, 48,809,301 and 48,809,301 shares issued		48,933		48,809			48,809
Common stock issuable; 182,041, 129,304 and 105,579 shares		3,383		2,908			2,696
Capital surplus		450,514		460,708			462,939
Retained earnings		136,624		265,405			362,089
Treasury stock; 799,892 and 1,713,310 shares, at cost		—		(16,465	)		(39,222	)
Accumulated other comprehensive income		41,816		54,579			321
Total shareholders’ equity		855,272		989,382			837,890
Total liabilities and shareholders’ equity	$	8,403,046	$	8,520,765		$	8,264,051

See notes to Consolidated Financial Statements

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)

For the Six Months Ended June 30, 2009

(in thousands, except share and per share data)	Series A Preferred Stock			Series B Preferred Stock		Common Stock		Common Stock Issuable			Capital Surplus			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
Balance, December 31, 2007	$	258		$	—	$	48,809	$	2,100		$	462,881		$	347,391		$	(43,798	)	$	14,261		$	831,902
Comprehensive income:
Net income															23,171									23,171
Other comprehensive income:
Unrealized holding losses on available for sale securities, net of deferred tax benefit and reclassification adjustment																					(15,203	)		(15,203	)
Unrealized gains on derivative financial instruments qualifying as cash flow hedges, net of deferred tax expense																					1,263			1,263
Comprehensive income															23,171						(13,940	)		9,231
Cash dividends declared on common stock ($.18 per share)															(8,465	)								(8,465	)
Exercise of stock options (62,860 shares)												(717	)					1,529						812
Common stock issued to dividend reinvestment plan and employee benefit plans (113,047 shares)												(1,024	)					2,648						1,624
Amortization of stock option and restricted stock awards												1,944												1,944
Vesting of restricted stock (15,159 shares issued, 8,700 shares deferred)									264			(626	)					362						—
Deferred compensation plan, net, including dividend equivalents									374															374
Shares issued from deferred compensation plan (1,545 shares)									(42	)		5						37						—
Tax benefit from options exercised												476												476
Dividends on Series A preferred stock ($.30 per share)															(8	)								(8	)
Balance, June 30, 2008	$	258		$	—	$	48,809	$	2,696		$	462,939		$	362,089		$	(39,222	)	$	321		$	837,890
Balance, December 31, 2008	$	258		$	173,180	$	48,809	$	2,908		$	460,708		$	265,405		$	(16,465	)	$	54,579		$	989,382
Comprehensive income:
Net loss															(119,774	)								(119,774	)
Other comprehensive loss:
Unrealized holding gains on available for sale securities, net of deferred tax expense and reclassification adjustment																					1,582			1,582
Unrealized losses on derivative financial instruments qualifying as cash flow hedges, net of deferred tax benefit																					(14,345	)		(14,345	)
Comprehensive loss															(119,774	)					(12,763	)		(132,537	)
Retirement of Series A preferred stock (4,100 shares)		(41	)																					(41	)
Stock dividends declared on common stock (737,530 shares)							108					(8,893	)		(3,894	)		12,649						(30	)
Exercise of stock options (437 shares)												(6	)					8						2
Common stock issued to dividend reinvestment plan and employee benefit plans (167,873 shares)							14					(2,474	)					3,434						974
Amortization of stock options and restricted stock awards												1,846												1,846
Vesting of restricted stock (12,447 shares issued, 16,162 shares deferred)							2		416			(658	)					240						—
Deferred compensation plan, net, including dividend equivalents									214															214
Shares issued from deferred compensation plan (5,687 shares)									(155	)		21						134						—
Tax on option exercise and restricted stock vesting												(30	)											(30	)
Dividends on Series A preferred stock ($.30 per share)															(8	)								(8	)
Dividends on Series B preferred stock (5%)					605										(5,105	)								(4,500	)
Balance, June 30, 2009	$	217		$	173,785	$	48,933	$	3,383		$	450,514		$	136,624		$	—		$	41,816		$	855,272

Comprehensive loss for the second quarter of 2009 and 2008 was $32,735,000 and $31,569,000, respectively.

See notes to Consolidated Financial Statements

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Cash Flows (Unaudited)

	Six Months Ended June 30,
(in thousands)	2009			2008
Operating activities:
Net (loss) income	$	(119,774	)	$	23,171
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation, amortization and accretion		7,215			7,211
Provision for loan losses		125,000			23,000
Goodwill impairment charge		70,000			—
Stock-based compensation		1,846			1,944
Loss (gain) on sale of securities available for sale		408			(357	)
(Gain) loss on sale of other assets and other real estate owned		(601	)		578
Write downs of other real estate owned		(4,889	)		(11	)
Gain from acquisition		(11,390	)		—
Changes in assets and liabilities:
Other assets and accrued interest receivable		(10,943	)		(14,651	)
Accrued expenses and other liabilities		50,868			25,309
Mortgage loans held for sale		(21,851	)		910
Net cash provided by operating activities		85,889			67,104

Investing activities:
Proceeds from sales of securities available for sale		15,017			79,735
Proceeds from maturities and calls of securities available for sale		399,401			344,597
Purchases of securities available for sale		(584,100	)		(511,626	)
Net increase in loans		(12,617	)		(65,062	)
Proceeds from sales of premises and equipment		547			323
Purchases of premises and equipment		(6,237	)		(7,291	)
Net cash received from acquisitions		63,618			—
Proceeds from sale of other real estate		56,060			30,636
Net cash used by investing activities		(68,311	)		(128,688	)

Financing activities:
Net change in deposits		(462,921	)		620,505
Net change in federal funds purchased, repurchase agreements, and other short-term borrowings		141,412			(349,812	)
Proceeds from FHLB advances		130,000			400,000
Repayments of FHLB advances		(135,000	)		(634,000	)
Proceeds from exercise of stock options		2			812
Proceeds from issuance of common stock for dividend reinvestment and employee benefit plans		974			1,624
Retirement of preferred stock		(41	)		—
Cash dividends on common stock		—			(8,465	)
Cash dividends on preferred stock		(4,008	)		(8	)
Net cash (used) provided by financing activities		(329,582	)		30,656

Net change in cash and cash equivalents		(312,004	)		(30,928	)

Cash and cash equivalents at beginning of period		493,421			219,623

Cash and cash equivalents at end of period	$	181,417		$	188,695
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest	$	91,865		$	120,314
Income taxes		(23,850	)		20,098

See notes to Consolidated Financial Statements

United Community Banks, Inc.

Notes to Consolidated Financial Statements

Note 1 – Accounting Policies

The accounting and financial reporting policies of United Community Banks, Inc. (“United”) and its subsidiaries conform to accounting principles generally accepted in the United States of America (“GAAP”) and general banking industry practices. The accompanying interim consolidated financial statements have not been audited. All material intercompany balances and transactions have been eliminated. A more detailed description of United’s accounting policies is included in the 2008 annual report filed on Form 10-K.

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

Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS 161”), amends and expands the disclosure requirements of Financial Accounting Standards Board (“FASB”) Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”) with the intent to provide users of financial statements with an enhanced understanding of: (1) how and why an entity uses derivative instruments, (2) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

As required by SFAS 133, United records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether United has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. United may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or United elects not to apply hedge accounting under SFAS 133.

Foreclosed property is initially recorded at fair value, less cost to sell. If the fair value, less cost to sell at the time of foreclosure, is less than the loan balance, the deficiency is charged against the allowance for loan losses. If the fair value, less cost to sell, of the foreclosed property decreases during the holding period, a valuation allowance is established with a charge to operating expenses. When the foreclosed property is sold, a gain or loss is recognized on the sale for the difference between the sales proceeds and the carrying amount of the property. Financed sales of foreclosed property are accounted for in accordance with Statement of Financial Accounting Standards No. 66, Accounting for Sales of Real Estate (“SFAS 66”).

Note 2 – Federally Assisted Acquisition of Southern Community Bank

On June 19, 2009, United Community Bank (“UCB”) purchased substantially all the assets and assumed substantially all the liabilities of Southern Community Bank (“SCB”) from the Federal Deposit Insurance Corporation (“FDIC”), as Receiver of SCB. SCB operated five commercial banking branches on the south side of Atlanta in Fayetteville, Peachtree City, Locust Grove and Newnan, Georgia. The FDIC took SCB under receivership upon SCB’s closure by the Georgia Department of Banking and Finance at the close of business June 19, 2009. UCB submitted a bid for the acquisition of SCB with the FDIC on June 16, 2009. The transaction resulted in a cash payment of $31 million from the FDIC to UCB. Further, UCB and the FDIC entered loss sharing agreements regarding future losses incurred on loans and foreclosed loan collateral existing at June 19, 2009. Under the terms of the loss sharing agreements, the FDIC will absorb 80 percent of losses and share 80 percent of loss recoveries on the first $109 million of losses and, absorb 95 percent of losses and share in 95 percent of loss recoveries on losses exceeding $109 million. The term for loss sharing on residential real estate loans is ten years, while the term for loss sharing on all other loans is five years.

The SCB acquisition was accounted for under the purchase method of accounting in accordance with the FASB’s Statement of Financial Accounting Standards No. 141(R) Business Combinations (“SFAS 141(R)”). The statement of net assets acquired as of June 19, 2009 and the resulting gain from acquisition are presented in the following table.

Statement of net assets acquired (at estimated fair values)


(in thousands)	Southern Community Bank

Assets acquired:
Cash and due from banks	$	63,618
Securities available for sale		80,148

Loans		110,023
Foreclosed property		25,913
Estimated loss reimbursement from the FDIC		94,550
Covered assets		230,486
Core deposit intangible		1,500
Accrued interest receivable and other assets		2,434
Total assets acquired		378,186

Liabilities assumed:
Deposits		309,437
Federal Home Loan Bank advances		53,416
Accrued interest payable and other liabilities		3,943
Total liabilities assumed		366,796
Net assets acquired / gain from acquisition	$	11,390

The purchased assets and assumed liabilities were recorded at their respective acquisition date fair values, and identifiable intangible assets were recorded at fair value. Fair values are preliminary and subject to refinement for up to one year after the closing date of a merger as information relative to closing date fair values become available. A gain totaling $11.4 million resulted from the acquisition and is included as a component of fee revenue on the consolidated statement of income. The amount of the gain is equal to the amount by which the fair value of assets purchased exceeded the fair value of liabilities assumed. The results of operations of SCB for the period of June 19, 2009 to June 30, 2009 are included in the consolidated financial statements. SCB’s results of operations prior to the acquisition are not included in United’s consolidated statement of income.

United made significant estimates and exercised significant judgment in accounting for the acquisition of SCB. Management engaged an independent third party to assist in determining the value of SCB’s loans. United also recorded an identifiable intangible asset representing the value of the core deposit customer base of SCB. In determining the value of the identifiable intangible asset, United estimated average lives of depository accounts, future interest rate levels, the cost of servicing various depository products, and other significant items. Management used quoted market prices and observable data to determine the fair value of investment securities. The fair values of FHLB advances, certificates of deposit and other borrowings which were purchased and assumed from SCB were determined based on discounted cash flows at current rates for similar instruments.

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date. The carryover of the related allowance for loan losses is prohibited. Purchased loans are accounted for under American Institute of Certified Public Accountants Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (“SOP 03-3”), when the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that United will not collect all contractually required principal and interest payments. Evidence of credit quality deterioration as of the purchase date may include statistics such as past due and nonaccrual status. Generally, acquired loans that meet United’s definition of nonaccrual status fall within the scope of SOP 03-3. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference which is deducted from the carrying amount of loans. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent increases in cash flows result in a reversal of the provision for loan losses to the extent of prior charges or a reversal of the non-accretable difference with a positive impact on interest revenue. Further, any excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest revenue over the remaining life of the loan when there is reasonable expectation about the amount and timing of such cash flows.

Loans, foreclosed property and the estimated FDIC reimbursement resulting from the loss share agreements with the FDIC are reported as “covered assets” in the consolidated balance sheet. The table below shows the components of covered assets at June 30, 2009.


(in thousands)	SOP 03-3 Loans		Non SOP 03-3 Loans		Other		Total

Covered loans	$	23,513	$	86,339	$	—	$	109,852
Covered foreclosed property		—		—		25,723		25,723
Estimated loss reimbursement from the FDIC		—		—		94,550		94,550
Total covered assets	$	23,513	$	86,339	$	120,273	$	230,125

Covered loans are initially recorded at fair value at the acquisition date. Subsequent decreases in the amount expected to be collected results in a provision for loan losses and an increase in the estimated FDIC reimbursement, with any estimated net loss impacting earnings. Covered foreclosed property is initially recorded at its estimated fair value.

On the acquisition date, the preliminary estimate of the contractually required payments receivable for all SOP 03-3 loans acquired was $70.8 million, the cash flows expected to be collected were $24.5 million including interest, and the estimated fair value of the loans was $23.6 million. These amounts were determined based upon the estimated remaining life of the underlying loans, which include the effects of estimated prepayments. At June 30, 2009, a majority of these loans were valued based on the liquidation value of the underlying collateral, because the expected cash flows are primarily based on the liquidation of the underlying collateral and the timing and amount of the cash flows could not be reasonably estimated. Because of the short time period between the closing of the transaction and June 30, 2009, certain amounts related to the SOP 03-3 loans are preliminary estimates and adjustments in future quarters may occur.

Note 3 – Stock-Based Compensation

United has an equity compensation plan that allows for grants of incentive stock options, nonqualified stock options, restricted stock awards (also referred to as “nonvested stock” awards), stock awards, performance share awards or stock appreciation rights. Options granted under the plan can have an exercise price no less than the fair market value of the underlying stock at the date of grant. The general terms of the plan include a vesting period (usually four years) with an exercisable period not to exceed ten years. Certain option and restricted stock awards provide for accelerated vesting if there is a change in control (as defined in the plan). As of June 30, 2009, approximately 954,000 additional awards could be granted under the plan. Through June 30, 2009, only incentive stock options, nonqualified stock options and restricted stock awards and units had been granted under the plan.

The following table shows stock option activity for the first six months of 2009.


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

Outstanding at December 31, 2008		3,350,701		$	19.99
Stock dividend adjustment		51,266			—
Granted		352,950			6.35
Exercised		(437	)		5.96
Forfeited		(43,069	)		22.35
Expired		(27,198	)		13.24
Outstanding at June 30, 2009		3,684,213			18.43		6.1	$	—

Exercisable at June 30, 2009		2,464,201			19.26		4.8		—

The weighted average fair value of stock options granted in the second quarter of 2009 and 2008 was $2.88 and $2.93, respectively. The fair value of each option granted was estimated on the date of grant using the Black-Scholes model. Because United’s option plan has not been in place long enough to gather sufficient information about exercise patterns to establish an expected life, United uses the formula provided by the Securities and Exchange Commission in Staff Accounting Bulletin No. 107 to determine the expected life of options.

The weighted average assumptions used to determine the fair value of stock options are presented in the table below.

	Six Months Ended June 30,
	2009			2008

Expected volatility		40.68	%		23.42	%
Expected dividend yield		0.00	%		2.61	%
Expected life (in years)		6.25			6.25
Risk-free rate		3.35	%		3.43	%

United’s stock trading history began in March of 2002 when United listed on the Nasdaq National Market. For 2009 expected volatility was determined using United’s historical monthly volatility for the seventy five months ended December 31, 2008. Seventy five months was chosen to correspond to the expected life of 6.25 years. For 2008, expected volatility was determined using United’s historical monthly volatility over the period beginning in March of 2002 through the end of 2007. Compensation expense for stock options was $1.4 million and $1.5 million for the six months ended June 30, 2009 and 2008, respectively. Deferred tax benefits of $498,000 and $445,000, respectively, were included in the determination of income tax (benefit) expense for the six-month periods ended June 30, 2009 and 2008. The amount of compensation expense for both periods was determined based on the fair value of the options at the time of grant, multiplied by the number of options granted that were expected to vest, which was then amortized over the vesting period. The forfeiture rate for options is estimated to be approximately 3% per year. The total intrinsic value of options exercised during the six months ended June 30, 2009 and 2008 was $840 and $277,000.

The table below presents the activity in restricted stock awards for the first six months of 2009.


Restricted Stock	Shares			Weighted- Average Grant- Date Fair Value

Outstanding at December 31, 2008		89,498		$	24.17
Stock dividend adjustment		1,876			—
Granted		106,000			7.07
Vested		(28,609	)		25.08
Outstanding at June 30, 2009		168,765			13.01

Compensation expense for restricted stock is based on the fair value of restricted stock awards at the time of grant, which is equal to the value of United’s common stock on the date of grant. The value of restricted stock grants that are expected to vest is amortized into expense over the vesting period. For the six months ended June 30, 2009 and 2008, compensation expense of $433,000 and $441,000, respectively, was recognized related to restricted stock awards. The total intrinsic value of the restricted stock was $1.0 million at June 30, 2009.

As of June 30, 2009, there was $6.9 million of unrecognized compensation cost related to nonvested stock options and restricted stock awards granted under the plan. That cost is expected to be recognized over a weighted-average period of 1.4 years. The aggregate grant date fair value of options and restricted stock awards that vested during the six months ended June 30, 2009, was $3.5 million.

Note 4 – Common Stock Issued / Common Stock Issuable

United provides a Dividend Reinvestment and Share Purchase Plan (“DRIP”) to its shareholders. Under the DRIP, shareholders of record can voluntarily reinvest all or a portion of their cash dividends into shares of United’s common stock, as well as purchase additional stock through the plan with cash. United’s 401(k) retirement plan regularly purchases shares of United’s common stock directly from United. In addition, United has an Employee Stock Purchase Program (“ESPP”) that allows eligible employees to purchase shares of common stock at a 5% discount, with no commission charges. For the six months ended June 30, 2009 and 2008, United issued 167,873 and 113,047 shares, respectively, and increased capital by $974,000 and $1.6 million, respectively, through these programs.

United offers its common stock as an investment option in its deferred compensation plan. The common stock component of the deferred compensation plan is accounted for as an equity instrument and is reflected in the consolidated financial statements as common stock issuable. At June 30, 2009 and 2008 182,041 and 105,579 shares, respectively, were issuable under the deferred compensation plan.

Note 5 – Securities Available for Sale

The cost basis, unrealized gains and losses, and fair value of securities available for sale at June 30, 2009, December 31, 2008 and June 30, 2008 are presented below (in thousands):


As of June 30, 2009	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

U.S. Treasuries	$	39,979	$	—	$	4	$	39,975
U.S. Government agencies		209,662		1,015		3,364		207,313
State and political subdivisions		55,194		619		310		55,503
Mortgage-backed securities		1,462,695		32,318		9,916		1,485,097
Other		28,645		311		57		28,899

Total	$	1,796,175	$	34,263	$	13,651	$	1,816,787

As of December 31, 2008

U.S. Government agencies	$	166,263	$	2,122	$	—	$	168,385
State and political subdivisions		43,649		469		378		43,740
Mortgage-backed securities		1,363,513		26,356		10,713		1,379,156
Other		26,080		79		253		25,906

Total	$	1,599,505	$	29,026	$	11,344	$	1,617,187
As of June 30, 2008

U.S. Government agencies	$	190,934	$	568	$	1,998	$	189,504
State and political subdivisions		40,067		558		259		40,366
Mortgage-backed securities		1,212,565		2,052		20,379		1,194,238
Other		6,495		9		24		6,480

Total	$	1,450,061	$	3,187	$	22,660	$	1,430,588

The following table summarizes securities in an unrealized loss position as of June 30, 2009, December 31, 2008 and June 30, 2008 (in thousands):


	Less than 12 Months				12 Months or More				Total
			Unrealized				Unrealized				Unrealized
As of June 30, 2009	Fair Value		Loss		Fair Value		Loss		Fair Value		Loss

U.S. Treasuries	$	39,975	$	4	$	—	$	—	$	39,975	$	4
U.S. Government agencies		142,256		3,364		—		—		142,256		3,364
State and political subdivisions		4,524		106		4,317		204		8,841		310
Mortgage-backed securities		240,979		3,146		150,071		6,770		391,050		9,916
Other		479		22		479		35		958		57
Total unrealized loss position	$	428,213	$	6,642	$	154,867	$	7,009	$	583,080	$	13,651

As of December 31, 2008

State and political subdivisions	$	9,672	$	369	$	14	$	9	$	9,686	$	378
Mortgage-backed securities		215,396		10,210		11,719		503		227,115		10,713
Other		5,228		253		—		—		5,228		253
Total unrealized loss position	$	230,296	$	10,832	$	11,733	$	512	$	242,029	$	11,344

As of June 30, 2008

U.S. Government agencies	$	143,449	$	1,998	$	—	$	—	$	143,449	$	1,998
State and political subdivisions		7,520		259		—		—		7,520		259
Mortgage-backed securities		810,995		20,341		1,898		38		812,893		20,379
Other		497		24		—		—		497		24
Total unrealized loss position	$	962,461	$	22,622	$	1,898	$	38	$	964,359	$	22,660

Management believes that there were no unrealized losses as of June 30, 2009, December 31, 2008 and June 30, 2008 that represented an other-than-temporary impairment. Unrealized losses were primarily attributable to changes in interest rates, and United has both the intent and ability to hold the securities for a time necessary to recover the amortized cost.

The amortized cost and fair value of the investment securities at June 30, 2009, by contractual maturity, are presented in the following table (in thousands). Expected maturities may differ from contractual maturities because issuers and borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Amortized Cost		Fair Value

U.S. Treasuries
Within 1 year	$	39,979	$	39,975
		39,979		39,975
U.S. Government agencies:
Within 1 year		700		702
1 to 5 years		30,998		30,602
5 to 10 years		158,055		157,018
More than 10 years		19,909		18,991
		209,662		207,313
State and political subdivisions:
Within 1 year		19,094		17,713
1 to 5 years		15,607		16,054
5 to 10 years		9,284		10,485
More than 10 years		11,209		11,251
		55,194		55,503
Other:
Within 1 year		14,790		14,791
1 to 5 years		9,851		9,853
5 to 10 years		1,000		1,000
More than 10 years		3,004		3,255
		28,645		28,899
Total securities other than mortgage-backed securities:
Within 1 year		74,563		73,181
1 to 5 years		56,456		56,509
5 to 10 years		168,339		168,503
More than 10 years		34,122		33,497

Mortgage-backed securities		1,462,695		1,485,097

	$	1,796,175	$	1,816,787

The following table summarizes securities sales activity for the three month and six month periods ended June 30, 2009 and 2008 (in thousands):


	Three Months Ended June 30					Six Months Ended June 30
	2009			2008		2009			2008

Proceeds from sales	$	798		$	54,735	$	15,017		$	79,735

Gross gains on sales	$	33		$	357	$	336		$	357
Gross losses on sales		—			—		—			—
Impairment losses		744			—		744			—

Net gains (losses) on sales of securities	$	(711	)	$	357	$	(408	)	$	357

Income tax expense (benefit) attributable to sales	$	(277	)	$	139	$	(159	)	$	139

During the second quarter of 2009, United recognized an impairment loss of $744,000 on an equity investment in Silverton Bank, a financial institution that failed during the quarter. The impairment loss represents the full amount of United’s investment in Silverton.

Note 6 – 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, 2009 and 2008.


(in thousands, except per share data)
	Three Months Ended June 30,					Six Months Ended June 30,
	2009			2008		2009			2008

Net (loss) income available to common shareholders	$	(18,560	)	$	7,089	$	(124,887	)	$	23,163

Weighted average shares outstanding:
Basic		48,794			47,158		48,560			47,105
Effect of dilutive securities
Stock options and restricted stock		—			91		—			155
Warrants attached to trust preferred securities		—			—		—			—
Warrant granted with Series B preferred stock		—			—		—			—
Diluted		48,794			47,249		48,560			47,260

Earnings per common share:
Basic	$	(.38	)	$	.15	$	(2.57	)	$	.49
Diluted	$	(.38	)	$	.15	$	(2.57	)	$	.49

Note 7 – Subsequent Events

United performed an evaluation of subsequent events through August 7, 2009, the date upon which United’s quarterly report on Form 10-Q was filed with the Securities and Exchange Commission. No subsequent events were identified that would have required a change to the financial statements or disclosure in the notes to the financial statements.

Note 8 – Assets and Liabilities Measured at Fair Value

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The table below presents United’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2009, aggregated by the level in the fair value hierarchy within which those measurements fall.


(in thousands)
	Level 1		Level 2		Level 3		Balance at June 30, 2009
Assets
Securities available for sale	$	—	$	1,816,787	$	—	$	1,816,787
Deferred compensation plan assets		3,976		—		—		3,976
Derivative financial instruments		—		30,815		—		30,815
Total assets	$	3,976	$	1,847,602	$	—	$	1,851,578

Liabilities
Deferred compensation plan liability	$	3,976	$	—	$	—	$	3,976
Total liabilities	$	3,976	$	—	$	—	$	3,976

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

United may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. The table below presents United’s assets and liabilities measured at fair value on a nonrecurring basis as of June 30, 2009, aggregated by the level in the fair value hierarchy within which those measurements fall.


(in thousands)
	Level 1		Level 2		Level 3		Balance at June 30, 2009
Assets
Loans	$	—	$	—	$	174,005	$	174,005
Foreclosed assets		—		—		86,730		86,730
Goodwill		—		—		235,590		235,590

Total	$	—	$	—	$	496,325	$	496,325

Assets and Liabilities Not Measured at Fair Value

The carrying amount and fair values for other financial instruments that are not measured at fair value in United’s balance sheet at June 30, 2009 are as follows (in thousands):


	2009
	Carrying Amount		Fair Value
Assets:
Loans, net	$	5,367,409	$	5,369,542

Liabilities:
Deposits		6,848,760		6,893,851
Federal Home Loan Bank advances		283,292		290,908
Long-term debt		150,026		87,907

Note 9 – Stock Dividend

During the first and second quarters of 2009, United declared a quarterly stock dividend at a rate of 1 new share for every 130 shares owned. The stock dividend has been reflected in the financial statements as an issuance of stock with no proceeds rather than a stock split and therefore prior period numbers of shares outstanding have not been adjusted. The amount of $30,000 shown in the equity statement as a reduction of capital related to the stock dividend is the amount of cash paid to shareholders for fractional shares.

Note 10 – Derivatives and Hedging Activities

Risk Management Objective of Using Derivatives

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

The table below presents the fair value of United’s derivative financial instruments as well as their classification on the balance sheet as of June 30, 2009, December 31, 2008 and June 30, 2008.

Derivatives designated as hedging instruments under SFAS 133 (in thousands).


		Fair Value
Interest Rate Products	Balance Sheet Location	June 30, 2009		December 31, 2008		June 30, 2008

Asset derivatives	Other assets	$	30,815	$	81,612	$	28,356

There were no derivatives classified as liabilities in the balance sheet at June 30, 2009, December 31, 2008 or June 30, 2008.

Cash Flow Hedges of Interest Rate Risk

United’s objectives in using interest rate derivatives are to add stability to interest revenue and to manage its exposure to interest rate movements. To accomplish this objective, United primarily uses interest rate swaps and floors as part of its interest rate risk management strategy. For United’s variable-rate loans, interest rate swaps designated as cash flow hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for United making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate floors designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates fall below the strike rate on the contract in exchange for an up front premium. As of June 30, 2009, United had six interest rate swaps with an aggregate notional amount of $325 million and two interest rate floors with an aggregate notional amount of $175 million that were designated as cash flow hedges of interest rate risk.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the second quarter of 2009, such derivatives were used to hedge the variable cash flows associated with existing prime-based, variable-rate loans. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the six months ended June 30, 2009 and June 30, 2008 no hedge ineffectiveness was recognized on derivative financial instruments designated as cash flow hedges.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest revenue as interest payments are received on United’s prime-based, variable-rate loans. During the remaining six months of 2009, United estimates that an additional $26.7 million will be reclassified as an increase to interest revenue.

Fair Value Hedges of Interest Rate Risk

United is exposed to changes in the fair value of certain of its fixed rate obligations due to changes in LIBOR, a benchmark interest rate. United uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the benchmark interest rate. Interest rate swaps designated as fair value hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for United making variable rate payments over the life of the agreements without the exchange of the underlying notional amount. As of June 30, 2009, United had three interest rate swaps with an aggregate notional amount of $195 million that were designated as fair value hedges of interest rate risk.

For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in earnings. United includes the gain or loss on the hedged items in the same line item as the offsetting loss or gain on the related derivatives. During the six months ended June 30, 2009, United recognized a loss of $1.8 million related to changes in the fair value of the swaps that were offset by a gain of $1.5 million related to changes in the fair value of the hedged items. During the six months ended June 30, 2009, United recognized net losses of $282,000 related to ineffectiveness of the hedging relationships. The table below presents the earnings impact of the changes in fair value of the swaps and the hedged items for the six months ended June 30, 2009 (in thousands).


Income Statement Classification	Gain (Loss) on Derivative			Gain (Loss) on Hedged Item

Other fee revenue	$	(259	)	$	431
Other expense		(1,566	)		1,112

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

The tables below present the effect of United’s derivative financial instruments on the Consolidated Statement of Income for the six months ended June 30, 2009 and June 30, 2008. Derivatives in SFAS 133 Fair Value Hedging Relationships (in thousands).


Location of Gain (Loss) Recognized in Income on Derivative	Amount of Gain (Loss) Recognized in Income on Derivative						Amount of Gain (Loss) Recognized in Income on Hedged Item
	Amount of Gain (Loss) Recognized in Income on Derivative						Amount of Gain (Loss) Recognized in Income on Hedged Item
	June 30, 2009			June 30, 2008			June 30, 2009		June 30, 2008

Other fee revenue	$	(259	)	$	(53	)	$	431	$	51
Other expense		(1,566	)		—			1,112		—

Derivatives in SFAS 133 Cash Flow Hedging Relationships (in thousands).


	Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative (Effective Portion)					Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Effective) Portion)	Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion)				Location of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	June 30, 2009			June 30, 2008			June 30, 2009		June 30, 2008			June 30, 2009		June 30, 2008

Interest rate products	$	(5,216	)	$	13,191	Interest revenue	$	21,178	$	11,124	Other fee revenue	$	—	$	—

Credit-risk-related Contingent Features

United manages its credit exposure on derivatives transactions by entering into a bi-lateral credit support agreement with each counterparty. The credit support agreements require collateralization of exposures beyond specified minimum threshold amounts. The details of these agreements, including the minimum thresholds, vary by counterparty.

United’s agreements with each of its derivative counterparties contain a provision where if either party defaults on any of its indebtedness, then it could also be declared in default on its derivative obligations. The agreements with derivatives counterparties also include provisions that if not met, could result in United being declared in default. United has agreements with certain of its derivative counterparties that contain a provision where if United fails to maintain its status as a well-capitalized institution, it could be declared in default on its derivative obligations. United has an agreement with one counterparty that contains a provision where if United fails to maintain a minimum shareholders’ equity of $300 million, it could be declared in default on its derivative obligations. An agreement with another counterparty contains a provision where if United fails to maintain a minimum tier 1 leverage ratio of 5.0%, a minimum tier 1 risk-based capital ratio of 6.0%, and a minimum total risk-based capital ratio of 10%, it could be declared in default on its derivative obligations.

Note 11 – Recent Accounting Pronouncements

In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, Subsequent Events (“SFAS 165”). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this statement sets forth (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This statement was effective for United in the second quarter of 2009 and will only affect United’s financial statements if an event occurs subsequent to the balance sheet date that would require adjustment to the financial statements or disclosure. United evaluated events and transactions through the date of this report, which is the date its consolidated financial statements dated June 30, 2009, were filed with the SEC.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140 (“SFAS 166”). SFAS 166 addresses (1) practices that have developed since the issuance of Statement of Financial Accounting Standards No. 140 (“SFAS 140”), Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, that are not consistent with the original intent and key requirements of SFAS 140 and (2) concerns of financial statement users that many of the financial assets (and related obligations) that have been derecognized should continue to be reported in the financial statements of transferors. SFAS 166 will become effective for United beginning January 1, 2010 and is effective for transfers occurring on or after that date. Additionally, on and after the effective date, the concept of a qualifying special-purpose entity is no longer relevant for accounting purposes. Therefore, formerly qualifying special-purpose entities (as defined under previous accounting standards) should be evaluated for consolidation by reporting entities on and after the effective date in accordance with the applicable consolidation guidance. If the evaluation on the effective date results in consolidation, the reporting entity should apply the transition guidance provided in the pronouncement that requires consolidation. Additionally, the disclosure provisions of SFAS 166 should be applied to transfers that occurred both before and after the effective date of this statement. United does not operate any qualifying special-purpose entities; therefore, the consolidation requirements will have no effect on United’s financial statements.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS 167”). SFAS 167 addresses (1) the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, as a result of the elimination of the qualifying special-purpose entity concept in SFAS 166, and (2) constituent concerns about the application of certain key provisions of Interpretation 46(R), including those in which the accounting and disclosures under the Interpretation do not always provide timely and useful information about an enterprise’s involvement in a variable interest entity. SFAS 167 requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. This analysis identifies the primary beneficiary of a variable interest entity as the enterprise that has both of the following characteristics: (a) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance, and (b) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. Additionally, an enterprise is required to assess whether it has an implicit financial responsibility to ensure that a variable interest entity operates as designed when determining whether it has the power to direct the activities of the variable interest entity that most significantly impact the entity’s economic performance. This statement will be effective for United beginning January 1, 2010. United is in the process of determining the impact, if any, on its consolidated financial statements.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162 (“SFAS 168”). The FASB Accounting Standards CodificationTM (“Codification”) will become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of this Statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. This Statement will be effective for United in the third quarter of 2009. Following this Statement, the FASB will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates. The FASB will not consider Accounting Standards Updates as authoritative in their own right. Accounting Standards Updates will serve only to update the Codification, provide background information about the guidance, and provide the bases for conclusions on the change(s) in Codification. FASB Statement No. 162 (“SFAS 162”), The Hierarchy of Generally Accepted Accounting Principles, which became effective on November 13, 2008, identified the sources of accounting principles and the framework for selecting the principles used in preparing the financial statements of nongovernmental entities that are presented in conformity with GAAP. SFAS 162 arranged these sources of GAAP in a hierarchy for users to apply accordingly. Once the Codification is in effect, all of its content will carry the same level of authority, effectively superseding SFAS 162. The implementation of SFAS 168 is not expected to have an impact on United’s financial statements; however, references to existing accounting literature in the footnotes to the financial statements will be changed to reference sections of the Codification.

In April 2009, the FASB issued FASB Staff Position No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP FAS 157-4”). FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. This FSP emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. This accounting standard became effective for United in the second quarter of 2009. The adoption did not have a significant impact on results of operations or financial position.

In April 2009, the FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP FAS 107-1 and APB 28-1”). FSP FAS 107-1 and APB 28-1 amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. This accounting standard became effective for United in the second quarter of 2009. The additional disclosures required by this statement are included in Note 8 to the consolidated financial statements.

In April 2009, the FASB issued FASB Staff Position No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary-Impairments (“FSP FAS 115-2 and FAS 124-2”). The objective of an other-than-temporary impairment analysis under existing GAAP is to determine whether the holder of an investment in a debt or equity security for which changes in fair value are not regularly recognized in earnings (such as securities classified as held-to-maturity or available-for-sale) should recognize a loss in earnings when the investment is impaired. An investment is impaired if the fair value of the investment is less than its amortized cost basis. This FSP amends the other-than-temporary impairment guidance in GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. This accounting standard became effective for United in the second quarter of 2009. It did not have a significant impact on results of operations or financial position.

Note 12 – Reclassifications

Certain 2008 amounts have been reclassified to conform to the 2009 presentation.

Note 13 – Goodwill

A summary of the changes in goodwill for the six months ended June 30, 2009 and 2008 is presented below, (in thousands).


	Six Months Ended June 30,
	2009			2008
Beginning balance	$	305,590		$	306,086
Purchase adjustments		—			(496	)
Impairment		(70,000	)		—
Ending balance	$	235,590		$	305,590

During the first quarter of 2009, United updated its annual goodwill impairment assessment as a result of its stock price falling significantly below tangible book value. As a result of the updated assessment, goodwill was found to be impaired and was written down to its estimated fair value. The impairment charge of $70 million was recognized as an expense in the first quarter 2009 consolidated statement of income.

United has only one operating segment and all of the goodwill is included in that segment; therefore goodwill was tested for impairment for United as a whole. The first step (Step 1) of the goodwill impairment assessment was to determine the fair value of United as a whole and compare the result to the book value of equity. If the fair value resulting from Step 1 exceeds the book value of equity, goodwill is deemed not to be impaired. If the fair value is less than book value, Step 2 of the goodwill impairment assessment must be completed. Step 2 consists of valuing all of the assets and liabilities, including separately identifiable intangible assets, in order to determine the fair value of goodwill. The fair value of goodwill is the difference between the value of United determined in Step 1 and the value of the net assets and liabilities determined in Step 2. If the fair value of goodwill exceeds the book value, goodwill is not impaired. If the fair value of goodwill is less than book value, goodwill is impaired by the amount by which book value exceeds fair value.

The techniques used to determine fair value of United in Step 1 included a discounted cash flow analysis based on United’s long-term earnings forecast, the guideline public companies method that considered the implied value of United by comparing United to a select peer group of public companies and their current market capitalizations, adjusted for differences between the companies, and the merger and acquisition method that considered the amount an acquiring company might be willing to pay to gain control of United based on multiples of tangible book value paid by acquirers in recent merger and acquisition transactions.

In United’s annual goodwill assessment performed at year-end, the results of Step 1 were that the fair value of United exceeded the book value so goodwill was determined to not be impaired. The interim assessment performed in the first quarter of 2009 indicated that the fair value of United was less than book value, so United proceeded to Step 2. United’s Step 2 analysis indicated that the book value of goodwill exceeded the fair value by $70 million leading to the impairment charge. In arriving at the impairment charge there were a number of valuation assumptions made. The most significant valuation assumptions were related to valuing the loan portfolio. The key assumptions involved in valuing the non-performing portion of the loan portfolio included estimating future cash flows. The key assumptions involved in valuing the performing portion of the loan portfolio included determining a default rate and a rate of loss upon default. Changing these assumptions, or any other key assumptions, could have a material impact on the amount of goodwill impairment.

There have been no events or changes in operating conditions in the second quarter that would require an updated assessment of goodwill for impairment.

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:


	●	the condition of the banking system and financial markets;
	●	our limited ability to raise capital or maintain liquidity;
	●	our ability to pay dividends;
	●	our past operating results may not be indicative of future operating results;
	●	our business is subject to the success of the local economies in which we operate;
	●	our concentration of construction and land development loans is subject to unique risks that could adversely affect our earnings;
	●	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;
	●	if our allowance for loan losses is not sufficient to cover actual loan losses, earnings would decrease;
	●	competition from financial institutions and other financial service providers may adversely affect our profitability;
	●	we may be subject to losses due to fraudulent and negligent conduct of our loan customers, third party service providers or employees;
	●	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 success of our business strategy;
	●	the strength of the United States economy in general;
	●	changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;
	●	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.

Acquisition

On June 19, 2009, United Community Bank (“Bank”) acquired the banking operations of Southern Community Bank (“SCB”) from the Federal Deposit Insurance Corporation (“FDIC”). The Bank acquired $378.2 million of assets and assumed $366.8 million of liabilities. The Bank and the FDIC entered loss sharing agreements regarding future losses incurred on loans and foreclosed loan collateral existing at June 19, 2009. Under the terms of the loss sharing agreements, the FDIC will absorb 80 percent of losses and share in 80 percent of loss recoveries on the first $109 million of losses, and absorb 95 percent of losses and share in 95 percent of loss recoveries on losses exceeding $109 million. The term for loss sharing on residential real estate loans is ten years, while the term for loss sharing on all other loans is five years. The SCB acquisition was accounted for under the purchase method of accounting in accordance with the Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 141(R) Business Combinations (“SFAS 141(R)”). United recorded a gain totaling $11.4 million resulting from the acquisition, which is a component of fee revenue on the consolidated statement of income. The amount of the gain is equal to the amount by which the fair value of assets purchased exceeded the fair value of liabilities assumed. See Note 2 of the Notes to unaudited Consolidated Financial Statements for additional information regarding the acquisition.

The results of operations of SCB are included in the consolidated statement of income from the acquisition date of June 19, 2009 through June 30, 2009. Because the acquisition of SCB occurred late in the quarter, with the exception of the acquisition gain of $11.4 million, the results of operations contributed by SCB had very little impact on consolidated financial results.

Overview

The following discussion is intended to provide insight into the results of operations and financial condition of United and its subsidiaries and should be read in conjunction with the consolidated financial statements and accompanying notes.

United is a bank holding company registered with the Federal Reserve under the Bank Holding Company Act of 1956 that was incorporated under the laws of the state of Georgia in 1987 and commenced operations in 1988. At June 30, 2009, United had total consolidated assets of $8.4 billion, total loans of $5.5 billion, excluding the loans acquired from Southern Community Bank that are covered by loss sharing agreements, total deposits of $6.8 billion and stockholders’ equity of $855 million.

United’s activities are primarily conducted by its wholly owned Georgia banking subsidiary (the “Bank”) and Brintech, Inc., a consulting firm providing professional services to the financial services industry. The Bank operations are conducted under a community bank model that operates 27 “community banks” with local bank presidents and boards in north Georgia, the Atlanta metropolitan statistical area (“MSA”), the Gainesville MSA, coastal Georgia, western North Carolina, and east Tennessee.

United reported a net loss of $16.0 million for the second quarter of 2009, which included a non-recurring bargain purchase gain of $11.4 million for the acquisition of SCB. United’s net operating loss, which excludes the gain on acquisition, was $23.1 million for the second quarter of 2009. This compared with net income of $7.1 million for the second quarter of 2008. Diluted operating loss per common share was $.53 for the second quarter of 2009, compared with diluted earnings per common share of $.15 for the second quarter of 2008. The gain on acquisition represented $.15 of earnings per share for the second quarter of 2009, reducing the net loss per diluted share to $.38. The second quarter of 2009 operating loss reflects the continuing recessionary economic environment and credit losses primarily resulting from the weak residential construction and housing market.

For the six-month period ended June 30, 2009, United reported a net loss of $119.8 million, including the $11.4 million gain on acquisition, a $70 million charge for goodwill impairment and a $2.9 million charge for a reduction in workforce. United’s net operating loss for the first six months of 2009, which excludes the gain on acquisition, goodwill impairment and severance costs, was $55.0 million, compared to net operating income for the first six months of 2008 of $23.2 million. Diluted operating loss per common share was $1.24 for the six months ended June 30, 2009, compared with diluted operating income per common share of $.49 for the same period in 2008. The gain on acquisition, goodwill impairment and severance costs represented $.14 of earnings per share, $1.44 of loss and $.04 of loss, respectively, for the year, bringing the net loss per common share to $2.57.

Operating loss and operating loss per diluted share are non-GAAP performance measures. United’s management believes that operating performance is useful in analyzing the company’s financial performance trends since it excludes items that are non-recurring in nature. A reconciliation of these operating performance measures to GAAP performance measures is included in the table on page 22.

Compared to a year ago, earnings for the quarter and year-to-date decreased primarily as a result of a higher provision for loan losses related to the deteriorating credit conditions and resulting increase in charge-offs within the loan portfolio. Margin compression due to an increase in non-performing assets, competitive deposit pricing and the ongoing effect of efforts to maintain liquidity also contributed to lower earnings. Although the margin was down for the quarter from a year ago, it was up 20 basis points from the first quarter of 2009, reflecting improvement in loan and deposit pricing. Housing sales remain at low levels, leaving a surplus of finished housing and lot inventory in our markets, most notably in the Atlanta MSA. This decline in housing sales negatively affects both the cash flows of our residential construction and land development customers, and the demand for foreclosed developed real estate held by United.

Nonperforming assets, of $392.6 million, which excludes assets of SCB that were covered by the loss sharing agreement with the FDIC, increased to 4.67% of total assets as of June 30, 2009, compared to 1.84% as of June 30, 2008 and 2.94% as of December 31, 2008. This increase was primarily the reflection of the continuing effects of declining home sales in United’s markets.

Fee revenue, excluding the gain from the acquisition of SCB, decreased $2.1 million, or 14%, and $3.4 million, or 12%, from the second quarter and first six months of 2008, respectively. With the exception of mortgage fees, all other fee revenue sources decreased from the respective periods in 2008. Mortgage fees were up $623,000, or 28%, and $1.3 million, or 31% for the quarter and year-to-date, respectively, reflecting higher refinancing activity resulting from the low interest rate environment. In terms of mortgage production, United closed 1,008 loans totaling $168 million in the second quarter of 2009, setting a new company record for the number of loans closed. For the first six months of 2009, 2,004 loans were closed, representing $342 million. The decrease in the other fee revenue categories primarily reflects the weak economy.

Operating expenses increased $5.6 million, or 11%, from the second quarter of 2008. Excluding the $70 million goodwill impairment charge and $2.9 million in severance costs in the first quarter of 2009, operating expenses for the first six months of 2009 increased 10.6 million, or 11%, from the same period of 2008. Both the quarter and year-to-date increases were primarily due to higher expenses associated with, and write-downs on, foreclosed real estate properties and higher FDIC insurance premiums. Effective January 1, 2009, the FDIC raised deposit insurance rates on all insured depository institutions by seven basis points on the balance of insured deposits. United’s second quarter expenses also includes a one-time special assessment of $3.7 million that will be paid in September.

Critical Accounting Policies

The accounting and reporting policies of United are in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and conform to general practices within the banking industry. The more critical accounting and reporting policies include United’s accounting for the allowance for loan losses, intangible assets and income taxes. In particular, United’s accounting policies related to allowance for loan losses, intangibles and income taxes involve the use of estimates and require significant judgment to be made by management. Different assumptions in the application of these policies could result in material changes in United’s consolidated financial position or consolidated results of operations. See “Asset Quality and Risk Elements” herein for additional discussion of United’s accounting methodologies related to the allowance.

Results of Operations

United reported a net loss of $16.0 million for the second quarter of 2009, which included a non-recurring gain on the acquisition of SCB of $11.4 million. This compared to net income of $7.1 million for the same period in 2008. The second quarter 2009 diluted loss per share was $.38, which included $.15 in earnings related to the gain on acquisition. This compared to diluted earnings per share of $.15 for the second quarter of 2008.

For the first six months of 2009, United reported a net loss of $119.8 million, which included the $11.4 million gain on acquisition, a non-recurring, non-cash goodwill impairment charge of $70 million and non-recurring severance costs of $2.9 million. Net income for the same period in 2008 was $23.2 million. Diluted loss per share for the six months ended June 30, 2009 was $2.57, of which $.15 in earnings per share was related to the gain on acquisition and $1.44 and $.04 in loss per share were related to the goodwill impairment charge and severance costs, respectively. This compared to diluted earnings per share of $.49 for the first six months of 2008. The net losses in the second quarter and first six months of 2009 reflect a higher provision for loan losses related to the continuing effect of the economic recession and the weak residential construction and housing markets.

Table 1 - Financial Highlights

Selected Financial Information


(in thousands, except per share data; taxable equivalent)																Second Quarter 2009-2008 Change			For the Six Months Ended
	2009						2008																		YTD 2009-2008 Change
	Second Quarter			First Quarter			Fourth Quarter			Third Quarter			Second Quarter
	Second Quarter			First Quarter			Fourth Quarter			Third Quarter			Second Quarter						2009			2008
INCOME SUMMARY
Interest revenue	$	102,737		$	103,562		$	108,434		$	112,510		$	116,984					$	206,299		$	246,025
Interest expense		41,855			46,150			56,561			53,719			55,231						88,005			117,985
Net interest revenue		60,882			57,412			51,873			58,791			61,753			(1	)%		118,294			128,040			(8	)%
Provision for loan losses		60,000			65,000			85,000			76,000			15,500						125,000			23,000
Operating fee revenue (1)		13,050			12,846			10,718			13,121			15,105			(14	)		25,896			29,302			(12	)
Total operating revenue		13,932			5,258			(22,409	)		(4,088	)		61,358		NM				19,190			134,342		NM
Operating expenses (2)		55,348			52,569			52,439			56,970			49,761			11			107,917			97,290			11
Operating (loss) income before taxes		(41,416	)		(47,311	)		(74,848	)		(61,058	)		11,597		NM				(88,727	)		37,052		NM
Income tax (benefit) expense		(18,353	)		(15,335	)		(28,101	)		(21,184	)		4,504						(33,688	)		13,881
Net operating (loss) income (1)(2)		(23,063	)		(31,976	)		(46,747	)		(39,874	)		7,093		NM				(55,039	)		23,171		NM
Gain from acquisition, net of tax benefit		7,062			—			—			—			—						7,062			—
Noncash goodwill impairment charge		—			(70,000	)		—			—			—						(70,000	)		—
Severance costs, net of tax benefit		—			(1,797	)		—			—			—						(1,797	)		—
Net (loss) income		(16,001	)		(103,773	)		(46,747	)		(39,874	)		7,093		NM				(119,774	)		23,171		NM
Preferred dividends and discount accretion		2,559			2,554			712			4			4						5,113			8
Net (loss) income available to common shareholders	$	(18,560	)	$	(106,327	)	$	(47,459	)	$	(39,878	)	$	7,089		NM			$	(124,887	)	$	23,163		NM
PERFORMANCE MEASURES
Per common share:
Diluted operating (loss) earnings (1)(2)	$	(.53	)	$	(.71	)	$	(.99	)	$	(.84	)	$	.15		NM			$	(1.24	)	$	.49		NM
Diluted (loss) earnings		(.38	)		(2.20	)		(.99	)		(.84	)		.15		NM				(2.57	)		.49		NM
Cash dividends declared		—			—			—			—			.09						—			.18
Stock dividends declared (6)	1 for 130			1 for 130			1 for 130			1 for 130				—					2 for 130				—
Book value		13.87			14.70			16.95			17.12			17.75			(22	)		13.87			17.75			(22	)
Tangible book value (4)		8.85			9.65			10.39			10.48			11.03			(20	)		8.85			11.03			(20	)
Key performance ratios:
Return on equity (3)(5)		(11.42	)%		(58.28	)%		(23.83	)%		(19.07	)%		3.41	%					(36.20	)%		5.61	%
Return on assets (5)		(.79	)		(5.06	)		(2.20	)		(1.95	)		.34						(2.93	)		.56
Net interest margin (5)		3.28			3.08			2.70			3.17			3.32						3.18			3.43
Operating efficiency ratio (1)(2)(4)		74.15			75.15			81.34			79.35			65.05						74.63			61.97
Equity to assets		10.76			11.64			10.08			10.28			10.33						11.20			10.31
Tangible equity to assets (4)		8.00			8.30			6.59			6.65			6.77						8.15			6.75
Tangible common equity to assets (4)		5.81			6.13			6.23			6.65			6.77						5.97			6.75
Tangible common equity to risk-weighted assets (4)		7.48			8.03			8.34			8.26			8.51						7.48			8.51
ASSET QUALITY *
Non-performing loans (NPLs)	$	287,848		$	259,155		$	190,723		$	139,266		$	123,786					$	287,848		$	123,786
Foreclosed properties		104,754			75,383			59,768			38,438			28,378						104,754			28,378
Total non-performing assets (NPAs)		392,602			334,538			250,491			177,704			152,164						392,602			152,164
Allowance for loan losses		145,678			143,990			122,271			111,299			91,035						145,678			91,035
Net charge-offs		58,312			43,281			74,028			55,736			14,313						101,593			21,388
Allowance for loan losses to loans		2.64	%		2.56	%		2.14	%		1.91	%		1.53	%					2.64	%		1.53	%
Net charge-offs to average loans (5)		4.18			3.09			5.09			3.77			.97						3.64			.72
NPAs to loans and foreclosed properties		6.99			5.86			4.35			3.03			2.55						6.99			2.55
NPAs to total assets		4.67			4.11			2.94			2.20			1.84						4.67			1.84

AVERAGE BALANCES
Loans	$	5,597,259		$	5,675,054		$	5,784,139		$	5,889,168		$	5,933,143			(6	)	$	5,635,942		$	5,945,720			(5	)
Investment securities		1,771,482			1,712,654			1,508,808			1,454,740			1,507,240			18			1,742,231			1,496,377			16
Earning assets		7,442,178			7,530,230			7,662,536			7,384,287			7,478,018			—			7,485,961			7,484,749			—
Total assets		8,168,147			8,312,648			8,449,097			8,146,880			8,295,748			(2	)		8,239,997			8,300,686			(1	)
Deposits		6,544,537			6,780,531			6,982,229			6,597,339			6,461,361			1			6,661,881			6,256,217			6
Shareholders’ equity		879,210			967,505			851,956			837,487			856,727			3			923,114			856,193			8
Common shares - basic		48,794			48,324			47,844			47,417			47,158						48,560			47,105
Common shares - diluted		48,794			48,324			47,844			47,417			47,249						48,560			47,260

AT PERIOD END
Loans	$	5,513,087		$	5,632,705		$	5,704,861		$	5,829,937		$	5,933,141			(7	)	$	5,513,087		$	5,933,141			(7	)
Investment securities		1,816,787			1,719,033			1,617,187			1,400,827			1,430,588			27			1,816,787			1,430,588			27
Total assets		8,403,046			8,140,909			8,520,765			8,072,543			8,264,051			2			8,403,046			8,264,051			2
Deposits		6,848,760			6,616,488			7,003,624			6,689,335			6,696,456			2			6,848,760			6,696,456			2
Shareholders’ equity		855,272			888,853			989,382			816,880			837,890			2			855,272			837,890			2
Common shares outstanding		48,933			48,487			48,009			47,596			47,096						48,933			47,096

(1) Excludes the gain from acquisition of $11.4 million, net of income tax expense of $4.3 million in the second quarter of 2009. (2) Excludes the non-recurring goodwill impairment charge of $70 million and severance costs of $2.9 million, net of income tax benefit of $1.1 million in the first quarter of 2009. (3) Net income available to common shareholders, which excludes preferred stock dividends, divided by average realized common equity, which excludes accumulated other comprehensive income (loss). (4) Excludes effect of acquisition related intangibles and associated amortization. (5) Annualized. (6) Number of new shares issued for shares currently held. NM - Not meaningful.

* Excludes covered loans and covered NPAs

Table 1 Continued - Operating Earnings to GAAP Earnings Reconciliation

Selected Financial Information


	2009						2008									For the Six Months Ended
(in thousands, except per share data; taxable equivalent)	Second Quarter			First Quarter			Fourth Quarter			Third Quarter			Second Quarter			For the Six Months Ended
(in thousands, except per share data; taxable equivalent)	Second Quarter			First Quarter			Fourth Quarter			Third Quarter			Second Quarter			2009			2008
Interest revenue reconciliation
Interest revenue - taxable equivalent	$	102,737		$	103,562		$	108,434		$	112,510		$	116,984		$	206,299		$	246,025
Taxable equivalent adjustment		(463	)		(488	)		(553	)		(571	)		(606	)		(951	)		(1,137	)
Interest revenue (GAAP)	$	102,274		$	103,074		$	107,881		$	111,939		$	116,378		$	205,348		$	244,888
Net interest revenue reconciliation
Net interest revenue - taxable equivalent	$	60,882		$	57,412		$	51,873		$	58,791		$	61,753		$	118,294		$	128,040
Taxable equivalent adjustment		(463	)		(488	)		(553	)		(571	)		(606	)		(951	)		(1,137	)
Net interest revenue (GAAP)	$	60,419		$	56,924		$	51,320		$	58,220		$	61,147		$	117,343		$	126,903
Fee revenue reconciliation
Operating fee revenue	$	13,050		$	12,846		$	10,718		$	13,121		$	15,105		$	25,896		$	29,302
Gain from acquisition		11,390			—			—			—			—			11,390			—
Fee revenue (GAAP)	$	24,440		$	12,846		$	10,718		$	13,121		$	15,105		$	37,286		$	29,302
Total revenue reconciliation
Total operating revenue	$	13,932		$	5,258		$	(22,409	)	$	(4,088	)	$	61,358		$	19,190		$	134,342
Taxable equivalent adjustment		(463	)		(488	)		(553	)		(571	)		(606	)		(951	)		(1,137	)
Gain from acquisition		11,390			—			—			—			—			11,390			—
Total revenue (GAAP)	$	24,859		$	4,770		$	(22,962	)	$	(4,659	)	$	60,752		$	29,629		$	133,205
Expense reconciliation
Operating expense	$	55,348		$	52,569		$	52,439		$	56,970		$	49,761		$	107,917		$	97,290
Noncash goodwill impairment charge		—			70,000			—			—			—			70,000			—
Severance costs		—			2,898			—			—			—			2,898			—
Operating expense (GAAP)	$	55,348		$	125,467		$	52,439		$	56,970		$	49,761		$	180,815		$	97,290
(Loss) income before taxes reconciliation
Operating (loss) income before taxes	$	(41,416	)	$	(47,311	)	$	(74,848	)	$	(61,058	)	$	11,597		$	(88,727	)	$	37,052
Taxable equivalent adjustment		(463	)		(488	)		(553	)		(571	)		(606	)		(951	)		(1,137	)
Gain from acquisition		11,390			—			—			—			—			11,390			—
Noncash goodwill impairment charge		—			(70,000	)		—			—			—			(70,000	)		—
Severance costs		—			(2,898	)		—			—			—			(2,898	)		—
(Loss) income before taxes (GAAP)	$	(30,489	)	$	(120,697	)	$	(75,401	)	$	(61,629	)	$	10,991		$	(151,186	)	$	35,915
Income tax (benefit) expense reconciliation
Operating income tax (benefit) expense	$	(18,353	)	$	(15,335	)	$	(28,101	)	$	(21,184	)	$	4,504		$	(33,688	)	$	13,881
Taxable equivalent adjustment		(463	)		(488	)		(553	)		(571	)		(606	)		(951	)		(1,137	)
Gain from acquisition, tax expense		4,328			—			—			—			—			4,328			—
Severance costs, tax benefit		—			(1,101	)		—			—			—			(1,101	)		—
Income tax (benefit) expense (GAAP)	$	(14,488	)	$	(16,924	)	$	(28,654	)	$	(21,755	)	$	3,898		$	(31,412	)	$	12,744
(Loss) earnings per common share reconciliation
Operating (loss) earnings per common share	$	(0.53	)	$	(0.71	)	$	(0.99	)	$	(0.84	)	$	0.15		$	(1.24	)	$	0.49
Gain from acquisition		0.15			—			—			—			—			0.15			—
Noncash goodwill impairment charge		—			(1.45	)		—			—			—			(1.44	)		—
Severance costs		—			(0.04	)		—			—			—			(0.04	)		—
(Loss) earnings per common share (GAAP)	$	(0.38	)	$	(2.20	)	$	(0.99	)	$	(0.84	)	$	0.15		$	(2.57	)	$	0.49
Book value reconciliation
Tangible book value	$	8.85		$	9.65		$	10.39		$	10.48		$	11.03		$	8.85		$	11.03
Effect of goodwill and other intangibles		5.02			5.05			6.56			6.64			6.72			5.02			6.72
Book value (GAAP)	$	13.87		$	14.70		$	16.95		$	17.12		$	17.75		$	13.87		$	17.75
Efficiency ratio reconciliation
Operating efficiency ratio		74.15	%		75.15	%		81.34	%		79.35	%		65.05	%		74.63	%		61.97	%
Gain from acquisition		(9.82	)		—			—			—			—			(9.12	)		—
Noncash goodwill impairment charge		—			100.06			—			—			—			48.41			—
Severance costs		—			4.14			—			—			—			2.00			—
Efficiency ratio (GAAP)		64.33	%		179.35	%		81.34	%		79.35	%		65.05	%		115.92	%		61.97	%
Average equity to assets reconciliation
Tangible common equity to assets		5.81	%		6.13	%		6.23	%		6.65	%		6.77	%		5.97	%		6.75	%
Effect of preferred equity		2.19			2.17			.36			—			—			2.18			—
Tangible equity to assets		8.00			8.30			6.59			6.65			6.77			8.15			6.75
Effect of goodwill and other intangibles		2.76			3.34			3.49			3.63			3.56			3.05			3.56
Equity to assets (GAAP)		10.76	%		11.64	%		10.08	%		10.28	%		10.33	%		11.20	%		10.31	%
Actual tangible common equity to risk-weighted assets reconciliation
Tangible common equity to risk-weighted assets		7.48	%		8.03	%		8.34	%		8.26	%		8.51	%		7.48	%		8.51	%
Effect of other comprehensive income		(.72	)		(1.00	)		(.91	)		(.28	)		(.01	)		(.72	)		(.01	)
Effect of trust preferred		.89			.89			.88			.68			.67			.89			.67
Effect of preferred equity		3.00			2.96			2.90			—			—			3.00			—
Tier I capital ratio (Regulatory)		10.65	%		10.88	%		11.21	%		8.66	%		9.17	%		10.65	%		9.17	%

Net Interest Revenue (Taxable Equivalent)

Net interest revenue (the difference between the interest earned on assets and the interest paid on deposits and borrowed funds) is the single largest component of total revenue. United actively manages this revenue source to provide optimal levels of revenue while balancing interest rate, credit and liquidity risks. Net interest revenue for the three months ended June 30, 2009 was $60.9 million, down $871,000, or 1%, from last year but up $3.5 million from the first quarter of 2009. Average loans decreased $336 million, or 6%, from the second quarter last year. The decrease in the loan portfolio was a result of the slowdown in the housing market, particularly in the Atlanta MSA where period-end loans decreased $329 million from June 30, 2008. The decrease was the result of loan charge-offs, decreased loan demand and management’s efforts to rebalance the loan portfolio by reducing the concentration of residential construction loans, particularly in the Atlanta MSA where the housing market has been under considerable stress. Period-end loans in north Georgia, North Carolina and the Gainesville, Georgia MSA decreased $87 million, $25 million and $9 million, respectively. In contrast, coastal Georgia increased $19 million and east Tennessee increased $11 million from the second quarter of 2008.

Average interest-earning assets for the second quarter 2009 decreased $35.8 million from the same period in 2008. An increase in the investment securities portfolio and other short-term investments of $300 million was offset by decreased loan balances of $336 million. Average interest-bearing liabilities decreased $135 million from the second quarter of 2008 with the Series B preferred stock of $180 million, issued in the fourth quarter as part of the U.S. Treasury’s Capital Purchase Program, funding the difference in the decrease of average interest-bearing liabilities and the decrease in average interest-earning assets. Dividends on the Series B preferred shares and the related discount accretion are not included in net income (loss) but are subtracted from net income (loss) in the determination of net income (loss) available to common shareholders.

The banking industry uses two ratios to measure relative profitability of net interest revenue. The net interest spread measures the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities. The interest rate spread eliminates the effect of non-interest-bearing deposits and gives a direct perspective on the effect of market interest rate movements. The net interest margin is defined as net interest revenue as a percent of average total interest-earning assets and takes into account the positive effect of investing non-interest-bearing deposits and capital.

For the three months ended June 30, 2009 and 2008, the net interest spread was 2.97 and 2.96%, respectively, while the net interest margin was 3.28% and 3.32%, respectively. Even though there was only four basis points of margin compression year over year, the interim quarters experienced severe compression in the second half of 2008 and expansion in 2009. The compression of the margin in late 2008 was primarily the result of a rise in non-performing assets and higher than normal deposit pricing resulting from competition for deposits due to liquidity pressures affecting the banking industry as a whole in the second half of 2008. The compression of the margin was also due to the lowering of the prime interest rate initiated by actions of the Federal Reserve beginning in September 2007 and the resulting decrease in the repricing of our interest earning assets faster than our interest-bearing liabilities. Also contributing to the lower net interest margin was a shift in earning-asset mix from loans to investment securities. These factors continued to compress the net interest margin through most of the fourth quarter of 2008 leading to a net interest margin of 2.70% in the fourth quarter. Deposit pricing competition began to ease late in the fourth quarter and United intensified its focus on loan pricing to ensure that it was being adequately compensated for the credit risk it was taking. The combined effect of the easing of deposit pricing competition and widening credit spreads in United’s loan portfolio led to the 58 basis point increase in the net interest margin from the fourth quarter of 2008 to the second quarter of 2009.

The average yield on interest-earning assets for the second quarter of 2009 was 5.53%, compared with 6.29% in the second quarter of 2008. Loan yields were down 73 basis points compared with the second quarter of 2008, due to the effect of the Federal Reserve’s policy of lowering interest rates to stimulate the economy on United’s primarily prime-based loan portfolio and the higher level of non-performing loans.

The average cost of interest-bearing liabilities for the second quarter was 2.56% compared to 3.33% from the same period of 2008. Throughout most of 2008, United was unable to reduce deposit rates commensurate with the rate declines in its loan portfolio. This trend became more visible in the third and fourth quarters of 2008 when industry liquidity pressures led to increased competition for deposits and did not allow United to reduce deposit rates to correspond with the Federal Reserve’s actions to lower interest rates. Late in the fourth quarter of 2008, liquidity pressures began to ease, allowing United to lower its deposit rates and still maintain its strong liquidity position.

The following table shows the relationship between interest revenue and expense, and the average amounts of interest-earning assets and interest-bearing liabilities for the three months ended June 30, 2009 and 2008.

Table 2 - Average Consolidated Balance Sheets and Net Interest Analysis

For the Three Months Ended June 30,


	2009								2008
(dollars in thousands, taxable equivalent)	Average Balance			Interest		Avg. Rate			Average Balance			Interest		Avg. Rate
Assets:
Interest-earning assets:
Loans, net of unearned income (1)(2)	$	5,597,259		$	81,567		5.85	%	$	5,933,143		$	97,080		6.58	%
Taxable securities (3)		1,742,620			20,176		4.63			1,471,958			18,879		5.13
Tax-exempt securities (1)(3)		28,862			506		7.01			35,282			655		7.43
Federal funds sold and other interest-earning assets		73,437			488		2.66			37,635			370		3.93

Total interest-earning assets		7,442,178			102,737		5.53			7,478,018			116,984		6.29
Non-interest-earning assets:
Allowance for loan losses		(147,691	)							(93,776	)
Cash and due from banks		101,830								144,589
Premises and equipment		179,446								181,454
Other assets (3)		592,384								585,463
Total assets	$	8,168,147							$	8,295,748

Liabilities and Shareholders’ Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
NOW	$	1,258,134			2,843		.91		$	1,505,280			7,216		1.93
Money market		521,989			2,269		1.74			422,419			2,310		2.20
Savings		178,435			121		.27			186,826			180		.39
Time less than $100,000		1,894,071			15,342		3.25			1,643,740			17,285		4.23
Time greater than $100,000		1,325,757			11,513		3.48			1,484,032			16,135		4.37
Brokered		686,070			5,209		3.05			534,835			5,408		4.06
Total interest-bearing deposits		5,864,456			37,297		2.55			5,777,132			48,534		3.38
Federal funds purchased and other borrowings		220,376			595		1.08			383,378			1,820		1.91
Federal Home Loan Bank advances		309,962			1,203		1.56			412,268			2,818		2.75
Long-term debt		151,019			2,760		7.33			107,996			2,059		7.67
Total borrowed funds		681,357			4,558		2.68			903,642			6,697		2.98

Total interest-bearing liabilities		6,545,813			41,855		2.56			6,680,774			55,231		3.33
Non-interest-bearing liabilities:
Non-interest-bearing deposits		680,081								684,229
Other liabilities		63,043								74,018
Total liabilities		7,288,937								7,439,021
Shareholders’ equity		879,210								856,727

Total liabilities and shareholders’ equity	$	8,168,147							$	8,295,748
Net interest revenue				$	60,882							$	61,753
Net interest-rate spread							2.97	%							2.96	%

Net interest margin (4)							3.28	%							3.32	%

(1)	Interest revenue on tax-exempt securities and loans has been increased to reflect comparable interest on taxable securities and loans. The rate used was 39%, reflecting the statutory federal income tax rate and the federal tax adjusted state income tax rate.
(2)	Included in the average balance of loans outstanding are loans where the accrual of interest has been discontinued.
(3)	Securities available for sale are shown at amortized cost. Pretax unrealized gains of $14.7 million in 2009 and $13.0 million in 2008 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

For the Six Months Ended June 30,


	2009								2008
(dollars in thousands, taxable equivalent)	Average Balance			Interest		Avg. Rate			Average Balance			Interest		Avg. Rate
Assets:
Interest-earning assets:
Loans, net of unearned income (1)(2)	$	5,635,942		$	163,316		5.84	%	$	5,945,720		$	206,332		6.98	%
Taxable securities (3)		1,712,778			40,609		4.74			1,460,090			37,507		5.14
Tax-exempt securities (1)(3)		29,453			1,028		6.98			36,287			1,303		7.18
Federal funds sold and other interest-earning assets		107,788			1,346		2.50			42,652			883		4.14

Total interest-earning assets		7,485,961			206,299		5.55			7,484,749			246,025		6.60
Non-interest-earning assets:
Allowance for loan losses		(138,297	)							(92,901	)
Cash and due from banks		103,113								149,648
Premises and equipment		179,470								181,405
Other assets (3)		609,750								577,785
Total assets	$	8,239,997							$	8,300,686

Liabilities and Shareholders’ Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
NOW	$	1,307,865			6,180		.95		$	1,483,699			15,803		2.14
Money market		499,780			4,506		1.82			430,734			5,223		2.44
Savings		175,587			248		.28			185,819			407		.44
Time less than $100,000		1,918,349			32,559		3.42			1,598,526			35,508		4.47
Time greater than $100,000		1,359,286			24,338		3.61			1,424,670			32,505		4.59
Brokered		735,844			11,220		3.07			454,619			9,699		4.29
Total interest-bearing deposits		5,996,711			79,051		2.66			5,578,067			99,145		3.57
Federal funds purchased and other borrowings		185,639			1,148		1.25			467,596			6,138		2.64
Federal Home Loan Bank advances		257,742			2,277		1.78			536,883			8,563		3.21
Long-term debt		151,009			5,529		7.38			107,995			4,139		7.71
Total borrowed funds		594,390			8,954		3.04			1,112,474			18,840		3.41

Total interest-bearing liabilities		6,591,101			88,005		2.69			6,690,541			117,985		3.55
Non-interest-bearing liabilities:
Non-interest-bearing deposits		665,170								678,150
Other liabilities		60,612								75,802
Total liabilities		7,316,883								7,444,493
Shareholders’ equity		923,114								856,193
Total liabilities and shareholders’ equity	$	8,239,997							$	8,300,686
Net interest revenue				$	118,294							$	128,040
Net interest-rate spread							2.86	%							3.05	%

Net interest margin (4)							3.18	%							3.43	%

(1)	Interest revenue on tax-exempt securities and loans has been increased to reflect comparable interest on taxable securities and loans. The rate used was 39%, reflecting the statutory federal income tax rate and the federal tax adjusted state income tax rate.
(2)	Included in the average balance of loans outstanding are loans where the accrual of interest has been discontinued.
(3)	Securities available for sale are shown at amortized cost. Pretax unrealized gains of $12.7 million in 2009 and $14.5 million in 2008 are included in other assets for purposes of this presentation.
(4)	Net interest margin is taxable equivalent net-interest revenue divided by average interest-earning assets.

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

Table 4 - Change in Interest Revenue and Expense on a Taxable Equivalent Basis

(in thousands)


	Three Months Ended June 30, 2009 Compared to 2008 Increase (decrease) Due to Changes in									Six Months Ended June 30, 2009 Compared to 2008 Increase (decrease) Due to Changes in
	Volume			Rate			Total			Volume			Rate			Total
Interest-earning assets:
Loans	$	(5,291	)	$	(10,222	)	$	(15,513	)	$	(10,324	)	$	(32,692	)	$	(43,016	)
Taxable securities		3,251			(1,954	)		1,297			10,144			(7,042	)		3,102
Tax-exempt securities		(114	)		(35	)		(149	)		(239	)		(36	)		(275	)
Federal funds sold and other interest-earning assets		267			(149	)		118			1,480			(1,017	)		463
Total interest-earning assets		(1,887	)		(12,360	)		(14,247	)		1,061			(40,787	)		(39,726	)

Interest-bearing liabilities:
NOW accounts		(1,036	)		(3,337	)		(4,373	)		(1,690	)		(7,933	)		(9,623	)
Money market accounts		485			(526	)		(41	)		755			(1,472	)		(717	)
Savings deposits		(8	)		(51	)		(59	)		(21	)		(138	)		(159	)
Time deposits less than $100,000		2,391			(4,334	)		(1,943	)		6,335			(9,284	)		(2,949	)
Time deposits greater than $100,000		(1,601	)		(3,021	)		(4,622	)		(1,435	)		(6,732	)		(8,167	)
Brokered deposits		1,326			(1,525	)		(199	)		4,828			(3,307	)		1,521
Total interest-bearing deposits		1,557			(12,794	)		(11,237	)		8,772			(28,866	)		(20,094	)
Federal funds purchased & other borrowings		(608	)		(617	)		(1,225	)		(2,658	)		(2,332	)		(4,990	)
Federal Home Loan Bank advances		(589	)		(1,026	)		(1,615	)		(3,383	)		(2,903	)		(6,286	)
Long-term debt		789			(88	)		701			1,582			(192	)		1,390
Total borrowed funds		(408	)		(1,731	)		(2,139	)		(4,459	)		(5,427	)		(9,886	)
Total interest-bearing liabilities		1,149			(14,525	)		(13,376	)		4,313			(34,293	)		(29,980	)

Increase in net interest revenue	$	(3,036	)	$	2,165		$	(871	)	$	(3,252	)	$	(6,494	)	$	(9,746	)

Provision for Loan Losses

The provision for loan losses is based on management’s evaluation of losses inherent in the loan portfolio and corresponding analysis of the allowance for loan losses at quarter-end. The provision for loan losses was $60.0 million and $125 million for the second quarter and the first six months of 2009, respectively, compared with $15.5 million and $23.0 million, respectively, for the same periods in 2008. Net loan charge-offs as an annualized percentage of average outstanding loans for the three months ended June 30, 2009 were 4.18%, compared to .97% for the second quarter of 2008. The amount of provision recorded in the second quarter was the amount required such that the total allowance for loan losses reflects, in the estimation of management, the appropriate balance and is adequate to cover inherent losses in the loan portfolio. The increases in the provision and the allowance for loan losses compared to a year ago were due to an increase in substandard loans, deterioration in the collateral values leading to an expectation of higher charge-offs upon default, further weakening of the residential construction and housing markets, and the recessionary economic environment. For the six months ended June 30, 2009, net loan charge-offs as an annualized percentage of average outstanding loans were 3.64%, compared to .72% for the same period in 2008.

As the residential construction and housing markets have struggled, most notably in the Atlanta MSA, it has been difficult for many builders and developers to obtain cash flow from selling lots and houses needed to service debt. This deterioration of the residential construction and housing market was the primary factor that resulted in higher credit losses and an increase in non-performing assets. Although a majority of the losses have been within the residential construction and development portion of the portfolio in the Atlanta MSA, credit quality deterioration has been observed in other markets and loan categories. Additional discussion on loan quality and the allowance for loan losses is included in the Asset Quality section of this report on page 31.

Fee Revenue

United continues to focus on increasing fee revenue through new products and services. Fee revenue for the three and six months ended June 30, 2009 was $24.4 million and $37.3 million, respectively. Fee revenue includes an $11.4 million gain on the acquisition of SCB in the second quarter of 2009. Excluding the gain on acquisition, operating fee revenue was $13.1 million and $25.9 million, respectively, for the second quarter and first six months of 2009, decreasing $2.1 million, or 14%, and $3.4 million, or 12%, respectively, from the same periods in 2008.

The following table presents the components of fee revenue for the second quarters of 2009 and 2008, and the first six months of 2009 and 2008.

Table 5 - Fee Revenue

(dollars in thousands)


	Three Months Ended June 30,								Six Months Ended June 30,
	2009			2008		Change			2009			2008		Change

Service charges and fees	$	7,557		$	7,957		(5	)%	$	14,591		$	15,770		(7	)%
Mortgage loan and related fees		2,825			2,202		28			5,476			4,165		31
Consulting fees		1,745			2,252		(23	)		2,766			4,059		(32	)
Brokerage fees		497			814		(39	)		1,186			1,907		(38	)
Securities (losses) gains, net		(711	)		357					(408	)		357
Other		1,137			1,523		(25	)		2,285			3,044		(25	)
Operating fee revenue		13,050			15,105		(14	)		25,896			29,302		(12	)
Gain from acquisition		11,390			—					11,390			—
Total fee revenue	$	24,440		$	15,105		62		$	37,286		$	29,302		27

Service charges and fees of $7.6 million were down $400,000, or 5%, from the second quarter of 2008. For the first six months of 2009, service charges and fees of $14.6 million were down $1.2 million, or 7%, from the same period in 2008. This decrease was primarily due to a lower volume of overdraft fees.

Mortgage loans and related fees for the second quarter and first six months of 2009, were up $623,000, or 28%, and $1.3 million, or 31%, respectively, from the same periods in 2008. The increase is due to a significant increase in the level of refinancing activity as mortgage rates fell to historical lows. In the second quarter of 2009, United closed 1,008 loans totaling $168 million compared with 662 loans totaling $116 million in the second quarter of 2008. The second quarter year-to-date mortgage production of 2,004 loans totaling $342 million, compared very favorably with 1,214 loans totaling $213 million for the same period in 2008. The second quarter 2009 origination activity was at a record level for United. Substantially all originated residential mortgages were sold into the secondary market including the right to service these loans.

Consulting fees decreased $507,000, or 23%, compared to the second quarter of 2008. For the first six months of 2009, consulting fees were down $1.3 million, or 32%, compared with the first six months of 2008. This decrease is a direct result of the current economic stress affecting the financial services industry which has limited sales of new consulting projects. In addition, during the first quarter, and a portion of the second quarter, several consultants were engaged in United’s internal project to improve financial performance through revenue enhancement and cost savings initiatives. This project allowed United to maintain the consultants’ productivity while providing a valuable service to United; however, these services do not result in the recognition of consolidated consulting fee revenue for financial reporting purposes since the services were performed by a wholly-owned subsidiary.

Brokerage fees of $497,000 were down $317,000, or 39%, from the second quarter of 2008 due to the continuing weak market conditions. Year-to-date brokerage fees were down $721,000, or 38%, from the same period in 2008.

The securities losses of $711,000 and $408,000, respectively, for the second quarter and first six months of 2009 include a charge of $743,000 for the impairment of an equity investment in Silverton Bank, NA, a financial institution that failed during the second quarter. United wrote off its entire investment in Silverton.

The gain from acquisition recorded in the first quarter of 2009 resulted from the SCB acquisition which was accounted for as a bargain purchase. In this bargain purchase, the fair values of the net assets and liabilities received from the acquisition exceeded the purchase price of those assets and liabilities. With the SCB acquisition, United received assets, including a cash payment from the FDIC, with an estimated fair value of $378.2 million and liabilities with an estimated fair value of $366.8 million. The difference between the assets received and liabilities assumed of $11.4 million resulted in a gain from the acquisition. The fair values are preliminary and are subject to refinement for up to one year after the closing date as information relative to closing date fair values becomes available. Changes to the closing date fair values will result in future adjustments to gain from the acquisition.

Other fee revenue decreased $386,000, or 25%, and $759,000, or 25%, from the same periods in 2008. This decline is due to lower revenue generated by United’s Bank Owned Life Insurance (“BOLI”) assets.

Operating Expenses

Operating expenses for the second quarter of 2009 were $55.3 million, up $5.6 million, or 11%, from second quarter 2008. For the six months ended June 30, 2009, total operating expenses were $180.8 million, which included a $70 million charge for goodwill impairment and $2.9 million in severance costs relating to a reduction in force. Excluding those non-recurring charges, operating expenses for the first six months of 2009 were $107.9 million, an increase of $10.6 million, or 11%, compared with $97.3 million for the same period in 2008.

The following table presents the components of operating expenses for the three and six months ended June 30, 2009 and 2008.

Table 6 - Operating Expenses

(dollars in thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2009		2008		Change		2009		2008		Change

Salaries and employee benefits	$	28,058	$	28,753	(2	)%	$	56,897	$	57,507	(1	)%
Communications and equipment		3,645		3,852	(5	)		7,374		7,684	(4	)
Occupancy		3,853		3,704	4			7,660		7,420	3
Advertising and public relations		1,191		2,009	(41	)		2,300		3,360	(32	)
Postage, printing and supplies		1,294		1,448	(11	)		2,476		3,040	(19	)
Professional fees		2,806		1,679	67			5,099		3,600	42
Foreclosed property		5,737		2,852	101			10,056		3,763	167
FDIC assessments and other regulatory charges		6,810		1,265	438			9,492		2,531	275
Amortization of intangibles		739		745	(1	)		1,478		1,512	(2	)
Goodwill impairment		—		—				70,000		—
Severance costs		—		—				2,898		—
Other		1,215		3,454	(65	)		5,085		6,873	(26	)
Total	$	55,348	$	49,761	11		$	180,815	$	97,290	86

Salaries and employee benefits for the second quarter 2009 totaled $28.1 million, down $695,000, or 2%, from the same period of 2008. For the first six months of 2009, salaries and employee benefits of $56.9 million were down $610,000, or 1%, from the first six months of 2008. As a result of United’s reduction in workforce in the second quarter of 2009, employee salaries decreased $1.1 million from the second quarter of 2008. This decrease, however, was offset by higher mortgage commissions related to refinancing activity and higher incentives associated with United’s program to raise core deposits. Through the reduction in workforce, United reduced headcount from 1,994 employees at December 31, 2008 to 1,809 at June 30, 2009, excluding 60 employees added through the acquisition of SCB.

Professional fees for the second quarter of 2009 of $2.8 million were up $1.1 million, or 67%, from the same period in 2008. Year-to-date professional fees of $5.1 million were up $1.5 million, or 42%, over the same period in 2008. The increase is primarily related to legal fees incurred in the loan workout and foreclosure process.

Foreclosed property expense of $5.7 million for the second quarter of 2009 was up $2.9 million from the second quarter of 2008, reflecting the increase in the number of foreclosed properties. For the first six months of 2009, foreclosed property expense of $10.1 million was up $6.3 million over the first six months of 2008. This expense category includes legal fees, property taxes, marketing costs, utility services, maintenance and repair charges as well as realized losses and write downs associated with foreclosed properties. Realized losses and write-downs were $2.6 million and $4.4 million for the three- and six-months ended June 30, 2009, compared to $1.8 million and $2.1 million, respectively for 2008.

FDIC assessments and other regulatory charges of $6.8 million, and $9.5 million, for the second quarter and first six months of 2009, increased $5.5 million and $7.0 million, respectively, from the second quarter and first six months of 2008 reflecting both the increase in FDIC insurance premiums and a $3.7 million provision for the one time special assessment charged to all depository institutions.

Other expense of $1.2 million for the second quarter of 2009 decreased $2.2 million from the second quarter of 2008. Year-to-date, other expenses of $5.1 million decreased $1.8 million from the first six months of 2008. The decrease was the result of an accrual in fourth quarter 2008 for $2.4 million related to a disputed charge from the transfer of BOLI investments. The disputed charge was settled in United’s favor during the second quarter of 2009.

Income Taxes

Income tax benefit for the second quarter 2009 was $14.5 million as compared with income tax expense of $3.9 million for the second quarter of 2008, representing an effective tax rate of 47.5% and 35.5%, respectively. For the first six months of 2009, income tax benefit was $31.4 million as compared with income tax expense of $12.7 million for the same period in 2008, representing an effective tax rate of 20.8% and 35.5%, respectively. The effective tax rates were different from the statutory tax rates primarily due to interest revenue on certain investment securities and loans that are exempt from income taxes, tax exempt fee revenue, tax credits received on affordable housing investments, the goodwill impairment charge and the change in valuation allowance on deferred tax assets as discussed below.

The effective tax rate for the second quarter of 2009 reflects a decision by management to reinstate certain BOLI policies which United had surrendered in the third quarter of 2008. United notified the carrier of its intent to surrender the policies in the fourth quarter of 2008 due to a dispute with the carrier. The policies required a six month waiting period before the surrender became effective. Prior to the expiration of the six month waiting period, United and the carrier were able to reach an acceptable settlement of the dispute and the surrender transaction was terminated. The tax charge recorded in 2008 was reversed during the second quarter of 2009. The effective tax rate for the second quarter, absent the BOLI credit, would have been 38%.

Additional information regarding income taxes can be found in Note 14 to the consolidated financial statements filed with United’s 2008 Form 10-K.

The effective tax rate for the first six months of 2009 also reflects the tax treatment of the $70 million goodwill impairment charge. Since the majority of United’s goodwill originated from acquisitions that were treated as tax-free exchanges, no goodwill was recognized for tax reporting purposes and therefore no tax deduction is allowed for the impairment charge. Likewise, no tax benefit is recognized in the financial statements relating to the $70 million charge. The year-to-date 2009 effective tax rate also reflects a valuation allowance established for deferred tax assets. Management determined that it is more likely than not that approximately $2.3 million, net of Federal benefit, in state low income housing tax credits will expire unused due to their very short three year carry forward period.

At June 30, 2009, United had net deferred tax assets of $21.5 million, including a valuation allowance of $2.3 million related to state tax credits that are expected to expire unused. Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, requires that companies assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. United’s management considers both positive and negative evidence and analyzes changes in near-term market conditions as well as other factors which may impact future operating results. In making such judgments, significant weight is given to evidence that can be objectively verified. At June 30, 2009, United’s management believes that it is more likely than not that, with the exception of those state tax credits that are expected to expire unused due to a relatively short carryforward period of only three years, it will be able to realize its deferred tax benefits through its ability to carry losses back to open tax years or carry losses forward to future profitable years. Despite recent losses and the challenging economic environment, United has a history of strong earnings, is well-capitalized, and has cautiously optimistic expectations regarding future taxable income. The deferred tax assets will be analyzed quarterly for changes affecting realizability, and there can be no guarantee that a valuation allowance will not be necessary in future periods.

Balance Sheet Review

Total assets at June 30, 2009 and 2008 were $8.4 billion and $8.3 billion, respectively. Average total assets for the second quarter of 2009 were $8.2 billion, down from $8.3 billion in the second quarter of 2008.

Goodwill

United reviews its goodwill for impairment annually or more frequently if circumstances indicate that goodwill has been impaired. United completed its annual goodwill impairment assessment as of December 31, 2008. In completing the annual assessment, United engaged an international accounting firm to assist with the valuation. United’s year-end goodwill impairment assessment indicated that there was no goodwill impairment.

During the first quarter of 2009, United’s stock price fell from $13.58 at December 31, 2008 to a low of $2.28 in the first quarter and ended the first quarter of 2009 at $4.16 which management believes reflected uncertainty about the economic cycle. Additionally, the stock prices of the peer group used as part of the valuation analysis in the year-end goodwill impairment assessment experienced similar declines. The current economic environment has resulted in lower earnings with higher credit costs and those costs have been reflected in the income statement as well as valuation adjustments to the loan balances through increases to the level of the allowance for loan losses. With the stock price trading at a significant discount to book value and tangible book value and these other factors, management believed that goodwill should be re-assessed for impairment.

In performing the first quarter assessment, United engaged the same third party valuation firm used to assist with the annual goodwill impairment assessment. The interim assessment in the first quarter was performed using a consistent approach with the annual assessment in the fourth quarter. The first step (Step 1) of the goodwill impairment analysis was to determine if the fair value of United exceeded the book value of equity, which would imply that goodwill is not impaired. The Step 1 analysis included three commonly used valuation techniques including an earnings approach that considered discounted future expected cash earnings and two market approaches. The first market approach was the Guideline Public Company method that considered United’s implied value by comparing United to a select peer group of public companies and their current market valuation and the second market approach was the Merger and Acquisition method that considered the amount an acquiring company might be willing to pay to gain control of United based on recent merger and acquisition activity.

At December 31, 2008, United’s Step 1 analysis indicated that the fair value of United exceeded book value. All three valuation techniques used in Step 1 of the interim assessment showed a decline in value from the annual assessment performed at year-end due to deteriorating market conditions in the financial services industry and a decline in United’s internal earnings forecast related to further credit quality deterioration. The Step 1 analysis performed in the first quarter indicated that the estimated fair value of United had fallen below its book value.

The declining valuation determined in Step 1 led to Step 2 of the goodwill impairment assessment which required United to determine the fair value of all assets and liabilities, including separately identifiable intangible assets, and determine the implied goodwill as the difference between the value of United determined in Step 1 and the value of the underlying assets and liabilities determined in Step 2. Because the implied value of goodwill resulting from the Step 2 analysis was $70 million less than the carrying amount of goodwill, United concluded that impairment was present and a $70 million charge to earnings was recorded in the first quarter.

There are a number of valuation assumptions required to determine the value of the assets and liabilities. The most significant assumptions relate to the value of the loan portfolio. Those assumptions included estimates of cash flows on non-performing loans and probability of default rates and loss on default rates for performing loans. Changes in those assumptions, or any other significant assumptions, could have a significant impact on the results of the goodwill impairment assessment and result in future impairment charges.

In the second quarter of 2009, United’s stock performance improved and closing stock price at quarter-end was $5.99, compared to $4.16 at March 31, 2009. Further, there were no other events or changes in operating conditions that would require an update to the assessment of goodwill for impairment in the second quarter. Each quarter, management continues to monitor conditions and, unless required earlier, the annual goodwill assessment will be updated in the fourth quarter of 2009.

Because goodwill is an intangible asset that cannot be sold separately or otherwise disposed of, it is not recognized in determining capital adequacy for regulatory purposes. Therefore the goodwill impairment charge in the first quarter had no effect on United’s regulatory capital ratios.

Loans

The following table presents a summary of the loan portfolio.


Table 7 - Loans Outstanding (excludes loans covered by loss share agreement)
(dollars in thousands)

	June 30, 2009			December 31, 2008			June 30, 2008
By Loan Type
Commercial (secured by real estate)	$	1,796,560		$	1,626,966		$	1,584,258
Commercial construction		378,779			499,663			521,794
Commercial (commercial and industrial)		399,564			410,529			416,626
Total commercial		2,574,903			2,537,158			2,522,678
Residential construction		1,315,353			1,478,679			1,745,151
Residential mortgage		1,469,754			1,526,388			1,494,562
Installment		153,077			162,636			170,750
Total loans	$	5,513,087		$	5,704,861		$	5,933,141

As a percentage of total loans:
Commercial (secured by real estate)		32	%		29	%		27	%
Commercial construction		7			8			9
Commercial (commercial and industrial)		7			7			7
Total commercial		46			44			43
Residential construction		24			26			29
Residential mortgage		27			27			25
Installment		3			3			3
Total		100	%		100	%		100	%
By Geographic Location
Atlanta MSA	$	1,604,501		$	1,705,561		$	1,933,811
Gainesville MSA		413,065			420,169			421,711
North Georgia		1,977,991			2,040,082			2,064,856
Western North Carolina		794,251			809,863			818,677
Coastal Georgia		455,143			463,642			436,594
East Tennessee		268,136			265,544			257,492
Total loans	$	5,513,087		$	5,704,861		$	5,933,141

Substantially all of United’s loans are to customers located in the immediate market areas of its community banks in Georgia, North Carolina, and Tennessee. At June 30, 2009, total loans, excluding loans acquired from Southern Community Bank that are covered by loss sharing agreements with the FDIC, were $5.5 billion, a decrease of $420 million, or 7%, from June 30, 2008. The rate of loan growth began to decline in the first quarter of 2007 and the balances have continued to decline through 2008 and into 2009. The decrease in the loan portfolio was primarily due to deterioration in the residential construction and housing markets. This deterioration resulted in part in an oversupply of lot inventory, houses and land within United’s markets, which further slowed construction activities and acquisition and development projects. To date, the decline in the housing market has been most severe in the Atlanta MSA although there has been some migration of deterioration into United’s other markets.

Asset Quality and Risk Elements

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

United classifies performing loans as substandard loans when there is a well-defined weakness or weaknesses that jeopardize the repayment by the borrower and there is a distinct possibility that United could sustain some loss if the deficiency is not corrected. The table below presents performing substandard loans for the last five quarters.

Table 8 - Performing Substandard Loans

(dollars in thousands)

	June 30, 2009		March 31, 2009		December 31, 2008		September 30, 2008		June 30, 2008

Commercial (sec. by RE)	$	69,657	$	65,211	$	43,228	$	33,574	$	27,074
Commercial construction		36,316		31,733		15,552		16,603		2,319
Commercial & industrial		11,814		14,931		20,694		22,497		9,038
Total commercial		117,787		111,875		79,474		72,674		38,431
Residential construction		148,094		138,353		159,963		184,589		156,795
Residential mortgage		71,959		62,374		51,291		44,724		38,693
Consumer / installment		3,466		3,222		3,052		2,012		2,057
Total	$	341,306	$	315,824	$	293,780	$	303,999	$	235,976

At June 30, 2009, performing substandard loans totaled $341 million and increased $25 million from the prior quarter-end, $48 million from year-end 2008, and $105 million from a year ago. Residential construction loans, particularly in Atlanta, have represented the largest proportion of both performing substandard and nonperforming loans. Over the past three quarters, the rate of increase in substandard residential construction loans has slowed and the balances have leveled off. The increase in substandard residential mortgages is primarily related to rising unemployment rates. The increase in substandard commercial loans reflects the challenging economic environment and current recession. United classifies loans as non-accrual substandard loans (or “non-performing loans”) when the principal and interest on a loan is not likely to be repaid in accordance with the loan terms or when the loan becomes 90 days past due and is not well secured and in the process of collection. When a loan is classified on non-accrual status, interest previously accrued but not collected is reversed against current interest revenue. Payments received on a non-accrual loan are applied to reduce outstanding principal.

Reviews of substandard performing and non-performing loans, past due loans and larger credits, are conducted on a regular basis with management during the quarter and are designed to identify risk migration and potential charges to the allowance for loan losses. These reviews are performed by the responsible lending officers and the loan review department and also consider such factors as the financial strength of borrowers, the value of the applicable collateral, past loan loss experience, anticipated loan losses, changes in risk profile, prevailing economic conditions and other factors. United also uses external loan review in addition to United’s internal loan review and to ensure the independence of the loan review process.

The provision for loan losses charged to earnings was based upon management’s judgment of the amount necessary to maintain the allowance at a level appropriate to absorb losses inherent in the loan portfolio at quarter-end. The amount each quarter is dependent upon many factors, including growth and changes in the composition of the loan portfolio, net charge-offs, delinquencies, management’s assessment of loan portfolio quality, the value of collateral, and other macro-economic factors and trends. The evaluation of these factors is performed quarterly by management through an analysis of the appropriateness of the allowance for loan losses. The increases in the provision and the allowance for loan losses compared to a year ago were due to increasing trends in substandard loans, deterioration in the collateral values leading to an expectation of higher charge-offs upon default, further weakening of the residential construction and housing markets, and the recessionary economic environment.

The following table presents a summary of the changes in the allowance for loan losses for the three and six months ended June 30, 2009 and 2008.

Table 9 - Allowance for Loan Losses

(in thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
Balance beginning of period	$	143,990		$	89,848		$	122,271		$	89,423
Provision for loan losses		60,000			15,500			125,000			23,000
Charge-offs:
Commercial (commercial and industrial)		4,977			410			6,185			734
Commercial (secured by real estate)		5,989			492			6,854			1,122
Commercial construction		757			125			811			125
Residential construction		44,645			10,354			82,612			15,162
Residential mortgage		3,589			2,599			6,700			3,672
Installment		981			670			1,907			1,337
Total loans charged-off		60,938			14,650			105,069			22,152
Recoveries:
Commercial (commercial and industrial)		1,870			12			2,205			32
Commercial (secured by real estate)		3			68			42			68
Commercial construction		1			—			1			—
Residential construction		405			11			610			154
Residential mortgage		64			23			191			85
Installment		283			223			427			425
Total recoveries		2,626			337			3,476			764
Net charge-offs		58,312			14,313			101,593			21,388
Balance end of period	$	145,678		$	91,035		$	145,678		$	91,035
Total loans:
At period-end	$	5,513,087		$	5,933,141		$	5,513,087		$	5,933,141
Average		5,597,259			5,933,143			5,635,942			5,945,720
Allowance as a percentage of period-end loans		2.64	%		1.53	%		2.71	%		1.53	%
As a percentage of average loans:
Net charge-offs (annualized)		4.18			.97			3.64			.72
Provision for loan losses (annualized)		4.30			1.04			4.47			.77
Allowance as a percentage of non-performing loans		51	*		74			51	*		74

* Excluding impaired loans with no allocated reserve, the coverage ratio was 82% at June 30, 2009.

Management believes that the allowance for loan losses at June 30, 2009 reflects the 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 Bank, 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, excluding SCB’s assets covered by the loss-sharing agreement with the FDIC. At June 30, 2009, SCB had $49.2 million in non-performing assets. Of that number, $20.4 million was non-performing loans, $3.1 million represented loans past due 90 days or more and still accruing and $27.5 million was other real estate owned (“OREO” or “foreclosed properties”). These assets have been excluded from the review of non-performing assets, as the loss-sharing agreement with the FDIC and purchase price adjustments to reflect credit losses effectively eliminate the likelihood of recognizing any losses on the covered assets.


Table 10 - Non-Performing Assets
(dollars in thousands)

	June 30, 2009			December 31, 2008			June 30, 2008
Non-accrual loans	$	287,848		$	190,723		$	123,786
Loans past due 90 days or more and still accruing		—			—			—
Total non-performing loans		287,848			190,723			123,786
OREO		104,754			59,768			28,378
Total non-performing assets	$	392,602		$	250,491		$	152,164

Non-performing loans as a percentage of total loans		5.22	%		3.34	%		2.09	%
Non-performing assets as a percentage of total loans and OREO		6.99			4.35			2.55
Non-performing assets as a percentage of total assets		4.67			2.94			1.84

Non-performing loans totaled $287.8 million, compared with $190.7 million at December 31, 2008 and $123.8 million at June 30, 2008. The ratio of non-performing loans to total loans increased substantially from June 30, 2008 and December 31, 2008 reflecting continued deterioration in United’s residential construction and development portfolio primarily in the Atlanta MSA and deterioration in other loan types and markets. Non-performing assets, which include non-performing loans and foreclosed real estate, totaled $392.6 million at June 30, 2009, compared with $250.5 million at December 31, 2008 and $152.2 million at June 30, 2008. United’s position throughout the recession has been to actively and aggressively work to dispose of problem assets quickly. In the latter half of 2008, with the rising number of foreclosed properties saturating the market and driving prices down, United made a strategic decision to hold certain foreclosed properties that have strong prospects for a recovery in value upon market stabilization. By holding those properties, United expects to realize more value upon disposition, thereby maximizing returns to shareholders. The strategy to hold selected properties will result in elevated levels of nonperforming assets over the next few quarters.

The following table summarizes non-performing assets by category and market. As with Tables 7, 8 and 10, assets covered by the loss-sharing agreement with the FDIC, related to the acquisition of SCB, are excluded from this table.

Table 11 - Non-Performing Assets (“NPAs”) by Category and Market

(dollars in thousands)

	June 30, 2009						December 31, 2008						June 30, 2008
	Non-performing Loans		OREO		Total NPAs		Non-performing Loans		OREO		Total NPAs		Non-performing Loans		OREO		Total NPAs

NPAs BY CATEGORY
Commercial (sec. by RE)	$	37,755	$	5,395	$	43,150	$	15,188	$	2,427	$	17,615	$	4,610	$	593	$	5,203
Commercial construction		15,717		5,847		21,564		1,513		2,333		3,846		3,027		1,859		4,886
Commercial & industrial		11,378		—		11,378		1,920		—		1,920		2,950		—		2,950
Total commercial		64,850		11,242		76,092		18,621		4,760		23,381		10,587		2,452		13,039
Residential construction		176,400		81,648		258,048		144,836		48,572		193,408		90,283		22,075		112,358
Residential mortgage		44,256		11,864		56,120		25,574		6,436		32,010		21,792		3,851		25,643
Consumer / installment		2,342		—		2,342		1,692		—		1,692		1,124		—		1,124
Total NPAs	$	287,848	$	104,754	$	392,602	$	190,723	$	59,768	$	250,491	$	123,786	$	28,378	$	152,164


NPAs BY MARKET
Atlanta MSA	$	148,155	$	50,450	$	198,605	$	105,476	$	42,336	$	147,812	$	89,327	$	15,196	$	104,523
Gainesville MSA		9,745		3,511		13,256		16,208		1,110		17,318		4,885		12		4,897
North Georgia		72,174		37,454		109,628		31,631		12,785		44,416		16,117		8,277		24,394
Western North Carolina		21,814		7,245		29,059		18,509		2,986		21,495		9,838		990		10,828
Coastal Georgia		30,311		3,904		34,215		11,863		138		12,001		1,575		3,871		5,446
East Tennessee		5,649		2,190		7,839		7,036		413		7,449		2,044		32		2,076
Total NPAs	$	287,848	$	104,754	$	392,602	$	190,723	$	59,768	$	250,491	$	123,786	$	28,378	$	152,164

Non-performing assets in the residential construction category were $258.0 million at June 30, 2009, compared with $112.4 million at June 30, 2008, an increase of $145.6 million, or 130%. Other categories of non-performing assets have also experienced significant increases, with commercial loans of $76.1 million, up $63.1 million over the prior year, and residential mortgage loans of $56.1 million, up $30.5 million from June 30, 2008. As described previously, the majority of the increase in non-performing assets has been in the Atlanta MSA, where non-performing assets of $198.6 million are up $94.1 million, or 90%, over June 30, 2008. United’s north Georgia market has also seen a significant increase. Non-performing assets in the north Georgia market at June 30, 2009 were $109.6 million, compared with $24.4 million at the end of the second quarter of 2008.

At June 30, 2009 and 2008 there were $223.7 million and $79.6 million, respectively, of loans classified as impaired under the definition outlined in SFAS No. 114 Accounting by Creditors for Impairment of a Loan. Of these, $110.4 million and $4.0 million, respectively, did not have a specific reserve allocated. At June 30, 2009, $113.3 million had specific reserves allocated totaling $24.9 million. At June 30, 2008, $75.6 million had specific reserves allocated totaling $20.3 million. The average recorded investment in impaired loans for the quarters ended June 30, 2009 and 2008 was $247.6 million and $79.7 million, respectively. There was no interest revenue recognized on loans while they were impaired for the first six months of 2009 or 2008.

The table below summarizes activity related to OREO for the three and six months ended June 30, 2009. Assets covered by the loss sharing agreement with the FDIC, related to the acquisition of SCB, are excluded from this table.


Table 12 - OREO Rollforward
(dollars in thousands)

	Three Months Ended June 30, 2009			Six Months Ended June 30, 2009

Beginning balance	$	75,383		$	59,768

Foreclosures transferred in		64,417			103,159
Capital costs added		1,324			2,776
Write Downs		(2,738	)		(4,889	)
Proceeds from sales		(33,752	)		(56,751	)
Gains (losses) from sales		120			691
Ending balance	$	104,754		$	104,754

OREO is initially recorded at fair value, less cost to sell. If the fair value, less cost to sell at the time of foreclosure, is less than the loan balance, the deficiency is charged against the allowance for loan losses. If the fair value, less cost to sell, of the OREO decreases during the holding period, a valuation allowance is established with a charge to foreclosed property costs. When the OREO is sold, a gain or loss is recognized on the sale for the difference between the sales proceeds and the carrying amount of the property. Financed sales of OREO are accounted for in accordance with SFAS 66. For the second quarter and first six months of 2009, United transferred foreclosures into OREO of $64.4 and $103.2 million, respectively. During the same periods, proceeds from sales of OREO were $33.6 million and $56.1 million, respectively.

Investment Securities

The composition of the investment securities portfolio reflects United’s investment strategy of maintaining an appropriate level of liquidity while providing a relatively stable source of revenue. The investment securities portfolio also provides a balance to interest rate risk and credit risk in other categories of the balance sheet while providing a vehicle for the investment of available funds, furnishing liquidity, and supplying securities to pledge as required collateral for certain deposits. Total investment securities available for sale at quarter-end increased $386.2 million from a year ago. At June 30, 2009 and 2008, the securities portfolio represented approximately 22% and 17% of total assets, respectively.

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

Deposits

Total deposits as of June 30, 2009 were $6.8 billion, an increase of $152.3 million, or 2%, from June 30, 2008. Total non-interest-bearing demand deposit accounts of $714.6 million increased $18.1 million, or 3%, and NOW, money market and savings accounts of $2.0 billion decreased $120.4 million, or 6%. The decrease was primarily in NOW account balances as customers sought higher yields for excess balances in other products. Since December 31, 2008, United has seen increases in balances of non-interest bearing-demand, money market and savings balances as a result of internal efforts to raise core deposits.

Total time deposits, excluding brokered deposits, as of June 30, 2009 were $3.3 billion, flat from June 30, 2008. Time deposits less than $100,000 totaled $2.0 billion, an increase of $244 million, or 14%, from a year ago with SCB contributing approximately $108 million of the increase. Time deposits of $100,000 and greater, totaled $1.4 billion as of June 30, 2009, a decrease of $222 million, or 14%, from June 30, 2008. During the second quarter of 2008, United made a decision to actively pursue time deposits by offering a 15 month certificate of deposit at an attractive rate, in order to increase liquidity. The program was successful in adding over $400 million of customer deposits. United also itilizes “brokered” time deposits, issued in certificates of less than $100,000, as an alternate source of cost-effective funding. Brokered time deposits as of June 30, 2009 were $763 million, compared with $531 million at June 30, 2008.

Wholesale Funding

The Bank is a shareholder in the Federal Home Loan Bank (“FHLB”) of Atlanta. Through this affiliation, FHLB secured advances totaled $283 million and $286 million as of June 30, 2009 and 2008, respectively. United anticipates continued use of this short- and long-term source of funds. FHLB advances outstanding at June 30, 2009 had both fixed and floating interest rates from 0% to 4.69%. Additional information regarding FHLB advances, is provided in Note 10 to the consolidated financial statements included in United’s 2008 Form 10-K.

At June 30, 2009, United had $252.5 million in Federal funds purchased, repurchase agreements, and other short-term borrowings outstanding, compared to $288.7 million outstanding at June 30, 2008. United takes advantage of these additional sources of liquidity when rates are favorable compared to other forms of short-term borrowings, such as FHLB advances and brokered deposits.

Interest Rate Sensitivity Management

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

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 uses 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 each scenario, including maintaining current balance sheet levels, 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 multiple interest rate scenarios. The base scenario assumes rates remain flat over the next twelve months and is the scenario to which all others are compared to in order to measure the change in net interest revenue. A second commonly analyzed 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. Other scenarios analyzed may include rate shocks, narrowing or widening spreads, and yield curve steepening or flattening.

United’s policy is based on the 12-month impact on net interest revenue of interest rate ramps that increase 200 basis points and decrease 200 basis points from the flat-rate scenario. In the ramp scenarios, rates change 25 basis points per month over the initial eight months. The policy limits the change in net interest revenue over the next 12 months to a 10% decrease in either scenario. Historically low rates on June 30, 2009 made use of the down 200 basis point scenario problematic. At June 30, 2009 United’s simulation model indicated that a 200 basis point increase in rates over the next twelve months would cause an approximate 1.2% decrease in net interest revenue and a 25 basis point decrease in rates over the next twelve months would cause an approximate .6% increase in net interest revenue. The shift to a liability sensitive position is primarily due to the inclusion of floors in most new floating rate loans which causes the balance sheet to be liability sensitive for the first 200 basis point increase in rates. United began a program of terminating some of its receive-fixed swaps that were hedging prime-based cash flows in order to neutralize the impact on interest sensitivity of embedding floors in new loans. This program was still ongoing as of June 30, 2009. The simulation model results are based on data as of June 30, 2009, but also include the termination of $200 million in swaps that occurred on July 9, 2009.

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, 2009, United was a party to interest rate swap contracts under which it pays a variable rate and receives a fixed rate, and interest rate floor contracts in which United pays a premium to a counterparty who agrees to pay United the difference between a variable rate and a strike rate if the variable rate falls below the strike rate.

The following table presents the interest rate derivative contracts outstanding.

Table 13 - Derivative Financial Instruments

As of June 30, 2009 (dollars in thousands)

Type/Maturity	Notional Amount		Rate Received / Floor Rate			Rate Paid			Fair Value(5)
Fair Value Hedges:
LIBOR Swaps (Brokered CDs)
August 27, 2010 (1)	$	50,000		4.30	%		1.38	%	$	1,383
September 22, 2010 (2)		50,000		4.25			1.56			1,298
September 30, 2010 (1)		95,000		4.25			1.39			2,690
Total Fair Value Hedges		195,000		4.26			1.43			5,371

Cash Flow Hedges:
Prime Swaps (Prime Loans) (3)
March 12, 2012		50,000		6.87			3.25			3,068
March 27, 2012		50,000		6.76			3.25			2,929
May 6, 2013		50,000		7.21			3.25			3,783
July 22, 2013		100,000		6.88			3.25			6,001
July 25, 2013		50,000		6.92			3.25			3,224
July 25, 2013		25,000		6.91			3.25			1,613
Total		325,000		6.92			3.25			20,618

Prime Floors (Prime Loans) (4)
November 1, 2009		75,000		8.75						1,467
February 4, 2010		100,000		8.75						3,359
Total		175,000								4,826
Total Cash Flow Hedges		500,000								25,444
Total Derivative Contracts	$	695,000							$	30,815

	(1)	Rate Paid equals 1-Month LIBOR plus 1.075
	(2)	Rate Paid equals 1-Month LIBOR plus 1.2435
	(3)	Rate Paid equals Prime rate as of June 30, 2009
	(4)	Floor contracts receive cash payments equal to the floor rate less the prime rate
	(5)	Excludes accrued interest

United’s derivative financial instruments are classified as either cash flow or fair value hedges. The change in fair value of cash flow hedges is recognized in other comprehensive income. Fair value hedges recognize currently in earnings both the effect of the change in the fair value of the derivative financial instrument and the offsetting effect of the change in fair value of the hedged asset or liability associated with the particular risk of that asset or liability being hedged. At June 30, 2009, United had interest rate swap contracts in which United receives a fixed rate and pays a floating rate based on the prime interest rate with a total notional amount of $325 million that were designated as cash flow hedges of prime-based loans. United had interest rate floor contracts with a total notional amount of $175 million and a remaining unamortized premium balance of $745,000 that were also designated as cash flow hedges of prime-based loans. United also had swap contracts in which United receives a fixed rate and pays a floating rate based on LIBOR with a total notional amount of $195 million that were accounted for as fair value hedges of brokered deposits.

From time to time, United will terminate swap or floor positions when conditions change and the position is no longer necessary to manage United’s overall sensitivity to changes in interest rates. In those situations where the terminated swap or floor was in an effective hedging relationship at the time of termination and the hedging relationship is expected to remain effective throughout the original term of the swap or floor, the resulting gain or loss at the time of termination is amortized over the remaining life of the original contract. For swap contracts, the gain or loss is amortized over the remaining original contract term using the straight line method of amortization. For floor contracts, the gain or loss is amortized over the remaining original contract term based on the original floorlet schedule. At June 30, 2009, United had $23.2 million in gains from terminated derivative positions included in Other Comprehensive Income that will be amortized into earnings over their remaining original contract terms.

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 effect 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 Bank’s customers, both depositors and borrowers. In addition, because United is a separate entity and apart from the Bank, it must provide for its own liquidity. United is responsible for the payment of dividends declared for its common and preferred shareholders, and interest and principal on any outstanding debt or trust preferred securities.

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

The asset portion of the balance sheet provides liquidity primarily through loan principal repayments and the maturities and sales of securities. Mortgage loans held for sale totaled $42 million at June 30, 2009, and typically turn over every 45 days as the closed loans are sold to investors in the secondary market.

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

Substantially all of United’s liquidity is obtained from subsidiary service fees and dividends from the Bank, which is limited by applicable law.

United had sufficient qualifying collateral to increase FHLB advances by $1.1 billion at June 30, 2009. United’s internal policy limits brokered deposits to 25% of total assets. At June 30, 2009, United had the capacity to increase brokered deposits by $1.3 billion and still remain within this limit. Also, United had sufficient qualifying assets pledged to the Federal Reserve under the Term Auction Facility, Term Investment Option and Discount Window to increase short-term borrowings by $227 million.

As disclosed in United’s consolidated statement of cash flows, net cash provided by operating activities was $85.9 million for the six months ended June 30, 2009. The net loss of $119.8 million for the quarter included non-cash expenses for provision for loan losses of $125 million and goodwill impairment of $70 million. Also included in cash provided from operating activities was a $50.9 million net increase in accrued expenses and other liabilities that primarily related to a federal tax refund received in the first quarter and cash collateral received from counterparties to derivatives contracts. This was offset by a net increase in mortgage loans held for sale of $21.9 million and a net increase in other assets of $10.9 million. Net cash used by investing activities of $68.3 million consisted primarily of purchases of securities of $584.1 million, a net increase in loans of $12.6 million and purchases of premises and equipment of $6.2 million, which were partially offset by proceeds from sales of securities of $15.0 million, maturities and calls of investment securities of $399.4 million, proceeds from sales of other real estate of $56.1 million and net cash received from the acquisition of SCB of $63.6 million. Net cash used by financing activities of $329.6 million consisted primarily of a net decrease of $462.9 million in deposits. This was offset by a $141.4 million increase in federal funds and other short-term borrowings.

Capital Resources and Dividends

Shareholders’ equity at June 30, 2009 was $855.3 million, a decrease of $134.1 million from December 31, 2008. The non-cash goodwill impairment charge in the first quarter accounted for $70 million of the decrease. Accumulated other comprehensive income is not included in the calculation of regulatory capital adequacy ratios. Excluding the change in the accumulated other comprehensive income, shareholders’ equity decreased $121.3 million from December 31, 2008. The decrease in equity is primarily due to the $119.8 million net loss for the first six months which included the $70 million goodwill impairment charge. In order to preserve capital, United’s board of directors declared 1 for 130 stock dividends during the first and second quarters of 2009 in lieu of a cash dividend on the outstanding common shares. United reported $2.6 million in dividends on Series A and Series B preferred stock in the second quarter and $5.1 million year-to-date. United recognizes that cash dividends are an important component of shareholder value, and therefore, intends to provide for cash dividends when earnings, capital levels and other factors permit.

United’s common stock trades on the Nasdaq Global Select Market under the symbol “UCBI”. Below is a quarterly schedule of high, low and closing stock prices and average daily volume for 2009 and 2008.

Table 14 - Stock Price Information

	2009								2008
	High		Low		Close		Avg Daily Volume		High		Low		Close		Avg Daily Volume
First quarter	$	13.87	$	2.28	$	4.16		524,492	$	20.80	$	13.38	$	16.98		441,659
Second quarter		9.30		4.01		5.99		244,037		18.51		8.51		8.53		464,566
Third quarter										19.05		7.58		13.26		359,971
Fourth quarter										15.82		9.25		13.58		319,534

The following table presents the quarterly cash and stock dividends declared in 2009 and 2008 and the respective cash dividend payout ratios as a percentage of basic operating earnings per share.

Table 15 - Dividend Payout Information

	2009						2008
	Cash Dividend(1)		Stock Dividend(2)		Payout Ratio(3)		Cash Dividend(1)		Stock Dividend(2)		Payout Ratio(3)

First quarter	$	—		1 for 130		NA	$	.09		—		26	%
Second quarter		—		1 for 130		NA		.09		—		60
Third quarter								—		1 for 130		NA
Fourth quarter								—		1 for 130		NA

(1) Cash dividends are presented as the dollar amount declared per share.

(2) Stock dividends are presented as the number of new shares issued for shares already owned.

(3) The payout ratio is presented for cash dividends only.

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

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

A minimum leverage ratio is required in addition to the risk-based capital standards and is defined as Tier I capital divided by average assets adjusted for goodwill and deposit-based intangibles. Although a minimum leverage ratio of 3% is required for the highest-rated bank holding companies which are not undertaking significant expansion programs, the Federal Reserve Board requires a bank holding company to maintain a leverage ratio greater than 3% if it is experiencing or anticipating significant growth or is operating with less than well-diversified risks in the opinion of the Federal Reserve Board. The Federal Reserve Board uses the leverage and risk-based capital ratios to assess capital adequacy of banks and bank holding companies.

The following table shows United’s capital ratios, as calculated under regulatory guidelines, at June 30, 2009 and 2008.

Table 16 - Capital Ratios

(dollars in thousands)

							United Community Banks, Inc. (Consolidated)						United Community Bank
	Regulatory Guidelines						United Community Banks, Inc. (Consolidated)						United Community Bank
				Well			As of June 30						As of June 30
	Minimum			Capitalized			2009			2008			2009			2008
Risk-based ratios:
Tier I capital		4.0	%		6.0	%		10.43	%		9.17	%		10.81	%		10.05	%
Total capital		8.0			10.0			13.10			11.40			12.58			11.30
Leverage ratio		3.0			5.0			7.68			7.03			7.71			7.59

Tier I capital							$	607,265		$	560,820		$	638,943		$	614,274
Total capital								762,549			697,597			743,739			690,851

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

The capital ratios of United and the Bank currently exceed the minimum ratios as defined by federal regulators. United monitors these ratios to ensure that United and the Bank remain above the regulatory well capitalized guidelines.

Effect of Inflation and Changing Prices

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

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

Item 3. Quantitative and Qualitative Disclosure About Market Risk

There have been no material changes in United’s quantitative and qualitative disclosures about market risk as of June 30, 2009 from that presented in the Annual Report on Form 10-K for the year ended December 31, 2008. The interest rate sensitivity position at June 30, 2009 is included in management’s discussion and analysis on page 35 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, 2009. 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 Bank are defendants in various legal proceedings. In the opinion of management, there is no pending or threatened proceeding in which an adverse decision could result in a material adverse change in the consolidated financial condition or results of operations of United.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in United’s Form 10-K for the year ended December 31, 2008, but United did add the following risk factor:

As a financial services company, adverse conditions in the general business or economic environment could have a material adverse effect on our financial condition and results of operations.

Continued weakness or adverse changes in business and economic conditions generally or specifically in the markets in which we operate could adversely impact our business, including causing one or more of the following negative developments:


	●	a decrease in the demand for loans and other products and services offered by us;

	●	a decrease in the value of our loans secured by consumer or commercial real estate;

	●	an impairment of our assets, such as our goodwill or deferred tax assets; or

	●	an increase in the number of customers or other counterparties who default on their loans or other obligations to us, which could result in a higher level of nonperforming assets, net charge-offs and provision for loan losses.

For example, if we are unable to continue to generate, or demonstrate that we can continue to generate, sufficient taxable income in the near future, then we may not be able to fully realize the benefits of our deferred tax assets and may be required to recognize a valuation allowance, similar to an impairment of those assets, if it is more-likely-than-not that some portion of our deferred tax assets will not be realized. Such a development or one or more other negative developments resulting from adverse conditions in the general business or economic environment, some of which are described above, could have a material adverse effect on our financial condition and results of operations.

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

Item 3. Defaults upon Senior Securities – None

Item 4. Submission of Matters to a Vote of Security Holders

United held its annual meeting of shareholders on April 29, 2009.

At the annual meeting, the shareholders elected Jimmy C. Tallent, Robert L. Head, Jr., W.C. Nelson, Jr., A. William Bennett, Robert H. Blalock, L. Cathy Cox, Hoyt O. Holloway, John D. Stephens, and Tim Wallis as directors to serve until the next annual meeting and until their successors are elected and qualified. Of the 48,092,724 shares outstanding on the record date, 38,358,675 were voted representing 80% of the outstanding shares. The elections were approved by the votes set forth in the following table.


Election of Directors		Shares Voted in Favor		Shares Withheld
Jimmy C. Tallent	38,061,390		297,285
Robert L. Head, Jr.	37,979,418		379,257
W.C. Nelson, Jr.	37,486,251		872,424
A. William Bennett	38,098,045		260,630
Robert H. Blalock	38,003,731		354,944
L. Cathy Cox	38,054,588		304,087
Hoyt O. Holloway	38,047,815		310,860
John D. Stephens	38,055,835		302,840
Tim Wallis	36,718,664		1,640,011

Shareholders also approved an advisory resolution supporting the compensation plan for executive officers and the ratification of the independent auditors, Porter Keadle Moore. Of the 48,092,724 shares outstanding on the record date, 38,358,675 were voted, representing 80% of the outstanding shares. The proposals were approved by the votes set forth in the following table:


	Shares Voted in Favor	Shares Voted Against	Shares Withheld

Approve an advisory resolution supporting the compensation plan for executive officers	36,091,406	1,356,573	910,696

Ratification of the independent auditors, Porter Keadle Moore	38,044,247	146,718	167,710

Item 5. Other Information – None

Item 6. Exhibits


	3.1	Restated Articles of Incorporation of United Community Banks, Inc., (incorporated herein by reference to Exhibit 3.1 to United Community Banks, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001, File No. 0-21656, filed with the Commission on August 14, 2001).

	3.2	Amendment to the Restated Articles of Incorporation of United Community Banks, Inc. (incorporated herein by reference to Exhibit 3.3 to United Community Banks, Inc.’s Registration Statement on Form S-4, File No. 333-118893, filed with the Commission on September 9, 2004).

	3.3	Amended and Restated Bylaws of United Community Banks, Inc., dated September 12, 1997 (incorporated herein by reference to Exhibit 3.1 to United Community Banks, Inc.’s Annual Report on Form 10-K, for the year ended December 31, 1997, File No. 0-21656, filed with the Commission on March 27, 1998).

	4.1	See Exhibits 3.1, 3.2 and 3.3 for provisions of the Restated Articles of Incorporation, as amended, and Amended and Restated Bylaws, which define the rights of the Shareholders.

	10.1	Form of Senior Executive Officer Nonqualified Stock Option Agreement.

	10.2	Form of Senior Executive Officer Restricted Stock Unit Award Agreement.

	10.3	Form of Senior Executive Officer Incentive Stock Option Agreement

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

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

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

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 7, 2009

ex10-1.htm

Exhibit 10.1

UNITED COMMUNITY BANKS, INC.

AMENDED AND RESTATED

2000 KEY EMPLOYEE STOCK OPTION PLAN

STOCK OPTION AGREEMENT

(Nonqualified Stock Option – Executive Officer)

Optionee:

Number of Shares:		____________________________ Shares

Option Exercise Price:		$ __________ per Share

Date of Grant:

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

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

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

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

WHEREAS, the Optionee performs valuable services for the Company, a Subsidiary or one of their affiliates; and

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

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

1. Grant of the Option.

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

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

1.3 Option Exercise Price. The price the Optionee must pay to exercise the Option (the “Option Exercise Price”) is set forth above.

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

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

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

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

2. Duration.

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

3. Vesting.

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

4. Manner of Exercise and Payment.

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

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

5. Termination of Employment.

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

5.2 Termination of Employment Without Cause or For Good Reason.

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

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


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

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

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

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

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

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

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

5.5 Termination of Employment by Disability. In the event the employment of the Optionee is terminated by reason of Disability, the outstanding unvested portion of the Option shall expire as of the date the Committee determines the definition of Disability to have been satisfied by the Optionee, and the outstanding vested portion of the Option as of that date shall remain exercisable at any time prior to its expiration date or for one (1) year after the Committee’s determination of Disability, whichever period is shorter.

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

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

6. Nontransferability.

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

7. Securities Laws Restrictions.

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

8. No Right to Continued Employment.

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

9. Adjustments.

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

10. Withholding of Taxes.

Prior to the issuance of Shares to the Optionee upon exercise of the Option, the Optionee shall pay the federal, state, and local income taxes and other amounts as may be required by law to be withheld (the “Withholding Taxes”) (if any) to the Company in cash or by check or wire transfer. In satisfaction of the Withholding Taxes, the Optionee may make a written election (the “Tax Election”) to satisfy such withholding obligation by a broker-assisted cashless exercise transaction through a brokerage firm designated by the Optionee, by delivering Shares (that have been owned by the Optionee for at least six (6) months or such other period as may be required by the Committee) or by having the Company retain from the Shares to be delivered a number of Shares having an aggregate Fair Market Value equal to the Withholding Taxes, provided that, if the Optionee may be subject to liability under Section 16(b) of the Exchange Act, the election must comply with the requirements applicable to Share transactions by the Optionee. The Company shall have the right to deduct from any amounts payable to the Optionee for salary, bonuses or otherwise an amount equal to Withholding Taxes with respect to the Option.

11. Optionee Bound by the Plan.

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

12. Modification of Agreement.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

14. Severability.

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

15. Governing Law.

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

16. Successors in Interest.

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

17. Entire Agreement.

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

18. Resolution of Disputes.

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

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

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

19. Legal Construction.

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

[EXECUTION PAGE FOLLOWS]

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


	UNITED COMMUNITY BANKS, INC.

	By:

	Name:	Jimmy C. Tallent

	Title:	President & Chief Executive Officer

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


	OPTIONEE

	By:

	Name:

[EXHIBITS FOLLOW]

ex10-2.htm

Exhibit 10.2

UNITED COMMUNITY BANKS, INC.

AMENDED AND RESTATED

2000 KEY EMPLOYEE STOCK OPTION PLAN

RESTRICTED STOCK UNIT AWARD AGREEMENT

(Executive Officer)


Grantee:
		____________________________________
Number of RSUs:
		____________________
Date of Grant:
		_________________________

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

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

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

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

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

1. Award of Restricted Stock Units

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

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

1.3 This Award is conditioned on the Grantee’s execution of this Agreement. If this Agreement is not executed by the Grantee and returned to the Company within two days of the Date of Grant, it may be canceled by the Committee resulting in the immediate forfeiture of all RSUs.

2. Vesting and Termination of Employment

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

Except as otherwise provided below, on the Vesting Date, a number of Shares equal to the number of vested RSUs shall be issued to the Grantee free and clear of all restrictions imposed by this Agreement (except those imposed by Section 3.3 below). The Company shall transfer such Shares to an unrestricted account in the name of the Grantee as soon as practical after the Vesting Date. For purposes of this Agreement, employment with a Subsidiary of the Company or service as a member of the Board of Directors of the Company or a Subsidiary shall be considered employment with the Company.

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

2.3 Termination of Employment Without Cause or For Good Reason.

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

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


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

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

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

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

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

2.4 Termination of Employment Following a Change in Control When Eligible for Retirement. If the Grantee’s employment with the Company is terminated following a Change in Control and the Grantee is eligible for Retirement as of the date of such termination, the outstanding unvested portion of the RSUs shall immediately vest.

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

2.6 Termination of Employment for Other Reasons. If the Grantee’s employment is terminated by the Company as a result of Disability, or the Grantee voluntarily terminates his or her employment (except for Good Reason or upon Retirement), the outstanding unvested RSUs shall immediately be forfeited as of the date of termination of employment.

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

3. Change in Capitalization; Deferral Rights

3.1 During the period the RSUs are not vested, the Grantee shall be credited with dividend equivalents or similar distributions declared on such RSUs in the manner determined by the Committee.

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

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

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

4. No Right to Continued Employment

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

5. Taxes and Withholding

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

6. The Grantee Bound By The Plan

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

7. Modification of Agreement; Severability

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

8. Cancellation and Rescission of Award; Return of Shares

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

9. Governing Law

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

10. Successors in Interest

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

11. Entire Agreement

12. Resolution of Disputes

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

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

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

13. Pronouns; Including

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

[EXECUTION PAGE FOLLOWS]

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


	UNITED COMMUNITY BANKS, INC.

	By:

	Name:	Jimmy C. Tallent

	Title:	President & Chief Executive Officer

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


	GRANTEE

	By:

	Name:

[EXHIBITS FOLLOW]

ex10-3.htm

Exhibit 10.3

UNITED COMMUNITY BANKS, INC.

AMENDED AND RESTATED

2000 KEY EMPLOYEE STOCK OPTION PLAN

STOCK OPTION AGREEMENT

(Incentive Stock Option – Executive Officer)

Optionee:

Number of Shares:		____________________________ Shares

Option Exercise Price:		$ __________ per Share

Date of Grant:

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

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

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

WHEREAS, the Optionee performs valuable services for the Company, a Subsidiary or one of their affiliates; and

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

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

1. Grant of the Option.

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

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

1.3 Option Exercise Price. The price the Optionee must pay to exercise the Option (the “Option Exercise Price”) is set forth above.

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

1.5 Type of Option. The Option is intended to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code; provided, however, that nothing in this Agreement shall be interpreted as a representation, guarantee or other undertaking on the part of the Company that the Option is or will be determined to be an Incentive Stock Option within the meaning of Section 422 of the Code. To the extent this Option is not treated as an Incentive Stock Option, it will be treated as a Nonqualified Stock Option.

2. Duration.

3. Vesting.

4. Manner of Exercise and Payment.

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

5. Termination of Employment.

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

5.2 Termination of Employment Without Cause or For Good Reason.


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

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

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

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

5.5 Termination of Employment by Disability. In the event the employment of the Optionee is terminated by reason of Disability, the outstanding unvested portion of the Option shall expire as of the date the Committee determines the definition of Disability to have been satisfied by the Optionee, and the outstanding vested portion of the Option as of that date shall remain exercisable at any time prior to its expiration date, or for one (1) year after the Committee’s determination of Disability, whichever period is shorter.

6. Nontransferability.

7. Securities Laws Restrictions.

8. No Right to Continued Employment.

9. Adjustments.

10. Withholding of Taxes.

10.1 Prior to the issuance of Shares to the Optionee upon exercise of the Option, the Optionee shall pay the federal, state, and local income taxes and other amounts as may be required by law to be withheld (the “Withholding Taxes”) (if any) to the Company in cash or by check or wire transfer. In satisfaction of the Withholding Taxes, the Optionee may make a written election (the “Tax Election”) to satisfy such withholding obligation by a broker-assisted cashless exercise transaction through a brokerage firm designated by the Optionee, by delivering Shares (that have been owned by the Optionee for at least six (6) months or such other period as may be required by the Committee) or by having the Company retain from the Shares to be delivered a number of Shares having an aggregate Fair Market Value equal to the Withholding Taxes, provided that, if the Optionee may be subject to liability under Section 16(b) of the Exchange Act, the election must comply with the requirements applicable to Share transactions by the Optionee. The Company shall have the right to deduct from any amounts payable to the Optionee for salary, bonuses or otherwise an amount equal to Withholding Taxes with respect to the Option.

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

11. Optionee Bound by the Plan.

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

12. Modification of Agreement.

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

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

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

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

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

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

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

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

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

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

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

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

14. Severability.

15. Governing Law.

16. Successors in Interest.

17. Entire Agreement.

18. Resolution of Disputes.

19. Legal Construction.

[EXECUTION PAGE FOLLOWS]

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


	UNITED COMMUNITY BANKS, INC.

	By:

	Name:	Jimmy C. Tallent

	Title:	President & Chief Executive Officer


	OPTIONEE

	By:

	Name:

[EXHIBITS FOLLOW]

ex31-1.htm

Exhibit 31.1

I, Jimmy C. Tallent, certify that:

1. I have reviewed this quarterly report on Form 10-Q of United Community Banks, Inc. (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
		of the Registrant

	Date: August 7, 2009

ex31-2.htm

Exhibit 31.2

I, Rex S. Schuette, certify that:

1. I have reviewed this quarterly report on Form 10-Q of United Community Banks, Inc. (the “Registrant”);


	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


	a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	By:	/s/ Rex S. Schuette
		Rex S. Schuette
		Executive Vice President and Chief Financial Officer
		of the Registrant

	Date: August 7, 2009

ex32.htm

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, 2009 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 7, 2009