United Community Banks (UCB) 10-Q 2008 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2008

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 or15(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.

YESþNOo

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 filerþ	Accelerated filero	Non-accelerated filero	Smaller Reporting Companyo
		(Do not check if a smaller reporting company)

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

YESoNOþ

Common stock, par value $1 per share: 47,095,991 shares outstanding as of June 30, 2008

INDEX

PART I — Financial Information
Item 1. Financial Statements
Consolidated Statement of Income (unaudited) for the Three and Six Months Ended June 30, 2008 and 2007	2
Consolidated Balance Sheet at June 30, 2008 (unaudited), December 31, 2007 (audited) and June 30, 2007 (unaudited)	3
Consolidated Statement of Changes in Shareholders’ Equity (unaudited) for the Six Months Ended June 30, 2008 and 2007	4
Consolidated Statement of Cash Flows (unaudited) for the Six Months Ended June 30, 2008 and 2007	5
Notes to Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3. Quantitative and Qualitative Disclosures About Market Risk	29
Item 4. Controls and Procedures	29
PART II — Other Information
Item 1. Legal Proceedings	30
Item 1A. Risk Factors	30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3. Defaults Upon Senior Securities	30
Item 4. Submission of Matters to a Vote of Security Holders	30
Item 5. Other Information	30
Item 6. Exhibits	31
Exhibit 31.1
Exhibit 31.2
Exhibit 32

1

Part I — Financial Information

Item 1 — Financial Statements

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Income(unaudited)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
(in thousands, except per share data)	2008		2007			2008		2007
Interest revenue:
Loans, including fees	$	97,051	$	119,799		$	206,317	$	233,872
Investment securities:
Taxable		18,879		15,476			37,507		29,444
Tax exempt		398		438			792		885
Federal funds sold and deposits in banks		50		80			272		138
Total interest revenue		116,378		135,793			244,888		264,339
Interest expense:
Deposits:
NOW		7,216		11,470			15,803		22,097
Money market		2,310		3,540			5,223		6,080
Savings		180		374			407		683
Time		38,828		41,979			77,712		83,604
Total deposit interest expense		48,534		57,363			99,145		112,464
Federal funds purchased, repurchase agreements, & other short-term borrowings		1,820		3,671			6,138		5,488
Federal Home Loan Bank advances		2,818		5,035			8,563		9,836
Long-term debt		2,059		2,201			4,139		4,405
Total interest expense		55,231		68,270			117,985		132,193
Net interest revenue		61,147		67,523			126,903		132,146
Provision for loan losses		15,500		18,700			23,000		22,400
Net interest revenue after provision for loan losses		45,647		48,823			103,903		109,746
Fee revenue:
Service charges and fees		7,957		7,975			15,770		15,228
Mortgage loan and other related fees		2,202		2,476			4,165		4,699
Consulting fees		2,252		2,241			4,059		3,988
Brokerage fees		814		1,192			1,907		2,136
Securities gains, net		357		1,386			357		1,593
Losses on prepayment of borrowings		—		(1,164	)		—		(1,164	)
Other		1,523		2,448			3,044		4,456
Total fee revenue		15,105		16,554			29,302		30,936
Total revenue		60,752		65,377			133,205		140,682
Operating expenses:
Salaries and employee benefits		28,753		30,022			57,507		58,339
Communications and equipment		3,852		3,845			7,684		7,657
Occupancy		3,704		3,316			7,420		6,507
Advertising and public relations		2,009		2,098			3,360		4,114
Postage, printing and supplies		1,448		1,680			3,040		3,340
Professional fees		1,679		2,010			3,600		3,489
Amortization of intangibles		745		633			1,512		1,197
Other		7,571		4,098			13,167		7,900
Total operating expenses		49,761		47,702			97,290		92,543
Income before income taxes		10,991		17,675			35,915		48,139
Income taxes		3,898		5,764			12,744		16,883
Net income	$	7,093	$	11,911		$	23,171	$	31,256
Net income available to common shareholders	$	7,089	$	11,906		$	23,163	$	31,246
Earnings per common share:
Basic	$	.15	$	.26		$	.49	$	.71
Diluted		.15		.26			.49		.70
Dividends per common share		.09		.09			.18		.18
Weighted average common shares outstanding:
Basic		47,060		44,949			47,013		43,980
Diluted		47,249		45,761			47,260		44,842

See notes to Consolidated Financial Statements

2

UNITED COMMUNITY BANKS, INC.

Consolidated Balance Sheet

	June 30,			December 31,			June 30,
(in thousands, except share and per share data)	2008			2007			2007
	(unaudited)			(audited)			(unaudited)
ASSETS
Cash and due from banks	$	176,240		$	157,549		$	171,095
Interest-bearing deposits in banks		12,455			62,074			23,146
Cash and cash equivalents		188,695			219,623			194,241
Securities available for sale		1,430,588			1,356,846			1,213,659
Mortgage loans held for sale		27,094			28,004			30,615
Loans, net of unearned income		5,933,141			5,929,263			5,999,093
Less allowance for loan losses		91,035			89,423			92,471
Loans, net		5,842,106			5,839,840			5,906,622
Premises and equipment, net		181,395			180,088			171,327
Accrued interest receivable		50,399			62,828			64,538
Goodwill and other intangible assets		323,296			325,305			326,467
Other assets		220,478			194,768			180,198
Total assets	$	8,264,051		$	8,207,302		$	8,087,667
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand	$	696,575		$	700,941		$	773,435
NOW		1,541,609			1,474,818			1,447,789
Money market		418,935			452,917			504,730
Savings		187,088			186,392			207,468
Time:
Less than $100,000		1,744,217			1,573,604			1,651,486
Greater than $100,000		1,573,078			1,364,763			1,428,841
Brokered		534,954			322,516			347,520
Total deposits		6,696,456			6,075,951			6,361,269
Federal funds purchased, repurchase agreements, and other short-term borrowings		288,650			638,462			238,429
Federal Home Loan Bank advances		285,807			519,782			499,060
Long-term debt		107,996			107,996			113,151
Accrued expenses and other liabilities		47,252			33,209			47,027
Total liabilities		7,426,161			7,375,400			7,258,936
Shareholders’ equity:
Preferred stock, $1 par value; $10 stated value; 10,000,000 shares authorized; 25,800, 25,800 and 32,200 shares issued and outstanding		258			258			322
Common stock, $1 par value; 100,000,000 shares authorized; 48,809,301, 48,809,301 and 48,781,351 shares issued		48,809			48,809			48,781
Common stock issuable; 105,579, 73,250 and 60,761 shares		2,696			2,100			1,816
Capital surplus		462,939			462,881			461,226
Retained earnings		362,089			347,391			329,229
Treasury stock; 1,713,310 and 1,905,921 shares, at cost		(39,222	)		(43,798	)		—
Accumulated other comprehensive income (loss)		321			14,261			(12,643	)
Total shareholders’ equity		837,890			831,902			828,731
Total liabilities and shareholders’ equity	$	8,264,051		$	8,207,302		$	8,087,667

See notes to Consolidated Financial Statements

3

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Changes in Shareholders’ Equity(Unaudited)

For the Six Months Ended June 30,

																Accumulated
					Common											Other
	Preferred		Common		Stock		Capital			Retained			Treasury			Comprehensive
(in thousands, except share and per share data)	Stock		Stock		Issuable		Surplus			Earnings			Stock			Income (Loss)			Total
Balance, December 31, 2006	$	322	$	42,891	$	862	$	270,383		$	306,261		$	—		$	(3,952	)	$	616,767
Comprehensive income:
Net income											31,256									31,256
Other comprehensive income:
Unrealized holding losses on available for sale securities, net of deferred tax benefit and reclassification adjustment																	(5,517	)		(5,517	)
Unrealized losses on derivative financial instruments qualifying as cash flow hedges, net of deferred tax benefit																	(3,174	)		(3,174	)
Comprehensive income											31,256						(8,691	)		22,565
Cash dividends declared on common stock ($.18 per share)											(8,278	)								(8,278	)
Common stock issued for acquisitions ( 5,691,948 shares)				5,692				185,649												191,341
Exercise of stock options (78,228 shares)				78				722												800
Common stock issued to Dividend Reinvestment Plan and employee benefit plans (90,002 shares)				90				2,791												2,881
Amortization of stock option and restricted stock awards								1,630												1,630
Vesting of restricted stock (30,310 shares issued, 2,750 shares deferred)				30		81		(111	)											—
Deferred compensation plan, net, including dividend equivalents						873														873
Tax benefit from options exercised								162												162
Dividends declared on preferred stock ($.30 per share)											(10	)								(10	)
Balance, June 30, 2007	$	322	$	48,781	$	1,816	$	461,226		$	329,229		$	—		$	(12,643	)	$	828,731
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 ($.18 per share)											(8,465	)								(8,465	)
Exercise of stock options (62,860 shares)								(717	)					1,529						812
Common stock issued to Dividend Reinvestment Plan and employee benefit plans (113,047 shares)								(1,024	)					2,648						1,624
Amortization of stock options and restricted stock								1,944												1,944
Vesting of restricted stock (15,159 shares issued, 8,700 shares deferred)						264		(626	)					362						—
Deferred compensation plan, net, including dividend equivalents						374														374
Shares issued from deferred compensation plan (1,545 shares)								(42	)		5						37			—
Tax benefit from options exercised								476												476
Dividends declared on preferred stock ($.30 per share)											(8	)								(8	)
Balance, June 30, 2008	$	258	$	48,809	$	2,696	$	462,939		$	362,089		$	(39,222	)	$	321		$	837,890

Comprehensive loss for the second quarter of 2008 was $31,569,000 and comprehensive income for the second quarter of 2007 was $511,000.

See notes to Consolidated Financial Statements

4

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Cash Flows(Unaudited)

	Six Months Ended
	June 30,
(in thousands)	2008			2007
Operating activities, net of effect of business combinations:
Net income	$	23,171		$	31,256
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		7,211			6,728
Provision for loan losses		23,000			22,400
Stock based compensation		1,944			1,630
Gain on sale of securities available for sale		(357	)		(1,593	)
Gain on sale of other assets		(29	)		(210	)
Loss on prepayment of borrowings		—			1,164
Changes in assets and liabilities:
Other assets and accrued interest receivable		(14,055	)		(5,732	)
Accrued expenses and other liabilities		25,309			(13,319	)
Mortgage loans held for sale		910			4,710
Net cash provided by operating activities		67,104			47,034
Investing activities, net of effect of business combinations:
Proceeds from sales of securities available for sale		79,735			44,150
Proceeds from maturities and calls of securities available for sale		344,597			187,556
Purchases of securities available for sale		(511,626	)		(300,857	)
Net increase in loans		(65,062	)		(113,609	)
Purchase of Bank Owned Life Insurance (BOLI)		—			(50,000	)
Proceeds from sales of premises and equipment		323			662
Purchases of premises and equipment		(7,291	)		(20,357	)
Net cash paid for acquisitions		—			(4,346	)
Proceeds from sale of other real estate		30,636			7,799
Net cash used by investing activities		(128,688	)		(249,002	)
Financing activities, net of effect of business combinations:
Net change in deposits		620,505			20,538
Net change in federal funds purchased, repurchase agreements, and other short-term borrowings		(349,812	)		209,200
Proceeds from FHLB advances		400,000			750,000
Repayments of FHLB advances		(634,000	)		(751,164	)
Proceeds from exercise of stock options		812			800
Proceeds from issuance of common stock for dividend reinvestment and employee benefit plans		1,624			2,881
Cash dividends on common stock		(8,465	)		(7,320	)
Cash dividends on preferred stock		(8	)		(10	)
Net cash provided by financing activities		30,656			224,925
Net change in cash and cash equivalents		(30,928	)		22,957
Cash and cash equivalents at beginning of period		219,623			171,284
Cash and cash equivalents at end of period	$	188,695		$	194,241
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	120,314		$	130,527
Income taxes		20,098			26,984

See notes to Consolidated Financial Statements

5

United Community Banks, Inc.

Notes to Consolidated Financial Statements

Note 1 — Accounting Policies

The accounting and financial reporting policies of United Community Banks, Inc. (“United”) and its subsidiaries conform to accounting principles generally accepted in the United States of America and general banking industry practices. The accompanying interim consolidated financial statements have not been audited. All material intercompany balances and transactions have been eliminated. A more detailed description of United’s accounting policies is included in the 2007 annual report filed on Form 10-K.

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

Note 2 — Stock-Based Compensation

United has an equity compensation plan that allows for grants of incentive stock options, nonqualified stock options, restricted stock awards (also referred to as “nonvested stock” awards), stock awards, performance share awards or stock appreciation rights. Options granted under the plan can have an exercise price no less than the fair market value of the underlying stock at the date of grant. The general terms of the plan include a vesting period (usually four years) with an exercisable period not to exceed ten years. Certain option and restricted stock awards provide for accelerated vesting if there is a change in control (as defined in the plan). As of June 30, 2008, approximately 1,378,000 additional awards could be granted under the plan. Through June 30, 2008, only incentive stock options, nonqualified stock options and restricted stock awards had been granted under the plan.

The following table shows stock option activity for the first six months of 2008.

						Weighted-
						Average		Aggregate
				Weighted-		Remaining		Intrinisic
				Average Exercise		Contractual		Value
Options	Shares			Price		Term (Years)		($000)
Outstanding at December 31, 2007		2,912,557		$	21.57
Granted		582,750			13.79
Exercised		(68,039	)		13.51
Forfeited		(53,175	)		28.50
Expired		(23,275	)		24.21
Outstanding at June 30, 2008		3,350,818		$	20.26		6.5	$	74
Exercisable at June 30, 2008		2,025,341		$	18.88		4.9	$	74

The weighted average fair value of stock options granted in the second quarter of 2008 and 2007 was $2.93 and $8.30, 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 key assumptions used to determine the fair value of stock options are presented in the table below.

	Six Months Ended
	June 30,
	2008			2007
Expected volatility		23.4	%		20	%
Expected dividend yield	2.1% to 3.6%			1.1% to 1.2%
Expected life (in years)		6.25			6.25 to 6.50
Risk-free rate	2.9% to 3.9%			4.6% to 4.9%

6

United’s stock trading history began in March of 2002 when United listed on the Nasdaq National Market. For 2008 and 2007, expected volatility was determined using United’s historical monthly volatility over the period beginning in March of 2002 through the end of the last completed year. Compensation expense for stock options was $1.1 million and $1.0 million for the six months ended June 30, 2008 and 2007, respectively, which was net of deferred tax benefits of $445,000 and $293,000, respectively. The amount of compensation expense for both periods was determined based on the fair value of the options at the time of grant, multiplied by the number of options granted that were expected to vest, which was then amortized, net of any applicable tax benefit, over the vesting period. The forfeiture rate for options is estimated to be approximately 3% per year. The total intrinsic value of options exercised during the six months ended June 30, 2008 and 2007 was $277,000 and $1.8 million, respectively.

The table below presents the activity in restricted stock awards for the first six months of 2008.

				Weighted-
				Average Grant-
Restricted Stock	Shares			Date Fair Value
Outstanding at December 31, 2007		84,413		$	29.26
Granted		29,597			14.11
Vested		(23,859	)		26.95
Cancelled		(3,000	)		30.10
Outstanding at June 30, 2008		87,151		$	24.72

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, 2008 and 2007, compensation expense of $441,000 and $324,000, respectively, was recognized related to restricted stock awards. The total intrinsic value of the restricted stock was $743,000 at June 30, 2008.

As of June 30, 2008, there was $8.9 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 1.5 years. The aggregate grant date fair value of options and restricted stock awards that vested during the six months ended June 30, 2008, was $3.5 million.

Note 3 — 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, 2008 and 2007, United issued 113,047 and 90,002 shares, respectively, and increased capital by $1.6 million and $2.9 million, respectively, through these programs.

In the fourth quarter of 2005, United began offering 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, 2008 and 2007, 105,579 and 60,761 shares, respectively, are issuable under the deferred compensation plan.

7

Note 4 — Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share for the three months and six months ended June 30.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands, except per share data)	2008		2007		2008		2007
Net income available to common shareholders	$	7,089	$	11,906	$	23,163	$	31,246
Weighted average shares outstanding:
Basic		47,060		44,949		47,013		43,980
Effect of dilutive securities
Stock options and restricted stock		91		760		155		819
Common stock issuable under deferred compensation plan		98		52		92		43
Diluted		47,249		45,761		47,260		44,842
Earnings per common share:
Basic	$	.15	$	.26	$	.49	$	.71
Diluted	$	.15	$	.26	$	.49	$	.70

Note 5 — Mergers and Acquisitions

On June 1, 2007, United acquired 100 percent of the outstanding common shares of Gwinnett Commercial Group, Inc. (Gwinnett), a community bank holding company headquartered in Lawrenceville, Georgia. Gwinnett’s results of operations are included in consolidated financial results from the acquisition date. Gwinnett was the parent company of First Bank of the South, a community bank with five full service banking offices serving the north metro Atlanta counties of Gwinnett, DeKalb and north Fulton and a commercial loan office in Walton County. United has continued to expand its presence in metropolitan Atlanta and the acquisition of Gwinnett accomplished a long-standing strategic goal of encircling metro Atlanta. Additionally, Gwinnett brought strong commercial lending experience to better diversify United’s business mix. The aggregate purchase price was approximately $222.9 million, including 5,691,948 shares of United’s common stock and $31.5 million in cash that was exchanged for all of the outstanding common shares and options to purchase common shares of Gwinnett. The value of the common stock issued of $33.62 per share was determined based on the average of the closing market price of United’s common shares over the period beginning two days before and ending two days after the terms of the acquisition were agreed to and announced.

The financial information below presents the pro forma earnings of United assuming that the results of operations of Gwinnett were included in consolidated earnings for the three and six months ended June 30.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2008		2007		2008		2007
Total revenue	$	60,752	$	69,221	$	133,205	$	151,930
Net income		7,093		13,016		23,171		35,514
Diluted earnings per common share		.15		.26		.49		.72

Note 6 — Assets and Liabilities Measured at Fair Value

On January 1, 2008, United adopted Statement of Financial Accounting Standards No. 157,Fair Value Measurements(“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

8

SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, SFAS No. 157 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Fair Value Hierarchy

Level 1	Valuation is based upon quoted prices (unadjusted) in active markets for identical assets or liabilities that United has the ability to access.
Level 2	Valuation is based upon quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals.
Level 3	Valuation is generated from model-based techniques that use at least one significant assumption based on unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. United’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

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

Securities Available for Sale

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

Deferred Compensation Plan Assets and Liabilities

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

Loans Held for Sale

Loans held for sale are carried at the lower of cost or market value. The fair value of loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, United classifies loans subjected to nonrecurring fair value adjustments as Level 2.

9

Loans

United does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with SFAS 114,Accounting by Creditors for Impairment of a Loan, (SFAS 114). The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At June 30, 2008, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. In accordance with SFAS 157, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, United records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, United records the impaired loan as nonrecurring Level 3.

Foreclosed Assets

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

Goodwill and Other Intangible Assets

Goodwill and identified intangible assets are subject to impairment testing. United’s approach to testing goodwill for impairment is to compare the business unit’s carrying value to the implied fair value based on multiples of earnings and tangible book value for recently completed merger transactions. In the event the fair value is determined to be less than the carrying value, the asset is recorded at fair value as determined by the valuation model. As such, United classifies goodwill and other intangible assets subjected to nonrecurring fair value adjustments as Level 3.

Derivative Financial Instruments

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

The fair values of interest rate options are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates fell below the strike rate of the floors. The variable interest rates used in the calculation of projected receipts on the floor are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. To comply with the provisions of SFAS No. 157, United incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, United has considered the effect of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although United has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of June 30, 2008, United has assessed the significance of the effect of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, United has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

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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, 2008, aggregated by the level in the fair value hierarchy within which those measurements fall.

(in thousands)							Balance at
Description	Level 1		Level 2		Level 3		June 30, 2008
Assets
Securities available for sale	$	—	$	1,430,588	$	—	$	1,430,588
Deferred compensation plan assets		4,949		—		—		4,949
Derivative financial instruments		—		28,461		—		28,461
Total	$	4,949	$	1,459,049	$	—	$	1,463,998
Liabilities
Deferred compensation plan liability	$	4,949	$	—	$	—	$	4,949
Total liabilities	$	4,949	$	—	$	—	$	4,949

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 U.S. Generally Accepted Accounting Principles. 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, 2008, aggregated by the level in the fair value hierarchy within which those measurements fall.

(in thousands)							Balance at
Description	Level 1		Level 2		Level 3		June 30, 2008
Assets
Loans	$	—	$	—	$	55,321	$	55,321
Foreclosed assets		—		—		17,567		17,567
Total	$	—	$	—	$	72,888	$	72,888

Note 7 — Recent Accounting Pronouncements

In February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) 140-3Accounting for Transfers of Financial Assets and Repurchase Financing Transactions. This statement provides guidance regarding the accounting for a transfer of a financial asset and repurchase financing where the counterparties for both transactions are the same. In these circumstances, certain criteria must be met in order to not account for the transactions as a linked transaction. This FSP becomes effective for fiscal years and interim periods within those fiscal years, beginning on or after November 15, 2008. United does not anticipate that this FSP will have a material effect on United’s financial position, results of operations, or disclosures.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (SFAS No. 161),Disclosures about Derivative Instruments and Hedging Activities.This statement requires an entity to provide enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related items are accounted for under SFAS 133,Accounting for Derivative Instruments and Hedging Activities(“SFAS 133”) and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This statement is intended to enhance the current disclosure framework in SFAS 133, by requiring the objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. This statement becomes effective for fiscal years and interim periods beginning within those years after November 15, 2008. As this statement is related to disclosures only, United does not anticipate that adoption of this standard will have a material effect on United’s financial position or results of operations.

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

Forward-Looking Statements

This Form 10-Q contains forward-looking statements regarding United Community Banks, Inc. (“United”), including, without limitation, statements relating to United’s expectations with respect to revenue, credit losses, levels of nonperforming assets, expenses, earnings and other measures of financial performance. Words such as “may”, “could”, “would”, “should”, “believes”, “expects”, “anticipates”, “estimates”, “intends”, “plans”, “targets” or similar expressions are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties that are subject to change based on various factors (many of which are beyond United’s control). The following factors, among others, could cause United’s financial performance to differ materially from the expectations expressed in such forward-looking statements:

• our recent operating results may not be indicative of future operating results;

• our business is subject to the success of the local economies in which we operate;

• 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, our earnings would decrease;

• we may be subject to losses due to fraudulent and negligent conduct of our loan customers, third party service providers or employees;

• competition from financial institutions and other financial service providers may adversely affect our profitability;

• business increases, productivity gains and other investments are lower than expected or do not occur as quickly as anticipated;

• competitive pressures among financial services companies increase significantly;

• the success of our business strategy;

• the strength of the United States economy in general changes;

• change 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.

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, 2008, United had total consolidated assets of $8.3 billion, total loans of $5.9 billion, total deposits of $6.7 billion and stockholders’ equity of $837.9 million.

United 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.

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Net income for the second quarter of 2007 included a special $15 million provision for fraud related loan losses involving two failed real estate developments near Spruce Pine, North Carolina. The after-tax effect of this provision was $9.2 million, or $.20 per diluted share. Because management believes these losses are an isolated and non-recurring event, we will highlight operating earnings information, which excludes the special provision to provide a better understanding of our ongoing earnings and credit trends.

Net operating income was $7.1 million for the second quarter of 2008, a decrease of 66% from the $21.1 million for the second quarter of 2007. Diluted operating earnings per common share was $.15 for the second quarter of 2008, a decrease of 67% from the $.46 for the second quarter of 2007. Operating return on tangible equity for the second quarter of 2008 was 5.86%, compared to 17.52% for the second quarter of 2007. Operating return on assets for the second quarter of 2008 was .34% as compared to 1.12% for the second quarter of 2007.

Net operating income was $23.2 million for the six months ended June 30, 2008, a decrease of 43% from the $40.4 million for the six months ended June 30, 2007. Diluted operating earnings per common share was $.49 for the six months ended June 30, 2008, a decrease of 46% from the $.90 for the six months ended June 30, 2007. Operating return on tangible equity for the six months ended June 30, 2008 was 9.46%, compared to 17.36% for the six months ended June 30, 2007. Operating return on assets for the six months ended June 30, 2008 was .56% as compared to 1.12% for the six months ended June 30, 2007.

Earnings decreased primarily as a result of higher credit costs and margin compression due to competitive deposit pricing and higher levels of non-performing assets. Housing starts remain at low levels, leaving a surplus of lot inventory in our footprint, most notably in the Atlanta MSA. This increase in lot inventory negatively affects both the cash flows of our residential construction and land development customers, and the demand for new land development loans.

Nonperforming assets increased to 1.84% of total assets as of June 30, 2008, a significant increase from .54% as of June 30, 2007. This increase is a reflection of the downstream effects of the lot inventory buildup in the Atlanta MSA, which itself is indicative of the regional economic slowdown that is occurring in much of the Southeast. To date, the rise in nonperforming assets has been mostly confined to the residential construction portfolio and predominantly within the Atlanta MSA.

Fee revenue decreased $1.4 million, or 9%, from the second quarter of 2007. Although service charges and fees and consulting fees remained near the same level as the second quarter of 2007, mortgage fees and brokerage fees saw declines reflecting the slow housing market and declining conditions in the financial markets. Other fee revenue was down from a year ago, primarily due to gains from the sale of foreclosed properties realized in the second quarter of 2007 and higher income from bank owned life insurance and deferred compensation plan assets in the second quarter of 2007.

Operating expenses increased $2.1 million, or 4%, from the second quarter of 2007, primarily due to higher expenses and losses on foreclosed real estate properties, higher FDIC insurance premiums and the additional operating expenses related to First Bank of the South. Because the acquisition of First Bank of the South occurred on June 1, 2007, second quarter 2007 expenses include only one month of expenses for the quarter compared to three months for 2008.

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 and accounting for intangible assets. In particular, United’s accounting policies related to allowance for loan losses and intangibles 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.

Non-GAAP Performance Measures

The presentation of United’s financial results herein include references to operating performance measures, which are measures of performance determined by methods other than GAAP. Management included non-GAAP performance measures because it believes they are useful for evaluating United’s operations and performance over periods of time. Also, United uses operating performance measures in managing and evaluating United’s business and intends to use them in discussions about United’s operations and performance.

Operating performance measures exclude the effect of a special $15 million fraud related provision for loan losses recorded in the second quarter of 2007 and an additional $3 million provision and $18 million in related charge-offs in the fourth quarter of 2007 involving lot loans near Spruce Pine, North Carolina. Management believes that the circumstances leading to the special provision and subsequent charge-offs were isolated, non-recurring events and do not reflect overall trends in United’s performance. Management also believes that these non-GAAP performance measures provide users of United’s financial information with a meaningful measure for assessing United’s financial results and credit trends and comparing financial results to prior periods.

13

A reconciliation of operating earnings measures to reported earnings measures using GAAP is presented below:

Table 1 — Operating Earnings to GAAP Earnings Reconciliation

	2008						2007									For the Six Months Ended
	Second			First			Fourth			Third			Second			June 30
(in thousands, except per share data)	Quarter			Quarter			Quarter			Quarter			Quarter			2008			2007
Special provision for fraud related loan losses	$	—		$	—		$	3,000		$	—		$	15,000		$	—		$	15,000
Income tax effect of special provision		—			—			1,167			—			5,835			—			5,835
After-tax effect of special provision	$	—		$	—		$	1,833		$	—		$	9,165		$	—		$	9,165
Net Income Reconciliation
Operating net income	$	7,093		$	16,078		$	6,034		$	22,536		$	21,076		$	23,171		$	41,421
After-tax effect of special provision and merger-related charges		—			—			(1,833	)		—			(9,165	)		—			(9,165	)
Net income (GAAP)	$	7,093		$	16,078		$	4,201		$	22,536		$	11,911		$	23,171		$	32,256
Basic Earnings Per Share Reconciliation
Basic operating earnings per share	$	.15		$	.34		$	.13		$	.47		$	.47		$	.49		$	.92
Per share effect of special provision and merger-related charges		—			—			(.04	)		—			(.21	)		—			(.21	)
Basic earnings per share (GAAP)	$	.15		$	.34		$	.09		$	.47		$	.26		$	.49		$	.71
Diluted Earnings Per Share Reconciliation
Diluted operating earnings per share	$	.15		$	.34		$	.13		$	.46		$	.46		$	.49		$	.90
Per share effect of special provision and merger-related charges		—			—			(.04	)		—			(.20	)		—			(.20	)
Diluted earnings per share (GAAP)	$	.15		$	.34		$	.09		$	.46		$	.26		$	.49		$	.70
Provision for Loan Losses Reconciliation
Operating provision for loan losses	$	15,500		$	7,500		$	26,500		$	3,700		$	3,700		$	23,000		$	7,400
Special provision for fraud related loan losses		—			—			3,000			—			15,000			—			15,000
Provision for loan losses (GAAP)	$	15,500		$	7,500		$	29,500		$	3,700		$	18,700		$	23,000		$	22,400
Nonperforming Assets Reconciliation
Nonperforming assets excluding fraud-related assets	$	148,219		$	85,182		$	40,956		$	39,761		$	19,968		$	148,218		$	19,968
Fraud-related loans and OREO included in nonperforming assets		3,945			4,682			5,302			23,576			23,633			3,945			23,633
Nonperforming assets (GAAP)	$	152,164		$	89,864		$	46,258		$	63,337		$	43,601		$	152,163		$	43,601
Allowance for Loan Losses Reconciliation
Allowance for loan losses excluding special fraud-related allowance	$	91,035		$	89,848		$	89,423		$	75,935		$	77,471		$	91,035		$	77,471
Fraud-related allowance for loan losses		—			—			—			15,000			15,000			—			15,000
Allowance for loan losses (GAAP)	$	91,035		$	89,848		$	89,423		$	90,935		$	92,471		$	91,035		$	92,471
Net Charge Offs Reconciliation
Net charge offs excluding charge off of fraud-related loans	$	14,313		$	7,075		$	13,012		$	5,236		$	2,124		$	21,388		$	3,586
Fraud-related loans charged off		—			—			18,000			—			—			—			—
Net charge offs (GAAP)	$	14,313		$	7,075		$	31,012		$	5,236		$	2,124		$	21,388		$	3,586
Allowance for Loan Losses to Loans Ratio Reconciliation
Allowance for loan losses to loans ratio excluding fraud-related allowance		1.53	%		1.51	%		1.51	%		1.28	%		1.29	%		1.53	%		1.29	%
Portion of allowance assigned to fraud-related loans		—			—			—			.25			.25			—			.25
Allowance for loan losses to loans ratio (GAAP)		1.53	%		1.51	%		1.51	%		1.53	%		1.54	%		1.53	%		1.54	%
Nonperforming Assets to Total Assets Ratio Reconciliation
Nonperforming assets to total assets ratio excluding fraud-related assets		1.79	%		1.02	%		.50	%		.49	%		.25	%		1.79	%		.25	%
Fraud-related nonperforming assets		.05			.05			.06			.28			.29			.05			.29
Nonperforming assets to total assets ratio (GAAP)		1.84	%		1.07	%		.56	%		.77	%		.54	%		1.84	%		.54	%
Net Charge Offs to Average Loans Ratio Reconciliation
Net charge offs to average loans ratio excluding fraud-related loans		.97	%		.48	%		.87	%		.35	%		.15	%		.97	%		.13	%
Charge offs of fraud-related loans		—			—			1.20			—			—			—			—
Net charge offs to average loans ratio (GAAP)		.97	%		.48	%		2.07	%		.35	%		.15	%		.97	%		.13	%

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Table 2 — Financial Highlights
Selected Financial Information

																Second
	2008						2007									Quarter			For the Six						YTD
(in thousands, except per share	Second			First			Fourth			Third			Second			2008-2007			Months Ended						2008-2007
data; taxable equivalent)	Quarter			Quarter			Quarter			Quarter			Quarter			Change			2008			2007			Change
INCOME SUMMARY
Interest revenue	$	116,984		$	129,041		$	140,768		$	144,884		$	136,237					$	246,025		$	265,265
Interest expense		55,231			62,754			71,038			73,203			68,270						117,985			132,193
Net interest revenue		61,753			66,287			69,730			71,681			67,967			(9	)%		128,040			133,072			(4	)%
Provision for loan losses(1)		15,500			7,500			26,500			3,700			3,700						23,000			7,400
Fee revenue		15,105			14,197			16,100			15,615			16,554			(9	)		29,302			30,936			(5	)
Total operating revenue		61,358			72,984			59,330			83,596			80,821			(24	)		134,342			156,608			(14	)
Operating expenses		49,761			47,529			49,336			48,182			47,702			4			97,290			92,543			5
Income before taxes		11,597			25,455			9,994			35,414			33,119			(65	)		37,052			64,065			(42	)
Income taxes		4,504			9,377			3,960			12,878			12,043						13,881			23,644
Net operating income		7,093			16,078			6,034			22,536			21,076			(66	)		23,171			40,421			(43	)
Fraud loss provision, net of tax(1)		—			—			1,833			—			9,165						—			9,165
Net income	$	7,093		$	16,078		$	4,201		$	22,536		$	11,911			(40	)	$	23,171		$	31,256			(26	)
OPERATING PERFORMANCE(1)
Earnings per common share:
Basic	$	.15		$	.34		$	.13		$	.47		$	.47			(68	)	$	.49		$	.92			(47	)
Diluted		.15			.34			.13			.46			.46			(67	)		.49			.90			(46	)
Return on equity(2)		3.41	%		7.85	%		2.89	%		10.66	%		12.47	%					5.61	%		9.64	%
Return on tangible equity(2)(3)(4)		5.86			13.16			5.06			17.54			17.52						9.46			17.36
Return on assets(4)		.34			.78			.29			1.11			1.12						.56			1.12
Dividend payout ratio		60.00			26.47			69.23			19.15			19.15						36.73			19.57
GAAP PERFORMANCE MEASURES
Per common share:
Basic earnings	$	.15		$	.34		$	.09		$	.47		$	.26			(42	)	$	.49		$	.71			(31	)
Diluted earnings		.15			.34			.09			.46			.26			(42	)		.49			.70			(30	)
Cash dividends declared		.09			.09			.09			.09			.09			—			.18			.18			—
Book value		17.75			18.50			17.70			17.51			16.96			5			17.75			16.96			5
Tangible book value(3)		11.03			11.76			10.92			10.81			10.43			6			11.03			10.43			6
Key performance ratios:
Return on equity(2)(4)		3.41	%		7.85	%		2.01	%		10.66	%		7.05	%					5.61	%		9.64	%
Return on assets		.34			.78			.20			1.11			.64						.56			.86
Net interest margin(4)		3.32			3.55			3.73			3.89			3.94						3.43			3.96
Efficiency Ratio		65.05			59.05			57.67			55.34			56.59						61.97			56.57
Dividend payout ratio		60.00			26.47			100.00			19.15			34.62						36.73			25.35
Equity to assets		10.33			10.30			10.20			10.32			8.94						10.31			8.87
Tangible equity to assets(3)		6.77			6.73			6.58			6.65			6.65						6.75			6.65
ASSET QUALITY
Allowance for loan losses	$	91,035		$	89,848		$	89,423		$	90,935		$	92,471					$	91,035		$	92,471
Net charge-offs(1)		14,313			7,075			13,012			5,236			2,124						21,388			3,586
Non-performing loans		123,786			67,728			28,219			46,783			30,849						123,786			30,849
OREO		28,378			22,136			18,039			16,554			12,752						28,378			12,752
Total non-performing assets		152,164			89,864			46,258			63,337			43,601						152,164			43,601
Allowance for loan losses to loans(1)		1.53	%		1.51	%		1.51	%		1.28	%		1.29	%					1.53	%		1.29	%
Net charge-offs to average loans(1)(4)		.97			.48			.87			.35			.15						.72			.13
Non-performing assets to loans and OREO		2.55			1.50			.78			1.06			.73						2.55			.73
Non-performing assets to total assets		1.84			1.07			.56			.77			.54						1.84			.54
AVERAGE BALANCES
Loans	$	5,933,143		$	5,958,296		$	5,940,230		$	5,966,933		$	5,619,950			6		$	5,945,720		$	5,512,005			8
Investment securities		1,507,240			1,485,515			1,404,796			1,308,192			1,242,448			21			1,496,377			1,198,075			25
Earning assets		7,478,018			7,491,480			7,424,992			7,332,492			6,915,134			8			7,484,749			6,757,959			11
Total assets		8,295,748			8,305,621			8,210,120			8,083,739			7,519,392			10			8,300,686			7,307,231			14
Deposits		6,461,361			6,051,069			6,151,476			6,246,319			5,945,633			9			6,256,217			5,855,530			7
Shareholders’ equity		856,727			855,659			837,195			834,094			672,348			27			856,193			648,358			32
Common shares — basic		47,060			46,966			47,203			48,348			44,949						47,013			43,980
Common shares — diluted		47,249			47,272			47,652			48,977			45,761						47,260			44,842
AT PERIOD END
Loans	$	5,933,141		$	5,967,839		$	5,929,263		$	5,952,749		$	5,999,093			(1	)	$	5,933,141		$	5,999,093			(1	)
Investment securities		1,430,588			1,508,402			1,356,846			1,296,826			1,213,659			18			1,430,588			1,213,659			18
Total assets		8,264,051			8,386,255			8,207,302			8,180,600			8,087,667			2			8,264,051			8,087,667			2
Deposits		6,696,456			6,175,769			6,075,951			6,154,308			6,361,269			5			6,696,456			6,361,269			5
Shareholders’ equity		837,890			871,452			831,902			833,761			828,731			1			837,890			828,731			1
Common shares outstanding		47,096			47,004			46,903			47,542			48,781						47,096			48,781

(1)	Excludes effect of special $15 million fraud related provision for loan losses recorded in the second quarter of 2007, an additional $3 million provision in the fourth quarter of 2007, and $18 million of related loan charge-offs recorded in the fourth quarter of 2007.
(2)	Net income available to common shareholders, which excludes preferred stock dividends, divided by average realized common equity, which excludes accumulated other comprehensive income (loss).
(3)	Excludes effect of acquisition related intangibles and associated amortization.
(4)	Annualized.

15

Results of Operations

Net operating income was $7.1 million for the second quarter of 2008, a decrease of $14.0 million, from the same period in 2007. Diluted operating earnings per share was $.15 for the second quarter of 2008, compared to $.46 for the second quarter of 2007. Operating return on tangible equity for the second quarter of 2008 was 5.86%, compared to 17.52% for the second quarter of 2007. Operating return on assets for the second quarter of 2008 was .34% compared to 1.12% for the second quarter of 2007.

Net operating income was $23.2 million for the six months ending June 30, 2008, a decrease of $17.3 million, from the same period in 2007. Diluted operating earnings per share was $.49 for the six months ending June 30, 2008, compared to $.90 for the six months ending June 30, 2007. Operating return on tangible equity for the six months ending June 30, 2008 was 9.46%, compared to 17.36% for the six months ending June 30, 2007. Operating return on assets for the six months ending June 30, 2008 was .56% compared to 1.12% for the six months ending June 30, 2007.

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, 2008 was $61.1 million, down $6.2 million, or 9%, from last year. Average loans increased $313.2 million, or 6%, from the second quarter last year. The increase over the second quarter of 2007 was driven primarily by assets acquired in the acquisition of First Bank of the South (“Gwinnett Acquisition”) in June 2007. Overall, United’s loan portfolio decreased slightly, which was the result of a slowdown in the housing market in the Atlanta MSA and management reducing the exposure to residential construction, where period-end loans decreased $199.7 million from June 30, 2007. In contrast, period-end loans in north Georgia increased $33.0 million, western North Carolina increased $3.1 million, coastal Georgia increased $40.2 million, the Gainesville MSA increased $37.7 million and east Tennessee increased $19.7 million.

Average interest-earning assets for the second quarter 2008 increased $562.9 million, or 8%, over the same period in 2007. This increase is largely the result of the Gwinnett Acquisition, and adding to the securities portfolio. These increases in interest-earning assets were funded by interest-bearing sources, resulting in increases in average interest-bearing liabilities of $619.2 million compared to the same period in 2007.

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, 2008 and 2007, the net interest spread was 2.96% and 3.38%, respectively, while the net interest margin was 3.32% and 3.94%, respectively. The compression of the spread and margin was primarily due to the 325 basis point lowering of the prime rate initiated by actions of the Federal Reserve beginning in September 2007 and competitive deposit pricing. Also contributing to the lower spread and net interest margin was the higher level of non-performing assets, a shift in earning-asset mix resulting from growth in the securities portfolio, and a general tightening of new business spreads between loans and certificates of deposit.

At June 30, 2008 and 2007, United had receive-fixed swap contracts with a total notional value of $730 million and $530 million respectively, which are used to reduce United’s exposure to changes in interest rates that were accounted for as cash flow hedges of prime-based loans. United also had receive-fixed swap contracts with a total notional amount of $70 million and $90 million that are being accounted for as fair value hedges of brokered time deposits and fixed rate Federal Home Loan Bank advances. In addition to the swap contracts, United has purchased interest rate floors having a total notional amount of $500 million for which it paid premiums totaling $13 million that are being accounted for as cash flow hedges of daily repricing, prime-based loans. The use of swap and floor contracts is more fully explained in the Interest Rate Sensitivity Management section of this report beginning on page 25.

The average yield on interest-earning assets for the second quarter of 2008 was 6.29%, compared with 7.90% in the second quarter of 2007. Loan yields were down 195 basis points compared with the second quarter of 2007, primarily due to the 325 basis point decrease in the prime rate since September 2007.

The average cost of interest-bearing liabilities for the second quarter was 3.33%, compared to 4.52% from the same period of 2007. Even as the cost of borrowed funds decreased 244 basis points compared with the second quarter of 2007, the cost of interest-bearing deposits only decreased 100 basis points in the same timeframe. Deposit pricing decreased less than borrowed funds because at the same time index interest rates were dropping, increasing competition for deposits kept deposit pricing at higher levels in relation to the cost to borrow funds.

16

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, 2008 and 2007.

Table 3 — Average Consolidated Balance Sheets and Net Interest Analysis
For the Three Months Ended June 30,

	2008								2007
	Average					Avg.			Average					Avg.
(dollars in thousands, taxable equivalent)	Balance			Interest		Rate			Balance			Interest		Rate
Assets:
Interest-earning assets:
Loans, net of unearned income (1)(2)	$	5,933,143		$	97,080		6.58	%	$	5,619,950		$	119,569		8.53	%
Taxable securities (3)		1,471,958			18,879		5.13			1,200,268			15,476		5.16
Tax-exempt securities (1)(3)		35,282			655		7.43			42,180			721		6.83
Federal funds sold and other interest-earning assets		37,635			370		3.93			52,736			471		3.57
Total interest-earning assets		7,478,018			116,984		6.29			6,915,134			136,237		7.90
Non-interest-earning assets:
Allowance for loan losses		(93,776	)							(73,323	)
Cash and due from banks		144,589								130,046
Premises and equipment		181,454								158,290
Other assets (3)		585,463								389,245
Total assets	$	8,295,748							$	7,519,392
Liabilities and Shareholders’ Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
NOW	$	1,505,280		$	7,216		1.93		$	1,379,423		$	11,470		3.34
Money market		422,419			2,310		2.20			354,815			3,540		4.00
Savings		186,826			180		.39			186,490			374		.80
Time less than $100,000		1,642,677			17,285		4.23			1,627,708			19,978		4.92
Time greater than $100,000		1,484,032			16,135		4.37			1,372,410			17,892		5.23
Brokered		535,898			5,408		4.06			332,857			4,109		4.95
Total interest-bearing deposits		5,777,132			48,534		3.38			5,253,703			57,363		4.38
Federal funds purchased and other borrowings		383,378			1,820		1.91			275,319			3,671		5.35
Federal Home Loan Bank advances		412,268			2,818		2.75			419,287			5,035		4.82
Long-term debt		107,996			2,059		7.67			113,270			2,201		7.79
Total borrowed funds		903,642			6,697		2.98			807,876			10,907		5.42
Total interest-bearing liabilities		6,680,774			55,231		3.33			6,061,579			68,270		4.52
Non-interest-bearing liabilities:
Non-interest-bearing deposits		684,229								691,930
Other liabilities		74,018								93,535
Total liabilities		7,439,021								6,847,044
Shareholders’ equity		856,727								672,348
Total liabilities and shareholders’ equity	$	8,295,748							$	7,519,392
Net interest revenue				$	61,753							$	67,967
Net interest-rate spread							2.96	%							3.38	%
Net interest margin (4)							3.32	%							3.94	%

(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 $13.0 million in 2008 and pretax unrealized losses of $7.8 million in 2007 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.

17

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 six months ended June 30, 2008 and 2007.

Table 4 — Average Consolidated Balance Sheets and Net Interest Analysis
For the Six Months Ended June 30,

	2008								2007
	Average					Avg.			Average					Avg.
(dollars in thousands, taxable equivalent)	Balance			Interest		Rate			Balance			Interest		Rate
Assets:
Interest-earning assets:
Loans, net of unearned income (1)(2)	$	5,945,720		$	206,332		6.98	%	$	5,512,005		$	233,437		8.54	%
Taxable securities (3)		1,460,090			37,507		5.14			1,155,308			29,444		5.10
Tax-exempt securities (1)(3)		36,287			1,303		7.18			42,767			1,456		6.81
Federal funds sold and other interest-earning assets		42,652			883		4.14			47,879			928		3.88
Total interest-earning assets		7,484,749			246,025		6.60			6,757,959			265,265		7.91
Non-interest-earning assets:
Allowance for loan losses		(92,901	)							(70,769	)
Cash and due from banks		149,648								125,367
Premises and equipment		181,405								152,593
Other assets (3)		577,785								342,081
Total assets	$	8,300,686							$	7,307,231
Liabilities and Shareholders’ Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
NOW	$	1,483,699		$	15,803		2.14		$	1,351,277		$	22,097		3.30
Money market		430,734			5,223		2.44			308,541			6,080		3.97
Savings		185,819			407		.44			180,913			683		.76
Time less than $100,000		1,597,995			35,508		4.47			1,634,569			39,774		4.91
Time greater than $100,000		1,424,670			32,505		4.59			1,378,870			35,808		5.24
Brokered		455,150			9,699		4.29			333,800			8,022		4.85
Total interest-bearing deposits		5,578,067			99,145		3.57			5,187,970			112,464		4.37
Federal funds purchased and other borrowings		467,596			6,138		2.64			207,663			5,488		5.33
Federal Home Loan Bank advances		536,883			8,563		3.21			407,583			9,836		4.87
Long-term debt		107,995			4,139		7.71			113,251			4,405		7.84
Total borrowed funds		1,112,474			18,840		3.41			728,497			19,729		5.46
Total interest-bearing liabilities		6,690,541			117,985		3.55			5,916,467			132,193		4.51
Non-interest-bearing liabilities:
Non-interest-bearing deposits		678,150								667,560
Other liabilities		75,802								74,846
Total liabilities		7,444,493								6,658,873
Shareholders’ equity		856,193								648,358
Total liabilities and shareholders’ equity	$	8,300,686							$	7,307,231
Net interest revenue				$	128,040							$	133,072
Net interest-rate spread							3.05	%							3.40	%
Net interest margin (4)							3.43	%							3.96	%

(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 $14.5 million in 2008 and pretax unrealized losses of $8.9 million in 2007 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.

18

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 5 — Change in Interest Revenue and Expense on a Taxable Equivalent Basis

	Three Months Ended June 30, 2008									Six Months Ended June 30, 2008
	Compared to 2007									Compared to 2007
	Increase (decrease)									Increase (decrease)
	Due to Changes in									Due to Changes in
(in thousands)	Volume			Rate			Total			Volume			Rate			Total
Interest-earning assets:
Loans	$	6,364		$	(28,853	)	$	(22,489	)	$	17,361		$	(44,466	)	$	(27,105	)
Taxable securities		3,485			(82	)		3,403			7,827			236			8,063
Tax-exempt securities		(125	)		59			(66	)		(347	)		194			(153	)
Federal funds sold and other interest-earning assets		(145	)		44			(101	)		(183	)		138			(45	)
Total interest-earning assets		9,579			(28,832	)		(19,253	)		24,658			(43,898	)		(19,240	)
Interest-bearing liabilities:
NOW accounts		968			(5,222	)		(4,254	)		2,000			(8,294	)		(6,294	)
Money market accounts		584			(1,814	)		(1,230	)		1,938			(2,795	)		(857	)
Savings deposits		1			(195	)		(194	)		18			(294	)		(276	)
Time deposits less than $100,000		182			(2,875	)		(2,693	)		(874	)		(3,392	)		(4,266	)
Time deposits greater than $100,000		1,376			(3,133	)		(1,757	)		1,158			(4,461	)		(3,303	)
Brokered deposits		2,154			(855	)		1,299			2,664			(987	)		1,677
Total interest-bearing deposits		5,265			(14,094	)		(8,829	)		6,904			(20,223	)		(13,319	)
Federal funds purchased & other borrowings		1,090			(2,941	)		(1,851	)		4,404			(3,754	)		650
Federal Home Loan Bank advances		(83	)		(2,134	)		(2,217	)		2,609			(3,882	)		(1,273	)
Long-term debt		(101	)		(41	)		(142	)		(202	)		(64	)		(266	)
Total borrowed funds		906			(5,116	)		(4,210	)		6,811			(7,700	)		(889	)
Total interest-bearing liabilities		6,171			(19,210	)		(13,039	)		13,715			(27,923	)		(14,208	)
Increase in net interest revenue	$	3,408		$	(9,622	)	$	(6,214	)	$	10,943		$	(15,975	)	$	(5,032	)

Provision for Loan Losses

The provision for loan losses on a GAAP basis was $15.5 million for the second quarter of 2008, compared with $18.7 million for the same period in 2007. The second quarter 2007 provision for loan losses included a special $15 million provision for fraud related loan losses in two real estate developments located near Spruce Pine, North Carolina. During the second quarter 2007, the North Carolina Attorney General obtained a receiver to take custody of the developers’ assets citing possible fraud on the part of the developers. United had loans outstanding to 83 individual borrowers that totaled $23.6 million secured by undeveloped lots in these projects.

Net loan charge-offs as an annualized percentage of average outstanding loans for the three months ended June 30, 2008 was .97%, compared to .15% for the second quarter of 2007. For the first six months of 2008 net loan charge offs as an annualized percentage of average outstanding loans was .72% versus .13% for 2007. As vacant developed lot inventories have increased within United’s footprint, notably in the Atlanta MSA, it has made it difficult for some developers to obtain cash flows from selling lots and houses that were needed to service their debt. This is part of the deterioration of the residential construction and housing markets that has affected the Southeast and resulted in higher credit losses and an increase in non-performing assets.

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 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. Additional discussion on loan quality and the allowance for loan losses is included in the Asset Quality section of this report.

19

Fee Revenue

Fee revenue for the three months ended June 30, 2008 was $15.1 million, a decrease of $1.4 million, or 9%, from 2007. Fee revenue accounted for 25% of taxable equivalent total operating revenue for the second quarter of 2008, compared to 20% for the second quarter 2007. United continues to focus on increasing fee revenue through new products and services. The following table presents the components of fee revenue for the second quarter and the first six months of 2008 and 2007.

Table 6 — Fee Revenue

	Three Months Ended								Six Months Ended
	June 30,								June 30,
(dollars in thousands)	2008		2007			Change			2008		2007			Change
Service charges and fees	$	7,957	$	7,975			—	%	$	15,770	$	15,228			4	%
Mortgage loan and other related fees		2,202		2,476			(11	)		4,165		4,699			(11	)
Consulting fees		2,252		2,241			—			4,059		3,988			2
Brokerage fees		814		1,192			(32	)		1,907		2,136			(11	)
Securities gains, net		357		1,386						357		1,593
Loss on prepayments of borrowings		—		(1,164	)					—		(1,164	)
Other		1,523		2,448			(38	)		3,044		4,456			(32	)
Total	$	15,105	$	16,554			(9	)	$	29,302	$	30,936			(5	)

Mortgage loans and related fees for the first quarter decreased $274,000, or 11%, from 2007. This decrease was due to decreased demand for new mortgage loans resulting from the slow housing market. Substantially all originated residential mortgages were sold into the secondary market, including the right to service these loans.

Brokerage fees decreased $378,000, or 32%, compared to 2007. This decrease was due to declining market activity by our customers.

Other fee revenue decreased $925,000, or 38%, compared to 2007. This decline is due to lower revenue generated by United’s bank owned life insurance investments, deferred compensation plan assets, and non-recurring items in 2007, including a $307,000 gain on the sale of foreclosed properties.

Operating Expenses

For the six months ended June 30, 2008, total operating expenses were $49.7 million, an increase of 4% compared with $47.7 million for the same period in 2007. The following table presents the components of operating expenses for the thee months and six months ended June 30, 2008 and 2007.

Table 7 — Operating Expenses

	Three Months Ended							Six Months Ended
	June 30,							June 30,
(dollars in thousands)	2008		2007		Change			2008		2007		Change
Salaries and employee benefits	$	28,753	$	30,022		(4)	%	$	57,507	$	58,339		(1)	%
Communications and equipment		3,852		3,845		—			7,684		7,657		—
Occupancy		3,704		3,316		12			7,420		6,507		14
Advertising and public relations		2,009		2,098		(4	)		3,360		4,114		(18	)
Postage, printing and supplies		1,448		1,680		(14	)		3,040		3,340		(9	)
Professional fees		1,679		2,010		(16	)		3,600		3,489		3
Amortization of intangibles		745		633		18			1,512		1,197		26
Other		7,571		4,098		85			13,167		7,900		67
		49,761		47,702		4			97,290		92,543		5

20

Salaries and employee benefits for the second quarter 2008 totaled $28.8 million, a decrease of $1.3 million, or 4%, over the same period in 2007. This decrease was primarily due to lower bonus and incentive costs in 2008, which was offset partially by higher costs for the Gwinnett Acquisition that was included for the full quarter this year versus one month in the second quarter of 2007. At June 30, 2008, total staff was 2,020,an increase of three employees from the second quarter 2007.

Occupancy expense for the second quarter 2008 increased $388,000, or 12%, from the same period in 2007. This increase reflects the additional office space obtained in the Gwinnett Acquisition and de novo expansion.

Postage, printing and supplies for the second quarter 2008 decreased $232,000, or 14%, from the same period in 2007. This decrease was due to company-wide discipline controlling costs.

Professional fees for the second quarter 2008 decreased $331,000, or 16%, over the same period in 2007. This decrease was primarily the result of higher legal fees last year associated with the fraud related loans in Spruce Pine, North Carolina.

Other expense of $7.6 million increased $3.5 million from 2007. The increase was due to approximately $2.5 million in writedowns and expenses on foreclosed properties and the increase in FDIC insurance premiums of approximately $900,000. Higher foreclosed property expenses and losses and higher FDIC insurance premiums also account for most of the year to date increase over 2007.

The efficiency ratio measures total operating expenses as a percentage of total revenue, excluding the provision for loan losses, net securities gains or losses, and gains or losses from the prepayment of borrowings. United’s operating efficiency ratio for the second quarter was 65.05%, compared to 56.59% for the second quarter of 2007. The increase is primarily the result of decreasing net interest revenue and fee revenue, and an increase in other operating expenses, primarily resulting from the higher cost of foreclosed properties.

Income Taxes

Income tax expense was $3.9 million as compared with $5.8 million for the second quarter of 2007, representing a 35.5% and a 32.6% effective tax rate, respectively. For the first six months, income tax expense was $12.7 million and $16.9 million for the periods ending June 30, 2008 and 2007, respectively. The effective tax rate for those periods was 35.5% and 35.1% respectively. The effective tax rates were lower than 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 and tax credits received on affordable housing investments. Additional information regarding income taxes can be found in Note 14 to the consolidated financial statements filed with United’s 2007 Form 10-K.

Balance Sheet Review

Total assets at June 30, 2008 were $8.3 billion, compared with $8.1 billion at June 30, 2007. Average total assets for the second quarter 2008 were $8.3 billion, up $776 million from average assets for the second quarter of 2007. A significant portion of the growth was the result of the Gwinnett Acquisition on June 1, 2007, which added total assets of $809 million, including intangible assets.

Goodwill

United reviews its goodwill for impairment annually, or more frequently if circumstances indicate that goodwill has been impaired. During the last three quarters, United’s stock price has traded below its per-share book value and falling below tangible book value for a short period of time, reflecting uncertainty about the economic cycle rather than the value of the underlying business. The current economic environment has temporarily resulted in lower earnings with higher credit losses and those losses 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. Management believes that goodwill has not been impaired and that the value of United’s business remains intact and earnings will return to past levels when the credit cycle recovers.

21

Loans

The following table presents a summary of the loan portfolio.

Table 8 — Loans Outstanding

	June 30,			December 31,			June 30,
(dollars in thousands)	2008			2007			2007
By Loan Type
Commercial (secured by real estate)	$	1,584,258		$	1,475,930		$	1,461,286
Commercial construction		521,794			527,123			506,962
Commercial (commercial and industrial)		416,626			417,715			420,608
Total commercial		2,522,678			2,420,768			2,388,856
Residential construction		1,745,151			1,829,506			2,015,135
Residential mortgage		1,494,562			1,501,916			1,412,597
Installment		170,750			177,073			182,505
Total loans	$	5,933,141		$	5,929,263		$	5,999,093
As a percentage of total loans:
Commercial (secured by real estate)		27	%		25	%		24	%
Commercial construction		9			9			8
Commercial (commercial and industrial)		7			7			7
Total commercial		43			41			39
Residential construction		29			31			34
Residential mortgage		25			25			24
Installment		3			3			3
Total		100	%		100	%		100	%
By Geographic Location
Atlanta MSA	$	1,933,811		$	2,002,089		$	2,133,487
Gainesville MSA		421,711			399,560			384,017
North Georgia		2,064,856			2,060,224			2,031,875
North Carolina		818,677			805,999			815,592
Coastal Georgia		436,594			415,622			396,373
Tennessee		257,492			245,769			237,749
Total loans	$	5,933,141		$	5,929,263		$	5,999,093

Substantially all of United’s loans are to customers located in the immediate market areas of the community banks in Georgia, North Carolina, and Tennessee. At June 30, 2008, total loans were $5.9 billion, a decrease of $66.0 million or 1%, from June 30, 2007. The rate of loan growth began to decline in the first quarter of 2007 and continued through 2008. The slowdown in loan growth was due to deterioration in the residential construction and housing markets that resulted in part from an oversupply of lot inventory within United’s markets, which slowed construction activities and acquisition and development projects. To date, the slowdown in the housing market has been most severe in the Atlanta MSA.

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 at all of the Community Banks. Additional information on the credit administration function is included in Item 1 under the headingLoan Review and Non-performing Assetsin United’s Annual Report on Form 10-K.

The provision for loan losses charged to earnings was based upon management’s judgment of the amount necessary to maintain the allowance at a level appropriate to absorb losses inherent in the loan portfolio at quarter-end. The amount each period is dependent upon many factors, including growth and changes in the composition of the loan portfolio, net charge-offs, delinquencies, management’s assessment of loan portfolio quality, the value of collateral, and other economic factors and trends. The evaluation of these factors is performed quarterly by management through an analysis of the appropriateness of the allowance for loan losses.

22

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

The following table presents a summary of the changes in the allowance for loan losses for the three and six month periods ended June 30, 2008 and 2007 on a GAAP basis.

Table 9 — Summary of Loan Loss Experience

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(dollars in thousands)		2008			2007			2008			2007
Balance beginning of period	$	89,848		$	68,804		$	89,423		$	66,566
Allowance from acquisitions		—			7,091			—			7,091
Charge-offs:
Commercial (commercial and industrial)		410			106			734			282
Commercial (secured by real estate)		492			280			1,122			364
Commercial construction		125			—			125			245
Residential construction		10,354			836			15,162			920
Residential mortgage		2,599			1,055			3,672			1,951
Installment		670			474			1,337			955
Total loans charged-off		14,650			2,751			22,152			4,717
Recoveries
Commercial (commercial and industrial)		12			55			32			173
Commercial (secured by real estate)		68			63			68			64
Commercial construction		—			1			—			1
Residential construction		11			2			154			3
Residential mortgage		23			275			85			354
Installment		223			231			425			536
Total recoveries		337			627			764			1,131
Net charge-offs		14,313			2,124			21,388			3,586
Provision for loan losses		15,500			18,700			23,000			22,400
Balance end of period	$	91,035		$	92,471		$	91,035		$	92,471
Net charge-offs by region
Atlanta MSA	$	10,682		$	1,418		$	15,329		$	1,961
Gainesville MSA		360			1			683			(1	)
North Georgia		1,829			579			3,109			1,508
Western North Carolina		279			172			336			213
Coastal Georgia		980			32			1,022			1
East Tennessee		183			(78	)		909			(96	)
Balance end of period	$	14,313		$	2,124		$	21,388		$	3,586
Total loans:
At period end	$	5,933,141		$	5,999,093		$	5,933,141		$	5,999,093
Average		5,933,143			5,619,950			5,945,720			5,512,005
As a percentage of average loans (annualized):
Net charge-offs		.97	%		.15	%		.72	%		.13	%
Provision for loan losses		1.04			1.33			.77			.81
Allowance as a percentage of period end loans		1.53			1.54			1.53			1.54
Allowance as a percentage of period end non-performing loans		74			300			74			300

23

Management believes that the allowance for loan losses at June 30, 2008 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 on a GAAP basis.

Table 10 — Non-Performing Assets

	June 30,			December 31,			June 30,
(dollars in thousands)		2008			2007			2007
Non-accrual loans	$	123,786		$	28,219		$	30,849
Loans past due 90 days or more and still accruing		—			—			—
Total non-performing loans		123,786			28,219			30,849
Other real estate owned		28,378			18,039			12,752
Total non-performing assets	$	152,164		$	46,258		$	43,601
Non-performing loans as a percentage of total loans		2.09	%		.48	%		.51	%
Non-performing assets as a percentage of loans and OREO		2.55			.78			.73
Non-performing assets as a percentage of total assets		1.84			.56			.54

Non-performing loans totaled $123.8 million, compared with $28.2 million at December 31, 2007 and $30.8 million at June 30, 2007. The ratio of non-performing loans to total loans increased 158 basis points from June 30, 2007 reflecting a deterioration in United’s residential construction and development portfolio primarily in the Atlanta MSA. Non-performing assets, which include non-performing loans and foreclosed real estate, totaled $152.2 million at June 30, 2008, compared to $46.3 million at December 31, 2007 and $43.6 million at June 30, 2007.

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

At June 30, 2008 and 2007, there were $79.6 million and $38.8 million, respectively, of loans classified as impaired under the definition outlined in SFAS No. 114Accounting By Creditors For Impairment of a Loan. Specific reserves allocated to these impaired loans totaled $20.3 million and $2.1 million at June 30, 2008 and 2007, respectively. The average recorded investment in impaired loans for the quarters ended June 30, 2008 and 2007 was $79.7 million and $40.8 million, respectively. Interest revenue recognized on loans while they were impaired for the first six months of 2008 was $393,000 compared with $540,000 for the same period in 2007.

Investment Securities

The composition of the investment securities portfolio reflects United’s investment strategy of maintaining an appropriate level of liquidity while providing a relatively stable source of revenue. The investment securities portfolio also provides a balance to interest rate risk and credit risk in other categories of the balance sheet while providing a vehicle for the investment of available funds, furnishing liquidity, and supplying securities to pledge as required collateral for certain deposits.

Total investment securities available for sale at quarter-end increased $216.9 million from a year ago. The investment portfolio is used as a supplemental tool to stabilize interest rate sensitivity and increase net interest revenue. At June 30, 2008 and June 30, 2007, the securities portfolio represented approximately 17.3% and 15.0% of total assets, respectively.

The investment securities portfolio primarily consists of U.S. Government agency securities, U.S. Government sponsored agency mortgage-backed securities, non-agency mortgage-backed securities, and municipal securities. Mortgage-backed securities rely on the underlying pools of mortgage loans to provide a cash flow of principal and interest. The actual maturities of these securities will differ from 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.

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Deposits

Total deposits as of June 30, 2008 were $6.7 billion, an increase of $335 million, or 4%, from June 30, 2007. Total non-interest-bearing demand deposit accounts of $697 million decreased $77 million or 10%, and NOW, money market and savings accounts of $2.1 billion decreased $12 million, or 1%. Management believes the decreases were primarily caused by the slowdown in the local economy and the resultant increase in the use of funds by United’s customers because average balances have declined over the past year.

Total time deposits, excluding brokered deposits, as of June 30, 2008 were $3.3 billion, an increase of $237 million, or 8%, from June 30, 2007. Time deposits less than $100,000 totaled $1.7 billion, an increase of $93 million, or 6%, from a year ago. Time deposits of $100,000 and greater totaled $1.6 billion as of June 30, 2008, an increase of $144 million, or 10%, from June 30, 2007. During the second quarter, 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 very successful and added over $400 million of customer deposits. United also takes advantage of “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, 2008 were $535 million, compared with $348 million at June 30, 2007.

Wholesale Funding

At June 30, 2008, the Bank was a shareholder in a Federal Home Loan Bank (“FHLB”). Through this affiliation, FHLB secured advances totaled $286 million and $499 million as of June 30, 2008 and 2007, respectively. This decline was the result of a successful CD program during the second quarter of 2008 that reduced United’s need for borrowed funds. United anticipates continued use of this short- and long-term source of funds. FHLB advances outstanding at June 30, 2008 had both fixed and floating interest rates up to 5.06%.Additional information regarding FHLB advances, including scheduled maturities, is provided in Note 10 to the consolidated financial statements included in United’s 2007 Form 10-K.

At June 30, 2008, United had $289 million in Federal funds purchased, repurchase agreements, and other short-term borrowings outstanding, compared to $238 million outstanding at June 30, 2007. 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 utilizes to estimate the sensitivity of net interest revenue to changes in interest rates is an interest rate simulation model. Such estimates are based upon a number of assumptions for various scenarios, including the level of balance sheet growth, deposit repricing characteristics and the rate of prepayments. The simulation model measures the potential change in net interest revenue over a twelve-month period under various interest rate scenarios. United’s baseline scenario assumes rates remain flat (“flat rate scenario”) over the next twelve months and is the scenario that all others are compared to in order to measure the change in net interest revenue. United runs ramp scenarios that assume gradual increases and decreases of 200 basis points each over the next twelve months. United’s policy for net interest revenue simulation is limited to a change from the flat rate scenario of less than 10% for the up or down 200 basis point ramp scenarios over twelve months. At June 30, 2008, United’s simulation model indicated that a 200 basis point increase in rates over the next twelve months would cause a 1.2% increase in net interest revenue and a 200 basis point decrease in rates over the next twelve months would cause an approximate 2.6% decrease in net interest revenue.

In order to manage its interest rate sensitivity, United uses off-balance sheet contracts that are considered derivative financial instruments. Derivative financial instruments can be a cost and capital effective means of modifying the repricing characteristics of on-balance sheet assets and liabilities. At June 30, 2008, 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.

25

The following table presents the interest rate swap contracts outstanding at June 30, 2008.

Table 11 — Derivative Financial Instruments
As of June 30, 2008

			Rate
(dollars in thousands)	Notional		Received /
Type/Maturity	Amount		Floor Rate			Rate Paid			Fair Value(7)
Fair Value Hedges:
LIBOR Swaps (Brokered CDs)
September 29, 2008 (1)	$	10,000		5.25	%		2.48	%	$	62
November 3, 2008 (2)		10,000		5.00			2.20			86
Total:		20,000		5.13			2.34			148
LIBOR Swaps (FHLB Advances)
January 5, 2009 (3)		25,000		5.06			2.36			305
March 2, 2009 (4)		25,000		4.90			2.33			377
Total:		50,000		4.98			2.35			682
Total Fair Value Hedges		70,000		5.02			2.34			830
Cash Flow Hedges:
Prime Swaps (Prime Loans) (5)
August 4, 2008		50,000		8.32			5.00			147
November 4, 2008		100,000		8.32			5.00			987
February 1, 2009		25,000		8.31			5.00			407
May 4, 2009		30,000		8.29			5.00			681
June 9, 2010		100,000		5.82			5.00			(225	)
June 11, 2010		25,000		8.26			5.00			1,100
June 13, 2011		25,000		6.72			5.00			280
December 12, 2011		25,000		6.86			5.00			178
January 2, 2012		100,000		6.71			5.00			73
March 12, 2012		50,000		6.87			5.00			630
March 27, 2012		50,000		6.76			5.00			434
March 27, 2012		50,000		6.72			5.00			340
January 31, 2013		50,000		6.26			5.00			(807	)
May 6, 2013		50,000		7.21			5.00			898
Total:		730,000		7.12			5.00			5,123
Prime Floors (Prime Loans) (6)
February 1, 2009		25,000		8.75						510
May 1, 2009		25,000		8.75						694
August 1, 2009		75,000		8.75						2,619
November 1, 2009		75,000		8.75						3,090
February 4, 2010		100,000		8.75						4,692
May 4, 2010		100,000		8.75						5,172
August 1, 2010		50,000		8.75						2,811
August 4, 2010		50,000		8.75						2,815
Total:		500,000								22,403
Total Cash Flow Hedges:		1,230,000								27,526
Total Derivative Contracts	$	1,300,000							$	28,356

(1)	Rate Paid equals 1-Month LIBOR minus .0075
(2)	Rate Paid equals 1-Month LIBOR minus .2725
(3)	Rate Paid equals 1-Month LIBOR minus .1101
(4)	Rate Paid equals 1-Month LIBOR minus .1280
(5)	Rate Paid equals Prime rate as of June 30, 2008
(6)	Floor contracts receive cash payments equal to the floor rate less the prime rate.
(7)	Excludes accrued interest

26

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, 2008, United had interest rate swap contracts with a total notional amount of $730 million that were designated as cash flow hedges of prime-based loans. United had interest rate floor contracts with a total notional of $500 million that were also designated as cash flow hedges of prime-based loans. United also had receive fixed, pay LIBOR swap contracts with a total notional of $70 million that were accounted for as fair value hedges of brokered deposits and fixed-rate FHLB advances.

United’s policy requires all derivative financial instruments be used only for asset/liability management through the hedging of specific transactions or positions, and not for trading or speculative purposes. Management believes that the risk associated with using derivative financial instruments to mitigate interest rate risk sensitivity is minimal and should not have any material unintended 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 Banks’ customers, both depositors and borrowers.

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 $27 million at June 30, 2008, and typically turn over every 45 days as the closed loans are sold to investors in the secondary market.

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

United had sufficient qualifying collateral to increase FHLB advances by $915 million at June 30, 2008. United’s internal policy limits brokered deposits to 25% of total non-brokered deposits. At June 30, 2008, United had the capacity to increase brokered deposits by $1.0 billion and still remain within this limit. Also, United had sufficient qualifying assets pledged to the Federal Reserve under the Term Auction Facility to increase short-term borrowings by $479 million and federal funds lines available of $445 million.

As disclosed in United’s consolidated statement of cash flows, net cash provided by operating activities was $67.1 million for the six months ended June 30, 2008. The major contributors in this category were net income of $23.2 million, plus non-cash expenses for depreciation, amortization and accretion of $7.2 million, provision for loan losses of $23.0 million, stock based compensation of $1.9 million, and a net increase in accrued expenses and other liabilities of $25.3 million, offset by an increase in other assets and accrued interest receivable of $14.1 million. Net cash used by investing activities of $128.7 million consisted primarily of a net increase in loans totaling $65.1 million, purchases of premises and equipment of $7.3 million, and $511.6 million used to purchase investment securities, partially offset by proceeds from sales of securities of $79.7 million, maturities and calls of investment securities of $344.6 million, and sales of other real estate of $30.6 million. Net cash provided by financing activities of $30.7 million consisted primarily of a net increase in deposits of $620.5 million offset by a net decrease of $349.8 million in federal funds purchased, repurchase agreements, and other short-term borrowings, a net decrease in FHLB advances of $234.0 million, and cash dividends paid of $8.5 million. In the opinion of management, the liquidity position at June 30, 2008 is sufficient to meet its expected cash flow requirements.

27

Capital Resources and Dividends

Shareholders’ equity at June 30, 2008 was $837.9 million, an increase of $6.0 million from December 31, 2007. Accumulated other comprehensive income (loss) is not included in the calculation of regulatory capital adequacy ratios. Excluding the change in the accumulated other comprehensive income (loss), shareholders’ equity increased $19.9 million from December 31, 2007. Dividends of $8.5 million, or $.18 per share, were declared on common stock during the first six months of 2008, an increase of 2% from the amount declared in the same period in 2007 due to an increase in the number of outstanding shares since the dividend rate remained unchanged. The dividend payout ratio was 60% for the second quarter of 2008, compared to 19% for the second quarter of 2007. Although, United retains a portion of its earnings in order to provide a cost effective source of capital for continued growth and expansion, United recognizes that cash dividends are an important component of shareholder value, and therefore, provides for cash dividends when earnings and capital levels permit.

United’s Board of Directors has authorized the repurchase of United’s outstanding common stock for general corporate purposes. At June 30, 2008, 1,000,000 shares remained available to be repurchased under the current 3,000,000 share authorization through December 31, 2008. During the first six months of 2008, optionees delivered 5,179 shares to exercise stock options.

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 2008 and 2007.

Table 12 — Stock Price Information

	2008								2007
							Avg Daily								Avg Daily
	High		Low		Close		Volume		High		Low		Close		Volume
First quarter	$	20.80	$	13.38	$	16.98		441,659	$	34.98	$	30.81	$	32.79		232,269
Second quarter		18.51		8.51		8.53		464,566		33.03		25.80		25.89		266,682
Third quarter										27.50		22.16		24.52		346,596
Fourth quarter										25.73		15.13		15.80		421,910

The following table presents the quarterly cash dividends declared in 2008 and 2007 and the respective payout ratios as a percentage of basic operating earnings per share, which excludes special fraud related provisions for loan losses in the second and fourth quarters of 2007.

Table 13 — Dividend Payout Information

	2008				2007
	Dividend		Payout %		Dividend		Payout %
First quarter	$	.09		26	$	.09		20
Second quarter		.09		60		.09		19	*
Third quarter						.09		19
Fourth quarter						.09		69	*

* Based on basic operating earnings per share which excludes the effect of the $15 million special fraud-related provision for loan losses in the second quarter of 2007 and $3 million in the fourth quarter of 2007. Including the special provisions, the dividend payout ratio was 35% and 100%, respectively, for the second and fourth quarters of 2007.

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

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

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The following table shows United’s capital ratios, as calculated under regulatory guidelines, at June 30, 2008 and 2007.

Table 14 — Capital Ratios

	2008						2007
	Actual			Regulatory			Actual			Regulatory
(dollars in thousands)		Amount			Minimum			Amount			Minimum
Tier I Leverage:
Amount	$	560,820		$	239,362		$	567,478		$	216,007
Ratio		7.03	%		3.00	%		7.88	%		3.00	%
Tier I Risk-Based:
Amount	$	560,820		$	244,680		$	567,478		$	253,182
Ratio		9.17	%		4.00	%		8.97	%		4.00	%
Total Risk-Based:
Amount	$	697,597		$	489,359		$	713,237		$	506,365
Ratio		11.40	%		8.00	%		11.27	%		8.00	%

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

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

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, 2008 from that presented in the Annual Report on Form 10-K for the year ended December 31, 2007. The interest rate sensitivity position at June 30, 2008 is included in management’s discussion and analysis on page 25 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, 2008. 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.

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Part II. Other Information

Item 1. Legal Proceedings

In the ordinary course of operations, United and the Banks are defendants in various legal proceedings. In the opinion of management, there is no pending or threatened proceeding in which an adverse decision could result in a material adverse change in the consolidated financial condition or results of operations of United.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in United’s Form 10-K for the year ended December 31, 2007, but United did add the following risk factor:

Our ability to raise capital could be limited and could affect our liquidity and could be dilutive to existing shareholders.

Current conditions in the capital markets are such that traditional sources of capital may not be available to us on reasonable terms if we needed to raise capital. In such case, there is no guarantee that we will be able to borrow funds or successfully raise additional capital at all or on terms that are favorable or otherwise not dilutive to existing shareholders.

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 30, 2008.

At the annual meeting, the shareholders elected Jimmy C. Tallent, Robert L. Head, Jr., W.C. Nelson, Jr., A. William Bennett, Robert H. Blalock, Guy W. Freeman, Charles E. Hill, 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 46,984,672 shares outstanding on the record date, 38,095,236 were voted representing 81% 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		37,766,554		328,682
Robert L. Head, Jr.		37,764,302		330,934
W.C. Nelson, Jr.		37,621,040		474,196
A. William Bennett		37,651,575		443,661
Robert H. Blalock		37,841,310		253,926
Guy W. Freeman		37,689,374		405,862
Charles E. Hill		37,105,317		989,919
Hoyt O. Holloway		37,618,252		476,984
John D. Stephens		37,845,581		249,655
Tim Wallis		37,628,656		466,580

Shareholders also voted on the ratification of the independent auditors, Porter Keadle Moore. Of the 46,984,672 shares outstanding on the record date, 38,095,241 were voted, representing 81% of the outstanding shares. The ratification was approved by the votes set forth in the following table.

Other Proposals	Shares Voted in Favor		Shares Voted Against		Shares Withheld
Ratification of the independent auditors, Porter Keadle Moore		37,822,674		107,328		165,239

Item 5. Other Information — None

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Item 6. Exhibits

3.1	Restated Articles of Incorporation of United Community Banks, Inc., (incorporated herein by reference to Exhibit 3.1 to United Community Banks, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001, File No. 0-21656, filed with the Commission on August 14, 2001).
3.2	Amendment to the Restated Articles of Incorporation of United Community Banks, Inc. (incorporated herein by reference to Exhibit 3.3 to United Community Banks, Inc.’s Registration Statement on Form S-4, File No. 333-118893, filed with the Commission on September 9, 2004).
3.3	Amended and Restated Bylaws of United Community Banks, Inc., dated September 12, 1997 (incorporated herein by reference to Exhibit 3.1 to United Community Banks, Inc.’s Annual Report on Form 10-K, for the year ended December 31, 1997, File No. 0-21656, filed with the Commission on March 27, 1998).
4.1	See Exhibits 3.1, 3.2 and 3.3 for provisions of the Restated Articles of Incorporation, as amended, and Amended and Restated Bylaws, which define the rights of the Shareholders.
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 8, 2008

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