Cash

Investments at fair value:

Common stock of United Community Banks, Inc.

Shares of registered investment company mutual funds

 

Total investments

 

 

Receivables:

Accrued dividends

Due from brokers

 

Total receivables

 

Total assets

 

 

Amounts due to brokers

Benefits payable

 

Total liabilities

 

 

Investment income:

Interest and dividends

Net appreciation in fair value of investments

 

Total investment income

 

 

Contributions:

Employer match

Employee deferrals

Employee rollovers and other

 

Total contributions

 

Total additions

 

 

Distributions paid to participants

Administrative expenses

 

Total deductions

 

 

Beginning of year

 

End of year

 

The following description of United Community Banks, Inc. Profit Sharing Plan (the “Plan”) provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions.

The Plan is a defined contribution plan and was formed to provide benefits exclusively for the employees of United Community Banks, Inc. and its subsidiaries (the “Company”). Employees are eligible to participate in the Plan on the next immediate enrollment date following employment, but are eligible to participate in the matching portion of the Plan after the completion of one year of service with the Company as defined in the Plan documents. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).

Employees of the Company participating in the Plan are entitled to make pre-tax contributions to the Plan in amounts ranging from 2% to 75% of their annual base salary and commissions, subject to mandated maximum limitations. The Company’s matching contribution is up to 5% of a participant’s annual base salary and commissions for those who have completed at least one year of service and have elected to make deferred contributions. The Company may also make an additional discretionary contribution in any Plan year. Contributions are subject to certain limitations.

Participants are immediately vested in their contributions to the Plan. Participants vest in the Company’s contributions according to the following schedule:

Less Than 1

2

3

More Than 3

Participants automatically become 100% vested upon death or disability while still an active employee of the Company. Upon termination of employment, amounts not vested will be forfeited with such forfeitures reducing administrative expenses paid from the Plan.

Upon retirement, a participant is entitled to receive 100% of the vested account balance in a lump-sum distribution or periodic payments over a predetermined period. Upon the death of a participant, the designated beneficiary is entitled to receive 100% of the participant’s account in a lump-sum distribution or periodic payments over a predetermined period. In addition, disabled participants are entitled to 100% of their account balance. Plan participants who are terminated for reasons other than retirement, death or disability are entitled to receive only the vested portion of their account. The Plan also allows for certain hardship withdrawals prior to termination of employment. Benefits are recorded when paid.

The Plan pays substantially all administrative expenses.

At December 31, 2010 and 2009, forfeited non vested accounts approximated $7,000 and $18,000, respectively. These amounts will be used to reduce future administrative expenses.

Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. The participants affected by the termination or discontinuance of contributions will immediately become 100% vested in their accounts.

The financial statements of the Plan have been prepared using the accrual method of accounting and present the net assets available for plan benefits and changes in those assets of the Plan. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of net assets available for plan benefits and changes therein, and disclosure of contingent assets and liabilities. Accordingly, actual results may differ from those estimates.

The Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification Topic 820 (“ASC 820”) Fair Value Measurements and Disclosures defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements. ASC 820 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, ASC 820 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).

Level 1 Valuation is based upon quoted prices (unadjusted) in active markets for identical assets or liabilities that the Plan 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. The 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 Plan’s investments are reported at fair value. The Company’s common stock trades on the Nasdaq Global Select Market (“Nasdaq”), and its value is based on a quoted market price. Investments in mutual funds held are stated at fair value based on quoted market prices of the underlying fund securities. In accordance with ASC 820, all of the Plan’s investments are classified as Level 1 recurring items since their valuation is based upon quoted market prices in active markets for identical assets. At December 31, 2010 and 2009 the Plan held investments in the Company’s common stock amounting to $4,439,261 and $5,985,187, respectively. This investment represented 7% and 10% of total investments at December 31, 2010 and 2009, respectively. A significant decline in the market value of the Company’s common stock would significantly affect the net assets available for benefits.

The Plan provides for investments in various investment securities, which are exposed to various risks such as interest rate, credit and overall market volatility risks. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such change could materially affect the amounts reported in the statements of net assets available for plan benefits.

The net gain or loss from investment activity includes realized and unrealized gains and losses from investment activity as well as earnings on investments. Unrealized gains and losses are calculated as the difference between the current value of securities as of the end of the plan year and either the current value at the end of the preceding year or the actual cost if such investments were purchased during the current year. Realized gains or losses on sales of investments are calculated as the difference between sales proceeds and the current value of investments at the beginning of the year or the actual cost if such investments were purchased during the year. Earnings on investments include interest and dividends received on the Company’s common stock and mutual fund shares.

Securities transactions are recorded on the trade date. Interest income is recorded on an accrual basis when it is earned. Dividend income is recorded on the ex-dividend date.

In September 2010, the FASB issued Accounting Standards Update No. 2010-25, Reporting Loans to Participants By Defined Contribution Pension Plans (“ASU No. 2010-25”). ASU No. 2010-25 requires that participant loans be classified as notes receivable from participants, which are segregated from plan investments and measured at their unpaid principal balance plus any accrued but unpaid interest. This guidance is effective for fiscal years ending after December 15, 2010 and should be applied retrospectively to all prior periods presented. The adoption of this update did not have a material impact on the Plan’s financial statements, as the Plan does not currently allow loans to participants.

The following table represents investments at December 31, 2010 and 2009.

Cash

 

 

United Community Banks, Inc. common stock (2,276,544 and 1,765,542 shares at December 31, 2010 and 2009, respectively)

 

 

Mutual funds:

Federated Govt Obligations Fund

Alger Smallcap Growth Institutional Fund

American Independence Stock Fund

NestEgg 2050 Fund

NestEgg 2040 Fund

NestEgg 2030 Fund

NestEgg 2020 Fund

NestEgg 2010 Fund

American Independence International Equity Fund

Goldman Sachs Mid Cap Value

Morgan Stanley Mid Cap Growth Fund

Northern Small Cap Value Fund

T. Rowe Price Growth Stk Fund

Vanguard 500 Index Fund

PIMCO Total Return Bond Fund

 

Total mutual funds

 

During 2010, the Plan’s investments (including investments bought, sold, and held during the year) appreciated in value as detailed below:

Net change in investments at fair value as determined by quoted market price:

Mutual funds

United Community Banks, Inc. common stock

 

Net change in fair value

 

Single investments representing more than 5% of the Plan’s net assets as of December 31, 2010 and/or 2009, are separately identified.

United Community Banks, Inc. common stock

NestEgg 2040 Fund

NestEgg 2030 Fund

NestEgg 2020 Fund

NestEgg 2010 Fund

Federated Govt Oblig Fund

PIMCO Total Return Bond Fund

T Rowe Price Growth Stk Fund

Morgan Stanley Mid Cap Growth Fund

Investment did not represent 5% or more of Plan’s net assets at respective year end.

The Plan obtained its latest determination letter on October 4, 2002, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code (“IRC”). The Plan was amended effective September 15, 2009; however, the Plan sponsor and the Plan’s tax counsel believe the Plan is currently designed and being operated in compliance with the applicable requirements of the IRC. Therefore, no provision for income taxes has been included in the Plan’s financial statements.

During the course of the year, the Plan enters into certain party-in-interest transactions with the Company and INTRUST Bank, N.A. (the “Trustee”). The Company, as the Plan sponsor, may declare cash dividends on its common stock on a quarterly basis throughout the year. In 2010, the Plan did not receive cash dividends on its investment in the Company’s stock. Additionally, the Company may provide a discretionary contribution to the Plan’s participants, which is based on the diluted earnings per share of the Company. No discretionary contribution was made for the 2010 or 2009 plan year, and therefore there was no contribution receivable as of December 31, 2010 or 2009.

The Plan regularly purchases shares of the Company’s common stock directly from the Company based on the average of the high and low price for the Company’s common stock as reported by Nasdaq on the date of transaction. During 2010 and 2009, the Plan purchased 449,167 and 255,727 shares, respectively, directly from the Company.

The Trustee functions as the trustee, custodian and record keeper for the Plan. The cost for these services totaled $274,046 for 2010 and is presented on the statement of changes in net assets available for plan benefits as administrative expenses. The fees for 2010 for trustee and custodial services amounted to $226,941 and for record keeping amounted to $47,105.

 

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Consent of Independent Registered Public Accounting Firm