UNITED COMMUNITY BANKS, INC.
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
     
þ   ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
or
     
o   TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 000-21656
A. Full title of the Plan and address of the Plan, if different
from that of the issuer named below:
United Community Banks, Inc.
Profit Sharing Plan
B. Name of the issuer of the securities held pursuant to the plan and
the address of the principal executive office:
United Community Banks, Inc.
63 Highways 515, PO Box 398
Blairsville, GA 30512
 
 

 


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UNITED COMMUNITY BANKS, INC.
PROFIT SHARING PLAN
Financial Statements and Supplemental Schedule
December 31, 2006 and 2005
(with Report of Independent Registered Public Accounting Firm)

 


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Report of Independent Registered Public Accounting Firm
Statements of Net Assets Available for Plan Benefits
December 31, 2006 and 2005
Statement of Changes in Net Assets Available for Plan Benefits
For the Year Ended December 31, 2006
Notes to Financial Statements
SIGNATURE
EXHIBIT INDEX
EX-23 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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(PKM LOGO)
Porter Keadle Moore, LLP
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Benefits Administration Committee Members
United Community Banks, Inc. Profit Sharing Plan
Blairsville, Georgia
We have audited the accompanying statements of net assets available for plan benefits of United Community Banks, Inc. Profit Sharing Plan as of December 31, 2006 and 2005, and the related statement of changes in net assets available for plan benefits for the year ended December 31, 2006 and the supplemental schedule as of December 31, 2006. These financial statements and supplemental schedule are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for plan benefits of United Community Banks, Inc. Profit Sharing Plan as of December 31, 2006 and 2005, and the changes in net assets available for plan benefits for the year ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.
Our audit of the Plan’s financial statements as of and for the year ended December 31, 2006, was performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental Schedule of Assets Held for Investment Purposes is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan’s management and has been subjected to the auditing procedures applied in our audit of the basic financial statements for the year ended December 31, 2006, and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
/s/ Porter Keadle Moore, LLP
Atlanta, Georgia
June 27, 2007
Certified Public Accountants
 
Suite 1800 Ÿ 235 Peachtree Street NE Ÿ Atlanta, Georgia 30303 Ÿ Phone 404-588-4200 Ÿ Fax 404-588-4222 Ÿ www.pkm.com

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UNITED COMMUNITY BANKS, INC. PROFIT SHARING PLAN
Statements of Net Assets Available for Plan Benefits
December 31, 2006 and 2005
                 
    2006     2005  
 
Assets:
               
Cash
  $ 732,123       260,178  
Investments at fair value:
               
Common stock of United Community Banks, Inc.
    42,412,566       23,450,643  
Shares of registered investment company mutual funds
    43,520,475       35,489,158  
 
           
 
Total investments
    85,933,041       58,939,801  
 
           
 
               
Receivables:
               
Employers contributions
    2,075,236       1,444,128  
Accrued dividends
    94,820       68,383  
Due from brokers
    199,003        
 
           
 
Total receivables
    2,369,059       1,512,511  
 
           
 
Total assets
    89,034,223       60,712,490  
 
           
 
               
Liabilities:
               
Amounts due to brokers
    283,456       3,831  
Benefit claims payable
          20,000  
 
           
 
Total liabilities
    283,456       23,831  
 
           
 
               
Net assets available for plan benefits
  $ 88,750,767       60,688,659  
 
           
See accompanying notes to financial statements.

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UNITED COMMUNITY BANKS, INC. PROFIT SHARING PLAN
Statement of Changes in Net Assets Available for Plan Benefits
For the Year Ended December 31, 2006
         
Additions to net assets attributable to:
       
Investment income:
       
Interest and dividends
  $ 1,131,146  
Net appreciation in fair value of investments
    7,504,147  
 
     
 
Total investment income
    8,635,293  
 
     
Contributions:
       
Employer match
    2,558,621  
Employer discretionary
    2,154,956  
Employee deferrals
    4,612,903  
Employee rollovers
    1,188,327  
Employee rollovers — Southern National
    12,715,172  
 
     
Total contributions
    23,229,979  
 
     
 
Total additions
    31,865,272  
 
     
 
Deductions from net assets attributable to:
       
Distributions paid to participants
    3,510,461  
Administrative expenses
    292,703  
 
     
 
Total deductions
    3,803,164  
 
     
 
Increase in net assets available for plan benefits
    28,062,108  
Net assets available for plan benefits:
       
Beginning of year
    60,688,659  
 
     
 
End of year
  $ 88,750,767  
 
     
See accompanying notes to financial statements

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UNITED COMMUNITY BANKS, INC. PROFIT SHARING PLAN
Notes to Financial Statements
(1)   Description of the Plan
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.
     General
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”).
     Contributions
Employees of the Company participating in the Plan are entitled to make pre-tax contributions to the Plan in amounts from 2% to 75% of their annual compensation. The Company’s matching contribution is up to 5% of a participant’s annual compensation 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.
     Vesting
Participants are immediately vested in their contributions to the Plan. Participants vest in the Company’s contributions according to the following schedule:
         
Years of Service   Percentage
Less Than   1
    0 %
   2
    33 %
   3
    66 %
More Than 3
    100 %
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.
     Payment of Benefits
Upon retirement, a participant is entitled to receive 100% of his 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.
     Administrative Expenses
The Plan pays substantially all administrative expenses.
     Forfeited Accounts
At December 31, 2006 and 2005, forfeited non vested accounts approximated $24,000 and $18,000, respectively. These amounts will be used to reduce future administrative expenses.

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UNITED COMMUNITY BANKS, INC. PROFIT SHARING PLAN
Notes to Financial Statements, continued
(1)   Description of the Plan, continued
 
    Plan Termination
 
    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.
 
(2)   Summary of Significant Accounting Policies
 
    Basis of Accounting
 
    The accompanying financial statements have been prepared on the accrual basis of accounting and present the net assets available for 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.
 
    Investment Valuation
 
    The Plan’s investments are stated at fair value. The Company’s stock trades on the Nasdaq stock market, and the value of the Company’s stock is based on a quoted market price. Investments in mutual funds are valued at fair value based on quoted market prices of the underlying fund securities. The Plan holds investments at December 31, 2006 and 2005 in the Plan sponsor common stock amounting to $42,412,566 and $23,450,643, respectively. This investment represents 49% and 40% of total investments at December 31, 2006 and 2005, respectively. A significant decline in the market value of the Plan Sponsor’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. Dividend income is recorded on the ex-dividend date.

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UNITED COMMUNITY BANKS, INC. PROFIT SHARING PLAN
Notes to Financial Statements, continued
(3)   Investments
 
    The following table represents investments at December 31, 2006 and 2005.
                 
    2006     2005  
 
               
Cash
  $ 732,123     $ 260,178  
 
           
 
               
United Community Banks, Inc. common stock (1,312,270 and 879,478 shares at December 31, 2006 and 2005, respectively)
  $ 42,412,566     $ 23,450,643  
 
           
 
               
Mutual funds:
               
AI Money Market Fund
  $     $ 1,937,520  
American Beacon Select Money Market
    1,984,709        
Amcent Equity Income Fund
          795,174  
NestEgg Dow Jones U.S. 2040 Fund
    6,258,532       5,241,349  
NestEgg Dow Jones U.S. 2030 Fund
    5,819,391       4,889,710  
NestEgg Dow Jones U.S. 2020 Fund
    10,584,538       9,081,102  
NestEgg Dow Jones U.S. 2010 Fund
    2,393,498       3,299,451  
NestEgg Dow Jones U.S. 2015 Fund
    3,890,881        
NestEgg Capital Preservation Fund
          1,888,738  
American Independence International Equity
    1,424,381       762,401  
Federated Max-Cap Fund
    1,466,060       1,108,714  
Franklin Strategic Small MIDCAP Growth Fund
    1,274,089       1,028,932  
Vanguard Windsor II Fund
    1,782,859       1,225,350  
Vanguard Explorer
    1,002,345       706,412  
Royce Low Priced Stock Fund
    1,089,045       718,678  
American Century Ultra
          909,070  
Goldman Sachs Mid Cap Value Fund
    1,234,081        
T Rowe Price Growth Fund
    1,161,962        
PIMCO Total Return Bond Fund
    2,154,104       1,896,557  
 
           
Total mutual funds
  $ 43,520,475     $ 35,489,158  
 
           
    During 2006, the Plan’s investments (including investments bought, sold, and held during the year) appreciated in value by $7,504,147 as detailed below:
         
    Year Ended  
    December 31, 2006  
Net change in investments at fair value as determined by quoted market price:
       
Mutual funds
  $ 2,936,311  
United Community Banks, Inc. common stock
    4,567,836  
 
     
 
       
Net change in fair value
  $ 7,504,147  
 
     

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UNITED COMMUNITY BANKS, INC. PROFIT SHARING PLAN
Notes to Financial Statements, continued
(3)   Investments, continued
 
    Single investments representing more than 5% of the Plan’s net assets as of December 31, 2006 and/or 2005, are separately identified.
                 
    December 31
    2006   2005
 
               
United Community Banks, Inc. common stock
  $ 42,412,566     $ 23,450,643  
NestEgg Dow Jones U.S. 2040 Fund
    6,258,532       5,241,349  
NestEgg Dow Jones U.S. 2030 Fund
    5,819,391       4,889,710  
NestEgg Dow Jones U.S. 2020 Fund
    10,584,538       9,081,102  
NestEgg Dow Jones U.S. 2010 Fund
    2,393,489       3,299,451  
(4)   Tax Status
 
    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 December 1, 2006; 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.
 
(5)   Party-In-Interest Transactions
 
    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, declares cash dividends on its common stock on a quarterly basis throughout the year. In 2006, the Plan received cash dividends of approximately $280,697 on its investment in the Company’s stock. Additionally, the Company provides a discretionary contribution to the Plan’s participants, which is based on the diluted earnings per share of the Company. The contribution receivable was $2,075,236 and $1,444,128 as of December 31, 2006, and 2005, respectively.
 
    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 United Community Banks, Inc. common stock as reported by Nasdaq on the date of transaction. During 2006 and 2005, the plan purchased 111,485 and 24,857 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 $292,703 for 2006 and is presented on the statement of changes in net assets available for plan benefits as administrative expenses. The fees for 2006 for trustee and custodial services amounted to $250,583 and for record keeping amounted to $42,120.
 
(6)   Merger of Southern Bancorp, Inc., Plan
 
    On December 1, 2006 the Company acquired Southern Bancorp, Inc. and its wholly owned banking subsidiary, Southern National Bank. Southern Bancorp, Inc. Employee Stock Ownership Plan was merged into the Company’s plan and all participant account balances were transferred accordingly.
 
(7)   Subsequent Event
 
    On June 1, 2007, the Company acquired Gwinnett Commercial Group, Inc. and its wholly owned subsidiary, First Bank of the South. Gwinnett Commercial Group, Inc.’s defined contribution plan was terminated and its participants were allowed to rollover their account balances into the Plan.

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UNITED COMMUNITY BANKS, INC. PROFIT SHARING PLAN
Schedule of Assets Held for Investment Purposes
December 31, 2006
Employer Identification Number: 58-0554454
Plan Number: 001
                     
    Identity of issuer            
    or similar party           Fair
(a)   (b)   Description of assets (c)   Cost (d)   Value (e)
 
                   
*
  United Community Banks, Inc.   Common stock — 1,312,270 shares   N/A   $ 42,412,566  
 
  American Beacon   Select Funds Money Market — 1,984,709   N/A     1,984,709  
*
  INTRUST Bank, N.A.   NestEgg Dow Jones U.S. 2040 Fund — 589,871 shares   N/A     6,258,532  
*
  INTRUST Bank, N.A.   NestEgg Dow Jones U.S. 2030 Fund — 563,349 shares   N/A     5,819,391  
*
  INTRUST Bank, N.A.   NestEgg Dow Jones U.S. 2020 Fund — 980,050 shares   N/A     10,584,538  
*
  INTRUST Bank, N.A.   NestEgg Dow Jones U.S. 2010 Fund — 237,450 shares   N/A     2,393,498  
*
  INTRUST Bank, N.A.   NestEgg Dow Jones U.S 2015 Fund — 380,712 shares   N/A     3,890,881  
*
  INTRUST Bank, N.A.   America Independence International Equity — 100,734 shares   N/A     1,424,381  
 
  Vanguard Funds   Vanguard Explorer — 13,416 shares   N/A     1,002,345  
 
  Vanguard Funds   Vanguard Windsor II — 51,305 shares   N/A     1,782,859  
 
  Federated Funds   Federated Max-Cap Fund — 56,236 shares   N/A     1,466,060  
 
  Franklin Funds   Franklin Strategic Small MIDCAP Growth Fund — 33,733 shares   N/A     1,274,089  
 
  Royce Funds   Royce Low Priced Stock Fund — 64,709 shares   N/A     1,089,045  
 
  PIMCO Funds   PIMCO Total Return Bond Fund — 207,524 shares   N/A     2,154,104  
 
  Goldman Sachs   Goldman Sachs Mid Cap Value Fund — 31,716 shares   N/A     1,234,081  
 
  T Rowe Price   T Rowe Price Growth Stock Fund — 36,736 shares   N/A     1,161,962  
 
*   Party-in-interest
N/A — Due to Plan being fully participant directed, such values are not required.

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SIGNATURE
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
United Community Banks, Inc.
Profit Sharing Plan
         
     
By:   /s/ John Goff      
  Title:  Vice President and Trust Officer
 INTRUST BANK, N.A. 
   
Date: June 29, 2007

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EXHIBIT INDEX
         
Exhibit No.     Description
       
 
  23    
Consent of Independent Registered Public Accountants

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