File No. 333-114443

As filed with the Securities and Exchange Commission on April 23, 2004

SECURITIES AND EXCHANGE COMMISSION

FORM S-4

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

UNITED COMMUNITY BANKS, INC.

     Approximate date of commencement of proposed sale to the public: The exchange of Registrant’s shares for shares of common stock of Fairbanco Holding Company, Inc. will take place upon consummation of the merger of Fairbanco Holding Company, Inc. into the Registrant.

     If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. o

     If this form is filed to register additional securities of an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o    

     If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o    

CALCULATION OF REGISTRATION FEE

     The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Commission acting pursuant to said Section 8(a) may determine.

Proxy Statement/Prospectus

		PROPOSED MERGER OF
		AND

     This proxy statement/prospectus is a proxy statement of Fairbanco Holding Company, Inc. and a prospectus of United Community Banks, Inc. It is furnished to shareholders of Fairbanco, in connection with the notice of special meeting of shareholders on May 27, 2004 that it accompanies. At the special meeting of Fairbanco shareholders, those shareholders will be asked to vote on the merger transaction summarized in that notice and described in more detail herein.

     As of April 21, 2004, the record date for the Fairbanco shareholders meeting, there were 746,008.434 shares of common stock outstanding and entitled to vote at that meeting. Approval of the merger requires the affirmative vote of holders of a majority of those shares. Details about the proposed merger is set forth in this proxy statement/prospectus.

     In connection with the merger, if approved and consummated, shares of common stock of United will be issued to shareholders of Fairbanco as part of the consideration for their shares of common stock of Fairbanco. This document is a prospectus of United with respect to such offering and issuance of United common stock. Up to an aggregate of 914,680 shares of United common stock may be issued to Fairbanco shareholders if the merger is approved and consummated, based on the exchange ratio summarized in the notice and discussed herein.

     On April 28, 2004, United will complete a three-for-two split of its common stock in the form of a stock dividend. All per share figures in this proxy statement/prospectus reflect the effect of the stock split.

     Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or passed upon the adequacy or accuracy of this proxy statement/prospectus. Any representation to the contrary is a criminal offense. Shares of common stock of United are equity securities and are not savings accounts or deposits. An investment in shares of United common stock is not insured by the Federal Deposit Insurance Corporation or any other government agency.

     The accompanying proxy statement/prospectus contains information regarding the proposed merger and the two companies participating in the merger, and the Agreement and Plan of Reorganization pursuant to which the merger would be consummated if approved. We encourage you to read the entire document carefully. The proxy statement/prospectus also incorporates important business and financial information that is not included in or delivered with it. This business and financial information is available without charge to all Fairbanco shareholders upon written or oral request made to: Nina H. Ray, Secretary, Fairbanco Holding Company, Inc., 65 Washington Street, Fairburn, Georgia 30213, telephone number (770) 964-1551. To obtain delivery of such business and financial information before the special meeting, your request must be received no later than May 22, 2004.

     The date of this proxy statement/ prospectus is April 27, 2004, and it is expected to be first mailed to shareholders on or about April 27, 2004.

		65 Washington Street Fairburn, Georgia 30213
		Notice Of Special Meeting Of Shareholders To Be Held On May 27, 2004

     A special meeting of shareholders of Fairbanco Holding Company, Inc. will be held on May 27, 2004, at 11:00 a.m., at the Green Manor Restaurant, 6400 Westbrook Street, Union City, Georgia, for the following purposes:

     If Fairbanco shareholders approve the merger, Fairbanco will be merged with and into United. In connection with the merger, Fairbanco shareholders will receive in exchange for their shares of Fairbanco common stock:

     Approval of the merger will require the approval of the holders of at least a majority of the Fairbanco common stock entitled to vote at the special meeting. Only shareholders of record of Fairbanco common stock at the close of business on April 21, 2004 will be entitled to vote at the special meeting or any adjournments thereof. Fairbanco’s board of directors has unanimously adopted a resolution approving the merger and the merger agreement, and unanimously recommends that Fairbanco shareholders vote for the proposal to approve the merger.

     On April 28, 2004, United will complete a three-for-two split of its common stock in the form of a stock dividend. All per share figures in this proxy statement/prospectus reflect the effect of the stock split.

     If the merger is completed, Fairbanco shareholders who dissent with respect to the merger will be entitled to be paid the “fair value” of their shares of Fairbanco common stock in cash if they comply with certain statutory provisions of Article 13 of the Georgia Business Corporation Code regarding the rights of dissenting shareholders, all as more fully explained under the heading “Details of the Proposed Merger–Rights of Dissenting Shareholders” (page 21) and in Appendix C to the attached proxy statement/prospectus.

     The accompanying proxy statement/prospectus incorporates important business and financial information that is not included in or delivered with this document. This business and financial information is available without charge to all Fairbanco shareholders upon written or oral request made to: Nina H. Ray, Secretary, Fairbanco Holding Company, Inc., 65 Washington Street, Fairburn, Georgia 30213. To obtain delivery of such business and financial information before the special meeting, your request must be received no later than May 22, 2004.

     A form of proxy for use by Fairbanco shareholders is enclosed. To ensure representation at the special meeting, each Fairbanco shareholder is requested to sign, date, and return the proxy card promptly in the enclosed, stamped envelope. A previously submitted proxy may be revoked by notifying Nina H. Ray, Secretary of Fairbanco,

in writing at the address below, or by submitting an executed, later-dated proxy prior to the special meeting to Fairbanco Holding Company, Inc., 65 Washington Street, Fairburn, Georgia 30213. A previously submitted proxy also may be revoked by attending the special meeting and requesting the right to vote in person. A properly signed and returned proxy card, if not revoked, will be voted at the special meeting in the manner specified by the duly submitted proxy.

TABLE OF CONTENTS

Appendix A — Agreement and Plan of Reorganization
Appendix B — Amendment to Agreement and Plan of Reorganization
Appendix C — Georgia Dissenters’ Rights Statute
Appendix D — Fairness Opinion

QUESTIONS AND ANSWERS ABOUT THE MERGER

Q: What am I being asked to approve?

A: You are being asked to approve the Agreement and Plan of Reorganization by and between Fairbanco and United, pursuant to which Fairbanco will be merged with and into United. Approval of the merger requires the affirmative vote of more than 50% of the outstanding shares of Fairbanco common stock. The Fairbanco board of directors has unanimously approved and adopted the Agreement and Plan of Reorganization and recommends voting FOR approval of this merger agreement.

Q: What will I receive in the merger?

A: You will receive (a) 1.2261 shares of United common stock and (b) $3.56 in cash, without interest, for each share of Fairbanco common stock you own on the effective date of the merger. United will not issue fractional shares in the merger. Instead, you will receive a cash payment, without interest, for the value of any fraction of a share of United common stock that you would otherwise be entitled to receive based on $22.77 a share of United common stock. For example: If you own 100 shares of Fairbanco common stock, you will be entitled to receive 1.2261 shares of United, rounded down to the nearest whole share, and $3.56 in cash for each of your Fairbanco shares, or 122 shares of United common stock and a cash payment of $356.00. In addition, you will be entitled to $13.89 in cash for your .61 fractional share of United (.61 x $22.77) for a total cash payment of $369.89.

Q: What should I do now?

A: Indicate on the enclosed proxy card how you want to vote with respect to the proposed merger, and sign and mail the proxy card in the enclosed envelope as soon as possible so that your shares will be represented at the meeting. If you sign and send in a proxy card but do not indicate how you want to vote, your proxy will be voted in favor of the proposal to approve and adopt the merger. A special shareholders meeting will take place at 11:00 a.m. on May 27, 2004 at the Green Manor Restaurant, 6400 Westbrook Street, Union City, Georgia, to vote on the merger proposal.

     You may attend the special meeting and elect to vote your shares in person, rather than voting by proxy. In addition, you may withdraw your proxy up to and including the day of the special meeting by notifying Nina H. Ray, Secretary, prior to the meeting, in writing, or by submitting an executed, later-dated proxy to: Nina H. Ray, Secretary, Fairbanco Holding Company, Inc., 65 Washington Street, Fairburn, Georgia 30213.

Q: What information should I consider?

A: We encourage you to read this entire document carefully. You should also review the factors considered by each company’s board of directors discussed in “Details of the Proposed Merger–Background of and Reasons for the Merger” beginning on page 12.

Q: When is the merger expected to be completed?

A: We plan to complete the merger during the second quarter of 2004.

Q: What are the tax consequences of the merger to me?

A: We expect that the exchange of shares of Fairbanco common stock for United common stock by Fairbanco shareholders generally will be tax-free to Fairbanco shareholders for federal income tax purposes. However, Fairbanco shareholders will have to pay taxes at either capital gains or ordinary income rates, depending upon individual circumstances, on cash received in exchange for their shares of Fairbanco common stock, or cash received in lieu of fractional shares. To review the tax consequences to Fairbanco shareholders in greater detail, see “Details of the Proposed Merger–Material Federal Income Tax Consequences of the Merger and Opinion of Tax Counsel” beginning on page 23.

Your tax consequences will depend on your personal situation. You should consult your tax adviser for a full understanding of the tax consequences of the merger to you.

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Q: If my shares are held in “street name” by my broker, will my broker vote my shares for me?

A: Your broker will vote your shares of common stock only if you provide instructions on how to do so. Following the directions your broker provides, you should instruct your broker how to vote your shares. If you do not provide instructions to your broker, your shares will not be voted, which will have the effect of a vote against the merger.

Q: Should I send in my stock certificates now?

A: No. After the merger is completed, you will receive written instructions from United for exchanging your Fairbanco common stock certificates for United common stock certificates and cash.

Q: Who should I call with questions?

A: You should call Nina H. Ray, Secretary, of Fairbanco, at (770) 964-1551.

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SUMMARY

          This summary highlights selected information from this proxy statement/prospectus regarding the proposed merger. This summary may not contain all of the information that is important to you as you consider the proposed merger and related matters. For a more complete description of the terms of the proposed merger, you should carefully read the entire proxy statement/prospectus, and the related documents to which it refers. The Agreement and Plan of Reorganization and the Amendment to the Agreement and Plan of Reorganization, which are the legal documents that govern the proposed merger, are included as Appendix A and Appendix B, respectively.

          In addition, the sections entitled “Where You Can Find More Information,” on page 52, and “Incorporation of Certain Documents By Reference,” on page 53, contain references to additional sources of information about United and Fairbanco.

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COMPARATIVE SHARE DATA FOR
UNITED AND FAIRBANCO

     We have summarized below the per share reported results information for United and Fairbanco on a historical, pro forma combined and equivalent basis. You should read this information in conjunction with the historical financial statements (and related notes) of United in the annual and quarterly reports and other documents it has filed with the Securities and Exchange Commission, certain of which are incorporated by reference, and the historical financial statements (and related notes) of Fairbanco contained in this proxy statement/prospectus.

     The pro forma combined information gives effect to the merger accounted for as a purchase, assuming all transactions contemplated in this proxy statement/prospectus had been effective for the periods indicated. Pro forma equivalent of one Fairbanco common share amounts are calculated by multiplying the pro forma combined basic and diluted earnings per share, United historical per share dividend and the pro forma combined book value by the exchange ratio of 1.2261 shares of United common stock so that the per share amounts equate to the respective values for one share of Fairbanco’s common stock. The pro forma information shown below gives no effect to the cash payment of $3.56 per share that Fairbanco shareholders will receive as part of the transaction. You should not rely on the pro forma information as being indicative of the historical results that we would have had if we had been combined or of the future results that we will experience after the merger. United and Fairbanco’s year-end is December 31^st.

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SUMMARY CONSOLIDATED FINANCIAL INFORMATION

     We are providing the following information to help you analyze the financial aspects of the merger. We derived this information from United’s and Fairbanco’s audited financial statements for 1999 through 2003. This information is only a summary, and you should read it in conjunction with the historical financial statements (and related notes) of United in the annual and quarterly reports and other documents that it has filed with the Securities and Exchange Commission, certain of which are incorporated by reference, and the historical financial statements (and related notes) of Fairbanco contained in this proxy statement/prospectus.

SUMMARY CONSOLIDATED FINANCIAL INFORMATION OF UNITED
(In thousands, except per share amounts)

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SUMMARY CONSOLIDATED FINANCIAL INFORMATION OF FAIRBANCO
(In thousands, except per share amounts)

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DETAILS OF THE PROPOSED MERGER

Background of and Reasons for the Merger

          In the second quarter of 2003, a potential buyer contacted Fairbanco’s management, asking to be considered should the company decide to evaluate its continued independence. Based on this expression of interest, management engaged Alex Sheshunoff & Co. Investment Banking, L.P. as a consultant to assist with the evaluation of the company’s strategic alternatives and to conduct a process to determine if an attractive offer could be received and acceptable merger terms negotiated with a potential partner. In November 2003, five potential merger partners were contacted, and information about Fairbanco was sent to the three which expressed an interest. All parties were informed that letters of intent must be received by December 16, 2003. On this date, Fairbanco received two letters of intent. The letter of intent from United offered the best price for the shareholders. Based on this letter of intent, negotiations were instituted with United, and on March 11, 2004, the parties reached a final agreement.

          Without assigning any relative or specific weights, the board of directors of Fairbanco considered the following material factors in approving the merger:

          The board of directors of Fairbanco believes the merger is in the best interest of its shareholders because the merger will permit them to exchange their ownership in Fairbanco for cash and an equity interest in United, which has greater financial resources than Fairbanco. The board of directors of Fairbanco also believes that the terms of the merger, including the basis of exchange, $3.56 in cash and 1.2261 shares of United common stock for each share of Fairbanco common stock, which was determined through arms-length negotiations between United and Fairbanco, are fair and equitable and take into account the relative earning power of United and Fairbanco, historic and anticipated operations, the economies of scale to be achieved through the merger, the trading prices of the shares of the respective companies, and other pertinent factors.

          The board of directors of Fairbanco believes that in the current regulatory and competitive environment, larger organizations with greater economies of scale, including the ability to spread largely fixed costs over a larger revenue base and the ability to attract management talent able to compete in a

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more sophisticated financial services environment, will be more successful than smaller organizations. Management of United and Fairbanco believe that there is a future for community banks in the banking industry, but that community banks will be required to achieve a critical size to maintain above-average economic performance.

The Merger Agreement

          The material features of the merger agreement are summarized below:

     Effective Date

          The merger agreement provides that the merger will be effective on the date the Certificate of Merger reflecting the proposed merger becomes effective with the Secretary of State of the State of Georgia. The merger also is subject to approval by the Board of Governors of the Federal Reserve System and the Department of Banking and Finance of the State of Georgia. Management of United and Fairbanco anticipate that the merger will become effective during the second quarter of 2004.

     Terms of the Merger

          As a holder of shares of Fairbanco common stock, you will receive in exchange for your shares of Fairbanco common stock owned on the effective date of the merger:

          United will not issue fractional shares of United common stock in connection with the merger. In lieu of issuing any fractional share of United common stock to which a Fairbanco shareholder would otherwise be entitled, United will pay in cash an amount (computed to the nearest cent) equal to that fraction multiplied by $22.77 per share.

          United shareholders will continue to hold their existing shares of United common stock. If, prior to the merger closing, the outstanding shares of United common stock or Fairbanco common stock are increased through a stock dividend, stock split, subdivision, recapitalization, or reclassification of shares, or are combined into a lesser number of shares by reclassification, reverse stock split, recapitalization, reduction of capital or other transaction, the number of shares of United common stock and cash to be delivered pursuant to the merger in exchange for a share of Fairbanco common stock will be proportionately adjusted. The initial exchange ratio has already been adjusted to account for the three for two stock split of United effective April 28, 2004.

          If the merger is completed, Fairbanco will be merged with and into United. Following the merger, the articles of incorporation, bylaws, corporate identity, and existence of United will not be changed, and Fairbanco will cease to exist as a separate entity. Immediately after the merger, Fairbanco’s subsidiary 1st Community Bank will be merged with and into United Community Bank with United Community Bank as the surviving entity.

     Registration of United Common Stock

          As a condition to the merger, United agreed to register with the Securities and Exchange Commission the shares of United common stock to be exchanged for shares of Fairbanco common stock and to maintain the effectiveness of such registration through the issuance of such shares in connection with the closing of the merger. However, such registration will not cover resales of United common stock by any former holders of Fairbanco common stock and United is under no obligation to maintain the

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effectiveness of such registration, or to prepare and file any post-effective amendments to such registration, after the issuance of such shares in connection with the closing of the merger.

     Termination and Conditions of Closing

          The merger agreement may be terminated and the merger abandoned at any time either before or after approval of the merger agreement by the shareholders of Fairbanco, but not later than the effective date of the merger:

          Fairbanco must pay to United a termination fee of $900,000, if:

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          The following are some of the required conditions of closing:

     Surrender of Certificates

          After the effective date of the merger, each holder of Fairbanco common stock (as of that date) will be required to deliver the certificates representing such holder’s shares of Fairbanco common stock to United’s exchange agent, SunTrust Bank, in order to receive payment of the consideration from United in connection with the merger. After delivering his, her, or its shares of Fairbanco common stock, the holder will receive a stock certificate for 1.2261 shares of United common stock and a cash payment of $3.56, without interest, per share of Fairbanco common stock that such holder owned on the effective date of the merger. In lieu of a fractional share, a cash payment, without interest, will be paid for any fractional interest in United common stock.

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          Until a holder delivers his or her shares of Fairbanco common stock to United, he or she will not receive payment of any dividends or other distributions on shares of United common stock into which his, her, or its shares of Fairbanco common stock have been converted, if any, and will not receive any notices sent by United to its shareholders with respect to, or to vote, those shares. After delivering the shares to United, the holder will then be entitled to receive any dividends or other distributions, without interest, which shall become payable after the merger but prior to the holder’s delivery of the certificates to United.

Required Shareholder Approval

          The holders of a majority of the outstanding shares of Fairbanco common stock entitled to vote at the special meeting must approve the merger agreement for the merger to be completed. Abstentions from voting and broker non-votes will be included in determining whether a quorum is present and will have the effect of a vote against the merger agreement.

          As of April 21, 2004, the record date for determining the shareholders entitled to notice of and to vote at the special meeting, the outstanding voting securities of Fairbanco consisted of 746,008.434 shares of Fairbanco common stock, with each registered holder of Fairbanco common stock being entitled to one vote per share. All of the directors and executive officers of Fairbanco and Fairbanco’s largest shareholder besides its employee stock ownership plan have entered into agreements with United to vote their shares of Fairbanco common stock in favor of the merger. There are 261,011.87 shares of Fairbanco common stock beneficially owned (excluding options) by Fairbanco’s directors, executive officers and such shareholder, which is approximately 34.99% of the outstanding shares of Fairbanco common stock.

Expenses

          All expenses incurred by United in connection with the merger, including all fees and expenses of its agents, representatives, counsel and accountants and the fees and expenses related to filing this proxy statement/prospectus and all regulatory applications with state and federal authorities shall be paid by United. All expenses incurred by Fairbanco in connection with the merger agreement, including all fees and expenses of its agents, representatives, counsel and accountants for Fairbanco shall be paid by Fairbanco. The cost of reproducing and mailing this proxy statement/prospectus shall be shared by the parties, with each party paying fifty percent (50%).

Conduct of Business of Fairbanco Pending Closing

          The merger agreement provides that, pending consummation of the merger, Fairbanco will, except with the written consent of United:

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In addition, the merger agreement provides that Fairbanco will promptly advise United, orally and in writing, of any change or event having, or which the Fairbanco management believes could have, a material adverse effect on the assets, liabilities, business, operations or financial condition of Fairbanco.

Interest of Management in the Merger

          Except as set forth below, no director or officer of Fairbanco, or any of their associates, has any direct or indirect material interest in the merger, except that those persons may own shares of Fairbanco common stock which will be converted in the merger into United common stock and cash. United and Fairbanco do not anticipate that the merger will result in any material change in compensation to employees of Fairbanco other than as set forth below.

          In connection with the merger, United has agreed to provide generally to officers and employees of Fairbanco who continue employment with United or its subsidiaries employee benefits under employee benefit plans, on terms and conditions substantially similar to those currently provided to similarly situated United officers and employees.

          Also in connection with the merger, United has required that it purchase all of the outstanding options to purchase Fairbanco stock held by its officers and directors for cash of $21.27 per share, which is equal to the price per share to be received by the Fairbanco shareholders minus the exercise price for the outstanding options.

          As a condition to closing the merger, the following officers of Fairbanco will terminate their employment agreements with Fairbanco for a payment of approximately three times their current base salary: Robert W. Fuller, Jr., President, Chairman and Chief Executive Officer; Nina H. Ray, Executive Vice President and Chief Financial Officer; Howard V. Turner, Jr., Executive Vice President and Senior Lending Officer; and Douglas F. Fields, Senior Vice President.

          As a condition to closing the merger, the directors will terminate their director agreements, which provide for retirement benefits, for a payment equal to the accrued liability to each director under the agreements as reflected on the financial statements of Fairbanco at closing.

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          United will continue to pay directors fees of $12,000 per year to the directors of Fairbanco who will be asked to serve as advisory board members for 1^st Community Bank, which will be operated as a separate community bank of United after the merger.

          There are 141,511.87 shares, or 18.97%, of Fairbanco common stock beneficially owed (excluding options) by its directors and executive officers, all of which are entitled to vote on this merger. All of the directors and executive officers of Fairbanco have agreed to vote their shares in favor of the merger.

Comparison of the Rights of Fairbanco and United Shareholders

          Following the merger you will no longer be a Fairbanco shareholder and, if you receive shares of United following the merger, your rights as a shareholder will no longer be governed by Fairbanco’s articles of incorporation and bylaws. You will be a United shareholder and your rights as a United shareholder will be governed by United’s articles of incorporation and bylaws. Your former rights as a Fairbanco shareholder and your new rights as a United shareholder are different in certain ways, including the following:

     Composition of Board of Directors

          The bylaws of Fairbanco provide that its board of directors will consist of no fewer than eight and no more than 25 members. The bylaws of United provide that its board of directors will consist of at least seven members.

     Removal of Directors

          The bylaws of Fairbanco provide that directors may be removed with or without cause upon the affirmative vote of the holders of a majority of the issued and outstanding shares entitled to vote on the removal.

          The articles of incorporation of United provide that directors may be removed only for cause and only upon the affirmative vote of the holders of two-thirds of the issued and outstanding shares entitled to vote on the removal.

     Shareholders’ Meetings

          The bylaws of Fairbanco provide that a special meeting of shareholders may be called upon the written request of the holders of an aggregate not less than two-thirds of all shares entitled to vote at the meeting. The bylaws of United provide that a special meeting of shareholders may be called upon the written request of the holders of shares representing at least 25% of the votes that would be entitled to be cast on each issue proposed to be considered at the special meeting.

     Fair Price Statute

          Fairbanco has elected to incorporate into its bylaws the provisions of Part 2 of Article 11 of the Georgia Business Corporation Code, the “Fair Price” statute. As a result, Fairbanco is subject to certain requirements on “business combinations” (e.g., mergers, share exchanges, sales of assets, liquidations, issuances of securities) with any person who is an “interested shareholder” of Fairbanco (generally, the beneficial owner of 10% or more of its voting shares) unless:

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          United had not elected to be subject to these provisions of the Georgia Business Corporation Code.

     Ability to Consider Other Constituencies

          United’s articles of incorporation permit its board of directors, in determining what is believed to be in the best interest of United and its shareholders, to consider the interests of its employees, customers, suppliers and creditors, the communities in which its offices and establishments are located and all other factors that they consider pertinent, in addition to considering the effects of any actions on United and its shareholders. This provision permits United’s board of directors to consider numerous judgmental or subjective factors affecting a proposal, including some non-financial matters, and on the basis of these considerations may oppose a business combination or some other transaction which, viewed exclusively from a financial perspective, might be attractive to some, or even a majority, of its shareholders.

          Neither the articles of incorporation nor bylaws of Fairbanco allows the board of directors to consider other constituencies when determining what is in the best interests of shareholders in connection with an action affecting Fairbanco or its shareholders.

          Amendments to Articles of Incorporation and Bylaws

          The articles of incorporation of Fairbanco do not specify how they may be amended. The Georgia Business Corporation Code provides that a corporation’s articles of incorporation may be amended by the directors to make certain amendments related to deleting the name or address of the initial incorporators, the directors, the registered agent or office, or the principal office; effect certain stock split transactions; to extend the duration if the corporation was incorporated at a time when limited duration was required, or to change par value. All other amendments to the articles of incorporation require the approval of a majority of the shareholders. The bylaws of Fairbanco may be amended by the affirmative vote of a majority of the members of the board of directors or the holders of a majority of the shares issued and outstanding.

          The articles of incorporation of United provide that its articles of incorporation, or the bylaws of United, may be amended only by the affirmative vote of holders of two-thirds of the shares of United capital stock then issued and outstanding and entitled to vote.

Dividends

          United paid a cash dividend of $.060 per share on April 1, 2004 and paid aggregate cash dividends of $.200 per share in 2003 and $.166 per share in 2002. United intends to continue paying cash dividends but the amount and frequency of cash dividends, if any, will be determined by United’s board of directors after consideration of earnings, capital requirements, and the financial condition of United, and will depend on cash dividends paid to it by its subsidiary banks. The ability of its subsidiaries to pay dividends to United is restricted by certain regulatory requirements, as is more fully discussed in the “Business – Supervision & Regulation” section of United’s 10-K for the fiscal year ended December 31, 2003, which is incorporated by reference.

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          Fairbanco paid aggregate cash dividends of $.320 per share in 2003 and 2002. Fairbanco is prohibited under the merger agreement from paying cash dividends prior to the closing of the transaction without the prior written consent of United.

          Whether the Fairbanco shareholders approve the merger agreement, and regardless of whether the merger is completed, the future dividend policies of United and Fairbanco will depend upon each company’s respective earnings, financial condition, applicable legal restrictions, and other factors relevant at the time the respective boards of directors consider whether to declare dividends.

Accounting Treatment

          The merger will be accounted for as a purchase for financial reporting and accounting purposes. After the merger, the results of operations of Fairbanco will be included in the consolidated financial statements of United. The purchase price will be allocated based on the fair values of the assets acquired and the liabilities assumed. Any excess of cost over fair value of the net tangible and identified intangible assets of Fairbanco acquired will be recorded as goodwill. Any identified intangible asset may be amortized by charges to operations under generally accepted accounting principles.

Resales of United Common Stock by Directors, Executive Officers and Shareholders of Fairbanco

          Although United, through this proxy statement/prospectus, will register the United common stock to be issued in the merger under the Securities Act of 1933, the former directors, executive officers, and 10% or greater shareholders of Fairbanco and certain other affiliates of United (as defined in Rule 405 of the Securities Act) may not resell the United common stock received by them unless those sales are made pursuant to an effective registration statement under the Securities Act of 1933, or under Rules 144 and 145 of the Securities Act, or another exemption from registration under the Securities Act. Rules 144 and 145 limit the amount of United common stock or other equity securities of United that those persons may sell during any three-month period, and require that certain current public information with respect to United be available and that the United common stock be sold in a broker’s transaction or directly to a market maker in United common stock.

Regulatory Approvals

          The Board of Governors of the Federal Reserve System will be required to approve the merger. In determining whether to grant that approval, the Federal Reserve will consider the effect of the merger on the financial and managerial resources and future prospects of the companies and banks concerned and the convenience and needs of the communities to be served.

          The Georgia Department of Banking and Finance must also approve the merger. The Department of Banking and Finance’s review of the application will not include an evaluation of the proposed transaction from the financial perspective of the individual shareholders of Fairbanco. Further, no shareholder should construe an approval of the application by the Department of Banking and Finance to be a recommendation that the shareholders vote to approve the proposal. Each shareholder entitled to vote should evaluate the proposal to determine the personal financial impact of the completion of the proposed transaction. Shareholders not fully knowledgeable in such matters are advised to obtain the assistance of competent professionals in evaluating all aspects of the proposal including any determination that the completion of the proposed transaction is in the best financial interest of the shareholder.

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Rights of Dissenting Shareholders

          Fairbanco is a corporation organized under the laws of the State of Georgia, and its principal place of business and executive offices are in the State of Georgia. Georgia law confers rights upon shareholders of corporations organized under Georgia law to, in certain circumstances, demand payment for the fair value of all or a portion of their shares, and it establishes procedures for the exercise of those rights. These shareholder rights are referred to within this document as “dissenters’ rights.”

          In general, if the merger is completed, under Article 13 of the Georgia Business Corporation Code, a Fairbanco shareholder who dissents from the merger, and who otherwise complies with the provisions of Article 13, is entitled to demand and receive payment in cash of an amount equal to the fair value of all, but not less than all, of such holder’s shares of Fairbanco common stock.

          For the purpose of determining the amount to be received in connection with the exercise of statutory dissenters’ rights under the Georgia Business Corporation Code, Georgia law provides that the fair value of a dissenting Fairbanco shareholder’s common stock equals the value of the shares immediately before the effective date of the merger, excluding any appreciation or depreciation in anticipation of the merger.

          A dissenting shareholder of Fairbanco must exercise his or her dissenters’ rights with respect to all of the shares he or she owns of record, other than those shares registered in the dissenting shareholder’s name but beneficially owned by another person. If a dissenting shareholder of Fairbanco has shares registered in his or her name that are beneficially owned by another person, the dissenting shareholder may assert dissenters’ rights for less than all of the shares registered in his or her name, but only if he or she notifies Fairbanco in writing of the name and address of each person on whose behalf he or she asserts dissenters’ rights.

          A Fairbanco shareholder who chooses to dissent from the merger and to receive payment of the fair value of his or her shares of Fairbanco common stock in accordance with the requirements of the Georgia Business Corporation Code must:

          Any filing of a written notice of intent to dissent with respect to the merger should be sent to: Nina H. Ray, Secretary, Fairbanco Holding Company, Inc., 65 Washington Street, Fairburn, Georgia 30213. A vote against the merger agreement alone will not satisfy the requirements for compliance with Article 13 of the Georgia Business Corporation Code. A shareholder who wishes to dissent from the merger must, as an initial matter, separately comply with all of applicable conditions listed above.

          Within ten days after the vote of Fairbanco shareholders is taken at the special meeting, Fairbanco will provide to each shareholder who timely submitted a written notice of intent to dissent, and who did not vote in favor of the merger at the special meeting, a dissenters’ notice that:

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          Following receipt of the dissenters’ notice from Fairbanco, each dissenting Fairbanco shareholder must deposit his or her Fairbanco share certificates and demand payment from Fairbanco in accordance with the terms of the dissenters’ notice. A dissenting shareholder who does not deposit his or her share certificate and demand payment from Fairbanco by the date set forth in the dissenters’ notice will forfeit his or her right to payment under Article 13 of the Georgia Business Corporation Code.

          Within ten days after the later of the date that the vote of Fairbanco shareholders is taken at the special meeting, or the date on which Fairbanco receives a payment demand, Fairbanco will send a written offer to each shareholder who complied with the provisions set forth in the dissenters’ notice to pay each such shareholder an amount that Fairbanco estimates to be the fair value of his or her shares, plus accrued interest. The offer of payment will be accompanied by:

          If the dissenting shareholder chooses to accept Fairbanco’s offer of payment, he, she or it must do so by written notice to Fairbanco within 30 days after receipt of Fairbanco’s offer of payment. A dissenting shareholder will be deemed to have accepted the offer of payment if he or she does not respond to that offer within the 30-day period. Fairbanco must make payment to each shareholder who responds to the offer of payment within 60 days after the making of the offer of payment, or the effective date of the merger, whichever is later. Upon payment, the dissenting shareholder will cease to have any interest in his, her, or its shares of Fairbanco common stock.

          If within 30 days after Fairbanco offers payment for the shares of a dissenting shareholder, the dissenting shareholder does not accept the estimate of fair value of his, her, or its shares and interest due thereon and demands payment of his, her, or its own estimate of the fair value of the shares and interest due thereon, then Fairbanco, within 60 days after receiving the payment demand of a different amount from a dissenting shareholder, must file an action in the Superior Court in Fulton County, Georgia, requesting that the fair value of those shares be determined. Fairbanco must make all dissenting shareholders whose demands remain unsettled parties to the proceeding. If Fairbanco does not commence the proceeding within that 60-day period, it will be required to pay each dissenting shareholder whose demand remains unsettled the amount demanded by the dissenting shareholder.

          Fairbanco urges its shareholders to read all of the dissenter’s rights provisions of the Georgia Business Corporation Code, which are reproduced in full in Appendix C to this proxy statement/prospectus and which are incorporated by reference into this proxy statement/prospectus.

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Material Federal Income Tax Consequences of the Merger and Opinion of Tax Counsel

          Fairbanco has received an opinion from Kilpatrick Stockton LLP to the effect that, assuming the merger is completed in accordance with the terms of the merger agreement:

          No ruling will be requested from the Internal Revenue Service with respect to any Federal income tax consequences of the merger.

          The foregoing tax opinion and the preceding discussion relate to the material federal income tax consequences of the merger to Fairbanco shareholders. Fairbanco shareholders are advised to consult their own tax advisors as to any state, local, or other tax consequences of the merger.

Opinion of Fairbanco’s Financial Advisor

          Fairbanco retained Alex Sheshunoff & Co. Investment Banking, L.P. to provide its opinion as to the fairness from a financial viewpoint of the merger consideration to the shareholders of Fairbanco. As part of its investment banking business, Sheshunoff is regularly engaged in the valuation of securities in connection with mergers and acquisitions and valuations for estate, corporate and other purposes. The board of directors of Fairbanco retained Sheshunoff based upon its experience as a financial advisor in mergers and acquisitions of financial institutions and its knowledge of financial institutions.

          Sheshunoff rendered its oral opinion on March 11, 2004 and its written opinion on April 12, 2004 to Fairbanco’s board of directors that, as of such dates, the merger consideration was fair, from a financial point of view, to the shareholders of Fairbanco.

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          The full text of the fairness opinion which sets forth, among other things, assumptions made, procedures followed, matters considered, and limitations on the review undertaken, is attached as Appendix D to this proxy statement/prospectus. The shareholders of Fairbanco are urged to read Sheshunoff’s fairness opinion carefully and in its entirety. The fairness opinion is addressed to the Board of Directors of Fairbanco and does not constitute a recommendation to any shareholder of Fairbanco as to how such shareholder should vote at Fairbanco’s special meeting.

          In connection with the fairness opinion, Sheshunoff:

          In connection with its review, Sheshunoff relied upon and assumed the accuracy and completeness of all of the foregoing information provided to it or made publicly available, and Sheshunoff did not assume any responsibility for independent verification of such information. Sheshunoff assumed that internal confidential financial projections provided by Fairbanco were reasonably prepared reflecting the best currently available estimates and judgments of the future financial performance of Fairbanco, and did not independently verify the validity of such assumptions.

          Sheshunoff did not make any independent evaluation or appraisal of the assets or liabilities of Fairbanco or United nor was Sheshunoff furnished with any such appraisals. Sheshunoff did not examine any individual loan files of Fairbanco or United. Sheshunoff is not an expert in the evaluation of loan portfolios for the purposes of assessing the adequacy of the allowance for losses with respect thereto and has assumed that such allowances were, in the aggregate, adequate to cover such losses.

          The fairness opinion is necessarily based on economic, market and other conditions as in effect on, and the information made available to Sheshunoff as of April 9, 2004.

          In rendering the fairness opinion, Sheshunoff performed a variety of financial analyses. The preparation of an opinion involves various determinations as to the most appropriate and relevant methods

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of financial analysis and the application of those methods to the particular circumstances. Consequently, the fairness opinion is not readily susceptible to partial analysis or summary description. Moreover, the evaluation of fairness, from a financial point of view, of the merger consideration is to some extent subjective, based on the experience and judgment of Sheshunoff, and not merely the result of mathematical analysis of financial data. Sheshunoff did not attribute particular weight to any analysis or factor considered by it. Accordingly, notwithstanding the separate factors summarized below, Sheshunoff believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it, without considering all analyses and factors, could create an incomplete view of the evaluation process underlying its opinion. The ranges of valuations resulting from any particular analysis described below should not be taken to be Sheshunoff’s view of the actual value of Fairbanco, United, or the combined entity.

          In performing its analyses, Sheshunoff made numerous assumptions with respect to industry performance, business, and economic conditions and other matters, many of which are beyond the control of Fairbanco or United. The analyses performed by Sheshunoff are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses, nor are they appraisals. In addition, Sheshunoff’s analyses should not be viewed as determinative of the opinion of the board of directors or the management of Fairbanco with respect to the value of Fairbanco or United or to the fairness of the merger consideration.

          The following is a summary of the analyses performed by Sheshunoff in connection with its opinion. The following discussion contains financial information concerning Fairbanco and United as of December 31, 2003 and market information as of March 10, 2004.

          For the purposes of the following analyses, Sheshunoff utilized a value of the merger consideration of $31.47 per share and assumed United’s twenty-day average stock price was $22.77 per share. The merger consideration may have a higher or lower value depending on United’s stock price at the time of the merger.

          Fairbanco Discounted Cash Flow Analysis

          Using discounted cash flow analysis, Sheshunoff estimated the present value of the future after-tax cash flow streams that Fairbanco could produce on a stand-alone basis through the year 2008, under various circumstances, assuming that it performed in accordance with the projections provided by Fairbanco management.

          Sheshunoff estimated the terminal value for Fairbanco at the end of 2008 by capitalizing the final period projected earnings using a discount rate that is the quotient of (1) the assumed annual long-term growth rate of the earnings of Fairbanco of 4% plus one and (2) the difference between a range of required rates of return and the assumed annual long-term growth rate of earnings in (1) above. Sheshunoff discounted the annual cash flow streams (defined as all earnings in excess of that required to maintain a tangible equity to asset ratio of 7.0%) and the terminal values using discount rates ranging from 13% to 15%. The discount range was chosen to reflect different assumptions regarding the required rates of return of Fairbanco and the inherent risk surrounding the underlying projections. This discounted cash flow analysis indicated a range of values per share of $22.39 to $27.75 as shown in the table below compared to the merger consideration of $31.47.

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          Analysis of Selected Transactions

          Sheshunoff performed an analysis of premiums paid in selected recently completed acquisitions of thrift and bank organizations with comparable characteristics to the merger. Two sets of comparable transactions were selected to ensure a thorough analysis.

          The first set of comparable transactions consisted of a group of transactions for thrifts in the United States for which pricing data were available. These comparable transactions consisted of seventeen mergers and acquisitions of thrifts with assets between $100 million and $500 million that were announced between January 1, 2003 and February 13, 2004. The analysis yielded multiples of the purchase prices in these transactions relative to:

          The second set of comparable transactions consisted of thrifts and banks in the Southeast Region (as defined by SNL Financial) of the United States with asset size and characteristics similar to Fairbanco for which pricing data were available. These comparable transactions consisted of twenty-two mergers and acquisitions of banks in the United States with total assets between $100 million and $400 million that were announced between January 1, 2003 and February 13, 2004. The analysis yielded multiples of the purchase prices in these transactions relative to:

          Comparable Company Analysis

          Sheshunoff compared the operating and market results of the United to the results of other publicly traded companies. The comparable publicly traded companies were selected primarily on the

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basis of two criteria: geographic location and total asset size. The geographic location of the banks was the Active Acquisition States of the United States (as defined by Sheshunoff, consisting of GA, FL, TX, IL, PA and CA)). Within the selected region, United was compared to companies with total assets between $2 billion and $6 billion (“United Peer Group”). The data for the following tables are based on information provided by SNL Financial. Some of the ratios presented are proprietary to SNL Financial and may not strictly conform to the common industry calculations or to the calculations by United in its financial statements.

          Generally, United’s performance as measured by its net interest margin, and ratio of loan loss reserves to loans were similar to the United Peer Group Mean. United’s return on average assets was somewhat lower than the United Peer Group Mean; however the return on average equity was comparable. Its capital levels were also lower as shown in the equity to asset ratio and the tangible equity to tangible assets ratio. United’s asset quality as measured by its ratio of non-performing assets to total assets and its ratio of non-performing loans to total loans were better than the United Peer Group Mean. Its coverage of non-performing assets as shown by the ratio of loan loss reserves to non-performing assets was much better.

          The companies’ market results based on market data as of December 31, 2003 are shown in the following table (United’s stock price at March 10, 2004).

          United’s market price as a multiple of stated book value was slightly higher than its peer group and its price to stated tangible book was higher to the comparable peer group multiple. Its price to earnings multiple as shown in the price as a multiple of last twelve months earnings through December 31, 2003 was also above the comparable ratio for the United Peer Group. United’s dividend yield and dividend payout were below the respective measures for its peer group.

          Sheshunoff compared selected stock market results of United to the publicly available corresponding data of other composites that Sheshunoff deemed to be relevant, including (1) the

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NASDAQ Bank Stock index, (2) the SNL index of banks in the Southeastern Region of the U.S. (as defined by SNL Financial), and (3) the S&P 500. United’s common stock price has performed better than the selected indices for the period from March 19, 2002 through March 31, 2004.

          No company or transaction used in the comparable company and comparable transaction analyses is identical to Fairbanco, United, or United as the surviving corporation in the merger. Accordingly, an analysis of the results of the foregoing necessarily involves complex considerations and judgments concerning differences in financial and operating characteristics of Fairbanco and United and other factors that could affect the public trading value of the companies to which they are being compared. Mathematical analysis (such as determining the average or median) is not in itself a meaningful method of using comparable transaction data or comparable company data.

          Pursuant to an engagement letter dated September 18, 2003, between Fairbanco and Sheshunoff, Fairbanco agreed to pay Sheshunoff a professional fee equal to 1.00% of total consideration for total consideration up to $30 million, and 1.50% of total consideration for total consideration at or above $30 million. In addition, Fairbanco agreed to reimburse Sheshunoff for its reasonable out-of-pocket expenses. Fairbanco also agreed to indemnify and hold harmless Sheshunoff and its officers and employees against certain liabilities in connection with its services under the engagement letter, except for liabilities resulting from the negligence, violation of law or regulation or bad faith of Sheshunoff or any matter for which Sheshunoff may have strict liability.

          The fairness opinion is directed only to the question of whether the merger consideration is fair from a financial perspective and does not constitute a recommendation to any Fairbanco shareholder to vote in favor of the merger. No limitations were imposed on Sheshunoff regarding the scope of its investigation or otherwise by Fairbanco.

          Based on the results of the various analyses described above, Sheshunoff concluded that the merger consideration to be paid by Fairbanco pursuant to the merger is fair to the Fairbanco shareholders, from a financial point of view.

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INFORMATION ABOUT UNITED COMMUNITY BANKS, INC.

General

          Financial and other information about United is set forth on United’s Form 10-K for the year ended December 31, 2003, which is incorporated herein by reference.

Securities

          The authorized capital stock of United currently consists of 50,000,000 shares of common stock, $1.00 par value per share and 10,000,000 shares of preferred stock, $1.00 par value per share. As of April 23, 2004, 35,331,011 shares of common stock were issued and outstanding, exclusive of 375,563 shares held as treasury shares, 372,000 shares reserved for issuance upon the conversion of subordinated debt and 1,890,393 shares of common stock were reserved for issuance upon the exercise of outstanding options. At that date, United had 48,300 shares of Series A Non-Cumulative Preferred Stock issued and outstanding.

     Common Stock

          All voting rights are vested in the holders of the common stock. Each holder of common stock is entitled to one vote per share on any issue requiring a vote at any meeting. The shares do not have cumulative voting rights. Subject to the right of holders of United’s Series A Non-Cumulative Preferred Stock to receive dividends, all shares of United common stock are entitled to share equally in any dividends that United’s board of directors may declare on United common stock from sources legally available for distribution. The determination and declaration of dividends is within the discretion of United’s board of directors. Upon liquidation, holders of United common stock are entitled to receive on a pro rata basis, after payment or provision for payment of all debts and liabilities of United, and after all distributions payments are made to holders of United’s Series A Non-Cumulative Preferred Stock, all assets of United available for distribution, in cash or in kind.

          The outstanding shares of United common stock are, and the shares of United common stock to be issued by United in connection with the merger will be, duly authorized, validly issued, fully paid, and nonassessable.

     Preferred Stock

          United is authorized to issue 10,000,000 shares of preferred stock, issuable in specified series and having specified voting, dividend, conversion, liquidation, and other rights and preferences as United’s board of directors may determine. The preferred stock may be issued for any lawful corporate purpose without further action by United shareholders. The issuance of any preferred stock that has conversion rights might have the effect of diluting the interests of United’s other shareholders. In addition, shares of preferred stock could be issued with certain rights, privileges, and preferences which would deter a tender or exchange offer or discourage the acquisition of control of United.

          United’s board of directors has designated 287,411 of the 10,000,000 authorized shares of preferred stock as “Series A Non-Cumulative Preferred Stock.” The Series A stock has a stated value of $10.00 per share, and holders of Series A stock are entitled to a preferential annual dividend of 6%, payable quarterly on each January 1, April 1, July 1 and October 1. The declaration of dividends with respect to the Series A stock is within the discretion of United’s board of directors.

          In addition, holders of the Series A stock are entitled to receive, on a pro rata basis, distributions upon liquidation prior to any payment by United to the holders of its common stock, in an amount equal

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to the stated value per share of the Series A stock, plus any accrued but unpaid dividends. The Series A stock has no voting rights, except as required under the Georgia Business Corporation Code, and is not convertible into shares of common stock or other securities of United. United may, at its option, redeem all or part of the Series A stock outstanding by paying cash for such shares in an amount equal to the stated value per share, plus any accrued but unpaid dividends.

     6.75% Subordinated Notes due 2012

          United has outstanding $31.5 million aggregate principal amount of 6.75% Subordinated Notes, due 2012. Interest is payable semi-annually in arrears in cash on June 15 and December 15 of each year. The notes may not be redeemed prior to their maturity. No sinking fund is provided for the notes. The notes are general unsecured obligations of United, subordinated to all existing and future secured and senior indebtedness, and payment of principal of the notes may be accelerated only in the case of bankruptcy, insolvency, receivership, conservatorship or reorganization of United or one of United’s bank subsidiaries.

     Subordinated Step-up Notes due 2015

          United has outstanding $35 million aggregate principal amount of Subordinated Step-up Notes due 2015. The notes bear interest at a fixed rate of 6.25% through September 30, 2010, and at a fixed rate of 7.5% thereafter until maturity or earlier redemption. Interest is payable semi-annually in arrears in cash on March 31 and September 30 of each year. The notes are callable at par on September 30, 2010, and September 30 of each year hereafter with maturity. The notes are general unsecured obligations of United, subordinated to all existing and future secured and senior indebtedness, and payment of principal of the notes may be accelerated only in the case of bankruptcy, insolvency, receivership, conservatorship or reorganization of United or one of United’s bank subsidiaries.

     Convertible Subordinated Debentures

          Debentures in the principal amount of $3.1 million that are due on December 31, 2006, were outstanding as of December 31, 2003. These debentures bear interest at the rate of one quarter of one percentage point over the prime rate per annum as quoted in The Wall Street Journal, payable on April 1, July 1, October 1, and January 1 of each year to holders of record at the close of business on the 15th day of the month immediately preceding the interest payment date. Interest is computed on the basis of the actual number of days elapsed in a year of 365 or 366 days, as applicable. Interest on the debentures is payable, at the option of the board of directors of United, in cash or in additional debentures with the same terms as the outstanding debentures.

          The debentures may be redeemed, in whole or in part, from time to time on or after January 1, 1999, at the option of United upon at least 20 days and not more than 60 days notice, at a redemption price equal to 100% of the principal amount of the debentures to be redeemed plus interest accrued and unpaid as of the date of redemption. The holder of any debentures not called for redemption will have the right, exercisable at any time up to December 31, 2006, to convert those debentures at the principal amount thereof into shares of United common stock at the conversion price of $8.33 per share, subject to adjustment for stock splits and stock dividends. The debentures are unsecured obligations of United and are subordinate in right of payment to all obligations of United to its other creditors, except obligations ranking on a parity with or junior to the debentures. The debentures were not issued pursuant to an indenture, and no trustee acts on behalf of debenture holders.

     Trust Preferred Securities

          United formed three wholly owned statutory trusts, which issued guaranteed preferred interests in United’s junior subordinated deferrable interest debentures. The debentures represent the sole asset of the

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trusts. These debentures qualify as Tier I capital under Federal Reserve Board guidelines. All of the common securities of the trusts are owned by United. United has entered into contractual arrangements which, taken collectively, fully and unconditionally, guarantee payment of: (1) accrued and unpaid distributions required to be paid on the securities; (2) the redemption price with respect to any securities called for redemption by the respective trust; and (3) payments due upon a voluntary or involuntary dissolution, winding up or liquidation of the respective trust. The following is a description of each trust preferred security.

          10.60% Trust Preferred Securities

          In September 2000, United formed a wholly owned Connecticut statutory business trust, United Community Statutory Trust I (“United Statutory Trust”), which issued $5 million of guaranteed preferred beneficial interests in United’s junior subordinated deferrable interest debentures. The proceeds from the issuance of the securities were used by United Statutory Trust to purchase $5.2 million of junior subordinated debentures of United, which carry a fixed interest rate of 10.60%. The securities accrue and pay distributions semiannually at a fixed rate of 10.60% per annum of the stated liquidation value of $1,000 per capital security and are mandatorily redeemable upon maturity of the debentures on September 7, 2030, or upon earlier redemption as provided in the indenture. United has the right to redeem the debentures purchased by United Statutory Trust in whole or in part, on or after September 7, 2010. As specified in the indenture, if the debentures are redeemed prior to maturity, the redemption price will be the principal amount, any accrued but unpaid interest, plus a premium ranging from 5.3% in 2010 to .53% beginning in 2019.

          11.295% Trust Preferred Securities

          In July 2000, United formed a wholly owned Delaware statutory business trust, United Community Capital Trust II (“United Trust II”), which issued $10 million of guaranteed preferred beneficial interests in United’s junior subordinated deferrable interest debentures. The proceeds from the issuance of the securities were used by United Trust II to purchase $10.3 million of junior subordinated debentures of United, which carry a fixed rate of 11.295%. The securities accrue and pay distributions at a fixed rate of 11.295% per annum of the stated liquidation value of $1,000 per capital security. The securities are mandatorily redeemable upon maturity of the debentures on July 19, 2030, or upon earlier redemption as provided in the indenture. United has the right to redeem the debentures purchased by United Trust II in whole or in part, on or after July 19, 2010. As specified in the indenture, if the debentures are redeemed prior to maturity, the redemption price will be the principal amount, any accrued but unpaid interest, plus a premium ranging from 2.824% in 2010 to ..565% beginning in 2019.

          8.125% Trust Preferred Securities

          In July 1998, United formed a wholly owned Delaware statutory business trust, United Community Capital Trust (“United Trust”), which issued $21 million of guaranteed preferred beneficial interests in United’s junior subordinated deferrable interest debentures. The proceeds from the issuance of the securities were used by United Trust to purchase $21.7 million of junior subordinated debentures of United that carry a fixed interest rate of 8.125%. The securities accrue and pay distributions semiannually at a fixed rate of 8.125% per annum of the stated liquidation value of $1,000 per capital security. The securities are mandatorily redeemable upon maturity of the debentures on July 15, 2028, or upon earlier redemption as provided in the indenture. United has the right to redeem the debentures purchased by United Trust: (1) in whole or in part, on or after July 15, 2008, and (2) in whole (but not in part) at any time within 90 days following the occurrence and during the continuation of a tax event, investment company event or capital treatment time (as defined in the offering circular). As specified in the indenture, if the debentures are redeemed prior to maturity, the redemption price will be the principal

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amount, any accrued but unpaid interest, plus a premium ranging from 4.06% in 2008 to .41% beginning in 2017.

     Transfer Agent and Registrar

          The Transfer Agent and Registrar for United’s common stock and the debentures is SunTrust Bank, P.O. Box 4625, Suite 225-A, 58 Edgewood Avenue, Atlanta, Georgia 30302.

Certain Provisions of United’s Articles of Incorporation and Bylaws Regarding Change of Control

     Ability to Consider Other Constituencies

          United’s articles of incorporation permit its board of directors, in determining what is believed to be in the best interest of United and its shareholders, to consider the interests of its employees, customers, suppliers and creditors, the communities in which its offices and establishments are located and all other factors that they consider pertinent, in addition to considering the effects of any actions on United and its shareholders. This provision permits United’s board of directors to consider numerous judgmental or subjective factors affecting a proposal, including some non-financial matters, and on the basis of these considerations may oppose a business combination or some other transaction which, viewed exclusively from a financial perspective, might be attractive to some, or even a majority, of its shareholders.

     Amendments to Articles of Incorporation and Bylaws

          United’s articles of incorporation specifically provide that the neither the articles of incorporation nor the bylaws of United may be amended without the affirmative vote the holders of two-thirds of the shares issued and outstanding and entitled to vote thereon, except for provisions relating to increasing the number of authorized shares of common and preferred stock of United. This provision could allow the holders of 33.4% of the outstanding capital stock of United to exercise an effective veto over a proposed amendment to the articles or bylaws, despite the fact that the holders of 66.6% of the shares favor the proposal. This provision protects, among other things, the defensive measures included in United’s articles of incorporation and bylaws by making more difficult future amendments to the articles of incorporation and bylaws that could result in the deletion or revision of such defensive measures.

     Supermajority Approval of Interested Business Combinations

          United’s articles of incorporation provide that if a proposed business combination between United and any interested shareholder is not approved by three-fourths of all directors of United then in office, the business combination must be approved by the affirmative vote of the holders of at least 75% of the outstanding shares of United’s common stock, including the affirmative vote of the holders of at least 75% of the outstanding shares of common stock held by shareholders other than the interested shareholder. This provision may discourage attempts by other corporations or groups to acquire control of United, without negotiation with management, through the acquisition of a substantial number of shares of United’s stock followed by a forced merger. This provision may also enable a minority of the shareholders of United to prevent a transaction favored by a majority of the shareholders, and may discourage tender offers or other non-open market acquisitions of United’s common stock because of the potentially higher vote requirements for shareholder approval of any subsequent business combination. Additionally, in some circumstances, United’s board of directors could, by withholding its consent to such a transaction, cause the 75%/75% shareholder vote to be required to approve a business combination, thereby enabling management to retain control over the affairs of United and their present positions with United.

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     Removal of Directors

          United’s articles of incorporation provide that a member of United’s board of directors may only be removed for cause, and only upon the affirmative vote of two-thirds of the outstanding shares of capital stock of United entitled to vote thereon. This provision may prevent a significant shareholder from avoiding board scrutiny of a proposed business combination by merely removing directors with conflicting views, and may encourage individuals or groups who desire to propose takeover bids or similar transactions to negotiate with the board of directors. However, outside of the context of an acquisition attempt, it may serve as an impediment to a more legitimate need to remove a director.

Recent Developments of United

          On April 28, 2004, United will complete a three-for-two split of its common stock in the form of a stock dividend. All per share figures in this proxy statement/prospectus reflect the effect of the stock split.

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INFORMATION ABOUT FAIRBANCO HOLDING COMPANY, INC.

Description of Business

          Fairbanco is a non-diversified thrift holding company whose business is conducted by its wholly-owned subsidiary, 1st Community Bank. 1st Community Bank is a federal stock savings bank and provides a full range of banking services in its primary market area of southwestern metropolitan Atlanta. 1st Community Bank has five full-service banking offices located as follows:

          1st Community Bank also has an Operations Center, located at 40 Malone Street, Fairburn, Georgia 30213, telephone number (770) 964-4159.

          1st Community Bank offers a broad range of customary banking services including commercial, mortgage and consumer loans; checking, savings and time deposits accounts; wire transfers; internet banking; 24-hour telephone banking; and rental of safety deposit boxes.

          As of December 31, 2003, Fairbanco had total consolidated assets of approximately $192.1 million, total deposits of approximately $166.4 million, and total shareholders’ equity of approximately $13.7 million. At December 31, 2003, Fairbanco had 48 full time employees and 5 part-time employees.

          In September 1891, 1st Community Bank was originally chartered under the laws of the State of Georgia with the name “Fairburn Banking Company”. In January 1997, 1st Community Bank converted to a thrift charter. In 2001 since it was then serving market areas other than Fairburn, 1st Community Bank changed its name from Fairburn Banking Company to 1st Community Bank.

Competition

          1st Community Bank competes in the Fulton County, Fayette County and Coweta County, Georgia market areas. Its competition consists of major financial institutions: Bank of America, SunTrust and Wachovia, as well as community and regional banks: Newnan-Coweta Bank and Bank of Coweta in Newnan, Georgia and RBC Centura Bank in Palmetto and Union City, Georgia. In addition, 1st Community Bank competes with insurance companies, brokerage firms and other financial service organizations.

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Security Ownership

          Information relating to ownership of Fairbanco common stock is based on “beneficial ownership” concepts set forth in rules issued under the Securities Exchange Act of 1934. Under those rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power”, which includes the power to vote or to direct the voting of that security, or “investment power”, which includes the power to dispose or to direct the disposition of that security. Under the rules, more than one person may be deemed to be a beneficial owner of the same securities.

     Principal Shareholders

          The following table lists each shareholder of record that beneficially owned 5% or more of the 746,008.434 outstanding shares of Fairbanco common stock as of December 31, 2003. Unless otherwise indicated, each person or entity has sole voting and investment powers over the indicated shares.

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Directors and Executive Officers

     The following table lists the shares of Fairbanco common stock beneficially owned by each director and executive officer of Fairbanco and by all Fairbanco directors and executive officers as a group as of December 31, 2003.

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Selected Financial Data

Management’s Discussion and Analysis of Financial Condition and Results of Operations

          The following discussion describes our results of operations for 2003 and 2002 and also analyzes our financial condition as of December 31, 2003 and 2002. Like most community banks, we derive most of our income from interest we receive on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, on which we pay interest. Consequently, one of the key measures of our success is our amount of net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits. Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities.

          We have included a number of tables to assist in our description of these measures. For example, the “Summary of Average Balance Sheets, Net Interest Income and Interest Rates” table shows the average balances during 2003 and 2002 of each category of our assets and liabilities, as well as the yield we earned or the rate we paid with respect to each category. A review of this table shows that our loans typically provide higher interest yields than do other types of interest earning assets, which is why we channel a substantial percentage of our earning assets into our loan portfolio. We also track the sensitivity of our various categories of assets and liabilities to changes in interest rates, and we have included a discussion and tabular illustration of our interest rate sensitivity under “Interest Rate

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Sensitivity Management”. Finally, we have included a number of tables along with this discussion that provide details about our securities, our loans, our deposits and other income and expenses.

          The following discussion and analysis also identifies significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements. We encourage you to read this discussion and analysis in conjunction with our financial statements and the related notes and the other statistical information also included in this proxy statement/prospectus.

     Critical Accounting Policies

          We have adopted various accounting policies which govern the application of accounting principles generally accepted in the United States in the preparation of our consolidated financial statements. Certain accounting policies involve significant judgments and assumptions by us which have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies to be critical accounting policies. The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Because of the nature of the judgments and assumptions we make, actual results could differ from these judgments and estimates which could have a material impact on our carrying values of assets and liabilities and our results of operations.

          We believe the allowance for loan losses and the valuation of foreclosed real estate is a critical accounting policy that requires the most significant judgments and estimates used in preparation of our consolidated financial statements. Refer to Note 1 of our consolidated financial statement which are included in this registration statement regarding our accounting policies for the allowance for loan losses and other real estate owned as well as the portion of this discussion that addresses our allowance for loan losses for a description of our processes and methodology for determining our allowance for loan losses.

     Financial Condition at December 31, 2003 and 2002

          Overview

          Total assets at December 31, 2003 were $192.1 million, compared with $193.8 million at year-end 2002. Average assets for 2003 and 2002 were $184.8 million and $177.9 million, respectively. Our balance sheet structure has changed significantly over the past two years as we have reallocated a substantial portion of our loan portfolio into investment securities. This was done so that we could focus on resolving certain asset quality issues in our loan portfolio. During 2003 we made substantial progress on resolving our asset quality issues. Please refer to “Risk Elements of the Loan Portfolio” in this discussion regarding our asset quality.

          Interest-Earning Assets

          In banking, the predominant interest-earning assets are loans and securities. The proportion of interest-earning assets to total assets measures the effectiveness of our efforts to invest available funds into the most profitable assets. The following discussion focuses on loans, the related allowance for loan losses, and securities.

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          Loans

          Total loans at December 31, 2003 were $93.1 million, compared with $132.7 million at December 31, 2002. Average loans for 2003 and 2002 were $115.5 million and $143.8 million, respectively.

          The following table presents a summary of the loan portfolio by loan type as of December 31 for the years 2003 and 2002.

Table 1 - Loan Portfolio
(dollar amounts in thousands)

          Substantially all of our loans are to customers located in our immediate market area of southwestern metropolitan Atlanta. Approximately 87% of our loan portfolio is collateralized by real estate located in our primary market area.

          The specific economic and credit risks associated with our loan portfolio, especially the real estate portfolio, include, but are not limited to, a general downturn in the economy which could affect unemployment rates in our market area, general real estate market deterioration, interest rate fluctuations, deteriorated or non-existing collateral, title defects, inaccurate appraisals, financial deterioration of borrowers and fraud. Construction and development lending can also present other specific risks to the lender such as whether developers can find builders to buy lots for home construction, whether the builders can obtain financing for the construction, whether the builders can sell the homes to buyers, and whether the buyers can obtain permanent financing. Currently, real estate values and employment trends in our market area are stable.

          The following table sets forth the maturity distribution of real estate construction and commercial loans, including the interest sensitivity for loans maturing in more than one year as of December 31, 2003.

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Table 2 - Loan Portfolio Maturity
(dollar amounts in thousands)

          Risk Elements of the Loan Portfolio

          Non-performing loans, which include loans on non-accrual status, totaled $900,000 at December 31, 2003, compared with $4.17 million at December 31, 2002. At December 31, 2003, the ratio of non-performing loans to total loans was 0.94%, compared with 3.09% at year-end 2002. Non-performing assets, which included non-performing loans and foreclosed real estate, totaled $3,071,000 at December 31, 2003, compared with $5,617,000 at December 31, 2002.

          It is our policy to discontinue the accrual of interest income when, in the opinion of management, collection of interest becomes doubtful. The collection of interest becomes doubtful when there is a significant deterioration in the financial condition of the borrower and full repayment of principal and interest is not expected unless the loan is both well-secured and in the process of collection.

          Foreclosed real estate, or other real estate owned, represents properties acquired through or in lieu of loan foreclosure and is initially recorded at the lower of cost or fair value less estimated costs to sell. Any write-down to fair value at the time of transfer to other real estate owned is charged to the allowance for loan losses. Costs of improvements are capitalized, whereas costs relating to holding other real estate owned and subsequent adjustments to the value are expensed.

          Loans classified for regulatory purposes as loss, doubtful, substandard, or special mention that have not been included in the table below do not represent or result from trends or uncertainties that management reasonably expects will materially impact future operating results, liquidity, or capital resources.

          The table below presents our non-performing loans and assets at December 31, 2003 and 2002:

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Table 3 - Non-Performing Assets
(dollar amounts in thousands)

          At December 31, 2003, there were loans within our portfolio that were not classified as non-performing but for which known information about the borrowers’ financial condition caused management to have concerns about the ability of the borrowers’ to comply with the repayment terms of the loans. These loans are identified and monitored through a routine loan review process and are considered in the determination of the allowance for loan losses. Based on management’s evaluation of current market conditions, loan collateral, and secondary sources of repayment, no significant losses are anticipated in connection with these loans.

          Allowance for Loan Losses

          In making our risk evaluation and establishing an allowance level that we believe is adequate to absorb probable losses in the portfolio, we consider various sources of information. Our most important source is our ongoing review of the loan portfolio, which is undertaken both to ascertain whether there are probable losses, which must be charged off, and to assess the risk characteristics of the portfolio in the aggregate. This review takes into consideration the judgments of the responsible lending officers and senior management, and also those of bank regulatory agencies that review the loan portfolio as part of the regular bank examination process. We also retain internal and external credit reviewers to perform independent reviews of the risk management process, adequacy of loan documentation and the risk ratings and appropriateness of the level of Allowance for Loan Losses. Loans identified as having increased credit risk are classified in accordance with our loan policy and appropriate reserves are established for each loan classification category. In addition, an unallocated component is maintained to cover uncertainties that could reasonably be expected to impact loans in the future. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

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The table below summarizes changes in the allowance for loan losses for each of the past two years.

Table 4 - Allowance for Loan Losses
(dollar amounts in thousands)

As of December 31, 2003, we had made no allocations of our allowance for loan losses to specific categories of loans but the allowance is cross-allocated to all loans.

          Securities

          Total securities at December 31, 2003 were $72.3 million, compared with $40.4 million at year-end 2002. Average securities for 2003 and 2002 were $58.3 million and $25.0 million, respectively. The composition and growth of the securities portfolio is reflective of management’s desire to provide balance sheet liquidity while providing a stable source of interest income that has limited credit risk. The securities portfolio at year-end 2003 primarily consists of U.S. Government and agency securities, municipal securities, mortgage-backed securities, and other securities which consists of preferred stock issued by a government sponsored corporation (Freddie Mac).

          The following table shows the carrying value of securities, all of which are classified as available for sale, by security type, as of December 31, 2003 and 2002.

Table 5 - Securities Portfolio
(dollar amounts in thousands)

Carrying Value of Securities

          As of December 31, 2003, we had $1,763,000 in unrealized losses in our securities portfolio based upon quoted market prices. In 2003, the FASB Emerging Issues Task Force released Issue 03-01, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The

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market value of securities is based on quoted market values and is significantly affected by the interest rate environment. At December 31, 2003, all unrealized losses in the securities portfolio were for debt securities and preferred stock. Two out of thirty-four securities with unrealized losses at December 31, 2003 have been in a continuous unrealized loss position for greater than twelve months. One of these securities is the preferred stock issued by Freddie Mac which had an unrealized loss of $131,000 and a fair value of $1,369,000 and the other security is a debt security issued by the FHLMC which had an unrealized loss of $6,000 and a fair value of $2,494,000. All other securities with an unrealized loss at December 31, 2003 have been in a continuous unrealized loss position for less than twelve months. All unrealized losses at December 31, 2003 are considered temporary because of acceptable investment grades on each security or the repayment sources of principal and interest are government backed.

          The following table shows the expected maturity of the securities portfolio by maturity date and the average yield based on amortized cost as of December 31, 2003.

Table 6 - Maturities and Yields of Securities as of December 31, 2003
(dollar amounts in thousands)

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          Interest-Bearing Liabilities

          Our primary source of funds is deposits and other borrowings. We emphasize attracting both commercial and consumer deposits. It is our intent to expand our deposit base in order to fund asset growth. The following discussion focuses on our deposit base and our other borrowings.

          Deposits and Other Borrowings

          Total deposits at December 31, 2003 were $166.4 million, compared with $167.2 million at year-end 2002. Average deposits for 2003 and 2002 were $169.3 million and $163.0 million, respectively. As a community-oriented bank, we view core deposits as the primary source of funding growth in interest earning assets.

          Time deposits of $100,000 or more totaled $29.4 million at December 31, 2003, compared with $35.8 million at year-end 2002. We had no brokered deposits at year-end 2003. As of December 31, 2002, we had $3 million in brokered time deposits.

          The following table presents the average amounts outstanding and the average rates paid for each of the major classifications of deposits for the 12-month periods ending December 31, 2003 and 2002:

Table 7 – Average Deposit Balances and Rates Paid Table

(1) The rate paid on total average deposits represents the rate paid on total average interest-bearing deposits only.

          The following table sets forth the maturities of time deposits of $100,000 and greater as of December 31, 2003.

Table 8 - Maturities of Time Deposits of $100,000 and Greater
(dollar amounts in thousands)

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          The following table sets forth, for the periods indicated, certain information about Fairbanco’s short-term borrowings:

Table 9 – Short Term Borrowings

          Other short term borrowings consist of securities sold under repurchase agreements. These borrowings, which are classified as secured borrowings, generally mature within one to four days from the transaction date. Securities sold under repurchase agreements are reflected at the amount of cash received in connection with the transaction. We may be required to provide additional collateral based on the fair value of the underlying securities.

          In addition to short term borrowing arrangements, we also have borrowed $5,000,000 from the Federal Home Loan Bank of Atlanta. This borrowing is due on October 11, 2005 and bears interest at 6.26% and is collateralized by our 1-4 family residential loan portfolio. In 2002, we formed a wholly-owned grantor trust to issue cumulative trust preferred securities. The grantor trust has invested the proceeds of the trust preferred securities in junior subordinated debentures issued by us.

          The trust preferred securities can be redeemed prior to maturity at Fairbanco’s option on or after June 27, 2007. The sole assets of the guarantor trust are the Junior Subordinated Deferrable Interest Debentures of Fairbanco (the Debentures) held by the grantor trust. The debentures have the same interest rate (three month LIBOR plus 3.65%, floating) as the trust preferred securities. We have the right to defer interest payments on the Debentures at any time or from time to time for a period not exceeding 20 consecutive quarters provided that no extension period may extend beyond the stated maturity of the related Debentures. During any such extension period, distributions on the trust preferred certificates would also be deferred. The amount of Debentures outstanding as of December 31, 2003 is $5,155,000.

     Capital, Liquidity and Stockholders’ Equity

          Total stockholders’ equity at December 31, 2003 was $13.7 million, compared with $14.5 million at year-end 2002. Please reference our consolidated statements of stockholders’ equity included in our year end financial report which is included in this proxy statement/prospectus for a summary of items that accounts for the change in stockholders’ equity. Total cash dividends of $0.32 per share were paid in

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2003 and 2002. The dividend payout ratios, as a percentage of net income, were approximately 17% and 33% for 2003 and 2002, respectively.

          We are subject to various regulatory capital requirements administered by banking regulatory agencies. The minimum ratios to be considered “well capitalized” for a bank as defined by banking regulations are five percent for leverage ratio, six percent for Tier I capital ratio, and ten percent for total risk-based capital ratio.

          The table below shows our bank subsidiary’s capital ratios as of December 31, 2003 and 2002 and the amounts required for minimum capital adequacy purposes.

Table 10 - Regulatory Capital
(dollar amounts in thousands)

          Our liquidity management policy is designed to ensure that our daily cash flow needs and those of our customers (both depositors and borrowers) are met in a cost-effective manner. Liquidity represents the ability of a bank to convert assets into cash or to obtain additional funds through borrowings. In our opinion, our liquidity position at December 31, 2003 is sufficient to meet expected cash flow requirements.

          If needed, we have the ability on a short-term basis to borrow and purchase Federal funds from other financial institutions. At December 31, 2003, we had arrangements with two commercial banks for short-term advances of $5,000,000.

          Reference should be made to the statements of cash flows appearing in the consolidated financial statements for a two-year analysis of the changes in cash and due from banks attributed to operating, investing, and financing activities.

     Off Balance Sheet Arrangements

          Through the operations of our bank, we have made contractual commitments to extend credit in the ordinary course of our business activities. These commitments are legally binding agreements to lend money to our customers at predetermined interest rates for a specified period of time. At December 31, 2003, we had issued commitments to extend credit of $8,324,000 through various types of lending arrangements. We evaluate each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on our credit evaluation of the

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borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, commercial and residential real estate.

     Interest Rate Sensitivity Management and Gap Sensitivity

          Our Asset/Liability Management (ALCO) committee routinely performs the following: (1) reviews the interest rate risk profile to determine that the risk is within established limits of the institution (2) reviews and verifies anticipated interest rate forecasts changes , and sets rates and pricing accordingly for the institution, on both deposits and loans, (3) anticipates changes in the volume and mix of the loan and investment portfolios, and the sources of funding, i.e. Federal Funds, large and small CDs, demand deposits, time and savings deposits, and (4) monitors the local and national business and economic conditions.

          Our ALCO committee makes recommendations for corrective actions if risk profiles are out of allowable risk limitations.

          Our ALCO committee employs a service provider which utilizes an interest rate risk measurement model (referred as I/R/R/M). The information incorporated in the interest rate risk measurement model is current balance sheet and income/expense information to project changes in each category of asset and liability for the coming year. The institution uses the repricing frequency of the assets and liabilities to provide Gap analysis. Gap analysis provides a good indication of the dollar volume that will be repricing, however, it does not provide information on how they will reprice, and for this reason, a simulation modeling is performed to estimate earnings in various interest rate environments. The purpose of the simulation analysis is to test the impact of balance sheet strategies on net interest income and net income.

          Interest rate shocks are performed to test the impact of rising and falling interest rates. The rate shocks are performed on a quarterly basis, which include a level rate scenario, and a rising and falling 200 basis point scenarios. The modeling process is used to formulate strategies that will assure a reasonable rate of return on assets with minimal risks regardless of what interest rates do in the next twelve months.

          Our ongoing management of the composition of our balance sheet will protect our earnings in various interest rate environments, and will protect the economic value of equity at risk.

          The I/R/R/M measures the effects that changes in interest rates will have on earnings, and the economic value of the institution. This measurement will be accomplished by calculating the present value of future cash flows for financial instruments on the balance sheets.

          Our ultimate goal of asset and liability management and interest rate risk management is to maintain the safety, soundness, and profitability for the long term for our institution, while being an asset to our community. In addition effective asset and liability management will enable us to preserve the integrity and safety of the deposits and capital base of the organization, while attaining and sustaining a strong level of earnings for our depositors, and to assure an appropriate return to our stockholders on their investment.

          Our ALCO committee utilizes a gap analysis to determine the overall sensitivity of the balance sheet to changes in market interest rates.

          The following table summarizes our gap analysis as of December 31, 2003. A negative gap (more liabilities than assets repricing within a time period) indicates the bank’s net interest income will

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fall in a rising rate environment. A positive gap (more assets than liabilities repricing within a time period) indicates the bank’s net interest income will decline in a falling rate environment.

Table 11 - Interest Rate Gap Sensitivity
(dollar amounts in thousands)