UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For Quarter Ended September 30, 2007

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period                     

United Bankshares, Inc.

(Exact name of registrant as specified in its charter)

West Virginia		55-0641179
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
300 United Center 500 Virginia Street, East Charleston, West Virginia		25301
(Address of Principal Executive Offices)		Zip Code

Registrant’s Telephone Number, including Area Code: (304) 424-8800

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

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ                     Accelerated Filer o                     Non-accelerated Filer o                     

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

Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class — Common Stock, $2.50 Par Value; 43,212,399 shares outstanding as of October 31, 2007.

 

 

UNITED BANKSHARES, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) September 30, 2007 and December 31, 2006			4
Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended September 30, 2007 and 2006			5
Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) for the Nine Months Ended September 30, 2007			6
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2007 and 2006			7
Notes to Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			28
Item 3. Quantitative and Qualitative Disclosures about Market Risk			47
Item 4. Controls and Procedures			50
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			51
Item 1A. Risk Factors			51
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			51
Item 3. Defaults Upon Senior Securities			52
Item 4. Submission of Matters to a Vote of Security Holders			52
Item 5. Other Information			52
Item 6. Exhibits			52
Signatures			53
Exhibits			54
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (UNAUDITED)

The September 30, 2007 and December 31, 2006, consolidated balance sheets of United Bankshares, Inc. and Subsidiaries (“United” or the “Company”), consolidated statements of income for the three and nine months ended September 30, 2007 and 2006, the related consolidated statement of changes in shareholders’ equity for the nine months ended September 30, 2007, the related condensed consolidated statements of cash flows for the nine months ended September 30, 2007 and 2006, and the notes to consolidated financial statements appear on the following pages.

CONSOLIDATED BALANCE SHEETS
UNITED BANKSHARES, INC. AND SUBSIDIARIES

		September 30				December 31
		2007				2006
(Dollars in thousands, except par value)		(Unaudited)				(Note 1)
Assets
Cash and due from banks		$	167,228			$	217,562
Interest-bearing deposits with other banks			24,789				22,882
Federal funds sold			12,444				18,569
Total cash and cash equivalents			204,461				259,013
Securities available for sale at estimated fair value (amortized cost-$1,102,410 at September 30, 2007 and $1,016,840 at December 31, 2006)			1,098,548				1,010,252
Securities held to maturity (estimated fair value-$158,350 at September 30, 2007 and $215,678 at December 31, 2006)			158,252				212,296
Other investment securities			66,469				52,922
Loans held for sale			954				2,041
Loans			5,593,245				4,813,708
Less: Unearned income			(6,919	)			(6,961	)
Loans net of unearned income			5,586,326				4,806,747
Less: Allowance for loan losses			(50,353	)			(43,629	)
Net loans			5,535,973				4,763,118
Bank premises and equipment			62,026				38,111
Goodwill			312,857				167,421
Accrued interest receivable			38,835				34,508
Other assets			207,313				177,916
TOTAL ASSETS		$	7,685,688			$	6,717,598
Liabilities
Deposits:
Noninterest-bearing		$	874,696			$	903,207
Interest-bearing			4,471,530				3,924,985
Total deposits			5,346,226				4,828,192
Borrowings:
Federal funds purchased			78,405				97,720
Securities sold under agreements to repurchase			575,206				460,858
Federal Home Loan Bank borrowings			643,672				533,899
Other short-term borrowings			2,007				3,688
Other long-term borrowings			206,459				85,301
Allowance for lending-related commitments			8,264				8,742
Accrued expenses and other liabilities			70,180				65,106
TOTAL LIABILITIES			6,930,419				6,083,506
Shareholders’ Equity
Common stock, $2.50 par value; Authorized-100,000,000 shares; issued-44,320,832 at September 30, 2007 and December 31, 2006, including 1,138,504 and 3,261,931 shares in treasury at September 30, 2007 and December 31, 2006, respectively			110,802				110,802
Surplus			99,145				93,680
Retained earnings			598,770				559,257
Accumulated other comprehensive loss			(13,904	)			(15,791	)
Treasury stock, at cost			(39,544	)			(113,856	)
TOTAL SHAREHOLDERS’ EQUITY			755,269				634,092
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	7,685,688			$	6,717,598

See notes to consolidated unaudited financial statements.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
UNITED BANKSHARES, INC. AND SUBSIDIARIES

		Three Months Ended								Nine Months Ended
		September 30								September 30
(Dollars in thousands, except per share data)		2007				2006				2007				2006
Interest income
Interest and fees on loans		$	99,240			$	84,288			$	267,111			$	242,537
Interest on federal funds sold and other short-term investments			876				515				1,980				1,235
Interest and dividends on securities:
Taxable			13,832				13,934				40,446				43,371
Tax-exempt			3,361				3,698				10,096				11,334
Total interest income			117,309				102,435				319,633				298,477
Interest expense
Interest on deposits			40,176				32,312				107,574				84,807
Interest on short-term borrowings			8,220				7,142				22,846				23,029
Interest on long-term borrowings			9,801				8,052				24,619				25,111
Total interest expense			58,197				47,506				155,039				132,947
Net interest income			59,112				54,929				164,594				165,530
Provision for credit losses			1,550				571				2,750				1,169
Net interest income after provision for credit losses			57,562				54,358				161,844				164,361
Other income
Fees from trust and brokerage services			3,788				3,190				11,097				9,857
Fees from deposit services			9,087				7,367				24,134				21,575
Other service charges, commissions, and fees			2,285				1,785				5,769				5,202
Income from bank-owned life insurance			1,179				1,181				3,965				3,285
Income from mortgage banking			124				236				447				615
Security gains (losses)			172				(134	)			494				(3,071	)
(Loss) Gain on termination of interest rate swaps associated with prepayment of FHLB advances			—				(7,659	)			787				(4,599	)
Other income			691				248				2,074				1,437
Total other income			17,326				6,214				48,767				34,301
Other expense
Salaries and employee benefits			17,452				15,740				46,830				46,789
Net occupancy expense			3,823				3,031				10,393				9,458
Equipment expense			2,059				1,567				4,867				4,599
Data processing expense			2,448				1,477				6,401				4,428
Bankcard processing expense			1,445				1,257				3,857				3,507
Prepayment penalties on FHLB advance			—				8,261				786				8,261
Other expense			11,795				8,881				29,879				27,523
Total other expense			39,022				40,214				103,013				104,565
Income before income taxes			35,866				20,358				107,598				94,097
Income taxes			10,063				6,193				32,876				29,863
Net income		$	25,803			$	14,165			$	74,722			$	64,234
Earnings per common share:
Basic		$	0.60			$	0.34			$	1.80			$	1.54
Diluted		$	0.60			$	0.34			$	1.79			$	1.53
Dividends per common share		$	0.28			$	0.27			$	0.84			$	0.81
Average outstanding shares:
Basic			42,731,909				41,373,945				41,458,388				41,658,678
Diluted			42,998,484				41,775,111				41,811,493				42,075,862

See notes to consolidated unaudited financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
UNITED BANKSHARES, INC. AND SUBSIDIARIES

		Nine Months Ended September 30, 2007
																		Accumulated
		Common Stock																Other								Total
						Par								Retained				Comprehensive				Treasury				Shareholders’
(Dollars in thousands, except per share data)		Shares				Value				Surplus				Earnings				Income (Loss)				Stock				Equity
Balance at January 1, 2007			44,320,832			$	110,802			$	93,680			$	559,257				($15,791	)			($113,856	)		$	634,092
Cumulative effect of adopting FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, at January 1, 2007			—				—				—				(300	)			—				—				(300	)
Comprehensive income:
Net income			—				—				—				74,722				—				—				74,722
Other comprehensive income, net of tax:
Unrealized gain on securities of $2,091 net of reclassification adjustment for gains included in net income of $321			—				—				—				—				1,770				—				1,770
Unrealized loss on cash flow hedge, net of tax of $1,600			—				—				—				—				(2,972	)			—				(2,972	)
Termination of cash flow hedge, net of tax of $1,033			—				—				—				—				1,919				—				1,919
Remaining unrealized loss related to the call of securities previously transferred from available for sale to held to maturity investment portfolio			—				—				—				—				778				—				778
Accretion of the unrealized loss for securities transferred from the available for sale to the held to maturity investment portfolio			—				—				—				—				203				—				203
Pension plan’s amortization of transition asset, prior service cost, and actuarial loss, net of tax of $125			—				—				—				—				189				—				189
Total comprehensive income																											76,609
Acquisition of Premier Community Bankshares, Inc. (2,684,068 shares)			—				—				8,443				—				—				93,707				102,150
Purchase of treasury stock (746,472 shares)			—				—				—				—				—				(25,869	)			(25,869	)
Distribution of treasury stock for deferred compensation plan (2,000 shares)			—				—				—				—				—				59				59
Cash dividends ($0.84 per share)			—				—				—				(34,909	)			—				—				(34,909	)
Common stock options exercised (183,831 shares)			—				—				(2,978	)			—				—				6,415				3,437
Balance at September 30, 2007			44,320,832			$	110,802			$	99,145			$	598,770				($13,904	)			($39,544	)		$	755,269

See notes to consolidated unaudited financial statements

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
UNITED BANKSHARES, INC. AND SUBSIDIARIES

		Nine Months Ended
		September 30
(Dollars in thousands)		2007				2006
NET CASH PROVIDED BY OPERATING ACTIVITIES		$	67,820			$	54,453
INVESTING ACTIVITIES
Proceeds from maturities and calls of securities held to maturity			56,287				13,672
Proceeds from sales of securities held to maturity			475				—
Purchases of securities held to maturity			(445	)			(587	)
Proceeds from sales of securities available for sale			9,587				135,381
Proceeds from maturities and calls of securities available for sale			493,245				277,647
Purchases of securities available for sale			(558,412	)			(222,645	)
Net purchases of bank premises and equipment			(2,107	)			(2,391	)
Net cash of acquired subsidiary			(35,778	)			—
Net change in other investment securities			(8,978	)			9,545
Net change in loans			(32,141	)			(103,046	)
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES			(78,267	)			107,576
FINANCING ACTIVITIES
Cash dividends paid			(34,335	)			(33,907	)
Excess tax benefits from stock-based compensation arrangements			796				499
Acquisition of treasury stock			(24,885	)			(36,503	)
Net proceeds from issuance of trust preferred securities			82,475				—
Proceeds from exercise of stock options			2,416				5,561
Distribution of treasury stock for deferred compensation plan			59				35
Proceeds from long-term Federal Home Loan Bank borrowings			333,900				200,000
Repayment of long-term Federal Home Loan Bank borrowings			(234,127	)			(252,067	)
Changes in:
Deposits			(198,834	)			133,103
Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings			28,430				(214,176	)
NET CASH USED IN FINANCING ACTIVITIES			(44,105	)			(197,455	)
Decrease in cash and cash equivalents			(54,552	)			(35,426	)
Cash and cash equivalents at beginning of year			259,013				207,962
Cash and cash equivalents at end of period		$	204,461			$	172,536

See notes to consolidated unaudited financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

UNITED BANKSHARES, INC. AND SUBSIDIARIES

1. GENERAL

The accompanying unaudited consolidated interim financial statements of United Bankshares, Inc. and Subsidiaries (“United”) have been prepared in accordance with accounting principles for interim financial information generally accepted in the United States and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not contain all of the information and footnotes required by accounting principles generally accepted in the United States. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements presented as of September 30, 2007 and 2006 and for the three-month and nine-month periods then ended have not been audited. The consolidated balance sheet as of December 31, 2006 has been extracted from the audited financial statements included in United’s 2006 Annual Report to Shareholders. The accounting and reporting policies followed in the presentation of these financial statements are consistent with those applied in the preparation of the 2006 Annual Report of United on Form 10-K. In the opinion of management, all adjustments necessary for a fair presentation of financial position and results of operations for the interim periods have been made. Such adjustments are of a normal and recurring nature.

The accompanying consolidated interim financial statements include the accounts of United and its wholly owned subsidiaries. United considers all of its principal business activities to be bank related. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. Dollars are in thousands, except per share and share data.

New Accounting Standards

In February 2007, the Financial Standards Board (FASB) issued Statement No. 159 (SFAS 159), “The Fair Value Option for Financial Assets and Financial Liabilities” which provides companies with an option to report selected financial assets and liabilities at fair value. With this Standard, the FASB expects to reduce both the complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate the comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The Statement does not eliminate disclosure requirements included in accounting standards. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. United does not expect that the adoption of this statement will have a material impact on its consolidated financial statements.

In September 2006, the FASB published Statement No. 158 (SFAS 158), “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”, an amendment of FASB Statements No. 87, 88, 106, and 132(R). SFAS 158 requires employers to recognize in their statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status. United is also required to recognize fluctuations in the funded status in the year in which the changes occur through comprehensive

income. United adopted the recognition and disclosure provisions of SFAS 158 on December 31, 2006. See Note 13 for additional information regarding United’s adoption of SFAS 158. SFAS also requires employers to measure the funded status of a plan as of the end of the employers’ fiscal year, with limited exceptions, and will be effective for United for the fiscal year ending December 31, 2008.

In September 2006, the FASB also issued Statement No. 157 (SFAS 157), “Fair Value Measurements” which provides enhanced guidance for using fair value to measure assets and liabilities. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, with earlier adoption permitted. United is currently assessing the impact this statement will have on its consolidated financial statements.

In July 2006, the FASB issued FASB Interpretation (FIN) No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes”, to address the noncomparability in reporting tax assets and liabilities resulting from a lack of specific guidance in FASB Statement No. 109 (SFAS 109), “Accounting for Income Taxes”, on the uncertainty in income taxes recognized in an enterprise’s financial statements. United has adopted FIN 48 as of January 1, 2007, as required. The cumulative effect of adopting FIN 48 was recorded in retained earnings. The adoption of FIN 48 did not have a significant impact on United’s consolidated financial statements. See Note 14 for additional information regarding United’s adoption of FIN 48.

In March 2006, the FASB issued Statement No. 156 (SFAS 156), “Accounting for Servicing of Financial Assets”. SFAS 156 amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS 156 permits, but does not require, an entity to choose either the amortization method or the fair value measurement method for measuring each class of separately recognized servicing assets and servicing liabilities. SFAS 156 was effective for United on January 1, 2007. The implementation of SFAS 156 did not have a material impact on United’s consolidated financial statements.

In February 2006, the FASB issued Statement No. 155 (SFAS 155), “Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No. 133 and 140”. SFAS 155 amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, to permit fair value remeasurement for any hybrid financial instrument with an embedded derivative that otherwise would require bifurcation, provided that the whole instrument is accounted for on a fair value basis. SFAS 155 amends SFAS No. 140, “Accounting for the Impairment or Disposal of Long-Lived Assets”, to allow a qualifying special-purpose entity (SPE) to hold a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. United adopted SFAS 155 on January 1, 2007, as required. Its implementation did not have a material impact on United’s consolidated financial statements.

On January 1, 2006, United adopted FASB Statement No. 123—revised 2004 (SFAS 123R), ''Share-Based Payment’’ which replaced Statement of Financial Accounting Standards No. 123 (SFAS 123), “Accounting for Stock-Based Compensation’’ and superseded APB Opinion No. 25 (APB 25), ''Accounting for Stock Issued to Employees” and amended FASB Statement No. 95, “Statement of Cash Flows.’’ Under this transition method, compensation cost to be recognized beginning in the first quarter of 2006 would include: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006,

based on the grant-date fair value estimated in accordance with the original provision of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. Results for prior periods were not restated. Due to modification on December 30, 2005 to accelerate unvested options under United’s existing stock option plans and the fact that no new options were granted in 2006 and the first nine months of 2007, United did not recognize any compensation cost for 2006 and the first nine months of 2007. See Note 12 for additional information regarding United’s adoption of SFAS 123R.

2. MERGERS & ACQUISITIONS

At the opening of business on July 14, 2007, United acquired 100% of the outstanding common stock of Premier Community Bankshares, Inc. (Premier) of Winchester, Virginia. The results of operations of Premier, which are not significant, are included in the consolidated results of operations from the date of acquisition. Because the results of operations of Premier are not significant, pro forma information is not being provided. The acquisition of Premier expands United’s presence in the rapidly growing and economically attractive Metro DC area and affords United the opportunity to enter new Virginia markets in the Winchester, Harrisonburg and Charlottesville areas.

At consummation, Premier had assets of approximately $911 million, loans of $759 million, deposits of $716 million and shareholders’ equity of $71 million. Premier’s net income was $1.8 million or 31¢ per diluted share for the second quarter of 2007 and $3.6 million or 60¢ per diluted share for the first half of 2007. The transaction was accounted for under the purchase method of accounting.

The aggregate purchase price was approximately $200 million, including $98 million of cash, common stock valued at $97 million, and vested stock options exchanged valued at $5 million. The number of shares issued in the transaction were 2,684,068, which were valued based on the average market price of United’s common shares over the period including the two days before and after the terms of the acquisition were agreed to and announced. The value of the vested stock options was determined using the Black-Scholes option pricing model based upon 241,428 options exchanged. The following weighted average assumptions were used to determine the value of the options exchanged: risk-free interest rate of 4.96%, expected dividend yield of 3.00%, volatility factor of the expected market price of United’s common stock of 0.219 and a weighted expected option life of 2.1 years. The preliminary purchase price has been allocated to the identifiable tangible and intangible assets resulting in preliminary additions to goodwill and core deposit intangibles of approximately $148 million and $11 million, respectively. In the merger, United assumed approximately $2.5 million of liabilities to provide severance benefits to terminated employees of Premier. The estimated fair values of the acquired assets and liabilities, including identifiable intangible assets, are subject to refinement as additional information becomes available. Any subsequent adjustments to the fair values of assets and liabilities acquired, identifiable intangible assets, or other purchase accounting adjustments will result in adjustments to goodwill within the first 12 months following the date of acquisition.

3. INVESTMENT SECURITIES

The amortized cost and estimated fair values of securities available for sale are summarized on the following page:

		September 30, 2007
						Gross				Gross				Estimated
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
U.S. Treasury securities and obligations of U.S. Government corporations and agencies		$	40,068			$	166			$	26			$	40,208
State and political subdivisions			118,583				1,553				553				119,583
Mortgage-backed securities			795,945				2,177				7,380				790,742
Marketable equity securities			6,585				191				177				6,599
Other			141,229				2,921				2,734				141,416
Total		$	1,102,410			$	7,008			$	10,870			$	1,098,548

		December 31, 2006
						Gross				Gross				Estimated
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
U.S. Treasury securities and obligations of U.S. Government corporations and agencies		$	7,993				—			$	85			$	7,908
State and political subdivisions			110,261			$	2,176				201				112,236
Mortgage-backed securities			777,133				822				11,896				766,059
Marketable equity securities			6,200				439				43				6,596
Other			115,253				2,619				419				117,453
Total		$	1,016,840			$	6,056			$	12,644			$	1,010,252

Provided below is a summary of securities available-for-sale which were in an unrealized loss position at September 30, 2007 and December 31, 2006:

		Less than 12 months								12 months or longer
		Market				Unrealized				Market				Unrealized
		Value				Losses				Value				Losses
September 30, 2007
Treasuries and agencies			—				—			$	3,963			$	26
State and political		$	21,400			$	159				27,260				394
Mortgage-backed			67,078				448				536,485				6,932
Marketable equity securities			750				109				132				68
Other			62,451				2,148				19,928				586
Total		$	151,679			$	2,864			$	587,768			$	8,006
December 31, 2006
Treasuries and agencies		$	1,978			$	3			$	3,905			$	82
State and political			3,452				22				25,651				179
Mortgage-backed			35,437				167				663,361				11,729
Marketable equity securities			—				—				158				43
Other			—				—				25,637				419
Total		$	40,867			$	192			$	718,712			$	12,452

Gross unrealized losses on available for sale securities were $10,870 at September 30, 2007. Securities in a continuous unrealized loss position for twelve months or more consisted primarily of mortgage-backed securities. The unrealized loss on the mortgage-backed securities portfolio relates primarily to AAA securities issued by FNMA, FHLMC, GNMA, and various other private label issuers. Management does not believe any individual security with an unrealized loss as of September 30, 2007 is other than temporarily impaired. United believes the decline in value is attributable to changes in market interest rates and not the credit quality of the issuers. United has the intent and the ability to hold these securities until such time as the value recovers or the securities mature. However, United acknowledges that any impaired securities may be sold in future periods in response to significant, unanticipated changes in asset/liability management decisions, unanticipated future market movements or business plan changes.

As previously reported, at March 31, 2006, as part of a balance sheet repositioning strategy, management specifically identified approximately $86 million of impaired, low-yielding, fixed rate investment securities for sale. Since United did not have the positive intent to hold these securities to recovery, United recognized a loss of approximately $2.93 million in the first quarter of 2006 related to these securities. These securities were subsequently sold on April 4, 2006.

The amortized cost and estimated fair value of securities available for sale at September 30, 2007 and December 31, 2006 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because the issuers may have the right to call or prepay obligations without penalties.

		September 30, 2007								December 31, 2006
						Estimated								Estimated
		Amortized				Fair				Amortized				Fair
		Cost				Value				Cost				Value
Due in one year or less		$	19,337			$	19,359			$	4,427			$	4,424
Due after one year through five years			109,487				109,053				106,890				105,431
Due after five years through ten years			183,767				182,568				214,164				212,051
Due after ten years			783,234				780,969				685,159				681,750
Marketable equity securities			6,585				6,599				6,200				6,596
Total		$	1,102,410			$	1,098,548			$	1,016,840			$	1,010,252

The amortized cost and estimated fair values of securities held to maturity are summarized as follows:

		September 30, 2007
						Gross				Gross				Estimated
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
U.S. Treasury securities and obligations of U.S. Government corporations and agencies		$	11,600			$	865				—			$	12,465
State and political subdivisions			60,623				963			$	2				61,584
Mortgage-backed securities			176				8				—				184
Other			85,853				659				2,395				84,117
Total		$	158,252			$	2,495			$	2,397			$	158,350

		December 31, 2006
						Gross				Gross				Estimated
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
U.S. Treasury securities and obligations of U.S. Government corporations and agencies		$	11,682			$	914				—			$	12,596
State and political subdivisions			62,703				1,537				—				64,240
Mortgage-backed securities			234				7				—				241
Other			137,677				2,112			$	1,188				138,601
Total		$	212,296			$	4,570			$	1,188			$	215,678

The amortized cost and estimated fair value of debt securities held to maturity at September 30, 2007 and December 31, 2006 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because the issuers may have the right to call or prepay obligations without penalties.

		September 30, 2007								December 31, 2006
						Estimated								Estimated
		Amortized				Fair				Amortized				Fair
		Cost				Value				Cost				Value
Due in one year or less		$	3,400			$	3,410			$	1,726			$	1,741
Due after one year through five years			42,088				42,817				42,016				43,116
Due after five years through ten years			25,136				25,789				27,357				28,219
Due after ten years			87,628				86,334				141,197				142,602
Total		$	158,252			$	158,350			$	212,296			$	215,678

The carrying value of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes as required or permitted by law, approximated $959,253 and $948,623 at September 30, 2007 and December 31, 2006, respectively.

4. LOANS

Major classifications of loans are as follows:

		September 30,				December 31,
		2007				2006
Commercial, financial and agricultural		$	1,071,706			$	954,024
Real estate:
Single-family residential			1,877,510				1,720,794
Commercial			1,442,874				1,146,007
Construction			640,116				523,042
Other			189,137				119,973
Installment			371,902				349,868
Total gross loans		$	5,593,245			$	4,813,708

The table above does not include loans held for sale of $954 and $2,041 at September 30, 2007 and December 31, 2006, respectively. Loans held for sale consist of single-family residential real estate loans originated for sale in the secondary market.

United’s subsidiary banks have made loans, in the normal course of business, to the directors and officers of United and its subsidiaries, and to their affiliates. Such related party loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and did not involve more than normal risk of collectibility. The aggregate dollar amount of these loans was $114,492 and $122,150 at September 30, 2007 and December 31, 2006, respectively.

5. ALLOWANCE FOR CREDIT LOSSES

United maintains an allowance for loan losses and an allowance for lending-related commitments such as unfunded loan commitments and letters of credit. The allowance for lending-related commitments of $8,264 and $8,742 at September 30, 2007 and December 31, 2006, respectively, is separately classified on the balance sheet and is included in other liabilities. The combined allowances for loan losses and lending-related commitments are referred to as the allowance for credit losses.

The allowance for credit losses is management’s estimate of the probable credit losses inherent in the lending portfolio. Management’s evaluation of the adequacy of the allowance for credit losses and the appropriate provision for credit losses is based upon a quarterly evaluation of the loan portfolio and lending-related commitments. This evaluation is inherently subjective and requires significant estimates, including the amounts and timing of future cash flows, value of collateral, losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends, all of which are susceptible to constant and significant change. The allowance allocated to specific credits and loan pools grouped by similar risk characteristics is reviewed on a quarterly basis and adjusted as necessary based upon subsequent changes in circumstances. In determining the components of the allowance for credit losses, management considers the risk arising in part from, but not limited to, charge-off and delinquency trends, current economic and business conditions, lending policies and procedures, the size and risk characteristics of the loan portfolio, concentrations of credit, and other various factors. Loans deemed to be uncollectible are charged against the allowance for credit losses, while recoveries of previously charged-off amounts are credited to the allowance for credit losses. Credit expenses related to the allowance for credit losses and the allowance for lending-related commitments are reported in the provision for credit losses in the income statement.

A progression of the allowance for credit losses, which includes the allowance for credit losses and the allowance for lending-related commitments, for the periods presented is summarized as follows:

		Three Months Ended								Nine Months Ended
		September 30								September 30
		2007				2006				2007				2006
Balance at beginning of period		$	51,220			$	52,895			$	52,371			$	52,871
Allowance of purchased subsidiaries			7,648				—				7,648				—
Provision for credit losses			1,550				571				2,750				1,169
			60,418				53,466				62,769				54,040
Loans charged-off			(2,104	)			(1,168	)			(4,952	)			(2,482	)
Less: Recoveries			303				238				800				978
Net Charge-offs			(1,801	)			(930	)			(4,152	)			(1,504	)
Balance at end of period		$	58,617			$	52,536			$	58,617			$	52,536

6. RISK ELEMENTS

Nonperforming assets include loans on which no interest is currently being accrued, principal or interest has been in default for a period of 90 days or more and for which the terms have been modified due to deterioration in the financial position of the borrower. Loans are designated as nonaccrual when, in the opinion of management, the collection of principal or interest is doubtful. This generally occurs when a loan becomes 90 days past due as to principal or interest unless the loan is both well secured and in the process of collection. When interest accruals are discontinued, unpaid interest credited to income in the current year is reversed, and unpaid interest accrued in prior years is charged to the allowance for credit losses. Other real estate owned consists of property acquired through foreclosure and is stated at the lower of cost or fair value less estimated selling costs.

Nonperforming assets are summarized as follows:

		September 30,				December 31,
		2007				2006
Nonaccrual loans		$	8,958			$	5,755
Loans past due 90 days or more and still accruing interest			13,827				8,432
Total nonperforming loans			22,785				14,187
Other real estate owned			5,338				4,231
Total nonperforming assets		$	28,123			$	18,418

Loans are designated as impaired when, in the opinion of management, the collection of principal and interest in accordance with the contractual terms of the loan agreement is not probable. At September 30, 2007, the recorded investment in loans that were considered to be impaired was $29,848 (of which $8,958 were on a nonaccrual basis). Included in this amount is $23,296 of impaired loans for which the related allowance for credit losses is $4,083 and $6,552 of impaired loans that do not have an allowance for credit losses. At December 31, 2006, the recorded investment in loans that were considered to be impaired was $21,963 (of which $5,755 were on a nonaccrual basis). Included in this amount were $15,193 of impaired loans for which the related allowance for credit losses was $3,000, and $6,770 of impaired loans that did not have an allowance for credit losses. The average recorded investment in impaired loans during the nine months ended September 30, 2007 and for the year ended December 31, 2006 was approximately $27,347 and $26,503, respectively.

United recognized interest income on impaired loans of approximately $481 and $1,151 for the quarter and nine months ended September 30, 2007, respectively, and $467 and $1,726 for the quarter and nine months ended September 30, 2006, respectively. Substantially all of the interest income was recognized using the accrual method of income recognition. The amount of interest income that would have been recorded under the original terms for the above loans and nonaccrual loans was $496 and $1,464 for the quarter and nine months ended September 30, 2007, respectively, and $376 and $1,041 for the quarter and nine months ended September 30, 2006, respectively.

Statement of Position 03-3 (SOP 03-3), “Accounting for Certain Loans or Debt Securities Acquired in a Transfer” requires acquired impaired loans for which it is probable that the investor will be unable to collect

all contractually required payments receivable to be recorded at the present value of amounts expected to be received and prohibits carrying over or creating valuation allowances in the initial accounting for these loans. Loans carried at fair value, mortgage loans held for sale, and loans to borrowers in good standing under revolving credit agreements are excluded from the scope of SOP 03-3. The amount of impaired loans acquired from Premier on July 14, 2007 was not significant. Additional disclosures required by SOP 03-3 are not provided because the amount was not significant.

7. INTANGIBLE ASSETS

The following is a summary of intangible assets subject to amortization and those not subject to amortization:

		As of September 30, 2007
		Gross Carrying				Accumulated				Net Carrying
		Amount				Amortization				Amount
Amortized intangible assets:
Core deposit intangible assets		$	30,995				($19,040	)		$	11,955
Goodwill not subject to amortization										$	312,857

		As of December 31, 2006
		Gross Carrying				Accumulated				Net Carrying
		Amount				Amortization				Amount
Amortized intangible assets:
Core deposit intangible assets		$	19,890				($17,250	)		$	2,640
Goodwill not subject to amortization										$	167,421

During the third quarter of 2007, United acquired Premier adding preliminary amounts of $147,879 to goodwill and $11,105 to core deposit intangible assets.

United incurred amortization expense of $1,000 and $1,790 for the quarter and nine months ended September 30, 2007, respectively, and $459 and $1,453 for the quarter and nine months ended September 30, 2006, respectively, related to intangible assets. The table presented below sets forth the anticipated amortization expense for intangible assets for the years subsequent to 2006:

Year		Amount
2007		$	2,853
2008			3,509
2009			2,561
2010			1,884
2011+			2,938

8. SHORT-TERM BORROWINGS

Federal funds purchased and securities sold under agreements to repurchase are a significant source of funds for the company. United has various unused lines of credit available from certain of its correspondent banks in the aggregate amount of $200,000. These lines of credit, which bear interest at prevailing market rates,

permit United to borrow funds in the overnight market, and are renewable annually subject to certain conditions. At September 30, 2007, federal funds purchased were $78,405 while securities sold under agreements to repurchase were $575,206.

United has available funds of $70,000 with two unrelated financial institutions to provide for general liquidity needs. Both are unsecured revolving lines of credit. One has a one-year renewable term while the other line of credit has a two-year renewable term. Each line of credit carries an indexed floating rate of interest. At September 30, 2007, United had no outstanding balance under these lines of credit.

In July of 2007, United borrowed funds totaling $50,000 on these two lines of credit to temporarily fund a portion of the cash consideration for the Premier acquisition. At the funding date, the weighted-average interest rate was 5.97% on the borrowings. United repaid the amounts in September 2007.

United Bank (VA) participates in the Treasury Investment Program, which is essentially the U.S. Treasury’s savings account for companies depositing employment and other tax payments. The bank retains the funds in an open-ended interest-bearing note until the Treasury withdraws or “calls” the funds. A maximum note balance is established and that amount must be collateralized at all times. All tax deposits or a portion of the tax deposits up to the maximum balance are generally available as a source of short-term investment funding. As of September 30, 2007, United Bank (VA) had an outstanding balance of $2,007 and had additional funding available of $2,993.

9. LONG-TERM BORROWINGS

United’s subsidiary banks are members of the Federal Home Loan Bank (FHLB). Membership in the FHLB makes available short-term and long-term borrowings from collateralized advances. All FHLB borrowings are collateralized by a mix of single-family residential mortgage loans, commercial loans and investment securities. At September 30, 2007, United had an unused borrowing amount of $1,196,660 available subject to delivery of collateral after certain trigger points.

Advances may be called by the FHLB or redeemed by United based on predefined factors and penalties. In June 2007, United prepaid two $100 million long-term FHLB advances and terminated two interest rate swaps associated with the advances. United recognized a $787 thousand before-tax gain on the termination of the swaps. In addition, United prepaid approximately $28.9 million of a $100 million long-term convertible FHLB advance. United incurred a before-tax charge of approximately $786 thousand to prepay the debt. United replaced the $228.9 million of debt with a 3-year FHLB advance and an associated interest rate swap with a total effective cost of 5.25%. The debt prepaid had an average total effective cost of 5.40% and a remaining maturity of 6.25 years. United’s management believes that the prepayment of these borrowings and the termination of the interest rate swaps will improve United’s future net interest margin and enhance future earnings as well as reducing interest rate risk by shortening the term.

During the first quarter of 2006, as part of the balance sheet repositioning, United prepaid a $50 million variable interest rate FHLB advance and terminated a fixed interest rate swap associated with the advance. United recognized a $3.06 million before-tax gain on the termination of the swap. No prepayment penalty was incurred in connection with the early repayment of the advance.

At September 30, 2007, $643,672 of FHLB advances with a weighted-average interest rate of 5.18% is scheduled to mature within the next twelve years.

The scheduled maturities of borrowings are as follows:

Year		Amount
2007		$	75,000
2008			110,437
2009			50,000
2010			355,000
2011 and thereafter			53,235
Total		$	643,672

As of September 30, 2007, United had a total of eleven statutory business trusts that were formed for the purpose of issuing or participating in pools of trust preferred capital securities (Capital Securities) with the proceeds invested in junior subordinated debt securities (Debentures) of United. The Debentures, which are subordinate and junior in right of payment to all present and future senior indebtedness and certain other financial obligations of United, are the sole assets of the trusts and United’s payment under the Debentures is the sole source of revenue for the trusts. At September 30, 2007 and December 31, 2006, the outstanding balances of the Debentures were $206,308 and $85,301 respectively, and were included in the category of long-term debt on the Consolidated Balance Sheets entitled “Other long-term borrowings”. The Capital Securities are not included as a component of shareholders’ equity in the Consolidated Balance Sheets. United fully and unconditionally guarantees each individual trust’s obligations under the Capital Securities.

Under the provisions of the subordinated debt, United has the right to defer payment of interest on the subordinated debt at any time, or from time to time, for periods not exceeding five years. If interest payments on the subordinated debt are deferred, the dividends on the Capital Securities are also deferred. Interest on the subordinated debt is cumulative.

The Capital Securities currently qualify as Tier 1 capital of United for regulatory purposes. In March of 2005, the banking regulatory agencies issued guidance, which did not change the regulatory capital treatment for the Trust Preferred Securities.

In July of 2007, United, through a wholly-owned subsidiary, United Statutory Trust V, participated in a Capital Securities offering of a third party in the amount of $50 million to help fund the acquisition of Premier. The proceeds were invested in junior subordinated debt of United paying interest quarterly at a fixed rate of 6.67% for the first five years and then at a floating rate equal to 3-month LIBOR plus 155 basis points thereafter.

In September of 2007, United, through a wholly-owned subsidiary, United Statutory Trust VI, participated in a Capital Securities offering of a third party in the amount of $30 million to help repay the short-term borrowings used to temporarily fund the acquisition of Premier. The proceeds were invested in junior subordinated debt of United paying interest quarterly at a fixed rate of 6.60% for the first five years and then at a floating rate equal 3 month LIBOR plus 130 basis points thereafter. Under the terms of the transactions, both Capital Securities will have a maturity of 30 years, and are redeemable after five years with certain

exceptions. For regulatory purposes, both the $50 million and the $30 million issuance of Capital Securities qualify as Tier I capital in accordance with current regulatory reporting requirements.

As part of the acquisition of Premier on July 14, 2007, United assumed all the obligations of Premier and its subsidiaries. Premier had a total of four statutory business trusts that were formed for the purpose of issuing or participating in Capital Securities with the proceeds invested in Debentures of Premier. At merger, the outstanding balance of Premier’s Debentures was approximately $39 million. The Capital Securities assumed in the Premier acquisition qualify as Tier 1 capital of United under current regulatory reporting requirements.

10. COMMITMENTS AND CONTINGENT LIABILITIES

United is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers and to alter its own exposure to fluctuations in interest rates. These financial instruments include loan commitments, standby letters of credit, and commercial letters of credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements.

United’s maximum exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for the loan commitments and standby letters of credit is the contractual or notional amount of those instruments. United uses the same policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Collateral may be obtained, if deemed necessary, based on management’s credit evaluation of the counterparty.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily, and historically do not, represent future cash requirements. The amount of collateral obtained, if deemed necessary upon the extension of credit, is based on management’s credit evaluation of the counterparty. United had $1,903,091 and $1,734,299 of loan commitments outstanding as of September 30, 2007 and December 31, 2006, respectively, the majority of which expire within one year.

Commercial and standby letters of credit are agreements used by United’s customers as a means of improving their credit standing in their dealings with others. Under these agreements, United guarantees certain financial commitments of its customers. A commercial letter of credit is issued specifically to facilitate trade or commerce. Typically, under the terms of a commercial letter of credit, a commitment is drawn upon when the underlying transaction is consummated as intended between the customer and a third party. United has issued commercial letters of credit of $1,105 and $525 as of September 30, 2007 and December 31, 2006, respectively. A standby letter of credit is generally contingent upon the failure of a customer to perform according to the terms of an underlying contract with a third party. United has issued standby letters of credit of $144,632 and $112,367 as of September 30, 2007 and December 31, 2006, respectively. In accordance with FIN 45, United has determined that substantially all of its letters of credit are renewed on an annual basis and that the fair value of these letters of credit is immaterial.

11. DERIVATIVE FINANCIAL INSTRUMENTS

United uses derivative instruments to aid against adverse prices or interest rate movements on the value of certain assets or liabilities and on future cash flows. These derivatives may consist of interest rate swaps, caps, floors, collars, futures, forward contracts, written and purchased options. United also executes derivative instruments with its commercial banking customers to facilitate its risk management strategies.

United accounts for its derivative financial instruments in accordance with FASB Statement No. 133 (SFAS No. 133), “Accounting for Derivative Instruments and Hedging Activities”, as amended. SFAS No. 133 requires all derivative instruments to be carried at fair value on the balance sheet. United usually designates derivative instruments used to manage interest rate risk as hedge relationships with certain assets, liabilities or cash flows being hedged. Certain derivatives used for interest rate risk management are not designated in a SFAS No. 133 relationship.

Under the provisions of SFAS No. 133, United has both fair value hedges and cash flow hedges as of September 30, 2007. Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivative instruments designated in hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

For a fair value hedge, the fair value of the interest rate swap is recognized on the balance sheet as either a freestanding asset or liability with a corresponding adjustment to the hedged financial instrument. Subsequent adjustments due to changes in the fair value of a derivative that qualifies as a fair value hedge are offset in current period earnings. For a cash flow hedge, the fair value of the interest rate swap is recognized on the balance sheet as either a freestanding asset or liability with a corresponding adjustment to other comprehensive income within shareholders’ equity, net of tax. Subsequent adjustments due to changes in the fair value of a derivative that qualifies as a cash flow hedge are offset to other comprehensive income, net of tax.

At inception of a hedge relationship, United formally documents the hedged item, the particular risk management objective, the nature of the risk being hedged, the derivative being used, how effectiveness of the hedge will be assessed and how the ineffectiveness of the hedge will be measured. United also assesses hedge effectiveness at inception and on an ongoing basis using regression analysis. Hedge ineffectiveness is measured by using the change in fair value method. The change in fair value method compares the change in the fair value of the hedging derivative to the change in the fair value of the hedged exposure, attributable to changes in the benchmark rate. The portion of a hedge that is ineffective is recognized immediately in earnings. Prior to January 1, 2006, United used the shortcut method for interest rate swaps that met the criteria as defined under SFAS No. 133. Effective January 1, 2006, United adopted an internal policy of no longer using the short-cut method to account for future hedging relationships entered into.

For derivatives that are not designated in a hedge relationship, changes in the fair value of the derivatives are recognized in earnings in the same period as the change in the fair value.

In June 2007, United terminated two fixed interest rate swap designated as cash flow hedges associated

with the repayment of two $100 million variable interest rate FHLB advances that were being hedged. United recognized a $787 thousand before-tax gain on the termination of the swaps. In addition, United prepaid approximately $28.9 million of a $100 million long-term convertible FHLB advance. United replaced the $228.9 million of debt with a 3-year variable-interest rate FHLB advance and an associated fixed interest rate swap designated as a cash flow hedge. During the first quarter of 2006, as part of a balance sheet repositioning strategy, United terminated a fixed interest rate swap designated as a cash flow hedge associated with the repayment of a $50 million variable interest rate FHLB advance that was being hedged. United recognized a $3.06 million before-tax gain on the termination of the swap.

The following tables set forth certain information regarding the interest rate derivatives portfolio used for interest-rate risk management purposes and designated as accounting hedges under SFAS 133 at September 30, 2007:

Derivative Classifications and Hedging Relationships
September 30, 2007

		Notional				Derivative
		Amount				Asset				Liability
Derivatives Designated as Fair Value Hedges:
Hedging Commercial Loans		$	14,187			$	50			$	218
Total Derivatives Designated as Fair Value Hedges:		$	14,187			$	50			$	218
Derivatives Designated as Cash Flow Hedges:
Hedging FHLB Borrowings		$	228,900			$	—			$	3,957
Total Derivatives Designated as Cash Flow Hedges:		$	228,900			$	—			$	3,957
Total Derivatives Used in Interest Rate Risk Management and Designated in SFAS 133 Relationships:		$	243,087			$	50			$	4,175

Derivative Instruments
September 30, 2007

		Notional				Average				Average				Estimated
		Amount				Receive Rate				Pay Rate				Fair Value
Fair Value Hedges:
Pay Fixed Swap (Commercial Loans)		$	14,187				—				6.27	%			($168	)
Total Derivatives Used in Fair Value Hedges		$	14,187												($168	)
Cash Flow Hedges:
Pay Fixed Swap (FHLB Borrowing)		$	228,900				—				5.26	%			($3,957	)
Total Derivatives Used in Cash Flow Hedges		$	228,900												($3,957	)
Total Derivatives Used for Interest Rate Risk Management and Designated in SFAS 133 Relationships		$	243,087												($4,125	)

12. STOCK BASED COMPENSATION

On January 1, 2006, United adopted Statement of Financial Accounting Standards 123R (SFAS 123R) using the modified prospective transition method. Under this transition method, compensation cost to be recognized beginning in the first quarter of 2006 included: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. Results for prior periods will not be restated.

On December 30, 2005, the Executive Committee of the Board of Directors of United approved the accelerated vesting of all unvested stock options granted prior to December 30, 2005 to United employees, including Executive Officers, under the 2001 Stock Option Plan. As a result of the vesting acceleration, options to purchase 547,626 shares of United common stock became exercisable immediately. United recognized a pre-tax expense of approximately $21 thousand in the fourth quarter of 2005 for those accelerated options that were “in-the-money”, that is, the option’s exercise price was less than the market value of United’s stock. Due to the modification to accelerate the unvested options, United did not recognize any compensation cost for year 2006. In addition, no new options were granted during 2006 and the first nine months of 2007. Accordingly, the adoption of SFAS 123R had no impact on United’s consolidated statements of income or net income per share.

At its March 20, 2006 regular meeting, United’s Board of Directors approved the adoption of the 2006 Stock Option Plan and directed that the 2006 Stock Option Plan be submitted to United’s shareholders for approval at its Annual Meeting of Shareholders (the 2006 Annual Meeting). At the 2006 Annual Meeting, held on May 15, 2006, United’s shareholders approved the 2006 Stock Option Plan. The 2006 Stock Option Plan thus became effective at the time of the shareholders’ approval. A total of 1,500,000 shares of United’s authorized but unissued common stock are allocated for the 2006 Stock Option Plan. Each plan year, 400,000 options will be available for award to eligible employees; however, not all 400,000 options are required to be awarded in that year. All options granted under the 2006 Stock Option Plan will be non-statutory stock options (NSOs), i.e. options that do not qualify as incentive stock options under Section 422 of the Internal Revenue Code. Subject to certain change in control provisions, recipients of options will be fully vested in and permitted to exercise options granted under the 2006 Stock Option Plan three years from the grant date. As of September 30, 2007, no shares have been granted under the 2006 Stock Option Plan. Any stock options granted under the 2006 Stock Option Plan in the future will be subject to the provisions of SFAS 123R.

United currently has options outstanding from various option plans other than the 2006 Stock Option Plan (the “Prior Plans”); however, no common shares of United stock are available for grants under the Prior Plans as these plans have expired. Awards outstanding under the Prior Plans will remain in effect in accordance with their respective terms.

A summary of option activity under the Plans as of September 30, 2007, and the changes during the first nine months of 2007 are presented below:

		Nine Months Ended September 30, 2007
										Weighted Average
						Aggregate				Remaining
						Intrinsic				Contractual				Exercise
		Shares				Value				Term (Yrs.)				Price
Outstanding at January 1, 2007			1,732,200											$	28.00
Granted			—												—
Exercised			183,831												18.50
Assumed in acquisition of subsidiary			224,528												13.95
Forfeited or expired			24,050												32.11
Outstanding at September 30, 2007			1,748,847			$	9,281				5.1			$	27.14
Exercisable at September 30, 2007			1,748,847			$	9,281				5.1			$	27.14

In addition to the stock options detailed above, United has outstanding stock options related to a deferred compensation plan assumed in the 1998 merger with George Mason Bankshares, Inc. (GMBS). The stock options granted under this deferred compensation plan were to former directors of GMBS. These options carry no exercise cost, contain no expiration date, and are eligible for dividends. Other than additional options granted through reinvestment of dividends received, United does not issue additional options under this deferred compensation plan. Options outstanding at September 30, 2007 were 19,547. Options granted through the reinvestment of dividends during the first nine months of 2007 were 460. No options were exercised during the first nine months of 2007. United records compensation expense for this plan based on the number of options outstanding and United’s quoted market price of its common stock with an equivalent adjustment to the associated liability.

Cash received from options exercised under the Plans for the nine months ended September 30, 2007 and 2006 was $2.42 million and $5.56 million, respectively. During the nine months ended September 30, 2007 and 2006, 183,831 and 235,547 shares, respectively, were issued in connection with stock option exercises. All shares issued in connection with stock option exercises were issued from available treasury stock for the nine months ended September 30, 2007 and 2006. The total intrinsic value of options exercised under the Plans during the nine months ended September 30, 2007 and 2006 was $2.74 million and $3.10 million, respectively.

SFAS 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under previous standards. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While the company cannot estimate what those amounts will be in the future (because they depend on, among other things, the date employees exercise stock options), United recognized cash flows from financing activities of $796 thousand and $499 thousand from excess tax benefits related to share-based compensation for the nine months ended September 30, 2007 and 2006, respectively.

13. EMPLOYEE BENEFIT PLANS

United has a defined benefit retirement plan covering substantially all employees. Pension benefits are based

on years of service and the average of the employee’s highest five consecutive plan years of basic compensation paid during the ten plan years preceding the date of determination. United’s funding policy is to contribute annually the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future.

In September of 2007, after a recommendation by United’s Pension Committee and approval by United’s Board of Directors, the United Bankshares, Inc. Pension Plan (the Plan) as it relates to participation was amended. The decision to change the participation rules for the Plan follows current industry trends, as many large and medium size companies have taken similar steps. The amendment provides that employees hired on or after October 1, 2007, will not be eligible to participate in the Plan. However, new employees will continue to be eligible to participate in United’s Savings and Stock Investment 401(k) plan. This change has absolutely no impact on current employees (those hired prior to October 1, 2007). They will continue to participate in the Plan, with no change in benefit provisions, and will continue to be eligible to participate in United’s Saving and Stock Investment 401(k) Plan.

On December 31, 2006, United adopted the recognition and disclosure provision of Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”. SFAS 158 requires United to recognize the funded status of its defined benefit post-retirement plan in the statement of financial position, with a corresponding adjustment to accumulated other comprehensive income, net of tax. The adjustment to accumulated other comprehensive income at adoption represents the net unrecognized actuarial losses, unrecognized prior service costs, and unrecognized transition obligation remaining from the initial adoption of SFAS 87, all of which were previously netted against the plan’s funded status in United’s statement of financial positions pursuant to the provisions of SFAS 87. These amounts will be subsequently recognized as net periodic pension cost pursuant to United’s historical accounting policy for amortizing such amounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic pension cost in the same periods will be recognized as a component of other comprehensive income. Those amounts will be subsequently recognized as a component of net periodic pension cost on the same basis as the amounts recognized in accumulated other comprehensive income at adoption of Statement 158.

The incremental effects of adopting the provision of Statement 158 on United’s statement of financial position at December 31, 2006 are presented in the following table. The adoption of Statement 158 had no effect on United’s consolidated statement of income for the year of 2006 and it will not affect United’s operating results in future periods.

		At December 31, 2006
		Prior to Adopting				Effect of Adopting				As Reported at
		Statement 158				Statement 158				December 31, 2006
Net pension asset			40,165				(13,217	)		$	26,948
Deferred income taxes			8,058				5,206				13,264
Accumulated other comprehensive income			(7,780	)			(8,011	)			(15,791	)

Included in accumulated other comprehensive income at December 31, 2006 are the following amounts that have not yet been recognized in net periodic pension cost: unrecognized transition asset of $701 ($425 net of

tax), unrecognized prior service costs of $9 ($6 net of tax) and unrecognized actuarial losses of $13,909 ($8,430 net of tax). The expected amortization of the transition asset, prior service cost, and actuarial loss included in accumulated other comprehensive income to be recognized in the Income Statement for the year ended December 31, 2007 is $175 ($105 net of tax), $1 ($1 net of tax), and $593 ($356 net of tax), respectively.

Net periodic pension cost for the three and nine months ended September 30, 2007 and 2006 included the following components:

		Three Months Ended								Nine Months Ended
		September 30								September 30
(In thousands)		2007				2006				2007				2006
Service cost		$	543			$	540			$	1,611			$	1,602
Interest cost			876				818				2,599				2,427
Expected return on plan assets			(1,818	)			(1,197	)			(5,395	)			(3,552	)
Amortization of transition asset			(44	)			(44	)			(131	)			(131	)
Recognized net actuarial loss			150				233				444				693
Amortization of prior service cost			1				1				1				1
Net periodic pension (benefit) cost		$	(292	)		$	351			$	(871	)		$	1,040
Weighted-Average Assumptions:
Discount rate			6.00	%			6.00	%			6.00	%			6.00	%
Expected return on assets			8.50	%			8.50	%			8.50	%			8.50	%
Rate of compensation increase			3.25	%			3.25	%			3.25	%			3.25	%

14. INCOME TAXES

In July 2006, the FASB issued Interpretation (FIN) No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes”, to address concerns regarding comparability in reported tax assets and liabilities in an enterprise’s financial statements resulting from a lack of specific guidance in FASB Statement No. 109 (SFAS 109), “Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken on a tax return, in order for those tax positions to be recognized in the financial statements. United has adopted FIN 48 as of January 1, 2007, as required. The cumulative effect of adopting FIN 48 was $300 thousand which was recorded in retained earnings. Also, certain amounts have been reclassified in the statement of financial position in order to comply with the requirements of the statement.

As of September 30, 2007, United has provided a liability for $5.9 million of unrecognized tax benefits related to various federal and state income tax matters. Of this amount, the amount that would impact United’s effective tax rate, if recognized, is $5.7 million. Over the next 12 months, the statute of limitations will close on certain income tax returns filed by an acquired subsidiary.

United is currently open to audit under the statute of limitations by the Internal Revenue Service and State Taxing authorities for the years ended December 31, 2004 through 2006. During the third quarter of 2007, United reduced its income tax reserve by $1.06 million due to the expiration of the statute of limitations for examinations of certain years.

As of January 1, 2007, United accrued $450 thousand of interest related to uncertain tax positions. As of September 30, 2007, the total amount of accrued interest was $458 thousand. United accounts for interest and penalties related to uncertain tax positions as part of its provision for federal and state income taxes.

15. COMPREHENSIVE INCOME

The components of total comprehensive income for the three and nine months ended September 30, 2007 and 2006 are as follows:

		Three Months Ended								Nine Months Ended
		September 30								September 30
(In thousands)		2007				2006				2007				2006
Net Income		$	25,803			$	14,165			$	74,722			$	64,234
Securities available for sale:
Net change in unrealized losses on available for sale securities arising during the period			7,412				13,872				3,217				1,452
Related income tax effect			(2,594	)			(4,855	)			(1,126	)			(508	)
Net reclassification adjustment for (gains) losses included in net income			(172	)			134				(494	)			3,071
Related income tax expense (benefit)			60				(47	)			173				(1,075	)
Net effect on other comprehensive loss			4,706				9,104				1,770				2,940
Securities held to maturity:
Unrealized loss related to the call of securities previously transferred from the available for sale to the held to maturity investment portfolio			29				—				1,197				—
Related income tax benefit			(10	)			—				(419	)			—
Accretion on the unrealized loss for securities transferred from the available for sale to the held to maturity investment portfolio prior to call or maturity			70				165				312				511
Related income tax expense			(24	)			(58	)			(109	)			(179	)
Net effect on other comprehensive income			65				107				981				332
Cash flow hedge derivatives:
Unrealized gain (loss) on cash flow hedge			(4.018	)			(2,500	)			(4,572	)			(2,499	)
Related income tax (benefit) expense			1,406				875				1,600				874
Termination of cash flow hedge			—				—				2,952				(2,077	)
Related income tax expense			—				—				(1,033	)			727
Net effect on other comprehensive income			(2,612	)			(1,625	)			(1,053	)			(2,975	)
FASB 158 pension plan:
Amortization of transition asset			(44	)			—				(131	)			—
Related income tax expense			16				—				52				—
Amortization of prior service cost			1				—				1				—
Related income tax benefit			—				—				—				—
Recognized net actuarial loss			150				—				444				—
Related income tax benefit			(60	)			—				(177	)			—
Net effect on other comprehensive income			63				—				189				—
Total change in other comprehensive income			2,222				7,586				1,887				297
Total Comprehensive Income		$	28,025			$	21,751			$	76,609			$	64,531