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Article by DailyStocks_admin    (02-27-09 03:15 AM)

United Bankshares Inc. CEO ADAMS RICHARD M SR bought 10000 shares on 2-18-2009 at $17.3

BUSINESS OVERVIEW

Organizational History and Subsidiaries
United Bankshares, Inc. (United) is a West Virginia corporation registered as a bank holding company pursuant to the Bank Holding Company Act of 1956, as amended. United was incorporated on March 26, 1982, organized on September 9, 1982, and began conducting business on May 1, 1984 with the acquisition of three wholly-owned subsidiaries. Since its formation in 1982, United has acquired twenty-seven banking institutions. At December 31, 2007, United has two banking subsidiaries (the Banking Subsidiaries) “doing business” under the name of United Bank, one operating under the laws of West Virginia referred to as United Bank (WV) and the other operating under the laws of Virginia referred to as United Bank (VA). United’s Banking Subsidiaries offer a full range of commercial and retail banking services and products. United also owns nonbank subsidiaries which engage in other community banking services such as asset management, real property title insurance, investment banking, financial planning, and brokerage services.
Employees
As of December 31, 2007, United and its subsidiaries had approximately 1,537 full-time equivalent employees and officers. None of these employees are represented by a collective bargaining unit and management considers employee relations to be excellent.
Web Site Address
United’s web site address is “www.ubsi-inc.com”. United makes available free of charge on its web site the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments thereto, as soon as reasonably practicable after United files such reports with the Securities and Exchange Commission (SEC). The reference to United’s web site does not constitute incorporation by reference of the information contained in the web site and should not be considered part of this document. These reports are also available at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
Business of United
As a bank holding company registered under the Bank Holding Company Act of 1956, as amended, United’s present business is community banking. As of December 31, 2007, United’s consolidated assets approximated $8.0 billion and total shareholders’ equity approximated $761 million.
United is permitted to acquire other banks and bank holding companies, as well as thrift institutions. United is also permitted to engage in certain non-banking activities which are closely related to banking under the provisions of the Bank Holding Company Act and the Federal Reserve Board’s Regulation Y. Management continues to consider such opportunities as they arise, and in this regard, management from time to time makes inquiries, proposals, or expressions of interest as to potential opportunities, although no agreements or understandings to acquire other banks or bank holding companies or nonbanking subsidiaries or to engage in other nonbanking activities, other than those identified herein, presently exist. See Note B — Notes to Consolidated Financial Statements for a discussion of United’s acquisition of Premier Community Bankshares, Inc. on July 14, 2007.
Business of Banking Subsidiaries
United, through its subsidiaries, engages primarily in community banking and additionally offers most types of business permitted by law and regulation. Included among the banking services offered are the acceptance of deposits in checking, savings, time and money market accounts; the making and servicing of personal, commercial, floor plan and student loans; and the making of construction and real estate loans. Also offered are individual retirement accounts, safe deposit boxes, wire transfers and other standard banking products and services. As part of their lending function, the Banking Subsidiaries offer credit card services.
The Banking Subsidiaries each maintain a trust department which acts as trustee under wills, trusts and pension and profit sharing plans, as executor and administrator of estates, and as guardian for estates of minors and incompetents, and in addition performs a variety of investment and security services. Trust services are available to customers of affiliate banks. United Bank (WV) provides services to its correspondent banks such as check clearing, safekeeping and the buying and selling of federal funds.
United Brokerage Services, Inc., a wholly-owned subsidiary of United Bank (WV), is a fully-disclosed broker/dealer and a registered Investment Advisor with the National Association of Securities Dealers, Inc., the Securities and Exchange Commission, and a member of the Securities Investor Protection Corporation. United Brokerage Services, Inc. offers a wide range of investment products as well as comprehensive financial planning and asset management services to the general public.
United Bank (WV) is a member of a network of automated teller machines known as the STAR ATM network while United Bank (VA) participates in the MOST network. Through STAR and MOST, the Banking Subsidiaries are participants in a network known as Cirrus, which provides banking on a nationwide basis.
United through its Banking Subsidiaries offers an Internet banking service, Smart Touch Online Banking, which allows customers to perform various transactions using a computer from any location as long as they have access to the Internet and a secure browser. Specifically, customers can check personal account balances, receive information about transactions within their accounts, make transfers between accounts, stop payment on a check, and reorder checks. Customers may also pay bills online and can make payments to virtually any business or individual. Customers can set up recurring fixed payments, one-time future payments or a one-time immediate payment. Customers can also set up their own merchants, view and modify that merchant list, view pending transactions and view their bill payment history with approximately three (3) months of history.
United also offers an automated telephone banking system, Telebanc, which allows customers to access their personal account(s) or business account(s) information from a touch-tone telephone.
Lending Activities
United’s loan portfolio, net of unearned income, increased $986.7 million to $5.79 billion in 2007 mainly as a result of the acquisition of Premier Community Bankshares, Inc. which added approximately $751 million, including purchase accounting amounts, in portfolio loans. The loan portfolio is comprised of commercial, real estate and consumer loans including credit card and home equity loans. Commercial real estate loans and commercial loans (not secured by real estate) increased $361.5 million or 31.6% and $256.0 million or 26.8%, respectively. Single-family residential real estate loans increased $161.7 million or 9.4%, loans secured by other real estate increased $119.9 million or 100.0%, construction loans increased $78.3 million or 15.0%, and consumer loans increased $9.4 million or 2.7%.
Commercial Loans
The commercial loan portfolio consists of loans to corporate borrowers primarily in small to mid-size industrial and commercial companies, as well as automobile dealers, service, retail and wholesale merchants. Collateral securing these loans includes equipment, machinery, inventory, receivables, vehicles and commercial real estate. Commercial loans are considered to contain a higher level of risk than other loan types although care is taken to minimize these risks. Numerous risk factors impact this portfolio including industry specific risks such as economy, new technology, labor rates and cyclicality, as well as customer specific factors, such as cash flow, financial structure, operating controls and asset quality. United diversifies risk within this portfolio by closely monitoring industry concentrations and portfolios to ensure that it does not exceed established lending guidelines. Diversification is intended to limit the risk of loss from any single unexpected economic event or trend.
Underwriting standards require a comprehensive credit analysis and independent evaluation of virtually all larger balance commercial loans by the loan committee prior to approval.
Real Estate Loans
Commercial real estate loans consist of commercial mortgages, which generally are secured by nonresidential and multi-family residential properties. Also included in this portfolio are loans that are secured by owner-occupied real estate, but made for purposes other than the construction or purchase of real estate. Commercial real estate loans are to many of the same customers and carry similar industry risks as the commercial loan portfolio. Real estate mortgage loans to consumers are secured primarily by a first lien deed of trust. These loans are traditional one-to-four family residential mortgages. The loans generally do not exceed an 80% loan to value ratio at the loan origination date and most are at a variable rate of interest. These loans are considered to be of normal risk. Also included in the category of real estate mortgage loans are home equity loans.
As of December 31, 2007, approximately $345.8 million or 6.0% of United’s loan portfolio were real estate loans that met the regulatory definition of a high loan-to-value loan. A high loan-to-value real estate loan is defined as any loan, line of credit, or combination of credits secured by liens on or interests in real estate that equals or exceeds a certain percentage established by United’s primary regulator of the real estate’s appraised value, unless the loan has other appropriate credit support. The certain percentage varies depending on the loan type and collateral. Appropriate credit support may include mortgage insurance, readily marketable collateral, or other acceptable collateral that reduces the loan-to-value ratio below the certain percentage.
Consumer Loans
Consumer loans are secured by automobiles, boats, recreational vehicles, and other personal property. Personal loans, student loans and unsecured credit card receivables are also included as consumer loans. United monitors the risk associated with these types of loans by monitoring such factors as portfolio growth, lending policies and economic conditions. Underwriting standards are continually evaluated and modified based upon these factors.
Underwriting Standards
United’s loan underwriting guidelines and standards are updated periodically and are presented for approval by the respective Boards of Directors of each of its subsidiary banks. The purpose of the standards and guidelines is to grant loans on a sound and collectible basis; to invest available funds in a safe, profitable manner; to serve the legitimate credit needs of the communities of United’s primary market area; and to ensure that all loan applicants receive fair and equal treatment in the lending process. It is the intent of the underwriting guidelines and standards to: minimize loan losses by carefully investigating the credit history of each applicant, verify the source of repayment and the ability of the applicant to repay, collateralize those loans in which collateral is deemed to be required, exercise care in the documentation of the application, review, approval, and origination process, and administer a comprehensive loan collection program. The above guidelines are adhered to and subject to the experience, background and personal judgment of the loan officer assigned to the loan application. A loan officer may grant, with justification, a loan with variances from the underwriting guidelines and standards. However, the loan officer may not exceed his or her respective lending authority without obtaining the prior, proper approval from a superior, a regional supervisor, or the Loan Committee, whichever is deemed appropriate for the nature of the variance.
Loan Concentrations
United has commercial loans, including real estate and owner-occupied, income-producing real estate and land development loans, of approximately $3.2 billion as of December 31, 2007. These loans are primarily secured by real estate located in West Virginia, southeastern Ohio, Virginia and Maryland. United categorizes these commercial loans by industry according to the North American Industry Classification System (NAICS) to monitor the portfolio for possible concentrations in one or more industries. As of the most recent fiscal year-end, United has one such industry classification that exceeded 10% of total loans. As of December 31, 2007, approximately $1.1 billion or 18.1% of United’s total loan portfolio were for the purpose of renting and leasing real estate. The loans were originated by United’s subsidiary banks using underwriting standards as set forth by management. United’s loan administration policies are focused on the risk characteristics of the loan portfolio, including commercial real estate loans, in terms of loan approval and credit quality. It is the opinion of management that these loans do not pose any unusual risks and that adequate consideration has been given to the above loans in establishing the allowance for loan losses.
Secondary Markets
United generally originates loans within the primary market area of its banking subsidiaries. United may from time to time make loans to borrowers and/or on properties outside of its primary market area as an accommodation to its customers. Processing of all loans is centralized in the Charleston, West Virginia office. As of December 31, 2007, the balance of mortgage loans being serviced by United for others was insignificant.
United Bank (WV) engages in the origination and acquisition of residential real estate loans for resale. These loans are for single-family, owner-occupied residences with either adjustable or fixed rate terms, with a variety of maturities tailored to effectively serve its markets. United Bank (WV)’s originations are predominately in its West Virginia markets. Mortgage loan originations are generally intended to be sold in the secondary market on a best efforts basis.
During 2007, United originated $37.4 million of real estate loans for sale in the secondary market and sold $38.2 million of loans designated as held for sale in the secondary market. Net gains on the sales of these loans during 2007 were $530 thousand.
The principal sources of revenue from United’s mortgage banking business are: (i) loan origination fees; (ii) gains or losses from the sale of loans; and (iii) interest earned on mortgage loans during the period that they are held by United pending sale, if any.
Investment Activities
United’s investment policy stresses the management of the investment securities portfolio, which includes both securities held to maturity and securities available for sale, to maximize return over the long-term in a manner that is consistent with good banking practices and relative safety of principal. United currently does not engage in trading account activity. The Asset/Liability Management Committee of United is responsible for the coordination and evaluation of the investment portfolio.
Sources of funds for investment activities include “core deposits”. Core deposits include certain demand deposits, statement and special savings and NOW accounts. These deposits are relatively stable and they are the lowest cost source of funds available to United. Short-term borrowings have also been a significant source of funds. These include federal funds purchased, securities sold under agreements to repurchase and FHLB borrowings. Repurchase agreements represent funds that are generally obtained as the result of a competitive bidding process.
United’s investment portfolio is comprised of a significant amount of mortgage-backed securities. United has a small amount of U.S. Treasury securities and obligations of U.S. Agencies and Corporations. Obligations of States and Political Subdivisions are comprised of primarily “AAA” rated municipal securities. Interest and dividends on securities for the years of 2007, 2006, and 2005 were $68.3 million, $72.0 million, and $69.6 million, respectively. For the year of 2007, United recognized net losses of $68 thousand. In the year of 2006, United recognized net losses of $3.2 million due mainly to an other-than-temporary impairment of $2.9 million on approximately $86 million of low-yielding fixed rate investment securities which United subsequently sold as part of a balance sheet repositioning in the first quarter of 2006. United recognized net gains of $695 thousand for the year of 2005.

Competition
United faces a high degree of competition in all of the markets it serves. These markets may generally be defined as Wood, Kanawha, Monongalia, Jackson, Cabell, Brooke, Hancock, Ohio, Marshall, Gilmer, Harrison, Lewis, Webster, Boone, Logan, Nicholas, Fayette, Berkley, Morgan, Jefferson and Raleigh Counties in West Virginia; Lawrence, Belmont, Jefferson and Washington Counties in Ohio; Montgomery County in Maryland and Arlington, Alexandria, Albemarle, Augusta, Clarke, Fairfax, Frederick, Greene, Loudoun, Prince William, Rockingham, Shenandoah, and Warren Counties in Virginia. United competes in Ohio markets because of the close proximity to the Ohio border of certain subsidiary offices. Included in United’s West Virginia markets are the five largest West Virginia Metropolitan Statistical Areas (MSA): the Parkersburg MSA, the Charleston MSA, the Huntington MSA, the Wheeling MSA and the Weirton MSA. United’s Virginia markets include the Maryland, northern Virginia and Washington, D.C. MSA, the Winchester MSA, the Harrisonburg MSA, and the Charlottesville MSA. United considers the above counties and MSA’s to be the primary market area for the business of its banking subsidiaries.
With prior regulatory approval, West Virginia and Virginia banks are permitted unlimited branch banking throughout each state. In addition, interstate acquisitions of and by West Virginia and Virginia banks and bank holding companies are permissible on a reciprocal basis, as well as reciprocal interstate acquisitions by thrift institutions. These conditions serve to intensify competition within United’s market.
As of December 31, 2007, there were 72 bank holding companies operating in the State of West Virginia registered with the Federal Reserve System and the West Virginia Board of Banking and Financial Institutions and 99 bank holding companies operating in the Commonwealth of Virginia registered with the Federal Reserve System and the Virginia Corporation Commission. These holding companies are headquartered in various states and control banks throughout West Virginia and Virginia, which compete for business as well as for the acquisition of additional banks.
Economic Characteristics of Primary Market Area
As of December 2007, West Virginia’s unemployment rate was 4.4% while the national rate was 4.8% according to information from West Virginia’s Bureau of Employment Programs. The state unemployment rate of 4.4% for December 2007 was an increase of 2 basis points from the month of November 2007 but down 2 basis points from December 2006.The total number of unemployed state residents increased by 1,600 for the month of December as compared to the month of November. However, the total number of unemployed residents was down 1,100 from December 2006. Population outflows that have constrained faster economic growth in West Virginia may be moderating. In 2002, the U.S. Census Bureau estimated that the state’s population increased marginally. While substantially less than the national average, the increase was a substantial improvement over the six prior years, during which time the state’s population base shrank.
United’s Virginia subsidiary banking offices are located in markets that reflect low unemployment rate levels. According to information available from the Virginia Employment Commission, Virginia’s unemployment rate as of December 2007 was 3.3% which was below the U.S. December 2007 unemployment level of 4.8%, However, the 3.3% unemployment rate was a 3 basis point increase from November 2007 as the number of unemployed residents grew by 10,900. United’s Virginia subsidiary banking offices are located in four of Virginia’s ten metropolitan areas. The Northern Virginia metropolitan area’s and the Harrisonburg metropolitan area’s unemployment rates were both at 2.5% in December 2007, the lowest among Virginia’s ten metropolitan areas. The Charlottesville metropolitan area’s unemployment rate was at 2.6% in December 2007, the third lowest among Virginia’s ten metropolitan areas. The Winchester metropolitan area’s unemployment rate was 3.3% in December 2007.
Regulation and Supervision
United, as a bank holding company, is subject to the restrictions of the Bank Holding Company Act of 1956, as amended, and is registered pursuant to its provisions. As such, United is subject to the reporting requirements of and examination by the Board of Governors of the Federal Reserve System (“Board of Governors”).

The Bank Holding Company Act prohibits the acquisition by a bank holding company of direct or indirect ownership of more than five percent of the voting shares of any bank within the United States without prior approval of the Board of Governors. With certain exceptions, a bank holding company also is prohibited from acquiring direct or indirect ownership or control of more than five percent of the voting shares of any company which is not a bank, and from engaging directly or indirectly in business unrelated to the business of banking, or managing or controlling banks.
The Board of Governors of the Federal Reserve System, in its Regulation Y, permits bank holding companies to engage in preapproved non-banking activities closely related to banking or managing or controlling banks. Approval of the Board of Governors is necessary to engage in certain other non-banking activities which are not preapproved or to make acquisitions of corporations engaging in these activities. In addition, on a case-by-case basis, the Board of Governors may approve other non-banking activities.
On July 30, 2002, the President of the United States signed into law the Sarbanes-Oxley Act of 2002 (Act), a broad accounting, auditing, disclosure and corporate governance reform law. The legislation was passed in an effort to increase corporate responsibility by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws and to allow stockholders to more easily and efficiently monitor the performance of companies and directors.
As a bank holding company doing business in West Virginia, United is also subject to regulation and examination by the West Virginia Board of Banking and Financial Institutions (the “West Virginia Banking Board”) and must submit annual reports to the West Virginia Banking Board. Further, any acquisition application that United must submit to the Board of Governors must also be submitted to the West Virginia Banking Board for approval.
United is also under the jurisdiction of the SEC and certain state securities commissions in regard to the offering and sale of its securities. Generally, United must file under the Securities Exchange Act of 1933, as amended, to issue additional shares of its common stock. United is also registered under and is subject to the regulatory and disclosure requirements of the Securities Exchange Act of 1934, as amended, as administered by the SEC. United is listed on the NASDAQ Global Select Market under the quotation symbol “UBSI,” and is subject to the rules of the NASDAQ for listed companies.
The Banking Subsidiaries, as state member banks, are subject to supervision, examination and regulation by the Federal Reserve System, and as such, are subject to applicable provisions of the Federal Reserve Act and regulations issued thereunder. Each bank is subject to regulation by its state banking authority.
The deposits of United’s Banking Subsidiaries are insured by the Federal Deposit Insurance Corporation (“FDIC”) to the extent provided by law. Accordingly, these Banking Subsidiaries are also subject to regulation by the FDIC.
Item 1A. RISK FACTORS
Changes in interest rates may adversely affect United’s business
United’s earnings, like most financial institutions, are significantly dependent on its net interest income. Net interest income is the difference between the interest income United earns on loans and other assets which earn interest and the interest expense incurred to fund those assets, such as on savings deposits and borrowed money. Therefore, changes in general market interest rates, such as a change in the monetary policy of the Board of Governors of the Federal Reserve System or otherwise beyond those which are contemplated by United’s interest rate risk model and policy, could have an effect on net interest income. For more information concerning United’s interest rate risk model and policy, see the discussion under the caption “Quantitative and Qualitative Disclosures About Market Risk” under Item 7A.

Loss of United’s Chief Executive Officer or other executive officers could adversely affect its business
United’s success is dependent upon the continued service and skills of its executive officers and senior management. If United loses the services of these key personnel, it could have a negative impact on United’s business because of their skills, years of industry experience and the difficulty of promptly finding qualified replacement personnel. The services of Richard M. Adams, United’s Chief Executive Officer, would be particularly difficult to replace. United and Mr. Adams are parties to an Employment Agreement providing for his continued employment by United through March 31, 2013.
United operates in a highly competitive market
United faces a high degree of competition in all of the markets it serves. United considers all of West Virginia to be included in its market area. This area includes the five largest West Virginia Metropolitan Statistical Areas (MSA): the Parkersburg MSA, the Charleston MSA, the Huntington MSA, the Wheeling MSA and the Weirton MSA. United serves the Ohio counties of Lawrence, Belmont, Jefferson and Washington primarily because of their close proximity to the Ohio border and United banking offices nearby in West Virginia. In Virginia, United competes in the Northern Virginia counties of Alexandria, Arlington, Loudoun, Prince William, and Fairfax and in the Shenandoah Valley counties of Albemarle, Augusta, Clarke, Frederick, Greene, Rockingham, Shenandoah, and Warren. In addition, United has offices in Washington, D.C. In Maryland, United has offices in Montgomery county. United considers all of the above locations to be the primary market area for the business of its banking subsidiaries.
There is a risk that aggressive competition could result in United controlling a smaller share of these markets. A decline in market share could lead to a decline in net income which would have a negative impact on stockholder value.
Dividend payments by United’s subsidiaries to United and by United to its shareholders can be restricted
The declaration and payment of future cash dividends will depend on, among other things, United’s earnings, the general economic and regulatory climate, United’s liquidity and capital requirements, and other factors deemed relevant by United’s board of directors. Federal Reserve Board policy limits the payment of cash dividends by bank holding companies, without regulatory approval, and requires that a holding company serve as a source of strength to its banking subsidiaries.
United’s principal source of funds to pay dividends on its common stock is cash dividends from its subsidiaries. The payment of these dividends by its subsidiaries is also restricted by federal and state banking laws and regulations. As of December 31, 2007, an aggregate of approximately $9.49 million and $15.53 million was available for dividend payments from United Bank (WV) and United Bank (VA), respectively, to United without regulatory approval.
Downturn in the local economies may adversely affect its business
United’s business is concentrated in the West Virginia, Northern Virginia and Shenandoah Valley Virginia market areas. As a result, its financial condition, results of operations and cash flows are subject to changes if there are changes in the economic conditions in these areas. A prolonged period of economic recession or other adverse economic conditions in one or both of these areas could have a negative impact on United. A significant decline in general economic conditions nationally, caused by inflation, recession, acts of terrorism, outbreak of hostilities or other international or domestic occurrences, unemployment, changes in securities markets, declines in the housing market, a tightening credit environment or other factors could impact these local economic conditions and, in turn, have a material adverse effect on United’s financial condition and results of operations. United can provide no assurance that conditions in its market area economies will not deteriorate in the future and that such a deterioration would not have a material adverse effect on United.
There are no assurances as to adequacy of the allowance for credit losses
United believes that its allowance for credit losses is maintained at a level adequate to absorb any probable losses in its loan portfolio given the current information known to management.

MANAGEMENT DISCUSSION FROM LATEST 10K

FORWARD-LOOKING STATEMENTS
Congress passed the Private Securities Litigation Act of 1995 to encourage corporations to provide investors with information about the company’s anticipated future financial performance, goals, and strategies. The act provides a safe haven for such disclosure; in other words, protection from unwarranted litigation if actual results are not the same as management expectations.
United desires to provide its shareholders with sound information about past performance and future trends. Consequently, any forward-looking statements contained in this report, in a report incorporated by reference to this report, or made by management of United in this report, in any other reports and filings, in press releases and in oral statements, involve numerous assumptions, risks and uncertainties. Actual results could differ materially from those contained in or implied by United’s statements for a variety of factors including, but not limited to: changes in economic conditions; movements in interest rates; competitive pressures on product pricing and services; success and timing of business strategies; the nature and extent of governmental actions and reforms; and rapidly changing technology and evolving banking industry standards.
INTRODUCTION
The following discussion and analysis presents the significant changes in financial condition and the results of operations of United and its subsidiaries for the periods indicated below. This discussion and the consolidated financial statements and the notes to consolidated financial statements include the accounts of United Bankshares, Inc. and its wholly-owned subsidiaries, unless otherwise indicated.
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. However, comparisons for the year of 2007 to the year of 2006 are impacted by increased levels of reported average balance sheet, income, expense, and the credit quality results due to the acquisition. In addition, United incurred merger expenses and related integration costs of $1.48 million for the year of 2007 due to the Premier acquisition which are included in other noninterest expense in United’s Consolidated Statements of Income. At consummation, Premier had assets of approximately $911 million, loans of $759 million, deposits of $716 million and shareholders’ equity of $71 million. The transaction was accounted for under the purchase method of accounting.
Prior to July 7, 2004, United operated two main business segments: community banking and mortgage banking. As previously reported, on July 7, 2004, United sold its wholly owned mortgage banking subsidiary, George Mason Mortgage, LLC (Mason Mortgage). United’s mortgage banking activities were conducted primarily through Mason Mortgage, which was previously reported as a separate segment. For the years prior to 2005, Mason Mortgage is shown as discontinued operations for all periods presented. Since the sale of Mason Mortgage, United’s operations relate mainly to community banking which offers customers traditional banking products and services, including loan and deposit products, and wealth management services which include investment banking, financial planning, trust and brokerage services.
This discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes thereto, which are included elsewhere in this document.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The accounting and reporting policies of United conform with accounting principles generally accepted in the United States. In preparing the consolidated financial statements, management is required to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements. Actual results could differ from these estimates. These policies, along with the disclosures presented in the financial statement notes and in this financial review,

provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the allowance for loan losses, income taxes, and the valuation of retained interests in securitized financial assets to be the accounting areas that require the most subjective or complex judgments, and as such, could be most subject to revision as new information becomes available. The most significant accounting policies followed by United are presented in Note A, Notes to Consolidated Financial Statements.
The allowance for credit losses represents management’s estimate of the probable credit losses inherent in the lending portfolio. Determining the amount of the allowance for credit losses is considered a critical accounting estimate because management’s evaluation of the adequacy of the allowance for credit losses is inherently subjective and requires significant estimates, including the amounts and timing of estimated future cash flows, estimated losses on pools of loans based on historical loss experience, and consideration of current economic trends, all of which are susceptible to constant and significant change. 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. The methodology used to determine the allowance for credit losses is described in Note A, Notes to Consolidated Financial Statements. A discussion of the factors leading to changes in the amount of the allowance for credit losses is included in the Provision for Credit Losses section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations. For a discussion of concentrations of credit risk, see Item 1, under the caption of Loan Concentrations in this Form 10-K.
United uses derivative instruments as part of its risk management activities to protect the value of certain assets and liabilities against adverse price or interest rate movements. All derivative instruments are carried at fair value on the balance sheet. The valuation of these derivative instruments is considered critical because carrying assets and liabilities at fair value inherently result in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are provided by third party sources. Because the majority of the derivative instruments are used to protect the value of other assets and liabilities on the balance sheet, changes in the value of the derivative instruments are typically offset by changes in the value of the assets and liabilities being hedged, although income statement volatility can occur if the derivative instruments are not effective in hedging changes in the value of those assets and liabilities.
United’s calculation of income tax provision is complex and requires the use of estimates and judgments in its determination. As part of United’s analysis and implementation of business strategies, consideration is given to tax laws and regulations that may affect the transaction under evaluation. This analysis includes the amount and timing of the realization of income tax liabilities or benefits. United strives to keep abreast of changes in the tax laws and the issuance of regulations which may impact tax reporting and provisions for income tax expense. United is also subject to audit by federal and state authorities. Because the application of tax laws is subject to varying interpretations, results of these audits may produce indicated liabilities which differ from United’s estimates and provisions. United continually evaluates its exposure to possible tax assessments arising from audits and records its estimate of probable exposure based on current facts and circumstances.
Any material effect on the financial statements related to these critical accounting areas is further discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
2007 COMPARED TO 2006
FINANCIAL CONDITION SUMMARY
United’s total assets as of December 31, 2007 were $7.99 billion, an increase of $1.28 billion or 19.01% from year-end 2006, primarily the result of the acquisition of Premier Community Bankshares, Inc (Premier) on July 14, 2007. Investment securities increased $119.29 million or 9.35%, total portfolio loans increased $986.74 million or 20.53%, bank premises and equipment increased $23.57 million or 61.84%, goodwill increased $144.69 million or 86.42% and other assets increased $35.08 million or 19.72% due primarily to the Premier merger. Cash and cash equivalents decreased $28.36 million or 10.95%. The increase in total assets is reflected in a corresponding increase in total liabilities of $1.15 billion or 18.90% from year-end 2006. The increase in total liabilities was due mainly to an increase of $521.56 million or 10.80% and $628.76 million or 53.22% in deposits and borrowings, respectively, mainly due to the Premier acquisition. Shareholders’ equity increased $127.11 million or 20.05% from year-end 2006 due primarily to the acquisition of Premier. The following discussion explains in more detail the changes in financial condition by major category.
Cash and Cash Equivalents
Cash and cash equivalents decreased $28.36 million or 10.95% from year-end 2006. Of this total decrease, cash and due from banks decreased $6.38 million or 2.93%, interest-bearing deposits with other banks decreased $20.92 million or 91.42%, and federal funds sold decreased $1.06 million or 5.72%. During the year of 2007, net cash of $81.46 million and $253.41 million was provided by operating and financing activities, respectively. Net cash of $363.23 million was used in investing activities. Further details related to changes in cash and cash equivalents are presented in the Consolidated Statements of Cash Flows.
Securities
Total investment securities increased $119.29 million or 9.35% since year-end 2006. Premier added approximately $36 million in investment securities, including fair value adjustments, at merger. Securities available for sale increased $146.31 million or 14.48%. This change reflects $626.98 million in sales, maturities and calls of securities, $744.38 million in purchases and an increase of $131 thousand in market value. Securities held to maturity declined $55.07 million which was a decrease of 25.94%. This decrease was due to maturities and calls of securities within the portfolio of $57.69 million during the year of 2007. The amortized cost and estimated fair value of investment securities, including types and remaining maturities, is presented in Note C to the Notes to Consolidated Financial Statements.
Loans
Loans held for sale decreased $771 thousand or 37.78% as loan sales in the secondary market slightly exceeded loan originations during the year of 2007. Portfolio loans, net of unearned income, increased $986.74 million or 20.53% from year-end 2006 mainly the result of the Premier acquisition which added approximately $751 million, including fair value adjustments, in portfolio loans. Since year-end 2006, commercial real estate loans and commercial loans (not secured by real estate) increased $361.53 million or 31.55% and $256.03 million or 26.84%, respectively. Single-family residential real estate loans increased $161.70 million or 9.40%, construction loans increased $78.28 million or 14.97%, other real estate loans increased $119.93 million or 99.97%, and consumer loans increased $9.38 million or 2.68%. The increases were due primarily to the Premier merger.

Other Assets
Other assets increased $35.08 million or 19.72% from year-end 2006. The Premier merger added approximately $12 million in other assets at merger plus an additional $11.11 million in core deposit intangibles. The cash surrender value of bank-owned life insurance policies increased $11.99 million as approximately $7 million was acquired from Premier while the remaining increase was due to an increase in the cash surrender value. An income tax receivable of $4.62 million was recorded at December 31, 2007. Investments in nonconsolidated subsidiaries increased $3.54 million during the year due to two new statutory trust subsidiaries formed in the third quarter of 2007 for the purpose of participating in pools of trust preferred capital securities.
Deposits
Deposits represent United’s primary source of funding. Total deposits at December 31, 2007 grew $521.56 million or 10.80% since year-end 2006 as a result of the Premier acquisition. Premier added approximately $717 million in deposits, including purchase accounting amounts. In terms of composition, noninterest-bearing deposits increased $10.22 million or 1.13% while interest-bearing deposits increased $511.34 million or 13.03% from December 31, 2006.
The increase in noninterest-bearing deposits was due mainly to the Premier acquisition which added approximately $97 million at merger. Commercial noninterest-bearing deposits increased $35.47 million or 6.19% due mainly to the Premier acquisition. Personal noninterest-bearing deposits were flat, increasing $1.71 million or less than 1%.
The increase in interest-bearing deposits was due mainly to the Premier merger as all major categories of interest-bearing deposits increased. Time deposits under $100,000 increased $239.64 million or 18.18%, time deposits over $100,000 increased $179.51 million or 23.18%, interest-bearing money market accounts (MMDAs) increased $70.07 million or 5.17%, NOW accounts increased $15.04 million or 9.42% and regular savings increased $7.09 million or 2.23%.

Borrowings
Total borrowings at December 31, 2007 increased $628.76 million or 53.22% during the year of 2007. Premier added approximately $114 million at merger.
Since year-end 2006, short-term borrowings increased $353.80 million or 51.86% due to increases of $314.00 million and $39.13 million in overnight FHLB borrowings and securities sold under agreements to repurchase, respectively. Premier added approximately $20 million in short-term borrowings at merger.

Long-term borrowings increased $274.96 million or 55.08% since year-end 2006 as long-term FHLB advances increased $164.37 million or 39.71%. Premier added approximately $55 million in FHLB advances. During the third quarter of 2007, United participated in two pools of trust preferred capital securities totaling $80 million with the proceeds invested in junior subordinated debt securities of United. The proceeds of the issuance were used to help fund the cash portion of the acquisition price for Premier. In addition, United assumed approximately $39 million of junior subordinated debt securities in the Premier merger.
In the fourth quarter of 2007, United prepaid certain FHLB long-term advances in the amount of $380 million and terminated an interest rate swap associated with one of the advances. The prepayment of the FHLB advances resulted in before-tax penalties of approximately $4.33 million. The termination of the interest rate swap resulted in a before-tax loss of approximately $8.90 million. At the time of prepayment, the FHLB advances and associated interest rate swap had an effective cost of 5.39% and a remaining life of 2.4 years. United replaced the prepaid debt with FHLB advances and an associated interest rate swap that had a total effective cost of 3.97% and a average maturity of 2.8 years.
In the second quarter of 2007, United prepaid two $100 million long-term FHLB advances and terminated two interest rate swaps associated with the advances. 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 and a before-tax gain of $787 thousand on the termination of the interest rate swaps. At the time of prepayment, the FHLB advances and the associated interest rate swaps had an effective cost of 5.40% and a remaining life of 6.3 years. United replaced the debt with a 3-year FHLB advance and an associated interest rate swap that had a total effective cost of 5.26%.
United’s management believes that the prepayment of these FHLB borrowings and the termination of the interest rate swaps will improve United’s future net interest margin and enhance future earnings as well as improving the interest rate risk.
In the third quarter of 2006, United completed a series of transactions to prepay two $100 million convertible FHLB advances and terminate an interest rate swap associated with one of the advances. United incurred a before-tax charge of approximately $8.26 million to prepay the debt and a before-tax loss of $7.66 million on the termination of the interest rate swaps. At the time of prepayment, the FHLB advances and associated interest rate swap had an effective cost of 7.71%. The debt and interest rate swap had a remaining life of approximately 4 years. United replaced the debt with 5-year and 10-year FHLB advances and associated interest rate swaps that had a total effective cost of 5.35%.
During the fourth quarter of 2007, United through its subsidiary, United Statutory Trust II, redeemed $10.31 million of trust preferred securities. The securities were redeemed at par value plus accrued interest. The securities carried an interest rate of 8.45% at the time of redemption.
During the fourth quarter of 2006, United through its subsidiary, Sequoia Capital Trust II, redeemed $3.09 million of trust preferred securities. The securities were redeemed at par value plus accrued interest. The securities carried an interest rate of 9.17% at the time of redemption. For a further discussion of borrowings see Notes J and K, Notes to Consolidated Financial Statements.
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities were flat, increasing $171 thousand or less than 1% from year-end 2006. Premier added approximately $12 million at merger. Significant decreases in accrued expenses and other liabilities were in income taxes payable of $9.73 million due to an income tax receivable of $4.62 million recorded in other assets as opposed to a payable recorded in other liabilities at December 31, 2007 and the derivative liability associated with interest rate swaps of $1.69 million due to a change in value. Partially offsetting these decreases were increases of $3.59 million in interest payable due to higher interest rates and an increase in borrowings. In addition, deferred compensation increased $2.89 million and other accrued expenses increased $3.70 million due to the Premier acquisition.
Shareholders’ Equity
Shareholders’ equity at December 31, 2007 increased $127.11 million or 20.05% from December 31, 2006 mainly as a result of the Premier acquisition. The premier transaction added approximately $102 million as 2,684,068 shares were issued from treasury for the merger at a cost of $93.71 million. Earnings net of dividends declared for the year of 2007 were $43.23 million.
Since year-end 2006, a total of 718,500 shares at a cost of $24.78 million were repurchased under a plan approved by United’s Board of Directors in May 2006 to repurchase up to 1.7 million shares of United’s common stock on the open market. Since its inception, United has repurchased a total of 1,377,800 under the plan as of December 31, 2007.
Accumulated other comprehensive income increased $3.31 million due mainly to an increase of $1.95 million, net of deferred income taxes, in the fair value adjustment on cash flow hedges. The fair value of United’s available for sale investment portfolio, net of deferred income taxes increased $86 thousand.
EARNINGS SUMMARY
Net income for the year 2007 was $90.67 million or $2.15 per diluted share compared to $89.25 million or $2.13 per share for the year of 2006. As previously mentioned, United completed its acquisition of Premier Community Bankshares, Inc. (Premier) during the third quarter of 2007. The financial results of Premier are included in United’s results from the July 14, 2007 acquisition date.
The results for the year of 2007 included significant charges to prepay certain long-term debt and consummate the acquisition of Premier Community Bankshares, Inc. (Premier). During the second and fourth quarters of 2007, United prepaid certain Federal Home Loan Bank (FHLB) long-term advances totaling $580 million and terminated interest rate swaps associated with three of the advances. The prepayment of the FHLB advances resulted in before-tax penalties of $5.12 million. The termination of the interest rate swaps resulted in a before-tax loss of $8.11 million. During the third quarter of 2007, United completed its acquisition of Premier based in Winchester, Virginia. Merger expenses and related integration costs of the Premier acquisition were $1.48 million for the year of 2007.
The results for the year of 2006 included charges of $12.86 million to prepay certain FHLB long-term advances and terminate associated interest rate swaps. The results for 2006 also included a net loss of $3.18 million on investment securities transactions mainly the result of a balance sheet repositioning in the first quarter of 2006. Further information is provided in a more detailed discussion on the following pages.
United’s return on average assets for the year of 2007 was 1.28% and return on average shareholders’ equity was 12.99% as compared to 1.34% and 13.90% for the year of 2006.
Tax-equivalent net interest income for the year of 2007 was $241.89 million, an increase of $6.85 million or 2.91% from the prior year. The provision for credit losses was $5.33 million for the year 2007 as compared to $1.44 million for the year of 2006.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

FORWARD-LOOKING STATEMENTS
Congress passed the Private Securities Litigation Act of 1995 to encourage corporations to provide investors with information about the company’s anticipated future financial performance, goals, and strategies. The act provides a safe harbor for such disclosure, in other words, protection from unwarranted litigation if actual results are not the same as management expectations.
United desires to provide its shareholders with sound information about past performance and future trends. Consequently, any forward-looking statements contained in this report, in a report incorporated by reference to this report, or made by management of United in this report, in any other reports and filings, in press releases and in oral statements, involves numerous assumptions, risks and uncertainties.
Actual results could differ materially from those contained in or implied by United’s statements for a variety of factors including, but not limited to: changes in economic conditions; movements in interest rates; competitive pressures on product pricing and services; success and timing of business strategies; the nature and extent of governmental actions and reforms; and rapidly changing technology and evolving banking industry standards.
INTRODUCTION
The following discussion and analysis presents the significant changes in financial condition and the results of operations of United and its subsidiaries for the periods indicated below. This discussion and the consolidated financial statements and the notes to consolidated financial statements include the accounts of United Bankshares, Inc. and its wholly-owned subsidiaries, unless otherwise indicated.
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. However, comparisons for the first nine months of 2008 to the first nine months of 2007 are impacted by increased levels of reported average balance sheet, income, and expense results due to the acquisition. At consummation, Premier had assets of approximately $911 million, loans of $759 million, deposits of $716 million and shareholders’ equity of $71 million. The transaction was accounted for under the purchase method of accounting.
This discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes thereto, which are included elsewhere in this document.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The accounting and reporting policies of United conform with accounting principles generally accepted in the United States. In preparing the consolidated financial statements, management is required to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements. Actual results could differ from these estimates. These policies, along with the disclosures presented in the other financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the allowance for credit losses, the valuation of derivative instruments, and the calculation of the income tax provision to be the accounting areas that require the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available.
The allowance for credit losses is management’s estimate of the probable credit losses inherent in the loan portfolio. Management’s evaluation of the adequacy of the allowance for credit losses and the appropriate provision for credit losses is based on a quarterly evaluation of the portfolio. This evaluation is inherently subjective and requires significant estimates, including the amounts and timing of estimated future cash flows, estimated losses on pools of loans based on historical loss experience, and consideration of current economic trends, all of which are susceptible to constant and significant change. The amounts allocated to specific credits and loan pools grouped by similar risk characteristics are 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 loan losses, while recoveries of previously charged-off amounts are credited to the allowance for loan losses. The methodology used to determine the allowance for credit losses is described in Note 5 to the unaudited consolidated financial statements. A discussion of the factors leading to changes in the amount of the allowance for credit losses is included in the Provision for Credit Losses section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
United uses derivative instruments as part of its risk management activities to help protect the value of certain assets and liabilities against adverse price or interest rate movements. All derivative instruments are carried at fair value on the balance sheet. The valuation of these derivative instruments is considered critical because carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are provided by third party sources. Because the majority of the derivative instruments are used to protect the value of other assets and liabilities on the balance sheet, changes in the value of the derivative instruments are typically offset by changes in the value of the assets and liabilities being hedged, although income statement volatility can occur if the derivative instruments are not effective in hedging changes in the value of those assets and liabilities.
United’s calculation of income tax provision is complex and requires the use of estimates and judgments in its determination. As part of United’s analysis and implementation of business strategies, consideration is given to tax laws and regulations which may affect the transaction under evaluation. This analysis includes the amount and timing of the realization of income tax liabilities or benefits. United strives to keep abreast of changes in the tax laws and the issuance of regulations which may impact tax reporting and provisions for income tax expense. United is also subject to audit by federal and state authorities. Because the application of tax laws is subject to varying interpretations, results of these audits may produce indicated liabilities which differ from United’s estimates and provisions. United continually evaluates its exposure to possible tax assessments arising from audits and records its estimate of probable exposure based on current facts and circumstances.
Any material effect on the financial statements related to these critical accounting areas are further discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
USE OF FAIR VALUE MEASUREMENTS
On January 1, 2008, United adopted SFAS No. 157, “Fair Value Measurements” (SFAS 157) to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. SFAS 157 clarifies that fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. FAS 157 establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. The classification of assets and liabilities within the hierarchy is based on whether the inputs in the methodology for determining fair value are observable or unobservable. Observable inputs reflect market-based information obtained from independent sources (Level 1 or Level 2), while unobservable inputs reflect management’s estimate of market data (Level 3). For assets and liabilities that are actively traded and have quoted prices or observable market data, a minimal amount of subjectivity concerning fair value is needed. Prices and values obtained from third party vendors that do not reflect forced liquidation or distressed sales are not adjusted by management. When quoted prices or observable market data are not available, management’s judgment is necessary to estimate fair value.
At September 30, 2008, approximately 14.81% of total assets, or $1.20 billion, consisted of financial instruments recorded at fair value. Of this total, approximately 88.30% or $1.06 billion of these financial instruments used valuation methodologies involving observable market data, collectively Level 1 and Level 2 measurements, to determine fair value. Approximately 11.70% or $140.26 million of these financial instruments were valued using unobservable market information or Level 3 measurements. Most of these financial instruments valued using unobservable market information were pooled trust preferred investment securities available-for-sale. At September 30, 2008, only $4.25 million or less than 1% of total liabilities were recorded at fair value. This entire amount was valued using methodologies involving observable market data. United does not believe that any changes in the unobservable inputs used to value the financial instruments mentioned above would have a material impact on United’s results of operations, liquidity, or capital resources. See Note 12 for additional information regarding SFAS 157 and its impact on United’s financial statements.
RECENT DEVELOPMENTS
In response to the financial crisis affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions, the following is a summary of recently enacted laws and regulations that could materially impact United’s financial condition or results of operations.
On October 3, 2008, the Emergency Economic Stabilization Act of 2008 (the EESA) was signed into law. Pursuant to the EESA, the U.S. Treasury will have the authority to, among other things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets. The EESA also included a provision to increase the amount of deposits insured by the Federal Deposit Insurance Corporation (FDIC) to $250,000.
On October 14, 2008, Secretary Paulson, after consulting with the Federal Reserve and the FDIC, announced that the U.S. Treasury will purchase stakes in a wide variety of U.S. banks and thrifts to encourage these institutions to build capital to increase the flow of financing to U.S. businesses and consumers and to support the U.S. economy. Under this program, known as the Troubled Asset Relief Program Capital Purchase Program (the TARP Capital Purchase Program), the Treasury will make $250 billion of capital available to qualifying U.S. financial institutions in the form of preferred stock. In conjunction with the purchase of preferred stock, the Treasury will receive warrants to purchase common stock with an aggregate market price equal to 15% of the preferred investment. Participating financial institutions will be required to adopt the U.S. Treasury’s standards for executive compensation and corporate governance for the period during which the U.S. Treasury holds equity issued under the TARP Capital Purchase Program. These standards generally apply to the chief executive officer, chief financial officer, plus the next three most highly compensated executive officers.
Also on October 14, 2008, after receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Paulson signed the systemic risk exception to the FDIC Act, enabling the FDIC to temporarily provide a 100% guarantee of the senior debt of all FDIC-insured institutions and their holding companies, as well as deposits in non-interest bearing transaction deposit accounts under a Temporary Liquidity Guarantee Program. Coverage under the Temporary Liquidity Guarantee Program is available for 30 days without charge and thereafter at a cost of 75 basis points per annum for senior unsecured debt and 10 basis points per annum for non-interest bearing transaction deposits.

FINANCIAL CONDITION
United’s total assets as of September 30, 2008 were $8.10 billion, an increase of $100.81 million or 1.26% from year-end 2007. The increase was primarily the result of growth in portfolio loans of $118.13 million or 2.04% and an increase in other assets of $19.21 million or 9.02%. These increases were partially offset by decreases in cash and cash equivalents and investment securities of $6.17 million and $17.09 million, respectively. The increase in total assets is reflected in a corresponding increase in total liabilities of $88.90 million or 1.23% from year-end 2007. The increase in total liabilities was due mainly to growth in deposits of $154.72 million or 2.89% which more than offset a reduction of $63.13 million or 3.49% in borrowings. Shareholders’ equity increased $11.91 million or 1.56% from year-end 2007.
The following discussion explains in more detail the changes in financial condition by major category.
Cash and Cash Equivalents
Cash and cash equivalents at September 30, 2008 decreased $6.17 million or 2.68% from year-end 2007. Of this total decrease, cash and due from banks and federal funds sold decreased $7.37 million or 3.64% and $2.91 million or 16.63%, respectively, while interest-bearing deposits with other banks increased $4.11 million. During the first nine months of 2008, net cash of $84.22 million and $55.66 million was provided by operating activities and financing activities, respectively. Net cash of $146.06 million was used in investing activities. See the unaudited Consolidated Statements of Cash Flows for data on cash and cash equivalents provided and used in operating, investing and financing activities for the first nine months of 2008 and 2007.
Securities
Total investment securities at September 30, 2008 decreased $17.09 million or 1.23% from year-end 2007. Securities available for sale increased $13.44 million or 1.16% due to $467.49 million in sales, maturities and calls of securities, $511.81 million in purchases, and a decrease of $30.76 million in market value. Securities held to maturity decreased $30.11 million or 19.15% from year-end 2007 due to calls and maturities of securities. Other investment securities were flat, decreasing $419 thousand or less than 1%. The amortized cost and estimated fair value of investment securities, including types and remaining maturities, is presented in Note 3 to the unaudited Notes to Consolidated Financial Statements.
Loans
Loans held for sale decreased $552 thousand or 43.46% as loan sales in the secondary market exceeded originations during the first nine months of 2008. Portfolio loans, net of unearned income increased $118.13 million or 2.04% from year-end 2007 due mainly to an increase in commercial real estate loans of $136.60 million or 9.06%. Other real estate loans increased $6.27 million or 2.61%. Construction loans and single-family residential real estate loans were relatively flat from year-end 2007, increasing $3.85 million and $14.46 million, respectively. Both increases were less than 1%. These increases were partially offset by decreases from year-end 2007 in installment loans of $22.82 million or 6.35% and commercial loans (not secured by real estate) of $20.66 million or 1.71%.

Other Assets
Other assets increased $19.21 million or 9.02% from year-end 2007 due mainly to increases of $11.07 million in deferred tax assets, $6.97 million in other real estate owned (OREO), $3.32 million in the funded status of United’s pension plan, and $3.94 million in the cash surrender value of bank-owned life insurance policies. Partially offsetting these increases from year-end 2007 were decreases in accounts receivable of $1.77 million, income taxes receivable of $1.38 million and core deposit intangibles of $2.75 million.
Deposits
Total deposits at September 30, 2008 increased $154.72 million or 2.89% since year-end 2007. In terms of composition, noninterest-bearing deposits were relatively flat, increasing $9.06 million or slightly less than 1% while interest-bearing deposits increased $145.66 million or 3.28% from December 31, 2007. The slight increase in noninterest-bearing deposits was due mainly to an increase in official checks of $25.84 million. Personal noninterest-bearing deposits decreased $10.44 million or 4.21% as customers shifted money into interest-bearing products.
The increase in interest-bearing deposits was due mainly to a growth in time deposits under $100,000 of $326.45 million or 20.96%. This increase in interest-bearing deposits was due likely to the volatility in the stock market. Time deposits over $100,000 decreased $51.79 million or 5.43%. Interest bearing money market accounts (MMDAs) decreased $127.41 million or 8.94%. Regular savings and interest-bearing checking account balances were relatively flat, decreasing $800 thousand and $788 thousand, respectively.

Borrowings
Total borrowings at September 30, 2008 decreased $63.13 million or 3.49% during the first nine months of 2008. Since year-end 2007, short-term borrowings decreased $216.84 million or 20.93% due to a $289 million reduction in overnight FHLB borrowings. Federal funds purchased increased $2.85 million or 2.93% while securities sold under agreements to repurchase increased $72.02 million or 14.40% since year-end 2007. Long-term borrowings increased $153.71 million or 19.85% due to an increase of $164.34 million or 28.42% in long-term FHLB advances.

Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities at September 30, 2008 increased $3.77 million or 5.77% from year-end 2007 mainly as a result of an increase in income taxes payable of $3.41 million due to a timing difference in payments. In addition, derivative liabilities increased $3.47 million due to a change in value and a liability of $1.55 million was recorded for split dollar life insurance policies based on the adoption of EITF 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements”. Interest payable decreased $2.93 million due to a decline in borrowings and interest rates and other accrued expenses declined $1.43 million due to payments.

Shareholders’ Equity
Shareholders’ equity at September 30, 2008 increased $11.91 million or 1.56% from December 31, 2007 as United continued to balance capital adequacy and the return to shareholders. The increase in shareholders’ equity was due mainly to earnings net of dividends declared which equaled $32.79 million for the first nine months of 2008.
Accumulated other comprehensive income decreased $20.24 million due mainly to a decline of $19.96 million, net of deferred taxes, in the fair value of United’s available for sale investment portfolio. The fair value of cash flow hedges decreased $1.89 million, net of deferred taxes.
RESULTS OF OPERATIONS
Overview
Net income for the first nine months of 2008 was $70.44 million or $1.62 per diluted share while net income for the third quarter of 2008 was $19.59 million or $0.45 per diluted share. These results included a noncash before-tax other-than-temporary impairment charge of $9.00 million on a corporate debt holding and a positive tax adjustment of $1.42 million due to the expiration of the statute of limitations for examinations of certain years.
Earnings for the first nine months of 2007 were $74.72 million or $1.79 per diluted share while earnings for the third quarter of 2007 were $25.80 million or $0.60 per diluted share. During the third quarter of 2007, United recorded a positive tax adjustment of $1.06 million due to the expiration of the statute of limitations for examinations of certain years.
United’s annualized return on average assets for the first nine months of 2008 was 1.18% and return on average shareholders’ equity was 12.05% as compared to 1.45% and 14.81% for the first nine months of 2007. For the third quarter of 2008, United’s annualized return on average assets was 0.97% while the return on average equity was 9.94% as compared to 1.37% and 13.91%, respectively, for the third quarter of 2007.
Tax-equivalent net interest income for the first nine months of 2008 increased $23.71 million or 13.41% from the prior year’s first nine months. Tax-equivalent net interest income for the third quarter of 2008 increased $4.27 million or 6.74% as compared to the same period of 2007. The provision for credit losses was $12.95 million for the first nine months of 2008 as compared to $2.75 million for the first nine months of 2007. For the quarters ended September 30, 2008 and 2007, the provision for credit losses was $6.50 million and $1.55 million, respectively.
Noninterest income for the first nine months of 2008 decreased $644 thousand or 1.32% from the first nine months of 2007. For the third quarter of 2008, noninterest income decreased $7.00 million or 40.38% from the third quarter of 2007. The results for 2008 included the previously mentioned noncash before-tax other-than-temporary impairment charge. Noninterest expense for the first nine months of 2008 increased $21.46 million or 20.83% from the same period in 2007. For the third quarter of 2008, noninterest expense increased $2.62 million or 6.70% from the third quarter of 2007. United’s effective tax rate was 29.75% and 30.55% for the first nine months of 2008 and 2007, respectively, and 25.60% and 28.06% for the third quarter of 2008 and 2007, respectively. During the third quarter of 2008 and 2007, United reduced its income tax reserve by $1.42 million and $1.06 million, respectively, due to the expiration of the statute of limitations for examinations of certain years.
The following discussion explains in more detail the changes in the results of operations by major category.
Net Interest Income
Tax-equivalent net interest income for the first nine months of 2008 was $200.62 million, an increase of $23.71 million or 13.41% from the prior year’s first nine months. This increase in tax-equivalent net interest income was primarily attributable to a $951.22 million or 15.22% increase in average earning assets resulting primarily from the Premier acquisition. Average net loans increased $843.98 million or 17.10% while average investment securities increased $123.33 million or 9.77%. Additionally, the average cost of funds for the first nine months of 2008 declined 99 basis points from the first nine months of 2007 due to a decrease in market interest rates and the refinancing of long-term debt during the second and fourth quarters of 2007. However, the average yield on earning assets declined 84 basis points due to the decrease in market interest rates. The net interest margin for the first nine months of 2008 was 3.72% as compared to 3.78% for the first nine months of 2007.
Tax-equivalent net interest income for the third quarter of 2008 was $67.59 million, an increase of $4.27 million or 6.74% from the third quarter of 2007 due mainly to a $523.82 million or 7.77% increase in average earning assets as average net loans grew $463.94 million or 8.61% while average investment securities increased $103.78 million or 8.13%. Additionally, the average cost of funds declined 129 basis points in the third quarter of 2008 as compared to the third quarter of 2007 due to a decrease in market interest rates and United’s refinancing of long-term debt in the fourth quarter of 2007. Partially offsetting these increases to net interest income was a decrease of 112 basis points in the third quarter of 2008 average yield on earning assets due to the decline in market interest rates. The net interest margin for the third quarter of 2008 was 3.71% as compared to 3.75% for the third quarter of 2007.
On a linked-quarter basis, United’s tax-equivalent net interest income for the third quarter of 2008 increased $798 thousand or 1.19% from the second quarter of 2008. The increase was due mainly to a 9 basis point decline in the average cost of funds from the second quarter of 2008. Average earning assets were relatively flat, increasing $53.27 million or less than 1% as average net loans grew $86.37 million or 1.50% but average investments decreased $19.37 million or 1.38% for the quarter. The net interest margin of 3.71% for the third quarter of 2008 was equal to the net interest margin for the second quarter of 2008.

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