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 June 30, 2006

Or

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

For the transition period                     

Commission File Number: 0-13322

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; 41,412,885 shares outstanding as of July 31, 2006.

 

 

UNITED BANKSHARES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) June 30, 2006 and December 31, 2005			4
Consolidated Statements of Income (Unaudited) for the Three and Six Months Ended June 30, 2006 and 2005			5
Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) for the Six Months Ended June 30, 2006			6
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2006 and 2005			7
Notes to Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3. Quantitative and Qualitative Disclosures about Market Risk			43
Item 4. Controls and Procedures			47
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			48
Item 1A. Risk Factors			48
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			48
Item 3. Defaults Upon Senior Securities			49
Item 4. Submission of Matters to a Vote of Security Holders			49
Item 5. Other Information			50
Item 6. Exhibits			51
Signatures			52
Exhibits			53

PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (UNAUDITED)

The June 30, 2006 and December 31, 2005, consolidated balance sheets of United Bankshares, Inc. and Subsidiaries, the related consolidated statements of income for the three and six months ended June 30, 2006 and 2005, the related consolidated statement of changes in shareholders’ equity for the six months ended June 30, 2006, the related condensed consolidated statements of cash flows for the six months ended June 30, 2006 and 2005, and the notes to consolidated financial statements appear on the following pages.

CONSOLIDATED BALANCE SHEETS
UNITED BANKSHARES, INC. AND SUBSIDIARIES

		June 30				December 31
		2006				2005
(Dollars in thousands, except par value)		(Unaudited)				(Note 1)
Assets
Cash and due from banks		$	175,540			$	188,974
Interest-bearing deposits with other banks			10,087				9,836
Federal funds sold			25,857				9,152
Total cash and cash equivalents			211,484				207,962
Securities available for sale at estimated fair value (amortized cost—$1,135,915 at June 30, 2006 and $1,289,213 at December 31, 2005)			1,111,841				1,274,621
Securities held to maturity (estimated fair value—$216,522 at June 30, 2006 and $232,671 at December 31, 2005)			215,375				227,345
Loans held for sale			5,914				3,324
Loans			4,813,644				4,656,522
Less: Unearned income			(6,666	)			(6,693	)
Loans net of unearned income			4,806,978				4,649,829
Less: Allowance for loan losses			(44,180	)			(44,138	)
Net loans			4,762,798				4,605,691
Bank premises and equipment			38,870				39,626
Goodwill			167,421				167,487
Accrued interest receivable			32,245				32,027
Other assets			171,925				170,409
TOTAL ASSETS		$	6,717,873			$	6,728,492
Liabilities
Deposits:
Noninterest-bearing		$	910,744			$	959,674
Interest-bearing			3,844,736				3,657,778
Total deposits			4,755,480				4,617,452
Borrowings:
Federal funds purchased			66,830				61,370
Securities sold under agreements to repurchase			561,208				525,604
Federal Home Loan Bank borrowings			535,053				723,818
Other short-term borrowings			3,208				4,451
Other long-term borrowings			88,654				88,913
Allowance for lending-related commitments			8,715				8,733
Accrued expenses and other liabilities			63,698				62,946
TOTAL LIABILITIES			6,082,846				6,093,287
Shareholders’ Equity
Common stock, $2.50 par value; Authorized-100,000,000 shares; issued-44,320,832 at June 30, 2006 and December 31, 2005, including 2,808,763 and 2,312,653 shares in treasury at June 30, 2006 and December 31, 2005, respectively			110,802				110,802
Surplus			95,778				97,374
Retained earnings			542,753				515,227
Accumulated other comprehensive loss			(17,840	)			(10,551	)
Treasury stock, at cost			(96,466	)			(77,647	)
TOTAL SHAREHOLDERS’ EQUITY			635,027				635,205
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	6,717,873			$	6,728,492

See notes to consolidated unaudited financial statements.

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

		Three Months Ended								Six Months Ended
		June 30								June 30
(Dollars in thousands, except per share data)		2006				2005				2006				2005
Interest income
Interest and fees on loans		$	81,687			$	66,024			$	158,249			$	129,090
Interest on federal funds sold and other short-term investments			429				220				720				346
Interest and dividends on securities:
Taxable			14,307				13,653				29,437				27,659
Tax-exempt			4,038				2,282				7,636				4,360
Total interest income			100,461				82,179				196,042				161,455
Interest expense
Interest on deposits			28,041				16,633				52,495				31,320
Interest on short-term borrowings			8,388				4,013				15,887				7,427
Interest on long-term borrowings			8,452				8,075				17,059				16,260
Total interest expense			44,881				28,721				85,441				55,007
Net interest income			55,580				53,458				110,601				106,448
Provision for credit losses			348				504				598				1,615
Net interest income after provision for credit losses			55,232				52,954				110,003				104,833
Other income
Fees from trust and brokerage services			3,647				2,741				6,667				5,499
Service charges, commissions, and fees			8,964				8,517				17,625				16,339
Income from bank-owned life insurance			1,061				1,459				2,104				2,423
Income from mortgage banking operations			150				227				379				353
Security (losses) gains			(99	)			58				(2,937	)			982
Gain on termination of interest rate swap associated with prepayment of FHLB advance			—				—				3,060				—
Other income			702				357				1,189				682
Total other income			14,425				13,359				28,087				26,278
Other expense
Salaries and employee benefits			15,951				14,921				31,049				28,987
Net occupancy expense			3,114				3,051				6,427				6,146
Equipment expense			1,314				1,673				3,032				3,313
Data processing expense			1,490				1,535				2,951				2,868
Other expense			10,294				9,397				20,892				18,004
Total other expense			32,163				30,577				64,351				59,318
Income before income taxes			37,494				35,736				73,739				71,793
Income taxes			12,035				11,222				23,670				22,519
Net income		$	25,459			$	24,514			$	50,069			$	49,274
Earnings per common share:
Basic		$	0.61			$	0.57			$	1.20			$	1.15
Diluted		$	0.60			$	0.57			$	1.19			$	1.14
Dividends per common share		$	0.27			$	0.26			$	0.54			$	0.52
Average outstanding shares:
Basic			41,684,404				42,659,573				41,803,404				42,779,299
Diluted			42,084,164				43,121,982				42,228,600				43,269,361

See notes to consolidated unaudited financial statements.

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

		Six Months Ended June 30, 2006
																		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, 2006			44,320,832			$	110,802			$	97,374			$	515,227			($	10,551	)			($77,647	)		$	635,205
Comprehensive income:
Net income			—				—				—				50,069				—				—				50,069
Other comprehensive income, net of tax:
Unrealized loss on securities of $8,073 net of reclassification adjustment for losses included in net income of $1,909			—				—				—				—				(6,164	)			—				(6,164	)
Termination of cash flow hedge, net of tax of $727			—				—				—				—				(1,350	)			—				(1,350	)
Accretion of the unrealized loss for securities transferred from the available for sale to the held to maturity investment portfolio			—				—				—				—				225				—				225
Total comprehensive income																											42,780
Purchase of treasury stock (683,409 shares)			—				—				—				—				—				(25,163	)			(25,163	)
Cash dividends ($0.54 per share)			—				—				—				(22,543	)			—				—				(22,543	)
Common stock options exercised (187,299 shares)			—				—				(1,596	)			—				—				6,344				4,748
Balance at June 30, 2006			44,320,832			$	110,802			$	95,778			$	542,753			($	17,840	)			($96,466	)		$	635,027

See notes to consolidated unaudited financial statements

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

		Six Months Ended
		June 30
(Dollars in thousands)		2006				2005
NET CASH PROVIDED BY OPERATING ACTIVITIES		$	54,904			$	52,977
INVESTING ACTIVITIES
Proceeds from maturities and calls of securities held to maturity			12,571				2,397
Purchases of securities held to maturity			(587	)			(453	)
Proceeds from sales of securities available for sale			130,245				192,021
Proceeds from maturities and calls of securities available for sale			110,108				100,842
Purchases of securities available for sale			(91,793	)			(236,035	)
Net purchases of bank premises and equipment			(1,434	)			(1,360	)
Net change in loans			(158,482	)			(106,615	)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES			628				(49,203	)
FINANCING ACTIVITIES
Cash dividends paid			(22,676	)			(22,338	)
Excess tax benefits from stock-based compensation arrangements			431				—
Acquisition of treasury stock			(24,936	)			(18,626	)
Proceeds from exercise of stock options			4,316				1,231
Repayment of long-term Federal Home Loan Bank borrowings			(51,994	)			(126,664	)
Proceeds from long-term Federal Home Loan Bank borrowings			—				150,000
Changes in:
Deposits			138,028				216,378
Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings			(95,179	)			(146,935	)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES			(52,010	)			53,046
Increase in cash and cash equivalents			3,522				56,820
Cash and cash equivalents at beginning of year			207,962				153,465
Cash and cash equivalents at end of period		$	211,484			$	210,285

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 June 30, 2006 and 2005 and for the three-month and six-month periods then ended have not been audited. The consolidated balance sheet as of December 31, 2005 has been extracted from the audited financial statements included in United’s 2005 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 2005 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 July 2006, the Financial Accounting Standards Board (FASB) has published 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 of Financial Accounting Standards (SFAS) No. 109 (SFAS 109), “Accounting for Income Taxes”, on the uncertainty in income taxes recognized in an enterprise’s financial statements. FIN 48 will apply to fiscal years beginning after December 15, 2006, with earlier adoption permitted. United is currently evaluating the impact of FIN 48 on its consolidated financial statements, but is not yet in a position to determine the impact of the standard.

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 is effective for United on January 1, 2007 and is not expected to 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. SFAS 155 is effective for United on January 1, 2007 and is not expected to 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.’’ SFAS 123R requires the measurement of all employee share-based payments to employees, including grants of employee stock options, using a fair-value based method and the recording of such expense in our consolidated statements of income. See Note 11 for information regarding United’s adoption of SFAS 123R.

In June 2005, the FASB issued Statement No. 154 (SFAS 154), “Accounting Changes and Error Corrections”, a replacement of APB No. 20, “Accounting Changes” and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements”. SFAS 154 applies to all voluntary changes in accounting principle and changes the requirements for accounting for, and reporting of, a change in accounting principle. Previously, most voluntary changes in accounting principles were required to be recognized by way of a cumulative effect adjustment within net income during the period of the change. SFAS 154 requires retrospective application to prior periods’ financial statements, unless it is impracticable to determine either the period specific effects or the cumulative effect of the change. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The implementation of FAS 154 did not have a material impact on United’s consolidated financial statements.

2. INVESTMENT SECURITIES

The amortized cost and estimated fair values of securities available for sale are summarized as follows:

		June 30, 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		$	21,473				—			$	175			$	21,298
State and political subdivisions			110,656			$	1,374				1,956				110,074
Mortgage-backed securities			813,714				653				24,987				789,380
Marketable equity securities			6,599				313				148				6,764
Other			183,473				1,846				994				184,325
Total		$	1,135,915			$	4,186			$	28,260			$	1,111,841

		December 31, 2005
						Gross				Gross				Estimated
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
U.S. Treasury securities and obligations of U.S. Government corporations and agencies		$	11,133				—			$	114			$	11,019
State and political subdivisions			113,537			$	2,054				1,026				114,565
Mortgage-backed securities			968,186				2,233				20,028				950,391
Marketable equity securities			6,914				389				89				7,214
Other			189,443				2,518				529				191,432
Total		$	1,289,213			$	7,194			$	21,786			$	1,274,621

In March 2004, the Financial Accounting Standards Board (FASB) ratified the consensus reached by the Emerging Issues Task Force (EITF) regarding Issue 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (EITF 03-1). The issue provides guidance for evaluating whether an investment is other-than-temporarily impaired and requires certain disclosures with respect to these investments. The FASB delayed the guidance in EITF 03-1 regarding measurement and recognition of other-than-temporary impairment. In June 2005, the FASB decided not to provide additional guidance on the meaning of other-than-temporary impairment and directed the staff to issue proposed FASB-directed Staff Position (FSP) EITF 03-1-a, “Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1,” as final. The final FSP supersedes EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” and EITF Topic No. D-44, “Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value.”

The final FSP (retitled FSP FAS 115-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”) replaces the guidance set forth in paragraphs 10 through 18 of EITF 03-1 with references to existing other-than-temporary impairment guidance, such as FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, SEC Staff Accounting Bulletin No. 59, “Accounting for Noncurrent Marketable Equity Securities”, and APB Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock.” FSP FAS 115-1 codifies the guidance set forth in EITF Topic D-44 and clarifies that an investor should recognize an impairment loss no later than when the impairment is deemed other than temporary, even if a decision to sell has not been made.

Provided below is a summary of securities available-for-sale which were in an unrealized loss position at June 30, 2006 and December 31, 2005:

		Less than 12 months								12 months or longer
		Market				Unrealized				Market				Unrealized
		Value				Losses				Value				Losses
June 30, 2006
Treasuries and agencies		$	14,928			$	54			$	2,872			$	121
State and political			38,708				1,653				7,325				303
Mortgage-backed			182,750				3,928				582,867				21,059
Marketable equity securities			136				10				839				138
Other			15,676				590				17,130				404
Total		$	252,198			$	6,235			$	611,033			$	22,025
December 31, 2005
Treasuries and agencies		$	5,627			$	22			$	2,901			$	92
State and political			43,094				946				2,466				80
Mortgage-backed			397,788				6,622				478,820				13,406
Marketable equity securities			—				—				879				89
Other			17,510				265				18,174				264
Total		$	464,019			$	7,855			$	503,240			$	13,931

Gross unrealized losses on available for sale securities were $28,260 at June 30, 2006. 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 June 30, 2006 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 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. These securities consisted of Collateralized Mortgage Obligations (CMOs) with an average investment yield of approximately 3.5% and an average remaining life of 1.7 years. 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. On April 4, 2006 these securities were sold.

The amortized cost and estimated fair value of securities available for sale at June 30, 2006 and December 31, 2005 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.

		June 30, 2006								December 31, 2005
						Estimated								Estimated
		Amortized				Fair				Amortized				Fair
		Cost				Value				Cost				Value
Due in one year or less		$	17,908			$	18,133			$	7,735			$	7,733
Due after one year through five years			84,373				81,857				81,964				81,498
Due after five years through ten years			243,568				236,729				262,408				257,134
Due after ten years			783,467				768,358				930,192				921,042
Marketable equity securities			6,599				6,764				6,914				7,214
Total		$	1,135,915			$	1,111,841			$	1,289,213			$	1,274,621

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

		June 30, 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		$	11,736			$	323				—			$	12,059
State and political subdivisions			65,619				1,097			$	27				66,689
Mortgage-backed securities			315				6				—				321
Other			137,705				2,015				2,267				137,453
Total		$	215,375			$	3,441			$	2,294			$	216,522

		December 31, 2005
						Gross				Gross				Estimated
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
U.S. Treasury securities and obligations of U.S. Government corporations and agencies		$	11,787			$	1,017				—			$	12,804
State and political subdivisions			67,304				1,786			$	1				69,089
Mortgage-backed securities			395				16				—				411
Other			147,859				3,660				1,152				150,367
Total		$	227,345			$	6,479			$	1,153			$	232,671

The amortized cost and estimated fair value of debt securities held to maturity at June 30, 2006 and December 31, 2005 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.

		June 30, 2006								December 31, 2005
						Estimated								Estimated
		Amortized				Fair				Amortized				Fair
		Cost				Value				Cost				Value
Due in one year or less		$	1,862			$	1,867			$	13,057			$	13,106
Due after one year through five years			41,180				41,881				39,012				40,552
Due after five years through ten years			24,799				25,224				23,612				24,165
Due after ten years			147,534				147,550				151,664				154,848
Total		$	215,375			$	216,522			$	227,345			$	232,671

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 $989,476 and $1,007,896 at June 30, 2006 and December 31, 2005, respectively.

3. LOANS

Major classifications of loans are as follows:

		June 30,				December 31,
		2006				2005
Commercial, financial and agricultural		$	923,430			$	934,780
Real estate:
Single-family residential			1,777,578				1,745,824
Commercial			1,177,618				1,126,095
Construction			447,483				347,274
Other			127,361				122,487
Installment			360,174				380,062
Total gross loans		$	4,813,644			$	4,656,522

The table above does not include loans held for sale of $5,914 and $3,324 at June 30, 2006 and December 31, 2005, 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 $118,856 and $111,365 at June 30, 2006 and December 31, 2005, respectively.

4. 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

$8,715 and $8,733 at June 30, 2006 and December 31, 2005, respectively, is separately identified 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								Six Months Ended
		June 30								June 30
		2006				2005				2006				2005
Balance at beginning of period		$	52,965			$	51,424			$	52,871			$	51,353
Provision			348				504				598				1,615
			53,313				51,928				53,469				52,968
Loans charged-off			(643	)			(1,039	)			(1,314	)			(2,577	)
Less: Recoveries			225				744				740				1,242
Net Charge-offs			(418	)			(295	)			(574	)			(1,335	)
Balance at end of period		$	52,895			$	51,633			$	52,895			$	51,633

5. 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:

		June 30,				December 31,
		2006				2005
Nonaccrual loans		$	6,958			$	7,146
Loans past due 90 days or more and still accruing interest			6,531				6,039
Total nonperforming loans			13,489				13,185
Other real estate owned			2,313				2,941
Total nonperforming assets		$	15,802			$	16,126

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 June 30, 2006, the recorded investment in loans that were considered to be impaired was $18,338 (of which $6,958 were on a nonaccrual basis). Included in this amount is $7,174 of impaired loans for which the related allowance for credit losses is $1,388 and $11,164 of impaired loans that do not have an allowance for credit losses due to management’s estimate that the fair value of the underlying collateral of these loans is sufficient for full repayment of the loan and interest. At December 31, 2005, the recorded investment in loans that were considered to be impaired was $16,553 (of which $7,146 were on a nonaccrual basis). Included in this amount was $5,830 of impaired loans for which the related allowance for credit losses was $1,008, and $10,723 of impaired loans that did not have an allowance for credit losses. The average recorded investment in impaired loans during the six months ended June 30, 2006 and for the year ended December 31, 2005 was approximately $17,672 and $15,940, respectively.

United recognized interest income on impaired loans of approximately $246 and $482 for the quarter and six months ended June 30, 2006, respectively, and $90 and $196 for the quarter and six months ended June 30, 2005, 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 $348 and $669 for the quarter and six months ended June 30, 2006, respectively, and $185 and $423 for the quarter and six months ended June 30, 2005, respectively.

6. INTANGIBLE ASSETS

Total goodwill was $167,421 and $167,487 as of June 30, 2006 and December 31, 2005, respectively. The following is a summary of intangible assets subject to amortization and those not subject to amortization:

		As of June 30, 2006
		Gross Carrying				Accumulated				Net Carrying
		Amount				Amortization				Amount
Amortized intangible assets:
Core deposit intangible assets		$	19,890			($	16,357	)		$	3,533
Goodwill not subject to amortization										$	167,421

		As of December 31, 2005
		Gross Carrying				Accumulated				Net Carrying
		Amount				Amortization				Amount
Amortized intangible assets:
Core deposit intangible assets		$	19,890			($	15,363	)		$	4,527
Goodwill not subject to amortization										$	167,487

United incurred amortization expense of $484 and $994 for the quarter and six months ended June 30, 2006, respectively, and $586 and $1,197 for the quarter and six months ended June 30, 2005, respectively, related to intangible assets. The following table sets forth the anticipated amortization expense for intangible assets for each of the next five years:

Year		Amount
2006		$	1,871
2007			1,462
2008			817
2009			303
2010			74

7. 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 June 30, 2006, federal funds purchased were $66,830 while securities sold under agreements to repurchase were $561,208.

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 June 30, 2006, United had no outstanding balance under these lines of credit.

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 June 30, 2006, United Bank (VA) had an outstanding balance of $3,208 and had additional funding available of $1,792.

8. 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 June 30, 2006, United had an unused borrowing amount of approximately $1,439,715 available subject to delivery of collateral after certain trigger points.

At June 30, 2006, $535,053 of FHLB advances with a weighted-average interest rate of 6.11% is scheduled to mature within the next twelve years. The scheduled maturities of borrowings are as follows:

Year		Amount
2006		$	130,000
2007			—
2008			100,471
2009			—
2010 and thereafter			304,582
Total		$	535,053

United has a total of seven 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 June 30, 2006 and December 31, 2005, the outstanding balances of the Debentures were $88,654 and $88,913 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 Trust Preferred 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.

9. 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 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 approximately $1,785,022 and $1,823,909 of loan commitments outstanding as of June 30, 2006 and December 31, 2005, 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 $939 and $1,021 as of June 30, 2006 and December 31, 2005, 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 $105,951 and $139,572 as of June 30, 2006 and December 31, 2005, 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.

10. DERIVATIVE FINANCIAL INSTRUMENTS

United uses derivative instruments to help 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.

Under the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, 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 under SFAS No.133. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. United has only fair value hedges as of June 30, 2006.

SFAS No. 133 requires all derivative instruments to be carried at fair value on the balance sheet. SFAS No. 133 provides for special accounting provisions for perfect hedges where the critical terms of the hedged financial instruments (i.e. FHLB advances or fixed commercial loans) and the interest rate payments to be received on the swaps coincide and thus are highly effective in offsetting changes in the fair value of the hedged financial instruments over their remaining term. 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 stockholders’ 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.

Under both the fair value and cash flow hedge methods, derivative gains and losses not effective in hedging the change in fair value or expected cash flows of the hedged item are recognized immediately in the income statement. At the hedge’s inception and at least quarterly thereafter, an assessment is performed to determine whether changes in the fair values or cash flows of the derivative instruments have been highly effective in offsetting changes in fair values or cash flows of the hedged items. If it is determined a derivative instrument has not been highly effective as a hedge, hedge accounting is discontinued.

The tables below 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 June 30, 2006:

Derivative Classifications and Hedging Relationships
June 30, 2006

		Notional				Derivative
		Amount				Asset				Liability
Derivatives Designated as Fair Value Hedges:
Hedging Commercial Loans		$	14,341			$	336			$	—
Hedging FHLB Borrowings			100,000				—				8,994
Total Derivatives Designated as Fair Value Hedges:		$	114,341			$	336			$	8,994
Total Derivatives Used in Interest Rate Risk Management and Designated in SFAS 133 Relationships:		$	114,341			$	336			$	8,994

Derivative Instruments
June 30, 2006

		Notional				Average				Average				Estimated
		Amount				Receive Rate				Pay Rate				Fair Value
Fair Value Hedges:
Receive Fixed Swap (FHLB Borrowing)		$	100,000				6.43	%						$	(8,994	)
Pay Fixed Swap (Commercial Loans)			14,341								6.27	%			336
Total Derivatives Used in Fair Value Hedges		$	114,341											$	(8,658	)
Total Derivatives Used for Interest Rate Risk Management and Designated in SFAS 133 Relationships		$	114,341											$	(8,658	)

The derivative portfolio also includes derivative financial instruments not included in hedge relationships.

These derivatives consist of interest rate swaps used for interest rate management purposes and derivatives executed with commercial banking customers to facilitate their interest rate management strategies. Gains and losses on other derivative financial instruments are included in noninterest income and noninterest expense, respectively.

A summary of derivative financial instruments not in hedge relationships by type of activity is as follows:

		Other Derivative Instruments
		June 30, 2006
		Net Derivative				Net Gains
		Asset (Liability)				(Losses)
Other Derivative Instruments:
Interest Rate Risk Management		$	70			$	35
Customer Risk Management			(70	)			(35	)
Total Other Derivative Instruments		$	—			$	—

11. STOCK BASED COMPENSATION

United has stock option plans (the Plans) for certain employees that were accounted for under the intrinsic value method prior to January 1, 2006. Because the exercise price at the date of the grant was equal to the market value of the stock, no compensation expense was recognized. In December 2004, FASB enacted Statement of Financial Accounting Standards 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 supersedes APB Opinion No. 25 (APB 25), ‘‘Accounting for Stock Issued to Employees” and amended FASB Statement No. 95, “Statement of Cash Flows.’’ SFAS 123R requires the measurement of all employee share-based payments to employees, including grants of employee stock options, using a fair-value based method and the recording of such expense in our consolidated statements of income.

On January 1, 2006, United adopted 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 have not been 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 the second quarter and first six months of 2006. 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, the 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. 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.

Prior to 2004, United disclosed pro forma compensation expense quarterly and annually by calculating the stock option grants’ fair value using the Black-Scholes model and disclosing the impact on net income and net income per share. For options granted in 2004 and 2005, United used a binomial lattice model to value the options granted and determine the pro forma compensation expense presented in the table below. United intends to use this binomial lattice model to value future grants. SFAS 123R defines a lattice model as a model that produces an estimated fair value based on the assumed changes in prices of a financial instrument over successive periods of time. A binomial lattice model assumes at least two price movements are possible in each period of time.

United, as does the FASB, believes the use of a binomial lattice model for option valuation is capable of more fully reflecting certain characteristics of employee stock options compared to the Black-Scholes options pricing model. For United, the difference in fair values calculated under each option pricing model was immaterial. The table below reflects the estimated impact the fair value method would have had on United’s net income and net income per share if SFAS 123R had been in effect for the first quarter and six months ended June 30, 2005.

The following pro forma disclosures present United’s consolidated net income and diluted earnings per share, determined as if United had recognized compensation expense for its employee stock options based on the estimated fair value of the option at the date of grant amortized over the vesting period of the option:

		Three				Six
		Months				Months
		Ended				Ended
		June 30,				June 30,
		2005				2005
Net Income, as reported		$	24,514			$	49,274
Less pro forma expense related to options granted, net of tax			(300	)			(601	)
Pro forma net income		$	24,214			$	48,673
Pro forma net income per share:
Basic – as reported		$	0.57			$	1.15
Basic – pro forma		$	0.57			$	1.14
Diluted – as reported		$	0.57			$	1.14
Diluted – pro forma		$	0.56			$	1.12

A summary of option activity under the Plans as of June 30, 2006, and the changes during the first six months of 2006 is presented below:

		Six Months Ended June 30, 2006
										Weighted Average
						Aggregate				Remaining
						Intrinsic				Contractual				Exercise
		Shares				Value				Term (Yrs.)				Price
Outstanding at January 1, 2006			2,115,965											$	27.29
Granted			—												—
Exercised			184,254												24.66
Forfeited or expired			19,596												34.03
Outstanding at June 30, 2006			1,912,115			$	17,700				5.9			$	27.47
Exercisable at June 30, 2006			1,912,115			$	17,700				5.9			$	27.47

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 June 30, 2006 were 21,079. Options granted through the reinvestment of dividends during the first six months of 2006 were 330. Options exercised during the first six months of 2006 were 3,045. 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 six months ended June 30, 2006 and 2005 was $4.32 million and $1.19 million, respectively. During the six months ended June 30, 2006 and 2005, 184,254 and 60,832 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 six months ended June 30, 2006 and 2005. The total intrinsic value of options exercised under the Plans during the six months ended June 30, 2006 and 2005 was $2.45 million and $790 thousand, 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 $431 thousand from excess tax benefits related to share-based compensation for the six months ended June 30, 2006. Cash flows of $160 thousand from excess tax benefits related to share-based compensation were reported as operating activities for the six months ended June 30, 2005.

In March of 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107), “Share-Based Payment.” SAB 107 provides guidance regarding the application of SFAS 123R including option valuation methods, the accounting for income tax effects of share-based payment arrangements upon the adoption of SFAS 123R, and the required disclosures within filings made with the SEC related to the accounting for share-based payment transactions. United has also provided SAB 107 required disclosures in its Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) under the subheading of “Other Expenses” contained within this document.

12. 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. The associated benefits accumulated by these employees in their previous plan were assumed by United’s benefit plan.

Net periodic pension cost included the following components:

		Three Months Ended								Six Months Ended
		June 30								June 30
(In thousands)		2006				2005				2006				2005
Service cost		$	534			$	468			$	1,062			$	933
Interest cost			809				756				1,609				1,504
Expected return on plan assets			(1,184	)			(1,114	)			(2,355	)			(2,216	)
Amortization of transition asset			(44	)			(44	)			(87	)			(87	)
Recognized net actuarial loss			231				170				459				338
Net periodic pension cost		$	346			$	236			$	688			$	472
Weighted-Average Assumptions:
Discount rate			6.00	%			6.25	%			6.00	%			6.25	%
Expected return on assets			8.50	%			9.00	%			8.50	%			9.00	%
Rate of compensation increase			3.25	%			3.25	%			3.25	%			3.25	%

13. COMPREHENSIVE INCOME

The components of total comprehensive income for the three and six months ended June 30, 2006 and 2005 are as follows:

		Three Months Ended								Six Months Ended
		June 30								June 30
(In thousands)		2006				2005				2006				2005
Net Income		$	25,459			$	24,514			$	50,069			$	49,274
Securities available for sale:
Net change in unrealized (losses) gains on available for sale securities arising during the period			(8,460	)			8,638				(12,420	)			(6,662	)
Related income tax effect			2,961				(3,023	)			4,347				2,332
Net reclassification adjustment for losses (gains) included in net income			99				(57	)			2,937				(982	)
Related income tax (benefit) expense			(35	)			20				(1,028	)			344
Accretion on the unrealized loss for securities transferred from the available for sale to the held to maturity investment portfolio			164				191				346				380
Related income tax expense			(57	)			(67	)			(121	)			(133	)
Net effect on other comprehensive (loss) income			(5,328	)			5,702				(5,939	)			(4,721	)
Cash flow hedge derivative:
Termination of cash flow hedge			—				—				(2,077	)			—
Related income tax expense			—				—				727				—
Net effect on other comprehensive income			—				—				(1,350	)			—
Total change in other comprehensive income			(5,328	)			5,702				(7,289	)			(4,721	)
Total Comprehensive Income		$	20,131			$	30,216			$	42,780			$	44,553

14. EARNINGS PER SHARE

The reconciliation of the numerator and denominator of basic earnings per share with that of diluted earnings per share is presented as follows:

		Three Months Ended								Six Months Ended
		June 30								June 30
		2006				2005				2006				2005
Basic
Net Income		$	25,459			$	24,514			$	50,069			$	49,274
Average common shares outstanding			41,684,404				42,659,573				41,803,404				42,779,299
Earnings per basic common share		$	0.61			$	0.57			$	1.20			$	1.15
Diluted
Net Income		$	25,459			$	24,514			$	50,069			$	49,274
Average common shares outstanding			41,684,404				42,659,573				41,803,404				42,779,299
Equivalents from stock options			399,760				462,409				425,196				490,062
Average diluted shares outstanding			42,084,164				43,121,982				42,228,600				43,269,361
Earnings per diluted common share		$	0.60			$	0.57			$	1.19			$	1.14

Item 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

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 represents management’s estimate of the probable credit losses inherent in the lending portfolio and lending-related commitments. 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 4 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 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 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.

The following is a broad overview of the financial condition and results of operations and is not intended to replace the more detailed discussion, which is presented under specific headings on the following pages.

FINANCIAL CONDITION

United’s total assets as of June 30, 2006 were relatively flat compared to December 31, 2005. Total assets at June 30, 2006 were $6.72 billion, down $10.62 million or less than 1% from year-end 2005, primarily the result of a $174.75 million or 11.63% decline in investment securities. Partially offsetting this decrease in investment securities were increases in portfolio loans of $157.15 million or 3.38%, cash and cash equivalents of $3.52 million or 1.69% and loans held for sale of $2.59 million or 77.92%. The decrease in total assets is reflected in corresponding decreases in total liabilities and shareholders’ equity of $10.44 million and $178 thousand, respectively, from year-end 2005. The decrease in total liabilities was due mainly to a reduction of $188.77 million or 26.08% in Federal Home Loan Bank (FHLB) borrowings. Partially offsetting this decrease in FHLB borrowings were increases in deposits of $138.03 million or 2.99%, securities sold under agreements to repurchase of $35.60 million or 6.77% and federal funds purchased of $5.46 million or 8.90%. The following discussion explains in more detail the changes in financial condition by major category.

Cash and Cash Equivalents

Cash and cash equivalents increased $3.52 million or 1.69% comparing June 30, 2006 to year-end 2005. Of this total increase, federal funds sold and interest-bearing deposits with other banks increased $16.71 million and $251 thousand, respectively, while cash and due from banks decreased $13.43 million. During the first six months of 2006, net cash of $54.90 million and $628 thousand was provided by operating activities and investing activities, respectively. Net cash of $52.01 million was used in financing 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 six months of 2006 and 2005.

Securities

Total investment securities at June 30, 2006 decreased $174.75 million or 11.63% since year-end 2005. The decline in investment securities is a result of management’s decision not to reinvest cash flows generated by the investment portfolio because of the flat yield curve, but rather use the cash flows to repay borrowings. Securities available for sale decreased $162.78 million or 12.77%. This change in securities available for sale reflects $242.99 million in sales, maturities and calls of securities, $91.79 million in purchases and a decrease of $9.48 million in market value. Securities held to maturity decreased $11.97 million or 5.27% from year-end 2005. The amortized cost and estimated fair value of investment securities, including types and remaining maturities, is presented in Note 2 to the unaudited Notes to Consolidated Financial Statements.

Loans

Loans held for sale increased $2.59 million or 77.92% as loan originations exceeded loan sales in the secondary market during the first six months of 2006. Portfolio loans, net of unearned income, increased $157.15 million or 3.38% from year-end 2005 largely the result of increased loan production as all major classifications of loans increased except for commercial (not secured by real estate) and consumer loans. Since year-end 2005, construction loans increased $100.21 million or 28.86%, single-family residential real estate loans increased $31.75 million or 1.82%, commercial real estate loans increased $51.52 million or 4.58% and other real estate secured loans increased $4.87 million or 3.98%. Commercial loans (not secured by real estate) and consumer loans decreased $11.35 million or 1.21% and $19.89 million or 5.23%, respectively, from year-end 2005. The table below summarizes the changes in the loan categories since year-end 2005:

		June 30				December 31
(Dollars in thousands)		2006				2005				$ Change				% Change
Loans held for sale		$	5,914			$	3,324			$	2,590				77.92	%
Commercial, financial, and agricultural		$	923,430			$	934,780			$	(11,350	)			(1.21	%)
Real Estate:
Single family residential			1,777,578				1,745,824				31,754				1.82	%
Commercial			1,177,618				1,126,095				51,523				4.58	%
Construction			447,483				347,274				100,209				28.86	%
Other			127,361				122,487				4,874				3.98	%
Consumer			360,174				380,062				(19,888	)			(5.23	%)
Less: Unearned income			(6,666	)			(6,693	)			27				(0.40	%)
Total Loans, net of unearned income		$	4,806,978			$	4,649,829			$	157,149				3.38	%