FORM 10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2006

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

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) 424-8704

Securities registered pursuant to section 12(b) of the Act:

(Title of Class)

Securities registered pursuant to 12(g) of the Act: None

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in rule 405 of the Securities Act. Yes þ No o

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

     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

UNITED BANKSHARES, INC.
FORM 10-K
(Continued)

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer as defined in Rule 12b-2 of the Exchange Act:

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 Act). Yes o No þ

     The aggregate market value of United Bankshares, Inc. common stock, representing all of its voting stock that was held by non-affiliates on June 30, 2006, was approximately $1,330,667,094.

     As of January 31, 2007, United Bankshares, Inc. had 40,981,030 shares of common stock outstanding with a par value of $2.50.

Documents Incorporated By Reference

     Definitive Proxy Statement dated April 12, 2007 for the 2007 Annual Shareholders’ Meeting to be held on May 21, 2007, portions of which are incorporated by reference in Part III of this Form 10-K.

 

 

UNITED BANKSHARES, INC.
FORM 10-K
(Continued)

As of the date of filing this Annual report, neither the annual shareholders’ report for the year ended December 31, 2006, nor the proxy statement for the annual United shareholders’ meeting has been mailed to shareholders.

CROSS-REFERENCE INDEX

				Page
Part I
Item 1.		BUSINESS			4
Item 1A.		RISK FACTORS			9
Item 1B.		UNRESOLVED STAFF COMMENTS			11
Item 2.		PROPERTIES			11
Item 3.		LEGAL PROCEEDINGS			11
Item 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			11
Part II
Item 5.		MARKET FOR REGISTRANT’S COMMON STOCK, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES			12
Item 6.		SELECTED FINANCIAL DATA			16
Item 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			17
Item 7A.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			39
Item 8.		FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA			43
Item 9.		CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES			88
Item 9A.		CONTROLS AND PROCEDURES			88
Item 9B.		OTHER INFORMATION			88
Part III
Item 10.		DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE			89
Item 11.		EXECUTIVE COMPENSATION			89
Item 12.		SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS			89
Item 13.		CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE			89
Item 14.		PRINCIPAL ACCOUNTANT FEES AND SERVICES			89
Part VI
Item 15.		EXHIBITS, FINANCIAL STATEMENTS SCHEDULES			90
EX-12
EX-21
EX-23
EX-31.1
EX-31.2
EX-32.1
EX-32.2

UNITED BANKSHARES, INC.
FORM 10-K, PART I

Item 1. BUSINESS

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-six banking institutions. At December 31, 2006, 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, 2006, United and its subsidiaries had approximately 1,367 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-wv.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, 2006, United’s consolidated assets approximated $6.7 billion and total shareholders’ equity approximated $634 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 Agreement and Plan of Reorganization with Premier Community Bankshares, Inc.

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 $156.9 million to $4.81 billion in 2006. The loan portfolio is comprised of commercial, real estate and consumer loans including credit card and home equity loans. Real estate construction loans increased $175.8 million or 50.6%. Commercial and commercial real estate loans increased $19.2 million or 2.1% and $19.9 million or 1.8%, respectively. Single family residential real estate loans decreased $25.0 million or 1.4% for the year of 2006. Consumer loans decreased $30.2 million or 7.9%. Interest and fees on loans for the years of 2006, 2005, and 2004 were $326.9 million, $274.9 million, and $229.2 million, respectively.

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 carry many of the same customers and 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, 2006, approximately $320.3 million or 6.7% 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 $2.51 billion as of December 31, 2006. 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, 2006,

approximately $838.4 million or 17.5% 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, 2006, the balance of mortgage loans being serviced by United for others was insignificant.

     On July 7, 2004, United sold its primary mortgage banking subsidiary, George Mason Mortgage, LLC (Mason Mortgage), essentially exiting the “wholesale” mortgage banking business. On a smaller scale, United Bank (WV) continues to engage 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 2006, United originated $52.1 million of real estate loans for sale in the secondary market and sold $53.4 million of loans designated as held for sale in the secondary market. Net gains on the sales of these loans during 2006 were $855 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 2006, 2005, and 2004 were $72.0 million, $69.6 million, and $63.8 million, respectively. United recognized net losses of $3.2 million in the year of 2006 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 and $1.1 million for the years of 2005 and 2004, respectively.

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, Jefferson and Raleigh Counties in West Virginia; Lawrence, Belmont, Jefferson and Washington Counties in Ohio; Montgomery County in Maryland and Arlington, Alexandria, Loudoun, Prince William and Fairfax Counties in Virginia, located adjacent to the Washington, D.C. area, which is in close proximity to Jefferson and Berkeley Counties in West Virginia’s eastern panhandle. 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. Metropolitan area. 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, 2006, there were 71 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 96 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 2006, West Virginia’s unemployment rate was 4.6% while the national rate was 4.3%. The total number of unemployed state residents declined 800 for the month of December as compared to the month of November. The total number of unemployed residents was up 4,100 for the year of 2006 as compared to 2005. 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 northern Virginia subsidiary banking offices are located in markets that reflect very low unemployment rate levels and increased wage levels over a year ago. According to information available from the Virginia Employment Commission, Virginia’s unemployment rate as of December 2006 was 2.7%, down 6,500 unemployed state residents from November. The 2.7% December 2006 unemployment rate was the best jobless rate for the month of December in six years, since a 1.9% December 2000 level. The December 2006 unemployment rate was below both the December 2005 Virginia jobless rate of 3.0% and the U.S. December 2006 unemployment level of 4.3%. The Northern Virginia metropolitan area’s unemployment rate was at 1.9% in December 2006, the lowest among Virginia’s ten metropolitan areas. The 1.9% December 2006 unemployment rate was below the 2.1% unemployment rate in December 2005.

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 banks 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, 2012.

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 Arlington, Loudoun, Prince William and Fairfax. In addition, United has offices in the Washington, D.C. MSA and considers this part of its market. 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, 2006, an aggregate of approximately $16.47 million and $14.17 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 and Northern 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. 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 establishes the allowance based upon many factors, including, but not limited to:

•

historical loan loss experience;

	•		industry diversification of the commercial loan portfolio;
	•		the effect of changes in the local real estate market on collateral values;
	•		the amount of nonperforming loans and related collateral security;
	•		current economic conditions that may affect the borrower’s ability to pay and value of collateral;
	•		sources and cost of funds;
	•		volume, growth and composition of the loan portfolio; and
	•		other factors management believes are relevant.

     These determinations are based upon estimates that are inherently subjective, and their accuracy depends on the outcome of future events, so ultimate losses may differ from current estimates. Depending on changes in economic, operating and other conditions, including changes in interest rates, that are generally beyond its control, United’s actual loan losses could increase significantly. As a result, such losses could exceed United’s current allowance estimates. United can provide no assurance that its allowance is sufficient to cover actual loan losses should such losses differ substantially from our current estimates.

     In addition, federal and state regulators, as an integral part of their respective supervisory functions, periodically review United’s allowance for credit losses. United’s independent auditors also review the allowance as a part of their audit. Any increase in its allowance required by either the regulatory agencies or independent auditors would reduce United’s pre-tax earnings.

Item 1B. UNRESOLVED STAFF COMMENTS

     None

Item 2. PROPERTIES

Offices

     United is headquartered in the United Center at 500 Virginia Street, East, Charleston, West Virginia. United’s executive offices are located in Parkersburg, West Virginia at Fifth and Avery Streets. United operates ninety (90) full service offices—fifty-two (52) offices located throughout West Virginia, thirty-five (35) offices throughout the Northern Virginia, Maryland and Washington, D.C. areas and three (3) in Ohio. United owns all of its West Virginia facilities except for two in the Wheeling area, two in the Charleston area, two in the Beckley area and one each in Parkersburg, Morgantown, Charles Town and Clarksburg, all of which are leased under operating leases. United leases all of its facilities under operating lease agreements in the Northern Virginia, Maryland and Washington, D.C. areas except for four offices, one each in Fairfax, Alexandria, and Vienna, Virginia and one in Bethesda, Maryland which are owned facilities. In Ohio, United leases two of its three facilities, one each in Bellaire and St. Clairsville. United leases an operations center facility in the Charleston area.

Item 3. LEGAL PROCEEDINGS

     In the normal course of business, United and its subsidiaries are currently involved in various legal proceedings. Management is vigorously pursuing all its legal and factual defenses and, after consultation with legal counsel, believes that all such litigation will be resolved with no material effect on United’s financial position.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

UNITED BANKSHARES, INC.
FORM 10-K, PART II

Item 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Stock

     As of December 31, 2006, 100,000,000 shares of common stock, par value $2.50 per share, were authorized for United, of which 44,320,832 were issued, including 3,261,931 shares held as treasury shares. The outstanding shares are held by approximately 5,747 shareholders of record, as well as 6,254 shareholders in street name as of January 31, 2007. The unissued portion of United’ s authorized common stock (subject to registration approval by the SEC) and the treasury shares are available for issuance as the Board of Directors determines advisable. United offers its shareholders the opportunity to invest dividends in shares of United stock through its dividend reinvestment plan. United has also established stock option plans and a stock bonus plan as incentive for certain eligible officers. In addition to the above incentive plans, United is occasionally involved in certain mergers in which additional shares could be issued and recognizes that additional shares could be issued for other appropriate purposes.

     In May of 2006, United’s Board of Directors approved a new stock repurchase plan, whereby United could buy up to 1,700,000 shares of its common stock in the open market. During 2006, 659,300 shares were repurchased under the plan while 623,700 shares were repurchased to complete an earlier plan approved in 2004 to repurchase up to 1,775,000 shares.

     The Board of Directors believes that the availability of authorized but unissued common stock of United is of considerable value if opportunities should arise for the acquisition of other businesses through the issuance of United’s stock. Shareholders do not have preemptive rights, which allows United to issue additional authorized shares without first offering them to current shareholders.

     United has only one class of stock and all voting rights are vested in the holders of United’s stock. On all matters subject to a vote of shareholders, the shareholders of United will be entitled to one vote for each share of common stock owned. Shareholders of United have cumulative voting rights with regard to election of directors. At the present time, no senior securities of United are outstanding, nor does the Board of Directors presently contemplate issuing senior securities.

     There are no preemptive or conversion rights or, redemption or sinking fund provisions with respect to United’s stock. All of the issued and outstanding shares of United’s stock are fully paid and non-assessable.

Dividends

     The shareholders of United are entitled to receive dividends when and as declared by its Board of Directors. Dividends have been paid quarterly. Dividends were $1.09 per share in 2006, $1.05 per share in 2005 and $1.02 per share in 2004. The payment of dividends is subject to the restrictions set forth in the West Virginia Corporation Act and the limitations imposed by the Federal Reserve Board. See “Market and Stock Prices of United” for quarterly dividend information.

     Payment of dividends by United is dependent upon receipt of dividends from its Banking Subsidiaries. Payment of dividends by United’s state member Banking Subsidiaries is regulated by the Federal Reserve System and generally, the prior approval of the Federal Reserve Board (FRB) is required if the total dividends declared by a state member bank in any calendar year exceeds its net profits, as defined, for that year combined with its retained net profits for the preceding two years. Additionally, prior approval of the FRB is required when a state member bank has deficit retained earnings but has sufficient current year’s net income, as defined, plus the retained net profits of the two preceding years. The FRB may prohibit dividends if it deems the payment to be an unsafe or unsound banking practice. The FRB has issued guidelines for dividend payments by state member banks

emphasizing that proper dividend size depends on the bank’s earnings and capital. See Note T — Notes to Consolidated Financial Statements.

Market and Stock Prices of United

     United Bankshares, Inc. stock is traded over the counter on the National Association of Securities Dealers Automated Quotations System, National Market (NASDAQ) under the trading symbol UBSI.

     The high and low prices listed below are based upon information available to United’s management from NASDAQ listings. No attempt has been made by United’s management to ascertain the prices for every sale of its stock during the periods indicated. However, based on the information available, United’s management believes that the prices fairly represent the amounts at which United’s stock was traded during the periods reflected.

     The following table presents the dividends and high and low prices of United’s common stock during the periods set forth below:

		Dividends				High				Low
2007
First Quarter through January 31, 2007		$	0.28	(1)		$	39.50			$	35.68
2006
Fourth Quarter		$	0.28			$	39.71			$	36.51
Third Quarter		$	0.27			$	38.28			$	34.21
Second Quarter		$	0.27			$	38.41			$	34.46
First Quarter		$	0.27			$	38.50			$	34.46
2005
Fourth Quarter		$	0.27			$	38.55			$	32.34
Third Quarter		$	0.26			$	38.47			$	33.91
Second Quarter		$	0.26			$	36.45			$	29.82
First Quarter		$	0.26			$	38.62			$	32.00

Stock Performance Graph

     The following Stock Performance Graph and related information shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that United specifically incorporates it by reference into such filing.

     The following graph compares United’s cumulative total shareholder return (assuming reinvestment of dividends) on its common stock for the five-year period ending December 31, 2006, with the cumulative total return (assuming reinvestment of dividends) of the Standard and Poor’s Midcap 400 Index and with the NASDAQ Bank Index. The cumulative total shareholder return assumes a $100 investment on December 31, 2001 in the common stock of United and each index and the cumulative return is measured as of each subsequent fiscal year-end. There is no assurance that United’s common stock performance will continue in the future with the same or similar trends as depicted in the graph.

		Period Ending
		12/31/01				12/31/02				12/31/03				12/31/04				12/31/05				12/31/06
United Bankshares, Inc.			100.00				104.01				115.49				145.57				138.58				156.44
NASDAQ Bank Index			100.00				106.93				142.25				161.66				158.54				180.42
S&P Mid-Cap Index			100.00				85.49				115.91				135.01				151.95				167.62

Issuer Repurchases

     The table below includes certain information regarding United’s purchase of its common shares during the three months ended December 31, 2006:

										Total Number of				Maximum Number of
		Total Number of								Shares Purchased as				Shares that May Yet
		Shares Purchased				Average Price Paid				Part of Publicly				be Purchased Under
Period		(1) (2)				per Share				Announced Plans (3)				the Plans (3)
10/01 — 10/31/2006			105,039			$	37.81				105,000				1,226,700
11/01 — 11/30/2006			109,836			$	38.50				96,000				1,130,700
12/01 — 12/31/2006			90,153			$	38.35				90,000				1,040,700
Total			305,028			$	38.22

Item 6. SELECTED FINANCIAL DATA

     The following consolidated selected financial data is derived from United’s audited financial statements as of and for the five years ended December 31, 2006. The selected financial data should be read in conjuction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and related notes contained elsewhere in this report.

		Five Year Summary
(Dollars in thousands, except per share data)		2006				2005				2004				2003				2002
Summary of Operations:
Total interest income		$	400,683			$	345,278			$	293,350			$	272,520			$	323,483
Total interest expense			181,090				124,451				88,914				95,504				129,175
Net interest income			219,593				220,827				204,436				177,016				194,308
Provision for loan losses			1,437				5,618				4,520				7,475				8,937
Other income			49,033				52,625				54,231				52,084				37,787
Other expense			137,173				121,160				137,061				129,538				109,728
Income taxes			40,767				46,265				33,771				28,010				35,211
Income from continuing operations			89,249				100,409				83,315				64,077				78,219
Income from discontinued operations before income taxes			—				—				20,780				20,433				14,903
Income taxes			—				—				6,333				5,745				4,189
Income from discontinued operations			—				—				14,447				14,688				10,714
Net Income			89,249				100,409				97,762				78,765				88,933
Cash dividends			45,219				44,575				44,228				42,028				40,388
Per common share:
Income from continuing operations:
Basic			2.15				2.36				1.92				1.52				1.84
Diluted			2.13				2.33				1.89				1.50				1.81
Income from discontinued operations:
Basic			—				—				0.33				0.35				0.25
Diluted			—				—				0.33				0.35				0.25
Net income:
Basic			2.15				2.36				2.25				1.87				2.09
Diluted			2.13				2.33				2.22				1.85				2.06
Cash dividends			1.09				1.05				1.02				1.00				0.95
Book value per share			15.44				15.12				14.68				14.08				12.88
Selected Ratios:
Return on average shareholders’ equity			13.90	%			15.66	%			15.56	%			13.86	%			16.73	%
Return on average assets			1.34	%			1.55	%			1.55	%			1.36	%			1.59	%
Dividend payout ratio			50.67	%			44.39	%			45.24	%			53.39	%			45.41	%
Selected Balance Sheet Data:
Average assets		$	6,641,224			$	6,465,764			$	6,295,076			$	5,809,131			$	5,591,267
Investment securities			1,275,470				1,501,966				1,510,442				1,510,610				1,285,490
Loans held for sale			2,041				3,324				3,981				1,687				5,151
Total loans			4,806,747				4,649,829				4,418,276				3,955,234				3,501,188
Assets of discontinued operations			—				—				—				334,340				666,147
Total assets			6,717,598				6,728,492				6,435,971				6,387,730				5,797,662
Total deposits			4,828,192				4,617,452				4,297,563				4,138,487				3,815,830
Long-term borrowings			499,200				547,731				533,755				459,663				172,444
Liabilities of discontinued operations			—				—				—				300,754				638,884
Total liabilities			6,083,506				6,093,287				5,804,464				5,772,539				5,256,123
Shareholders’ equity			634,092				635,205				631,507				615,191				541,539

Item 7.		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 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.

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.

SUBSEQUENT EVENT

On January 29, 2007, United announced the execution of an Agreement and Plan of Reorganization to acquire Premier Community Bankshares, Inc. (Premier) headquartered in Winchester, Virginia. Premier is a $900.7 million multi-bank holding company with 26 office locations in the northwestern and central parts of Virginia and the eastern panhandle of West Virginia. Premier operates three wholly owned banking subsidiaries, The Marathon Bank, the Rockingham Heritage Bank and the Premier Bank. Upon completion of the acquisition, it is anticipated that all three banking subsidiaries will be merged with United’s Virginia subsidiary, United Bank. The acquisition of Premier will afford United the opportunity to enter new Virginia markets in the Winchester, Harrisonburg and Charlottesville areas. Please refer to Note B of the Notes to Consolidated Financial Statements for more information on this acquisition.

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.

2006 COMPARED TO 2005

FINANCIAL CONDITION SUMMARY

United’s total assets as of December 31, 2006 were $6.72 billion, a decrease of $10.89 million or less than 1% from year-end 2005. The slight decrease in total assets was primarily due to a $226.50 million or 15.08% decrease in investment securities. Partially offsetting this decrease were increases in portfolio loans of $156.92 million or 3.37%, cash and cash equivalents of $51.05 million or 24.55% and other assets of $7.51 million or 4.41%. The decrease in total assets is reflected in

corresponding decreases in total liabilities of $9.78 million and shareholders’ equity of $1.11 million. The decrease in total liabilities was due mainly to a reduction of $189.92 million or 26.24% in Federal Home Loan Bank (FHLB) borrowings and a $64.75 million or 12.32% decline in securities sold under agreements to repurchase. Partially offsetting these decreases was an increase in deposits of $210.74 million or 4.56% and a $36.35 million or 59.23% increase in federal funds purchased. Shareholders’ equity decreased $1.11 million or less than 1% from year-end 2005 due mainly to an increase in treasury stock of $36.21 million and decreases in surplus of $3.69 million and accumulated other comprehensive income of $5.24 million which more than offset $44.03 million of net earnings. The following discussion explains in more detail the changes in financial condition by major category.

Cash and Cash Equivalents

Cash and cash equivalents increased $51.05 million or 24.55% from year-end 2005. Of this total increase, cash and due from banks increased $28.59 million, interest-bearing deposits with other banks increased $13.05 million and federal funds sold increased $9.42 million. During the year of 2006, net cash of $89.40 million and $64.80 million was provided by operating activities and investing activities, respectively. Net cash of $103.15 million was used in financing activities. Further details related to changes is cash and cash equivalents are presented in the Consolidated Statements of Cash Flows.

Securities

Total investment securities decreased $226.50 million or 15.08% since year-end 2005. Securities available for sale decreased $211.45 million or 16.59%. This change reflects $492.83 million in sales, maturities and calls of securities, $276.94 million in purchases and an increase of $8.01 million in market value. Securities held to maturity declined $15.05 million which was a decrease of 6.62%. This decrease was due to maturities and calls of securities within the portfolio of $16.20 million during the year of 2006. The amortized cost and estimated fair value of investment securities, including types and remaining maturities, is presented in Note D to the Notes to Consolidated Financial Statements.

Loans

Loans held for sale decreased $1.28 million or 38.60% as loan sales in the secondary market slightly exceeded loan originations during the year of 2006. Portfolio loans, net of unearned income, increased $156.92 million or 3.37% from year-end 2005 largely the result of increased production in construction loans, commercial real estate loans and commercial loans (not secured by real estate). Since year-end 2005, construction loans increased $175.77 million or 50.62%, commercial real estate loans increased $19.91 million or 1.77% and commercial loans (not secured by real estate) increased $19.24 million or 2.06%. These increases were partially offset by decreases in consumer loans of $30.19 million or 7.94% and single-family residential real estate loans of $25.03 million or 1.43% and from year-end 2005. The table below summarizes the change in the loan categories since year-end 2005:

		At December 31
(Dollars in thousands)		2006				2005				$ Change				% Change
Loans held for sale		$	2,041			$	3,324			$	(1,283	)			(38.60	%)
Commercial, financial, and agricultural		$	954,024			$	934,780			$	19,244				2.06	%
Real Estate:
Single family residential			1,720,794				1,745,824				(25,030	)			(1.43	%)
Commercial			1,146,007				1,126,095				19,912				1.77	%
Construction			523,042				347,274				175,768				50.61	%
Other			119,973				122,487				(2,514	)			(2.05	%)
Consumer			349,868				380,062				(30,194	)			(7.94	%)
Less: Unearned interest			(6,961	)			(6,693	)			(268	)			4.00	%
Total Loans, net of unearned interest		$	4,806,747			$	4,649,829			$	156,918				3.37	%

For a summary of major classifications of loans, see Note F, Notes to Consolidated Financial Statements.

Other Assets

Other assets increased $7.51 million or 4.41% from year-end 2005 due mainly to a $12.04 million increase in the net pension asset as a result of a $26.64 million contribution during the third quarter of 2006, which was substantially reduced by an adjustment of $13.22 million to initially adopt Financial Accounting Standards Board Statement No. 158 (SFAS 158), “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” to properly reflect the funded status of United’s Pension Plan. In addition, the value of cash surrender life insurance policies increased $4.42 million. Partially offsetting these increases was a decline in deferred tax assets of $5.36 million due primarily to the $12.04 million increase in the net pension asset and a $8.01 million increase in the market value of available for sale securities since year-end 2005. In addition, derivative assets dropped $2.06 million while core deposit intangibles decreased $1.89 million due to amortization from year-end 2005. The $2.06 million drop in derivative assets related primarily to the termination of an interest rate swap associated with the repayment of a hedged $50 million variable rate FHLB advance in the first quarter of 2006.

Deposits

Deposits represent United’s primary source of funding. Total deposits at December 31, 2006 grew $210.74 million or 4.56% since year-end 2005. In terms of composition, noninterest-bearing deposits decreased $56.47 million or 5.88% while interest-bearing deposits increased $267.21 million or 7.31% from December 31, 2005. The decrease in noninterest-bearing deposits was due mainly to a $51.83 million or 17.39% decline in consumer noninterest-bearing deposits as a result of the High Performance Checking (HPC) program that United launched during the first quarter of 2006. Most of the checking accounts offered by United in its High Performance Checking program are interest-bearing, and customers switched from their traditional noninterest-bearing checking accounts to the new interest-bearing High Performance Checking products. In addition, commercial noninterest-bearing deposits dropped $50.21 million or 8.06% as customers shifted money into interest-bearing products due to higher interest rates. Partially offsetting these decreases in noninterest-bearing deposits was a $41.83 million increase in official checks due to a large amount of loan proceeds checks at year-end 2006.

The increase in interest-bearing deposits consisted of growth in time deposits over $100,000 of $118.77 million or 18.12%, time deposits under $100,000 of $115.34 million or 9.59%, and interest-bearing money market accounts of $58.31 million or 4.49%. These increases are primarily due to a shift from noninterest-bearing deposits to interest-bearing products as a result of higher interest rates. Partially offsetting these increases was a decrease of $21.12 million or 6.23% in regular savings accounts.

The table below summarizes the changes in the deposit categories since year-end 2005:

		December 31				December 31
(Dollars In thousands)		2006				2005				$ Change				% Change
Demand deposits		$	429,504			$	712,729			$	(283,225	)			(39.74	%)
Interest-bearing checking			159,628				163,717				(4,089	)			(2.50	%)
Regular savings			317,642				338,763				(21,121	)			(6.23	%)
Money market accounts			1,829,300				1,544,233				285,067				18.46	%
Time deposits under $100,000			1,317,839				1,202,496				115,343				9.59	%
Time deposits over $100,000			774,279				655,514				118,765				18.12	%
Total deposits		$	4,828,192			$	4,617,452			$	210,740				4.56	%

More information relating to deposits is presented in Note J, Notes to Consolidated Financial Statements.

Borrowings

Total borrowings at December 31, 2006 decreased $222.69 million or 15.86% during the year of 2006. Since year-end 2005,

short-term borrowings decreased $174.16 million or 20.34% due mainly to a $145 million reduction in overnight FHLB borrowings and a $64.75 million decline in securities sold under agreements to repurchase. Federal funds purchased increased $36.35 million or 59.23% since year-end 2005. Long-term borrowings decreased $48.53 million or 8.86% due primarily to the repayment of a $50 million FHLB advance during the first quarter of 2006.

During 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. 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 $200 million of debt with 5-year and 10-year FHLB advances and associated interest rate swaps that have a total effective cost of 5.35%.

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.

The table below summarizes the change in the borrowing categories since year-end 2005:

		December 31								Amount				Percentage
(Dollars In thousands)		2006				2005				Change				Change
Federal funds purchased		$	97,720			$	61,370			$	36,350				59.23	%
Securities sold under agreements to repurchase			460,858				525,604				(64,746	)			(12.32	%)
Overnight FHLB advances			120,000				265,000				(145,000	)			(54.72	%)
TT&L note option			3,688				4,451				(763	)			(17.14	%)
Long-term FHLB advances			413,899				458,818				(44,919	)			(9.79	%)
Issuances of trust preferred capital securities			85,301				88,913				(3,612	)			(4.06	%)
Total borrowings		$	1,181,466			$	1,404,156				($222,690	)			(15.86	%)

For a further discussion of borrowings see Notes K and L, Notes to Consolidated Financial Statements.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities increased $2.16 million or 3.43% from year-end 2005 due mainly to increases in income taxes payable of $4.41 million due to lower payments, interest payable of $3.75 million due to higher interest rates on borrowings and deposits and deferred compensation of $418 thousand. Partially offsetting these increases were decreases in derivative liabilities of $4.79 million due primarily to the termination of a $100 million swap in the third quarter of 2006. In addition, business franchise taxes payable and other accrued expenses decreased $1.14 million and $1.96 million, respectively, from year-end 2005 due to the timing of payments.

Shareholders’ Equity

Shareholders’ equity at December 31, 2006 decreased $1.11 million or less than 1% from December 31, 2005 as United continued to balance capital adequacy and the return to shareholders. The slight decrease in shareholders’ equity was due mainly to a rise in treasury stock of $36.21 million due to repurchases of United shares by the Company, a decline in surplus of $3.69 million due to the exercise of stock options and a $5.24 million decline in accumulated other comprehensive income due primarily to a $8.01 million, net of deferred income taxes, adjustment to adopt SFAS 158 and a decrease of $1.52 million, net of deferred income taxes, in the fair value adjustments on cash flow hedges. Partially offsetting these decreases were earnings, net of dividends declared, of $44.03 million for the year of 2006 and an increase within accumulated other comprehensive income of $5.20 million, net of deferred income taxes, in the fair value of United’s available for sale investment portfolio.

Since year-end 2005, a total of 1,283,000 shares were repurchased under plans approved by United’s Board of Directors. United repurchased 623,700 shares to complete a plan announced in 2004 to repurchase up to 1.775 million shares of its common stock on the open market. An additional 659,300 shares were repurchased under the current plan approved by United’s Board of Directors in May of 2006 to repurchase up to 1.7 million shares of United’s common stock on the open market.

EARNINGS SUMMARY

Net income for the year 2006 was $89.25 million or $2.13 per diluted share compared to $100.41 million or $2.33 per share for the year of 2005. The results for the year of 2006 included significant before-tax charges totaling $15.92 million to prepay certain long-term debt.

During the third quarter of 2006, United prepaid certain Federal Home Loan Bank (FHLB) long-term advances in the amount of $200 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 $8.26 million. The termination of the interest rate swap resulted in a before-tax loss of approximately $7.66 million. United’s management believes that the prepayment of these borrowings and the termination of the interest rate swap will improve United’s future net interest margin and enhance future earnings.

United’s return on average assets for the year of 2006 was 1.34% and return on average shareholders’ equity was 13.90% as compared to 1.55% and 15.66% for the year of 2005.

Tax-equivalent net interest income for the year of 2006 was $235.05 million, an increase of $1.63 million or less than 1% from the prior year. The provision for credit losses was $1.44 million for the year 2006 as compared to $5.62 million for the year of 2005.

Noninterest income was $49.03 million for the year of 2006, down $3.59 million or 6.83% when compared to the prior year. Included in total noninterest income for the year of 2006 was a net before-tax loss of $4.60 million on the termination of interest rate swaps associated with the prepayment of FHLB advances in the first and third quarters of 2006. As previously mentioned, during the third quarter of 2006, United incurred a before-tax loss of approximately $7.66 million to terminate an interest rate swap associated with the prepayment of a FHLB advance. During the first quarter of 2006, as part of a balance sheet repositioning strategy, United terminated an interest rate swap associated with the repayment of a FHLB advance that was being hedged. United recognized a $3.06 million before-tax gain on the termination of that swap. In addition, United’s income from investment security transactions declined $3.87 million for the year of 2006 as compared to last year as United incurred a net loss on security transactions of $2.93 million in the first quarter of 2006 due to an other-than-temporary impairment on approximately $86 million of low-yielding fixed rate investment securities that United subsequently sold as part of the balance sheet repositioning. Excluding the results of investment security transactions and interest rate swap terminations, noninterest income for the year of 2006 would have increased $4.88 million or 9.39% from the year of 2005.

Noninterest expense increased $16.01 million or 13.22% for the year of 2006 when compared 2005. The increase was due mainly to an increase of $7.86 million in before-tax penalties to prepay FHLB advances. Excluding the prepayment penalties, noninterest expense for the year of 2006 would have increased $8.16 million or 6.76% from the year of 2005.

United’s effective tax rate was approximately 31.4% and 31.5% for years ended December 31, 2006 and 2005, respectively, as compared to 29.1% for 2004.

The following discussion explains in more detail the results of operations by major category.

Net Interest Income

Net interest income represents the primary component of United’s earnings. It is the difference between interest income from earning assets and interest expense incurred to fund these assets. Net interest income is impacted by changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as changes in market interest rates. Such changes, and their impact on net interest income in 2006, are summarized below.

Tax-equivalent net interest income for the year of 2006 was $235.05 million, an increase of $1.63 million or less than 1% from the year of 2005. The net interest margin for the year of 2006 was 3.86%, down 8 basis points from a net interest margin of 3.94% during the same period last year.

Tax-equivalent interest income for the year of 2006 was $416.14 million, a $58.27 million or 16.29% increase from the year of 2005 as the average yield on earning assets for year of 2006 increased 80 basis points from the year of 2005 due to higher interest rates. In addition, average earning assets increased $156.67 million or 2.64% due to average loan growth of $232.54 million or 5.22%. Partially offsetting the loan growth was an $89.83 million or 6.22% decline in average investments. For the year of 2006, interest income from United’s asset securitization increased $580 thousand from the same period in 2005.

Interest expense for the year of 2006 was $181.09 million, an increase of $56.64 million or 45.51% from the year of 2005. The increase in interest expense for the year of 2006 was mainly due to a 101 basis point rise in the average cost of funds from the year of 2005 as a result of the higher interest rates. The average cost of deposits was 3.10% for the year of 2006, up 104 basis points from 2.06% for the year of 2005 while the average cost of short-term borrowing was 4.04% for the year of 2006, an increase of 161 basis points from 2.43% for the year of 2005. A sustained flat yield curve between short-term and long-term interest rates has resulted in a lesser increase in yields on earning assets while the upward trend in the general market interest rates has resulted in a more significant increase to funding costs.

The following table shows the consolidated daily average balance of major categories of assets and liabilities for each of the three years ended December 31, 2006, 2005 and 2004 with the consolidated interest and rate earned or paid on such amount.

		Year Ended												Year Ended												Year Ended
		December 31, 2006												December 31, 2005												December 31, 2004
		Average								Avg.				Average								Avg.				Average								Avg.
		Balance				Interest				Rate				Balance				Interest				Rate				Balance				Interest				Rate
ASSETS
Earning Assets:
Federal funds sold, securities repurchased under agreements to resell & other short-term investments		$	41,444			$	1,804				4.35	%		$	27,481			$	850				3.09	%		$	31,794			$	408				1.28	%
Investment Securities:
Taxable			1,122,940				57,374				5.11	%			1,242,271				57,023				4.59	%			1,284,894				55,436				4.31	%
Tax-exempt (1) (2)			232,241				19,523				8.41	%			202,741				16,756				8.26	%			183,283				12,140				6.62	%
Total Securities			1,355,181				76,897				5.67	%			1,445,012				73,779				5.11	%			1,468,177				67,576				4.60	%
Loans, net of unearned income (1) (2) (3)			4,729,810				337,434				7.13	%			4,496,774				283,239				6.30	%			4,304,411				243,402				5.65	%
Allowance for loan losses			(44,089	)											(43,589	)											(49,162	)
Net loans			4,685,721								7.20	%			4,453,185								6.36	%			4,255,249								5.72	%
Total earning assets			6,082,346			$	416,135				6.84	%			5,925,678			$	357,868				6.04	%			5,755,220			$	311,386				5.41	%
Other assets			558,878												540,086												539,856
TOTAL ASSETS		$	6,641,224											$	6,465,764											$	6,295,076
LIABILITIES
Interest-Bearing Funds:
Interest-bearing deposits		$	3,819,820			$	118,517				3.10	%		$	3,546,918			$	73,146				2.06	%		$	3,343,278			$	48,380				1.45	%
Short-term borrowings			744,057				30,051				4.04	%			734,228				17,816				2.43	%			685,062				7,400				1.08	%
Long- term borrowings			509,587				32,522				6.38	%			575,354				33,489				5.82	%			719,524				34,677				4.82	%
Total Interest-Bearing Funds			5,073,464				181,090				3.57	%			4,856,500				124,451				2.56	%			4,747,864				90,457				1.91	%
Noninterest-bearing deposits			865,098												913,629												874,999
Accrued expenses and other liabilities			60,674												54,514												43,837
TOTAL LIABILITIES			5,999,236												5,824,643												5,666,700
SHAREHOLDERS’ EQUITY			641,988												641,121												628,376
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	6,641,224											$	6,465,764											$	6,295,076
NET INTEREST INCOME						$	235,045											$	233,417											$	220,929
INTEREST SPREAD											3.27	%											3.48	%											3.50	%
NET INTEREST MARGIN											3.86	%											3.94	%											3.84	%

The following table sets forth a summary for the periods indicated of the changes in consolidated interest earned and interest paid detailing the amounts attributable to (i) changes in volume (change in the average volume times the prior year’s average rate), (ii) changes in rate (change in the average rate times the prior year’s average volume), and (iii) changes in rate/volume (change in the average volume times the change in average rate).

		2006 Compared to 2005																2005 Compared to 2004
		Increase (Decrease) Due to																Increase (Decrease) Due to
										Rate/																Rate/
		Volume				Rate				Volume				Total				Volume				Rate				Volume				Total
Interest income:
Federal funds sold, securities purchased under agreements to resell and other short-term investments		$	431			$	346			$	177			$	954				($55	)		$	575				($78	)		$	442
Investment securities:
Taxable			(5,477	)			6,460				(632	)			351				(1,837	)			3,598				(174	)			1,587
Tax exempt (1), (2)			2,437				304				26				2,767				1,288				3,006				322				4,616
Loans (1),(2),(3)			14,789				37,407				1,999				54,195				11,322				27,234				1,281				39,837
TOTAL INTEREST INCOME			12,180				44,517				1,570				58,267				10,718				34,413				1,351				46,482
Interest expense:
Interest-bearing deposits		$	5,622			$	36,888			$	2,861			$	45,371			$	2,953			$	20,394			$	1,419			$	24,766
Short-term borrowings			239				11,821				175				12,235				531				9,248				637				10,416
Long-term borrowings			(3,828	)			3,222				(361	)			(967	)			(6,949	)			7,195				(1,434	)			(1,188	)
TOTAL INTEREST EXPENSE			2,033				51,931				2,675				56,639				(3,465	)			36,837				622				33,994
NET INTEREST INCOME		$	10,147				($7,414	)			($1,105	)		$	1,628			$	14,183				($2,424	)		$	729			$	12,488

Provision for Credit Losses

United’s credit quality continues to be sound. Nonperforming loans were $14.19 million or 0.30% of loans, net of unearned income, at December 31, 2006 compared to $13.19 million or 0.28% of loans, net of unearned income at December 31, 2005. The components of nonperforming loans include nonaccrual loans and loans that are contractually past due 90 days or more as to interest or principal, but have not been put on a nonaccrual basis. At year-end 2006, nonaccrual loans were $5.76 million, a decrease of $1.39 million or 19.47% from $7.15 million at year-end 2005. This decrease was mainly due to a decline in nonaccrual loan balances since December 31, 2005 as opposed to a change in composition. Loans past due 90 days or more were $8.43 million at December 31, 2006, a net increase of $2.39 million or 39.63% from $6.04 million since year-end 2005. The largest addition to loans past due 90 days or more at December 31, 2006, was a commercial loan with a balance of $573 thousand. The loss potential on these loans has been properly evaluated and allocated in the company’s allowance for credit losses analysis process. Total nonperforming assets of $18.42 million, including OREO of $4.23 million at December 31, 2006, represented 0.27% of total assets at the end of 2006 as compared to 0.24% at the end of 2005.

Nonperforming assets include nonperforming loans and real estate acquired in foreclosure or other settlement of loans (OREO). Management is not aware of any other significant loans or securities, groups of loans or securities, or segments of the loan or investment portfolio not included below or disclosed elsewhere herein where there are serious doubts as to the ability of the borrowers or issuers to comply with the present repayment terms of the debt. The following table summarizes nonperforming assets for the indicated periods.

		December 31
		2006				2005				2004				2003				2002
		(In thousands)
Nonaccrual loans		$	5,755			$	7,146			$	6,352			$	7,523			$	6,890
Loans which are contractually past due 90 days or more as to interest or principal, and are still accruing interest			8,432				6,039				4,425				11,052				8,461
Total nonperforming loans			14,187				13,185				10,777				18,575				15,351
Other real estate owned			4,231				2,941				3,692				3,203				4,267
TOTAL NONPERFORMING ASSETS		$	18,418			$	16,126			$	14,469			$	21,778			$	19,618

Loans are designated as impaired when, in the opinion of management, the collection of principal and interest in accordance with the loan contract is doubtful. At December 31, 2006, impaired loans were $21.96 million, which was an increase of $5.41 million or 32.68% from the $16.55 million in impaired loans at December 31, 2005. This increase in impaired loans was due primarily to two loans totaling $7.15 million to one commercial customer. These loans involve the construction of real estate property and were not considered delinquent at December 31, 2006. Based on current information and events, United believes it is probable that the borrower will not be able to repay all amounts due according to the contractual terms of the loan agreements and therefore, specific allowances in the company’s allowance for credit losses have been allocated for these loans. For further details on impaired loans, see Note F, Notes to Consolidated Financial Statements.

United maintains an allowance for loan losses and an allowance for lending-related commitments. The combined allowances for loan losses and lending-related commitments are referred to as the allowance for credit losses. At December 31, 2006, the allowance for credit losses was $52.37 million, compared to $52.87 million at December 31, 2005. As a percentage of loans, net of unearned income, the allowance for credit losses was 1.09% and 1.14% at December 31, 2006 and 2005, respectively. The ratio of the allowance for credit losses to nonperforming loans was 369.2% and 401.0% at December 31, 2006 and 2005, respectively.

For the years ended December 31, 2006 and 2005, the provision for credit losses was $1.44 million and $5.62 million, respectively. Net charge-offs were $1.94 million for the year of 2006 as compared to net charge-offs of $4.10 million for the year of 2005.

The following table summarizes United’s credit loss experience for each of the five years ended December 31:

		2006				2005				2004				2003				2002
		(Dollars in thousands)
Balance of allowance for credit losses at beginning of year		$	52,871			$	51,353			$	51,432			$	48,387			$	47,408
Allowance of purchased company at date of acquisition			—				—				—				3,863				—
Loans charged off:
Commercial, financial and agricultural			1,060				2,442				1,524				2,677				805
Real estate			778				1,422				1,518				3,365				5,192
Real estate construction			—				—				—				—				—
Consumer and other			1,390				2,152				3,497				3,954				3,502
TOTAL CHARGE-OFFS			3,228				6,016				6,539				9,996				9,499
Recoveries:
Commercial, financial and agricultural			505				677				387				706				443
Real estate			374				778				1,080				601				591
Real estate construction			—				—				—				—				—
Consumer and other			412				461				596				396				507
TOTAL RECOVERIES			1,291				1,916				2,063				1,703				1,541
NET LOANS CHARGED OFF			1,937				4,100				4,476				8,293				7,958
Provision for credit losses			1,437				5,618				4,520				7,475				8,937
BALANCE OF ALLOWANCE FOR CREDIT LOSSES AT END OF YEAR			52,371				52,871				51,476				51,432				48,387
Less: Balance of allowance for credit losses, discontinued operations			—				—				(123	)			(123	)			(123	)
BALANCE OF ALLOWANCE FOR CREDIT LOSSES AT END OF YEAR, CONTINUING OPERATIONS		$	52,371			$	52,871			$	51,353			$	51,309			$	48,264
Loans outstanding at the end of period (gross), continuing operations (1)		$	4,813,708			$	4,656,522			$	4,424,702			$	3,960,637			$	3,504,307
Average loans outstanding during period (net of unearned income) (1)		$	4,726,758			$	4,493,322			$	4,228,070			$	3,644,296			$	3,536,020
Net charge-offs as a percentage of average loans outstanding			0.04	%			0.09	%			0.11	%			0.23	%			0.23	%
Allowance for credit losses, continuing operations as a percentage of nonperforming loans			369.2	%			401.0	%			476.5	%			276.2	%			314.4	%

United evaluates the adequacy of the allowance for credit losses on a quarterly basis and its loan administration policies are focused upon the risk characteristics of the loan portfolio. United’s process for evaluating the allowance is a formal company-wide process that focuses on early identification of potential problem credits and procedural discipline in managing and accounting for those credits. This process determines the appropriate level of the allowance for credit losses, allocation

among loan types and lending-related commitments, and the resulting provision for credit losses.

Allocations are made for specific commercial loans based upon management’s estimate of the borrowers’ ability to repay and other factors impacting collectibility. Other commercial loans not specifically reviewed on an individual basis are evaluated based on historical loss percentages applied to loan pools that have been segregated by risk. Allocations for loans other than commercial loans are made based upon historical loss experience adjusted for current conditions. The allowance for credit losses includes estimated probable inherent but undetected losses within the portfolio due to uncertainties in economic conditions, delays in obtaining information, including unfavorable information about a borrower’s financial condition, the difficulty in identifying triggering events that correlate perfectly to subsequent loss rates, and risk factors that have not yet fully manifested themselves in loss allocation factors. In addition, a portion of the allowance accounts for the inherent imprecision in the allowance for credit losses analysis. Over the past several years, United has grown through acquisition, and accordingly, expanded the geographic area in which it operates. As a result, historical loss experience data used to establish allocation estimates might not precisely correspond to the current portfolio in these other geographic areas.

United’s formal company-wide process at December 31, 2006 produced increased allocations in two of the four loan categories. The components of the allowance allocated to commercial loans increased by $459 thousand due to the segmentation of the portfolio into two additional loan pools for which special allocations of $1.2 million were established. Other factors that increased the allowance included an increase in substandard loan pool allocations of $1.6 million and increases in commercial loan volume of $23 million. Offsetting factors included the impact of lower historical loss rates and a change in certain qualitative factors. The component of the allowance allocated to real estate construction loan pool also rose during the quarter by $4.6 million primarily due to increased volume of $172 million, reclassification of a $1 million special allocation (for condominium construction) from the real estate loan pool to this pool and a specific allocation of $1.5 million related to an impaired construction loan relationship. The component of the allowance allocated to consumer loans decreased $1.8 million as a result of decreases in historical loss rates, loan volume and a change in certain qualitative factors. The components of the allowance allocated to real estate loans decreased by $3.2 million due to the aforementioned $1 million allocation reclassification, elimination of a certain allocation no longer deemed necessary and changes in loan volume and loss rates. The unfunded commitments liability was stable, increasing by $9 thousand and remaining at $8.7 million.

An allowance is established for probable credit losses on impaired loans via specific allocations. Nonperforming commercial loans and leases are regularly reviewed to identify impairment. A loan or lease is impaired when, based on current information and events, it is probable that the bank will not be able to collect all amounts contractually due. Measuring impairment of a loan requires judgment and estimates, and the eventual outcomes may differ from those estimates. Impairment is measured based upon the present value of expected future cash flows from the loan discounted at the loan’s effective rate, the loan’s observable market price or the fair value of collateral, if the loan is collateral dependent. When the selected measure is less than the recorded investment in the loan, an impairment has occurred. The allowance for impaired loans was $3 million at December 31, 2006 and $1 million at December 31, 2005. Compared to the prior year-end, this element of the allowance increased by $2 million primarily due to the aforementioned impairment of a large relationship involving commercial real estate construction loans as well as a $525 thousand special allocation within the mortgage loan pool and changes among various smaller loans.

An allowance is also recognized for imprecision inherent in loan loss migration models and other estimates of loss. There are many factors affecting the allowance for loan losses and allowance for lending-related commitments; some are quantitative while others require qualitative judgment. Although management believes its methodology for determining the allowance adequately considers all of the potential factors to identify and quantify probable losses in the portfolio, the process includes subjective elements and is therefore susceptible to change. This estimate for imprecision has been established to recognize the variance, within a reasonable margin, of the loss estimation process. The estimate for imprecision at December 31, 2006 decreased by $555 thousand to $1.7 million. This represents only 3.2% of the bank’s total allowance for credit loss and in as much as this variance is within a pre determined narrow parameter, the methodology has confirmed that the Bank’s allowance for credit loss is at an appropriate level.

The following table presents the allocation of United’s allowance for credit losses for each of the five years ended December 31:

		December 31
		2006				2005				2004				2003				2002
										(In thousands)
Commercial, financial and agricultural		$	27,512			$	27,053			$	27,356			$	23,458			$	20,643
Real estate			3,266				6,443				6,404				4,680				10,117
Real estate construction			7,178				2,587				1,961				1,472				1,100
Consumer and other			4,014				5,842				6,179				6,234				5,437
Lending related commitments			8,742				8,733				7,987				9,731				6,643
Allowance for estimated imprecision			1,659				2,213				1,589				5,857				4,447
			52,371				52,871				51,476				51,432				48,387
Less: Allowance for credit losses, discontinued operations			—				—				(123	)			(123	)			(123	)
Total		$	52,371			$	52,871			$	51,353			$	51,309			$	48,264

Management believes that the allowance for credit losses of $52.37 million at December 31, 2006 is adequate to provide for probable losses on existing loans and lending-related commitments based on information currently available.

Management is not aware of any potential problem loans, trends or uncertainties that it reasonably expects will materially impact future operating results, liquidity, or capital resources which have not been disclosed. Additionally, management has disclosed all known material credits that cause management to have serious doubts as to the ability of such borrowers to comply with the loan repayment schedules.

Other Income

Other income consists of all revenues, which are not included in interest and fee income related to earning assets. Noninterest income has been and will continue to be an important factor for improving United’s profitability. Recognizing the importance, management continues to evaluate areas where noninterest income can be enhanced. Noninterest income was $49.03 million for the year of 2006, down $3.59 million or 6.83% from the year of 2005.

Included in total noninterest income for the year of 2006 was a $4.60 million net before-tax loss on the termination of interest rate swaps associated with the prepayment of FHLB advances in the first and third quarters of 2006. Additionally, United incurred a net loss on securities transactions of $3.18 million during the year of 2006 due mainly to an other-than-temporary impairment charge of $2.93 million in the first quarter of 2006 on approximately $86 million of low-yielding fixed rate investment securities which United subsequently sold as part of a balance sheet repositioning. United realized net gains of $695 thousand on securities transactions during 2005. Excluding the results of investment security transactions and interest rate swap terminations, noninterest income for the year of 2006 would have increased $4.88 million or 9.39% from the year of 2005.

Trust income and brokerage commissions increased $1.87 million or 16.83% due to a greater volume of business and a larger customer base. United continues its efforts to broaden the scope and activity of its trust and brokerage service areas, especially in the northern Virginia market, to provide additional sources of fee income that complement United’s traditional banking products and services. The northern Virginia market provides a relatively large number of potential customers with high per capita incomes.

Service charges, commissions and fees from customer accounts increased $2.22 million or 6.56% for the year of 2006 as compared to the year 2005. The largest component within this category is fees from deposit services which increased $1.33 million or 4.79% due mainly to United’s High Performance Checking program introduced during the first quarter of 2006. In particular, insufficient funds (NSF) fees increased $1.72 million during the year of 2006 while check card fees increased $586 thousand. Deposit service charges and account analysis fees declined $806 thousand and $71 thousand, respectively, for the year of 2006 as compared to the year of 2005.

Mortgage banking income decreased $200 thousand or 18.96% due to fewer mortgage loan sales in the secondary market during the year of 2006 as compared to 2005. Mortgage loan sales were $53.39 million in 2006 as compared to $72.86 million in 2005. Income from bank owned life insurance policies decreased $331 thousand or 6.96% while other income increased $1.33 million or 104.07% for the year of 2006 as compared to last year’s income during the same period. Other income increased as United received additional residual income of $519 thousand from prior third party asset securitizations and income of $816 thousand from the outsourcing of its official checks processing which United initiated in 2006.

Other Expense

Just as management continues to evaluate areas where noninterest income can be enhanced, it strives to improve the efficiency of its operations to reduce costs. Other expense includes all items of expense other than interest expense, the provision for credit losses and income tax expense. Noninterest expense for the year of 2006 was $137.17 million, an increase of $16.01 million or 13.22% from the year of 2005. This increase in noninterest expense was primarily due to the before-tax penalties of approximately $8.26 million to prepay $200 million of FHLB advances during the third quarter of 2006. Excluding these penalties, noninterest expense would have increased $8.16 million or 6.76% for the year of 2006, compared to the prior year. For the year of 2006, the remaining balance of the increase in noninterest expense was mainly due to a $3.13 million or 5.29% increase in salaries and benefits expense as compared to the same period last year. Salaries expense for the year 2006 increased $1.94 million or 4.06% as a result of the higher base salaries and performance-based commissions. Health care and pension costs increased $379 thousand or 8.91% and $411 thousand or 17.56%, respectively, for the year of 2006 as compared to the year of 2005.

The remainder of the increases in noninterest expense for the year of 2006 from the prior year was due primarily to expenses related to United’s new High Performance Checking program. United incurred marketing and related costs of approximately $2.73 million during 2006 to launch and promote its High Performance Checking program for consumer customers. However, the increased spending is having the desired impact of attracting low cost deposits. Largely due to the High Performance Checking initiative, United has opened 39,530 new consumer accounts during 2006 as compared to 22,652 new consumer accounts in 2005.

Net occupancy expense increased $346 thousand or 2.84% for the year of 2006 as compared to the year of 2005. The higher net occupancy expense for 2006 was due mainly to increases in building rent expense and real property taxes.

Equipment expense declined $640 thousand or 9.10% for the year of 2006 as compared to the year of 2005. The decrease during 2006 was due mainly to a $198 thousand gain on the sale of an OREO property during the second quarter of 2006 and lower levels of depreciation and maintenance expense.

Data processing expense increased $441 thousand or 7.84% for year of 2006 as compared to the year of 2005. The increase was primarily due to additional outsourcing of data processing functions.

Bankcard processing fees increased $905 thousand or 24.27% due to increased transactions for the year of 2006 as compared to last year.

Other expenses increased $3.97 million or 12.05% for the year of 2006 as compared to the year of 2005 due primarily to the expenses previously mentioned related to United’s new HPC program. In addition, legal and consulting fees, excluding those related to the HPC program, increased $920 thousand from the same period in the prior year. ATM processing fees were up $260 thousand or 14.28% for the year of 2006 as compared to 2005 due to increased transactions. The remaining increase in all other expenses in the year of 2006 from last year was due mainly to increases in several general operating expenses, none

of which were individually significant.

As discussed in Note O of the Notes to Consolidated Financial Statements contained within this document, United adopted SFAS 123R on January 1, 2006 using the modified prospective transition method. 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. Under this transition method, compensation cost to be recognized beginning in the first quarter of 2006 would include: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original 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 were not restated. Due to a modification on December 30, 2005 to accelerate unvested options under United’s existing stock option plans and the fact that no new options were granted in 2006, United did not recognize any compensation cost for 2006. Prior to January 1, 2006, United accounted for its stock option plans under the intrinsic value method. Because the exercise price at the date of the grant was equal to the market value of the stock, no compensation expense was recognized.

At the Annual Meeting of Shareholders held on May 15, 2006, the United shareholders approved the 2006 Stock Option Plan and thus, became effective upon the shareholders’ approval. No stock options 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. A Form S-8 was filed on October 25, 2006 with the Securities and Exchange Commission to register all the shares available for the 2006 Stock Option Plan.

United’s efficiency ratio was 46.93% for the year of 2006 as compared to 41.45% for the year of 2005.

Income Taxes

For the year ended December 31, 2006, income taxes were $40.77 million, compared to $46.27 million for 2005. For the years ended December 31, 2006 and 2005, United’s effective tax rates were 31.4% and 31.5%, respectively. For further details related to income taxes, see Note M, Notes to Consolidated Financial Statements.

Quarterly Results

The first and second quarters of 2006 showed increases in diluted earnings per share in comparison to the same respective quarters of 2005. Net income for the first quarter of 2006 was $24.61 million or $0.58 per diluted share basis compared to $24.76 million or $0.57 per diluted share in 2005. For the second quarter of 2006, net income was $25.46 million or $0.60 per share compared to $24.51 million or $0.57 per diluted share in 2006. In the third quarter of 2006, earnings were $14.17 million or $0.34 per diluted share as compared to $25.45 million or $0.59 per diluted share in the third quarter of 2005. These results for the third quarter of 2006 included significant charges to prepay certain long-term debt. United prepaid $200 million of Federal Home Loan Bank (FHLB) long-term advances and terminated an interest rate swap associated with one of the advances. The prepayment of the FHLB advances and the termination of the interest rate swap resulted in before-tax penalties of approximately $15.92 million.

Fourth quarter of 2006 net income was $25.02 million or $0.60 per diluted share as compared to $25.69 million or $0.60 per diluted share in the fourth quarter of 2005.

Tax-equivalent net interest income for the fourth quarter of 2006 was $58.11 million, a decrease of $3.15 million or 5.14% from the fourth quarter of 2005. The average yield on earning assets increased 59 basis points from the fourth quarter of 2005; however, the average cost of funds increased 85 basis points due to higher interest rates. Average earning assets were relatively flat from the fourth quarter of 2005 as average loan growth of $138.80 million or 3.04% was more than offset by a decline in average investment securities of $193.88 million or 13.18%. In addition, interest income from United’s subordinated interest in a prior asset securitization decreased $810 thousand for the fourth quarter of 2006 as compared to the fourth quarter of 2005. The net interest margin for the fourth quarter of 2006 was 3.85%, down 18 basis points from a net interest margin of 4.03% for the fourth quarter of 2005.

For the fourth quarter of 2006, the provision for credit losses was $268 thousand, a decrease of $1.79 million from the fourth quarter’s provision of $2.06 million in 2005. Net charge-offs were $433 thousand for the fourth quarter of 2006 as compared to $1.18 million for the fourth quarter of 2005.

Noninterest income for the fourth quarter of 2006 was $14.73 million, an increase of $1.42 million or 10.68% from the fourth quarter of 2005. The rise in noninterest income from the previous year’s fourth quarter was primarily due to an increase of $462 thousand or 6.56% in fees from deposit services mainly as a result of United’s High Performance Checking program, which was introduced during the first quarter of 2006. During the fourth quarter of 2006, United received additional residual income of $450 thousand from prior third party asset securitizations as compared to last year’s fourth quarter. Revenue from trust and brokerage services increased $320 thousand or 11.55% for the fourth quarter of 2006 due to increased volume and a larger customer base.

Noninterest expense for the fourth quarter of 2006 was $32.61 million, an increase of $1.28 million or 4.09% from the fourth quarter of 2005. This rise in noninterest expense was primarily due to marketing and related costs of approximately $562 thousand to promote its High Performance Checking program. In addition, salaries and benefits expense increased $537 thousand or 3.58% due to higher base salaries, pension and health insurance costs.

Additional quarterly financial data for 2006 and 2005 may be found in Note V, Notes to Consolidated Financial Statements.

The Effect of Inflation

United’s income statements generally reflect the effects of inflation. Since interest rates, loan demand and deposit levels are impacted by inflation, the resulting changes in the interest-sensitive assets and liabilities are included in net interest income. Similarly, operating expenses such as salaries, rents and maintenance include changing prices resulting from inflation. One item that would not reflect inflationary changes is depreciation expense. Subsequent to the acquisition of depreciable assets, inflation causes price levels to rise; therefore, historically presented dollar values do not reflect this inflationary condition. With inflation levels at relatively low levels and monetary and fiscal policies being implemented to keep the inflation rate increases within an acceptable range, management expects the impact of inflation would continue to be minimal in the near future.

Contractual Obligations, Commitments, Contingent Liabilities and Off-Balance Sheet Arrangements

United has various financial obligations, including contractual obligations and commitments, that may require future cash payments. The table below presents, by payment date, significant known contractual obligations to third parties as of December 31, 2006:

						Total Payments Due by Period
						One Year				One to				Three to				Over Five
(In thousands)		Total				or Less				Three Years				Five Years				Years
Deposits without a stated maturity (1)		$	2,736,074			$	2,736,074				—				—				—
Time deposits (2) (3)			2,190,858				1,499,520			$	512,512			$	141,889			$	36,937
Short-term borrowings (2)			682,764				682,764				—				—				—
Long-term borrowings (2) (3)			794,077				28,907				150,872				238,268				376,030
Operating leases			31,327				6,331				11,525				7,622				5,849