of operations of United and its subsidiaries for the periods indicated below. This discussion and the consolidated financial statements and the notes to consolidated financial statements include the accounts of United Bankshares, Inc. and its wholly-owned subsidiaries, unless otherwise indicated. On July 14, 2007, United acquired 100% of the outstanding common stock of Premier Community Bankshares, Inc. (Premier) of Winchester, Virginia. The results of operations of Premier, which are not significant, are included in the consolidated results of operations from the date of acquisition. However, comparisons for the first nine months of 2008 to the first nine months of 2007 are impacted by increased levels of reported average balance sheet, income, and expense results due to the acquisition. At consummation, Premier had assets of approximately $911 million, loans of $759 million, deposits of $716 million and shareholders' equity of $71 million. The transaction was accounted for under the purchase method of accounting.
This discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes thereto, which are included elsewhere in this document.
APPLICATION OF CRITICAL ACCOUNTING POLICIES The accounting and reporting policies of United conform with accounting principles generally accepted in the United States. In preparing the consolidated financial statements, management is required to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements. Actual results could differ from these estimates. These policies, along with the disclosures presented in the other financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the allowance for credit losses, the valuation of derivative instruments, and the calculation of the income tax provision to be the accounting areas that require the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available.
The allowance for credit losses is management's estimate of the probable credit losses inherent in the loan portfolio. Management's evaluation of the adequacy of the allowance for credit losses and the appropriate provision for credit losses is based on a quarterly evaluation of the portfolio. This evaluation is inherently subjective and requires significant estimates, including the amounts and timing of estimated future cash flows, estimated losses on pools of loans based on historical loss experience, and consideration of current economic trends, all of which are susceptible to constant and significant change. The amounts allocated to specific credits and loan pools grouped by similar risk characteristics are reviewed on a quarterly basis and adjusted as necessary based upon subsequent changes in circumstances. In determining the components of the allowance for credit losses, management considers the risk arising in part from, but not limited to, charge-off and delinquency trends, current economic and business conditions, lending policies and procedures, the size and risk characteristics of the loan portfolio, concentrations of credit, and other various factors. Loans deemed to be uncollectible are charged against the allowance for loan losses, while recoveries of previously charged-off amounts are credited to the allowance for loan losses. The methodology used to determine the allowance for credit losses is described in Note 5 to the unaudited consolidated financial statements. A discussion of the factors leading to changes in the amount of the allowance for credit losses is

included in the Provision for Credit Losses section of this Management's Discussion and Analysis of Financial Condition and Results of Operations. United uses derivative instruments as part of its risk management activities to help protect the value of certain assets and liabilities against adverse price or interest rate movements. All derivative instruments are carried at fair value on the balance sheet. The valuation of these derivative instruments is considered critical because carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are provided by third party sources. Because the majority of the derivative instruments are used to protect the value of other assets and liabilities on the balance sheet, changes in the value of the derivative instruments are typically offset by changes in the value of the assets and liabilities being hedged, although income statement volatility can occur if the derivative instruments are not effective in hedging changes in the value of those assets and liabilities.
United's calculation of income tax provision is complex and requires the use of estimates and judgments in its determination. As part of United's analysis and implementation of business strategies, consideration is given to tax laws and regulations which may affect the transaction under evaluation. This analysis includes the amount and timing of the realization of income tax liabilities or benefits. United strives to keep abreast of changes in the tax laws and the issuance of regulations which may impact tax reporting and provisions for income tax expense. United is also subject to audit by federal and state authorities. Because the application of tax laws is subject to varying interpretations, results of these audits may produce indicated liabilities which differ from United's estimates and provisions. United continually evaluates its exposure to possible tax assessments arising from audits and records its estimate of probable exposure based on current facts and circumstances.
Any material effect on the financial statements related to these critical accounting areas are further discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations.
USE OF FAIR VALUE MEASUREMENTS
On January 1, 2008, United adopted SFAS No. 157, "Fair Value Measurements" (SFAS 157) to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. SFAS 157 clarifies that fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. FAS 157 establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. The classification of assets and liabilities within the hierarchy is based on whether the inputs in the methodology for determining fair value are observable or unobservable. Observable inputs reflect market-based information obtained from independent sources (Level 1 or Level 2), while unobservable inputs reflect management's estimate of market data (Level 3). For assets and liabilities that are actively traded and have quoted prices or observable market data, a minimal amount of subjectivity concerning fair value is needed. Prices and values obtained from third party vendors that do not reflect forced liquidation or distressed sales are not adjusted by management. When quoted prices or observable market data are not available, management's judgment is necessary to estimate fair value.
At September 30, 2008, approximately 14.81% of total assets, or $1.20 billion, consisted of financial instruments recorded at fair value. Of this total, approximately 88.30% or $1.06 billion of these financial

instruments used valuation methodologies involving observable market data, collectively Level 1 and Level 2 measurements, to determine fair value. Approximately 11.70% or $140.26 million of these financial instruments were valued using unobservable market information or Level 3 measurements. Most of these financial instruments valued using unobservable market information were pooled trust preferred investment securities available-for-sale. At September 30, 2008, only $4.25 million or less than 1% of total liabilities were recorded at fair value. This entire amount was valued using methodologies involving observable market data. United does not believe that any changes in the unobservable inputs used to value the financial instruments mentioned above would have a material impact on United's results of operations, liquidity, or capital resources. See Note 12 for additional information regarding SFAS 157 and its impact on United's financial statements.
RECENT DEVELOPMENTS
In response to the financial crisis affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions, the following is a summary of recently enacted laws and regulations that could materially impact United's financial condition or results of operations.
On October 3, 2008, the Emergency Economic Stabilization Act of 2008 (the EESA) was signed into law. Pursuant to the EESA, the U.S. Treasury will have the authority to, among other things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets. The EESA also included a provision to increase the amount of deposits insured by the Federal Deposit Insurance Corporation (FDIC) to $250,000.
On October 14, 2008, Secretary Paulson, after consulting with the Federal Reserve and the FDIC, announced that the U.S. Treasury will purchase stakes in a wide variety of U.S. banks and thrifts to encourage these institutions to build capital to increase the flow of financing to U.S. businesses and consumers and to support the U.S. economy. Under this program, known as the Troubled Asset Relief Program Capital Purchase Program (the TARP Capital Purchase Program), the Treasury will make $250 billion of capital available to qualifying U.S. financial institutions in the form of preferred stock. In conjunction with the purchase of preferred stock, the Treasury will receive warrants to purchase common stock with an aggregate market price equal to 15% of the preferred investment. Participating financial institutions will be required to adopt the U.S. Treasury's standards for executive compensation and corporate governance for the period during which the U.S. Treasury holds equity issued under the TARP Capital Purchase Program. These standards generally apply to the chief executive officer, chief financial officer, plus the next three most highly compensated executive officers.
Also on October 14, 2008, after receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Paulson signed the systemic risk exception to the FDIC Act, enabling the FDIC to temporarily provide a 100% guarantee of the senior debt of all FDIC-insured institutions and their holding companies, as well as deposits in non-interest bearing transaction deposit accounts under a Temporary Liquidity Guarantee Program. Coverage under the Temporary Liquidity Guarantee Program is available for 30 days without charge and thereafter at a cost of 75 basis points per annum for senior unsecured debt and 10 basis points per annum for non-interest bearing transaction deposits.

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

The following table summarizes the changes in the loan categories since year-end 2007:

                                               September 30         December 31
(Dollars in thousands)                             2008                 2007            $ Change         % Change
Loans held for sale                           $          718        $      1,270        $    (552 )         (43.46 %)


Commercial, financial, and agricultural       $    1,189,387        $  1,210,049        $ (20,662 )          (1.71 %)
Real Estate:
Single family residential                          1,896,962           1,882,498           14,464             0.77 %
Commercial                                         1,644,143           1,507,541          136,602             9.06 %
Construction                                         605,176             601,323            3,853             0.64 %
Other                                                246,173             239,907            6,266             2.61 %
Consumer                                             336,421             359,243          (22,822 )          (6.35 %)
Less: Unearned income                                 (6,644 )            (7,077 )            433            (6.12 %)


Total Loans, net of unearned income           $    5,911,618        $  5,793,484        $ 118,134             2.04 %

For a further discussion of loans see Note 4 to the unaudited Notes to Consolidated Financial Statements.
Other Assets
Other assets increased $19.21 million or 9.02% from year-end 2007 due mainly to increases of $11.07 million in deferred tax assets, $6.97 million in other real estate owned (OREO), $3.32 million in the funded status of United's pension plan, and $3.94 million in the cash surrender value of bank-owned life insurance policies. Partially offsetting these increases from year-end 2007 were decreases in accounts receivable of $1.77 million, income taxes receivable of $1.38 million and core deposit intangibles of $2.75 million. Deposits
Total deposits at September 30, 2008 increased $154.72 million or 2.89% since year-end 2007. In terms of composition, noninterest-bearing deposits were relatively flat, increasing $9.06 million or slightly less than 1% while interest-bearing deposits increased $145.66 million or 3.28% from December 31, 2007. The slight increase in noninterest-bearing deposits was due mainly to an increase in official checks of $25.84 million. Personal noninterest-bearing deposits decreased $10.44 million or 4.21% as customers shifted money into interest-bearing products.
The increase in interest-bearing deposits was due mainly to a growth in time deposits under $100,000 of $326.45 million or 20.96%. This increase in interest-bearing deposits was due likely to the volatility in the stock market. Time deposits over $100,000 decreased $51.79 million or 5.43%. Interest bearing money market accounts (MMDAs) decreased $127.41 million or 8.94%. Regular savings and interest-bearing checking account balances were relatively flat, decreasing $800 thousand and $788 thousand, respectively.

The following table summarizes the changes in the deposit categories since year-end 2007:

                                September 30      December 31
(Dollars In thousands)              2008              2007          $ Change       % Change
Demand deposits                $      400,439     $    409,109     $   (8,670 )        (2.12 %)
Interest-bearing checking             173,878          174,666           (788 )        (0.45 %)
Regular savings                       323,928          324,728           (800 )        (0.25 %)
Money market accounts               1,820,305        1,929,985       (109,680 )        (5.68 %)
Time deposits under $100,000        1,883,926        1,557,478        326,448          20.96 %
Time deposits over $100,000           901,995          953,784        (51,789 )        (5.43 %)

Total deposits                 $    5,504,471     $  5,349,750     $  154,721           2.89 %

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

                                               September 30         December 31
(Dollars In thousands)                             2008                 2007             $ Change         % Change
Federal funds purchased                       $       99,920        $     97,074        $    2,846             2.93 %
Securities sold under agreements to
repurchase                                           572,007             499,989            72,018            14.40 %
Overnight FHLB advances                              145,000             434,000          (289,000 )         (66.59 %)
TT&L note option                                       2,300               5,000            (2,700 )         (54.00 %)
Long-term FHLB advances                              742,616             578,272           164,344            28.42 %
Issuances of trust preferred capital
securities                                           185,254             195,890           (10,636 )          (5.43 %)

Total borrowings                              $    1,747,097        $  1,810,225        $  (63,128 )          (3.49 %)

For a further discussion of borrowings see Notes 8 and 9 to the unaudited Notes to Consolidated Financial Statements.
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities at September 30, 2008 increased $3.77 million or 5.77% from year-end 2007 mainly as a result of an increase in income taxes payable of $3.41 million due to a timing difference in payments. In addition, derivative liabilities increased $3.47 million due to a change in value and a liability of $1.55 million was recorded for split dollar life insurance policies based on the adoption of EITF 06-4, "Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements". Interest payable decreased $2.93 million due to a decline in borrowings and interest rates and other accrued expenses declined $1.43 million due to payments.

Shareholders' Equity
Shareholders' equity at September 30, 2008 increased $11.91 million or 1.56% from December 31, 2007 as United continued to balance capital adequacy and the return to shareholders. The increase in shareholders' equity was due mainly to earnings net of dividends declared which equaled $32.79 million for the first nine months of 2008.
Accumulated other comprehensive income decreased $20.24 million due mainly to a decline of $19.96 million, net of deferred taxes, in the fair value of United's available for sale investment portfolio. The fair value of cash flow hedges decreased $1.89 million, net of deferred taxes.
RESULTS OF OPERATIONS
Overview
Net income for the first nine months of 2008 was $70.44 million or $1.62 per diluted share while net income for the third quarter of 2008 was $19.59 million or $0.45 per diluted share. These results included a noncash before-tax other-than-temporary impairment charge of $9.00 million on a corporate debt holding and a positive tax adjustment of $1.42 million due to the expiration of the statute of limitations for examinations of certain years.
Earnings for the first nine months of 2007 were $74.72 million or $1.79 per diluted share while earnings for the third quarter of 2007 were $25.80 million or $0.60 per diluted share. During the third quarter of 2007, United recorded a positive tax adjustment of $1.06 million due to the expiration of the statute of limitations for examinations of certain years.
United's annualized return on average assets for the first nine months of 2008 was 1.18% and return on average shareholders' equity was 12.05% as compared to 1.45% and 14.81% for the first nine months of 2007. For the third quarter of 2008, United's annualized return on average assets was 0.97% while the return on average equity was 9.94% as compared to 1.37% and 13.91%, respectively, for the third quarter of 2007.
Tax-equivalent net interest income for the first nine months of 2008 increased $23.71 million or 13.41% from the prior year's first nine months. Tax-equivalent net interest income for the third quarter of 2008 increased $4.27 million or 6.74% as compared to the same period of 2007. The provision for credit losses was $12.95 million for the first nine months of 2008 as compared to $2.75 million for the first nine months of 2007. For the quarters ended September 30, 2008 and 2007, the provision for credit losses was $6.50 million and $1.55 million, respectively.
Noninterest income for the first nine months of 2008 decreased $644 thousand or 1.32% from the first nine months of 2007. For the third quarter of 2008, noninterest income decreased $7.00 million or 40.38% from the third quarter of 2007. The results for 2008 included the previously mentioned noncash before-tax other-than-temporary impairment charge. Noninterest expense for the first nine months of 2008 increased $21.46 million or 20.83% from the same period in 2007. For the third quarter of 2008, noninterest expense increased $2.62 million or 6.70% from the third quarter of 2007. United's effective tax rate was 29.75% and 30.55% for the first nine months of 2008 and 2007, respectively, and 25.60% and 28.06% for the third quarter of 2008 and 2007, respectively. During the third quarter of 2008 and 2007, United reduced its

income tax reserve by $1.42 million and $1.06 million, respectively, due to the expiration of the statute of limitations for examinations of certain years. The following discussion explains in more detail the changes in the results of operations by major category.
Net Interest Income
Tax-equivalent net interest income for the first nine months of 2008 was $200.62 million, an increase of $23.71 million or 13.41% from the prior year's first nine months. This increase in tax-equivalent net interest income was primarily attributable to a $951.22 million or 15.22% increase in average earning assets resulting primarily from the Premier acquisition. Average net loans increased $843.98 million or 17.10% while average investment securities . . .