United Bankshares (UBSI) 10-Q 2002 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For Quarter Ended September 30, 2002

Commission File Number:  0-13322

United Bankshares, Inc.

(Exact name of registrant as specified in its charter)

West Virginia	55-0641179
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

300 United Center 500 Virginia Street, East Charleston, West Virginia	25301
(Address of Principal Executive Offices)	Zip Code

Registrant’s Telephone Number, including Area Code:  (304) 424-8704

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.  Yesx  No  ¨

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

Class- Common Stock, $2.50 Par Value;42,174,250 shares outstanding as ofOctober 31, 2002.

UNITED BANKSHARES, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

		Page
PART I.    FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets (Unaudited) September 30, 2002 and December 31, 2001	5
	Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended September 30, 2002 and 2001	6
	Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) for the Nine Months Ended September 30, 2002	7
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2002 and 2001	8
	Notes to Consolidated Financial Statements	9
	Information required by Item 303 of Regulation S-K
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29
Item 4.	Controls and Procedures	34
PART II.    OTHER INFORMATION
Item 1.	Legal Proceedings	Not Applicable
Item 2.	Changes in Securities	Not Applicable

2

UNITED BANKSHARES, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS—Continued

	Page
Item 3. Defaults Upon Senior Securities	Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders	Not Applicable
Item 5. Other Information	Not Applicable
Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits required by Item 601 of Regulation S-K

None

(b) Reports on Form 8-K

On October 21, 2002, United Bankshares, Inc. filed a Current Report under Items 5 and 7 to report the results of operations for the third quarter and first nine months of 2002.

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PART I

FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS (UNAUDITED)

The September 30, 2002 and December 31, 2001, consolidated balance sheets of United Bankshares, Inc. and Subsidiaries, the related consolidated statements of income for the three and nine months ended September 30, 2002 and 2001, the related consolidated statement of changes in shareholders’ equity for the nine months ended September 30, 2002, the related condensed consolidated statements of cash flows for the nine months ended September 30, 2002 and 2001, and the notes to consolidated financial statements appear on the following pages.

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CONSOLIDATED BALANCE SHEETS

UNITED BANKSHARES, INC. AND SUBSIDIARIES

(Dollars in thousands, except par value)

	September 30, 2002			December 31, 2001
	(Unaudited)			(Note 1)
ASSETS
Cash and due from banks	$	191,964		$	156,058
Interest-bearing deposits with other banks		15,974			1,536
Total cash and cash equivalents		207,938			157,594
Securities available for sale at estimated fair value (amortized cost-$1,072,843 at September 30, 2002 and $1,133,715 at December 31, 2001)		1,099,589			1,147,280
Securities held to maturity (estimated fair value-$297,088 at September 30, 2002 and $280,865 at December 31, 2001)		272,819			281,436
Loans held for sale		519,786			368,625
Loans		3,575,203			3,505,385
Less: Unearned income		(2,923	)		(3,051	)
Loans net of unearned income		3,572,280			3,502,334
Less: Allowance for loan losses		(47,372	)		(47,408	)
Net loans		3,524,908			3,454,926
Bank premises and equipment		48,429			48,394
Goodwill		91,575			80,848
Accrued interest receivable		28,864			32,012
Other assets		54,665			60,660
TOTAL ASSETS	$	5,848,573		$	5,631,775
LIABILITIES
Domestic deposits:
Noninterest-bearing	$	787,669		$	653,785
Interest-bearing		3,194,596			3,134,008
Total deposits		3,982,265			3,787,793
Borrowings:
Federal funds purchased		81,320			43,831
Securities sold under agreements to repurchase		503,389			477,796
Federal Home Loan Bank borrowings		680,191			736,455
Mandatorily redeemable capital securities of subsidiary trust		8,865			8,800
Other borrowings		5,060			5,501
Accrued expenses and other liabilities		49,710			65,070
TOTAL LIABILITIES		5,310,800			5,125,246
SHAREHOLDERS’ EQUITY
Common stock, $2.50 par value; Authorized-100,000,000 shares; issued-43,381,769 at September 30, 2002 and December 31, 2001, including 1,104,058 and 455,258 shares in treasury at September 30, 2002 and December 31, 2001, respectively		108,454			108,454
Surplus		89,977			84,122
Retained earnings		357,095			320,577
Accumulated other comprehensive income		13,366			4,351
Treasury stock, at cost		(31,119	)		(10,975	)
TOTAL SHAREHOLDERS’ EQUITY		537,773			506,529
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	5,848,573		$	5,631,775

See notes to consolidated unaudited financial statements.

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CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

UNITED BANKSHARES, INC. AND SUBSIDIARIES

(Dollars in thousands, except per share data)

	Three Months Ended September 30						Nine Months Ended September 30
	2002			2001			2002			2001
Interest income
Interest and fees on loans	$	65,278		$	66,862		$	192,958		$	207,170
Interest on federal funds sold and other short-term investments		61			140			506			634
Interest and dividends on securities:
Taxable		18,742			20,617			55,718			57,849
Tax-exempt		2,332			2,677			7,207			8,336
Total interest income		86,413			90,296			256,389			273,989
Interest expense
Interest on deposits		19,185			28,943			61,260			93,057
Interest on short-term borrowings		2,732			3,630			7,497			10,977
Interest on long-term borrowings		10,760			11,148			31,832			32,931
Total interest expense		32,677			43,721			100,589			136,965
Net interest income		53,736			46,575			155,800			137,024
Provision for loan losses		1,823			4,145			5,725			8,787
Net interest income after provision for loan losses		51,913			42,430			150,075			128,237
Other income
Income from mortgage banking operations		11,203			7,343			24,801			19,037
Service charges, commissions, and fees		8,299			6,764			23,287			19,428
Income from fiduciary activities		2,303			2,082			6,692			6,291
Security losses		(4,368	)		(647	)		(4,961	)		(1,223	)
Other income		1,292			214			2,117			1,064
Total other income		18,729			15,756			51,936			44,597
Other expense
Salaries and employee benefits		21,595			15,650			58,367			45,579
Net occupancy expense		3,252			2,565			9,312			7,906
Other expense		13,850			10,667			37,877			31,846
Total other expense		38,697			28,882			105,556			85,331
Income before income taxes		31,945			29,304			96,455			87,503
Income taxes		9,592			9,524			30,075			28,587
Net income	$	22,353		$	19,780		$	66,380		$	58,916
Earnings per common share:
Basic	$	0.53		$	0.48		$	1.56		$	1.42
Diluted	$	0.52		$	0.48		$	1.53		$	1.41
Dividends per common share	$	0.24		$	0.23		$	0.70		$	0.68
Average outstanding shares:
Basic		42,419,925			41,264,394			42,667,849			41,476,627
Diluted		43,103,509			41,623,037			43,348,668			41,760,428

See notes to consolidated unaudited financial statements.

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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

UNITED BANKSHARES, INC. AND SUBSIDIARIES

(Dollars in thousands, except per share data)

	Nine Months Ended September 30, 2002
	Common Stock			Surplus			Retained Earnings			Accumulated Other Comprehensive Income		Treasury Stock			Total Shareholders’ Equity
	Shares	Par Value
Balance at January 1, 2002	43,381,769	$	108,454	$	84,122		$	320,577		$	4,351	($	10,975	)	$	506,529
Comprehensive income:
Net income	—		—		—			66,380			—		—			66,380
Other comprehensive income, net of tax:
Unrealized gains on securities of $5,385 net of reclassification adjustment for losses included in net income of $3,225	—		—		—			—			8,610		—			8,610
Amortization of the unrealized loss for securities transferred from the available for sale to the held to maturity investment portfolio	—		—		—			—			405		—			405
Total comprehensive income																75,395
Purchase of treasury stock (942,000 shares)	—		—		—			—			—		(27,881	)		(27,881	)
Cash dividends ($0.70 per share)	—		—		—			(29,862	)		—		—			(29,862	)
Fair value of vested stock options exchanged in the acquisition of Century Bancshares, Inc.	—		—		10,283			—			—		—			10,283
Common stock options exercised (293,200 shares)	—		—		(4,428	)		—			—		7,737			3,309
Balance at September 30, 2002	43,381,769	$	108,454	$	89,977		$	357,095		$	13,366	($	31,119	)	$	537,773

See notes to consolidated unaudited financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

UNITED BANKSHARES, INC. AND SUBSIDIARIES

(Dollars in thousands)

	Nine Months Ended September 30
	2002			2001
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES	$	(83,159	)	$	25,892
INVESTING ACTIVITIES
Proceeds from maturities and calls of investment securities		9,444			29,192
Purchases of investment securities		(7	)		(1,000	)
Proceeds from sales of securities available for sale		107,772			157,886
Proceeds from maturities and calls of securities available for sale		298,427			240,196
Purchases of securities available for sale		(351,474	)		(627,478	)
Net purchases of bank premises and equipment		(4,381	)		(2,834	)
Net cash paid in branch divestiture					(8,644	)
Net change in loans		(76,646	)		(30,723	)
NET CASH USED IN INVESTING ACTIVITIES		(16,865	)		(243,405	)
FINANCING ACTIVITIES
Cash dividends paid		(29,561	)		(27,486	)
Acquisition of treasury stock		(27,881	)		(19,002	)
Proceeds from exercise of stock options		3,662			1,956
Repayment of Federal Home Loan Bank borrowings		(55,566	)		(26,330	)
Proceeds from Federal Home Loan Bank borrowings		225			25,096
Changes in:
Deposits		196,848			102,307
Federal funds purchased, securities sold under agreements to repurchase and other borrowings		62,641			128,840
NET CASH PROVIDED BY FINANCING ACTIVITIES		150,368			185,381
Increase (decrease) in cash and cash equivalents		50,344			(32,132	)
Cash and cash equivalents at beginning of year		157,594			144,810
Cash and cash equivalents at end of period	$	207,938		$	112,678

See notes to consolidated unaudited financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

UNITED BANKSHARES, INC. AND SUBSIDIARIES

1.    GENERAL

The accompanying unaudited consolidated interim financial statements of United Bankshares, Inc. and Subsidiaries (“United”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not contain all of the information and footnotes required by generally accepted accounting principles. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements presented as of September 30, 2002 and 2001 and the three-month periods then ended have not been audited. The consolidated balance sheet as of December 31, 2001 has been extracted from the audited financial statements included in United’s 2001 Annual Report to Shareholders. The accounting and reporting policies followed in the presentation of these financial statements are consistent with those applied in the preparation of the 2001 Annual Report of United Bankshares, Inc. on Form 10-K. In the opinion of management, adjustments necessary for a fair presentation of financial position and results of operations for the interim periods have been made. Such adjustments are of a normal and recurring nature.

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

2.    INVESTMENT SECURITIES

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

	September 30, 2002
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In thousands)
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	28,754	$	157	$	5	$	28,906
State and political subdivisions		64,384		3,311				67,695
Mortgage-backed securities		821,697		27,761		467		848,991
Marketable equity securities		7,951		1,081		901		8,131
Other		150,057		8,798		12,989		145,866
Total	$	1,072,843	$	41,108	$	14,362	$	1,099,589

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	December 31, 2001
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In thousands)
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	61,082	$	651	$	288	$	61,445
State and political subdivisions		62,188		341		1,075		61,454
Mortgage-backed securities		861,799		17,587		1,919		877,467
Marketable equity securities		8,254		906		1,306		7,854
Other		140,392		767		2,099		139,060
Total	$	1,133,715	$	20,252	$	6,687	$	1,147,280

The cumulative net unrealized gains on available for sale securities resulted in an increase of $17,386 and $8,817 in shareholders’ equity, net of deferred income taxes at September 30, 2002 and December 31, 2001, respectively.

The amortized cost and estimated fair value of securities available for sale at September 30, 2002 and December 31, 2001 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because the issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Maturities of mortgage-backed securities with an estimated fair value of $848,991 and $877,467 at September 30, 2002 and December 31, 2001, respectively, and an amortized cost of $821,697 and $861,799 at September 30, 2002 and December 31, 2001, respectively are shown below. Maturities of mortgage-backed securities are based upon an estimated average life.

	September 30, 2002				December 31, 2001
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	143,460	$	146,580	$	22,995	$	23,089
Due after one year through five years		627,227		638,989		32,635		33,372
Due after five years through ten years		65,912		70,466		122,749		124,049
Due after ten years		228,293		235,423		947,082		958,916
Marketable equity securities		7,951		8,131		8,254		7,854
Total	$	1,072,843	$	1,099,589	$	1,133,715	$	1,147,280

As permitted, upon adopting SFAS No. 133 on January 1, 2001, debt securities with an amortized cost of $71,293 and an estimated fair value of $71,668 were transferred into the available for sale category from the held to maturity category.

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

	September 30, 2002
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In thousands)
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	24,757	$	2,089			$	26,846
State and political subdivisions		86,550		4,888	$	986		90,452
Mortgage-backed securities		3,068		164				3,232
Other		158,444		27,334		9,220		176,558
Total	$	272,819	$	34,475	$	10,206	$	297,088

	December 31, 2001
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In thousands)
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	29,935	$	285	$	19	$	30,201
State and political subdivisions		89,540		1,491		1,057		89,974
Mortgage-backed securities		4,278		132				4,410
Other		157,683		1,534		2,937		156,280
Total	$	281,436	$	3,442	$	4,013	$	280,865

The amortized cost and estimated fair value of debt securities held to maturity at September 30, 2002 and December 31, 2001 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because the issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Maturities of mortgage-backed securities with an amortized cost of $3,068 and $4,278 at September 30, 2002 and December 31, 2001, respectively, and an estimated fair value of $3,232 and $4,410 at September 30, 2002 and December 31, 2001, respectively are included in the table below based upon an estimated average life. There were no sales of held to maturity securities.

	September 30, 2002				December 31, 2001
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Due in one year or less	$	8,265	$	8,371	$	1,448	$	1,477
Due after one year through five years		71,063		74,348		32,729		33,837
Due after five years through ten years		79,540		90,780		72,922		74,216
Due after ten years		113,951		123,589		174,337		171,335
Total	$	272,819	$	297,088	$	281,436	$	280,865

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The carrying value of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes as required or permitted by law approximated $1,023,877 and $992,341 at September 30, 2002 and December 31, 2001, respectively.

3.    LOANS

Major classifications of loans are as follows:

	September 30, 2002		December 31, 2001
Commercial, financial and agricultural	$	680,851	$	662,070
Real estate:
Single-family residential		1,271,426		1,313,784
Commercial		981,135		891,118
Construction		171,033		195,063
Other		86,197		88,416
Installment		384,561		354,934
Total gross loans	$	3,575,203	$	3,505,385

The table above does not include loans held for sale of $519,786 and $368,625 at September 30, 2002 and December 31, 2001, respectively.

United’s subsidiary banks have made loans, in the normal course of business, to the directors and officers of United and its subsidiaries, and to their affiliates. Such related party loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and did not involve more than normal risk of collectibility. The aggregate dollar amount of these loans was $152,180 and $107,305 at September 30, 2002 and December 31, 2001, respectively.

4.    ALLOWANCE FOR LOAN LOSSES

The allowance for loan 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 loan losses and the appropriate provision for loan losses is based upon 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 loan 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.

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A progression of the allowance for loan losses for the periods presented is summarized as follows:

	Three Months Ended September 30						Nine Months Ended September 30
	2002			2001			2002			2001
Balance at beginning of period	$	47,746		$	41,197		$	47,408		$	40,532
Provision charged to expense		1,823			4,145			5,725			8,787
		49,569			45,342			53,133			49,319
Loans charged-off		(2,410	)		(3,105	)		(7,000	)		(8,267	)
Less: Recoveries		213			316			1,239			1,501
Net Charge-offs		(2,197	)		(2,789	)		(5,761	)		(6,766	)
Balance at end of period	$	47,372		$	42,553		$	47,372		$	42,553

The average recorded investment in impaired loans during the quarter ended September 30, 2002 and for the year ended December 31, 2001 was approximately $10,800 and $12,654, respectively. United recognized interest income on the impaired loans of approximately $235 and $138 for the quarters ended September 30, 2002 and 2001, respectively, and $342 and $319 for the nine months ended September 30, 2002 and 2001, respectively.

At September 30, 2002, the recorded investment in loans that are considered to be impaired was $10,184 (of which $6,090 was on a nonaccrual basis). Included in this amount is $3,624 of impaired loans for which the related allowance for loan losses is $974 and $6,560 of impaired loans that do not have an allowance for credit losses due to management’s estimate that the fair value of the underlying collateral of these loans is sufficient for full repayment of the loan and interest.

The amount of interest income that would have been recorded under the original terms for the above loans was $272 and $320 for the quarters ended September 30, 2002 and 2001, respectively, $514 and $669 for the nine months ended September 30, 2002 and 2001, respectively.

5.    RISK ELEMENTS

Nonperforming assets are summarized as follows:

	September 30, 2002		December 31, 2001
Nonaccrual loans	$	6,090	$	8,068
Loans past due 90 days or more and still accruing interest		6,835		9,522
Total nonperforming loans		12,925		17,590
Nonaccrual investment securities				10,000
Other real estate owned		4,368		2,763
Total nonperforming assets	$	17,293	$	30,353

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6. INTANGIBLE ASSETS

In July of 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 141 (SFAS No. 141), “Business Combinations,” and Statement No. 142 (SFAS No. 142), “Goodwill and Other Intangible Assets.” SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 141 also establishes specific criteria for the recognition of intangible assets separately from goodwill. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. SFAS No. 142 also requires that intangible assets with definite useful lives (such as core deposit intangibles) be amortized over their respective estimated useful lives to their estimated residual values, and be reviewed for impairment at least annually. SFAS No. 142 requires that a transitional impairment test of goodwill and indefinite-lived intangible assets be performed within six months of adoption and any resulting impairment loss be reported as a change in accounting principle. Effective January 1, 2002, United adopted SFAS No. 142, and discontinued the amortization of certain intangibles. No transitional impairment loss was recorded. Total goodwill of $80,848 as of December 31, 2001 is comprised of goodwill recorded in United’s community banking segment. On December 7, 2001, United acquired 100% of the outstanding common stock of Century Bancshares, Inc., Washington, D.C. (Century). The results of operations of Century, which are not significant, have been included in the consolidated results of operations from the date of acquisition. During the second quarter of 2002, United continued to evaluate the purchase price allocation for the Century acquisition. As a result of this evaluation, non-amortizable goodwill and shareholders’ equity increased by approximately $10.28 million. There was no impact on net income, earnings per share or common shares outstanding. In accordance with the new disclosure requirements of SFAS No. 142, the following information is presented regarding intangible assets subject to amortization and those not subject to amortization.

	As of December 31, 2001
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortized intangible assets:
Goodwill subject to amortization	$	6,030	($	1,041	)	$	4,989
Core deposit intangible assets		14,143		(6,427	)		7,716
Total	$	20,173	($	7,468	)	$	12,705
Goodwill not subject to amortization	$	98,163	($	22,304	)	$	75,859

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The following table conforms prior period amounts, adjusted to exclude amortization expense recognized in those periods related to certain intangible assets that are no longer amortized, to the current year presentation:

	Three Months Ended September 30				Nine Months Ended September 30
	2002		2001		2002		2001
Reported net income	$	22,353	$	19,780	$	66,380	$	58,916
Add back: Amortization of intangibles				545				1,641
Adjusted net income	$	22,353	$	20,325	$	66,380	$	60,557
Basic earnings per share:
Reported net income	$	0.53	$	0.48	$	1.56	$	1.42
Amortization of intangibles			$	0.01			$	0.04
Adjusted net income	$	0.53	$	0.49	$	1.56	$	1.46
Diluted earnings per share:
Reported net income	$	0.52	$	0.48	$	1.53	$	1.41
Amortization of intangibles			$	0.01			$	0.04
Adjusted net income	$	0.52	$	0.49	$	1.53	$	1.45

United incurred amortization expense of $562 and $1,396 for the quarter and nine months ended September 30, 2002, respectively, related to intangible assets.

In October of 2002, FASB issued Statement No. 147 (SFAS No. 147), “Acquisitions of Certain Financial Institutions” to clarify the accounting for branch acquisitions. SFAS No. 147 specifies that a branch acquisition that meets the definition of a business should be accounted for as a business combination and that goodwill that arises as a result of the acquisition be subject to the non-amortization provision of SFAS No. 142. United expects to adopt SFAS No. 147 in the fourth quarter of 2002. Upon adoption, goodwill previously reported as subject to amortization arising from a branch acquisition that constitutes a business will be presented on a restated basis whereby the amortization expense recorded during the nine months ended September 30, 2002 will be reversed. United has not yet completed the analysis required to determine which branch acquisitions, if any, meet the definition of a business. Amortization expense recorded during the nine months ended September 30, 2002 on goodwill subject to amortization was $226.

7.     BORROWINGS

United’s subsidiary banks are members of the Federal Home Loan Bank (FHLB). Membership in the FHLB makes available short-term and long-term borrowings from collateralized advances. All FHLB borrowings are collateralized by a similar amount of single-family residential mortgage loans. At September 30, 2002, United had approximately $443,209 of additional available borrowings in the form of collateralized advances from the FHLB at prevailing interest rates.

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At September 30, 2002, $680,191 of FHLB advances with a weighted average interest rate of 6.09% are scheduled to mature from one to twenty years. At September 30, 2002, the scheduled maturities of FHLB advances are as follows:

Year	Amount
2002	$	355
2003		734
2004		13,742
2005		90,000
2006 and thereafter		575,360
Total	$	680,191

United, through the parent company, has available funds of $50,000 to provide for general liquidity needs under a one year renewable collateralized line of credit. The line of credit carries a LIBOR-based indexed floating rate of interest. At September 30, 2002, United had no outstanding balance under the line of credit.

United, through its subsidiary banks, also has various unused lines of credit available from certain correspondent banks in the aggregate amount of $204,000. These lines of credit, which bear interest at prevailing market rates, permit United to borrow funds in the overnight market, and are renewable annually subject to certain conditions.

8.    TRUST PREFERRED SECURITIES

As part of the acquisition of Century, United assumed all the obligations of Century and its subsidiaries. One such subsidiary, Century Capital Trust I (the Trust) is a statutory business trust formed during the first quarter of 2000. The Trust issued $8.8 million of capital securities (the Capital Securities) to a third party and received net cash proceeds of $8.536 million after considering the underwriter’s discount. The Trust invested the proceeds in an equivalent amount of junior subordinated debt securities of Century, now United, bearing an interest rate equal to the rate on the Capital Securities. These debt securities, which are the only assets of the Trust, are subordinate and junior in right of payment to all present and future senior indebtedness (as defined in the indenture) and certain other financial obligations of Century, now United. United fully and unconditionally guarantees the Trust’s obligations under the Capital Securities.

For financial reporting purposes, the Trust is treated as a subsidiary of United and consolidated in the corporate financial statements. The Capital Securities are presented as a separate category of long-term debt on the Consolidated Balance Sheets entitled “Mandatorily redeemable capital securities of subsidiary trust.” The Capital Securities are not included as a component of stockholders’ equity in the Consolidated Balance Sheets. For regulatory purposes, the $8.8 million of Capital Securities are included in Tier 2 capital in accordance with regulatory reporting requirements.

The Capital Securities pay cash dividends semiannually at an annual rate of 10.875% of the liquidation preference. Dividends to the holders of the Capital Securities are included in the Consolidated Statements of Income as interest expense. Under the provisions of the subordinated debt, United has the right to defer payment of interest on the subordinated debt at any time, or from time to time, for periods not exceeding five

16

years. If interest payments on the subordinated debt are deferred, the dividends on the Capital Securities are also deferred. Interest on the subordinated debt is cumulative.

Subject to the prior approval of the Federal Reserve Board, the Capital Securities, the assets of the Trust, and the common securities issued by the Trust are redeemable at the option of United in whole or in part on or after March 8, 2010, or at any time, in whole but not in part, from the date of issuance, upon the occurrence of certain events.

9.    COMMITMENTS AND CONTINGENT LIABILITIES

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

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

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary upon the extension of credit, is based on management’s credit evaluation of the counterparty. United had approximately $1,250,097 and $937,455 of loan commitments outstanding as of September 30, 2002 and December 31, 2001, respectively, the majority of which expire within one year.

Commercial and standby letters of credit are agreements used by United’s customers as a means of improving their credit standing in their dealings with others. Under these agreements, United guarantees certain financial commitments of its customers. United has issued commercial and standby letters of credit of $103,176 and $103,446 as of September 30, 2002 and December 31, 2001, respectively.

In accordance with current interpretations of FASB Statement No. 133 “Accounting for Derivative Instruments and Hedging Activities”, United is required to recognize its commitments with borrowers (interest rate lock commitments) and investors (best efforts commitments) on loans originated for sale in its mortgage banking operations. These commitments are entered into with the borrower and investor to manage the inherent interest rate and pricing risk associated with selling loans in the secondary market. These derivatives are accounted for by recognizing the fair value of the contracts and commitments on the balance sheet as either a freestanding asset or liability. At September 30, 2002, United had commitments to originate $361,798 of mortgage loans to sell in the secondary market.

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United and its subsidiaries are currently involved, in the normal course of business, in various legal proceedings. Management is vigorously pursuing all of its legal and factual defenses and, after consultation with legal counsel, believes that all such litigation will be resolved without material effect on financial position or results of operations.

10.    LINE OF BUSINESS REPORTING

United’s principal business activities are community banking and mortgage banking. The following information is based on United’s current management structure and presents results of operations as if the community banking and mortgage banking segments were operated on a stand alone basis. The results are not necessarily comparable with similar information of other companies.

	Mortgage Banking		Community Banking		General Corporate and Other*			Consolidated
	(In thousands)
Three months ended September 30, 2002
Net interest income	$	3,026	$	50,180	$	530		$	53,736
Provision for loan losses		—		1,823		—			1,823
Net interest income after provision for loan losses		3,026		48,357		530			51,913
Noninterest income		11,203		7,487		39			18,729
Noninterest expense		10,601		28,591		(495	)		38,697
Income before income taxes		3,628		27,253		1,064			31,945
Income tax expense		1,012		8,266		314			9,592
Net income		2,616		18,987		750			22,353
Average total assets		351,909		5,327,505		(50,426	)		5,628,988
Three months ended September 30, 2001
Net interest income	$	2,043	$	44,252	$	280		$	46,575
Provision for loan losses		—		4,145		—			4,145
Net interest income after provision for loan losses		2,043		40,107		280			42,430
Non-interest income		7,343		8,455		(42	)		15,756
Non-interest expense		5,625		22,863		394			28,882
Income (loss) before income taxes		3,761		25,699		(156	)		29,304
Income tax expense		950		8,625		(51	)		9,524
Net income (loss)		2,811		17,074		(105	)		19,780
Average total assets		196,812		4,786,914		78,407			5,062,133

* General corporate and other includes intercompany eliminations

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	Mortgage Banking		Community Banking		General Corporate and Other*			Consolidated
	(In thousands)
Nine months ended September 30, 2002
Net interest income	$	7,624	$	146,365	$	1,811		$	155,800
Provision for loan losses		—		5,725		—			5,725
Net interest income after provision for loan losses		7,624		140,640		1,811			150,075
Noninterest income		24,801		27,224		(89	)		51,936
Noninterest expense		23,214		82,691		(349	)		105,556
Income before income taxes		9,211		85,173		2,071			96,455
Income tax expense		2,483		26,927		665			30,075
Net income		6,728		58,246		1,406			66,380
Average total assets		254,137		5,382,687		(105,176	)		5,531,648
Nine months ended September 30, 2001
Net interest income	$	5,470	$	130,946	$	608		$	137,024
Provision for loan losses		—		8,787		—			8,787
Net interest income after provision for loan losses		5,470		122,159		608			128,237
Non-interest income		19,037		25,513		47			44,597
Non-interest expense		15,804		68,133		1,394			85,331
Income (loss) before income taxes		8,703		79,539		(739	)		87,503
Income tax expense		2,245		26,582		(240	)		28,587
Net income (loss)		6,458		52,957		(499	)		58,916
Average total assets		192,782		4,743,411		22,651			4,958,844

* General corporate and other includes intercompany eliminations

11.    COMPREHENSIVE INCOME

The components of total comprehensive income for the three and nine months ended September 30, 2002 and 2001 are as follows:

	Three Months Ended September 30					Nine Months Ended September 30
	2002			2001		2002		2001
Net Income	$	22,353		$	19,780	$	66,380	$	58,916
Other Comprehensive Income (Loss), Net of Tax:
Unrealized gain (loss) on available for sale securities arising during the period		(1,180	)		12,385		5,385		16,863
Less: Reclassification adjustment for losses included in net income		2,839			421		3,225		795
Amortization on the unrealized loss for securities transferred from the available for sale to the held to maturity investment portfolio		83			66		405		310
Total Comprehensive Income	$	24,095		$	32,652	$	75,395	$	76,884

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12.    EARNINGS PER SHARE

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

	Three Months Ended September 30				Nine Months Ended September 30
	2002		2001		2002		2001
	(Dollars in thousands, except per share)
Basic
Net Income	$	22,353	$	19,780	$	66,380	$	58,916
Average common shares outstanding		42,419,925		41,264,394		42,667,849		41,476,627
Earnings per basic common share	$	0.53	$	0.48	$	1.56	$	1.42
Diluted
Net Income	$	22,353	$	19,780	$	66,380	$	58,916
Average common shares outstanding		42,419,925		41,264,394		42,667,849		41,476,627
Equivalents from stock options		683,584		358,643		680,819		283,801
Average diluted shares outstanding		43,103,509		41,623,037		43,348,668		41,760,428
Earnings per diluted common share	$	0.52	$	0.48	$	1.53	$	1.41

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13.  EARNING ASSETS AND INTEREST-BEARING LIABILITIES

The following table shows the daily average balance of major categories of assets and liabilities for each of the three month periods ended September 30, 2002 and September 30, 2001 with the interest rate earned or paid on such amount.

	Three Months Ended September 30, 2002							Three Months Ended September 30, 2001
	Average Balance			Interest		Avg. Rate		Average Balance			Interest		Avg. Rate
	(Dollars in thousands)
ASSETS
Earning Assets:
Federal funds sold and securities repurchased under agreements to resell and other short-term investments	$	14,106		$	61	1.72	%	$	17,259		$	140	3.21	%
Investment Securities:
Taxable		1,215,486			18,742	6.12	%		1,246,383			20,617	6.56	%
Tax-exempt(1)		190,470			3,346	6.97	%		190,267			3,676	7.67	%
Total Securities		1,405,956			22,088	6.23	%		1,436,650			24,293	6.71	%
Loans, net of unearned income(1)(2)		3,917,277			66,989	6.80	%		3,372,893			68,783	8.12	%
Allowance for loan losses		(47,578	)						(41,242	)
Net loans		3,869,699				6.89	%		3,331,651				8.16	%
Total earning assets		5,289,761		$	89,138	6.71	%		4,785,560		$	93,216	7.76	%
Other assets		339,227							276,573
TOTAL ASSETS	$	5,628,988						$	5,062,133
LIABILITIES
Interest-Bearing Funds:
Interest-bearing deposits	$	3,148,543		$	19,185	2.42	%	$	2,911,041		$	28,943	3.94	%
Federal funds purchased, repurchase agreements and other short-term borrowings		536,403			2,732	2.02	%		426,878			3,630	3.37	%
FHLB advances and other long-term borrowings		689,650			10,760	6.19	%		703,754			11,148	6.28	%
Total Interest-Bearing Funds		4,374,596			32,677	2.96	%		4,041,673			43,721	4.29	%
Demand deposits		606,176							494,209
Accrued expenses and other liabilities		106,528							72,873
TOTAL LIABILITIES		5,087,300							4,608,755
SHAREHOLDERS’ EQUITY		541,688							453,378
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY	$	5,628,988						$	5,062,133
NET INTEREST INCOME				$	56,461						$	49,495
INTEREST SPREAD						3.75	%						3.47	%
NET INTEREST MARGIN						4.26	%						4.14	%

(1) The interest income and the yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 35%.

(2) The interest income and the yields on state nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory state income tax rate of 9%.

(3) Nonaccruing loans are included in the daily average loan amounts outstanding.

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The following table shows the daily average balance of major categories of assets and liabilities for each of the nine month periods ended September 30, 2002 and September 30, 2001 with the interest rate earned or paid on such amount.

	Nine Months Ended September 30, 2002							Nine Months Ended September 30, 2001
	Average Balance			Interest		Avg. Rate		Average Balance			Interest		Avg. Rate
	(Dollars in thousands)
ASSETS
Earning Assets:
Federal funds sold and securities repurchased under agreements to resell and other short-term investments	$	40,566		$	506	1.67	%	$	18,059		$	634	4.69	%
Investment Securities:
Taxable		1,228,711			55,718	6.06	%		1,149,455			57,849	6.73	%
Tax-exempt(1)		192,035			10,314	7.18	%		193,785			11,428	7.88	%
Total Securities		1,420,746			66,032	6.21	%		1,343,240			69,277	6.90	%
Loans, net of unearned income(1)(2)		3,777,514			198,157	7.01	%		3,371,677			212,763	8.43	%
Allowance for loan losses		(47,699	)						(41,106	)
Net loans		3,729,815				7.10	%		3,330,571				8.53	%
Total earning assets		5,191,127		$	264,695	6.82	%		4,691,870		$	282,674	8.06	%
Other assets		340,521							266,974
TOTAL ASSETS	$	5,531,648						$	4,958,844
LIABILITIES
Interest-Bearing Funds:
Interest-bearing deposits	$	3,143,915		$	61,260	2.61	%	$	2,892,888		$	93,057	4.30	%
Federal funds purchased, repurchase agreements and other short-term borrowings		495,262			7,497	2.02	%		369,637			10,977	3.97	%
FHLB advances and other long-term borrowings		690,044			31,832	6.17	%		695,622			32,931	6.33	%
Total Interest-Bearing Funds		4,329,221			100,589	3.11	%		3,958,147			136,965	4.63	%
Demand deposits		591,476							484,716
Accrued expenses and other liabilities		84,268							67,636
TOTAL LIABILITIES		5,004,965							4,510,499
SHAREHOLDERS’ EQUITY		526,683							448,345
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	5,531,648						$	4,958,844
NET INTEREST INCOME				$	164,106						$	145,709
INTEREST SPREAD						3.71	%						3.43	%
NET INTEREST MARGIN						4.22	%						4.14	%

(1) The interest income and the yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 35%.

(2) The interest income and the yields on state nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory state income tax rate of 9%.

(3) Nonaccruing loans are included in the daily average loan amounts outstanding.

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

FORWARD-LOOKING STATEMENTS

Congress passed the Private Securities Litigation Act of 1995 to encourage corporations to provide investors with information about the company’s anticipated future financial performance, goals, and strategies. The act provides a safe harbor for such disclosure, in other words, protection from unwarranted litigation if actual results are not the same as management expectations.

United desires to provide its shareholders with sound information about past performance and future trends. Consequently, any forward-looking statements contained in this report, in a report incorporated by reference to this report, or made by management of United in this report, in any other reports and filings, in press releases and in oral statements, involves numerous assumptions, risks and uncertainties.

Actual results could differ materially from those contained in or implied by United’s statements for a variety of factors including, but not limited to: changes in economic conditions; movements in interest rates; competitive pressures on product pricing and services; success and timing of business strategies; the nature and extent of governmental actions and reforms; and rapidly changing technology and evolving banking industry standards.

FINANCIAL CONDITION

Total assets were $5.85 billion at September 30, 2002, which was a 3.85% increase from year end. In terms of asset composition since year end 2001, the September 30, 2002 balance sheet reflects a $50.34 million increase in cash and cash equivalents. During the first nine months of 2002, net cash of $150.37 million was provided by financing activities which more than offset $83.16 million and $16.87 million used in operating and investing activities, respectively.

Total investment securities have decreased $56.31 million since year end. Securities available for sale decreased $47.69 million or 4.16%. This change reflects $406.20 million in sales, maturities and calls of securities, $351.47 million in purchases and an increase of $13.18 million in market value. Securities held to maturity decreased $8.62 million or 3.06%. This decrease is due largely to maturities and calls of securities within the portfolio during the first nine months of 2002. The amortized cost and estimated fair value of investment securities, including types and remaining maturities, is presented in Note 2 to the unaudited consolidated financial statements.

Loans held for sale increased $151.16 million or 41.01% as loan originations exceeded sales in the secondary market during the first nine months of 2002. Portfolio loans, net of unearned income grew $69.95 million or 2.00%. The increase in portfolio loans was primarily attributable to increases in commercial and commercial real estate loans of $108.80 million which more than offset a decrease of $42.36 million in single-family residential loans. For a summary of major classifications of loans, see Note 3 to the unaudited consolidated financial statements.

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Total deposits have grown $194.47 million or 5.13% since year end. In terms of composition, noninterest-bearing deposits increased $133.88 million or 20.48% while interest-bearing deposits grew $60.59 million or 1.93 % from December 31, 2001.

Overall, United’s total borrowed funds increased $6.44 million, which was relatively flat from year end. FHLB borrowings decreased $56.26 million or 7.64% while short-term borrowings increased $62.64 million or 11.88%. For a further discussion of borrowings, see Note 7 to the unaudited consolidated financial statements. Accrued expenses and other liabilities decreased $15.36 million or 23.61% since year end 2001.

Shareholders’ equity increased $31.24 million or 6.17% as compared to December 31, 2001 as United continued to balance capital adequacy and returns to shareholders. Total stockholders’ equity amounted to $537.77 million or 9.19% of total assets at September 30, 2002, compared to equity of $506.53 million or 8.99% of total assets at December 31, 2001.

RESULTS OF OPERATIONS

OVERVIEW

Net income for the nine months of 2002 was $66.38 million or $1.53 per diluted share compared to $58.92 million or $1.41 per share for the first nine months of 2001. This represents a 12.67% increase in net income and an 8.51% increase in earnings per share. Net income for the third quarter of 2002 was $22.35 million, an increase of 13.01% from the $19.78 million reported for the prior year quarter. Third quarter 2002 earnings were $0.52 per diluted share, an increase of 8.33% from the $0.48 per share reported for the third quarter of 2001. United’s return on average assets was 1.58% for the third quarter of 2002, up from 1.55% in the third quarter of 2001. Return on average equity was 16.37% for the third quarter of 2002 compared to 17.31% for last year’s third quarter. For the nine months ended September 30, 2002, United achieved an annualized return on average assets of 1.60% and an annualized return on average equity of 16.85% compared with 1.59% and 17.57%, respectively, for the same time periods in 2001.

The net interest margin was 4.22% for the first nine months of 2002 compared to 4.14% for the first nine months of 2001. Tax-equivalent net interest income increased $18.40 million or 12.63% for the first nine months of 2002 as compared to the same period for 2001. The provision for loan losses decreased $3.06 million below the previous year-to-date provision due principally to a lower level of nonperforming loans. Noninterest income increased $7.34 million or 16.46% for the first nine months of 2002 when compared to the first nine months of 2001. Noninterest expenses increased $20.23 million or 23.70% for the first nine months of 2002 compared to the same period in 2001. United’s effective tax rate was 31.18% and 32.67% in 2002 and 2001, respectively.

NET INTEREST INCOME

Net interest income is the difference between interest income generated by interest-earning assets and interest paid on interest-bearing liabilities. For purposes of this discussion, net interest income is presented on a tax-equivalent basis, that is, interest income on certain federal and state nontaxable loans and investment securities has been disclosed as if such interest were taxed at the statutory Federal and State of West Virginia corporate tax rates of 35% and 9%, respectively.

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Tax-equivalent net interest income increased $6.97 million or 14.07% and $18.40 million or 12.63% for the third quarter and first nine months of 2002, respectively, when compared to the same periods of 2001. The net interest margin for the third quarter of 2002 was 4.26% which is 12 basis points higher than the previous year’s third quarter net interest margin of 4.14%. For the first nine months of 2002, the net interest margin was 4.22%, which is 8 basis points higher than the same period in 2001. The margin increases from last year’s results were primarily attributable to a decrease in funding costs and an increase in average earning assets due mainly to the Century Bancshares acquisition that was consummated in December of 2001. The cost of interest-bearing funds declined 133 and 152 basis points for the quarter and year-to-date, respectively, when compared to the same periods in 2001. On a linked quarter basis, tax-equivalent net interest income increased $2.27 million or 4.18% while the net interest margin increased 4 basis points from the second quarter of 2002. These increases were the result of a higher level of loans held for sale and the associated interest income earned until settlement, plus an 18 basis point decline in the cost of interest-bearing deposits. In addition, United received a $1.1 million dividend payment plus interest during the quarter on a $10 million trust preferred security previously classified as nonaccrual.

PROVISION FOR LOAN LOSSES

United’s credit quality continues to be sound. Nonperforming loans were $12.93 million at September 30, 2002 as compared to $17.59 million at December 31, 2001. At quarter end, nonperforming loans represented 0.36% of loans, net of unearned income. The components of nonperforming loans include nonaccrual loans and loans which are contractually past due 90 days or more as to interest or principal, but have not been put on a nonaccrual basis. During the first nine months of 2002, nonaccrual loans decreased $1.98 million or 24.52% while loans past due 90 days or more decreased $2.69 million or 28.22%. Total nonperforming assets of $17.29 million, including OREO of $4.37 million at September 30, 2002, represented 0.30% of total assets at the end of the third quarter. For a summary of nonperforming assets, see Note 5 to the unaudited consolidated financial statements.

At September 30, 2002, impaired loans were $10.18 million, a decrease of $2.41 million or 19.13% from the $12.59 million in impaired loans at December 31, 2001. For further details, see Note 4 to the unaudited consolidated financial statements.

United evaluates the adequacy of the allowance for loan 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 loan losses, allocation among loan types, and the resulting provision for loan losses.

At September 30, 2002 and December 31, 2001, the allowance for loan losses was 1.33% and 1.35% of period-end loans, net of unearned income, respectively. At September 30, 2002 and December 31, 2001, the ratio of the allowance for loan losses to nonperforming loans was 366.5% and 269.5%, respectively.

The provision for loan losses for the three months ended September 30, 2002 amounted to $1.82 million compared to $4.15 million for the same period in 2001. The provision for loan losses for the nine months

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ended September 30, 2002 was $5.73 million compared to $8.79 million for the prior year-to-date. Net charge-offs were $2.20 million for the third quarter of 2002 which was a decline from net charge-offs of $2.79 million for the prior year quarter. Net charge-offs for the first nine months of 2002 were $5.76 million, a decrease from net charge-offs of $6.77 million for the first nine months of 2001. Note 4 to the accompanying unaudited consolidated financial statements provide a progression of the allowance for loan losses.

In determining the adequacy of the allowance for loan losses, management makes allocations to specific commercial loans classified by management as to risk. Management determines the loan’s risk by considering the borrowers’ ability to repay, the collateral securing the credit and other borrower-specific factors that may impact collectibility. Specific loss allocations are based on the present value of expected future cash flows using the loan’s effective interest rate, or as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral-dependent. Other commercial loans not specifically reviewed on an individual basis are evaluated based on loan pools, which are grouped by similar risk characteristics using management’s internal risk ratings. Allocations for these commercial loan pools are determined based upon historical loss experience adjusted for current conditions and risk factors. Allocations for loans, other than commercial loans, are developed by applying historical loss experience adjusted for current conditions and risk factor to loan pools grouped by similar risk characteristics. While allocations are made to specific loans and pools of loans, the allowance is available for all loan losses.

United’s formal company-wide process at September 30, 2002 produced increased allocations within three of the four loan categories when compared to December 31, 2001. The components of the allowance allocated to commercial loans increased $1.8 million, as a result of adjustments primarily made to account for changes in loans acquired via the Century acquisition, economic conditions, and specific allocations of large loans. The consumer loan pool allocation increased $1.5 million as a result of changes in historical and qualitative loss factors. The real estate construction loan pool allocation increased $270 thousand also primarily due to changes in historical and qualitative loss factors. The components of the allowance allocated to real estate loans decreased $1.1 million as a result of decreased loan volume and changes in historical loss factors.

Management believes that the allowance for loan losses of $47.37 million at September 30, 2002 is adequate to provide for potential losses on existing loans based on information currently available.

Management is not aware of any potential problem loans, trends or uncertainties which 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 which 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 that 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, excluding security transactions, increased $6.69 million or 40.81% and $11.08 million or 24.18% for the third quarter and first nine months of 2002, respectively, when

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compared to the third quarter and first nine months of 2001. These results were achieved primarily due to a combination of

increased revenues from the mortgage banking and deposit services areas.

Income from mortgage banking operations increased $3.86 million or 52.57% for the third quarter of 2002 as compared to the third quarter of 2001. On a year-to-date basis, mortgage banking income increased $5.76 million or 30.28% over last year’s results. Mortgage loan origination activity increased 33.66% or $517.34 million for the first nine months of 2002 as compared to the same period in 2001 due to increased mortgage refinancings as a result of declining interest rates. More originations resulted in increased loan sales in the secondary market of 27.66% or $415.13 million during the first nine months of 2002 in comparison to the same time period in 2001. Income from deposit services increased $1.54 million or 22.69% for the third quarter of 2002 when compared to the third quarter of 2001 while increasing $3.86 million or 19.86% for the first nine months of 2002 when compared to the first nine months of 2001. On a linked-quarter basis, noninterest income, excluding security transactions, increased $5.54 million or 31.54% from the second quarter of 2002 primarily due to increased mortgage banking income of $4.06 million or 56.73%.

Including security transactions, noninterest income increased $2.97 million or 18.87% and $7.34 million or 16.46% for the third quarter and first nine months of 2002, respectively, when compared to the same time periods in 2001. Included in the security transactions’ totals for 2002 and 2001 are recognized impairment charges of $5.40 million and $1.17 million, respectively, related to other-than-temporary declines in the fair value of retained interests in securitized assets. An impairment charge of $4.62 million was recognized in the third quarter of 2002. The impairment charges were due to declines in the estimated fair value of the retained interests as a result of increases in the level of prepayment and default activity during the time periods.

OTHER EXPENSES

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 expenses include all items of expense other than interest expense, the provision for loan losses, and income taxes. Other expenses increased $9.82 million or 33.98% and $20.23 million or 23.70% for the quarter and nine months ended September 30, 2002, as compared to the same periods in 2001. On a linked-quarter basis, noninterest expense was up $3.87 million or 11.11% over the second quarter of 2002 due mainly to an increase in salaries and benefits expense.

Total salaries and benefits increased by 37.99% or $5.95 million and 28.06% or $12.79 million for the third quarter and first nine months of 2002 when compared to the same periods of 2001 mainly due to increased employee salaries and benefits from the Century Bancshares acquisition. On a linked quarter basis, total salaries and benefits increased by 12.72% or $2.44 million from the second quarter of 2002. The increase was due mainly to higher sales activity in the mortgage banking segment as compensation and incentives for its personnel are significantly tied to activity levels.

Net occupancy expense for the third quarter and first nine months of 2002 increased $687 thousand or 26.78% and $1.41 million or 17.78%, respectively, when compared to the third quarter and first nine months of 2001. The higher net occupancy expense for 2002 was due mainly to increases in both real property taxes on owned premises and rental expense on leased offices from the Century Bancshares acquisition.

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Other expenses increased $3.18 million or 29.84% and $6.03 million or 18.94% for the third quarter and first nine months of 2002 as compared to the same periods of 2001. The increase in other expenses during 2002 was due to a higher level of general operating expenses from the acquisition of Century Bancshares. In addition, United has an outstanding letter of credit securing a commercial development bond. All interest payments on the bond are current and the bonds do not mature until 2014. However, based on a current analysis completed in the third quarter of 2002 and an estimated appraised value of the underlying collateral updated in the third quarter of 2002, United’s potential exposure under the letter of credit is not fully supported. Therefore, during the third quarter of 2002, United recorded an expense of $1.0 million as a probable loss on the expected fulfillment of its obligation under the letter of credit. Other expenses for the first nine months of 2001 included a gain of $1.24 million from a divestiture of a branch office and the sale of other bank premises during the first quarter of last year.

INCOME TAXES

For the third quarter and first nine months of 2002, United’s effective tax rate was 30.03% and 31.18%, respectively, as compared to 32.50% and 32.67% for the same time periods in 2001. The decrease was primarily the result of nontaxable distributions from restructuring and reorganizational initiatives.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The objective of United’s Asset/Liability Management function is to maintain consistent growth in net interest income within United’s policy guidelines. This objective is accomplished through the management of balance sheet liquidity and interest rate risk exposures due to changes in economic conditions, interest rate levels and customer preferences.

INTEREST RATE RISK

Management considers interest rate risk to be United’s most significant market risk. Interest rate risk is the exposure to adverse changes in United’s net interest income as a result of changes in interest rates. Consistency in United’s earnings is largely dependent on the effective management of interest rate risk.

Interest rate risk management focuses on maintaining consistent growth in net interest income within Board-approved policy limits. United’s Asset/Liability Management Committee (ALCO), which includes senior management representatives and reports to the Board of Directors, monitors and manages interest rate risk to maintain an acceptable level of change to net interest income as a result of changes in interest rates. Policy established for interest rate risk is stated in terms of the change in net interest income over a one-year and two-year horizon given an immediate and sustained increase or decrease in interest rates. The current limits approved by the Board of Directors are structured on a staged basis with each stage requiring specific actions.

United employs a variety of measurement techniques to identify and manage its exposure to changing interest rates. One such technique utilizes an earnings simulation model to analyze net interest income sensitivity to movements in interest rates. The model is based on actual cash flows and repricing characteristics for on and off-balance sheet instruments and incorporates market-based assumptions regarding the impact of changing interest rates on the prepayment rate of certain assets and liabilities. The model also includes executive management projections for activity levels in product lines offered by United. Assumptions based on the historical behavior of deposit rates and balances in relation to changes in interest rates are also incorporated into the model. Rate scenarios could involve parallel or nonparallel shifts in the yield curve, depending on historical, current, and expected conditions, as well as the need to capture any material effects of explicit or embedded options. These assumptions are inherently uncertain and, as a result, the model cannot precisely measure net interest income or precisely predict the impact of fluctuations in interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and management’s strategies.

Interest sensitive assets and liabilities are defined as those assets or liabilities that mature or are repriced within a designated time-frame. The principal function of interest rate risk management is to maintain an appropriate relationship between those assets and liabilities that are sensitive to changing market interest rates. The difference between rate sensitive assets and rate sensitive liabilities for specified periods of time is known as the “GAP.” Earnings-simulation analysis captures not only the potential of these interest sensitive assets and liabilities to mature or reprice but also the probability that they will do so. Moreover, earnings-simulation analysis attends to the relative sensitivities of these balance sheet items and projects their behavior over an extended period of time. United closely monitors the sensitivity of its assets and liabilities on an on-going basis and projects the effect of various interest rate changes on its net interest margin.

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The following table shows United’s estimated earnings sensitivity profile as of September 30, 2002 and December 31, 2001:

Change in Interest Rates (basis points)	Percentage Change in Net Interest Income
	September 30, 2002	December 31, 2001
+200	7.02%	-1.61%
-200	-4.18%	0.24%

At September 30, 2002, given an immediate, sustained 200 basis point upward shock to the yield curve used in the simulation model, net interest income for United is estimated to increase by 7.02% over one year as compared to a decrease of 1.61% at December 31, 2001. A 200 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 4.18% over one year at September 30, 2002 as compared to an increase of 0.24% at December 31, 2001. All of these estimated changes in net interest income are and were within the policy guidelines established by the Board of Directors.

To further aid in interest rate management, United’s subsidiary banks are members of the Federal Home Loan Bank (FHLB). The use of FHLB advances provides United with a low risk means of matching maturities of earning assets and interest-bearing funds to achieve a desired interest rate spread over the life of the earning assets.

During 1999, to better manage risk, United sold fixed-rate residential mortgage loans in a securitization transaction. In that securitization, United retained subordinated interests that represent United’s right to future cash flows arising after the investors in the securitization trust have received the return for which they contracted. United does not receive annual servicing fees from this securitization because the loans are serviced by an independent third-party. The investors and the securitization trust have no recourse to United’s other assets for failure of debtors to pay when due; however, United’s retained interests are subordinate to investors’ interests. The value of the retained interests is subject to credit, prepayment, andinterest rate risks on the underlying financial assets. At the date of securitization, key economic assumptions used in measuring the fair value of the retained interests were as follows: a weighted-average life of 5.3 years, expected cumulative credit losses of 15%, and discount rates of 8% to 18%.

Key economic assumptions used in measuring the fair value of the retained interests at September 30, 2002 and December 31, 2001 were as follows:

	September 30, 2002		December 31, 2001
Weighted average life (in years)	2.7		3.6
Prepayment speed assumption (annual rate)	15.19%-42.00	%	17.13%-35.99	%
Cumulative default rate (annual rate)	18.45	%	16.00	%
Residual cash flows discount rate (annual rate)	4.09%-13.74	%	5.57%-14.52	%

At September 30, 2002 and December 31, 2001, the retained interests approximated $38 million and $49

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million, respectively, and are carried in the available for sale investment portfolio.

The following table presents quantitative information about delinquencies, net credit losses, and components of the underlying securitized financial assets consisting of the fixed-rate residential mortgage loans:

	September 30, 2002		December 31, 2001
Total principal amount of loans	$	78,087	$	109,105
Principal amount of loans 60 days or more past due		1,381		2,479
Year to date average balances		92,301		131,066
Year to date net credit losses		4,266		6,549

LIQUIDITY

United maintains, in the opinion of management, liquidity which is sufficient to satisfy its depositors’ requirements and the credit needs of its customers. Like all banks, United depends upon its ability to renew maturing deposits and other liabilities on a daily basis and to acquire new funds in a variety of markets. A significant source of funds available to United is “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 and securities sold under agreements to repurchase. Repurchase agreements represent funds, which are obtained as the result of a competitive bidding process.

Liquid assets are cash and those items readily convertible to cash. All banks must maintain sufficient balances of cash and near-cash items to meet the day-to-day demands of customers. Other than cash and due from banks, the available for sale securities portfolio, loans held for sale and maturing loans and investments are the primary sources of liquidity.

The goal of liquidity management is to ensure the ability to access funding which enables United to efficiently satisfy the cash flow requirements of depositors and borrowers and meet United’s cash needs. Liquidity is managed by monitoring funds availability from a number of primary sources. Funding is available from cash and cash equivalents, unused short-term borrowing and a geographically dispersed network of subsidiary banks providing access to a diversified and substantial retail deposit market.

Short-term needs can be met through a wide array of sources such as correspondent and downstream correspondent federal funds and utilization of Federal Home Loan Bank advances.

Other sources of liquidity available to United to provide long-term as well as short-term funding alternatives, in addition to FHLB advances, are long-term certificates of deposit, lines of credit, and borrowings that are secured by bank premises or stock of United’s subsidiaries. In the normal course of business, United through ALCO evaluates these as well as other alternative funding strategies that may be utilized to meet short-term and long-term funding needs.

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For the nine months ended September 30, 2002, cash of $83.20 million was used in operations by United primarily as a result of $138.43 million of excess originations over sales of mortgage loans in the secondary market. During the same period, net cash of $16.87 million was used in investing activities which was primarily due to portfolio loan growth of $76.65 million which more than offset $64.16 million of excess net proceeds from calls and maturities of securities over purchases of investment securities. During the first nine months of 2002, financing activities, primarily due to an increase in deposits and short-term borrowings of $196.85 million and $62.64 million, respectively, provided net cash of $150.37 million. Uses of cash for financing activities included repayment of approximately $55.57 million in FHLB borrowings and payments of $29.56 million and $27.88 million, respectively, for cash dividends and acquisitions of United shares under the stock repurchase program. The net effect of this activity was an increase in cash and cash equivalents of $50.34 million for the first nine months of 2002.

United anticipates it can meet its obligations over the next 12 months and has no material commitments for capital expenditures. There are no known trends, demands, commitments, or events that will result in or that are reasonably likely to result in United’s liquidity increasing or decreasing in any material way. United also has lines of credit available.

The Asset and Liability Committee monitors liquidity to ascertain that a liquidity position within certain prescribed parameters is maintained. In addition, variable rate loans are a priority. These policies help to protect net interest income against fluctuations in interest rates. No changes are anticipated in the policies of United’s Asset and Liability Committee.

CAPITAL RESOURCES

Total shareholders’ equity increased $31.24 million to $537.77 million from $506.53 million at December 31, 2001. Since year end, United has experienced an increase of $8.57 million, net of deferred income taxes, in the fair value of its available for sale investment portfolio. As previously discussed, during the second quarter of 2002, United continued to evaluate the purchase price allocation for the Century acquisition. As a result, non-amortizable goodwill and shareholders’ equity increased by approximately $10.28 million. During the first half of 2002, 375,700 shares were repurchased to complete a plan announced by United in May of 2000 to repurchase up to 1.675 million shares of its common stock on the open market. On February 28, 2002, United announced a new plan to repurchase up to 1.72 million shares of its common stock, of which 566,300 shares have been repurchased since its implementation. United’s equity to assets ratio was 9.19% at September 30, 2002, as compared to 8.99% at December 31, 2001. The primary capital ratio, capital and reserves to total assets and reserves, was 9.92% at September 30, 2002, as compared to 9.75% at December 31, 2001.

During the third quarter of 2002, United’s Board of Directors declared a cash dividend of $0.24 per share. Cash dividends of $0.70 per common share for the first three quarters of 2002 represent an increase of 3% over the $0.68 paid for first three quarters of 2001. Total cash dividends declared were approximately $10.19 million for the third quarter of 2002 and $29.86 million for the first nine months of 2002, an increase of 7.30% and 5.88% over the comparable periods of 2001.

United seeks to maintain a proper relationship between capital and total assets to support growth and sustain

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earnings. United’s average equity to average asset ratio was 9.52% at September 30, 2002 and 9.04% at September 30, 2001. Based on regulatory requirements, United and its lead banking subsidiary, United Bank (WV) are categorized as “well capitalized” institutions. United Bank (VA) is considered “adequately capitalized.” United’s risk-based capital ratios of 11.18% at September 30, 2002 and 11.37% at December 31, 2001, are both significantly higher than the minimum regulatory requirements. United’s Tier I capital and leverage ratios of 9.88% and 7.70%, respectively, at September 30, 2002, are also well above regulatory minimum requirements.

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Item 4. CONTROLS AND PROCEDURES

As of September 30, 2002, an evaluation was performed under the supervision and with the participation of United’s management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of United’s disclosure controls and procedures. Based on that evaluation, United’s management, including the CEO and CFO, concluded that United’s disclosure controls and procedures were effective as of September 30, 2002. There have been no significant changes in United’s internal controls or in other factors that could significantly affect internal controls subsequent to September 30, 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

UNITED BANKSHARES, INC.  

                (Registrant)

Date  November 13, 2002	/s/ Richard M. Adams
	Richard M. Adams, Chairman of the Board and Chief Executive Officer

Date  November 13, 2002	/s/ Steven E. Wilson
	Steven E. Wilson, Executive Vice President , Treasurer, Secretary and Chief Financial Officer

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CERTIFICATION

I, Richard M. Adams, Chief Executive Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of United Bankshares, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date  November 13, 2002	/s/ Richard M. Adams
	Richard M. Adams, Chairman of the Board and Chief Executive Officer

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CERTIFICATION

I, Steven E. Wilson, Chief Financial Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of United Bankshares, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date  November 13, 2002	/s/ Steven E. Wilson
	Steven E. Wilson Executive Vice President, Treasurer, Secretary and Chief Financial Officer

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