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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For Quarter Ended June 30, 2004

Or

[  ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period _______

Commission File Number: 0-13322

Registrant’s Telephone Number, including Area Code: (304) 424-8800

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]   No [  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.) Yes [X]   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; 43,368,976 shares outstanding as of July 30, 2004.

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UNITED BANKSHARES, INC. AND SUBSIDIARIES
FORM 10-Q
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PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (UNAUDITED)

The June 30, 2004 and December 31, 2003, consolidated balance sheets of United Bankshares, Inc. and Subsidiaries, the related consolidated statements of income for the three and six months ended June 30, 2004 and 2003, the related consolidated statement of changes in shareholders’ equity for the six months ended June 30, 2004, the related condensed consolidated statements of cash flows for the six months ended June 30, 2004 and 2003, and the notes to consolidated financial statements appear on the following pages.

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CONSOLIDATED BALANCE SHEETS
UNITED BANKSHARES, INC. AND SUBSIDIARIES

See notes to consolidated unaudited financial statements.

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

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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)

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)

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 accounting principles for interim financial information generally accepted in the United States and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not contain all of the information and footnotes required by accounting principles generally accepted in the United States. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements presented as of June 30, 2004 and for the three-month and six-month periods ended June 30, 2004 and 2003 have not been audited. The consolidated balance sheet as of December 31, 2003 has been extracted from the audited financial statements included in United’s 2003 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 2003 Annual Report of United on Form 10-K. In the opinion of management, all adjustments necessary for a fair presentation of financial position and results of operations for the interim periods have been made. Such adjustments are of a normal and recurring nature.

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

United has stock option plans for certain employees that are accounted for under the intrinsic value method. Because the exercise price at the date of the grant is equal to the market value of the stock, no compensation expense is recognized.

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     The following pro forma disclosures present United’s net income and diluted earnings per share, determined as if United had recognized compensation expense for its employee stock options under the fair value method under the provisions of SFAS No. 123:

2. DIVESTURES, MERGERS & ACQUISITIONS

On July 7, 2004, United closed the sale of its wholly owned mortgage banking subsidiary, George Mason Mortgage, LLC (“Mason Mortgage”) to Cardinal Financial Corporation (“Cardinal”) of McLean, Virginia for an amount equivalent to Mason Mortgage’s tangible net worth plus cash of $17 million in exchange for all of the outstanding membership interests in Mason Mortgage. The discussion of United’s second quarter and first half results is presented on a consolidated basis, which combines the results of continuing and discontinuing operations. Mason Mortgage, which was previously reported as a separate segment, is presented as discontinued operations for all periods presented.

The following table lists the assets and liabilities of Mason Mortgage included in the June 30, 2004, and December 31, 2003 consolidated balance sheets as assets and liabilities related to discontinued operations that were sold on July 7, 2004:

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Statements of Income for Discontinued Operations

The cash proceeds arising from the transaction as well as monies received from Mason Mortgage to repay amounts borrowed from United were used to prepay certain Federal Home Loan Bank (FHLB) long-term advances in the amount of approximately $132.5 million with a weighted average interest rate of 6.25%. The prepayment of these borrowings in July of 2004 will result in a pre-tax charge of approximately $16 million to be recognized in the third quarter of 2004, but will lower annual interest expense paid by approximately $8.3 million.

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3. INVESTMENT SECURITIES

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

At June 30, 2004, the cumulative net unrealized loss, net of deferred income taxes on available for sale securities resulted in a decrease of $3,114 in shareholders equity as compared to a cumulative net unrealized gain, net of deferred income taxes, of $9,930 at December 31, 2003 which increased shareholders equity.

Management does not believe any individual unrealized loss as of June 30, 2004 represents other than temporary impairment. The unrealized losses on the mortgage-backed securities relate primarily to securities issued by FNMA and FHLMC. United has the ability and intent to hold these securities until such time as the value recovers or the securities mature. Further, United believes the value is attributable to changes in market interest rates and not credit quality of the issuer.

The amortized cost and estimated fair value of securities available for sale at June 30, 2004 and December 31, 2003 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 are included below based upon an estimated average life.

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

The amortized cost and estimated fair value of debt securities held to maturity at June 30, 2004 and December 31, 2003 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 are included below based upon an estimated average life. There were no sales of held to maturity securities.

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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 $988,422 and $1,068,142 at June 30, 2004 and December 31, 2003, respectively.

4. LOANS

Major classifications of loans are as follows:

The table above does not include loans held for sale of $2,074 and $1,687 at June 30, 2004 and December 31, 2003, 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 $138,796 and $128,690 at June 30, 2004 and December 31, 2003, respectively.

5. 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 loan 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

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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.

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

At June 30, 2004, the recorded investment in loans that are considered to be impaired was $20,347 (of which $6,966 was on a nonaccrual basis). Included in this amount is $5,863 of impaired loans for which the related allowance for loan losses is $1,594 and $14,484 of impaired loans that do not have an allowance for credit losses due to management’s estimate that the fair value of the underlying collateral of these loans is sufficient for full repayment of the loan and interest. At December 31, 2003, the recorded investment in loans that were considered to be impaired was $21,070 (of which $7,523 was on a nonaccrual basis). Included in this amount was $7,899 of impaired loans for which the related allowance for loan losses was $1,596, and $13,171 of impaired loans that did not have an allowance for credit losses. The average recorded investment in impaired loans during the quarter and year to date ending June 30, 2004 was $21,977 and $22,158, respectively and for the quarter and year ending June, 2003 was $14,626, and $13,234, respectively.

For the quarters ended June 30, 2004 and 2003, United recognized interest income on impaired loans of approximately $67 and $184, respectively. For the six months ended June 30, 2004 and 2003, United recognized interest income on the impaired loans of approximately $254 and $251, respectively. Substantially all of the interest income was recognized using the accrual method of income recognition. The amount of interest income that would have been recorded under the original terms for the above loans and nonaccrual loans was $156 and $318 for the quarters ended June 30, 2004 and 2003, respectively, and $465 and $464 for the six months ended June 30, 2004 and 2003, respectively.

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6. RISK ELEMENTS

Nonperforming assets include loans on which no interest is currently being accrued, principal or interest has been in default for a period of 90 days or more and for which the terms have been modified due to deterioration in the financial position of the borrower. Loans are designated as nonaccrual when, in the opinion of management, the collection of principal or interest is doubtful. This generally occurs when a loan becomes 90 days past due as to principal or interest unless the loan is both well secured and in the process of collection. When interest accruals are discontinued, unpaid interest credited to income in the current year is reversed, and unpaid interest accrued in prior years is charged to the allowance for loan losses. Other real estate owned consists of property acquired through foreclosure and is stated at the lower of cost or fair value less estimated selling costs.

Nonperforming assets are summarized as follows:

7. INTANGIBLE ASSETS

Total goodwill of $167,283 and $169,655 as of June 30, 2004 and December 31, 2003, respectively, is comprised of goodwill recorded in United’s community banking segment.

The following is a summary of intangible assets subject to amortization and those not subject to amortization:

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United incurred amortization expense of $683 and $1,433 for the quarter and six months ended June 30, 2004, respectively, and $424 and $857 for the quarter and six months ended June 30, 2003, respectively related to intangible assets. The following table sets forth the anticipated amortization expense for intangible assets for each of the next five years:

8. SHORT-TERM BORROWINGS

United has various unused lines of credit available from certain of its correspondent banks in the aggregate amount of $195,000. 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.

United, through the parent company, has available funds of $40,000 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 June 30, 2004, United had $1,000 outstanding under the line of credit at an interest rate of 2.12%.

United Bank (VA) participates in the Treasury Investment Program, which is essentially the U.S. Treasury’s savings account for companies depositing employment and other tax payments. The bank retains the funds in an open-ended interest-bearing note until the Treasury withdraws or “calls” the funds. A maximum note balance is established and that amount must be collateralized at all times. All tax deposits or a portion of the tax deposits up to the maximum balance are generally available as a source of short-term investment funding. At of June 30, 2004, United Bank (VA) had an outstanding balance of $3,247 and had additional funding available of $1,753.

United’s subsidiary banks are members of the Federal Home Loan Bank (FHLB). Membership in the FHLB makes available short-term and long-term borrowings from collateralized advances. All FHLB borrowings are collateralized by a mix of single-family residential mortgage loans, commercial loans and investment securities. At June 30, 2004, United had an unused borrowing amount of approximately $1,145 available subject to delivery of collateral after certain trigger points.

9. LONG-TERM BORROWINGS

In July of 2003, United entered into a $100 million notional amount interest rate swap agreement in an effort to offset a portion of the cost on a long-term fixed rate FHLB advance. Interest rate swaps obligate two parties to exchange one or more payments generally calculated with reference to a fixed or variable rate of

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interest applied to the notional amount. The fair value of the interest rate swap is recognized on the balance sheet as either a freestanding asset or liability. At June 30, 2004, the fair value of the swap resulted in a $6.46 million liability. Adjustments to the fair value of the swap are recorded as a corresponding adjustment to FHLB borrowings on the balance sheet with no impact to earnings.

At June 30, 2004, $746,704 of FHLB advances with a weighted-average interest rate of 4.83% are scheduled to mature from one to twenty years. Included in this amount is the FHLB borrowings incurred as result of funding mortgage loans for discontinued operations of $271,754. At June 30, 2004, the scheduled maturities of FHLB advances are as follows:

United has a total of seven statutory business trusts that were formed for the purpose of issuing or participating in pools of trust preferred capital securities (Capital Securities) with the proceeds invested in junior subordinated debt securities (Debentures) of United. The Debentures, which are subordinate and junior in right of payment to all present and future senior indebtedness and certain other financial obligations of United, are the sole assets of the trusts and United’s payment under the Debentures is the sole source of revenue for the trusts. At June 30, 2004 and December 31, 2003, the outstanding balances of the Debentures were $89,693 and $89,954 respectively, and are included in the category of long-term debt on the Consolidated Balance Sheets entitled “Other long-term borrowings”. The Capital Securities are not included as a component of shareholders’ equity in the Consolidated Balance Sheets. United fully and unconditionally guarantees each individual trust’s obligations under the Capital Securities.

Under the provisions of the subordinated debt, United has the right to defer payment of interest on the subordinated debt at any time, or from time to time, for periods not exceeding five years. If interest payments on the subordinated debt are deferred, the dividends on the Capital Securities are also deferred. Interest on the subordinated debt is cumulative.

The Trust Preferred Securities currently qualify as Tier 1 capital of United for regulatory purposes. The banking regulatory agencies have not issued any guidance which would change the regulatory capital treatment for the Trust Preferred Securities based on the recently enacted accounting rules that required deconsolidation in United’s consolidated financial statements.

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10. COMMITMENTS AND CONTINGENT LIABILITIES

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

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

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. United had approximately $2,063,883 and $2,076,840 of loan commitments outstanding as of June 30, 2004 and December 31, 2003, respectively, the majority of which expire within one year.

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. The interest rate lock commitments generally terminate once the loan is funded, the lock period expires or the borrower decides not to enter into the loan. The best efforts commitments generally terminate once the loan is sold, the commitment period expires or the borrower decides not to enter into the loan. At June 30, 2004 and December 31, 2003, United had commitments to originate $161,496 and $93,051, respectively, of mortgage loans to sell in the secondary market. These commitments are associated with the now discontinued mortgage banking operations.

In March 2004, the SEC staff released Staff Accounting Bulleting 105 (SAB 105), which summarizes the views of the SEC staff regarding the application of generally accepted accounting principles to loan commitments accounted for as derivative instruments. United applied SAB 105 to loan commitments entered into after March 31, 2004 as required.

Commercial and standby letters of credit are agreements used by United’s customers as a means of improving their credit standing in their dealings with others. Under these agreements, United guarantees certain financial commitments of its customers. A commercial letter of credit is issued specifically to facilitate trade or commerce. Typically, under the terms of a commercial letter of credit, a commitment is drawn upon when the underlying transaction is consummated as intended between the customer and a third

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party. United has issued commercial letters of credit of $1,504 and $4,286 as of June 30, 2004 and December 31, 2003, respectively. A standby letter of credit is generally contingent upon the failure of a customer to perform according to the terms of an underlying contract with a third party. United has issued standby letters of credit of $124,940 and $110,957 as of June 30, 2004 and December 31, 2003, respectively. In accordance with FIN 45, United has determined that substantially all of its letters of credit are renewed on an annual basis and the fees associated with these letters of credit are immaterial.

11. LINE OF BUSINESS REPORTING

Prior to June 30, 2004, United operated in two segments: mortgage banking and community banking. United had a wholly-owned subsidiary, Mason Mortgage and reported its financial position and results of operations on a consolidated basis. On July 7, 2004, United completed the sale of Mason Mortgage to Cardinal Financial Corporation. The business related to Mason Mortgage is accounted for as discontinued operations and therefore, the results of operations and cash flows have been removed from United’s continuing operations for all periods presented in this document.

12. COMPREHENSIVE INCOME

The components of total comprehensive income for the three and six months ended June 30, 2004 and 2003 are as follows:

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13. 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:

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14. EMPLOYEE BENEFIT PLANS

United has a defined benefit retirement plan covering substantially all employees. Pension benefits are based on years of service and the average of the employee’s highest five consecutive plan years of basic compensation paid during the ten plan years preceding the date of determination. United’s funding policy is to contribute annually the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. The associated benefits accumulated by these employees in their previous plan were assumed by United’s benefit plan.

Net periodic pension cost included the following components:

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.

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

APPLICATION OF CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of United conform with accounting principles generally accepted in the United States. In preparing the consolidated financial statements, management is required to make estimates, assumptions and judgements that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgements 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 loan losses and the valuation of retained interests in securitized assets to be the accounting areas that require the most subjective or complex judgements, and as such could be most subject to revision as new information becomes available.

The allowance for loan losses represents management’s estimate of the probable credit losses inherent in the loan portfolio. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because management’s evaluation of the adequacy of the allowance for loan losses is inherently subjective and requires significant estimates, including the amounts and timing of estimated future cash flows, estimated losses on pools of loans based on historical loss experience, and consideration of current economic trends, all of which are susceptible to constant and significant change. In determining the components of the allowance for 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. The methodology used to determine the allowance for loan 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 loan losses is included in the Provision for Loan Losses section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Retained interests in securitized financial assets are recorded at the their estimated fair values in securities available for sale. Since quoted market prices are generally not available for retained interests, United relies on discounted cash flow modeling techniques to estimate fair values based on the present value of future expected cash flows using management’s best estimates of key assumptions—credit losses, prepayment speeds, forward yield curves, and discount rates commensurate with the risks involved. Because the values of the assets are sensitive to changes in these key assumptions, the valuation of retained interests is considered a critical accounting estimate. A discussion of the accounting for these securitized financial assets as well as sensitivity analyses showing how these assets’ value change due to adverse changes in key assumptions is presented in the Interest Rate Risk section of the Quantitative and Qualitative Disclosures about Market Risk.

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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. 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. A discussion on the accounting for and use of these derivatives is presented in Note 10 to the Unaudited Notes to Consolidated Financial Statements.

Any material effect on the financial statements related to these critical accounting areas are further discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

FINANCIAL CONDITION

United’s total assets as of June 30, 2004 were $6.52 billion, up $143.80 million or 2.25% from year-end 2003 primarily the result of increases in loans held for sale, portfolio loans and other assets. Partially offsetting these increases were decreases in securities and cash and due from banks. The increase in total assets is reflected in a corresponding increase in total liabilities of $146.89 million. Shareholders’ equity decreased $3.09 million from year-end 2003. The increase in total liabilities was due mainly to increases in deposits, and accrued expenses while the decrease in shareholders’ equity was due to cash dividends, a decline in the mark-to-market adjustment on available for sale securities, the purchase of treasury shares and stock options being redeemed. The following discussion explains in more detail the changes in financial condition by major category.

Cash and Cash Equivalents

Cash and cash equivalents decreased $30.99 million comparing June 30, 2004 to year-end 2003. Of this total decrease, cash and due from banks decreased $60.96 million while interest-bearing deposits with other banks increased $29.90 million. During the first half of 2004, net cash of $128.04 million was used in investing activities, and $7.47 million was used in operating activities of continuing operations, respectively. Discontinued operations provided $345 thousand of cash during the same period. Net cash of $103.83 million was provided by financing activities of continuing operations.

Securities

Total investment securities decreased $103.51 million since year-end 2003. Securities available for sale decreased $93.74 million or 7.40%. This change reflects $403.44 million in sales, maturities and calls of securities, $304.23 million in purchases and a decrease of $12.78 million in market value. Securities held to maturity decreased $9.77 million which was a decrease of 4.00%. This decrease was due largely to maturities

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and calls of securities within the portfolio during the first six months of 2004. 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 in continuing operations increased $387 thousand or 22.94% as loan originations in the secondary market exceeded loan sales during the first six months of 2004. Portfolio loans, net of unearned income, increased $222.94 million or 5.64%. The increase in portfolio loans was primarily attributable to increases in installment loans and single-family residential loans of $16.14 million and $118.28 million, respectively. Also commercial and commercial real estate loans increased by $10.95 million and $10.63 million, respectively. For a summary of major classifications of loans, see Note 4 to the unaudited Notes to Consolidated Financial Statements.

Other Assets

Other assets increased $22.99 million or 16.67% since year-end 2003. In the first half of 2004, United purchased $14 million of bank-owned life insurance (BOLI). The purchase of BOLI represents a tax-advantaged financing strategy that permits the company to meet its increasing benefit liability obligations in a more cost-effective manner. The intent is to create an independent source of funds to recoup some of the benefit expenses. The policies earnings, including death proceeds, will be used to offset and recover a portion of the costs to carry the policies. Interest earned on the cash value is not subject to tax unless the policies are surrendered or borrowed against before the insured’s death.

Deposits

Total deposits at June 30, 2004 increased $135.36 million or 3.27% since year-end 2003. In terms of composition, noninterest-bearing deposits decreased $13.45 million and interest-bearing deposits increased $148.81 million from December 31, 2003.

Borrowings

United’s total borrowed funds from continuing and discontinued operations decreased $33.32 million for the first six months of 2004. Since year-end 2003, federal fund purchased and other short-term borrowings decreased $43.57 million or 48.12% and $17.99 million or 80.90%, respectively, while securities sold under agreements to repurchase increased $50.02 million or 9.11%. FHLB borrowings decreased $21.52 million or 8.61%. For a further discussion of borrowings, including amounts to fund discontinued operations see Notes 8 and 9 to the unaudited Notes to Consolidated Financial Statements.

Shareholders’ Equity

Shareholders’ equity decreased $3.09 million or less than 1% from December 31, 2003 as United continued to balance capital adequacy and returns to shareholders. The slight decrease in shareholders’ equity was due mainly to a decrease of $12.78 million, net of deferred income taxes in the fair value of its available for sale investment portfolio. Treasury stock has decreased $8.21 million since year-end 2003 as treasury share repurchases exceeded stock option redemptions during the first half of 2004. During the first six months of 2004, 629,534

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shares were repurchased under a plan announced by United in May of 2003 to repurchase up to 1.65 million shares of its common stock on the open market. Since the plan’s implementation, 1,037,969 shares have been repurchased.

RESULTS OF OPERATIONS

Overview

On July 7, 2004, United consummated the previously announced sale of its wholly-owned mortgage banking subsidiary, George Mason Mortgage, LLC (“Mason Mortgage”) to Cardinal Financial Corporation (“Cardinal”) of McLean, Virginia. The results of operations for Mason Mortgage are reported as income from discontinued operations. In the sale transaction, United received cash proceeds from Cardinal of $17 million and will recognize a net gain on the transaction of approximately $16 million in the third quarter of 2004. The cash proceeds arising from the transaction as well as monies received from Mason Mortgage to repay amounts borrowed from United were used to prepay certain Federal Home Loan Bank (FHLB) long-term advances in the third quarter of 2004. United incurred prepayment penalties of $16.00 million in the repayment. Management felt that it had achieved the best from its mortgage-banking segment during an extended period of historically low interest rates and believed it was in the best interests of United to sell its mortgage-banking subsidiary at this time because of the widely predicted increase in interest rates. United will continue to be involved in retail mortgage banking through its banking subsidiaries, but not on a wholesale basis. The following detailed discussion of United’s second quarter and first half results is presented on a consolidated basis, which combines the results of continuing and discontinuing operations.

Net income for the first half of 2004 was $47.72 million or $1.08 per diluted share compared to $45.35 million or $1.07 per share for the first half of 2003. This represents a 5.23% increase in net income. Net income for the second quarter of 2004 was $24.21 million, an increase of 6.18% from the $22.81 million reported for the prior year second quarter. Second quarter 2004 earnings were $0.55 per diluted share, as compared to the $0.54 per share reported for the second quarter of 2003. United’s annualized return on average assets for the first six months of 2004 was 1.51% and return on average shareholders’ equity was 15.38% as compared to 1.63% and 16.67% for the first six months of 2003.

The net interest margin was 3.82% for the first six months of 2004 compared to 3.79% for the first six months of 2003. Tax-equivalent net interest income increased $13.47 million or 14.76% for the first six months of 2004 as compared to the same period for 2003. The net interest margin for the second quarter 2004 was 3.77%, a 6 basis points decrease from the 3.83% net interest margin for the second quarter of 2003. Tax-equivalent net interest income increased $7.05 million or 15.49% for the second quarter of 2004 as compared to the same period for 2003. The provision for loan losses was $1.89 million for the first six months of 2004 as compared to $3.75 million for the first six months of 2003. For the quarters ended June 30, 2004 and 2003, the provision for loan losses was $539 thousand and $2.30 million, respectively. Noninterest income was $27.26 million for the first six months of 2004, up $1.74 million or 6.84% when compared to the first six months of 2003. For the second quarter of 2004, noninterest income was $13.70 million, an increase of $106 thousand or less than 1.00% from the second quarter of 2003. Noninterest expenses increased $4.58 million or 8.39% for the first half of 2004 compared to the same period in 2003. For the second quarter of 2004, noninterest expenses increased $1.84 million or 6.64% from the second quarter of 2003. United’s effective tax rate was 30.80% and 30.00% for the first half of 2004 and 2003, and 31.56% and 30.00% for

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the second quarter of 2004 and 2003, respectively.

Net Interest Income

Increased net interest income was the leading contributor to the earnings growth for the second quarter and first half of 2004 from last year’s results. Tax-equivalent net interest income increased $5.34 million or 10.65% and $9.76 million or 9.73% for the second quarter and first six months of 2004, respectively, when compared to the same periods of 2003. United’s tax-equivalent net interest margin was 3.77% and 3.82% for the second quarter and first half of 2004, respectively, compared to 3.83% and 3.79% for the same time periods in 2003, respectively.

For the second quarter of 2004, United’s yield on average earning assets declined 54 basis points as the yield on average securities and loans declined 27 and 63 basis points, respectively, from the second quarter of 2003. United’s cost of average interest-bearing funds declined 62 basis points from the second quarter of 2003; however, that decrease was not enough to offset the aforementioned decline in the yield on average earning assets. On a linked quarter basis, net interest income remained relatively stable at $49.25 million while the net interest margin decreased 9 basis points from 3.86% in the first quarter of 2004.

For the first six months of 2004, United’s yield on average earning assets declined 56 basis points as the yield on average securities and loans declined 56 and 64 basis points, respectively, from the first six months of 2003. United’s cost of average interest-bearing funds declined 74 basis points from the first half of 2003; however, that decrease was not enough to offset the aforementioned decline in the yield on average earning assets.

Tables 1 and 2 present average balances, taxable equivalent interest income, interest expenses, and yields earned or paid on these assets and liabilities for the three-month and six-month periods ending June 30, 2004 and 2003, respectively. 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%. 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%.

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Table 1

The following table shows the daily average balance of major categories of assets and liabilities for each of the three-month periods ended June 30, 2004 and June 30, 2003 with the interest rate earned or paid on such amount.