<PAGE>
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
- ---
___ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended September 30, 1996.
Or
- ---
___ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from __________________ to __________________
Commission File No. 0-13395
UNITED FINANCIAL BANKING COMPANIES, INC.
A Virginia Corporation IRS Employer Identification
No. 54-1201253
8399 Leesburg Pike, Vienna, Virginia 22182
Telephone: (703) 734-0070
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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
--- ---
Common Stock $1.00 Par Value
2,808,201 Shares Outstanding
as of September 30, 1996
Transitional Small Business Disclosure Format: Yes No X
--- ---
<PAGE>
Part 1. Financial Information
Item 1: Financial Statements
UNITED FINANCIAL BANKING COMPANIES, INC., AND SUBSIDIARIES
Consolidated Statements of Income / Results of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------------- ------------------------------------
1996 1995 1996 1995
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans/leases $ 645,664 $ 463,855 $ 1,802,284 $ 1,300,559
Interest on investment securities 34,387 11,022 82,591 23,386
Interest on federal funds sold 45,829 102,631 195,564 212,180
Interest on interest-bearing deposits 5,954 3,184 18,281 3,184
------------- ------------- -------------- --------------
Total interest income 731,834 580,692 2,098,720 1,539,309
------------- ------------- -------------- --------------
Interest expense:
Interest on deposits 369,894 369,293 1,124,418 948,224
Interest on short-term borrowings 44,725 - 64,726 347
Interest on long-term debt - 261 - 1,794
------------- ------------- -------------- --------------
Total interest expense 414,619 369,554 1,189,144 950,365
------------- ------------- -------------- --------------
Net interest income 317,215 211,138 909,576 588,944
Provision for loan/lease losses 32,000 - 145,942 (162,825)
------------- ------------- -------------- --------------
Net interest income after provision
for loan/lease losses 285,215 211,138 763,634 751,769
Noninterest income:
Gain (loss) on sale of real estate
owned and other earning assets 28,222 (136,489) 46,241 43,628
Loan servicing and other fees 19,774 26,396 59,294 60,125
Other income 52,010 38,409 84,989 90,162
------------- ------------- -------------- --------------
Total noninterest income 100,006 (71,684) 190,524 193,915
------------- ------------- -------------- --------------
Noninterest expense:
Salaries 203,431 185,338 562,954 542,991
Employee benefits 37,154 28,824 108,400 (60,840)
Occupancy 32,544 34,407 103,596 130,408
Furniture and equipment 12,273 21,417 33,989 82,519
Legal 27,401 45,425 89,485 217,856
FDIC Insurance 21,280 14,621 63,687 55,557
Real estate owned holding expense 45,343 59,316 136,537 133,376
Provision for real estate owned losses 12,257 - 12,257 194,000
Other expense 136,443 100,254 377,887 316,783
------------- ------------- -------------- --------------
Total noninterest expense 528,126 489,602 1,488,792 1,612,650
------------- -------------- -------------- --------------
Income (loss) before income taxes (142,905) (350,148) (534,634) (666,966)
Provision (credit) for income taxes (464) - 4,439 2,598
-------------- ------------ -------------- --------------
Net income (loss) $ (142,441) $ (350,148) $ (539,073) $ (669,564)
Net income (loss) per share ============= ============ ============= =============
of common stock $ (0.05) $ (0.12) $ (0.19) $ (0.24)
Weighted average number of ============= ============ ============= =============
shares outstanding 2,808,201 2,802,926 2,808,201 2,740,750
============= ============ ============= =============
</TABLE>
2
<PAGE>
UNITED FINANCIAL BANKING COMPANIES, INC., AND SUBSIDIARIES
Consolidated Balance Sheets / Financial Condition
<TABLE>
<CAPTION>
(Unaudited) (Audited)
September 30 December 31
Assets 1996 1995
------ --------------- ---------------
<S> <C> <C>
Cash and due from banks $ 1,545,901 $ 2,187,146
Interest-bearing deposits in other banks 400,000 541
Federal funds sold 3,801,000 6,360,000
Investment Securities:
Available for sale (AFS) (note 4) 2,083,852 603,500
Held to maturity (HTM) (note 4) 300,000 700,000
Loans and lease financing, net of unearned
income of $57,635 and $78,468 29,210,338 23,874,982
Less: Allowance for loan/lease losses (515,525) (462,846)
--------------- ---------------
Net loans and lease financing 28,694,813 23,412,136
Real estate owned held for sale, net 5,280,432 7,912,936
Premises and equipment, net 1,383,827 1,419,122
Other assets 336,602 470,589
--------------- ---------------
Total assets $ 43,826,427 $ 43,065,970
=============== ===============
<CAPTION>
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits:
Demand $ 9,479,520 $ 7,033,571
Savings and NOW 2,650,072 2,966,721
Money market 4,839,415 5,917,979
Time deposits:
Under $100,000 16,634,336 15,139,336
$100,000 and over 6,088,501 6,417,628
--------------- ---------------
Total deposits 39,691,844 37,475,235
--------------- ---------------
Short-term borrowings 650,000 1,538,544
Other liabilities 370,031 382,144
--------------- ---------------
Total liabilities 40,711,875 39,395,923
--------------- ---------------
Stockholders' Equity:
Preferred stock of no par value, authorized - -
5,000,000 shares, no shares issued
Common Stock, par value $1; authorized
3,500,000 shares, issued 2,808,201 shares
at 9/30/96 and 2,808,201 at 12/31/95 2,808,201 2,808,201
Capital in excess of par value 10,533,061 10,533,061
Retained earnings (10,215,396) (9,676,323)
Unrealized holding gain (loss) - AFS securities (11,314) 5,108
--------------- --------------
Total stockholders' equity 3,114,552 3,670,047
--------------- --------------
Total liabilities and stockholders' equity $ 43,826,427 $ 43,065,970
=============== ==============
</TABLE>
3
<PAGE>
UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1996 September 30, 1995
--------------------- ---------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ (539,073) $ (669,564)
Adjustment to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation & amortization 53,813 58,601
Provision for loan/lease losses 145,942 162,825
Provision for losses on real estate owned 12,257 194,000
Amortization of investment security discount (10,551) (10,116)
Amortization of loan fees and discounts (20,833) (54,250)
Net (gain) loss on disposal of equipment - (17,236)
Net (gain) loss on sale of other real estate owned 5,431 (43,628)
(Increase) decrease in other assets 133,987 (318,780)
Increase (decrease) in other liabilities (11,817) (729,861)
--------------------- ---------------------
Net cash provided by (used in) operating activities (230,844) (1,428,009)
--------------------- ---------------------
Cash flows from investing activities:
Loans originated - non-bank subsidiaries (53,462) -
Principal collected - non-bank subsidiaries 36,803 39,820
Loans and lease originations, net of collections (5,904,867) (6,720,898)
Loan fees and discounts deferred - -
Purchases of securities available-for-sale (1,086,223) (904,872)
Investment made in other real estate owned (4,693,304) (3,512,923)
Proceeds from real estate owned 7,821,564 6,707,427
Purchases of premises and equipment (18,518) (59,890)
Proceeds from disposal of equipment - 17,236
--------------------- ---------------------
Net cash provided by (used in) investing activities (3,898,007) (4,434,100)
--------------------- ---------------------
Cash flow from financing activities:
Net increase (decrease) in demand deposits, savings
accounts, NOW accounts and money market accounts 1,050,736 6,612,743
Certificates of deposit sold (matured), net 1,165,873 2,797,619
Net change in short-term borrowings (888,544) (34,000)
Net change in long-term borrowings - (84,948)
--------------------- ---------------------
Net cash provided by (used in) financing activities 1,328,065 9,291,414
--------------------- ---------------------
Net increase (decrease) in cash and cash equivalents (2,800,786) 3,429,305
Cash and cash equivalents at beginning of the year 8,547,687 6,399,142
--------------------- --------------------
Cash and cash equivalents at end of the quarter $ 5,746,901 $ 9,828,447
===================== =====================
Supplemental disclosures of cash flow information:
Cash paid during the years for:
Interest on deposits and other borrowings $ 1,333,078 $ 1,101,061
Income taxes 7,852 20,473
Non-Cash Items:
Effect on stockholders' equity of an unrealized gain (loss) $ (16,422) $ -
on debt and equity securities available-for-sale
Increase in foreclosed properties and decrease in loans $ 513,740 $ 486,974
</TABLE>
4
<PAGE>
Notes to Consolidated Financial Statements
------------------------------------------
Note 1 - The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions for Form 10-Q and,
therefore, do not include all information and footnotes required by
generally accepted accounting principles for complete financial
statements. The interim financial statements have been prepared
utilizing the interim basis of reporting and, as such, reflect all
adjustments which are, in the opinion of management, necessary for a
fair presentation of the results for the periods presented. The
results of operations for the interim periods are not necessarily
indicative of the results for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Note 2 - The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 107, Disclosures About Fair Value
of Financial Instruments (SFAS 107). SFAS 107 extends existing fair
value disclosure practices for some instruments by requiring all
entities to disclose the fair value of financial instruments, both
assets and liabilities recognized and not recognized in the balance
sheets, for which it is practicable to estimate fair value, for
annual periods ending after December 15, 1992, except for entities
with less than $150 million in total assets, for which the effective
date is for annual periods ending after December 15, 1995. The
Company adopted the provisions of SFAS No. 107 in December 1995.
Note 3 - On January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, Accounting by Creditors for Impairment
of a Loan (SFAS 114) and Accounting by Creditors for Impairment of a
Loan--Income Recognition and Disclosures (SFAS 118). These accounting
standards require that impaired loans within the scope of the
statement be measured and reported on the basis of the present value
of expected cash flows discounted at the loan's effective interest
rate. The adoption of SFAS 114 and 118 has had no material effect on
the Company's consolidated financial statements.
Note 4 - Investments: On January 1, 1995, the Company adopted Statement of
Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities (SFAS 115). The Company
followed the criteria specified in Statement 115, to segregate and
report its holdings of debt and equity securities at September
30,1996 into two applicable categories: held-to-maturity (HTM) and
available-for-sale (AFS).
5
<PAGE>
- ----------------------------------------------------
UNITED FINANCIAL BANKING COMPANIES, INC.
CONSOLIDATED AVERAGE BALANCES/NET INTEREST ANALYSIS/
YIELDS AND RATES
- ----------------------------------------------------
<TABLE>
<CAPTION>
For the Nine Month Period Ended
September 30, 1996 September 30, 1995
------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans/Leases:
Commercial $18,650,633 $1,381,201 9.87% $13,669,182 $1,064,344 10.41%
Real estate construction 2,141,589 136,080 8.46% 1,430,372 101,613 9.50%
Real estate mortgage 2,295,079 134,394 7.80% 889,794 53,377 8.02%
Installment 2,339,741 150,609 8.57% 1,189,614 81,225 9.13%
Leases 844,342 0 0.00% 844,342 0 0.00%
---------- ---------- ---------- ----------
Total loans/leases 26,271,384 1,802,284 9.14% 18,023,304 1,300,559 9.65%
---------- ---------- ---------- ----------
Interest-bearing deposits 400,382 18,281 6.08% 0 0 0.00%
Federal funds sold 4,832,694 195,564 5.39% 462,271 23,386 6.76%
Investment securities 1,883,164 82,591 5.84% 5,034,166 215,364 5.72%
---------- ---------- ---------- ----------
Total earning assets 33,387,624 2,098,720 8.37% 23,519,741 1,539,309 8.75%
========== ==========
Noninterest-earning assets
Cash and due from banks 1,699,775 1,763,606
Other assets 9,556,828 12,253,152
Allowance for loan losses/lease (480,614) (606,477)
---------- ----------
Total assets $44,163,613 $36,930,022
========== ==========
LIABILITIES AND
STOCKHOLDERS EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and NOW accounts 2,807,815 50,410 2.39% 1,774,927 30,955 2.33%
Money market accounts 5,316,349 126,427 3.17% 3,967,664 109,039 3.67%
Time:
Under $100,000 16,546,010 699,004 5.63% 13,599,027 568,890 5.59%
$100,000 and over 6,109,765 248,577 5.42% 5,876,160 239,340 5.45%
---------- ---------- ---------- ----------
Total interest-bearing
deposits 30,779,939 1,124,418 4.87% 25,217,778 948,224 5.03%
Short-term borrowings 2,111,339 64,726 13.17% * 621,399 347 10.67% *
Long-term debt 0 0 0.00% 716,990 1,794 13.84% *
---------- ---------- ---------- ----------
Total interest-bearing
liabilities 32,891,278 $1,189,144 5.40% * 26,556,167 $950,365 5.40% *
========== ==========
Non interest-bearing liabilities:
Demand deposits 7,369,765 5,254,779
Other liabilities 507,994 533,345
Stockholders' equity 3,394,576 4,585,731
---------- ----------
Total liabilities and
stockholders' equity $44,163,613 $36,930,022
========== ==========
Net interest income $909,576 $588,944
========== ==========
Net interest margin (1) 3.63% 3.42%
==== ====
Net interest spread (2) 2.97% 3.35%
==== ====
Fees included in loan income $111,658 $111,136
========== ==========
Taxable equivalent adjustment $0 $0
========== ==========
<CAPTION>
For the Year Ended
December 31, 1995
--------------------------------------
Average Yield/
Balance Interest Rate
--------------------------------------
ASSETS
<S> <C> <C> <C>
Earning assets:
Loans/Leases:
Commercial $14,437,231 $1,464,937 10.15%
Real estate construction 1,513,131 148,151 9.79%
Real estate mortgage 1,004,975 80,649 8.02%
Installment 1,343,754 130,061 9.68%
Leases 844,342 0 0.00%
---------- ----------
Total loans/leases 19,143,433 1,823,798 9.53%
---------- ----------
Interest-bearing deposits 0 0 0.00%
Federal funds sold 5,646,637 330,197 5.85%
Investment securities 563,027 37,872 6.73%
---------- ----------
Total earning assets 25,353,097 2,191,867 8.65%
==========
Noninterest-earning assets
Cash and due from banks 2,002,293
Other assets 11,667,430
Allowance for loan losses/lease (572,666)
----------
Total assets $38,450,154
==========
LIABILITIES AND
STOCKHOLDERS EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and NOW accounts 2,075,394 46,248 2.23%
Money market accounts 4,318,259 155,577 3.60%
Time:
Under $100,000 14,195,288 811,137 5.71%
$100,000 and over 5,979,498 328,408 5.49%
---------- ----------
Total interest-bearing
deposits 26,568,439 1,341,370 5.05%
Short-term borrowings 1,255,571 2,226 11.95% *
Long-term debt 0 0 0.00%
---------- ----------
Total interest-bearing
liabilities 27,824,010 $1,343,596 5.36% *
==========
Non interest-bearing liabilities:
Demand deposits 5,671,220
Other liabilities 494,575
Stockholders' equity 4,460,349
----------
Total liabilities and
stockholders' equity $38,450,154
==========
Net interest income $848,271
==========
Net interest margin (1) 3.35%
====
Net interest spread (2) 3.29%
====
Fees included in loan income $133,990
==========
$0
==========
Taxable equivalent adjustment
</TABLE>
Average balances for the years presented are calculated on a monthly basis.
Nonaccruing loans are included int he average loan balance.
The yield on this component of interest-bearing liabilities is derived as a
percentage of gross interest paid on the average balance. Interest shown is
net of capitalized interest of $144,000 on short-term debt in 1996, $147,800
on short-term debt in 1995 and $101,211 on CODs over $100,000 and $221,100
on short-term debt in 1994.
(1) Net interest income divided by total earning assets.
(2) Average rate earned on total earning assets less average rate paid for
interest-bearing liabilities.
6
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
A. Results of Operations for the Nine Months Ended September 30, 1996, as
----------------------------------------------------------------------
Compared to the Nine Months Ended September 30, 1995
----------------------------------------------------
General
- -------
The following discussion provides an overview of the financial condition
and results of operations of United Financial Banking Companies, Inc. (UFBC) and
its subsidiaries, which is presented on a consolidated basis. UFBC reported a
net loss of $539,073 for the nine month period ended September 30, 1996. This
compares with a loss of $669,564 for the same period of 1995. Earnings (loss)
per share were ($.19) for the first nine months ended September 30, 1996,
compared to ($.24) for the first nine months of 1995.
During the nine month period ended September 30, 1996, UFBC's primary
subsidiary, The Business Bank (the Bank), significantly increased the Company's
asset base. As of September 30, 1996, average total assets increased $7,234,000
or 19.6% when compared to the comparable period of September 30, 1995
(Consolidated Average Balances table). The increase has favorably contributed to
the Company's earnings. However, the Company's Real Estate Owned (REO) which are
unearning assets, and related holding costs continue to hinder the Company's
progress towards profitability. At September 30, 1996, REO was $5,280,000 or
12.0% of the Company's total assets (Consolidated Balance Sheets). Management
continues to focus on REO liquidation and as of September 30, 1996 had REO
contracts (both firm and pending) totaling approximately $1,504,000. Although
there can be no assurance of settlement, management anticipates that these
contracts will close and settle during 1996.
On August 27, 1996, the Internal Revenue Service began an audit of the
Company's federal income tax return (form 1120) for the years ending December
31, 1993, 1994 and 1995. As of November 4, 1996, the audit is limited to
specific line items and is expected to conclude by December 31, 1996. Management
does not anticipate any material changes to the returns which would result in
additional liabilities and penalties or which would alter the Company's current
tax position.
Net Interest Income
- -------------------
For the nine month period ended September 30, 1996, net interest income
increased $321,000 or 54.4% from $589,000 at September 30, 1995 to $910,000 at
September 30, 1996. The increase is primarily attributable to the increased loan
volume in the Bank. As shown in the Consolidated Average Balances table, the
average total loan/lease volume increased $8,248,000 or 45.8% from $18,023,000
at September 30, 1995 to $26,271,000 at September 30, 1996. Due to the increased
loan volume, interest and fees on loans rose $502,000 or 38.6% as of the nine
month period ended September 30, 1996 when compared to the comparable period of
1995 which favorably impacted net interest income.
For the same comparable period, average total earning assets increased
$9,868,000 or 41.9% (Consolidated Average Balances table). As a result of the
increased volume of assets available, the Company earned significantly more
interest on investment securities and interest-bearing deposits for the three
and nine month periods ended September 30, 1996 as shown in the Consolidated
Statements of Income. These earnings also contributed to the increased net
interest income at September 30, 1996 when compared to September 30, 1995.
For the three month period ended September 30, 1996 when compared to the
three month period ended September 30, 1995, interest income from federal funds
sold declined $56,800 or 55.3%. The drop resulted from a substantial change in
the investment mix, such as loans, securities or federal
7
<PAGE>
funds, chosen by management during the comparable periods.
Interest expense on deposits increased $176,000 or 18.6% at September 30,
1996 when compared to the period ended September 30, 1995. The nine month
comparative increase is attributable to deposit growth in the Bank. Interest
expense on deposits for the three month comparative periods ended September 30,
1996 and 1995 reflects management's continuing plan and efforts to alter the
Bank's deposit mix to obtaining more demand or low interest-bearing deposits.
The implementation of management's plan for the Bank's deposit mix is the reason
that the expense incurred for interest on deposits for the three month period
ended September 30, 1996 and 1995 remains level despite the Bank's deposit
growth during the three month period ended September 30, 1996.
Provision for Loan/Lease Losses
- -------------------------------
During the first nine months of 1996, the Bank replenished its allowance by
charging $146,000 against earnings compared to $87,000 charged against earnings
during the first nine months of 1995. The parent company, UFBC, reversed its
provision for loan/lease losses $250,000 in the nine months ended September 30,
1995 as a result of improved loan quality.
Non-Interest Income
- -------------------
Total noninterest income decreased 1.8% for the nine months ended September
30, 1996 compared to the comparable period of 1995. When comparing the three
month periods ended September 30, 1996 and 1995, the gain or loss on the sale of
REO increased $165,000 due to net losses on the sale of REO in the Bank and in
the North Ocean City project during the three month period ended September 30,
1995.
Non-Interest Expense
- --------------------
Total noninterest expense decreased $124,000 or 7.7% for the first nine
months of 1996 when compared to the same period of 1995. The decline is due
principally to the Company's restructuring and management's continuing efforts
to curtail expenses. As a result of an employee settlement during the nine month
period ended September 30, 1995, the Company realized a gain of approximately
$163,000. This gain reversed accrued expense and explains the variance in
employee benefits for the nine month period ended September 30, 1996 when
compared to the same period of 1995.
For the nine month period ended September 30, 1996 as compared to the
comparable period of 1995, occupancy expense decreased $27,000 or 21.0% due to
the Bank's consolidation into one location and the subletting of excess space.
Furniture and equipment expense dropped $49,000 or 58.8% during the same period
as a result of the Bank's purchase of new equipment and the decision to out
source the Bank's proof operations. These changes significantly reduced the cost
of repairing aged equipment which was principally associated with the Bank's
proof operations. Additionally, during the three month period ended September
30, 1996 many Company fixed assets became fully depreciated.
Legal expense declined $128,000 or 58.9% for the nine month period ended
September 30, 1996 when compared to the comparable period ended September 30,
1995. The decline is principally attributable to significantly reduced
litigation expense in the parent during the first nine months of 1996. During
the first nine months of 1995, the parent, as plaintiff, incurred substantial
litigation expense associated with the subsidiary, Omni Homes, Inc.
FDIC insurance expense increased 14.6% from $55,600 at September 30, 1995
to $63,700 at September 30, 1995 as a result of the Bank's deposit growth during
the same comparable period.
For the first nine months of 1996 when compared to the same period of 1995,
other expense
8
<PAGE>
increased $61,000 or 19.3%. The increase is primarily attributable to an
accounting change for costs associated with the North Ocean City project. Prior
to May 31, 1996, most of the North Ocean City costs were capitalized as
appropriate during the development phase of a construction project. However,
once development was completed subsequent costs associated with the project were
expensed.
Income Taxes
- ------------
In 1993, the rate that UFBC accrued its tax benefit differed from the
statutory tax rate based on the inability of UFBC to use its losses to reduce
deferred taxes or to record a tax benefit. At the end of 1993, all of UFBC's
accrued tax benefits were eliminated due to UFBC's inability to demonstrate
capacity for their future use. As a result, until such time that UFBC
demonstrates a capacity for their future use, UFBC will not be able to accrue
tax benefits. UFBC has accrued no tax benefits for the nine months ended
September 30, 1996.
B. Financial Condition as of September 30, 1996
--------------------------------------------
Assets
- ------
Total assets grew $760,000 or 1.8% during the first nine months of 1996
when compared to the period ended December 31, 1995. The rise in assets is
primarily attributable to the Bank's increased volume of loans. Net loans and
lease financing increased $5,283,000 or 22.3% to $28,695,00 at September 30,
1996 from $23,412,000 at December 31, 1995.
Allowance for Loan/Lease Losses
- -------------------------------
The allowance for loan/lease losses (allowance) represents an amount which
management believes will be adequate to absorb potential losses inherent in the
loan/lease portfolio. The provision for loan losses represents the charge to
earnings during the year to cover potential future losses. The amount charged to
expense during the year is dependent upon management's assessment of the
adequacy of the allowance. Principal factors in management's evaluation include
prior loss experience, changes in the composition and volume of the portfolio,
overall portfolio quality, the value of underlying collateral, reviews of
portfolio quality by state and federal supervisory authorities, specific problem
loans, and current and anticipated economic conditions that may affect a
borrower's ability to repay.
At September 30, 1996 and December 31, 1995, the allowance was $515,000 and
$463,000 or 1.8% and 1.9%, respectively, of total loans and leases.
Nonperforming loans for the nine month period ended September 30, 1996 totaled
$328,000, of which $307,000 resided in the Bank. This compares to a balance of
$403,000 in nonperforming loans as of December 31, 1995. The consolidated
allowance for loan/lease losses covers nonperforming loans 1.68 times at
September 30, 1996, compared to a coverage of 1.15 times at year end 1995.
Real Estate Owned
- -----------------
REO decreased $2,633,000 or 33.3% during the nine month period ended
September 30, 1996. The Bank sold four properties and several lots in two
parcels which reduced the REO balance approximately $3,106,000 during the first
nine months of 1996. During the same period, the Bank invested $1,330,000 to
further develop one REO project and foreclosed on three loans totaling
approximately $811,000. During the first nine months of 1996, UFBC's subsidiary,
Business Venture Capital, Inc. (BVCI) invested $3,059,000 to complete
development of the final phase of the North Ocean City project. The final phase
consists of forty-one town home units of which forty have been sold. As of
September 30, 1996, thirty-seven town home unit contracts were settled, thereby
reducing REO by $4,715,000. Although there can be no assurance, management
anticipates that the remaining unit will be sold and settled by the end of
December 1996. The sale and settlement of the remaining 4 units will reduce the
September 30, 1996 consolidated REO by $494,000 or 9.4%.
9
<PAGE>
Liabilities
- -----------
Total deposits increased $2,217,000 or 5.9% during the first nine months of
1996 when compared to the year ended 1995. During the nine months ended
September 30, 1996, the deposit mix changed as savings, NOW and money market
accounts dropped $1,395,000 or 15.7% from $8,885,000 at December 31, 1995 to
$7,490,000 at September 30, 1996 while demand deposits grew $2,446,000 or 34.8%
during the same comparable period. During the nine month period ended September
30, 1996, BVCI utilized and repaid a short-term line of $3,000,000 used to fund
the completion of the final phase of the North Ocean City project (project).
Additionally, BCVI utilized and repaid an unsecured line of $367,000 to fund a
portion of town home construction cost. As in 1995, BVCI used proceeds from the
sales of the condominium town homes to repay the $3,000,000 and $367,000 line.
Also utilizing town home sales proceeds, the Company repaid $550,000 of other
Company short-term borrowings.
Liquidity and Investment
- ------------------------
Since January 1994, operational expenses of UFBC have been provided
primarily by liquidation of assets. UFBC's working capital is significantly
limited by the inability to receive dividends from the Bank subsidiary, which
has been operating at a loss. Accordingly, UFBC's ability to meet its short-term
obligations continues to depend on the liquidation of REO and loan payments of
approximately $21,000 per quarter.
Consolidated average liquid assets were 19.9% of average total assets at
September 30, 1996 compared to 19.6% for the same period ended September 30,
1995 and 21.4% at December 31, 1995 (Consolidated Average Balances table). The
Company's liquidity needs exist primarily in the Bank subsidiary. In order to
maintain adequate liquidity, the Bank purchases certain traditional assets such
as government and other investment securities. The Bank's securities portfolio
comprises U.S. Treasury securities, U.S. Government agency securities and
interest-bearing deposits placed with financial institutions. The Bank is
strategically growing its securities portfolio to ensure safe levels of
liquidity, to enhance the overall credit quality of its asset base and to
generate increased interest income. The securities portfolio includes both
instruments available-for-sale and those held-to-maturity. Securities classified
as available-for-sale may be sold in response to changes in market interest
rates, changes in prepayment or extension risk, management of the federal tax
position, liquidity needs and other asset/liability management issues.
Securities classified as held-to-maturity are intended for investment purposes.
At September 30, 1996, the Bank's investment portfolio consisted of the
following:
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
------------------ ----------------
<S> <C> <C>
U.S. Treasury 2,083,852
U.S. Government Agency 300,000
Interest-bearing Deposits 400,000
(placed with financial institutions)
</TABLE>
Regulatory Agreements and Compliance
- ------------------------------------
On August 12, 1993, the Business Bank (Bank), UFBC's main subsidiary,
consented to the issuance of a Cease and Desist Order (Order) by the Federal
Deposit Insurance Corporation (FDIC) and by the Virginia Commissioner of
Financial Institutions. On December 31, 1993, UFBC entered into a written
agreement (Agreement) with the Federal Reserve Bank of Richmond and the
Commissioner of Financial Institutions, Bureau of Financial Institutions of the
Commonwealth of Virginia. The Order and the Agreement address various areas of
operation in the Company, most specifically the Bank, and required the Board of
Directors and management to complete and to perform several specific directives.
10
<PAGE>
The Order and the Agreement also include provisions to monitor the Company's
progress toward profitability. As of September 30, 1996, management believes
that the Company is in substantial compliance with all terms and provisions of
the Order and the Agreement.
Capital Requirements
- --------------------
In 1989, banking regulators issued risk-based capital guidelines applicable
to all bank holding companies and their bank subsidiaries. The guidelines were
established to provide a more effective method for measuring adequate capital in
banking organizations. Off-balance sheet items are converted into an asset
equivalent amount. On- and off-balance sheet items are weighed by degree of risk
to derive total risk-adjusted assets. Two tiers of capital are defined. Tier I
(Core) capital is equity less certain intangibles, plus minority interests in
subsidiaries. In addition, Tier II (Total) capital also includes an allowable
portion of the allowance for loan losses. Tier I and Total capital ratios are
required to be 4% and 8% of risk-adjusted assets, respectively. Regulatory
agencies issued additional guidelines in 1990 to require Tier I capital as a
percentage of average total assets (Leverage ratio) to be a minimum of 3%, with
most institutions required to be at least 4% to 5% depending upon risk profiles
and other factors. UFBC's Tier I, Total capital and Leverage ratios at December
31, 1995 and September 30, 1996 were 11.0%, 12.2% and 8.4%, and 9.2%, 10.4% and
7.1%, respectively. The Bank maintained ratios above the standard regulatory
required minimum levels and was in compliance with the capital ratio terms of
the Order as of December 31, 1995 and September 30, 1996.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 5: OTHER INFORMATION
(5) The Board of Directors has authorized the issuance of up to 900 shares
of Series A Preferred Stock in exchange for the certain promissory notes
issued by the Company or for cash. The issuance of up to 180,000 warrants,
exercisable at $1.50 per warrant and expiring September 30, 2001, has also
been authorized. The Series A Preferred Stock shall bear a ten percent
(10%) cumulative annual dividend, payable quarterly, prorated for any
quarter where the shares have been outstanding for less than a full
quarter, except for the dividend payable January 1, 1997, which shall be a
full dividend regardless of the date of issuance of the Series A Preferred
Stock. The Series A Preferred Stock shall be redeemable by the Company at
any time, or from time to time, in whole or in part, at a redemption price
of one thousand five hundred dollars ($1,500) plus any dividends accrued
but unpaid as of the redemption date. The Series A Preferred Stock will be
mandatorily redeemed, at a redemption price of one thousand five hundred
dollars ($1,500) plus any dividends accrued but unpaid as of the redemption
date, on September 30, 2001. The Company is not required to set up a
sinking fund or similar reserve of funds for the redemption of the Series A
Preferred Stock. While any shares of Series A Preferred Stock are
outstanding, the Company is restricted from repurchasing or redeeming any
shares of Common Stock or any other class of stock junior to the Series A
Preferred Stock. Generally, the Series A Preferred Stock will not be
entitled to vote except as may be required by law or upon the occurrence of
an event of default. In general, an event of default will have occurred if
the Company shall fail to redeem or provide for the redemption of all
Series A Preferred Stock, and to have paid all accrued but unpaid dividends
on the Series A Preferred Stock, by September 30, 2001. Upon the occurrence
of an event of default, the Series A Preferred Stock, voting as a separate
class and subject to the receipt of any required regulatory approvals,
shall be entitled to elect a majority of the Board of Directors.
Additionally, the approval of the holders of a majority of the Series A
Preferred Stock is required in order to authorize the issuance of any
shares of a class or series of stock having dividend or liquidation rights
prior or superior to the Series A Preferred Stock.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(6) There were no reports and/or exhibits filed on Form 8-K by United
Financial Banking Companies, Inc. as of September 30, 1996.
12
<PAGE>
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 FINANCIAL BANKING COMPANIES, INC.
By: /s/ Peter H. Ross
-------------------------
Peter H. Ross
Chairman and President
/s/ Lisa M. Porter
-------------------------
Lisa M. Porter
Chief Financial Officer
Date: November 7, 1996
----------------------
13
<PAGE>
EXHIBIT 3
ARTICLES OF INCORPORATION
OF
UNITED FINANCIAL BANKING COMPANIES, INC.
1. The name of the corporation is
UNITED FINANCIAL BANKING COMPANIES, INC.
2. The purpose for which the corporation is organized is the business of
owning and controlling banks. In addition, the corporation shall be authorized
to transact any or all lawful business not required to be specifically stated in
these Articles of Incorporation for which corporations may be incorporated under
the Virginia Stock Corporation Act.
3. The aggregate number of shares of capital stock which the Corporation
shall have authority to issue shall be 3,500,000 shares of Common Stock, par
value $1 per share, and 5,000,000 shares of Preferred Stock, without par value.
The Board of Directors is hereby empowered to cause the Preferred
Stock of the Corporation to be issued in series with such of the variations
permitted by clauses (a)-(k) below, as shall be determined by the Board of
Directors.
The shares of Preferred Stock may vary as to:
(a) the designation of such series, the number of shares to
constitute such series and the stated value thereof;
(b) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of such
voting rights, which (i) may be general or limited, and (ii) may permit more
than one vote per share;
(c) the rate or rates (which may be fixed or variable) at which
dividends shall be cumulative, and, if so, from what dates, the conditions and
dates upon which such dividends are payable, the preference or relation which
such dividends shall bear to the dividends payable on shares of Common Stock or
on any shares of any other series of Preferred Stock;
(d) whether the shares of such series shall be subject to
redemption by the Corporation, and, if so, the times, prices and other
conditions of such redemption;
(e) the amount or amounts payable upon shares of such series upon,
and the rights of the holders of such series in, the voluntary and involuntary
liquidation, dissolution or winding up, or upon any distribution of the assets,
of the Corporation;
14
<PAGE>
EXHIBIT 3
(f) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund, and, if so, the extent to and manner
in which any such retirement or sinking fund shall be applied to the purchase or
redemption of the shares of such series for retirement or other corporate
purposes and the terms and provisions relative to the operation thereof;
(g) whether the shares of such series shall be convertible into, or
exchangeable for, shares of Common Stock or any other securities (including any
other series of Preferred Stock) and, if so, the price or prices or the rate or
rates of conversion or exchange and the method, if any, of adjusting the same,
and any other terms and conditions of conversion or exchange;
(h) the limitations and restrictions, if any, to be effective while
any shares of such series are outstanding upon the payment of dividends or the
making of other distributions on, and upon the purchase, redemption or other
acquisition by the Corporation of, the Common Stock or shares of any other
series of the Preferred Stock;
(i) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such series or of any other series of the
Preferred Stock;
(j) the ranking (be it pari passu, junior or senior) or each series
---- -----
as to the payment of dividends, the distribution of assets and all other
matters; and
(k) any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications, limitations and
restrictions thereof, insofar as they are not inconsistent with the provisions
of these Articles of Incorporation, to the full extent permitted in accordance
with the laws of the Commonwealth of Virginia.
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid to or set aside for the holders of
the Preferred Stock the full preferential amounts to which they are respectively
entitled under the provisions of these Articles of Incorporation applicable to
the Preferred Stock, the holders of the Preferred Stock shall have no claim to
any of the remaining assets of the Corporation.
The power, preferences and relative, participating, optional and
other special rights of each series of Preferred Stock, and the qualifications,
limitations or restriction thereof, if any, may differ from those of any and all
other series at any time outstanding. All shares of Preferred Stock of each
series shall be equal in all respects.
4. Stockholders of the corporation shall not have the preemptive right
to acquire unissued shares of the corporation.
5. The Corporation's initial registered office shall be located in the
City of Richmond at Suite 1100, 707 East Main Street, Richmond, Virginia 23219.
The
15
<PAGE>
EXHIBIT 3
Corporation's initial registered agent shall be Lathan M. Ewers, Jr., whose
address is the same as the corporations's registered office and who is a
resident of Virginia and a member of the Virginia State Bar.
6. The business and affairs of the Corporation shall be managed by or
under the direction of a Board of Directors consisting of not less than six nor
more than twelve Directors, the exact number of Directors to be determined from
time to time by resolution adopted by the affirmative vote of a majority of the
Directors then in office or at least two-thirds of the shares entitled to vote
at a meeting of shareholders. The Directors shall be divided into three classes,
designated as Class I, Class II, and Class III. Each class shall consist, as
nearly as may be possible, of one-third of the total number of Directors
constituting the entire Board of Directors. At the 1990 Annual Meeting of
Shareholders, Class I Directors shall be elected for a one-year term, Class II
Directors for a two-year term and Class III Directors for a three-year term. At
each succeeding Annual Meeting of Shareholders beginning in 1991, successors to
the class of Directors whose term expires at that annual meeting shall be
elected for a three-year term. If the number of Directors has changed, any
increase or decrease shall be apportioned among the classes so as to maintain
the number of Directors in each class as nearly equal as possible, but in no
case will a decrease in the number of Directors shorten the term of any
incumbent Director. A Director shall hold office until the annual meeting for
the year in which his term expires and until his successor shall be elected,
subject, however, to prior death, resignation, retirement, disqualification or
removal from office. Notwithstanding the foregoing, whenever the holders of
Preferred Stock or one or more series of Preferred Stock issued by the
Corporation shall have the right, voting separately by class or series to elect
Directors at an annual or special meeting of shareholders, the election, term of
office, filling of vacancies and other features of such Directorships shall be
governed by the terms of these Articles of Incorporation applicable thereto, and
such Directors so elected shall not be divided into classes pursuant to this
Article 6 unless expressly provided by such terms. If the office of any Director
shall become vacant, the Directors, at the time in office, whether or not a
quorum, may, by majority vote of the Directors then in office, choose a
successor who shall hold office until the next annual meeting of shareholders.
In such event, the successor elected by the shareholders at that annual meeting
shall hold office for a term that shall coincide with the remaining term of the
class of Directors to which that person has been elected. Vacancies resulting
from the increase in the number of Directors shall be filled in the same manner.
Notwithstanding any other provision of the Articles of Incorporation or the
Bylaws, the affirmative vote of at lease two-thirds of the outstanding shares
entitled to vote shall be required to amend, alter, change or repeal, or to
adopt any provisions inconsistent with the purpose and intent of this Article 6.
7. Except as otherwise now or hereafter specifically provided for
herein, the vote of the Corporation's Common Stock required to approve an
amendment to the Corporations's Articles of Incorporation shall be a majority of
all such shares.
June 26, 1990 --------------------------------
16
<PAGE>
EXHIBIT 3
ARTICLES OF AMENDMENT TO
THE ARTICLES OF INCORPORATION
OF
UNITED FINANCIAL BANKING COMPANIES, INC.
In accordance with the provisions of Section 13.1-607 of the Virginia Stock
Corporation Act, as amended, United Financial Banking Companies, Inc. (the
"Company") does hereby deliver to the State Corporation Commission for filing
these Articles of Amendment to the Articles of Incorporation of the Company,
which shall be effective upon filing:
Article 3 of the Articles of Incorporation of the Company is hereby amended
to include at the end thereof a new section defining and determining the terms
of a new series of preferred stock, reading as follows:
"Series A Preferred Stock. (a) Designation. The series of preferred stock shall
be designated and known as "Series A Preferred Stock."
(b) Number of Shares. The Series A Preferred Stock shall consist of up to
nine hundred (900) shares of the authorized preferred stock, without par value,
of the Corporation.
(c) Dividends and Distributions. Subject to the prior or superior rights of
the holders of any shares of any series of preferred stock ranking prior or
superior to the Series A Preferred Stock with respect to dividends, whether now
existing or hereafter created, the holders of shares of Series A Preferred Stock
shall be entitled to receive, as and when declared by the Board of Directors,
prior to payment of any cash dividends on any class of Common Stock or other
class of stock junior to the Series A Preferred Stock during the quarter to
which such dividend relates, out of funds legally available therefore, dividends
in an amount per share equal to ten percent (10%) of the Original Purchase Price
of the Series A Preferred Stock (as hereinafter defined) divided by four.
Dividends shall be cumulative from the date of issuance, whether or not declared
by the Board of Directors, and shall be payable quarterly on the first day of
January, April, July and October of each year (each a "Dividend Payment Date")
commencing on the first Dividend Payment Date after the issuance of any shares
of Series A Preferred Stock. For purposes hereof the "Original Purchase Price of
the Series A Preferred Stock" shall be one thousand five hundred dollars
($1,500) per share of Series A Preferred Stock. In the event that the
corporation shall at any time declare and pay or effect in respect of the Series
A Preferred Stock any stock split, (whether or not in the form of a stock
dividend), reverse stock split, or other reclassification or combination of the
Series A Preferred Stock or other transaction (including a merger, consolidation
or share exchange) which has the effect of increasing or decreasing the number
of shares of Series A Preferred Stock, then the Original Purchase Price of the
Series A Preferred Stock shall be deemed to have been proportionately adjusted
to reflect such transaction or event. In the event that any share of Series A
Preferred Stock is outstanding for only a part of the quarterly period preceding
any Dividend Payment Date, then the dividend payable with respect to such share
shall be prorated for the period such share was outstanding during such period,
except that the dividend payable on January 1, 1997 shall not be so prorated and
shall consist of the full amount that would be payable if the shares of Series A
Preferred Stock had been outstanding for the entire quarterly period preceding
such date. Dividends declared and paid in an amount less than the total amount
payable on all shares of Series A Preferred Stock shall be allocated pro rata
among the shares of Series A Preferred Stock outstanding.
(d) Voting Rights. Except as may be expressly required by the laws of
general applicability of the Commonwealth of Virginia, and except as otherwise
provided in this paragraph (d) the holders of the Series A Preferred Stock shall
not be entitled to vote on any matter submitted for the vote of stockholders,
including but not limited to the election of directors. In the event that there
shall have occurred an Event of Default (as hereinafter defined) then,
notwithstanding any other provision of the articles of incorporation of the
Corporation, the terms of office of the members of the Board of Directors of the
Corporation shall cease to be staggered, the term of office of each member of
the Board of Directors shall terminate at the next election of directors,
whether such election is at an annual meeting or at a special or extraordinary
meeting called for the purpose of the election of directors, and the holders of
the outstanding shares of Series A Preferred Stock, voting as a separate class,
by the action of the holders of a majority of such shares, shall be entitled to
elect that number of directors as shall constitute a majority of the Board of
Directors. Following the occurrence of an Event of Default, the holders of a
majority of the Series A Preferred Stock shall be entitled to call a special
meeting of shareholders for the purpose of the election of directors. For
purposes hereof, an "Event of Default" shall exist
17
<PAGE>
EXHIBIT 3
if the Corporation shall fail, for any reason whatsoever, to redeem (or to call
for redemption and deposit sufficient funds for purposes of effecting the
redemption with an independent depositary or escrow agent) all outstanding
shares of Series A Preferred Stock, and to have paid all accrued dividends on
the Series A Preferred Stock, by September 30, 2001. The right of the Series A
Preferred Stock to elect a majority of the Board of Directors following the
occurrence of an Event of Default shall continue until the later of (I)
September 30, 2001 or (ii) the redemption of all outstanding shares of Series A
Common Stock. Notwithstanding anything contained herein to the contrary, the
exercise of the right of the Series A Preferred Stock to call a special meeting
for the purpose of the election of directors and to elect a majority of the
Board of Directors following the occurrence of an Event of Default shall be
subject to the receipt of any required consents or approvals of the Federal
Reserve Board, the Virginia Commissioner of Financial Institutions, or any other
bank regulatory agency having jurisdiction. Additionally, whether or not a vote
of shareholders of any class is required by law or by any other provision
hereof, the affirmative vote of the holders of not less than a majority of the
outstanding shares of Series A Preferred Stock shall be required prior to the
issuance of any shares of a class or series of stock which would have rights as
to dividends or liquidation prior or superior to the Series A Preferred Stock.
(e) Redemption. Shares of the Series A Preferred Stock may be redeemed, in
whole or in part, at the option and in the sole discretion only of the
Corporation, at any time or from time to time, without notice, at a redemption
price equal to the Original Purchase Price of the Series A Preferred Stock, as
adjusted in accordance with the provision of (C) above plus dividends accrued
but unpaid prior to the date of redemption (the "Redemption Price").
Additionally, all outstanding shares of the Series A Preferred Stock shall be
redeemed by the Corporation at the Redemption Price on September 30, 2001. Any
such redemption shall be subject to the receipt by the Corporation of any
required prior approval of the Federal Reserve Board or other regulatory agency
having jurisdiction over the Corporation and its subsidiaries. Provided that
sufficient funds to effect the redemption have been deposited with an
independent depositary or escrow agent, then at the time of such redemption as
specified in the resolution of the Board of Directors authorizing such
redemption or September 30, 2001, as applicable, all rights of the holders of
the Series A Preferred Stock redeemed shall terminate, except for the right to
receive the Redemption Price.
(f) Sinking Fund. The Corporation shall not be required to establish or
make payments into, and the Series A Preferred Stock shall not enjoy the benefit
of, any sinking, reserve or other segregated fund for the redemption of the
Series A Preferred Stock.
(g) Restrictions on Repurchase. The Corporation shall not, at any time
while any shares of Series A Preferred Stock are outstanding, purchase,
repurchase, redeem, or otherwise reacquire for value, any shares of Common Stock
or other class of stock junior to the Series A Preferred Stock, provided,
however, that nothing contained in this paragraph (g) shall prevent the
Corporation from acquiring any shares of Common Stock or other class of stock
junior to the Series A Preferred Stock as a result of, or in connection with the
satisfaction of a debt previously contracted in good faith.
(h) Conversion. The Series A Preferred Stock shall not be convertible into
or otherwise exchangeable for shares of any other class of stock or securities
of the Corporation.
(i) Liquidation, Dissolution or Winding Up. Subject to the prior or
superior rights of the holders of any series of preferred stock ranking prior or
superior to the Series A Preferred Stock with respect to liquidation, whether
now existing or hereafter created, upon any liquidation, dissolution or winding
up of the corporation, the holders of the Series A Preferred Stock shall be
entitled to receive, prior to the payment of any amounts in liquidation,
dissolution or winding up in respect of any Common Stock or other class of stock
junior to the Series A Preferred Stock, but after the payment or provision for
all amounts due to creditors of the corporation, an amount per share equal to
the Original Purchase Price of the Series A Preferred Stock as adjusted in
accordance with the provisions of (C) above, plus the amount of any dividends
accrued but unpaid as of the date of such liquidation, dissolution or winding
up. Following receipt of such amount, the holders of the Series A Preferred
Stock shall have no right to receive any other amounts in connection with the
liquidation, dissolution or winding up of the corporation.
(j) Preemptive Rights. The holders of the Series A Preferred Stock shall
not have any preemptive or preferential right to acquire any shares of any class
of capital stock of the corporation, whether now or hereafter authorized, except
as the Board of Directors may specifically provide.
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,545,901
<INT-BEARING-DEPOSITS> 400,000
<FED-FUNDS-SOLD> 3,801,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 300,000
<INVESTMENTS-CARRYING> 302,000
<INVESTMENTS-MARKET> 2,083,852
<LOANS> 29,210,338
<ALLOWANCE> 515,525
<TOTAL-ASSETS> 43,826,427
<DEPOSITS> 39,691,844
<SHORT-TERM> 650,000
<LIABILITIES-OTHER> 370,031
<LONG-TERM> 0
0
0
<COMMON> 2,808,201
<OTHER-SE> 306,551
<TOTAL-LIABILITIES-AND-EQUITY> 43,826,427
<INTEREST-LOAN> 1,802,284
<INTEREST-INVEST> 82,591
<INTEREST-OTHER> 213,845
<INTEREST-TOTAL> 2,098,720
<INTEREST-DEPOSIT> 1,124,418
<INTEREST-EXPENSE> 64,726
<INTEREST-INCOME-NET> 909,576
<LOAN-LOSSES> 145,942
<SECURITIES-GAINS> (11,314)
<EXPENSE-OTHER> 1,488,792
<INCOME-PRETAX> (534,634)
<INCOME-PRE-EXTRAORDINARY> (534,634)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (539,073)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
<YIELD-ACTUAL> 8.37
<LOANS-NON> 328,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 20,698
<LOANS-PROBLEM> 328,000
<ALLOWANCE-OPEN> 462,768
<CHARGE-OFFS> 114,396
<RECOVERIES> 21,133
<ALLOWANCE-CLOSE> 515,525
<ALLOWANCE-DOMESTIC> 515,525
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 395,755
</TABLE>
