<PAGE>
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
- ---
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
- ---
Act of 1934.
For the quarterly period ended June 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 June 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 Balance Sheets
<TABLE>
<CAPTION>
(Unaudited) (Audited)
June 30 December 31
Assets 1996 1995
------ --------------- ---------------
<S> <C> <C>
Cash and due from banks $ 1,550,909 $ 2,187,146
Interest-bearing deposits in other banks 400,552 541
Federal funds sold 5,011,000 6,360,000
Investment Securities:
Available for sale (AFS) 1,883,024 603,500
Held to maturity (HTM) 300,000 700,000
Loans and lease financing, net of unearned
income of $62,698 and $78,468 26,555,774 23,874,982
Less: Allowance for loan/lease losses (482,205) (462,846)
--------------- ---------------
Net loans and lease financing 26,073,569 23,412,136
Real estate owned held for sale, net 7,501,438 7,912,936
Premises and equipment, net 1,390,521 1,419,122
Other assets 313,926 470,589
--------------- ---------------
Total assets $ 44,424,939 $ 43,065,970
=============== ===============
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Demand $ 7,708,032 $ 7,033,571
Savings and NOW 2,239,846 2,966,721
Money market 5,928,916 5,917,979
Time deposits:
Under $100,000 17,117,964 15,139,336
$100,000 and over 6,201,729 6,417,628
--------------- ---------------
Total deposits 39,196,487 37,475,235
--------------- ---------------
Short-term borrowings 1,575,961 1,538,544
Other liabilities 396,417 382,144
--------------- ---------------
Total liabilities 41,168,865 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 6/30/96 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 (10,072,955) (9,676,323)
Unrealized holding gain (loss) - AFS securities (12,233) 5,108
--------------- ---------------
Total stockholders' equity 3,256,074 3,670,047
--------------- ---------------
Total liabilities and stockholders' equity $ 44,424,939 $ 43,065,970
=============== ===============
</TABLE>
2
<PAGE>
UNITED FINANCIAL BANKING COMPANIES, INC., AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------------- ------------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans/leases $ 592,546 $ 463,666 $ 1,156,620 $ 836,704
Interest on investment securities 30,072 8,492 48,204 12,364
Interest on federal funds sold 70,488 70,787 149,735 109,549
Interest on interest-bearing deposits 6,111 - 12,327 -
------------- ------------- ------------- -------------
Total interest income 699,217 542,945 1,366,886 958,617
------------- ------------- ------------- -------------
Interest expense:
Interest on deposits 381,476 329,960 754,524 578,931
Interest on short-term borrowings 17,681 (1,206) 20,001 347
Interest on long-term debt - 1,533 - 1,533
------------- ------------- ------------- -------------
Total interest expense 399,157 330,287 774,525 580,811
------------- ------------- ------------- -------------
Net interest income 300,060 212,658 592,361 377,806
Provision for loan/lease losses 41,000 (202,825) 113,942 (162,825)
------------- ------------- ------------- -------------
Net interest income after provision
for loan/lease losses 259,060 415,483 478,419 540,631
Noninterest income:
Gain (loss) on sale of real estate
owned and other earning assets 26,655 91,140 18,019 180,117
Loan serviceing and other fees 20,015 17,229 39,520 33,729
Other income 17,062 25,423 32,979 51,753
------------- ------------- ------------- -------------
Total noninterest income 63,732 133,792 90,518 265,599
------------- ------------- ------------- -------------
Noninterest expenses:
Salaries 185,609 174,665 359,523 357,653
Employee benefits 35,624 (122,800) 71,246 (89,664)
Occupancy 39,029 45,299 71,052 96,001
Furniture and equipment 10,443 35,810 21,716 61,102
Legal 44,124 135,868 62,084 172,431
FDIC Insurance 21,768 20,468 42,407 40,936
Real estate owned holding expense 57,716 35,120 91,194 74,060
Provision for real estate owned losses -- 194,000 -- 194,000
Other expense 122,608 126,191 241,444 216,529
------------- ------------- ------------- -------------
Total noninterest expense 516,921 622,551 960,666 1,123,048
------------- ------------- ------------- -------------
Income (loss) before income taxes (194,129) (73,276) (391,729) (316,818)
Provision (credit) for income taxes 1,862 2,598 4,903 2,598
------------- ------------- ------------- -------------
Net income (loss) $ (195,991) $ (75,874) $ (396,632) $ (319,416)
============= ============= ============= =============
Net income (loss) per share
of common stock $ (0.07) $ (0.03) $ (0.14) $ (0.12)
============= ============= ============= =============
Weighted average number of
shares outstanding 2,808,201 2,710,683 2,808,201 2,710,683
============= ============= ============= =============
</TABLE>
3
<PAGE>
UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------------
June 30, 1996 June 30, 1995
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ (396,632) $ (319,416)
Adjustment to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation & amortization 35,786 39,707
Provision for loan/lease losses 113,942 (162,825)
Provision for losses on real estate owned - 194,000
Amortization of investment security discount (20,926) 6,744
Amortization of loan fees and discounts (15,770) (85,905)
Net (gain) loss on sale of other real estate owned 11,022 (180,117)
(Increase) decrease in other assets 156,663 51,799
Increase (decrease) in other liabilities 14,273 (525,449)
----------------- -----------------
Net cash provided by (used in) operating activities (101,642) (981,462)
----------------- -----------------
Cash flows from investing activities:
Principal collected - non-bank subsidiaries - 10,733
Loans and lease originations, net of collections (3,194,875) (4,831,541)
Loan fees and discounts deferred - 39,005
Purchases of securities available-for-sale (875,939) (500,000)
Investment made in other real estate owned (3,578,981) (3,281,737)
Proceeds from real estate owned 4,414,727 3,864,452
Purchases of premises and equipment (7,185) (50,856)
----------------- -----------------
Net cash provided by (used in) investing activities (3,242,253) (4,749,944)
----------------- -----------------
Cash flow from financing activities:
Net increase (decrease) in demand deposits, savings
accounts, NOW accounts and money market accounts (41,477) 3,930,026
Certificates of deposit sold (matured), net 1,762,729 2,576,789
Net change in short-term borrowings 37,417 332,771
Payments on long-term debt - (84,948)
----------------- -----------------
Net cash provided by (used in) financing activities 1,758,669 6,754,638
----------------- -----------------
Net increase (decrease) in cash and cash equivalents (1,585,226) 1,023,232
Cash and cash equivalents at beginning of the year 8,547,687 6,399,142
Cash and cash equivalents at end of the quarter $ 6,962,461 $ 7,422,374
================= =================
Supplemental disclosures of cash flow information:
Cash paid during the years for:
Interest on deposits and other borrowings $ 895,244 $ 660,029
Income taxes 5,104 20,473
Non-Cash Items:
Effect on stockholders' equity of an unrealized gain (loss) $ (17,341) $ -
on debt and equity securities available-for-sale
</TABLE>
4
<PAGE>
Note 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 June 30,1996 into
two applicable categories: held-to-maturity and available-for-sale.
5
<PAGE>
- ----------------------------------------------------
UNITED FINANCIAL BANKING COMPANIES, INC.
CONSOLIDATED AVERAGE BALANCES/NET INTEREST ANALYSIS/
YIELDS AND RATES
- ----------------------------------------------------
<TABLE>
<CAPTION>
For the Six Month Period Ended
June 30, 1996 June 30, 1995
---------------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans/Leases:
Commercial $18,163,480 $901,584 9.95% $13,109,135 $688,743 10.60%
Real estate construction 2,067,744 86,176 8.36% 1,480,307 70,892 9.66%
Real estate mortgage 1,849,647 72,317 7.84% 672,716 23,747 7.12%
Installment 2,003,537 96,543 9.66% 1,129,847 53,322 9.52%
Leases 844,342 0 0.00% 844,342 0 0.00%
---------- ---------- ---------- ----------
Total loans/leases 24,928,750 1,156,620 9.30% 17,236,347 836,704 9.79%
---------- ---------- ---------- ----------
Interest-bearing deposits 400,545 12,327 6.17% - - -
Federal funds sold 5,659,160 149,735 5.31% 3,851,864 109,549 5.74%
Investment securities 1,668,954 48,204 5.79% 334,289 12,364 7.46%
---------- ---------- ---------- ----------
Total earning assets 32,657,409 1,366,886 8.39% 21,422,500 958,617 9.02%
========== ==========
Noninterest-earning assets
Cash and due from banks 1,678,916 1,738,367
Other assets 10,536,164 13,055,794
Allowance for loan losses/lease (471,688) (681,156)
---------- ----------
Total assets $44,400,801 $35,535,505
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and NOW accounts 2,889,965 35,349 2.45% 1,787,132 20,754 2.34%
Money market accounts 5,287,797 83,474 3.17% 3,482,300 63,264 3.66%
Time:
Under $100,000 16,490,938 466,552 5.67% 12,841,860 340,180 5.34%
$100,000 and over 6,220,486 169,149 5.45% 5,886,359 154,733 5.30%
---------- ---------- ---------- ----------
Total interest-bearing
deposits 30,889,186 754,524 4.90% 23,997,651 578,931 4.86%
Short-term borrowings 2,580,485 20,001 12.75% * 887,712 347 11.00% *
Long-term debt 0 0 0.00% 724,271 1,533 13.94% *
---------- ---------- ---------- ----------
Total interest-bearing
liabilities 33,469,671 $774,525 5.50% * 25,609,634 $580,811 5.33% *
========== ==========
Non interest-bearing liabilities:
Demand deposits 6,901,454 4,679,641
Other liabilities 531,601 599,896
Stockholders' equity 3,498,075 4,646,337
---------- ----------
Total liabilities and
stockholders' equity $44,400,801 $35,535,508
========== ==========
Net interest income $592,361 $377,806
========== ==========
Net interest margin (1) 3.64% 3.61%
==== ====
Net interest spread (2) 2.89% 3.69%
==== ====
Fees included in loan income $82,650 $85,905
========== ==========
Taxable equivalent adjustment $0 $0
========== ==========
<CAPTION>
For the Year Ended
December 31, 1995
-------------------------------------
Average Yield/
Balance Interest Rate
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
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 - - -
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
==========
Taxable equivalent adjustment $0
==========
</TABLE>
Average balances for the years presented are calculated on a monthly basis.
Nonaccruing loans are included in the 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 Six Months Ended June 30, 1996, as Compared
-------------------------------------------------------------------------
to the Six Months Ended June 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 $390,632 for the six month period ended June 30, 1996. This
compares with a loss of $319,416 for the same period of 1995. Earnings (loss)
per share were ($.14) for the first six months ended June 30, 1996, compared to
($.12) for the first six months of 1995.
Though UFBC's primary subsidiary, The Business Bank (the Bank), has
significantly increased the consolidated Company's asset base, real estate owned
(REO) and related holding costs continue to hinder the Company's progress
towards profitability. As of June 30, 1996, average total assets increased
$8,865,000 or 24.9% when compared to the comparable period of June 30, 1995
(Consolidated Average Balances table). REO, less than the optimum volume of
earning assets, and an improving but still unsatisfactory net interest margin
are the primary factors of UFBC's loss for the six months ended June 30, 1996.
Management continues to focus on REO liquidation and as of June 30, 1996 had REO
contracts (both firm and pending) totaling approximately $5,121,000. Though
there can be no assurance of settlement, management anticipates that these
contracts will close and settle during 1996.
Net Interest Income
- -------------------
Net interest income increased $215,000 or 56.8% for the first six months of
1996 when compared to the first six months ended 1995. The increase is
primarily attributable to income resulting from the increased loan volume in the
Bank. As shown in the Consolidated Average Balances table, the average total
loan/lease volume increased $7,692,000 or 44.6% from $17,237,000 at June 30,
1995 to $24,929,000 at June 30, 1996. The increased loan volume also affected
interest and fees on loans which rose $319,916 or 38.2% as of the six month
period ended June 30, 1996 when compared to the comparable period of 1995.
For the same comparable period, average total earning assets increased
$11,235,000 or 52.4% (Consolidated Average Balances table). As a result of the
increased volume of assets available, the Company earned significantly more
interest on investment securities, federal funds sold and interest-bearing
deposits for the three and six month period ended June 30, 1996. These earnings
also contributed to the increased net interest income at June 30, 1995 when
compared to June 30, 1995.
Provision
- ---------
During the first six months of 1996, the Bank replenished its allowance by
charging $114,000 against earnings compared to $87,000 charged against earnings
during the first six months of 1995. The parent company, UFBC, reversed its
provision for loan/lease losses $250,000 in the three months ended June 30, 1995
as a result of improved loan quality.
Non-Interest Income
- -------------------
Total noninterest income decreased by $175,000 or 65.9% for the six months
ended June 30, 1996 compared to the comparable period of 1995. The decline is
mainly the result of reduced net gains associated with the sale of REO property
during the first six months of 1996 compared with the Company's net gains of
$180,000 from REO sales during the first six months of 1995.
7
<PAGE>
Non-Interest Expense
- --------------------
Total noninterest expense decreased $162,000 or 14.5% for the first six
months of 1996 when compared to the same period of 1995. The decline is due
principally to the Company's restructuring and management's efforts to curtail
expenses. As a result of an employee settlement during the three month period
ended June 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 three and six month period ended June 30, 1996 when compared to
the same periods of 1995.
For the six month period ended June 30, 1996 as compared to the comparable
period of 1995, occupancy expense decreased $25,000 or 26.0% due to the Bank's
consolidation into one location and the subletting of excess space. Furniture
and equipment expense dropped $39,000 or 64.4% 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 first six months of 1996, many Company
fixed assets became fully depreciated.
Legal expense declined $110,000 or 64.0% for the sixth month period ended
June 30, 1996 when compared to the comparable period ended June 30, 1995. The
decline is principally attributable to significantly reduced litigation expense
in the parent during the first six months of 1996. During the first six months
of 1995, the parent, as plaintiff, incurred litigation expense associated with
the subsidiary, Omni Homes, Inc.
REO holding expense increased $22,600 or 64.3% for the three month period
ended June 30, 1996 when compared to the three month period ended June 30, 1995.
The increase is the result of one time wrap up development costs associated with
the North Ocean City town home project. During the three month period ended
June 30, 1995, the parent wrote down one REO property $194,000. The Company has
had no REO write-downs during the first six months of 1996.
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 six months ended June
30, 1996.
B. Financial Condition as of June 30, 1996
---------------------------------------
Assets
- ------
Total assets grew $1,359,000 or 3.2% during the first six 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. Loans and lease
financing, net, increased $2,681,000 or 11.2% to $25,656,00 at June 30, 1996
from $23,875,000 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
8
<PAGE>
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 June 30, 1996 and December 31, 1995, the allowance was $482,000 and
$463,000 or 1.7% and 1.9%, respectively, of total loans and leases, net of
unearned income. Nonperforming loans for the six month period ended June 30,
1996 totaled $364,000, all of which were 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 1.32
times at June 30, 1996, compared to a coverage of 1.15 times at year end 1995.
Real Estate Owned
- -----------------
REO decreased $411,000 or 5.2% during the six month period ended June 30,
1996. The Bank sold one property and several lots in two parcels which reduced
the REO balance approximately $1,074,000 during the first six months of 1996.
During the same period, the Bank invested $520,000 to further develop one REO
project and foreclosed on two loans totaling approximately $435,000. Subsequent
to June 30, 1996, one of the foreclosed loans totaling $222,000 has been sold
and settled. For the first six 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 thirty-five have been sold. As of June 30, 1996,
twenty-six town home unit contracts were settled, thereby reducing REO by
$3,328,000. Though there can be no assurance, management anticipates that the
remaining fifteen will be sold and settled by the end of September 1996. The
sale and settlement of the remaining 15 units will reduce REO by 1,884,296 or
25.1%.
Liabilities
- -----------
Total deposits increased $1,721,000 or 4.6% during the first six months of
1996 when compared to the year ended 1995. In the normal course of business,
the deposit mix changed as savings and NOW accounts dropped $727,000 or 24.5%
from $2,967,000 at December 31, 1996 to $2,240,000 at June 30, 1996. During the
six month period ended June 30, 1996, BVCI utilized and repaid a short-term line
of $3,000,000 to fund the completion of the final phase of the North Ocean City
project (project). Additionally, BCVI utilized 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 line and
future proceeds will be used to pay the $367,000 line. As of August 6, 1996,
the balance outstanding on the $367,000 line is approximately $70,000.
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 as its
losses have resulted in negative retained earnings. 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.
Average liquid assets were 21.2% of average total assets at June 30, 1996
compared to 16.7% for the same period ended June 30, 1995 and 21.4% at December
31, 1995. During February 1995, the Bank experienced a significant reduction in
the level of its liquid assets. Such reduction was due in part to management's
planned efforts to reduce the Bank's concentration in certificates of deposit
accounts.
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
9
<PAGE>
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 June 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 1,883,024
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.
The Order and the Agreement also include provisions to monitor the Company's
progress toward profitability. As of June 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 June 30, 1996 were 11.0%, 12.2% and 8.4%, and 9.4%, 10.6% and 7.3%,
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 June 30, 1996.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(4) At the Annual Meeting of Shareholders held on June 12, 1996, the
shareholders voted to elect Mr. Dennis I. Meyer (2,293,060 for; 2,814
withheld), Mr. Jeffery T. Valcourt (2,293,060 for; 2,814 withheld) and Ms.
Sharon A. Stakes (2,293,001 for; 2,873 withheld) to serve as class 3
directors until the 1999 Annual Meeting of Shareholders. The shareholders
also voted to approve the 1996 Nonqualified Stock Option Plan for Non-
Employee Directors of the Company and to approve modification of the
Company's 1990 Executive Stock Plan.
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 June 30, 1996.
11
<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: August 9, 1996
-------------------
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,550,909
<INT-BEARING-DEPOSITS> 400,552
<FED-FUNDS-SOLD> 5,011,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,883,024
<INVESTMENTS-CARRYING> 300,000
<INVESTMENTS-MARKET> 302,242
<LOANS> 26,555,774
<ALLOWANCE> 482,205
<TOTAL-ASSETS> 44,424,939
<DEPOSITS> 39,196,487
<SHORT-TERM> 1,575,961
<LIABILITIES-OTHER> 396,417
<LONG-TERM> 0
0
0
<COMMON> 2,808,201
<OTHER-SE> 447,873
<TOTAL-LIABILITIES-AND-EQUITY> 44,424,939
<INTEREST-LOAN> 1,156,620
<INTEREST-INVEST> 48,204
<INTEREST-OTHER> 162,062
<INTEREST-TOTAL> 1,366,866
<INTEREST-DEPOSIT> 754,524
<INTEREST-EXPENSE> 20,001
<INTEREST-INCOME-NET> 592,361
<LOAN-LOSSES> 113,942
<SECURITIES-GAINS> (12,233)
<EXPENSE-OTHER> 960,666
<INCOME-PRETAX> (391,729)
<INCOME-PRE-EXTRAORDINARY> (391,729)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (396,632)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
<YIELD-ACTUAL> 8.39
<LOANS-NON> 364,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 20,698
<LOANS-PROBLEM> 364,000
<ALLOWANCE-OPEN> 462,768
<CHARGE-OFFS> 114,396
<RECOVERIES> 19,813
<ALLOWANCE-CLOSE> 482,127
<ALLOWANCE-DOMESTIC> 482,127
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 376,938
</TABLE>
