<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 March 31, 1997.
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 March 31, 1997
Transitional Small Business Disclosure Format: Yes No X
----- -----
<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-QSB 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.
Note 2 - 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 3 - Earnings per share are computed using the weighted average number of
shares of common stock outstanding as adjusted retroactively to
reflect shares issued in connection with stock dividends. The
computation includes the effect of average common equivalent shares
attributable to stock options and/or stock warrants only if such
effect is dilutive. The computation includes the effect of the
dividend accrued on the Company's redeemable preferred stock which
totaled $27,250 for the first three months ended March 31, 1997 and $-
0- for the same period ended March 31, 1996.
Note 4 - Forward looking statements. This discussion contains forward looking
statements, including statements of goals, intentions and expectations
as to future trends, plans, or results of Company operations and
policies and regarding general economic conditions. These statements
are based upon current and anticipated economic conditions, nationally
and in the Company's market, interest rates and interest rate policy,
competitive factors and other conditions which, by their nature, are
not susceptible to accurate forecast, and are subject to significant
uncertainty. Because of these uncertainties and the assumptions on
which this discussion and the forward looking statements are based,
actual future operations and results may differ materially from those
indicated herein.
2
<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
March 31
-------------------------------------------------------
1997 1996
-------------------- --------------------
<S> <C> <C>
Interest income:
Interest and fees on loans/leases $ 657,226 $ 564,074
Interest on investment securities 35,735 18,132
Interest on federal funds sold 49,954 79,247
Interest on interest-bearing deposits 2,936 6,216
-------------------- --------------------
Total interest income 745,851 667,669
-------------------- --------------------
Interest expense:
Interest on deposits 359,696 373,048
Interest on short-term borrowings - 2,320
-------------------- --------------------
Total interest expense 359,696 375,368
-------------------- --------------------
Net interest income 386,155 292,301
Provision for loan/lease losses 31,000 72,942
-------------------- --------------------
Net interest income after provision
for loan/lease losses 355,155 219,359
Noninterest income:
Gain (loss) on sale of real estate
owned and other earning assets 600 (8,636)
Loan servicing and other fees 20,796 19,505
Other income 26,576 15,917
-------------------- --------------------
Total noninterest income 47,972 26,786
-------------------- --------------------
Noninterest expense:
Salaries 155,993 173,914
Employee benefits 34,666 35,622
Occupancy 77,663 32,023
Furniture and equipment 11,495 11,273
Legal 3,289 17,690
FDIC Insurance 24,172 20,639
Real estate owned holding expense 28,754 33,478
Provision for real estate owned losses 10,200 -
Other expense 97,284 119,106
-------------------- --------------------
Total noninterest expense 443,516 443,745
-------------------- --------------------
Income (loss) before income taxes (40,389) (197,600)
Provision (credit) for income taxes 5,703 3,041
-------------------- --------------------
Net income (loss) $ (46,092) $ (200,641)
==================== ====================
Net income (loss) per share
of common stock $ (0.03) $ (0.07)
==================== ====================
Weighted average number of
shares outstanding 2,808,201 2,808,201
==================== ====================
</TABLE>
<PAGE>
UNITED FINANCIAL BANKING COMPANIES, INC., AND SUBSIDIARIES
Consolidated Balance Sheets / Financial Condition
<TABLE>
<CAPTION>
(Unaudited) (Audited)
March 31 December 31
Assets 1997 1996
------ --------------- --------------
<S> <C> <C>
Cash and due from banks $ 1,680,059 $ 4,265,513
Interest-bearing deposits in other banks 200,000 300,000
Federal funds sold 6,718,000 898,000
Investment Securities:
Available-for-sale (AFS) 2,388,750 2,095,422
Held-to-maturity (HTM) 100,000 300,000
Loans and lease financing, net of unearned
income of $29,886 and $67,848 30,812,523 30,618,335
Less: Allowance for loan/lease losses (567,349) (584,106)
--------------- --------------
Net loans and lease financing 30,245,174 30,034,229
Real estate owned held for sale, net 3,161,044 3,115,080
Premises and equipment, net 156,390 132,712
Other assets 318,215 460,733
--------------- --------------
Total assets $ 44,967,632 $ 41,601,689
=============== ==============
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
<S> <C> <C>
Deposits:
Demand $ 7,931,475 $ 7,897,677
Savings and NOW 2,805,346 2,779,982
Money market 5,571,831 3,970,348
Time deposits:
Under $100,000 17,688,113 16,763,355
$100,000 and over 6,740,574 6,323,212
--------------- --------------
Total deposits 40,737,339 37,734,574
--------------- --------------
Short-term borrowings - -
Other liabilities 325,743 360,295
--------------- --------------
Total liabilities 41,063,082 38,094,869
--------------- --------------
Redeemable Preferred Stock-Series A 1,246,000 768,750
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 3/31/97 and 2,808,201 at 12/31/96 2,808,201 2,808,201
Capital in excess of par value 10,487,061 10,514,311
Retained earnings (10,630,024) (10,583,932)
Unrealized holding gain (loss) - AFS securities (6,688) (510)
--------------- --------------
Total stockholders' equity 2,658,550 2,738,070
--------------- --------------
Total liabilities and stockholders' equity $ 44,967,632 $ 41,601,689
=============== ==============
</TABLE>
4
<PAGE>
UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------
March 31, 1997 March 31, 1996
------------------ -----------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ (46,092) $ (200,641)
Adjustment to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation & amortization 10,603 18,205
Provision for loan/lease losses 31,000 72,942
Provision for losses on real estate owned 10,200 --
Amortization of investment security discount (1,003) --
Amortization of loan fees and discounts (4,471) --
Net (gain) loss on disposal of equipment -- 10,620
Net (gain) loss on sale of other real estate owned -- 12,661
(Increase) decrease in other assets 142,305 181,637
Increase (decrease) in other liabilities (30,051) (43,425)
------------------ -----------------
Net cash provided by (used in) operating activities 112,491 51,999
------------------ -----------------
Cash flows from investing activities:
Principal collected - non-bank subsidiaries 13,892 --
Loans and lease originations, net of collections (377,128) (857,252)
Loan fees and discounts deferred 15,761 --
Purchases of securities available-for-sale (AFS) (398,503) (501,033)
Investment made in other real estate owned (94,520) (2,484,123)
Proceeds received from maturity of AFS securities 100,000 --
Proceeds received from maturity of HTM securities 200,000 --
Proceeds from real estate owned 143,856 276,996
Purchases of premises and equipment (34,067) (6,335)
------------------ -----------------
Net cash provided by (used in) investing activities (430,709) (3,571,747)
------------------ -----------------
Cash flow from financing activities:
Net increase (decrease) in demand deposits, savings
accounts, NOW accounts and money market accounts 1,674,319 (1,791,101)
Certificates of deposit sold (matured), net 1,328,445 1,147,036
Net change in short-term borrowings -- 2,424,402
Proceeds from issuance of redeemable preferred stock 450,000 --
------------------ -----------------
Net cash provided by (used in) financing activities 3,452,764 1,780,337
------------------ -----------------
Net increase (decrease) in cash and cash equivalents 3,134,546 (1,739,411)
Cash and cash equivalents at beginning of the year 5,463,513 8,547,687
------------------ -----------------
Cash and cash equivalents at end of the quarter 8,598,059 6,808,276
================== =================
Supplemental disclosures of cash flow information:
Cash paid during the years for:
Interest on deposits and other borrowings $ 357,730 $ 449,368
Income taxes 5,502 3,041
Non-Cash Items:
Effect on stockholders' equity of an unrealized gain (loss)
on debt and equity securities available-for-sale $ (6,178) $ (11,212)
Increase in foreclosed properties and decrease in loans $ 110,000 $ --
Other liabilities - accrued payables (REO) $ -- $ 407,458
</TABLE>
5
<PAGE>
- ----------------------------------------------------
UNITED FINANCIAL BANKING COMPANIES, INC.
CONSOLIDATED AVERAGE BALANCES/NET INTEREST ANALYSIS/
YIELDS AND RATES
- ----------------------------------------------------
<TABLE>
<CAPTION>
For the Three Month Period Ended
March 31, 1997 March 31, 1996
- -----------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans/Leases:
Commercial $22,373,461 $500,540 9.07% $17,720,073 $447,256 10.12%
Real estate construction 1,375,658 31,243 9.21% 2,109,752 39,916 7.59%
Real estate mortgage 4,427,509 79,284 7.26% 1,632,445 30,307 7.45%
Installment 2,266,970 46,159 8.26% 1,946,027 46,595 9.60%
Leases 364,642 - - 844,342 - -
--------------- ------------ ------------- -----------
Total loans/leases 30,808,240 657,226 8.65% 24,252,639 564,074 9.33%
--------------- ------------ ------------- -----------
Interest-bearing deposits 206,452 2,936 5.77% 400,542 6,216 6.22%
Federal funds sold 3,917,346 49,954 5.17% 6,088,250 79,247 5.22%
Investment securities 2,463,083 35,735 5.88% 1,330,306 18,132 5.47%
--------------- ------------ ------------- -----------
Total earning assets 37,395,121 745,851 8.09% 32,071,737 667,669 8.35%
============ ===========
Noninterest-earning assets
Cash and due from banks 1,723,761 1,747,137
Other assets 4,052,326 10,924,713
Allowance for loan losses/lease (578,687) (465,655)
--------------- -------------
Total assets $42,592,521 $44,277,932
=============== =============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and NOW accounts 2,481,104 14,281 2.33% 2,996,284 18,485 2.47%
Money market accounts 5,174,226 39,636 3.11% 5,907,445 46,493 3.16%
Time:
Under $100,000 16,730,474 223,815 5.43% 15,970,853 227,590 5.72%
$100,000 and over 6,241,450 81,964 5.33% 5,860,994 80,480 5.51%
--------------- ------------ ------------- -----------
Total interest-bearing
deposits 30,627,254 359,696 4.76% 30,735,576 373,048 4.87%
Short-term borrowings - - 2,722,649 2,320 11.24% *
--------------- ------------ ------------- -----------
Total interest-bearing
liabilities 30,627,254 359,696 5.29% 33,458,225 375,368 5.39% *
============ ===========
Non interest-bearing liabilities:
Demand deposits 7,699,756 6,639,027
Other liabilities 341,479 594,487
Redeemable preferred stock 1,236,000 -
Stockholders' equity 2,688,032 3,586,193
--------------- -------------
Total liabilities and
stockholders' equity $42,592,521 $44,277,932
=============== =============
Net interest income $386,155 $292,301
============ ===========
Net interest margin (1) 4.19% 3.66%
====== ======
Net interest spread (2) 2.80% 2.96%
====== ======
Fees included in loan income $ 6,401 $ 5,573
============ ===========
Taxable equivalent adjustment $ - $ -
============ ===========
<CAPTION>
For the Year Ended
December 31, 1996
- --------------------------------------------------------------------------------
Average Yield/
Balance Interest Rate
- --------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C>
Earning assets:
Loans/Leases:
Commercial $19,112,191 $1,860,952 9.74%
Real estate construction 2,031,003 175,921 8.66%
Real estate mortgage 2,762,087 215,294 7.79%
Installment 2,497,572 210,729 8.44%
Leases 807,442 - -
--------------- ------------
Total loans/leases 27,210,295 2,462,896 9.05%
--------------- ------------
Interest-bearing deposits 377,217 23,350 6.19%
Federal funds sold 4,203,072 224,807 5.35%
Investment securities 1,999,656 117,225 5.86%
--------------- ------------
Total earning assets 33,790,240 2,828,278 8.37%
============
Noninterest-earning assets
Cash and due from banks 1,768,340
Other assets 8,678,803
Allowance for loan losses/lease (495,103)
---------------
Total assets $43,742,280
===============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and NOW accounts 2,717,904 66,738 2.46%
Money market accounts 5,106,331 163,612 3.20%
Time:
Under $100,000 16,569,137 929,006 5.61%
$100,000 and over 6,237,825 338,733 5.43%
--------------- ------------
Total interest-bearing
deposits 30,631,197 1,498,089 4.89%
Short-term borrowings 1,624,107 64,762 12.82% *
--------------- -------------
Total interest-bearing
liabilities 32,255,304 $1,562,851 5.29% *
=============
Non interest-bearing liabilities:
Demand deposits 7,543,201
Other liabilities 470,137
Redeemable preferred stock 174,519
Stockholders' equity 3,299,119
---------------
Total liabilities and
stockholders' equity $43,742,280
===============
Net interest income $1,265,427
=============
Net interest margin (1) 3.74%
======
Net interest spread (2) 3.08%
======
Fees included in loan income $ 119,781
=============
Taxable equivalent adjustment $ -
=============
</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 $74,000 on short-term debt for the three
month period ended March 31, 1996, and $144,000 on short-term debt for the
year ended December 31, 1996.
(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 Three Months Ended March 31, 1997, as Compared
----------------------------------------------------------------------------
to the Three Months Ended March 31, 1996
----------------------------------------
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 $46,092 for the three month period ended March 31, 1997. This compares
with a loss of $200,641 for the same period of 1996. Earnings (loss) per share
were ($.03) for the first three months ended March 31, 1997, compared to ($.07)
for the first three months of 1996.
During the three month period ended March 31, 1997, UFBC's primary
subsidiary, The Business Bank (the Bank), increased the Company's earning asset
base. As of March 31, 1997, average total earning assets increased $5,323,000
or 16.6% when compared to the comparable period of March 31, 1996 (Consolidated
Average Balances table). The increase has favorably contributed to the
Company's earnings. However, the Company's real estate owned (REO) which are
nonearning assets, and related holding costs continue to hinder the Company's
profitability. At March 31, 1997, REO was $3,161,000 or 7.0% of the Company's
total assets (Consolidated Balance Sheets). Management continues to focus on
REO liquidation and as of March 31, 1997 had REO contracts (both firm and
pending) totaling approximately $1,262,000. Although there can be no assurance
of settlement, management anticipates that these contracts will close and settle
during the second or third quarter of 1997.
Net Interest Income
- -------------------
For the three month period ended March 31, 1997, net interest income
increased $94,000 or 32.1% from $292,000 at March 31, 1996 to $386,000 at March
31, 1997. 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 $6,556,000 or 27.0% from $24,253,000 at March
31, 1996 to $30,808,000 at March 31, 1997. Due to the increased loan volume,
interest and fees on loans rose $502,000 or 38.6% as of the three month period
ended March 31, 1997 when compared to the comparable period of 1996 which
favorably impacted net interest income.
For the same comparable period, interest income earned on federal funds sold
declined $29,000 or 37.0% (Consolidated Statements of Income). The drop
resulted from a substantial change in the investment mix, such as loans,
securities or federal funds, chosen by management during the comparable periods.
Interest earned on investment securities increased $18,000 or 97.1%. The
investment mix and higher yielding securities (Consolidated Average Balances
table) contributed to the rise.
Interest expense on deposits decreased $13,000 or 3.6% at March 31, 1997 when
compared to the period ended March 31, 1996. The decline reflects management's
continuing efforts to alter the Bank's deposit mix towards more core deposits.
As the Bank becomes less dependent on volatile certificates of deposits over
$100,000, management has had more freedom to restructure or reduce the rates
paid on interest-bearing deposits.
Provision for Loan/Lease Losses
- -------------------------------
During the first three months of 1997, the Bank replenished its allowance by
charging $20,000 against earnings compared to $72,942 charged against earnings
during the first three months of 1996. The parent company, UFBC, replenished
its allowance $11,000 during in the first three months of 1997.
7
<PAGE>
Short-term Borrowings
- ---------------------
The Company had no expense for borrowings during the first quarter ended
March 31, 1997. Borrowing expense during the first quarter ended March 31, 1996,
shown net of $74,000 of capitalized interest, was incurred as the result of
financing for the Company's North Ocean City project. Except for one unit which
is under contract, the North Ocean City project has concluded activities. All
borrowings were either repaid in full or converted to redeemable preferred stock
- - series A during the year ended December 31, 1996.
Noninterest Income
- ------------------
Total noninterest income increased $21,000 or 79.1% for the three months
ended March 31, 1997 compared to the comparable period of 1996. The rise is
primarily attributable to increased collection of service fees on deposits
during the first three months of 1997 when compared to the first three months of
1996. The loss incurred on the sale of REO during the first quarter ended March
31, 1996 also contributed to the variance between the two periods.
Noninterest Expense
- -------------------
Total noninterest expense was equal for the first three months of 1997 when
compared to the same period of 1996. The consistency between the two periods
is due principally to the Company's restructuring and management's continuing
efforts to curtail expenses even as the Company continues to grow. The
Company's restructuring also explains the $18,000 or 10.3% decrease in salary
expense during the three month period ended March 31, 1997 when compared to the
comparable period ended March 31, 1996.
For the three month period ended March 31, 1997 as compared to the comparable
period of 1995, occupancy expense increased $46,000 or 142.5% due to the rental
expense incurred on the space leased for the Bank. The cessation of
depreciation expense associated with ownership of the Bank building serves to
partially offset the increased expense and also contributed to the $22,000 or
18.3% decline in other expense. The cessation of a consulting arrangement with
the Company also contributed to the drop in other expense during the first
quarter ended March 31, 1997 when compared to the first quarter ended March 31,
1996.
Legal expense declined $14,000 or 81.4% during the first three months of
1997. The decline is principally attributable to significantly reduced
litigation expense in the parent during the first three months of 1997. During
the first three months of 1996, the parent, as plaintiff, incurred substantial
litigation expense associated with the subsidiary, Omni Homes, Inc.
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 three months ended March
31, 1997.
B. Financial Condition as of March 31, 1997
----------------------------------------
Assets
- ------
Total assets grew $3,366,000 or 8.1% during the first three months of 1997
when compared to the period ended December 31, 1996. The rise in assets is
primarily attributable to the Bank's increased volume of federal funds which
resulted from increased deposits. Net loans and lease financing increased
$211,000 or .07% to $30,245,00 at March 31, 1997 from $30,034,000 at December
31, 1996.
8
<PAGE>
Allowance for Loan/Lease Losses
- -------------------------------
The allowance for loan/lease losses (allowance) represents an amount which
management believe 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 March 31, 1997 and December 31, 1996, the allowance was $567,000 and
$584,000 or 1.8% and 1.9%, respectively, of total loans and leases.
Nonperforming loans for the three month period ended March 31, 1997 totaled
$114,000, of which $39,000 resided in the Bank and $75,000 in the parent. This
compares to a balance of $328,000 at December 31, 1996, of which $308,000
resided in the Bank and $20,000 resided in the parent. The consolidated
allowance for loan/lease losses covers nonperforming loans 4.97 times at March
31, 1997, compared to a coverage of 1.78 times at year end 1996.
Real Estate Owned and Other Assets
- ----------------------------------
REO increased $46,000 or 1.5% during the three month period ended March 31,
1997. The increase is due to a foreclosure upon one residential property by the
Bank which was partially offset by the sale one lot also owned by the Bank. At
December 31, 1996, other assets included proceeds in transit for the sale of a
piece of property. The Company received the proceeds in January 1997 and
explains the $143,000 or 30.9% decrease in other assets during the first three
months of 1997.
Liabilities
- -----------
Total deposits increased $3,003,000 or 7.8% during the first three months of
1997 when compared to the year ended 1996. During the three months ended March
31, 1997, the deposit mix changed as money market accounts rose $1,602,000 or
40.3% from $3,970,000 at December 31, 1996 to $5,572,000 at March 31, 1997. The
change is part of management's continuing plan to increase core deposits to
provide an adequate base for the Bank's growth.
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 15.5% of average total assets at
March 31, 1997 compared to 17.7% for the same period ended March 31, 1996 and
15.0% at December 31, 1996 (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.
9
<PAGE>
At March 31, 1997, the Bank's investment portfolio consisted of the
following:
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
------------------ ----------------
<S> <C> <C>
U.S. Treasury 2,388,750
U.S. Government Agency 100,000
Interest-bearing Deposits 200,000
(placed with financial institutions)
</TABLE>
Redeemable Preferred Stock
- --------------------------
The Company sold an additional 300 shares or $450,000 of Series A Preferred
Stock to a director and shareholder of beneficial ownership in excess of 5%
during the first three months of 1997. As of March 31,1997, redemption value of
the Company's redeemable preferred stock, at September 30, 2001, is projected to
be $1,786,000.
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 March 31, 1997, management believes that the
Company is in compliance with all terms and provisions of the Order and the
Agreement.
Capital Requirements
- --------------------
The Federal Reserve Board issued risk-based capital guidelines for bank holding
companies. The guidelines initially defined a two-tier capital framework. Tier
I Capital consists of common and qualifying preferred shareholders' equity less
intangible assets. Tier II Capital consists of mandatory convertible,
subordinated and other qualifying debt, preferred stock not qualifying as Tier I
Capital and the reserve for loan losses up to 1.25 percent of risk-weighted
assets. Under these guidelines, one of four risk weights is applied to the
different on-balance sheet assets. Off-balance sheet items such as loan
commitments are also applied a risk weight after conversion to balance sheet
equivalent amounts. Tier I and Tier II Capital require a minimum ratio of 4.0%
and 8.0%, respectively. The Federal Reserve issued another guideline, a minimum
Leverage ratio, which measures the ratio of Tier I capital to quarterly average
assets less intangible assets. A Leverage ratio of 3.0% must be maintained for
highly rated banks. Otherwise, the minimum leverage ratio, based upon the
institution's overall financial condition, must be at least 100 to 200 basis
points above the minimum. These guidelines were also adopted by the Federal
Deposit Insurance Corporation and therefore applies to the Company's banking
subsidiary. Additionally, the Federal Reserve Board requires bank holding
companies to meet a minimum ratio of qualifying Total (combined Tier I and Tier
II) capital to risk-weighted assets of 8.0%, at least half of which must be
composed of core (Tier I) capital elements. The following table presents the
Company and the Bank's capital position and related ratios as of March 31, 1997
and 1996.
10
<PAGE>
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Tier I Capital
Company $ 2,665,238 $ 3,458,194
The Business Bank 3,162,619 2,441,778
Total qualifying capital
Company $ 4,243,180 $ 3,906,729
The Business Bank 3,548,445 2,828,271
Risk-weighted assets
Company $ 31,366,222 $ 35,861,437
The Business Bank 30,714,692 30,919,433
Quarterly average assets
Company $ 42,592,521 $ 44,277,932
The Business Bank 41,593,904 39,564,094
</TABLE>
<TABLE>
<CAPTION>
Required
Risk-based capital ratios: 1997 1996 Minimum
------ ------ --------
<S> <C> <C> <C>
Tier I capital (Tier I
capital/risk-weighted assets)
Company 8.50% 9.64% 4.00%
The Business Bank 10.25% 7.90% 4.00%
Total capital (Total
capital/risk-weighted assets)
Company 13.53% 10.89% 8.00%
The Business Bank 11.50% 9.15% 8.00%
Leverage ratio (Tier I
capital/adjusted average assets)
Company 6.26% 7.81% *6.00%
The Business Bank 7.60% 6.17% *6.00%
</TABLE>
*Minimum required by the Order and Agreement
PART II. OTHER INFORMATION
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 March 31, 1997.
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/
---------------------------
Harold C. Rauner
President and CEO
/s/
---------------------------
Lisa M. Porter
Chief Financial Officer
Date: May 12, 1997
------------------------------
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000714286
<NAME> UNITED FINANCIAL BANKING COMPANIES, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,680,059
<INT-BEARING-DEPOSITS> 200,000
<FED-FUNDS-SOLD> 6,718,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,388,750
<INVESTMENTS-CARRYING> 100,000
<INVESTMENTS-MARKET> 101,088
<LOANS> 30,812,523
<ALLOWANCE> 567,349
<TOTAL-ASSETS> 44,967,632
<DEPOSITS> 40,737,339
<SHORT-TERM> 0
<LIABILITIES-OTHER> 325,743
<LONG-TERM> 0
1,246,000
0
<COMMON> 2,808,201
<OTHER-SE> (142,963)
<TOTAL-LIABILITIES-AND-EQUITY> 44,967,632
<INTEREST-LOAN> 657,226
<INTEREST-INVEST> 85,689
<INTEREST-OTHER> 2,936
<INTEREST-TOTAL> 745,851
<INTEREST-DEPOSIT> 359,696
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 386,155
<LOAN-LOSSES> 31,000
<SECURITIES-GAINS> (6,688)
<EXPENSE-OTHER> 443,516
<INCOME-PRETAX> (40,389)
<INCOME-PRE-EXTRAORDINARY> (40,389)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (46,092)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
<YIELD-ACTUAL> 8.09
<LOANS-NON> 114,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 20,698
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 584,106
<CHARGE-OFFS> 51,308
<RECOVERIES> 3,551
<ALLOWANCE-CLOSE> 567,349
<ALLOWANCE-DOMESTIC> 567,349
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 403,255
</TABLE>
