<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, 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 June 30, 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 $57,250 for the first six months ended June 30, 1997 and $-0-
for the same period ended June 30, 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 MARCH 31, MARCH 31, OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------------------------------------------------------
1997 1996 1997 1996
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans/leases $ 754,618 $ 592,546 $1,411,844 $1,156,620
Interest on investment securities 45,794 30,072 81,529 48,204
Interest on federal funds sold 89,553 70,488 139,507 149,735
Interest on interest-bearing deposits 3,107 6,111 6,043 12,327
---------- ---------- ---------- ----------
Total interest income 893,072 699,217 1,638,923 1,366,886
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits 387,506 381,476 747,202 754,524
Interest on short-term borrowings - 17,681 - 20,001
---------- ---------- ---------- ----------
Total interest expense 387,506 399,157 747,202 774,525
---------- ---------- ---------- ----------
Net interest income 505,566 300,060 891,721 592,361
PROVISION FOR LOAN/LEASE LOSSES 66,100 41,000 97,100 113,942
---------- ---------- ---------- ----------
Net interest income after provision
for loan/lease losses 439,466 259,060 794,621 478,419
NONINTEREST INCOME:
Gain (loss) on sale of real estate
owned and other earning assets 28,210 26,655 28,810 18,019
Loan servicing and other fees 16,791 20,015 37,587 39,520
Other income 29,382 17,062 55,958 32,979
---------- ---------- ---------- ----------
Total noninterest income 74,383 63,732 122,355 90,518
---------- ---------- ---------- ----------
NONINTEREST EXPENSE:
Salaries 220,867 185,609 376,860 359,523
Employee benefits 31,866 35,624 66,532 71,246
Occupancy 74,318 39,029 151,981 71,052
Furniture and equipment 13,843 10,443 25,338 21,716
Legal 8,391 44,394 11,680 62,084
FDIC Insurance 23,027 21,768 47,199 42,407
Data processing 21,918 21,887 46,090 44,469
Real estate owned holding expense 21,533 57,716 50,287 91,194
Provision for real estate owned losses 14,300 - 24,500 -
Other expense 62,421 123,033 135,533 196,975
---------- ---------- ---------- ----------
Total noninterest expense 492,484 539,503 936,000 960,666
---------- ---------- ---------- ----------
Income (loss) before income taxes 21,365 (216,711) (19,024) (391,729)
Provision (credit) for income taxes 4,347 1,862 10,050 4,903
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 17,018 $ (218,573) $ (29,074) $ (396,632)
========== ========== ========== ==========
Net income (loss) per share
of common stock $ - $ (0.08) $ (0.03) $ (0.14)
========== ========== ========== ==========
Weighted average number of
shares outstanding 2,808,201 2,802,926 2,808,201 2,808,201
========== ========== ========== ==========
</TABLE>
3
<PAGE>
UNITED FINANCIAL BANKING COMPANIES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS / FINANCIAL CONDITION
<TABLE>
<CAPTION>
(Unaudited) (Audited)
June 30 December 31
ASSETS 1997 1996
------ ------------- -------------
<S> <C> <C>
Cash and due from banks $ 2,060,916 $ 4,265,513
Interest-bearing deposits in other banks 200,000 300,000
Federal funds sold 3,886,000 898,000
Investment Securities:
Available-for-sale (AFS) 2,497,062 2,095,422
Held-to-maturity (HTM) 1,048,890 300,000
Loans and lease financing, net of unearned
income of $33,603 and $67,848 32,554,194 30,618,335
Less: Allowance for loan/lease losses (611,286) (584,106)
------------ -------------
Net loans and lease financing 31,942,908 30,034,229
Real estate owned held for sale, net 2,982,985 3,115,080
Premises and equipment, net 178,113 132,712
Other assets 416,258 460,733
------------ -------------
Total assets $ 45,213,132 $ 41,601,689
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------
Deposits:
Demand $ 7,668,835 $ 7,897,677
Savings and NOW 2,919,838 2,779,982
Money market 6,558,419 3,970,348
Time deposits:
Under $100,000 18,124,579 16,763,355
$100,000 and over 5,666,857 6,323,212
------------ -------------
Total deposits 40,938,528 37,734,574
------------ -------------
Short-term borrowings - -
Other liabilities 345,791 360,295
------------ -------------
Total liabilities 41,284,319 38,094,869
------------ -------------
Redeemable Preferred Stock:
Series A $-0- par value, authorized 900 shares, 800 shares
issued in 1997 and 500 shares in 1996, 10% cumulative
dividend 1,276,000 768,750
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 6/30/97 and
12/31/96 2,808,201 2,808,201
Capital in excess of par value 10,457,061 10,514,311
Retained earnings (10,613,006) (10,583,932)
Unrealized holding gain (loss) - AFS securities 557 (510)
------------ -------------
Total stockholders' equity 2,652,813 2,738,070
------------ -------------
Total liabilities and stockholders' equity $ 45,213,132 $ 41,601,689
============ =============
</TABLE>
4
<PAGE>
UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
------------------------------
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ (29,074) $ (396,632)
Adjustment to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation & amortization 22,760 35,786
Provision for loan/lease losses 97,100 113,942
Provision for losses on real estate owned 24,500 -
Amortization of investment security discount (2,904) (20,926)
Amortization of loan fees and discounts (16,513) (15,770)
Net (gain) loss on sale of other real estate owned (28,210) 11,022
(Increase) decrease in other assets 44,476 156,663
Increase (decrease) in other liabilities (10,003) 14,273
------------- -------------
Net cash provided by (used in) operating activities 102,132 (101,642)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collected - non-bank subsidiaries 16,029 -
Loans and lease originations, net of collections (2,207,296) (3,194,875)
Purchases of securities available-for-sale (AFS) (1,646,559) (875,939)
Investment made in other real estate owned (443,378) (3,578,981)
Proceeds received from maturity of AFS securities 300,000 -
Proceeds received from maturity of HTM securities 200,000 -
Proceeds from real estate owned 776,683 4,414,727
Purchases of premises and equipment (68,161) (7,185)
------------- -------------
Net cash provided by (used in) investing activities (3,072,682) (3,242,253)
------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, savings
accounts, NOW accounts and money market accounts 2,512,759 (41,477)
Certificates of deposit sold (matured), net 691,194 1,762,729
Net change in short-term borrowings - 37,417
Proceeds from issuance of redeemable preferred stock 450,000 -
------------- -------------
Net cash provided by (used in) financing activities 3,653,953 1,758,669
------------- -------------
Net increase (decrease) in cash and cash equivalents 683,403 (1,585,226)
Cash and cash equivalents at beginning of the year 5,463,513 8,547,687
------------- -------------
Cash and cash equivalents at end of the quarter $ 6,146,916 $ 6,962,461
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest on deposits and other borrowings $ 770,305 $ 895,244
Income taxes 7,249 5,104
NON-CASH ITEMS:
Effect on stockholders' equity of an unrealized gain (loss)
on debt and equity securities available-for-sale $ 1,067 $ (17,341)
Increase in foreclosed properties and decrease in loans $ 202,000 $ -
Accrued dividend on preferred stock - series A $ 57,250 $ -
</TABLE>
<PAGE>
- ----------------------------------------------------
UNITED FINANCIAL BANKING COMPANIES, INC.
CONSOLIDATED AVERAGE BALANCES/NET INTEREST ANALYSIS/
YIELDS AND RATES
- ----------------------------------------------------
<TABLE>
<CAPTION>
For the Six Month Period Ended For the Year Ended
June 30, 1997 June 30, 1996 December 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans/Leases:
Commercial $22,755,402 $ 1,088,878 9.65% $18,163,480 $ 901,584 9.95% $19,112,191 $1,860,952 9.74%
Real estate construction 1,391,658 61,063 8.85% 2,067,744 86,176 8.36% 2,031,003 175,921 8.66%
Real estate mortgage 4,579,798 168,938 7.44% 1,849,647 72,317 7.84% 2,762,087 215,294 7.79%
Installment 2,203,903 92,965 8.51% 2,003,537 96,543 9.66% 2,497,572 210,729 8.44%
Leases 364,642 - - 844,342 - - 807,442 - -
----------- ----------- ---- ----------- ---------- ----- ----------- ---------- -----
Total loans/leases 31,295,403 1,411,844 9.10% 24,928,750 1,156,620 9.30% 27,210,295 2,462,896 9.05%
----------- ----------- ---- ----------- ---------- ----- ----------- ---------- -----
Interest-bearing deposits 203,226 6,043 6.00% 400,545 12,327 6.17% 377,217 23,350 6.19%
Federal funds sold 5,046,387 139,507 5.57% 5,659,160 149,735 5.31% 4,203,072 224,807 5.35%
Investment securities 2,788,923 81,529 5.90% 1,668,954 48,204 5.79% 1,999,656 117,225 5.86%
----------- ----------- ---- ----------- ---------- ----- ----------- ---------- -----
Total earning assets 39,333,939 1,638,923 8.40% 32,657,409 1,366,886 8.39% 33,790,240 2,828,278 8.37%
=========== ========== ========== =====
Noninterest-earning assets
Cash and due from banks 1,654,204 1,678,916 1,768,340
Other assets 4,010,149 10,536,164 8,678,803
Allowance for loan losses/lease (581,142) (471,688) (495,103)
----------- ----------- -----------
Total assets $44,417,150 $44,400,801 $43,742,280
=========== =========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and NOW accounts 2,652,529 30,664 2.33% 2,889,965 35,349 2.45% 2,717,904 66,738 2.46%
Money market accounts 6,141,970 97,946 3.22% 5,287,797 83,474 3.17% 5,106,331 163,612 3.20%
Time:
Under $100,000 17,579,494 456,425 5.40%* 16,490,938 466,552 5.67% 16,569,137 929,006 5.61%
$100,000 and over 6,169,229 162,167 5.30% 6,220,486 169,149 5.45% 6,237,825 338,733 5.43%
----------- ----------- ---- ----------- ---------- ----- ----------- ---------- -----
Total interest-bearing
deposits 32,543,222 747,202 4.72%* 30,889,186 754,524 4.90% 30,631,197 1,498,089 4.89%
Short-term borrowings - - - 2,580,485 20,001 12.75%* 1,624,107 64,762 12.82%*
----------- ----------- ---- ----------- ---------- ----- ----------- ---------- -----
Total interest-bearing
liabilities 32,543,222 747,202 4.72%* 33,469,671 774,525 5.50%* 32,255,304 $1,562,851 5.29%*
=========== ========== ==========
Non interest-bearing liabilities:
Demand deposits 7,606,982 6,901,454 7,543,201
Other liabilities 345,214 531,601 470,137
Redeemable preferred stock 1,251,000 - 174,519
Stockholders' equity 2,670,732 3,498,075 3,299,119
----------- ----------- -----------
Total liabilities and
stockholders' equity $44,417,150 $44,400,801 $43,742,280
=========== =========== ===========
Net interest income $ 891,721 $ 592,361 $1,265,427
=========== ========== ==========
Net interest margin (1) 4.57% 3.64% 3.74%
==== ===== =====
Net interest spread (2) 3.68% 2.89% 3.08
==== ===== =====
Fees included in loan income $ 14,172 $ 82,650 $ 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 $14,300 on CODs under $100,000
for the six month period ended June 30, 1997, and $74,000 on short-term
debt for the six month period ended June 30, 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 Six Months Ended June 30, 1997, as Compared
-------------------------------------------------------------------------
to the Six Months Ended June 30, 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 $29,074 for the six-month period ended June 30, 1997. This compares
with a loss of $396,632 for the same period of 1996. Earnings (loss) per share
were ($.03) for the first six months ended June 30, 1997, compared to ($.14) for
the first six months of 1996.
During the six-month period ended June 30, 1997, UFBC's primary subsidiary,
The Business Bank (the Bank), increased the Company's earning asset base. As of
June 30, 1997, average total earning assets increased $6,677,000 or 20.4% when
compared to the comparable period of June 30, 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 June 30, 1997, REO was $2,983,000 or 6.6% of the Company's
total assets (Consolidated Balance Sheets). Management continues to focus on
REO liquidation and as of June 30, 1997 had REO contracts (both firm and
pending) totaling approximately $1,060,000. Although there can be no assurance
of settlement, management anticipates that these contracts will close and settle
during the third quarter of 1997.
NET INTEREST INCOME
- -------------------
For the six-month period ended June 30, 1997, net interest income increased
$300,000 or 50.5% from $592,000 at June 30, 1996 to $892,000 at June 30, 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 $6,367,000 or 20.4% from $24,929,000 at June 30,
1996 to $31,296,000 at June 30, 1997. Due to the increased loan volume,
interest and fees on loans rose $272,000 or 19.9% as of the six-month period
ended June 30, 1997 when compared to the comparable period of 1996 which
favorably impacted net interest income.
For the same comparable six-month period, interest income earned on federal
funds sold declined $10,000 or 6.8% (Consolidated Statements of Income). The
drop resulted from a 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 $33,000 or 69.1%. The investment mix
and higher yielding securities (Consolidated Average Balances table)
contributed to the rise. The modified investment mix also explains the
variances of the three-month period ended June 30, 1997 when compared to the
same three-month period ended June 30, 1996.
Interest expense on deposits decreased $7,000 or 1.0% at June 30, 1997 when
compared to the period ended June 30, 1996. The decline reflects management's
continuing efforts to alter the Bank's deposit mix toward more core deposits.
At June 30, 1997, capitalized interest totaling $14,300 was netted against
interest expense on deposits and also contributed to the decrease. As the Bank
becomes less dependent on volatile certificates of deposits more than $100,000,
management has had more freedom to restructure or reduce the rates paid on
interest-bearing deposits.
7
<PAGE>
SHORT-TERM BORROWINGS
- ---------------------
The Company had no expense for borrowings during the first six months of
1997. Borrowing expense during the three month and six month periods ended June
30, 1996, shown net of $144,000 of capitalized interest, was incurred as the
result of financing for the Company's North Ocean City project. The North Ocean
City project concluded activities in April 1997. All borrowings were either
repaid in full or converted to redeemable preferred stock - series A during the
year ended December 31, 1996.
PROVISION FOR LOAN/LEASE LOSSES
- -------------------------------
During the first six months of 1997, the Bank replenished its allowance by
charging $80,000 against earnings compared to $113,942 charged against earnings
during the first six months of 1996. The parent company, UFBC, replenished its
allowance $17,100 during in the first six months of 1997.
NONINTEREST INCOME
- ------------------
Total noninterest income increased $32,000 or 35.2% for the six months
ended June 30, 1997 compared to the comparable period of 1996. The rise is
primarily attributable to increased collection of service fees on deposits
during the first six months of 1997 when compared to the first six months of
1996. The gain on the sale of REO during the first six months ended June 30,
1997 also contributed to the variance between the two periods.
NONINTEREST EXPENSE
- -------------------
Total noninterest expense decreased $25,000 or 2.6% during the first six
months of 1997 when compared to the same period of 1996. The decline is due
principally to the Company's restructuring and management's continuing efforts
to curtail expenses even as the Company continues to grow.
For the six-month period ended June 30, 1997 as compared to the comparable
period of 1996, occupancy expense increased $81,000 or 113.9% due to the rental
expense incurred for 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 $61,000 or
31.2% decline in other expense. The cessation of a consulting arrangement with
the Company also contributed to the drop in other expense during the first six
months ended June 30, 1997 when compared to the first six months ended June 30,
1996.
Legal expense declined $36,000 or 81.1% during the three-month period ended
June 30, 1997 and $50,000 or 81.2% during the first six months of 1997 when
compared to the comparable periods of 1996. The decline is principally
attributable to significantly reduced litigation expense in the parent during
the first six months of 1997. During the first six 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 six months ended June
30, 1997.
8
<PAGE>
B. FINANCIAL CONDITION AS OF JUNE 30, 1997
---------------------------------------
ASSETS
- ------
Total assets grew $3,611,000 or 8.7% during the first six 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
$1,936,000 or 6.3% to $32,554,194 at June 30, 1997 from $30,618,000 at December
31, 1996.
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 June 30, 1997 and December 31, 1996, the allowance was $611,000 and
$584,000, respectively, or 1.9% of total loans and leases. Nonperforming loans
for the six-month period ended June 30, 1997 totaled $105,000, of which $32,000
resided in the Bank and $73,000 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 5.82 times at June 30, 1997, compared to a coverage of 1.78
times at year end 1996.
Real Estate Owned, Premises and Equipment, Other Assets
- -------------------------------------------------------
REO decreased $132,000 or 4.2% during the six-month period ended June 30,
1997. The decrease is due to sales. During the first six months of 1997, the
Bank installed an ATM and upgraded or changed several pieces of equipment which
primarily accounts for the $45,000 or 34.2% rise in Premises and Equipment. At
June 30, 1997 and December 31, 1996, other assets included proceeds in transit
for REO sales which explains the elevated balance at both dates.
LIABILITIES
- -----------
Total deposits increased $3,204,000 or 8.5% during the first six months of
1997 when compared to the year ended 1996. During the six months ended June 30,
1997, the deposit mix changed as money market accounts rose $2,588,000 or 65.2%
from $3,970,000 at December 31, 1996 to $6,558,000 at June 30, 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.
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 21.8% of average total assets at
June 30, 1997 compared to 21.1% for the same period ended June 30, 1996 and
19.1% at December 31, 1996 (Consolidated Average Balances table). The Company's
liquidity needs exist primarily in the Bank subsidiary. 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
9
<PAGE>
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 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, 1997, the Bank's investment portfolio consisted of the
following:
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
------------------ ----------------
<S> <C> <C>
U.S. Treasury 2,497,062 249,500
U.S. Government Agency 799,390
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 six months of 1997. As of June 30, 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 June 2, 1997, the State Corporation Commission Bureau of Financial
Institutions (SCC) terminated its participation in the Order to Cease and Desist
issued by the Federal Deposit Insurance Corporation (FDIC) against the Business
Bank (Bank), the primary subsidiary of United Financial Banking Companies, Inc.,
on August 12, 1993.
Effective June 3, 1997, the FDIC terminated the Order to Cease and Desist
issued against the Bank on August 12, 1993.
Previously, on May 19, 1997, the Board of Directors of the Bank submitted a
resolution to the FDIC and to the SCC. The resolution included the following:
(1) The Bank will maintain a Tier 1 Leverage Capital ratio of 6.0 percent
or more and a Total Risk Based Capital ratio of 8.0 percent or more. In
the event that the Tier 1 and/or Total Risk Based Capital ratio falls
below the prescribed percentages as calculated on a quarterly calendar
period, the Bank agrees to notify the Supervisory Authorities and that
within ninety days capital will be increased in an amount sufficient to
meet the ratios agreed to herein.
(2) The Bank Board of Directors and management will develop specific plans
of action for each asset adversely classified as of December 31, 1996
in the amount of $200,000 or more.
(3) The Bank will prepare and submit to Supervisory Authorities a
comprehensive budget and earnings forecast for each calendar year.
(4) The Bank will not pay any cash dividends without written consent from
Supervisory Authorities.
(5) The Bank will not accept, renew or roll over brokered deposits without
the prior consent of Supervisory Authorities.
(6) Quarterly, the Bank will submit progress reports to Supervisory
Authorities addressing each provision above.
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
10
<PAGE>
of the Commonwealth of Virginia. The Agreement addressed 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 Agreement also includes provisions to monitor the Company's progress toward
profitability. As of June 30, 1997, management believes that the Company is in
compliance with all terms and provisions of 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 June 30, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Tier I Capital
Company $ 2,652,256 $ 3,268,307
The Business Bank 3,346,094 2,533,415
Total qualifying capital
Company $ 4,270,756 $ 3,704,230
The Business Bank 3,745,054 2,939,764
Risk-weighted assets
Company $32,299,043 $34,827,569
The Business Bank 31,916,769 32,507,897
Quarterly average assets
Company $45,626,581 $44,887,750
The Business Bank 45,409,870 41,194,072
<CAPTION>
Required
Risk-based capital ratios: 1997 1996 Minimum
----- -------- ---------
<S> <C> <C> <C>
Tier I Capital (Tier I capital/risk-weighted assets)
Company 8.21% 9.38% 4.00%
The Business Bank 10.48% 7.79% 4.00%
Total Capital (Total capital/risk-weighted assets)
Company 13.22% 10.64% 8.00%
The Business Bank 11.73% 9.04% 8.00%
Leverage ratio (Tier I capital/adjusted average assets)
Company 5.81% 7.28% 4.00%
The Business Bank 7.49% 6.02% ***6.00%
</TABLE>
***Minimum goal of the Board Resolution
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(4) At the United Financial Banking Companies, Inc. Annual Meeting of
Shareholders held on June 6, 1997, the shareholders elected William J.
McCormick, Jr. to serve as a class 1 director until the 2000 Annual
Meeting of Shareholders.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(6) On June 2, 1997, United Financial Banking Companies, Inc. filed
notification on Form 8-K that the FDIC terminated the Order to Cease and
Desist issued against the Bank on August 12, 1993. The content of the
June 2, 1997 8-K is disclosed on pages 10 and 11 (Regulatory Agreements
and Compliance) of this filing.
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/ HAROLD C. RAUNER
------------------------------------
Harold C. Rauner
President and CEO
/s/ LISA M. PORTER
------------------------------------
Lisa M. Porter
Chief Financial Officer
Date: August 12, 1997
-----------------
13
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,060,916
<INT-BEARING-DEPOSITS> 200,000
<FED-FUNDS-SOLD> 3,886,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,497,062
<INVESTMENTS-CARRYING> 1,048,890
<INVESTMENTS-MARKET> 1,103,419
<LOANS> 32,554,194
<ALLOWANCE> 611,286
<TOTAL-ASSETS> 45,213,132
<DEPOSITS> 40,938,528
<SHORT-TERM> 0
<LIABILITIES-OTHER> 345,791
<LONG-TERM> 0
1,276,000
0
<COMMON> 2,808,201
<OTHER-SE> (155,945)
<TOTAL-LIABILITIES-AND-EQUITY> 45,213,132
<INTEREST-LOAN> 1,411,844
<INTEREST-INVEST> 221,036
<INTEREST-OTHER> 6,043
<INTEREST-TOTAL> 1,638,923
<INTEREST-DEPOSIT> 747,202
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 891,721
<LOAN-LOSSES> 97,100
<SECURITIES-GAINS> 1,067
<EXPENSE-OTHER> 936,000
<INCOME-PRETAX> (19,024)
<INCOME-PRE-EXTRAORDINARY> (19,024)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,074)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
<YIELD-ACTUAL> 8.40
<LOANS-NON> 105,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 20,698
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 584,106
<CHARGE-OFFS> 75,940
<RECOVERIES> 6,020
<ALLOWANCE-CLOSE> 611,286
<ALLOWANCE-DOMESTIC> 611,286
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 602,784
</TABLE>
