<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, 1998.
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
561,640 Shares Outstanding
as of March 31, 1998
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 - On December 31, 1997, United Financial Banking
Companies, Inc. adopted Statement of Financial Accounting Standards
No. 128, Earnings per share (SFAS 128), which supersedes Accounting
Principles Board Opinion No. 15. Under SFAS 128, earnings per
common share are computed by dividing net income (loss) available
to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per share
reflects the potential dilution, if any, that could occur if
securities or other contracts to issue common stock were exercised
or converted into common stock or resulted in the issuance of
common stock. There were no dilutive effects for the years
presented. Prior period amounts have been restated, where
appropriate, to conform to the requirements of SFAS 128.
Note 4 - On January 1, 1998, United Financial Banking Companies, Inc.
adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income (SFAS 130). Under SFAS 130, each
company is required to present a 'Statement of Comprehensive
Income'. Comprehensive income is defined as the change in equity
during a period from transactions and other events and
circumstances from non-owner sources such as foreign currency
items, minimum pension liability adjustments and unrealized gains
and losses on certain investments in debt and equity securities.
The required proforma disclosure has not been presented because of
an immaterial effect. United Financial Banking Companies, Inc. has
one comprehensive line item, unrealized loss on investments in debt
securities. For the first quarter ended March 31, 1998, the
unrealized loss totaled $5,288.
Note 5 - 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
---------------------------------------
1998 1997
----------------- ------------------
<S> <C> <C>
Interest income:
Interest and fees on loans/leases $ 864,559 $ 657,226
Interest on investment securities 46,053 35,735
Interest on federal funds sold 79,784 49,954
Interest on interest-bearing deposits 1,436 2,936
----------------- ------------------
Total interest income 991,832 745,851
----------------- ------------------
Interest expense:
Interest on deposits 456,481 359,696
Interest on short-term borrowings - -
----------------- ------------------
Total interest expense 456,481 359,696
----------------- ------------------
Net interest income 535,351 386,155
Provision for loan/lease losses 59,000 31,000
----------------- ------------------
Net interest income after provision
for loan/lease losses 476,351 355,155
Noninterest income:
Gain (loss) on sale of real estate
owned and other earning assets - 600
Loan servicing and other fees 18,620 20,796
Other income 45,241 26,576
----------------- ------------------
Total noninterest income 63,861 47,972
----------------- ------------------
Noninterest expense:
Salaries 222,556 155,993
Employee benefits 42,237 34,666
Occupancy 77,309 77,663
Furniture and equipment 15,767 11,495
Legal 12,571 3,289
FDIC Insurance 4,215 24,172
Data processing 28,888 22,980
Real estate owned holding expense 14,882 28,754
Provision for real estate owned losses 187,666 10,200
Other expense 64,728 74,304
----------------- ------------------
Total noninterest expense 670,819 443,516
----------------- ------------------
Income (loss) before income taxes (130,607) (40,389)
Provision (credit) for income taxes 1,052 5,703
----------------- ------------------
Net income (loss) $(131,659) $ (46,092)
================= ==================
Net income (loss) per share
of common stock $ (0.29) $ (0.13)
================= ==================
Weighted average number of
shares outstanding 561,640 561,640
================= ==================
</TABLE>
3
<PAGE>
UNITED FINANCIAL BANKING COMPANIES, INC., AND SUBSIDIARIES
Consolidated Balance Sheets/Financial Condition
<TABLE>
<CAPTION>
(Unaudited) (Audited)
March 31 December 31
Assets 1998 1997
------ ------------- -------------
<S> <C> <C>
Cash and due from banks $ 1,580,299 $ 2,282,418
Interest-bearing deposits in other banks 100,000 100,000
Federal funds sold 7,509,859 2,659,000
Investment Securities:
Available-for-sale (AFS) 2,697,369 1,700,876
Held-to-maturity (HTM) 1,742,726 1,082,773
Loans and lease financing, net of unearned
income of $26,768 and $40,702 37,320,231 38,084,861
Less: Allowance for loan/lease losses (774,527) (715,399)
------------- -------------
Net loans and lease financing 36,545,704 37,369,462
Real estate owned held for sale, net 2,376,990 2,368,104
Premises and equipment, net 173,423 164,018
Other assets 363,428 347,355
------------- -------------
Total assets $53,089,798 $48,074,006
============= =============
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Demand $10,824,669 $ 7,778,077
Savings and NOW 2,327,161 2,508,666
Money market 8,970,583 7,568,652
Time deposits:
Under $100,000 19,877,113 19,478,244
$100,000 and over 6,911,694 6,428,122
------------- -------------
Total deposits 48,911,220 43,761,761
------------- -------------
Short-term borrowings 50,000 -
Other liabilities 291,896 336,246
------------- -------------
Total liabilities 49,253,116 44,098,007
------------- -------------
Redeemable Preferred Stock:
Series A $-0- par value, authorized 900 shares, 800 shares
issued in 1998 and 1997, 10% cumulative dividend 1,366,000 1,336,000
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 561,640 shares at 3/30/98 and 12/31/97 561,640 561,640
Capital in excess of par value 12,613,622 12,643,622
Retained earnings (10,699,292) (10,567,633)
Unrealized holding gain (loss) - AFS securities (5,288) 2,370
------------- -------------
Total stockholders' equity 2,470,682 2,639,999
------------- -------------
Total liabilities and stockholders' equity $53,089,798 $48,074,006
============= =============
</TABLE>
4
<PAGE>
UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------
March 31, 1998 March 31, 1997
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ (131,659) $ (46,092)
Adjustment to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation & amortization 13,537 10,603
Provision for loan/lease losses 59,000 31,000
Provision for losses on real estate owned 187,666 10,200
Amortization of investment security discount (1,530) (1,003)
Amortization of loan fees and discounts, net (29,843) (4,471)
Net (gain) loss on sale of other real estate owned - -
(Increase) decrease in other assets (16,073) 142,305
Increase (decrease) in other liabilities (44,350) (30,051)
---------------- ----------------
Net cash provided by (used in) operating activities 36,748 112,491
---------------- ----------------
Cash flows from investing activities:
Loans originated - non-bank subsidiaries - -
Principal collected - non-bank subsidiaries 1,849 13,892
Loans and lease originations, net of collections 778,817 (377,128)
Loan fees and discounts deferred 13,935 15,761
Purchases of securities available-for-sale (1,603,422) (398,503)
Purchases of securities held-to-maturity (750,938) -
Investment made in other real estate owned (196,552) (94,520)
Proceeds received from maturity of securities available-for-sale 691,786 100,000
Proceeds received from maturity of securities held to maturity - 200,000
Proceeds from real estate owned - 143,856
Purchases of premises and equipment (22,942) (34,067)
---------------- ----------------
Net cash provided by (used in) investing activities (1,087,467) (430,709)
---------------- ----------------
Cash flow from financing activities:
Net increase (decrease) in demand deposits, savings
accounts, NOW accounts and money market accounts 4,267,018 1,674,319
Certificates of deposit sold (matured), net 882,441 1,328,445
Net change in short-term borrowings 50,000 -
Proceeds from issuance of redeemable preferred stock - 450,000
---------------- ----------------
Net cash provided by (used in) financing activities 5,199,459 3,452,764
---------------- ----------------
Net increase (decrease) in cash and cash equivalents 4,148,740 3,134,546
Cash and cash equivalents at beginning of the year 5,041,418 5,463,513
---------------- ----------------
Cash and cash equivalents at end of the quarter $ 9,190,158 $ 8,598,059
================ ================
Supplemental disclosures of cash flow information:
Cash paid during the years for:
Interest on deposits and other borrowings $ 460,309 $ 357,730
Income taxes 4,005 5,502
Non-Cash Items:
Effect on stockholders' equity of an unrealized gain (loss)
on debt and equity securities available-for-sale $ 7,658 $ (6,178)
Increase in foreclosed properties and decrease in loans $ - $ 110,000
Accrued dividend on preferred stock - series A $ 30,000 $ 27,250
</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, 1998 March 31, 1997
- ------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans/Leases:
Commercial $ 26,714,036 $ 639,282 9.71% $ 22,373,461 $ 500,540 9.07%
Real estate construction 2,334,383 54,353 9.44% 1,375,658 31,243 9.21%
Real estate mortgage 6,825,207 129,988 7.72% 4,427,509 79,284 7.26%
Installment 1,750,134 40,939 9.49% 2,266,970 46,159 8.26%
Leases 304,642 - - 364,642 - -
------------ --------- ------------ ---------
Total loans/leases 37,928,402 864,562 9.24% 30,808,240 657,226 8.65%
============ ========= ============ =========
Interest-bearing deposits 100,000 1,436 5.82% 206,452 2,936 5.77%
Federal funds sold 5,885,502 79,784 5.50% 3,917,346 49,954 5.17%
Investment securities 3,164,177 46,051 5.90% 2,463,083 35,735 5.88%
------------ --------- ------------ ---------
Total earning assets 47,078,081 991,833 8.54% 37,395,121 745,851 8.09%
========= =========
Noninterest-earning assets
Cash and due from banks 2,005,259 1,723,761
Other assets 2,870,289 4,052,326
Allowance for loan losses/lease (746,749) (578,687)
------------ ------------
Total assets $ 51,206,880 $ 42,592,521
============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and NOW accounts 2,345,836 13,640 2.36% 2,481,104 14,281 2.33%
Money market accounts 8,824,953 80,938 3.72% 5,174,226 39,636 3.11%
Time:
Under $100,000 19,873,943 270,265 5.52% 16,730,474 223,815 5.43%
$100,000 and over 6,889,905 91,639 5.39% 6,241,450 81,964 5.33%
------------ --------- ------------ ---------
Total interest-bearing
deposits 37,934,637 456,482 4.88% 30,627,254 359,696 4.76%
Short-term borrowings 16,667 - - - - -
------------ --------- ------------ ---------
Total interest-bearing
liabilities 37,951,304 456,482 4.88% 30,627,254 359,696 5.29%
========= =========
Non interest-bearing liabilities:
Demand deposits 9,098,260 7,699,756
Other liabilities 325,346 341,479
Redeemable preferred stock 1,356,000 1,236,000
Stockholders' equity 2,475,970 2,688,032
------------ ------------
Total liabilities and
stockholders' equity $ 51,206,880 $ 42,592,521
============ ============
Net interest income $ 535,351 $ 386,155
========= =========
Net interest margin (1) 4.61% 4.19%
===== =====
Net interest spread (2) 3.67% 2.80%
===== =====
Fees included in loan income $ 29,843 $ 6,401
========= =========
Taxable equivalent adjustment $ - $ -
========= =========
<CAPTION>
For the Year Ended
December 31, 1997
- ------------------------------------------------------------------------------
Average Yield/
Balance Interest Rate
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Earning assets:
Loans/Leases:
Commercial $ 23,856,037 $ 2,269,847 9.51%
Real estate construction 1,562,737 150,606 9.64%
Real estate mortgage 5,148,096 391,356 7.60%
Installment 1,974,646 179,572 9.09%
Leases 364,385 - -
------------ -----------
Total loans/leases 32,905,901 2,991,381 9.09%
------------ -----------
Interest-bearing deposits 151,613 8,914 5.88%
Federal funds sold 4,516,220 246,707 5.46%
Investment securities 3,157,053 186,866 5.92%
------------ -----------
Total earning assets 40,730,787 3,433,868 8.43%
===========
Noninterest-earning assets
Cash and due from banks 1,666,506
Other assets 3,700,273
Allowance for loan losses/lease (619,807)
------------
Total assets $ 45,477,759
============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and NOW accounts 2,598,967 60,902 2.34%
Money market accounts 6,918,458 231,789 3.35%
Time:
Under $100,000 17,579,511 884,041 5.40%*
$100,000 and over 5,976,740 318,472 5.33%
------------ -----------
Total interest-bearing
deposits 33,073,676 1,495,204 4.72%*
Short-term borrowings - - -
------------ -----------
Total interest-bearing
liabilities 33,073,676 1,495,204 4.72%*
===========
Non interest-bearing liabilities:
Demand deposits 8,104,143
Other liabilities 351,408
Redeemable preferred stock 1,281,000
Stockholders' equity 2,667,532
------------
Total liabilities and
stockholders' equity $ 45,477,759
============
Net interest income $ 1,938,664
===========
Net interest margin (1) 4.76%
=====
Net interest spread (2) 3.71%
=====
Fees included in loan income $ 92,770
===========
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 on real estate under development of $64,700 on
time deposits under $100,000 for the year ended December 31, 1997.
(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, 1998, as
-------------------------------------------------------------------
Compared to the Three Months Ended March 31, 1997
-------------------------------------------------
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 $131,659 for the three-month period ended March 31, 1998. This
compares with a net loss of $46,092 for the same period of 1997. Earnings
(loss) per share were ($.29) for the first three months ended March 31, 1998,
compared to ($.13) for the first three months of 1997.
The net loss for the first three months of 1998 is a setback primarily due
to a $150,000 write-down on a real estate owned (REO) property. During the past
year, UFBC's primary subsidiary, The Business Bank (the Bank), continued to
increase the Company's earning asset base. At March 31, 1998, average total
earning assets increased $9,683,000 or 25.9% when compared to the first three
months of March 31, 1997 (Consolidated Average Balances table). The increase
has favorably contributed to the Company's operating earnings. In March 1998,
the Company began a Private Placement Offering. The Company hopes to raise
$3,500,000 of common equity for the purpose of retiring the preferred stock -
series A and accrued dividends and to fund new growth opportunities for the
Bank.
Net Interest Income
- -------------------
For the three-month period ended March 31, 1998, net interest income
increased $149,000 or 38.6% from $386,000 at March 31, 1997 to $535,000 at
March 31, 1998. 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 $7,120,000 or 23.1% from $30,808,000
at March 31, 1997 to $37,928,000 at March 31, 1998. Due to the increased loan
volume, interest and fees on loans rose $207,000 or 31.6% as of the three-month
period ended March 31, 1998 when compared to the same period of 1997 which
favorably impacted net interest income.
For the same comparable three-month period, interest income earned on
federal funds sold increased $30,000 or 59.7% (Consolidated Statements of
Income). The increase 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 $10,000 or 28.9%.
The investment mix and increased volume of securities (Consolidated Average
Balances table) contributed to the rise. Interest on interest-bearing deposits
decreased 51.1% due to a decreased volume of deposits placed with financial
institutions.
Interest expense on deposits increased $97,000 or 26.9% at March 31, 1998
when compared to the three month period ended March 31, 1997. The increase is
primarily due to an increased volume of deposits in the Bank. At March 31,
1998, average total deposits increased $7,307,000 or 23.9% when compared to the
first quarter ended March 31, 1997.
Provision for Loan/Lease Losses
- -------------------------------
During the first three months of 1998, the Bank funded its allowance for
loan/lease losses by charging $59,000 against earnings compared to $31,000
charged against earnings during the first three months of 1997. During the
first three months of 1998, the parent company, UFBC, did not fund its allowance
compared to funding of $17,100 during the first three months of 1997.
7
<PAGE>
Noninterest Income
- ------------------
Total noninterest income increased $16,000 or 33.1% for the three months
ended March 31, 1998 compared to the same period of 1997. The increase is
primarily attributable to recognition of deferred income as the result of a loan
payoff.
Noninterest Expense
- -------------------
Total noninterest expense increased $227,000 or 51.3% during the first
three months of 1998 when compared to the same period of 1997. The increase is
due principally to the write-down on an REO property.
Salaries and employee benefits increased $74,000 or 38.9% from $191,000 at
March 31, 1997 to $265,000 at March 31, 1998. The rise is due to additional
staffing, a three percent cost of living adjustment and paid bonuses which
occurred in the first quarter of 1998.
Legal expense rose $9,300 or 282.2% during the three-month period ended
March 31, 1998 when compared to the first three months of 1997. During the
first quarter of 1998, the Bank incurred general legal fees in the normal course
of business. In the opinion of management, there were no legal matters pending
as of March 31, 1998 which would have a material adverse effect on the Company's
financial statements.
Expense for the Bank's FDIC insurance decreased $20,000 or 82.6% during the
three month period ended March 31, 1998 compared to the same period ended
March 31, 1997. The decline is attributable to an improved risk rating assessed
by the FDIC.
The provision for real estate owned (REO) losses increased $177,000 or
739.9% for the first three months of 1998 compared to the same period of 1997.
The rise is due partially to management's efforts to liquidate the Company's REO
in an expeditious manner. Though there can be no assurance, the $188,000 of
write-downs during the first three months of 1998 will expedite the sale of
approximately $490,000 of real estate held by the Bank. REO holding expense
decreased 14,000 or 48.2% for the first three months of 1998 when compared to
the first three months of 1997. The Company's liquidation of one large piece of
property during 1997, which eliminated the related holding costs, explains the
decline.
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, 1998.
B. Financial Condition as of March 31, 1998
----------------------------------------
Assets
- ------
Total assets grew $5,016,000 or 10.4% during the first three months of 1998
when compared to the period ended December 31, 1997. The rise in assets is
primarily attributable to the Bank's increased volume of core deposits which
were invested in federal funds sold and investment securities. Federal funds
sold and investment securities increased $6,507,000 or 219.6% from $5,443,000 at
December 31, 1997 to $11,950,000 at March 31, 1998.
8
<PAGE>
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 March 31, 1998 and December 31, 1997, the allowance was $775,000 and
$715,000, respectively, or 2.1% and 1.9% of total loans and leases.
Nonperforming loans for the three-month period ended March 31, 1998 totaled
$100,000 of which $31,000 resided in the Bank and $69,000 in the parent. This
compares to a balance of $102,000 at December 31, 1997, of which $31,000 resided
in the Bank and $71,000 resided in the parent. The consolidated allowance for
loan/lease losses covers nonperforming loans 7.75 times at March 31, 1998,
compared to a coverage of 7.01 times at year end 1997.
Liabilities
- -----------
Total deposits increased $5,149,000 or 11.8% during the first three months
of 1998 when compared to the year ended 1997. During the three months ended
March 31, 1998, the deposit mix changed favorably as demand deposits and money
market accounts rose $4,449,000 or 128.9% from $15,347,000 at December 31, 1997
to $19,795,000 at March 31, 1998. The change is part of management's continuing
plan to increase core deposits to provide a base for the Bank's growth.
Liquidity and Investment
- ------------------------
UFBC's operational needs were significantly reduced by the cancellation of
its debt to the FDIC in 1994, staff reduction and reduced professional fees.
For the near future, management projects that proceeds received from earning
assets, the liquidation of non-Bank REO and the sale of non-Bank assets will
provide sufficient cash flow for UFBC's continuing operational needs.
Consolidated average liquid assets were 21.8% of average total assets at
March 31, 1998 compared to 19.5% for the same period ended March 31, 1997 and
20.9% at December 31, 1997 (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 securities and state and municipal
securities. The Bank is strategically growing its securities portfolio to
ensure safe levels of liquidity, to enhance the overall credit quality of its
asset base, to generate increased interest income, to balance assets and
liabilities and to hedge interest rate risk. 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 March 31, 1998, the Bank's investment portfolio consisted of the
following:
Available-for-Sale Held-to-Maturity
------------------ ----------------
U.S. Treasury 1,099,271 750,604
U.S. Government Agency 1,598,098 547,255
State and Municipal 444,867
9
<PAGE>
Redeemable Preferred Stock
- --------------------------
During the first three months ended March 31, 1998, the Company accrued
$30,000 of dividends on the series A preferred stock. Management anticipates
that the preferred stock - series A will be retired during the second quarter of
1998 from proceeds of the 1998 Private Placement Offering. As of March 31,
1998, redemption value of the Company's preferred stock - series A, if held
until September 30, 2001, is projected to be $1,786,000.
Regulatory Agreements and Compliance
- ------------------------------------
On May 19, 1997, the Board of Directors of the Bank submitted a resolution
to the FDIC and to the SCC. The resolution addressed various areas of operation
and includes provisions to monitor the Bank's profitability. As of March 31,
1998, management believes that the Bank is in compliance with all terms of the
resolution.
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, 1998 and 1997.
1998 1997
---------- ----------
Tier I Capital
Company $ 2,475,970 $ 2,665,238
The Business Bank 3,756,696 3,162,619
Total qualifying capital
Company $ 3,684,816 $ 4,243,180
The Business Bank 4,220,057 3,548,445
Risk-weighted assets
Company $ 36,975,956 $ 31,366,222
The Business Bank 36,807,924 30,714,692
Quarterly average assets
Company $ 51,206,880 $ 42,592,521
The Business Bank 51,200,042 41,593,904
Required
Risk-based capital ratios: 1998 1997 Minimum
---------- ---------- ----------
Tier I Capital (Tier I
capital/risk-weighted assets)
Company 6.70% 8.50% 4.00%
The Business Bank 10.21% 10.25% 4.00%
Total Capital (Total
capital/risk-weighted assets)
Company 9.97% 13.53% 8.00%
The Business Bank 11.47% 11.50% 8.00%
Leverage ratio (Tier I
capital/adjusted average assets)
Company 4.84% 6.26% 4.00%
The Business Bank 7.34% 7.60% ***6.00%
***Minimum goal of the Board Resolution
10
<PAGE>
Earnings Per Share
- ------------------
The following table is a reconciliation of earnings per common share as
computed under SFAS 128.
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
For the three months ended March 31, 1998
Net Income $ (131,659)
Less: Preferred Stock Dividends ( 30,000)
========
Basic earnings (loss) per common share:
Income available to common stockholders (161,659) 561,640 $ (.29)
======== ======= =======
For the three months ended March 31, 1997
Net Income $ (46,092)
Less: Preferred Stock Dividends (27,250)
-------
Basic earnings (loss) per common share:
Income available to common stockholders (73,342) 561,640 $ (.13)
======= ======= =======
</TABLE>
PART II. OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(6) None.
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
-----------------------------------------
Harold C. Rauner
President and CEO
/s/ LISA M. PORTER
-----------------------------------------
Lisa M. Porter
Chief Financial Officer
Date: March 14, 1998
------------------------
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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,580,299
<INT-BEARING-DEPOSITS> 100,000
<FED-FUNDS-SOLD> 7,509,859
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,742,726
<INVESTMENTS-CARRYING> 2,702,657
<INVESTMENTS-MARKET> 2,692,081
<LOANS> 37,320,231
<ALLOWANCE> 774,527
<TOTAL-ASSETS> 53,089,798
<DEPOSITS> 48,911,220
<SHORT-TERM> 50,000
<LIABILITIES-OTHER> 291,896
<LONG-TERM> 0
1,366,000
0
<COMMON> 561,640
<OTHER-SE> 1,909,042
<TOTAL-LIABILITIES-AND-EQUITY> 53,089,798
<INTEREST-LOAN> 864,559
<INTEREST-INVEST> 125,837
<INTEREST-OTHER> 1,436
<INTEREST-TOTAL> 991,832
<INTEREST-DEPOSIT> 456,481
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 535,351
<LOAN-LOSSES> 59,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 670,819
<INCOME-PRETAX> (131,659)
<INCOME-PRE-EXTRAORDINARY> (131,659)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (131,659)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
<YIELD-ACTUAL> 9.24
<LOANS-NON> 100,418
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 715,399
<CHARGE-OFFS> 0
<RECOVERIES> 129
<ALLOWANCE-CLOSE> 774,527
<ALLOWANCE-DOMESTIC> 774,527
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 447,928
</TABLE>
