<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, 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
807,590 Shares Outstanding
as of June 30, 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 June 30, 1998, the unrealized loss totaled $4,473.
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 Six Months Ended
June 30 June 30
------------------------------ ------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans/leases $ 820,897 $ 754,618 $ 1,685,456 $ 1,411,844
Interest on investment securities 68,724 45,794 114,777 81,529
Interest on federal funds sold 93,365 89,553 173,149 139,507
Interest on interest-bearing deposits 1,435 3,107 2,871 6,043
------------- ------------- ------------- -------------
Total interest income 984,421 893,072 1,976,253 1,638,923
------------- ------------- ------------- -------------
Interest expense:
Interest on deposits 456,467 387,506 912,948 747,202
Interest on short-term borrowings 808 - 808 -
------------- ------------- ------------- -------------
Total interest expense 457,275 387,506 913,756 747,202
------------- ------------- ------------- -------------
Net interest income 527,146 505,566 1,062,497 891,721
Provision for loan/lease losses 36,000 66,100 95,000 97,100
------------- ------------- ------------- -------------
Net interest income after provision
for loan/lease losses 491,146 439,466 967,497 794,621
Noninterest income:
Gain (loss) on sale of real estate
owned and other earning assets (9,327) 28,210 (9,327) 28,810
Loan servicing and other fees 30,709 16,791 49,329 37,587
Other income 35,296 29,382 80,537 55,958
------------- ------------- ------------- -------------
Total noninterest income 56,678 74,383 120,539 122,355
------------- ------------- ------------- -------------
Noninterest expense:
Salaries 213,440 220,867 435,996 376,860
Employee benefits 40,994 31,866 83,231 66,532
Occupancy 76,367 74,318 153,676 151,981
Furniture and equipment 17,494 13,843 33,261 25,338
Legal 9,790 8,391 22,361 11,680
FDIC Insurance 4,506 23,027 8,721 47,199
Data processing 25,730 21,918 54,618 46,090
Real estate owned holding expense 9,057 21,533 23,939 50,287
Provision for real estate owned losses - 14,300 187,666 24,500
Other expense 67,249 66,768 133,029 145,583
------------- ------------- ------------- -------------
Total noninterest expense 464,627 496,831 1,136,498 946,050
------------- ------------- ------------- -------------
Income (loss) before income taxes 83,197 17,018 (48,462) (29,074)
Provision (credit) for income taxes - - - -
------------- ------------- ------------- -------------
Net income (loss) $ 83,197 $ 17,018 $ (48,462) $ (29,074)
============= ============= ============= =============
Net income (loss) per share
of common stock $ 0.13 $ - $ (0.16) $ (0.03)
============= ============= ============= =============
Weighted average number of
shares outstanding 599,805 2,808,201 599,805 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 1998 1997
------ ---------------- ----------------
<S> <C> <C>
Cash and due from banks $ 1,456,231 $ 2,282,418
Interest-bearing deposits in other banks 100,000 100,000
Federal funds sold 5,968,000 2,659,000
Investment Securities:
Available-for-sale (AFS) 4,375,700 1,700,876
Held-to-maturity (HTM) 1,743,450 1,082,773
Loans and lease financing, net of unearned
income of $29,332 and $40,702 35,866,773 38,084,861
Less: Allowance for loan/lease losses (739,274) (715,399)
---------------- ----------------
Net loans and lease financing 35,127,499 37,369,462
Real estate owned held for sale, net 1,963,690 2,368,104
Premises and equipment, net 164,330 164,018
Other assets 586,218 347,355
---------------- ----------------
Total assets $ 51,485,118 $ 48,074,006
================ ================
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Demand $ 9,665,026 $ 7,778,077
Savings and NOW 2,301,577 2,508,666
Money market 8,128,314 7,568,652
Time deposits:
Under $100,000 19,736,758 19,478,244
$100,000 and over 6,590,795 6,428,122
---------------- ----------------
Total deposits 46,422,470 43,761,761
---------------- ----------------
Short-term borrowings - -
Other liabilities 379,813 336,246
---------------- ----------------
Total liabilities 46,802,283 44,098,007
---------------- ----------------
Redeemable Preferred Stock:
Series A $-0- par value, authorized 900 shares, 800 shares
issued in 1998 and 1997, 10% cumulative dividend - 1,336,000
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 807,590 shares at 6/30/98 and 561,640 at 12/31/97 807,590 561,640
Capital in excess of par value 14,495,813 12,643,622
Retained earnings (10,616,095) (10,567,633)
Unrealized holding gain (loss) - AFS securities (4,473) 2,370
---------------- ----------------
Total stockholders' equity 4,682,835 2,639,999
---------------- ----------------
Total liabilities and stockholders' equity $ 51,485,118 $ 48,074,006
================ ================
</TABLE>
4
<PAGE>
UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------------
June 30, 1998 June 30, 1997
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ (48,462) $ (29,074)
Adjustment to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation & amortization 27,459 22,760
Provision for loan/lease losses 95,000 97,100
Provision for losses on real estate owned 187,666 24,500
Amortization of investment security discount (2,093) (2,904)
Amortization of loan fees and discounts, net (44,812) (16,513)
Net (gain) loss on sale of other real estate owned 6,732 (28,210)
Amortization of capitalized interest - -
(Increase) decrease in other assets (238,863) 44,476
Increase (decrease) in other liabilities 45,698 (10,003)
----------------- -----------------
Net cash provided by (used in) operating activities 28,325 102,132
----------------- -----------------
Cash flows from investing activities:
Loans originated - non-bank subsidiaries - -
Principal collected - non-bank subsidiaries 4,901 16,029
Loans and lease originations, net of collections 2,175,351 (2,207,296)
Loan fees and discounts deferred 11,523 -
Purchases of securities available-for-sale (3,781,100) (1,646,559)
Purchases of securities held-to-maturity (750,937) -
Investment made in other real estate owned (440,802) (443,378)
Proceeds received from maturity of securities available-for-sale 1,100,000 300,000
Proceeds received from maturity of securities held to maturity 91,786 200,000
Proceeds from real estate owned 648,687 776,683
Purchases of premises and equipment (27,771) (68,161)
----------------- -----------------
Net cash provided by (used in) investing activities (968,362) (3,072,682)
----------------- -----------------
Cash flow from financing activities:
Net increase (decrease) in demand deposits, savings
accounts, NOW accounts and money market accounts 2,239,522 2,512,759
Certificates of deposit sold (matured), net 421,187 691,194
Net change in short-term borrowings - -
Proceeds from sale of common stock 2,148,141 -
Redeem preferred stock (1,386,000) -
Proceeds from issuance of redeemable preferred stock - 450,000
----------------- -----------------
Net cash provided by (used in) financing activities 3,422,850 3,653,953
----------------- -----------------
Net increase (decrease) in cash and cash equivalents 2,482,813 683,403
Cash and cash equivalents at beginning of the year 5,041,418 5,463,513
================= =================
Cash and cash equivalents at end of the quarter $ 7,524,231 $ 6,146,916
================= =================
Supplemental disclosures of cash flow information:
Cash paid during the years for:
Interest on deposits and other borrowings $ 904,475 $ 770,305
Income taxes 4,005 7,249
Non-Cash Items:
Effect on stockholders' equity of an unrealized gain (loss)
on debt and equity securities available-for-sale $ (6,843) $ 1,067
Increase in foreclosed properties and decrease in loans $ - $ 202,000
Accrued dividend on preferred stock - series A $ 50,000 $ 57,250
</TABLE>
5
<PAGE>
- -----------------------------------------------------
UNITED FINANCIAL BANKING COMPANIES, INC.
CONSOLIDATED AVERAGE BALANCES/NET INTEREST ANALYSIS/
YIELDS AND RATES
- -----------------------------------------------------
<TABLE>
<CAPTION>
For the Six Month Period Ended
June 30, 1998 June 30, 1997
- -------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans/Leases:
Commercial $ 25,994,505 $ 1,236,510 9.59% $ 22,755,402 $ 1,088,878 9.65%
Real estate construction 2,396,255 112,270 9.45% 1,391,658 61,063 8.85%
Real estate mortgage 6,831,601 260,409 7.69% 4,579,798 168,938 7.44%
Installment 1,628,586 76,267 9.44% 2,203,903 92,965 8.51%
Leases 304,642 - - 364,642 - -
-------------- ------------- -------------- ------------
Total loans/leases 37,155,589 1,685,456 9.15% 31,295,403 1,411,844 9.10%
-------------- ------------- -------------- ------------
Interest-bearing deposits 100,000 2,871 5.79% 203,226 6,043 6.00%
Federal funds sold 6,229,813 173,149 5.60% 5,046,387 139,507 5.57%
Investment securities 4,002,306 114,777 5.78% 2,788,923 81,529 5.90%
-------------- ------------- -------------- ------------
Total earning assets 47,487,708 1,976,253 8.39% 39,333,939 1,638,923 8.40%
============= ============
Noninterest-earning assets
Cash and due from banks 1,803,888 1,654,204
Other assets 2,825,492 4,010,149
Allowance for loan losses/lease (763,647) (581,142)
-------------- --------------
Total assets $ 51,353,441 $ 44,417,150
============== ==============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and NOW accounts 2,297,645 26,929 2.36% 2,652,529 30,664 2.33%
Money market accounts 8,872,391 161,839 3.68% 6,141,970 97,946 3.22%
Time:
Under $100,000 19,846,643 540,321 5.49% 17,579,494 456,425 5.40%*
$100,000 and over 6,827,608 183,859 5.43% 6,169,229 162,167 5.30%
-------------- ------------- -------------- ------------
Total interest-bearing
deposits 37,844,287 912,948 4.86% 32,543,222 747,202 4.72%*
Short-term borrowings 81,944 808 1.99% - - -
-------------- ------------- -------------- ------------
Total interest-bearing
liabilities 37,926,231 913,756 4.86% 32,543,222 747,202 4.72%*
============= ============
Non interest-bearing liabilities:
Demand deposits 9,278,747 7,606,982
Other liabilities 377,076 345,214
Redeemable preferred stock 907,333 1,251,000
Stockholders' equity 2,864,054 2,670,732
-------------- --------------
Total liabilities and
stockholders' equity $ 51,353,441 $ 44,417,150
============== ==============
Net interest income $ 1,062,497 $ 891,721
============= ============
Net interest margin (1) 4.51% 4.57%
======= ======
Net interest spread (2) 3.53% 3.68%
======= ======
Fees included in loan income $ 47,914 $ 14,172
============= ============
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 $14,300 on
time deposits under $100,000 for the six month period ended June 30, 1997
and $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 Six Months Ended June 30, 1998, as Compared
-------------------------------------------------------------------------
to the Six Months Ended June 30, 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 $48,462 for the six-month period ended June 30, 1998. This compares
with a net loss of $29,074 for the same period of 1997. Earnings (loss) per
share were ($.16) for the first six months ended June 30, 1998, compared to
($.03) for the first six months of 1997.
The net loss for the first six months of 1998 is primarily due to a
$150,000 write-down on real estate owned (REO). During the past year, UFBC's
primary subsidiary, The Business Bank (the Bank), continued to increase the
Company's earning asset base. At June 30, 1998, average total earning assets
increased $8,153,769 or 20.7% when compared to the first six months of June 30,
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 (Offering).
The Company initiated the Offering 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. The Company broke escrow on May 29,
1998 after selling 245,950 shares of its common stock as $8.75 per share. On
May 31, 1998, $1,200,000 of the $2,152,062 Offering proceeds were used to redeem
the Company's preferred stock -series A and to pay the accrued dividends of
$186,000. The parent invested $600,000 of the proceeds into its banking
subsidiary, The Business Bank, to support growth. Part of the proceeds were
used to pay off a $50,000 short-term note and the remainder has been held as
working capital for the parent. To date, costs of the Offering total
approximately $5,000. At March 31, 1998, UFBC's outstanding common shares
totaled 561,640. At June 30, 1998, UFBC's outstanding common shares total
807,590.
Net Interest Income
- -------------------
For the six-month period ended June 30, 1998, net interest income
increased $170,776 or 19.2% from $891,721 at June 30, 1997 to $1,062,497 at June
30, 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 $5,860,186 or 18.7% from $31,295,403 at June 30,
1997 to $37,155,589 at June 30, 1998. Due to the increased loan volume, interest
and fees on loans rose $273,612 or 19.4% as of the six-month period ended June
30, 1998 when compared to the same period of 1997 which favorably impacted net
interest income.
For the same comparable six-month period, interest income earned on federal
funds sold increased $33,642 or 24.1% (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 $33,248 or 40.8%. The investment mix
and increased volume of securities (Consolidated Average Balances table)
contributed to the rise. Interest on deposits placed with other financial
institutions decreased 52.5% during the six months ended June 30, 1998 when
compared to the six months ended June 30, 1997 due to decreased volume.
Interest expense on deposits increased $165,746 or 22.2% at June 30, 1998
when compared to the six month period ended June 30, 1997. The increase is
primarily due to an increased volume of interest-bearing deposits in the Bank.
At June 30, 1998, average total interest-bearing deposits increased $5,301,065
or 16.3% when compared to the second quarter ended June 30, 1997.
7
<PAGE>
Provision for Loan/Lease Losses
- -------------------------------
During the first six months of 1998, the Bank funded its allowance for
loan/lease losses by charging $95,000 against earnings compared to $80,000
charged against earnings during the first six months of 1997. The Company
charged off $71,516 in loans during the first two quarters of 1998 compared to
$75,940 in loans during the first two quarters of 1997.
Noninterest Income
- ------------------
Total noninterest income decreased $17,705 or 23.8% for the three month
period ended June 30, 1998 compared to the same period of 1997. The decrease is
primarily attributable to the gain on the sale of real estate during the three
month period ended June 30, 1997 as compared to the loss on the sale of real
estate during the three month period ended June 30, 1998. Income from loan
servicing and other fees increased $13,918 or 82.9% during the same comparable
period. The increase is due to the recognition of deferred income as the result
of a loan payoff and late charges paid on certain loans.
Noninterest Expense
- -------------------
Total noninterest expense increased $190,448 or 20.1% during the first six
months of 1998 when compared to the same period of 1997. The increase is due
principally to the $150,000 write-down on an REO property.
Salaries and employee benefits increased $75,835 or 17.1% from $443,392 at
June 30, 1997 to $519,227 at June 30, 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 $10,681 or 91.5% during the six-month period ended June
30, 1998 when compared to the first six months of 1997. During the first
quarter of 1998, the Bank incurred general legal fees associated with
collections in the normal course of business. In the opinion of management,
there were no legal matters pending as of June 30, 1998 which would have a
material adverse effect on the Company's financial statements.
Expense for the Bank's FDIC insurance decreased $38,478 or 81.5% during the
six month period ended June 30, 1998 compared to the same period ended June 30,
1997. The decline is attributable to an improved risk rating assessed by the
FDIC.
The provision for real estate owned (REO) losses increased $163,166 or
665.9% for the first six 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. The $188,000 of write-downs during the first six
months of 1998 expedited the sale of approximately $490,000 of real estate held
by the Bank. REO holding expense decreased $26,348 or 52.4% for the first six
months of 1998 when compared to the first six 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 six months ended June
30, 1998.
B. Financial Condition as of June 30, 1998
---------------------------------------
Assets
- ------
Total assets grew $3,411,112 or 7.1% during the first six 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
8
<PAGE>
of core deposits which were invested in federal funds sold and investment
securities. Federal funds sold and investment securities increased $6,644,501 or
222.1% from $5,442,649 at December 31, 1997 to $12,087,150 at June 30, 1998.
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, 1998 and December 31, 1997, the allowance was $739,274 and
$715,399, respectively, or 2.1% and 1.9% of total loans and leases.
Nonperforming loans for the six-month period ended June 30, 1998 totaled
$111,946, of which $65,349 resided in the Bank and $46,597 in the parent. This
compares to a balance of $102,322 at December 31, 1997, of which $31,562 resided
in the Bank and $70,760 in the parent. The consolidated allowance for
loan/lease losses covers nonperforming loans 6.60 times at June 30, 1998,
compared to a coverage of 7.01 times at year end 1997.
Liabilities
- -----------
Total deposits increased $2,660,709 or 6.1% during the first six months of
1998 when compared to the year ended 1997. During the six months ended June 30,
1998, the deposit mix changed favorably as demand deposits and money market
accounts rose $2,446,611 or 115.9% from $15,346,729 at December 31, 1997 to
$17,793,340 at June 30, 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 23.6% of average total assets at
June 30, 1998 compared to 21.8% for the same period ended June 30, 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 June 30, 1998, the Bank's investment portfolio consisted of the
following:
Available-for-Sale Held-to-Maturity
------------------ ----------------
U.S. Treasury 601,060 750,546
U.S. Government Agency 3,614,840 547,993
State and Municipal -- 444,911
Equity 159,800 --
9
<PAGE>
Redeemable Preferred Stock
- --------------------------
During the first six months ended June 30, 1998, the Company accrued
$50,000 of dividends on the series A preferred stock. The preferred stock -
series A was redeemed and the accrued dividends were paid on May 31, 1998 using
part of the proceeds from the 1998 Private Placement Offering.
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 June 30,
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 June 30, 1998 and 1997.
1998 1997
------------- ------------
Tier I Capital
Company $ 4,687,308 $ 2,625,256
The Business Bank 4,473,641 3,346,094
Total qualifying capital
Company $ 5,130,509 $ 4,270,756
The Business Bank 4,914,427 3,745,054
Risk-weighted assets
Company $ 35,160,031 $ 32,299,043
The Business Bank 34,995,336 31,916,769
Quarterly average assets
Company $ 51,778,396 $ 45,626,581
The Business Bank 51,335,964 45,409,807
<TABLE>
<CAPTION>
Required
Risk-based capital ratios: 1998 1997 Minimum
----------- ----------- -----------
<S> <C> <C> <C>
Tier I Capital (Tier I capital/risk-weighted assets)
Company 13.33% 8.21% 4.00%
The Business Bank 12.78% 10.48% 4.00%
Total Capital (Total capital/risk-weighted assets)
Company 14.59% 13.22% 8.00%
The Business Bank 14.04% 11.73% 8.00%
Leverage ratio (Tier I capital/adjusted average assets)
Company 9.05% 5.81% 5.00%
The Business Bank 8.71% 7.49% ***6.00%
***Minimum goal of the Board Resolution
</TABLE>
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 six months ended June 30, 1998
Net Income $ (48,462)
Less: Preferred Stock Dividends (50,000)
--------
Basic earnings (loss) per common share:
Income available to common stockholders (98,462) 599,805 $ (.16)
======= ======= ===========
For the six months ended June 30, 1997
Net Income $ (29,074)
Less: Preferred Stock Dividends (57,250)
-------
Basic earnings (loss) per common share:
Income available to common stockholders
(86,324) 561,640 $ (.30)
======= ======= ===========
</TABLE>
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 5, 1998, the shareholders elected Harold C.
Rauner and Edward H. Pechan to serve as a class 2 directors until the
2001 Annual Meeting of Shareholders.
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: May 13, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,456,231
<INT-BEARING-DEPOSITS> 100,000
<FED-FUNDS-SOLD> 5,968,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,298,543
<INVESTMENTS-CARRYING> 2,697,369
<INVESTMENTS-MARKET> 2,701,842
<LOANS> 35,866,773
<ALLOWANCE> 739,274
<TOTAL-ASSETS> 51,485,118
<DEPOSITS> 46,422,470
<SHORT-TERM> 0
<LIABILITIES-OTHER> 379,813
<LONG-TERM> 0
0
0
<COMMON> 807,590
<OTHER-SE> 3,876,246
<TOTAL-LIABILITIES-AND-EQUITY> 51,485,118
<INTEREST-LOAN> 1,685,456
<INTEREST-INVEST> 287,926
<INTEREST-OTHER> 2,871
<INTEREST-TOTAL> 1,976,253
<INTEREST-DEPOSIT> 912,948
<INTEREST-EXPENSE> 808
<INTEREST-INCOME-NET> 1,062,497
<LOAN-LOSSES> 95,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,129,681
<INCOME-PRETAX> (41,645)
<INCOME-PRE-EXTRAORDINARY> (41,645)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (48,462)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
<YIELD-ACTUAL> 9.15
<LOANS-NON> 111,946
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 715,399
<CHARGE-OFFS> 71,516
<RECOVERIES> 393
<ALLOWANCE-CLOSE> 739,274
<ALLOWANCE-DOMESTIC> 739,274
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 461,895
</TABLE>
