<PAGE>
Securities and Exchange Commission
Washington D.C.
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999 Commission File Number 0-13395
UNITED FINANCIAL BANKING
COMPANIES, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1201253
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8399 Leesburg Pike
P.O. Box 2459
Vienna, Virginia 22182
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 734-0070
Securities registered pursuant to Section 12(g) of the Exchange Act:
Title of each class
Common Stock, $1.00 par value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 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_____
-----
Indicate by check mark if disclosure of delinquent files pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. _________
For the year ended December 31, 1999, United Financial Banking
Companies, Inc. reported net income of $850,113.
The aggregate market value of the Common Stock held by non-affiliates
of the registrant was $3,287,637 as of March 1, 2000.
As of March 1, 2000, the registrant had 1,001,499 shares of
outstanding common stock, $1.00 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Selected information from the Company's 1999 Proxy Statement for the
Annual Meeting to be held June 2, 2000 is incorporated by reference into Part
III of this report, and information from the 1998 Annual Report to Shareholders
to be filed with the Securities and Exchange Commission pursuant to Regulation
14A, are incorporated by reference into Parts I, II and III of this report.
<PAGE>
PART I
Item 1. Business
United Financial Banking Companies, Inc. ("UFBC"), is a one-bank
holding company which was organized under the laws of the State of Virginia in
February 1982. In July 1983, UFBC acquired all the outstanding common stock of
The Business Bank (the "Bank"), a banking company organized under the laws of
the State of Virginia. UFBC also wholly owns Business Venture Capital, Inc.
(BVCI), a subsidiary which holds and has developed certain foreclosed real
estate and conducts limited lending activities. Collectively, UFBC, the Bank
and BVCI are referred to as "the Company".
The Bank was organized in 1980. In October 1981, the Bank commenced
limited operations and began full scale operations in August 1982, when its main
office building was completed.
As of December 31, 1999, the Company had consolidated total assets of
$56,455,892, total deposits of $49,191,302, total loans of $40,652,769 and total
stockholders' equity of $6,928,065.
On March 1, 2000, the Company and its subsidiaries employed 25 full-
time employees.
The Bank
The Bank, UFBC's primary subsidiary, is a state banking association
engaging in a general commercial banking business and specializing in offering
banking services to business and professional customers. These services include
the usual deposit functions of commercial banks, including business and personal
checking accounts, "NOW" accounts and savings accounts; business and commercial
loans; and processing of collections. The Bank is a Federally insured state non-
member bank and its deposits are insured up to $100,000 by the Bank Insurance
Fund of the Federal Deposit Insurance Corporation (FDIC).
The Bank markets its services to professionals and small and medium
sized businesses in its service area of Northern Virginia and surrounding
communities because it believes that business accounts are more profitable than
small consumer accounts, which comprise the majority of accounts at most retail
banks. The Bank further believes that professionals and small businesses
represent a market segment whose needs have not been met by many retail banks.
It is the Bank's belief that business accounts can be more profitable
due to the income generated from business' higher average balances for both
deposits and loans. Business accounts are less costly than consumer accounts as
they usually require fewer conveniences such as numerous branches, extended
hours and drive-thru facilities. The Bank had previously limited its service
relationship with customers to primarily encompass their business needs. In
order to fully meet customers' needs and to remain competitive in the current
market, the Bank has broadened service to business and professional customers by
offering products such as consumer installment and mortgage loans to the owners
and employees of the businesses. It is the Bank's belief that this augmentation
will help maintain the Bank's core accounts and will enable the organization to
diversify asset growth.
By emphasizing individualized relationships between the Bank's
officers and its customers, the Bank believes it attracts customers that have
been neglected by retail banks that direct their services to more numerous
consumer accounts and large business customers.
The Company experiences a high degree of competition in the Washington
Metropolitan area. All of the Company's products and services compete actively
with national and state banks, savings banks, savings and loan associations,
credit unions, finance companies, money market funds, mortgage banks, insurance
companies, investment banking firms, brokerage firms and other nonbank
institutions that provide one or more of the services offered by the Company and
its subsidiaries, primarily the Bank. As a result of federal and state
legislation regarding interstate branching and mergers, additional competitors
not currently in the Bank's service area may enter the market. Among
commercial banks, the principal method of competition is the provision and
delivery of financial services that are specific to the needs of the community.
The Company believes that the expertise in and awareness of the demands of our
business community position us with the unique ability to meet those needs
expeditiously.
The Company does not believe that there will be any material effect on
capital expenditures, results of operations, financial condition or the
competitive position of itself or any of its subsidiaries with regard to
compliance with federal, state or local requirements related to the general
protection of the environment.
2
<PAGE>
Supervision and Regulation
General
United Financial Banking Companies, Inc. is a bank holding company
subject to supervision and regulation by the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") pursuant to the BHCA, and files
with the Federal Reserve Board an annual report and such additional reports as
the Federal Reserve Board may require. As a bank holding company, UFBC's
activities and those of its banking and nonbanking subsidiary are limited to the
business of banking and activities closely related or incidental to banking.
UFBC may not directly or indirectly acquire the ownership or control of more
than 5 percent of any class of voting shares or substantially all of the assets
of any company, including a bank, without prior approval of the Federal Reserve
Board.
The deposits of UFBC's subsidiary bank are insured by, and therefore
the subsidiary bank is subject to the regulations of the FDIC, and is also
subject to regulation and examination by the State of Virginia. Various consumer
laws and regulations also affect the operations of the Bank. Regulatory
limitations on the payment of dividends to UFBC by its banking subsidiary are
discussed in Note 11 to the consolidated financial statements.
Holding Company Liability
Federal Reserve Board policy requires bank holding companies to serve
as a source of financial strength to their subsidiary banks by standing ready to
use available resources to provide adequate capital funds to subsidiary banks
during periods of financial stress or adversity. A bank holding company also
could be liable under certain provisions of a new banking law for the capital
deficiencies of an undercapitalized bank subsidiary. In the event of a bank
holding company's bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, the
trustee will be deemed to have assumed and is required to cure immediately any
deficit under any commitment by the debtor to any of the federal banking
agencies to maintain the capital of an insured depository institution, and any
claim for a subsequent breach of such obligation will generally have priority
over most other unsecured claims.
Supervisory Agreements
At December 31, 1999, neither UFBC nor it subsidiaries were subject to
any formal or informal supervisory agreements with their regulators.
Enforcement Actions and Administrative Sanctions
Failure to comply with applicable laws and regulations could subject
UFBC, its subsidiary bank and their officers, directors and other institution-
affiliated parties to administrative sanctions and potentially substantial civil
money penalties.
Transactions with Affiliates
UFBC's subsidiary bank is subject to restrictions under federal law
which limit a bank's extensions of credit to, and certain other transactions
with, affiliates. Such transactions by any subsidiary bank with any one
affiliate are limited in amount to 10 percent of such subsidiary bank's capital
and surplus and with all affiliates to 20 percent of such subsidiary bank's
capital and surplus. Furthermore, such loans and extensions of credit, as well
as certain other transactions, are required to be secured in accordance with
specific statutory requirements. The purchase of low quality assets from
affiliates is generally prohibited. Federal law also provides that certain
transactions with affiliates, including loans and asset purchases, must be on
terms and under circumstances, including credit standards, that are
substantially the same, or at least as favorable to the institution as those
prevailing at the time for comparable transactions involving other non-qualified
companies or, in the absence of comparable transactions, on terms and under
circumstances, including credit standards, that in good faith would be offered
to, or would apply to, non-affiliated companies.
3
<PAGE>
CAPITAL REQUIREMENTS
Under the prompt corrective action provisions of the Federal Deposit
Insurance Act of 1991 ("FDIA") federal banking regulators are required to take
prompt corrective action in respect of depository institutions that do not meet
minimum capital requirements. FDIA establishes five capital categories: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized ."
Under the regulations, a "well capitalized" institution has a minimum
total capital to total risk-weighted assets ratio of at least 10 percent, a
minimum Tier I capital to total risk-weighted assets ratio of at least 6
percent, a minimum leverage ratio of at least 5 percent and is not subject to
any written order, agreement, or directive; an "adequately capitalized"
institution has a total capital to total risk-weighted assets ratio of at least
8 percent, a Tier I capital to total risk-weighted assets ratio of at least 4
percent, and a leverage ratio of at least 4 percent (3 percent if given the
highest regulatory rating and not experiencing significant growth), but does not
qualify as "well capitalized." An "undercapitalized" institution fails to meet
any one of the three minimum capital requirements. A "significantly
undercapitalized" institution has a total capital to total risk-weighted assets
ratio of less than 6 percent, a Tier I capital to total risk-weighted assets
ratio of less than 3 percent or a Tier I leverage ratio of less than 3 percent.
A "critically undercapitalized" institution has a Tier I leverage ratio of 2
percent or less. Under certain circumstances, a "well capitalized," "adequately
capitalized" or "undercapitalized" institution may be required to comply with
supervisory actions as if the institution was in the next lower capital
category. The Bank meets the criteria of a well capitalized institution.
A depository institution is generally prohibited from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
restrictions on borrowing from the Federal Reserve System. In addition,
undercapitalized depository institutions are subject to growth and activity
limitations and are required to submit "acceptable" capital restoration plans.
Such a plan will not be acceptable unless, among other things, the depository
institution's holding company guarantees the capital plan, up to an amount equal
to the lesser of five percent of the depository institution's assets at the time
it becomes undercapitalized or the amount of the capital deficiency when the
institution fails to comply with the plan. Federal banking agencies may not
accept a capital plan without determining, among other things, that the plan is
based on realistic assumptions and is likely to succeed in restoring the
depository institution's capital. If a depository institution fails to submit an
acceptable plan, it is treated as if it is significantly undercapitalized and
may be placed into conservatorship or receivership.
Significantly undercapitalized depository institutions may be subject
to a number of requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, more stringent
requirements to reduce total assets, cessation of receipt of deposits from
correspondent banks, further activity restricting prohibitions on dividends to
the holding company and requirements that the holding company divest its bank
subsidiary, in certain instances. Subject to certain exceptions, critically
undercapitalized depository institutions must have a conservator or receiver
appointed for them within a certain period after becoming critically
undercapitalized.
Brokered Deposits
FDIC regulations prohibit a bank from accepting brokered deposits
(which term is defined to include any deposit with an interest rate more than 75
basis points above prevailing rates in the applicable market area) unless (i) it
is well capitalized, or (ii) it is adequately capitalized and receives a waiver
from the FDIC. For purposes of this regulation, a bank is defined to be well
capitalized if it maintains a leverage ratio of at least 5 percent, a risk-
adjusted Tier I capital ratio of at least 6 percent and a risk-adjusted total
capital ratio of at least 10 percent and is not otherwise in a "troubled
condition", as specified by its appropriate federal regulatory agency. A bank
that is not adequately capitalized may not pay an interest rate on any deposits
in excess of 75 basis points over the prevailing market rates of its specified
market area. There are no such restrictions on a bank that is well capitalized.
At December 31, 1999, the Company had no brokered deposits.
FDIC Insurance Assessments
The bank is subject to FDIC deposit insurance assessments. The FDIC
has adopted a risk-based system for determining deposit insurance assessments.
An insured institution is assessed at rates depending on its capital and
supervisory classifications, as assigned by its primary federal regulator. As a
result of the bank insurance fund ("BIF"), which insures the Bank's deposits,
reaching the mandated level of reserves, the range of deposit premium rates was
reduced in the first half of 1996 to a range of .00 percent to .27 percent.
4
<PAGE>
Conservatorship and Receivership Powers of Federal Banking Agencies
The authority of the federal banking regulators over depository
institutions includes, among other things, appointment of the FDIC as
conservator or receiver of an undercapitalized institution under certain
circumstances. In the event a bank is placed into conservatorship or
receivership, the FDIC is required, subject to certain exceptions, to choose the
method for resolving the institution that is least costly to the BIF of the
FDIC, such as liquidation.
The FDIC may provide federal assistance to a "troubled institution"
without placing the institution into conservatorship or receivership. In such
case, pre-existing debtholders and shareholders may be required to make
substantial concessions and, insofar as practical, the FDIC will succeed to
their interests in proportion to the amount of federal assistance provided.
Various other legislation, including proposals to overhaul the banking
regulatory system and to limit the investments that a depository institution may
make with insured funds are from time to time introduced in Congress. The
Company cannot determine the ultimate effect that recent legislation and the
implementing regulations to be adopted thereunder, or any other potential
legislation, if enacted, would have upon its financial condition or results of
operations.
United Financial Banking Companies, Inc. Subsidiaries
The Business Bank
The Business Bank was organized on April 17, 1980 to provide
commercial banking services.
Business Venture Capital, Inc.
Business Venture Capital, Inc. was incorporated February 26, 1985 to
hold certain foreclosed real estate and to provide limited banking services.
Item 2. Properties
The main offices of the Company and the Bank are located at 8399
Leesburg Pike, Vienna, Virginia 22182.
A portion of the information required by this item is incorporated by
reference to the section entitled, "Note 6 of the Consolidated Financial
Statements " appearing on page 26 of the Annual Report to Shareholders for the
year ended December 31, 1999.
Management believes that the Company's current facilities are adequate
for operating in the normal course of business.
Item 3. Legal Proceedings
In the ordinary course of its business, the Company is party to legal
proceedings. There is no litigation currently pending against the Company or
any of its subsidiaries which individually or in the aggregate would have a
material adverse affect on the Company's financial condition or results of
operation.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to security holders during the fourth
quarter of the Company's fiscal year.
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters
A. There is no established trading market for the stock of the
Company.
B. There were 425 holders of record of the Registrant's common stock
as of December 31, 1999.
C. The Company's cash dividend history is incorporated by reference to
the section entitled "Corporate Information" appearing on page 42 of the Annual
Report to Shareholders for the year ended December 31, 1999.
5
<PAGE>
Selected Consolidated Financial Data
The information required by this item is incorporated by reference to
the section entitled, "Selected Consolidated Financial Data" appearing on page
26 of the Annual Report to Shareholders for the year ended December 31, 1999.
Item 6. Management's Discussion and Analysis
The information required by this item is incorporated by reference to
the section entitled, "Management's Discussion and Analysis" appearing on pages
27 through 41 of the Annual Report to Shareholders for the year ended December
31, 1999.
Item 7. Financial Statements and Supplementary Data
The information required by this item is incorporated by reference
from the information appearing on pages 1 through 23 of the Annual Report to
Shareholders for the year ended December 31, 1999.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Directors and Executive Officers of the Registrant
Information as to the Registrant's Executive Officers and Directors is
incorporated by reference from the information contained under "Election of
Directors" in the Registrant's Proxy Statement filed with respect to the Annual
Meeting of Shareholders to be held on June 2, 2000.
Item 10. Executive Compensation
The information required by this item is incorporated by reference to
the information contained under "Election of Directors" in the Registrant's
Proxy Statement filed with respect to the Annual Meeting of Shareholders to be
held on June 2, 2000.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to
the information contained under "Election of Directors" in the Registrant's
Proxy Statement filed with respect to the Annual Meeting of Shareholders to be
held on June 2, 2000.
Item 12. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to
the information contained under "Election of Directors" in the Registrant's
Proxy Statement filed with respect to the Annual Meeting of Shareholders to be
held on June 2, 2000.
6
<PAGE>
Item 13. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K
(a)(1) Financial Statements
The following financial statements of United Financial Banking
Companies, Inc. and subsidiaries are incorporated by reference to the
Registrant's 1999 Annual Report to Shareholders as listed below:
Page
----
Report of Independent Certified Public Accountants 1
Consolidated Balance Sheets--December 31, 1999 and 1998 2
Consolidated Statements of Income--
Years Ended December 31, 1999, 1998 and 1997 3
Consolidated Statements of Changes in Shareholders' Equity--
Years Ended December 31, 1999, 1998 and 1997 4
Consolidated Statements of Cash Flows--
Years Ended December 31, 1999, 1998 and 1997 5
Notes to Financial Statements 6-23
(a)(2) Schedules
All schedules are omitted since the required information is either not
applicable, not deemed material or is shown in the respective financial
statements or in the notes thereto.
(b) Reports on Form 8-K
A Form 8-K was filed on December 23, 1999 to announce the extension
of the Company's Public Offering.
(c) Exhibits
Exhibit 11--Statement Regarding Computation of Per Share Earnings
Earnings per share are computed as expressed in Note 1 to the
consolidated financial statements, incorporated by reference to the 1999 Annual
Report.
Exhibit 13--Annual Report to Security Holders
Exhibit 21--Subsidiaries of the Registrant
Jurisdiction Percent of
under laws Voting Security
of which owned by
Name of Subsidiary organized Immediate Parent
------------------ --------- ----------------
The Business Bank Virginia 100%
Business Venture Capital, Inc Virginia 100%
7
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report or amendment
thereto to be signed on its behalf by the undersigned, thereunto duly authorized
on the 14th day of April, 2000.
UNITED FINANCIAL BANKING COMPANIES, INC.
(Registrant)
By: /s/ JEFFERY T. VALCOURT
---------------------------------------
Jeffery T. Valcourt, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ JEFFERY T. VALCOURT Chairman/Director 4/14/00
- ------------------------------- -------
Jeffery T. Valcourt
/s/ HAROLD C. RAUNER President, CEO/Director 4/14/00
- ------------------------------- -------
Harold C. Rauner
/s/ MANUEL V. FERNANDEZ Vice Chairman/Director 4/14/00
- ------------------------------- -------
Manuel V. Fernandez
/s/ WILLIAM J. MCCORMICK, JR. Director 4/14/00
- ------------------------------- -------
William J. McCormick, Jr.
/s/ DENNIS I. MEYER Director 4/14/00
- ------------------------------- -------
Dennis I. Meyer
/s/ EDWARD H. PECHAN Director 4/14/00
- ------------------------------- -------
Edward H. Pechan
/s/ SHARON A. STAKES Director 4/14/00
- ------------------------------- -------
Sharon A. Stakes
/s/ LISA M. PORTER Principal Financial Officer 4/14/00
- ------------------------------- -------
Lisa M. Porter Principal Accounting Officer
8
<PAGE>
UNITED FINANCIAL BANKING
COMPANIES, INC. AND SUBSIDIARIES
FINANCIAL REPORT
DECEMBER 31, 1999
<PAGE>
C O N T E N T S
<TABLE>
<CAPTION>
Page
<S> <C>
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Consolidated balance sheets 2
Consolidated statements of income and comprehensive income 3
Consolidated statements of stockholders' equity 4
Consolidated statements of cash flows 5
Notes to financial statements 6- 23
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
United Financial Banking Companies, Inc. and Subsidiaries
We have audited the consolidated balance sheet of United Financial Banking
Companies, Inc., and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, comprehensive income, stockholders'
equity, and cash flows for the years ending December 31, 1999, 1998 and 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in all
material respects, the consolidated financial position of United Financial
Banking Companies, Inc., and subsidiaries as of December 31, 1999 and 1998, and
the consolidated results of their operations and their cash flows for the years
ending December 31, 1999, 1998 and 1997 in conformity with generally accepted
accounting principles.
/s/ D.R. Maxfield & Company
Fairfax, Virginia
February 17, 2000
<PAGE>
2
UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
------------- --------------
<S> <C> <C>
Cash and due from banks (Note 11) $ 2,104,515 $ 2,267,417
Federal funds sold 5,033,000 7,903,493
------------- --------------
Total cash and cash equivalents 7,137,515 10,170,910
------------- --------------
Securities available-for-sale (Note 2) 6,813,528 5,130,213
Securities held-to-maturity (Note 2) -- 1,763,891
------------- --------------
Total securities 6,813,528 6,894,104
------------- --------------
Loans and lease financing, net of unearned income of
$38,805 in 1999; $12,560 in 1998 (Notes 3, 4 and 10) 40,652,769 36,962,213
Less: Allowance for loan/lease losses (783,143) (747,374)
------------- --------------
Net loans and lease financing 39,869,626 36,214,839
Real estate owned, net (Note 5) 1,424,650 1,799,398
Premises and equipment, net (Note 6) 310,784 119,338
Deferred income tax (Note 8) 511,424 --
Other assets 388,365 374,483
------------- --------------
42,504,849 38,508,058
------------- --------------
Total assets $ 56,455,892 $ 55,573,072
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $ 12,248,025 $ 14,264,071
Savings and NOW 4,902,524 3,051,446
Money market 11,473,851 7,524,516
Time:
Under $100,000 15,513,608 18,048,129
$100,000 and over 5,053,294 7,297,297
------------- --------------
Total deposits (Note 7) 49,191,302 50,185,459
Accounts payable and accrued expenses 336,525 311,905
------------- --------------
Total liabilities 49,527,827 50,497,364
------------- --------------
COMMITMENTS AND CONTINGENCIES (Notes 6 and 9)
STOCKHOLDERS' EQUITY (Notes 11, 14 and 16)
Preferred stock $-0- par value,
authorized 5,000,000 shares, no shares issued -- --
Common stock, par value $1; authorized 3,500,000
shares, issued 963,234 shares in 1999 and 831,590 shares in 1998 963,234 831,590
Surplus 15,669,690 14,681,567
Accumulated deficit (9,604,287) (10,454,400)
Accumulated other comprehensive income (100,572) 16,951
------------- --------------
Total stockholders' equity 6,928,065 5,075,708
------------- --------------
Total liabilities and stockholders' equity $ 56,455,892 $ 55,573,072
============= ==============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
3
UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans/leases $ 3,280,787 $ 3,405,074 $ 2,991,380
Interest on investment securities 426,556 305,462 186,866
Interest on interest bearing deposits -- 5,491 8,914
Interest on federal funds sold 269,857 339,393 246,707
---------------- ---------------- ----------------
3,977,200 4,055,420 3,433,867
---------------- ---------------- ----------------
Interest expense:
Interest on deposits (Note 13) 1,558,711 1,812,980 1,495,204
Interest on short-term borrowings 28,505 808 --
---------------- ---------------- ----------------
1,587,216 1,813,788 1,495,204
---------------- ---------------- ----------------
Net interest income 2,389,984 2,241,632 1,938,663
Provision for loan/lease losses (Note 3) 79,866 323,500 249,300
---------------- ---------------- ----------------
Net interest income after provision
for loan/lease losses 2,310,118 1,918,132 1,689,363
---------------- ---------------- ----------------
Noninterest income (loss):
Loan servicing and other fees 66,543 93,605 76,397
Gain on the sale of fixed assets (Note 6) -- 100 --
Other income (Note 12) 224,758 306,483 148,319
---------------- ---------------- ----------------
291,301 400,188 224,716
---------------- ---------------- ----------------
Noninterest expense:
Salaries 1,027,289 893,146 760,032
Employee benefits (Note 14) 191,856 168,513 133,590
Occupancy (Note 6) 360,893 322,956 296,097
Furniture and equipment 110,687 76,563 60,304
Other (Note 15) 570,585 734,691 647,757
---------------- ---------------- ----------------
2,261,310 2,195,869 1,897,780
---------------- ---------------- ----------------
Income (loss) before federal income taxes 340,109 122,451 16,299
Provision (benefit) for federal income taxes:
Federal, current (Note 8) 1,420 9,218 --
Deferred (Note 8) (511,424) -- --
---------------- ---------------- ----------------
Net income (loss) $ 850,113 $ 113,233 $ 16,299
================ ================= ================
Net income (loss) per common share (Notes 1 and 16)
Basic $ 1.00 $ 0.09 $ (0.18)
================ ================ ================
Diluted $ 0.99 $ 0.09 $ (0.18)
================ ================ ================
Comprehensive Income (Note 1)
- -----------------------------
Net income 850,113 113,233 16,299
Other comprehensive income, net of tax
Unrealized gains (losses) on available-for-sale
securities (117,523) 14,581 2,880
---------------- ---------------- ----------------
Comprehensive income $ 732,590 $ 127,814 $ 19,179
================ ================ ================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
4
UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Other
Common Accumulated Comprehensive
Stock Surplus Deficit Income Total
--------- ------------ -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1996 $ 561,640 $ 12,760,872 $ (10,583,932) $ (510) $ 2,738,070
Net income -- -- 16,299 -- 16,299
Accrued dividend for
redeemable preferred
stock - series A (Note 16) -- (117,250) -- -- (117,250)
Change in unrealized
holding gain (loss) on
available-for-sale
securities (AFS), net
of taxes -- -- -- 2,880 2,880
--------- ------------ ------------- ------------- ------------
Balance December 31, 1997 $ 561,640 $ 12,643,622 $ (10,567,633) $ 2,370 $ 2,639,999
========= ============ ============= ============= ============
Net income -- -- 113,233 -- 113,233
Net proceeds from issuance
of shares of common
stock 269,950 2,087,945 -- -- 2,357,895
Accrued dividend for
redeemable preferred
stock - series A (Note 16) -- (50,000) -- -- (50,000)
Change in unrealized
holding gain (loss) on
available-for-sale
securities (AFS), net
of taxes -- -- -- 14,581 14,581
--------- ------------ ------------- ------------- ------------
Balance December 31, 1998 $ 831,590 $ 14,681,567 $ (10,454,400) $ 16,951 $ 5,075,708
========= ============ ============= ============= ============
Net income -- -- 850,113 -- 850,113
Net proceeds from issuance
of shares of common
stock 131,644 988,123 -- -- 1,119,767
Change in unrealized
holding gain (loss) on
available-for-sale
securities (AFS), net
of taxes -- -- -- (117,523) (117,523)
--------- ------------ ------------- ------------- ------------
Balance December 31, 1999 $ 963,234 $ 15,669,690 $ (9,604,287) $ (100,572) $ 6,928,065
========= ============ ============= ============= ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
5
UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 850,113 $ 113,233 $ 16,299
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 71,814 94,572 50,933
Provision for loan/lease losses 79,866 323,500 249,300
Provision for losses on real estate owned -- 227,666 114,805
Amortization of investment security discounts 10,316 (879) (7,218)
Amortization of loan fees and discounts (47,765) (18,953) (85,923)
Net gain on disposal of fixed assets -- (100) --
Net (gain) loss on real estate owned (77,478) (104,657) (27,868)
(Increase) decrease in other assets (525,308) (27,126) 113,379
Increase (decrease) in other liabilities 24,621 (24,342) (24,048)
------------- ------------ -------------
Net cash provided by (used in)
operating activities 386,179 582,914 399,659
------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Non-bank loans and leases repaid, net of originations (142,296) 7,498 397,437
Bank loans and leases repaid, net of originations (3,696,144) 694,422 (8,173,931)
Loan fees and discounts deferred 24,652 28,156 75,883
Purchases of securities available-for-sale (5,211,772) (5,298,526) (698,270)
Purchases of securities held-to-maturity -- (769,908) (1,643,096)
Investments made in real estate owned (225,907) (571,266) (1,579,193)
Proceeds received from maturity of securities
available-for-sale 3,400,619 1,881,651 1,100,000
Proceeds received from maturity of securities
held-to-maturity 1,763,891 91,787 863,237
Proceeds received from real estate owned 805,033 1,136,963 2,441,232
Purchases of premises and equipment (263,260) (49,892) (82,239)
Proceeds from sale of premises and equipment -- 100 --
------------- ------------ -------------
Net cash provided by (used in)
investing activities (3,545,184) (2,849,015) (7,298,940)
------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand
deposits, savings accounts, NOW
accounts and money market accounts 3,784,367 6,984,638 3,207,387
Certificates of deposit sold (matured), net (4,778,524) (560,940) 2,819,799
Proceeds from issuance of common stock 1,119,767 2,357,895 --
Proceeds from issuance of redeemable preferred stock -- -- 450,000
Redemption of preferred stock & accrued dividend -- (1,386,000) --
------------- ------------ -------------
Net cash provided by (used in)
financing activities 125,610 7,395,593 6,477,186
------------- ------------ -------------
Net increase (decrease) in cash and cash equivalents (3,033,395) 5,129,492 (422,095)
Cash and cash equivalents at beginning
of year 10,170,910 5,041,418 5,463,513
------------- ------------ -------------
Cash and cash equivalents at end of year $ 7,137,515 $ 10,170,910 $ 5,041,418
============= ============ =============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the years for:
Interest on deposits and other borrowings $ 1,614,597 $ 1,373,372 $ 1,571,590
============= ============ =============
Income taxes $ 9,218 $ -- $ --
============= ============ =============
NON-CASH ITEMS
============= ============ =============
Increase in foreclosed properties and
decrease in loans $ 126,900 $ 120,000 $ 202,000
Effect on stockholders' equity of an
unrealized gain (loss) on debt and
equity securities in available-for-sale (117,523) 14,581 2,880
Accrued dividend on preferred stock - series A -- -- 117,250
Effect on common stock resulting from
the 1-for-5 reverse split (effective 12/31/97) -- -- 2,246,561
</TABLE>
<PAGE>
6
UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Basis of accounting:
The accounting and reporting policies used in preparing these
financial statements conform to generally accepted accounting
principles and to general practices within the commercial banking
industry.
Principles of consolidation:
The accompanying consolidated financial statements include the
accounts of United Financial Banking Companies, Inc. and
subsidiaries (the Company). Following is a summary of each
subsidiary and its primary business activity:
The Business Bank and Subsidiaries Commercial Bank
(the Bank)
Business Venture Capital, Inc. (BVCI) Develop certain real
estate held for sale
Lending
All material intercompany accounts and transactions have been
eliminated in consolidation.
Pervasiveness of Estimates:
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.
Presentation of cash flows:
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks, federal funds sold
and investments in certificates of deposit. Generally, federal
funds are purchased and sold for one-day periods. Cash flows from
loans not acquired for resale; demand, interest checking,
savings, and time deposits are reported net.
Securities:
Management determines the appropriate classification of debt
securities at the time of purchase and reevaluates such
designation as of each balance sheet date. Debt securities are
classified as held-to-maturity (HTM) when the Company has the
positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost.
Debt securities not classified as held-to-maturity or trading and
marketable equity securities not classified as trading are
classified as available-for-sale (AFS). Available-for-sale
securities are stated at fair value with unrealized gains and
losses reported as a separate component of stockholders' equity.
At December 31, 1999 and 1998, the Company held no securities
classified as trading.
<PAGE>
7
Note 1. Summary of Significant Accounting Policies (continued)
Securities (continued):
The amortized cost of debt securities classified as held-to-
maturity or available-for-sale is adjusted for amortization of
premiums and accretion of discounts to maturity. Such
amortization and accretion is included in interest income from
investments.
Loans and lease financing:
Loans are stated at unpaid principal balances, net of unearned
income and the allowance for loan losses. Interest on discounted
loans is recognized using the effective yield method. For all
other loans, interest is accrued daily on the outstanding
balances. Net deferred loan fees and discounts on loans are being
amortized over the contractual and/or the estimated average life
of the loans as an adjustment of the yield. The estimated average
lives of such loans range from one to ten years.
Lease financing contracts are recorded on the finance method of
accounting. Under this method, the aggregate amount of all lease
payments and the estimated residual value of the equipment is
recorded as an asset. The excess of these assets over the
investments in the leased equipment is recorded as unearned
income and is credited to income over the lives of the leases
under a method that results in an approximate level rate of
return when related to the unrecovered lease investment.
Loans are placed in non-accrual status when a loan is
specifically determined to be impaired or when principal or
interest is delinquent for 90 days or more. Any unpaid interest
previously accrued on those loans is reversed from income.
Interest income generally is not recognized on specific impaired
loans unless the likelihood of further loss is remote. Interest
payments received on such loans are applied as a reduction of the
loan principal balance. Interest income on other non-accrual
loans is recognized only to the extent of interest payments
received.
Allowance for loan/lease losses:
The allowance for loan/lease losses is maintained at a level,
which in management's judgment, is adequate to absorb credit
losses inherent in the existing loan/lease portfolio. The amount
of the allowance is based on management's evaluation of the
collectibility of the loan/lease portfolio, including the nature
of the portfolio, credit concentrations, trends in historical
loss experience, specific impaired loans, economic conditions and
other risks inherent in the portfolio. Allowances for impaired
loans are generally determined based on collateral values or the
present value of estimated cash flows. Although management uses
available information to recognize losses on loans, because of
uncertainties associated with local economic conditions,
collateral values and future cash flows on impaired loans, it is
reasonably possible that a material change could occur in the
allowance for loan/lease losses in the near term. However, the
amount of the change that is reasonably possible cannot be
estimated. The allowance is increased by a provision for
loan/lease losses, which is charged to expense and reduced by
charge-offs, net of recoveries. Changes in the allowance relating
to impaired loans are charged or credited to the allowance for
loan/lease losses.
Real estate owned:
Real estate owned consists of properties held for resale which
were acquired through foreclosure on loans secured by real
estate. Other real estate is carried at the lower of cost or
appraised market value. In the normal course of business, it is
reasonably possible that the estimated market value will change
in the near term. Write-downs to market value at the date of
foreclosure are charged to the allowance for loan losses.
Subsequent declines in market value are charged to expense.
Routine holding costs, subsequent declines and recoveries in
appraised value are included in noninterest expense. Net gains or
losses on disposal are included in noninterest income.
<PAGE>
8
Note 1. Summary of Significant Accounting Policies (continued)
Premises and equipment:
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on the straight-line
method over the estimated useful lives of the assets, not
exceeding 40 and 10 years for buildings and equipment,
respectively. Leasehold improvements are amortized over the
lesser of the life of the lease or life of the improvements.
Maintenance and repairs of property and equipment are charged to
operations and major improvements are capitalized. Upon
retirement, sale or other disposition of property and equipment,
the cost and accumulated depreciation are eliminated from the
Company's records and gain or loss is included in noninterest
income.
Income taxes:
The Company accounts for certain income and expense items in
different time periods for financial reporting purposes than for
income tax purposes. Provisions for deferred taxes are made in
recognition of such temporary differences using an asset and
liability approach.
Earnings per common share:
On December 31, 1997, the Company 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. The
dilutive effect for the year ending December 31, 1999 is shown in
Note 16. There were no dilutive effects for the years ending
December 31, 1998 and 1997. Prior period amounts have been
restated, where appropriate, to conform to the requirements of
SFAS 128.
Comprehensive income:
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.
This adjustment is presented in the Consolidated Statements of
Income and Comprehensive Income.
Reclassifications:
Certain amounts for fiscal year 1998 and 1997 have been
reclassified to conform to the presentation for fiscal year 1999.
<PAGE>
9
Note 2. Securities
The amortized cost, gross unrealized gains and losses, and fair
value related to the securities portfolio are as follows:
<TABLE>
<CAPTION>
Securities Available-for-Sale
-----------------------------
Gross Gross
Unrealized Unrealized Fair
Amortized Cost Gains Losses Value
-------------- -------------- --------- -----------
<S> <C> <C> <C> <C>
December 31, 1999:
U.S. Treasury $ -- $ -- $ -- $ --
U.S. Government Agencies 6,188,940 -- (96,013) 6,092,927
Mortgage-backed Securities 496,010 -- (4,559) 491,451
Equity 229,150 -- -- 229,150
---------- -------------- --------- ----------
Total $6,914,100 $ -- $(100,572) $6,813,528
========== ============== ========= ==========
December 31, 1998:
U.S. Treasury $ 399,863 $ 1,008 $ -- $ 400,871
U.S. Government Agencies 4,553,599 23,013 (7,070) 4,569,542
Mortgage-backed Securities -- -- -- --
Equity 159,800 -- -- 159,800
---------- -------------- --------- ----------
Total $5,113,262 $ 24,021 $ (7,070) $5,130,213
========== ============== ========= ==========
Securities Held-to-Maturity
---------------------------
December 31, 1999:
U.S. Treasury $ -- $ -- $ -- $ --
U.S. Government Agencies -- -- -- --
State and Municipal -- -- -- --
---------- -------------- --------- ----------
Total $ -- $ -- $ -- $ --
========== ============== ========= ==========
December 31, 1998:
U.S. Treasury $ 769,397 $ 6,503 $ -- $ 775,900
U.S. Government Agencies 549,495 2,945 -- 552,440
State and Municipal 444,999 1,093 -- 446,092
------------ -------------- --------- ----------
Total $ 1,763,891 $ 10,541 $ -- $1,774,432
============ ============== ========= ==========
</TABLE>
<PAGE>
10
Note 2. Securities (continued)
The amortized cost and estimated fair value of securities at
December 31, 1999 by contractual maturity are shown below.
Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties:
<TABLE>
<CAPTION>
Securities Available-for-Sale Amortized Cost Fair Value
----------------------------- -------------- ----------
<S> <C> <C>
Due in one year or less $ 154,737 $ 153,932
Due after 1 year through 5 years 3,950,727 3,871,713
Due after 5 years through 10 years 1,086,459 1,082,421
Due after 10 years 1,493,027 1,476,312
---------- ----------
6,684,950 6,584,378
---------- ----------
Equity securities 229,150 229,150
---------- ----------
Total $6,914,100 $6,813,528
========== ==========
</TABLE>
Securities with a fair market value of $684,660 at December 31,
1999 and an amortized cost of $699,307 at December 31, 1998, were
pledged as collateral for treasury, tax and loan and a letter of
credit at Community Bankers Bank.
No gross gains or gross losses were realized in 1999 or 1998.
Equity Securities
-----------------
As a member of the Federal Home Loan Bank Systems, The Bank is
required to hold stock in the Federal Home Loan Bank of Atlanta.
The stock, which has no stated maturity, is carried at cost,
$166,400, since no active trading market exits.
At December 31, 1999, The Bank owned $62,750 of Community Bankers
Bank stock. The stock is restricted from sale, transfer, pledge
or other disposal unless permitted by an opinion of Community
Bankers Bank counsel. The stock, which has no stated maturity, is
carried at cost since no active trading market exits.
Neither equity stock was pledged at December 31, 1999.
Note 3. Loans and Lease Financing and Related Accounts
Major classifications of loans and lease financing are summarized
as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Commercial $25,164,407 $24,722,636
Real estate construction 4,963,112 3,508,361
Real estate mortgage 8,794,744 7,081,130
Installment 1,769,311 1,662,646
----------- -----------
40,691,574 36,974,773
Less unearned discount (38,805) (12,560)
----------- -----------
40,652,769 36,962,213
Allowance for loan/lease losses (783,143) (747,374)
----------- -----------
Loans and lease financing, net $39,869,626 $36,214,839
=========== ===========
</TABLE>
<PAGE>
11
Note 3. Loans and Lease Financing and Related Accounts (continued)
Changes in the allowance for loan/lease losses were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- ---------- ----------
<S> <C> <C> <C>
Balance, beginning of year $747,374 $ 715,399 $ 584,106
Provision charged to operations 79,866 323,500 249,300
Loans charged off (46,895) (302,139) (140,053)
Recoveries 2,798 10,614 22,046
-------- --------- ---------
Balance, end of year $783,143 $ 747,374 $ 715,399
======== ========= =========
</TABLE>
Loans are impaired when it is probable that a borrower will not be
able to pay all amounts due according to the contractual terms of the
loan.
Impaired loans are summarized as follows:
1999 1998
-------- --------
Non-accrual $ 15,781 $60,378
Restructured 142,739 --
Other impaired loans -- --
-------- -------
Total impaired loans $158,520 $60,378
======== =======
The allowance for loan losses related to impaired loans amounted to
approximately $31,656, $34,140 and $54,167 at December 31, 1999, 1998
and 1997, respectively.
The following is an analysis of approximate interest income related to
impaired loans which is recognized on a cash basis:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest that would have
been accrued as income $ 3,000 $ 8,000 $ 12,000
Interest paid and recognized
as interest income -- -- --
-------- -------- --------
Interest forgone $ 3,000 $ 8,000 $ 12,000
======== ======== ========
</TABLE>
The average balance of impaired loans on which income was recognized
on a cash basis was $27,000, $70,000 and $102,000 for the years ending
December 31, 1999, 1998 and 1997, respectively. There were no
commitments to lend additional funds to customers whose loans were
classified as impaired at December 31, 1999.
Note 4. Significant Concentrations of Credit Risk
The Company's business activity is primarily with customers located in
Northern Virginia and the surrounding metropolitan area. A portion of
the Company's lending activity is to customers who have purchased
residential homes built on land acquired through a Bank foreclosure in
1990. As of December 31, 1999 and 1998, the Company and its
subsidiaries had loans to such customers totaling $4,596,141 and
$4,577,465, respectively. The Company evaluates each customer's
creditworthiness on a case-by-case basis. Generally, these loans are
secured by the underlying real estate, securities and/or personal
assets.
The Company maintains cash in commercial checking accounts. Accounts
at commercial banks are insured by the Federal Deposit Insurance
Corporation up to $100,000 per customer. At December 31, 1999, the
Company had uninsured cash of $55,863. At December 31, 1999, six
deposit relationships held 18.81% of the Bank's total deposits.
<PAGE>
12
Note 5. Real Estate Owned
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Real estate owned $ 2,045,350 $ 2,456,703
Allowances for losses on real estate owned (620,700) (657,305)
----------- -----------
Real estate owned, net $ 1,424,650 $ 1,799,398
=========== ===========
</TABLE>
The Company did not capitalized interest for the years ended December
31, 1999 and 1998.
Changes in the allowance for losses on real estate owned are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Balance, beginning $ 657,305 $ 648,305
Provision charged to operations -- 77,666
Losses charged to allowance (36,605) (68,666)
---------- ----------
Balance, ending $ 620,700 $ 657,305
========== ==========
</TABLE>
Note 6. Premises and Equipment
Major classifications of premises and equipment are summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
Leasehold improvements $ 286,442 $ 242,485
Furniture and equipment 915,276 705,255
---------- ---------
1,201,718 947,740
Accumulated depreciation and amortization (890,934) (828,402)
---------- ---------
$ 310,784 $ 119,338
========== =========
</TABLE>
Depreciation and amortization expense of $71,814 in 1999, $94,572 in
1998 and $50,933 in 1997, is included in occupancy expense or
furniture and equipment expense, depending upon the nature of the
asset. During 1998, the useful life of computer related equipment was
adjusted from five years tothree years. Also during 1998, the useful
life of leasehold improvements for the operations center was adjusted
resulting in $24,000 of additional amortization expense.
Future minimum lease payments for noncancellable operating leases with
initial or remaining terms of one year or more as of December 31,
1999, are as follows:
2000 $ 295,054
2001 279,301
2002 279,301
2003 279,301
2004 279,301
Later years 730,037
----------
Total minimum lease payments $2,142,294
==========
At December 31, 1999, the Company's operations included three leased
properties. The lease terms for the main offices of the Company and
the Bank located in Vienna, Virginia include three options for
renewal, totaling twenty years, and a right of first offer.
The Company was consolidated into the main office location in May
1995. The Bank's Operations Center formerly operated at 8351 Leesburg
Pike, Vienna, Virginia, under a lease which expires in June 2000.
Rental expense for 1999 under the lease totaled $65,026 and increases
3.0% per year for the remainder of the lease. One hundred percent of
the former Operations Center space is sublet through the end of the
lease term.
<PAGE>
13
Note 6. Premises and Equipment (continued)
At December 31, 1999, the Company leased space for a branch in McLean,
Virginia. The lease term is for ten years and two months which
commenced April 1, 1999.
Rental expense for operating leases amounted to $259,398, $193,912 and
$198,324 for the years ended December 31, 1999, 1998 and 1997,
respectively. Leases are straightlined based on the current terms of
the lease. Customarily, the leases provide that the Company pay taxes,
maintenance, insurance and certain other operating expenses applicable
to the leased property.
Note 7. Deposits
Deposit account balances at December 31, 1999 and 1998 are summarized
as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Noninterest bearing $ 12,248,024 $ 14,264,071
Interest-bearing demand 15,839,370 10,105,072
Savings deposits 537,005 470,890
Certificates of deposits 20,566,902 25,345,426
------------ ------------
$ 49,191,301 $ 50,185,459
============ ============
</TABLE>
Certificates maturing in years ending December 31, as of December 31,
1999:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 8,527,565
2001 8,642,782
2002 2,652,269
2003 119,140
2004 and thereafter 625,146
------------
$ 20,566,902
============
</TABLE>
Overdrafts of $39,006 have been reclassed and are included in
commercial loans.
Note 8. Income Taxes
Provision (credit) for income taxes in the consolidated statements of
income are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ------- --------
<S> <C> <C> <C>
Current $ 1,420 $ 9,218 $ --
Deferred (511,424) -- --
---------- ------- --------
$ (510,004) $ 9,218 $ --
========== ======= ========
</TABLE>
<PAGE>
14
Note 8. Income Taxes (continued)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ---------
<S> <C> <C> <C>
Income (loss) before income taxes $ 340,109 $ 122,451 $ 16,299
Applicable statutory income tax rate 34% 34% 34%
---------- --------- --------
Computed "expected" federal tax expense $ 115,637 $ 41,633 $ 5,542
Adjustments to federal income tax resulting from:
Nondeductible expenses $ 3,289 $ -- $ --
Net operating loss carryforward (117,506) (32,415) (5,542)
Decrease in deferred tax valuation allowance (511,424) --
---------- --------- --------
Provision for federal income tax $ (510,004) $ 9,218 $ --
========== ========= ========
Other comprehensive income $ (117,523) $ 14,581 $ 2,880
Applicable tax (39,958) 4,958 979
Net operating loss carryforward 39,958 (4,958) (979)
---------- --------- --------
Other comprehensive income, net of tax $ (117,523) $ 14,581 $ 2,880
========== ========= ========
</TABLE>
The major components of deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax assets (liabilities): $
Accelerated depreciation 5,285 $ 12,573
Provision for loan losses 151,675 130,960
Valuation adjustments of real property 211,038 223,484
Deferred loan fees 13,194 4,270
Unrealized gain/loss on investment securities 34,194 (4,958)
Deferred rent 33,720 14,105
Net operating loss carryforward 2,022,315 2,177,278
------------ -----------
Net deferred tax assets before valuation allowance 2,471,421 2,557,712
Deferred tax valuation allowance (1,959,997) (2,557,712)
----------- -----------
Net deferred tax assets $ 511,424 $ --
=========== ===========
</TABLE>
The proportional change in the deferred tax valuation allowance for
1999 in the amount of $511,424 was to recognize amounts of the
Company's net operating loss carryforward considered by management as
more likely than not to be realized.
At December 31, 1999 the Company had net operating loss carryforwards
for regular income tax purposes of $5,947,986 which will expire
$279,240 in 2008, $1,849,246 in 2010, $1,829,709 in 2011 and
$1,989,791 in 2012. The Company also has an alternative minimum tax
credit carryforward of approximately $321,985 which may be carried
forward indefinitely.
<PAGE>
15
Note 9. Commitments and Contingencies
General Contingency
-------------------
The Company, in the normal course of its business, is occasionally the
subject of legal actions and proceedings. In the opinion of
management, after consultation with counsel, there were no legal
matters pending as of December 31, 1999 which would have a material
adverse effect on the Company's financial statements.
Year 2000
---------
During 1999, management completed the process of preparing for the
Year 2000 date change. This process involved identifying and
remediating date recognition problems in computer systems, software
and other operating equipment, working with third parties to address
their Year 2000 issues and developing contingency plans to address
potential risks in the event of Year 2000 failures. To date, the
Company has successfully managed the transition. Management will
continue to monitor all business processes, including interaction with
the Company's customers, vendors and other third parties, throughout
2000 to address any issues and ensure all processes continue to
function properly.
Financial Instruments With Off-Balance Risk
-------------------------------------------
In the normal course of business, the Company makes various
commitments and incurs certain contingent liabilities which are not
reflected in the accompanying financial statements. These commitments
and contingent liabilities include commitments to extend credit and
standby letters of credit. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit,
is based on management's credit evaluation of the customer. Such
collateral, where required, generally consists of real estate and
assets of the business.
Lines of credit are established for a potential borrower as an
indication of the aggregate amount of outstanding loans that the
Company is willing to extend. At December 31, 1999 and 1998,
commitments to extend credit under unused lines of credit amounted to
approximately $5,702,067 and $2,243,703, respectively.
The Company's outstanding standby letters of credit amounted to
approximately $652,924 and $618,474 as of December 31, 1999 and 1998,
respectively. The credit risk involved in issuing letters of credit is
essentially the same as that involved in making loans to customers.
Note 10. Related Party Transactions
Directors and officers of the Company were customers of, and entered
into transactions with, the Company in the ordinary course of
business. Loan transactions with directors and officers were made on
substantially the same terms as those prevailing for comparable loans
to other persons and did not involve more than normal risk of
collectibility or present other unfavorable features. Loans to
directors and officers, including family members or businesses in
which they have 5 percent or more beneficial ownership, are summarized
as follows:
Balance, December 31, 1997 $1,123,819
Additions 436,983
Reductions (271,717)
----------
Balance, December 31, 1998 $1,289,085
Additions 436,533
Reductions (224,202)
----------
Balance, December 31, 1999 $1,501,416
==========
The December 31, 1999 balance consists of both secured and unsecured
loans. None of the loans to related parties were classified as non-
performing as of December 31, 1999.
The Bank held related party deposits of approximately $2,810,000 and
$1,934,000 at December 31, 1999 and 1998, respectively.
<PAGE>
16
Note 11. Regulatory Requirements and Restrictions
The Company's banking subsidiary is subject to federal and/or state
statutes which prohibit or restrict certain of its activities,
including the transfer of funds to the Company. There are restrictions
on loans from the Bank to the Company, and the Bank is limited as to
the amount of cash dividends it can pay. The Bank paid no dividends in
1999, 1998 and 1997.
The Federal Reserve Act (Act) allows the Bank to make loans or other
extensions of credit to its parent, UFBC, only if such loans do not
exceed 10 percent of the Bank's capital and surplus and if such loans
or extensions of credit are secured by adequate collateral, as defined
by the Act. The Bank's capital and surplus totaled approximately
$6,141,000 at December 31, 1999; thus net assets of the Bank in excess
of approximately $614,100 were restricted from use by UFBC in the form
of loans or advances. UFBC had no such borrowings from the Bank in
1999 or 1998.
As a participant in the Federal Reserve system, the Bank is required
to maintain certain average reserve balances which are non-interest
bearing. The daily average reserve requirement for the week including
December 31, 1999 was $250,000.
The Company is subject to various regulatory capital requirements
administered by the Federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and bank
subsidiary must meet specific capital guidelines that involve
quantitative measures of assets, liabilities and certain off-balance
sheet items as calculated under regulatory accounting practices. The
Company and bank subsidiary are also subject to qualitative judgments
by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the bank subsidiary to maintain
minimum amounts and ratios of Total and Tier 1 capital to risk-
weighted assets, and of Tier 1 capital to average assets. As of
December 31, 1999, the Company and the Bank met the criteria to be
well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, the Company and the
bank subsidiary must maintain Total risk-based, Tier 1 risk-based and
Tier 1 average asset ratios as set forth in the table. There are no
conditions or events since December 31, 1999 that management believes
would result in the institution not being adequately capitalized.
<PAGE>
17
Note 11. Regulatory Requirements and Restrictions (continued)
The following table presents the Company and the Bank's actual
regulatory capital amounts and ratios:
<TABLE>
<CAPTION>
Required for Capital Required To Be
Actual Adequacy Purposes Well Capitalized
------------------- ----------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total capital (to risk-weighted assets)
Company 7,192,340 18.33% 3,138,307 8.00% 3,922,883 10.00%
The Business Bank 6,730,867 17.33% 3,107,996 8.00% 3,884,994 10.00%
Tier 1 capital (to risk-weighted assets)
Company 6,698,365 17.08% 1,569,153 4.00% 2,353,730 6.00%
The Business Bank 6,241,999 16.07% 1,553,998 4.00% 2,330,997 6.00%
Tier 1 capital (to average assets)
Company 6,698,365 12.14% 4,414,432 4.00% 5,518,040 5.00%
The Business Bank 6,241,999 11.28% 4,425,844 4.00% 5,532,306 5.00%
As of December 31, 1998:
Total capital (to risk-weighted assets)
Company 5,531,388 15.04% 2,943,124 8.00% 3,678,905 10.00%
The Business Bank 5,328,278 14.54% 2,932,556 8.00% 3,665,695 10.00%
Tier 1 capital (to risk-weighted assets)
Company 5,058,757 13.75% 1,471,562 4.00% 2,207,343 6.00%
The Business Bank 4,866,918 13.28% 1,466,278 4.00% 2,199,417 6.00%
Tier 1 capital (to average assets)
Company 5,058,757 9.28% 4,361,764 4.00% 5,452,205 5.00%
The Business Bank 4,866,918 9.17% 4,245,822 4.00% 5,307,277 5.00%
</TABLE>
Note 12. Other Income
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- -----------
<S> <C> <C>
Service charges on deposits $ 131,310 $ 113,836 $ 98,840
Fees on letters of credit 6,188 6,280 5,580
Gain (loss) on sale of real estate owned 72,807 104,657 27,993
Gain on sale of loans -- 39,818 --
Other 14,453 41,892 15,906
---------- ---------- ----------
$ 224,758 $ 306,483 $ 148,319
========== ========== ==========
</TABLE>
Note 13. Interest on Deposits
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- -----------
<S> <C> <C>
Savings and NOW $ 81,074 $ 56,526 $ 60,902
Money market 322,645 312,769 231,789
Time:
Under $100,000 851,284 1,082,856 948,741
$100,000 and over 303,708 360,829 318,472
Less: capitalized interest -- -- (64,700)
---------- ---------- ----------
$1,558,711 $1,812,980 $1,495,204
========== ========== ==========
</TABLE>
In 1997, interest was capitalized on certain property classified as
real estate owned.
<PAGE>
18
Note 14. Employee Benefit Programs
(a) Retirement Plans
The Company has a 401(K) Plan which covers all employees who meet
specified age and employment requirements. The administrative expense
associated with the 401(K) Plan was approximately $2,000 in 1999,
$1,600 in 1998 and $1,500 in 1997. The Company made contributions to
the 401(K) Plan of $24,000 in 1999 and 1998 and $5,000 in 1997. Future
contributions, if any, will be determined annually at the discretion
of the Company's Board of Directors.
(b) Stock Options
The Company has a 1990 and 1999 Executive Stock Plan (Plan) covering
substantially all employees. Under the Plans, any employee who has or
is expected to significantly contribute to the Company's growth and
profit may be granted one or more options to purchase common stock
and/or Stock Appreciation Rights (SAR). Members of the Compensation
Committee are not eligible. The Committee, consisting of non-employee
members of the Board of Directors, may designate the characteristics
and terms of the granted options or SARs.
The Committee establishes the price of each option share granted. The
maximum number of options to purchase common stock issuable under the
1990 Plan was 69,880 based on formula adjustments since adoption of
the 1990 Plan. This amount includes an increase of 12,062 shares
issuable under the 1990 Plan which was approved at the Annual Meeting
of Shareholders on June 12, 1996. As of December 31, 1999, 69,880
options to purchase common stock had been granted under the 1990 Plan.
The 1990 Plan expired December 31, 1999. The maximum number of options
to purchase common stock issuable under the 1999 Plan is 53,949. The
1999 Plan expires December 31, 2003. At December 31, 1999, no options
to purchase common stock had been granted under the 1999 Plan. Under
both Plans, options are exercisable at any time over a ten year period
from the date of grant as long as the option holder is an employee of
the Company. Certain option grants vest over four years.
The Company also has a 1996 and 1999 Nonqualified Stock Option Plan
for Non-Employee Directors (the Directors Plan) which awards options
to purchase common stock to non-employee directors of the Company and
of the Bank. The 1999 Directors Plan also includes awards to advisory
board members. The maximum number of shares issuable under the 1996
Directors Plan was 8,000. The 1996 Directors Plan expired on July 1,
1998 and all options to purchase stock have been issued. The maximum
number of shares issuable under the 1999 Directors Plan is 35,000. As
of December 31, 1999, 4,600 options to purchase common stock had been
granted under the 1999 Directors Plan. The 1999 Directors Plan expires
on August 1, 2003.
The following table summarizes the Company's stock option activity for
the years ended December 31, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
Average
Price Per
Share Options Exercisable
--------- -------- -----------
<S> <C> <C> <C>
Outstanding at December 31, 1997 $7.50 48,682 37,449
Granted 8.75 10,100
Exercised -- --
Canceled or expired 7.89 (4,400)
------ -----------
Outstanding at December 31, 1998 $7.71 54,382 48,765
Granted 8.75 33,098
Exercised -- --
Canceled or expired 8.75 (3,000)
------ -----------
Outstanding at December 31, 1999 $8.13 84,480 60,757
</TABLE>
The Company has elected to account for stock-based compensation under
the intrinsic value guidelines of APB 25. Under the intrinsic value
based method, compensation expense is measured as the excess, if any,
of the market price of the stock underlying the option as of the date
granted, over the exercise price. The Company's policy is to grant
options at the current market value. Accordingly, no compensation
expense associated with the options granted was recognized as of
December 31, 1999, 1998 and 1997.
<PAGE>
19
Note 15. Other Expense
<TABLE>
<CAPTION>
1999 1998 1997
------------- -------- --------
<S> <C> <C> <C>
Data processing $131,090 $114,938 $ 95,584
Professional fees 78,084 83,169 79,254
Stationery, printing and supplies 68,142 49,357 48,711
Insurance 40,956 56,429 89,980
Postage 24,208 17,034 16,952
Telephone 25,694 16,463 13,300
Advertising 11,069 7,411 9,104
Travel, mileage, and lodging 7,560 7,557 10,166
Provision for losses on real estate owned, net -- 227,666 72,631
Real estate owned, holding expense 51,146 49,914 110,305
Other 132,636 104,753 101,770
-------- -------- --------
$570,585 $734,691 $647,757
======== ======== ========
</TABLE>
Note 16. Shareholder's Equity
The Company has authorized 5,000,000 shares of no par value preferred
stock. At December 31, 1999 and 1998, there were no shares of
preferred stock outstanding.
The Company has authorized 3,500,000 shares of $1 par value common
stock. At December 31, 1999 and 1998, there were 963,234 and 831,590
common shares outstanding, respectively. Common shares reserved by the
Company for future issuance (convertible notes, stock option plans and
stock warrants) total 200,829.
Public Offering
---------------
During 1999, the Company initiated a Public Offering of common stock
to raise $1,530,000 of common equity for the purpose of expanding
banking operations. At December 31, 1999, the Company had sold 117,644
shares of common stock at $9.00 per share. $1,000,000 of the
$1,058,796 proceeds were downstreamed to the Bank to support growth.
Offering costs totaled approximately $44,000.
Subsequent to December 31, 1999, the Company sold 38,265 additional
shares of common stock at $9.00 per share. $300,000 of the proceeds
have been downstreamed to BVCI for investment purposes. The balance of
the proceeds has been held as working capital for UFBC.
Warrants
--------
During 1999, warrants to purchase fourteen thousand shares of common
stock were exercised at $7.50 per share. Warrants to purchase thirty-
four thousand shares of common stock were unexercised at December 31,
1999. The unexercised warrants expire on September 30, 2001. A warrant
to purchase two thousand shares of common stock was also unexercised
as of December 31, 1999 and expires on January 27, 2007.
Private Offering
----------------
During 1998, the Company sold 269,950 shares of common stock at $8.75
per share in a Private Placement Offering. $1,386,000 of the
$2,362,062 Private Placement Offering proceeds were used to redeem the
Company's preferred stock and to pay the related accrued dividends.
UFBC invested $700,000 of the proceeds into the Bank to support
growth. $200,000 of the proceeds were used to purchase a participation
in a Bank asset and used to pay off short-term debt. The remainder of
the proceeds were used as working capital for UFBC. The Private
Offering costs totaled approximately $5,000.
<PAGE>
20
Note 16. Shareholder's Equity (continued)
The following table is a reconciliation of earnings per common share as computed
under SFAS 128 (Note 1).
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
<S> <C> <C> <C>
Basic Earnings Per Share
- ------------------------
For the year ended December 31, 1999
Net Income $ 850,113
Less: Preferred Stock Dividends --
---------
Basic earnings (loss) per common share:
Income available to common stockholders $ 850,113 847,805 $1.00
========= ======= =========
For the year ended December 31, 1998
Net Income $ 113,233
Less: Preferred Stock Dividends ( 50,000)
---------
Basic earnings (loss) per common share:
Income available to common stockholders $ 63,233 716,395 $ .09
========= ======= =========
For the year ended December 31, 1997
Net Income $ 16,299
Less: Preferred Stock Dividends (117,250)
---------
Basic earnings (loss) per common share:
Income available to common stockholders (100,951) 561,640 $(.18)
========= ======= =========
Diluted Earnings Per Share
- --------------------------
For the year ended December 31, 1999
Net Income available to common stockholders $ 850,113 847,805
Add: Contracts to issue common stock
Warrants - expire 9/30/01 5,333
Warrant - expires 1/27/07 333
Options - expire 12/31/05 -12/31/09 7,622
-------
Weighted-average diluted shares outstanding 13,288
Diluted earnings per common share: $ 850,113 861,093 $ .99
========= ======= =========
For the year ended December 31, 1998
Net Income available to common stockholders $ 63,233 716,395
Add: Contracts to issue common stock
Warrants - expire 12/31/99 2,000
Warrants - expire 9/30/01 4,571
Warrant - expires 1/27/07 286
Options - expire 12/31/05 - 6/30/08 6,240
-------
Weighted-average diluted shares outstanding 13,097
Diluted earnings per common share: $ 63,233 729,492 $ .09
========= ======= =========
</TABLE>
<PAGE>
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17. Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments (SFAS 107), requires disclosure of
the estimated fair values of financial instruments which is defined as
the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or
liquidation sale. In cases where quoted market prices are not
available, fair values are based on estimates using discounted cash
flow analyses or other valuation techniques. Those techniques involve
subjective judgment and are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows.
The estimation methods for individual classifications of financial
instruments are more fully described below. Accordingly, the net
realizable values could be materially different from the estimates
presented below.
Cash and short-term investments
The carrying value of cash and short-term investments is a reasonable
estimate of fair value.
Investment Securities
Fair values are based on quoted market prices or dealer quotes. If a
quoted market price is not available, fair value is estimated using
quoted market prices for similar securities.
Loans
For certain homogeneous categories of loans, such as some residential
mortgages and other consumer loans, fair value is estimated using the
quoted market prices for securities backed by similar loans, adjusted
for differences in loan characteristics. The fair value of other types
of loans is estimated by discounting the future cash flows using the
current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
Deposits
The fair value of demand deposits, savings accounts and certain money
market deposits is the amount payable on demand at December 31, 1999
and 1998. The fair value of fixed maturity certificates of deposit is
estimated using the rates currently offered for deposits of similar
remaining maturities.
<TABLE>
<CAPTION>
1999 1998
------------------------ ------------------------
Book Fair Book Fair
Value Value Value Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and short-term
investments $ 7,137,000 $ 7,137,000 $10,170,000 $10,170,000
Investment securities 6,813,000 6,813,000 6,894,000 6,905,000
Net loans 39,870,000 40,158,000 36,215,000 37,923,000
Financial Liabilities:
Deposits 49,191,000 49,100,000 50,186,000 50,491,000
</TABLE>
SFAS 107 excludes certain financial instruments and all non-financial
instruments from its disclosure requirements. Accordingly, the
aggregate fair value amount presented should not be interpreted as
representing the underlying value of the Company.
<PAGE>
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18. Parent Company Financial Statements
Condensed financial statements of the parent company, United Financial
Banking Companies, Inc. as of December 31, 1999 and 1998, and for the
years ended December 31, 1999, 1998 and 1997, follow:
BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
----------- -----------
<S> <C> <C>
Cash on deposit with subsidiary bank $ 97,261 $ 38,134
Investment in The Business Bank 6,241,999 4,866,917
Investments in other subsidiaries 219,696 152,570
Loans and leases receivable, net -- 44,709
Other assets 511,424 3,251
----------- -----------
Total assets $ 7,070,380 $ 5,105,581
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Other liabilities $ 41,743 $ 46,824
----------- -----------
Total liabilities 41,743 46,824
----------- -----------
STOCKHOLDERS' EQUITY 7,028,637 5,058,757
----------- -----------
Total liabilities and stockholders' equity $ 7,070,380 $ 5,105,581
=========== ===========
</TABLE>
STATEMENTS OF INCOME
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Income:
Interest $ 2,246 $ 8,472 $ 39,611
Other -- 48 (42,575)
---------- ---------- ----------
Total income 2,246 8,520 (2,964)
Expenses 104,345 454,285 247,524
---------- ---------- ----------
(102,099) (445,765) (250,488)
Undistributed net gain (loss) of subsidiaries 442,208 568,216 266,787
---------- ---------- ----------
Income (loss) before income taxes 340,109 122,451 16,299
Federal income tax expense (benefit) (510,004) 9,218 --
---------- ---------- ----------
Net income (loss) $ 850,113 $ 113,233 $ 16,299
========== ========== ==========
</TABLE>
<PAGE>
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18. Parent Company Financial Statements (continued)
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 850,113 113,233 $ 16,299
Adjustments to reconcile net income
(loss) to net cash used in operating activities:
Provision for loan losses (12,001) 180,000 91,100
Undistributed net (gain) loss of:
The Business Bank (375,081) (456,163) (214,084)
Other Subsidiaries (67,127) (112,053) (52,703)
(Increase) decrease in other assets (508,173) 41,826 (202)
Increase (decrease) in other liabilities (5,081) (46,944) 53,526
------------ ------------ ----------
Net cash provided by (used in)
operating activities (117,350) (280,101) (106,064)
------------ ------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal collected on loans 56,710 7,498 397,437
Loans and leases purchased from subsidiary -- (140,000) (155,168)
(Investment in) distributions from
subsidiaries (1,000,000) (700,000) (540,195)
------------ ------------ ----------
Net cash provided by (used in)
investing activities (943,290) (832,502) (297,926)
------------ ------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of redeemable preferred stock -- -- 450,000
Proceeds from issuance of common stock 1,119,767 2,357,895 --
Redemption of preferred stock & accrued dividend -- (1,386,000) --
------------ ------------ ----------
Net cash provided by (used in)
financing activities 1,119,767 971,895 450,000
------------ ------------ ----------
Net increase (decrease) in cash and cash equivalents 59,127 (140,708) 46,010
Cash and cash equivalents at beginning of year 38,134 178,842 132,832
------------ ------------ ----------
Cash and cash equivalents at end of year $ 97,261 $ 38,134 $ 178,842
============ ============ ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the years for:
Interest on borrowings $ 2,021 $ 808 $ --
============ ============ ==========
Income taxes $ 9,218 $ -- $ --
============ ============ ==========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
</TABLE>
In 1997, $117,250 was accrued for dividends payable on the preferred stock -
series A.
<PAGE>
24
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
TABLE 1 Selected Consolidated Financial Data
- ----------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Results of operations:
Total interest income $ 3,977,200 $ 4,055,420 $ 3,433,867 $ 2,828,278 $ 2,191,867
Total interest expense 1,587,216 1,813,788 1,495,204 1,562,851 1,343,596
----------- ----------- ----------- ----------- ----------
Net Interest income 2,389,984 2,241,632 1,938,663 1,265,427 848,271
Provision for
loan/lease losses 79,866 323,500 249,300 694,203 (295)
----------- ----------- ----------- ----------- ----------
Net interest income after
provision for
loan/lease losses 2,310,118 1,918,132 1,689,363 571,224 848,566
Other income 291,301 400,188 224,716 651,882 231,796
Other expenses 2,261,310 2,195,869 1,897,780 2,133,176 2,403,850
----------- ----------- ----------- ----------- ----------
Income before 340,109 122,451 16,299 (910,070) (1,323,488)
income taxes and
extraordinary gain
Income tax
expense(benefit) (510,004) 9,218 - (2,461) 2,598
----------- ----------- ----------- ----------- ----------
Net income(loss) before 850,113 113,233 16,299 (907,609) (1,326,086)
extraordinary gain
Extraordinary gain - - - - -
----------- ----------- ----------- ----------- ----------
Net income(loss) $ 850,113 $ 113,233 $ 16,299 $ (907,609) $(1,326,086)
=========== =========== =========== =========== ==========
Earnings per share:
Net income 850,113 113,233 16,299 (907,609) (1,326,086)
Less: preferred stock dividends - (50,000) (117,250) (18,750) -
----------- ----------- ----------- ----------- ----------
Income available to common stockholders
before extraordinary gain: 850,113 63,233 (100,951) (926,359) (1,326,086)
Basic earnings (loss) per common share $ 1.00 $ 0.09 $ (0.18) $ (1.65) $ (2.40)
Diluted earnings (loss) per common share$ 0.99 $ 0.08 $ - $ (1.65) $ (2.40)
Add: extraordinary gain - - - - -
----------- ----------- ----------- ----------- ----------
Income available to common stockholders 850,113 63,233 (100,951) (926,359) (1,326,086)
Basic earnings (loss) per common share: $ 1.00 $ 0.09 $ (0.18) $ (1.65) $ (2.40)
Diluted earnings (loss) per common share$ 0.99 $ 0.08 $ - (1)$ (1.65) $ (2.40)
Average weighted shares outstanding:
Basic 847,805 716,395 561,640 561,640 551,550
Diluted 861,094 814,752 585,873 561,640 551,550
Period-ending balances:
Total loans $ 40,652,769 $ 36,962,213 $ 38,084,861 $ 30,618,335 $23,874,982
Total assets 56,455,892 55,573,072 48,074,006 41,601,689 43,065,970
Total deposits 49,191,302 50,185,459 43,761,761 37,734,574 37,475,235
Shareholders' equity 6,928,065 5,075,708 2,639,999 2,738,070 3,670,047
Selected ratios:
Return on average
total assets 1.59% 0.22% 0.04% (2.07)% (3.45)%
Return on average
earning assets 1.71% 0.23% 0.04% (2.68)% (5.23)%
Return on average
shareholders' equity 16.14% 2.90% 0.61% (27.51)% (29.73)%
Average shareholders'
equity to average
total assets 9.87% 7.50% 5.87% 7.54% 11.60%
</TABLE>
(1) anti-dilutive
<PAGE>
25
UNITED FINANCIAL BANKING COMPANIES, INC.
Forward looking statements. This discussion and other sections of this report
- --------------------------
contain forward looking statements, including statements of goals, intentions
and expectations as to future trends, plans, or results of Company operations
and policies and assumptions 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, Year 2000 compliancy and other conditions which, by their
nature, are not conducive 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.
OVERVIEW
- --------
United Financial Banking Companies, Inc. (UFBC) is a one-bank holding
company which owns 100% of the issued and outstanding shares of common stock of
The Business Bank (the Bank). UFBC also wholly owns Business Venture Capital,
Inc. (BVCI). Collectively, UFBC, the Bank, and BVCI are referred to as "the
Company". The following commentary provides an overview of the consolidated
financial condition and results of operation of the Company, and should be read
together with the consolidated financial statements and accompanying notes
presented in this report.
The Company reported net income of $850,113 or $1.00 per share for the year
ended December 31, 1999. Several components impacted income during 1999,
including recognition of $511,424 of the Company's deferred income taxes. The
deferred income tax benefit represented 60.2% of net income for the year ended
December 31, 1999 compared to the 1998 tax provision which represented 8.1% of
net income. Income before taxes increased $218,000 or 177.7% from $122,451 at
December 31, 1998 to $340,109 at December 31, 1999. The income before tax
increase is primarily attributable to the resolution and disposition of several
nonearning assets during 1998. The 1998 resolution contributed to 1999 earning
assets and improved asset quality which limited the amount of provision
necessary to fund the allowance for loan/lease losses. Average earning assets
increased $1,465,000 or 3.0% when comparing years ending December 31, 1999 and
1998 (Table 2, Consolidated Average Balances). Provision for loan/lease losses
expense declined $244,000 or 75.3% for the comparable period (Consolidated
Statements of Income and Comprehensive Income).
The Company reported net income of $113,233 or $.09 earnings per basic
share for the year ended December 31, 1998. Basic earnings per share were
negatively impacted by dividends of $50,000 for the Company's Series A preferred
stock. The preferred stock was redeemed during 1998 from proceeds of a Private
Offering (Note 16 to the consolidated financial statements). Growth was the key
influence on income for 1998. Total assets increased $7,499,000 or 15.6% during
1998. Average earning assets increased $7,637,000 or 18.8% during 1998 despite
significant loan payoffs (Table 2, Consolidated Average Balances). Contributing
to the volume of earning assets, non-earning assets decreased $586,000 or 20.4%
from $2,879,000 at December 31, 1997 to $2,293,000 at December 31, 1998. Non-
earning assets were 4.1% of total assets at December 31, 1998 compared to 6.0%
of total assets at December 31, 1997.
For the year ended December 31, 1997, the Company reported net income
$16,299 and net loss of $.18 earnings per basic share. Earnings per share were
negatively impacted by dividends of $117,250 for the Company's Series A
preferred stock. During 1997, management focused on the liquidation of non-
earning assets. Primarily due to the sale of real estate owned (REO), non-
earning assets decreased $830,000 or 22.4% from $3,709,000 at December 31, 1996
to $2,879,000 at December 31, 199. Non-earning assets were 6.0% of total assets
at December 31, 1997 compared to 8.7% of total assets at December 31, 1996. The
decrease in non-earning assets contributed to the Company's growth in total
average earning assets which grew $6,941,000 or 20.5% and produced a 53.0%
increase in net interest income during 1997.
<PAGE>
26
UNITED FINANCIAL BANKING COMPANIES, INC.
TABLE 2
CONSOLIDATED AVERAGE BALANCES/NET INTEREST ANALYSIS/
YIELDS AND RATES
________________________________________________________________________________
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999 December 31, 1998
- ----------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans/Leases:
Commercial $23,644,022 $2,112,988 8.94% $25,163,714 $2,462,453 9.79%
Real estate construction 4,151,679 422,128 10.17% 2,756,519 264,084 9.58%
Real estate mortgage 7,651,694 604,872 7.91% 6,950,303 527,037 7.58%
Installment 1,574,821 140,799 8.94% 1,641,652 151,500 9.23%
Leases - - - 273,446 - -
----------- ---------- ----------- ----------
Total loans/leases 37,022,216 3,280,787 8.86% 36,785,634 3,405,074 9.26%
----------- ---------- ----------- ----------
Interest-bearing deposits - - 0.00% 88,056 5,491 6.24%
Federal funds sold 5,362,759 269,857 5.03% 6,229,522 339,393 5.45%
Investment securities 7,448,088 426,556 5.73% 5,264,914 305,462 5.80%
----------- ---------- ----------- ----------
Total earning assets 49,833,063 3,977,200 7.98% 48,368,126 4,055,420 8.38%
========== ==========
Noninterest-earning assets
Cash and due from banks 2,046,384 1,768,063
Other assets 2,227,639 2,682,471
Allowance for loan losses/lease (755,737) (763,834)
----------- -----------
Total assets $53,351,349 $52,054,826
=========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and NOW accounts 3,389,515 81,074 2.39% 2,360,360 56,526 2.39%
Money market accounts 10,284,048 322,645 3.14% 8,817,006 317,462 3.60%
Time:
Under $100,000 16,613,670 851,284 5.12% 19,638,531 1,078,163 5.49%
$100,000 and over 6,071,187 303,708 5.00% 6,636,143 360,829 5.44%
----------- ---------- ----------- ----------
Total interest-bearing
deposits 36,358,420 1,558,711 4.84% 37,452,040 1,812,980 4.84%
Short-term borrowings 425,000 28,505 6.71% 40,972 808 1.97%
----------- ---------- ----------- ----------
Total interest-bearing
liabilities 36,783,420 1,587,216 4.32% 37,493,012 1,813,788 4.84%
========== ==========
Non interest-bearing liabilities:
Demand deposits 10,853,570 9,843,027
Other liabilities 448,696 361,048
Redeemable preferred stock - 453,667
Stockholders' equity 5,265,663 3,904,072
----------- -----------
Total liabilities and
stockholders' equity $53,351,349 $52,054,826
=========== ===========
Net interest income $2,389,984 $2,241,632
========== ==========
Net interest margin (2) 4.80% 4.63%
====== ======
Net interest spread (3) 3.66% 3.54%
====== ======
Fees included in loan income $ 133,193 $ 103,364
========== ==========
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 1,974,646 179,571 9.09%
Leases 364,385 - -
----------- ----------
Total loans/leases 32,905,901 2,991,380 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 3,433,867 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% (1)
$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 - - 0.00%
----------- ----------
Total interest-bearing
liabilities 33,073,676 1,495,204 4.72% (1)
==========
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 $1,938,663
==========
Net interest margin (2) 4.76%
======
Net interest spread (3) 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.
(1) 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 interest capitalized on real estate under development of $64,700 on
CODs under $100,000 for the year ended December 31, 1997.
(2) Net interest income divided by total earning assets.
(3) Average rate earned on total earning assets less average rate paid for
interest-bearing liabilities.
<PAGE>
27
UNITED FINANCIAL BANKING COMPANIES, INC.
NET INTEREST INCOME AND INTEREST ANALYSIS
- -----------------------------------------
Net interest income is the principal component of the Company's operating
income and is the amount by which interest and loan fee income earned on earning
assets exceeds interest paid on interest-bearing liabilities. Net interest
income increased $148,000 or 6.6% from $2,242,000 at December 31, 1998 to
$2,389,000 at December 31, 1999. The increase is attributable to an increased
average volume of earning assets and a decreased volume of interest-bearing
liabilities in the Bank. As shown in Table 2, Consolidated Average Balances,
average total earning assets increased $1,467,000 or 3.0% from $48,368,000 at
December 31, 1998 to $48,833,000 at December 31, 1999. Average total interest-
bearing liabilities decreased $710,000 or 1.9% from $37,493,000 at December 31,
1998 to $36,783,000 at December 31, 1999. During 1999, rate impacted net
interest income by depressing interest income and significantly decreasing
interest expense.
Interest and fees from loans declined $124,000 or 3.7% and interest from
federal funds decreased $70,000 or 20.5%. Both decreases were driven by rate as
shown in Table 3, Analysis of the Changes in the Components of Net Interest
Income. Interest income from investment securities grew $121,000 or 39.6% and
was also impacted by rate. The investment portfolio has a short duration and
the 1999 purchases were made during a rising rate environment. Total interest
income decreased $78,000 or 1.9% during 1999. As needed, management changes the
Company's investment mix, such as loans, securities or federal funds sold, in
an effort to safely maximize income and to maintain adequate liquidity.
Interest expense on total interest-bearing deposits decreased $227,000 or
12.5% at December 31, 1999 when compared to the year ended December 31, 1998.
Both rate and volume account for the increase as shown in Table 3. Interest
expense on deposits reflects management's continuing plan and efforts to manage
the cost of funds by obtaining less volatile and less costly core deposits.
Net interest margin is a key measure of net interest income performance.
Representing the Company's net yield on its average earning assets, net interest
margin is calculated as net interest income divided by average earning assets.
Both net interest margin and net interest income are affected by many factors,
including competition, the economy, and the volume and mix of balance sheet
components and their relative sensitivity to interest rate fluctuations. During
1999 rate was a key factor affecting net interest income and the net interest
margin compared to 1998 which was primarily affected by volume as shown in
Tables 2 and 3. At December 31, 1999, the net interest margin of 4.80%
increased seventeen basis points when compared to the net interest margin of
4.63% at December 31, 1998.
<PAGE>
28
UNITED FINANCIAL BANKING COMPANIES, INC.
CHANGE IN NET INTEREST INCOME (RATE/VOLUME VARIANCE)
- ----------------------------------------------------
The analysis of the changes for the components of net interest income
presented in Table 3 shows the direct causes of the changes in net interest
earnings from year to year on a tax equivalent basis. It is computed as
prescribed by the Securities and Exchange Commission. UFBC's net yield on
earning assets, interest income and expense is affected by fluctuating interest
rates, volumes of and changes in the mix between earning assets and interest-
bearing liabilities, and the interaction between these factors.
TABLE 3
Analysis of the Changes in the Components of Net Interest Income (tax equivalent
________________________________________________________________________________
basis)
______
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999 Compared to 1998 1998 Compared to 1997
----------------------------------------- -----------------------------------------
Total Change Due To: Total Change Due To:
-------------------------- --------------------------
Increase Increase
(Decrease) Rate Volume (Decrease) Rate Volume
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans & lease financing:
Commercial $ (349,465) $ (200,752) $ (148,713) $ 192,606 $ 68,184 $ 124,422
Real estate - construction 158,044 24,383 133,661 113,478 (1,571) 115,049
Real estate - mortgage 77,835 24,649 53,186 135,681 (1,322) 137,003
Installment (10,701) (4,533) (6,168) (28,072) 2,210 (30,282)
---------- ---------- ---------- ---------- ---------- ----------
Total loans/leases (124,287) (156,254) 31,967 413,693 67,501 346,192
Interest-bearing deposits (5,491) - (5,491) (3,423) 314 (3,737)
Federal funds sold (69,536) (210,270) 140,734 92,686 (906) 93,592
Investment securities 121,094 163,595 (42,501) 118,596 (6,168) 124,764
---------- ---------- ---------- ---------- ---------- ----------
Total interest income (78,220) (202,929) 124,709 621,552 60,740 560,812
---------- ---------- ---------- ---------- ---------- ----------
Interest expense:
Savings and NOW accounts 24,547 (99) 24,646 (4,376) 1,215 (5,591)
Money markets accounts 5,185 (47,637) 52,822 85,673 22,066 63,607
Time:
Under $100,000 (226,879) (60,813) (166,066) 194,122 90,578 103,544
$100,000 and over (57,122) (26,403) (30,719) 42,357 7,221 35,136
Short-term borrowings 27,697 20,124 7,573 808 808 -
---------- ---------- ---------- ---------- ---------- ----------
Total interest expense (226,572) (114,829) (111,743) 318,584 121,888 196,696
---------- ---------- ---------- ---------- ---------- ----------
Net interest income $ 148,352 $ (88,100) $ 236,452 $ 302,968 $ (61,147) $ 364,115
========== ========== ========== ========== ========== ==========
</TABLE>
PROVISION FOR LOAN/LEASE LOSSES
- -------------------------------
Provision expense declined $244,000 or 75.3% from $324,000 at December 31,
1998 to $80,000 at December 31, 1999. The decrease is primarily attributable to
a charge-off of $203,000 during 1998 and the necessity to replenish the
allowance. All of the leases within the Leveraged Lease subsidiary, UFBC, Inc.,
expired in 1998. The value of these assets were determined each year by an
independent appraisal obtained through a third party. At maturity, both leases
were converted to sales as the lessees elected to exercise their purchase
options. As a result of the final disposition of these assets, the Bank charged
$23,145 to its allowance for loan/lease losses and the Company charged $180,000
to its allowance for loan/lease losses.
<PAGE>
29
NONINTEREST INCOME
- ------------------
Total noninterest income declined $109,000 or 27.2% at year end 1999
compared to year end 1998. Total noninterest income increased $175,000 or 78.1%
at year end 1998 compared to year end 1997. The 1999 decrease compared to 1998
and the 1998 rise compared to 1997 are both principally due to 1998 other
income. Net gains of $105,000 from the sales of REO in the BVCI subsidiary
primarily accounts for 1998 other income. Gains on the sales of loans and one
time recognition of deferred fees also contributed to the 1998 improvement.
Detail of other income is shown in Note 12 to the consolidated financial
statements.
<PAGE>
30
UNITED FINANCIAL BANKING COMPANIES, INC.
NONINTEREST EXPENSE
- -------------------
Total noninterest expense increased $65,000 or 2.9% during the year ending
1999 as compared to 1998 and increased $298,000 or 15.7% during the year ending
1998 as compared to 1997 as shown in Table 4, Noninterest Expense. The 1999
increase is primarily attributable to salaries and employee benefits, occupancy
and fixed asset expense. Salaries and employee benefits and the provision for
REO account for the increase when comparing years ended December 31, 1998 and
1997.
Salaries and employee benefits rose $157,000 or 14.8% at December 31, 1999
as compared to December 31, 1998. Staff for a new bank branch which opened
during 1999 accounts for most of the increase. The bank branch opening also
generated additional occupancy and furniture and equipment expense. Occupancy
expense rose $38,000 or 11.8% when comparing years ended December 31, 1999 and
1998. Furniture and equipment expense increased $34,000 or 14.8% during 1999.
Salaries and employee benefits rose $168,000 or 18.8% at December 31, 1998
as compared to December 31, 1997. During 1998, the Bank required additional
staffing to support growth. For the same comparable period, the provision for
REO increased $155,000 due to write-downs.
Insurance expense decreased $15,000 or 27.4% at December 31, 1999 when
compared to December 31, 1998 and decreased $34,000 or 37.3% at December 31,
1998 when compared to December 31, 1997. The decrease during 1999 is primarily
attributable to a reduction in the Company's bond insurance premium. A
reduction in the Bank's FDIC insurance assessment as a result of its improved
capital position accounts for the 1998 decrease. The FDIC insurance assessment
is affected by the volume of deposits as well as capital position.
REO holding expense decreased 54.8% for the year ending December 31, 1998
compared to December 31, 1997. The Company benefitted from the liquidation and
sale of several REO properties during 1998.
Table 4 shows the major categories of noninterest expense for the past three
years and its relation to average assets, average earning assets and gross
income.
- --------------------------------------------------------------------------------
TABLE 4 NONINTEREST EXPENSE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Percentage
increase (decrease)
1999 1998 1997 1999 / 98 1998 / 97
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits 1,219,145 1,061,659 893,622 14.83 18.80
Occupancy, net 360,893 322,956 296,097 11.75 9.07
Furniture and equipment 110,687 76,563 60,304 44.57 26.96
Professional fees 78,084 83,169 79,254 (6.11) 4.94
Insurance 40,956 56,429 89,980 (27.42) (37.29)
Provision for real estate owned - 227,666 72,631 (100.00) 213.46
Real estate owned holding expense 51,146 49,914 110,305 2.47 (54.75)
Other expenses 400,399 317,513 295,587 26.10 7.42
------------- ------------- -------------
Total 2,261,310 2,195,869 1,897,780 2.98 15.71
============= ============= =============
Noninterest expense as a percentage of :
Average assets 4.24% 4.22% 4.17%
============= ============= =============
Average earning assets 4.54% 4.54% 4.66%
============= ============= =============
Gross income 52.98% 49.28% 51.87%
------------- ------------- -------------
</TABLE>
<PAGE>
31
UNITED FINANCIAL BANKING COMPANIES, INC.
BALANCE SHEET ANALYSIS
- ----------------------
At December 31, 1999, total assets increased $833,000 or 1.6% from December
31, 1998. The increase was attributable to loan growth and recognition of a
portion of the Company's deferred income taxes. Loans grew $3,691,000 from
$36,962,000 to at December 31, 1998 to $40,653,000 at December 31, 1999, while
deposits decreased $994,000 for the comparable period. Loan growth was funded
by capital and redistribution of the Company's liquid assets. Management
believes that growth is necessary for the Company to improve profitability.
Additionally, management believes that developing a diversified balance sheet
is essential to supporting future growth. During 1999, the Company authorized
sale of 170,000 shares of common stock at $9.00 per share through a Public
Offering. The Company sold 117,644 shares of common stock as of December 31,
1999. The proceeds were primarily used to expand banking operations. The
Company authorized and sold 269,950 shares of common stock at $8.75 per share
through a Private Offering during 1998. The proceeds were used to redeem the
Company's preferred stock which had been sold during 1996 and 1997. Further
details regarding the Public and Private Offerings are provided in Note 16 to
the consolidated financial statements. Both the Company and the Bank were well
capitalized, per regulatory capital requirements, for the years ending December
31, 1999 and 1998. The Company's stockholders' equity increased 36.5% at
December 31, 1999 compared to December 31, 1998.
<PAGE>
32
UNITED FINANCIAL BANKING COMPANIES, INC.
LOAN PORTFOLIO
- --------------
Loans and leases are the largest component of total assets. Loans as a
percentage of total assets were 72.0% at the year ending December 31, 1999
compared to 66.5% at December 31, 1998. Though the actual balance of loans and
leases increased 10.0% during 1999 when compared to 1998, the average volume of
loans and leases increased only $237,000 or .6% for the comparable period. A
significant portion of loan growth occurred during the fourth quarter of 1999.
In managing risk for what is predominantly a commercial loan portfolio,
management maintains clearly defined credit standards. Approval and funding of
all loans is centralized and thereby promotes uniform application of credit
standards. The Bank Board reviews and regularly monitors policies for lending
practices. The Bank has policies limiting exposure to certain industries in an
effort to limit the risks associated with commercial lending, including
extending new credit to real estate development related businesses. The primary
focus when extending credit is the borrower's ability to repay the loan from
expected cash flows.
As the Bank continues to focus on expanding customer relationships,
management projects that the resulting blend of loans and deposits will continue
to become more diversified. The Bank's primary focus is providing short-term
loans to small and medium-sized businesses and professionals. Commercial loans,
therefore remain the most significant component of the loan portfolio,
comprising 61.9% and 66.9% of total loans and leases at December 31, 1999 and
1998, respectively.
- --------------------------------------------------------------------------------
TABLE 5 - LOAN PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $ 25,160,558 $ 24,721,939 $ 27,039,144 $ 21,868,684 $ 17,535,738
Real estate construction 4,934,806 3,499,723 2,252,943 1,527,521 1,979,587
Real estate mortgage 8,786,994 7,076,032 6,743,695 4,418,814 1,568,745
Installment 1,770,411 1,664,519 1,744,437 2,438,674 1,946,570
Leveraged leases - - 304,642 364,642 844,342
--------------- --------------- ---------------- --------------- ---------------
Total loans $ 40,652,769 $ 36,962,213 $ 38,084,861 $ 30,618,335 $ 23,874,982
=============== =============== ================ =============== ===============
</TABLE>
The loan portfolio is predominately short-term in nature which can work to
mitigate interest rate risk. The following chart shows the maturities of the
Company's two largest loan classes, commercial and mortgage.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
One Year One Through Over Five
or Less Five Years Years Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 6,615,373 $ 11,658,350 $ 6,886,835 $ 25,160,558
Real estate mortgage 1,413,848 2,140,788 5,214,358 8,768,994
--------------- ---------------- --------------- ---------------
$ 8,029,221 $ 13,799,138 $ 12,101,193 $ 33,929,552
=============== ================ =============== ===============
</TABLE>
<PAGE>
33
UNITED FINANCIAL BANKING COMPANIES, INC.
ALLOWANCE FOR LOAN/LEASE LOSSES
- -------------------------------
The allowance for loan/lease losses increased $36,000 or 4.8% during 1999.
The ratio of allowance for loan/lease losses to total loans and leases was 1.9%
and 2.0% at the years ending December 31, 1999 and 1998, respectively. A five-
year history of the activity in the allowance for loan/lease losses follows:
- --------------------------------------------------------------------------------
TABLE 6 ALLOWANCE FOR LOAN/LEASE LOSSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Period Ending December 31, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 747,374 $ 715,399 $ 584,106 $ 462,846 $ 700,666
-------------- -------------- -------------- -------------- --------------
Charge-offs:
Installment (15,809) (5,787) (4,165) - (31,891)
Commercial (31,086) (88,486) (38,445) (114,440) (237,542)
Mortgage - (4,743) (14,643) - -
Construction - - (22,800) - -
Leveraged leases - (203,201) (60,000) (479,700) -
Recoveries:
Installment - 392 2,508 3,011 6,522
Commercial 2,798 10,300 16,538 18,186 25,386
Construction - - 3,000 - -
Leveraged leases - - - - -
-------------- -------------- -------------- -------------- --------------
Net charge-offs (44,097) (291,525) (118,007) (572,943) (237,525)
-------------- -------------- -------------- -------------- --------------
Provision charged to operations 79,866 323,500 249,300 694,203 (295)
-------------- -------------- -------------- -------------- --------------
Balance at end of period $ 783,143 $ 747,374 $ 715,399 $ 584,106 $ 462,846
============== ============== ============== ============== ==============
Average total loans $ 37,022,216 $ 36,785,634 $ 32,905,901 $ 27,210,295 $ 19,143,433
============== ============== ============== ============== ==============
Ratio of net charge-offs
to average total loans (0.12)% (0.79)% (0.35)% (2.10)% (1.24)%
============== ============== ============== ============= ==============
</TABLE>
The allowance for loan losses is a general allowance applicable to all loan
categories. The following allocation of the allowance for loan/lease losses is
intended only as an indication of the relative risk characteristics in the loan
portfolio and not as a definitive indication of relative portfolio risks or of
funds available to cover losses in any category of loans:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Period ending December 31, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $ 434,000 $ 480,000 $ 466,000 $ 385,000 $ 379,000
Real estate construction 74,000 52,000 34,000 23,000 29,000
Real estate mortgage 208,000 165,000 160,000 121,000 23,000
Installment 31,000 32,000 34,000 37,000 29,000
Leases - - 4,600 5,600 -
Unallocated 36,143 18,374 16,799 12,506 2,846
-------------- -------------- -------------- ------------- --------------
$ 783,143 $ 747,374 $ 715,399 $ 584,106 $ 462,846
============== ============== ============== ============= ==============
</TABLE>
<PAGE>
34
UNITED FINANCIAL BANKING COMPANIES, INC.
NONPERFORMING ASSETS
- --------------------
Nonperforming assets are assets on which accrued income recognition has
been discontinued. Nonperforming assets include nonaccrual loans and foreclosed
real estate. For the years ending December 31, 1999 and 1998, nonperforming
assets were 2.6% and 3.4% of total assets, respectively.
Nonaccruing loans at year end 1999 totaled $15,781. This compares to a
balance of $60,378 in nonaccrual loans at the end of 1998. The decline in
nonaccruing loans at December 31, 1999 when compared to the year ended December
31, 1998 was due principally to better loan quality, collections and charge-
offs. The Company had no loans or leases still accruing interest that were
ninety days or more past due as to principal or interest as of December 31,
1999. Management's policy for placing loans into nonaccrual status is to
consider the overall security and character of the loan. Foreclosed real
estate is discussed in Real Estate Owned.
The following is a summary of nonperforming assets:
- --------------------------------------------------------------------------------
TABLE 7 NONPERFORMING ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Period ending December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccruing loans (90 days or more past due) $ 15,781 $ 60,378 $ 102,012
Real estate owned
Total nonperforming assets 1,424,650 1,799,398 2,368,104
----------- ---------- ----------
$ 1,440,431 $ 1,859,776 $ 2,470,116
=========== ========== ==========
Nonaccruing loans as a % of total loans 0.04% 0.16% 0.27%
Reserve for loans losses to nonaccruing loans 4962.57% 1237.83% 701.29%
Nonperforming assets to total loans 3.54% 5.03% 6.49%
</TABLE>
<PAGE>
35
UNITED FINANCIAL BANKING COMPANIES, INC.
REAL ESTATE OWNED
- -----------------
Real Estate Owned (REO) includes foreclosed properties in which the Company
has taken title. Accounting policies for real estate owned are outlined in Note
1 to the consolidated financial statements.
At December 31, 1999 and 1998, REO comprised 2.5% and 3.2%, respectively,
of the Company's total assets. The $375,000 or 20.8% decline in REO during 1999
was primarily attributable to property sales. REO was comprised of a property
located in Culpeper, Virginia and was held 100% by the Bank. The Bank
continues to sell lots and residential homes to liquidate the property.
An aging of real estate owned and a breakdown by project type as of
December 31, 1999 and 1998 are presented in Table 8.
- --------------------------------------------------------------------------------
TABLE 8 REAL ESTATE OWNED
- --------------------------------------------------------------------------------
Aging of Foreclosed Properties
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Period ending December 31, 1998 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
From 1 to 6 months $ 126,900 $ 120,000
From 7 to 12 months - -
From 13 to 24 months - -
Over 24 months 1,297,750 1,679,398
--------------- ---------------
$ 1,424,650 $ 1,799,398
=============== ===============
<CAPTION>
Foreclosed Properties by Project Type
- --------------------------------------------------------------------------------
Period ending December 31, 1998 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Undeveloped land $ - $ 437,198
1 - 4 family dwelling 126,900 278,700
Developed land 1,297,750 1,083,500
--------------- ---------------
$ 1,424,650 $ 1,799,398
=============== ===============
</TABLE>
DEPOSITS
- --------
As shown in Table 10, total deposits decreased $994,000 or 2.0% at December
31, 1999 when compared to December 31, 1998. The increase shown in Table 10 and
on the consolidated balance sheets was the result of asset/liability management.
During 1999, management chose to utilize liquid assets and capital to fund loan
growth. Since these sources provided sufficient funding, management chose to
allow run-off of price sensitive certificates of deposits. As shown in Table 9,
the run-off significantly contributed to lower cost of funds.
By design, the deposit mix continued to change as the Bank sought to
increase core deposits. Core deposits consist of demand, savings, NOW, money
market accounts and time deposits under $100,000. Additionally, management
sought to maintain an even balance between time deposits and other deposit
accounts. As shown in Table 10, other deposit accounts represented 55.2% while
time deposits represented 41.8% of total deposits at year end 1999. As shown in
Table 9, total average core deposits increased $2,663,000 or 6.9% from
$38,478,000 at December 31, 1998 to $41,141,000 at December 31, 1991. When
comparing average core deposit growth from December 31, 1998 to December
31,1999, the change was as follows: demand deposits increased $1,011,000 or
10.2%, money market deposits increased $3,648,000 or 54.9%, savings and NOW
deposits increased $1,029,000 or 43.6% and time deposits under $100,000
decreased 3,025,000 or 15.4%.
<PAGE>
36
UNITED FINANCIAL BANKING COMPANIES, INC.
- --------------------------------------------------------------------------------
TABLE 9 DEPOSITS BALANCE AND RATE
- --------------------------------------------------------------------------------
Rates paid on each classification of deposits are shown below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average
Balance Rate Balance Rate Balance Rate Balance Rate Balance Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand $10,853,570 - % $9,843,027 - % $8,104,143 - % $7,543,201 - % $5,671,220 - %
Savings and NOW 3,389,515 2.39 2,360,360 2.39 2,598,967 2.43 2,717,904 2.46 2,075,394 2.23
accounts
Money market 10,284,048 3.14 8,817,006 3.60 6,918,458 3.35 5,106,331 3.20 4,318,259 3.60
accounts
Time:
Under $100,000 16,613,670 5.12 * 19,638,531 5.49 * 17,579,511 5.40 16,569,137 5.61 14,195,288 5.71
$100,000 and over 6,071,187 5.00 6,636,143 5.44 5,976,740 5.33 6,237,825 5.43 5,979,498 5.49 *
------------ ------------ ------------ ------------ ------------
Total $47,211,990 3.36 % $47,295,067 3.84 % $41,177,819 3.63 % $38,174,398 3.93 % $32,239,659 4.16 %
============ ============ ============ ============ ============
</TABLE>
* Rates for 1999, 1998, 1997, 1996, and 1995 are presented consistently with the
method within the Net Interest Analysis/Yield & Rate Table presented earlier.
- --------------------------------------------------------------------------------
TABLE 10 DEPOSITS STRUCTURE AND CERTIFICATES OF DEPOSIT 100K AND OVER
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
% of % of % of % of % of
Amount Total Amount Total Amount Total Amount Total Amount Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand $12,248,025 24.91% $14,264,071 29.01% $ 7,778,077 17.77% $ 7,897,677 20.93% $ 7,033,571 18.77%
Savings and NOW
accounts 4,902,524 9.97 3,051,446 6.20 2,508,666 5.73 2,779,982 7.37 2,966,721 7.92
Money market
accounts 11,473,851 23.32 7,524,516 15.30 7,568,652 17.30 3,970,348 10.52 5,917,979 15.79
Time:
Under $100,000 15,513,608 31.54 18,048,129 36.69 19,478,244 44.51 16,763,355 44.42 15,139,336 40.40
$100,000 and over 5,053,294 10.27 7,297,297 14.83 6,428,122 14.69 6,323,212 16.76 6,417,628 17.12
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total $49,191,302 100.00% $50,185,459 102.02% $43,761,761 100.00% $37,734,574 100.00% $37,475,235 100.00%
========== ====== ========== ====== ========== ====== ========== ====== ========== ======
</TABLE>
The maturity schedule that follows categorizes time deposits of $100,000 or more
as of December 31, 1999.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Maturing Balance Percent
- -----------------------------------------------------------------------------
<S> <C> <C>
Three months or less $ 1,328,237 26.28%
Over three months to six months 1,084,023 21.45
Over six months to twelve months 2,094,132 41.44
Over twelve months 546,902 10.82
--------- ---------
Total $ 5,053,294 100.00%
========= =========
</TABLE>
<PAGE>
37
UNITED FINANCIAL BANKING COMPANIES, INC.
INVESTMENTS
- -----------
The Bank held all of the Company's investments at December 31, 1999 and
1998. The securities portfolio was comprised of U.S. Treasury, U.S. Government
agency, Mortgage-backed and Equity securities. The Bank has been 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 included both instruments available-for-sale
(AFS) and those held-to-maturity (HTM). Securities classified as AFS 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 HTM are intended
for investment purposes. Further details on securities are discussed in Note 2
to the consolidated financial statements.
LIQUIDITY AND INTEREST SENSITIVITY
- ----------------------------------
The Company's liquidity management is designed to achieve an appropriate
balance between the maturities and repricing of its assets and liabilities.
This is accomplished through a combined strategy of maintaining sufficient
liquid assets which can be easily converted into cash as well as the ability to
increase core deposits or to raise funds in the various money markets. Cash and
due from banks, money market investments, securities available-for-sale and loan
maturities are the Company's primary sources of liquidity. Average liquid
assets were 40.7% of average total assets for 1998 and 20.9% for 1997.
Additional sources of liquidity are available through a line of credit held by
the Bank, loan participations, deposit growth and other borrowings. Cash flows
from operations are presented in the consolidated statements of cash flows.
UFBC's operational needs have been significantly reduced in recent years as
overhead has been allocated proportionately between the subsidiaries. For the
near future, management projects that proceeds received from the past two
capital offerings and reimbursements from allocated expenses will provide
sufficient cash flow for UFBC's continuing operational needs.
Interest rate risk is primarily the result of the imbalance between the
repricing of assets and liabilities either through maturity or interest rate
changes. Perfectly matching liabilities with assets can eliminate interest rate
risk, but profits are not always enhanced. As a result, the Company manages its
interest rate sensitivity in order to limit risk while at the same time
profiting from favorable market opportunities. The objective is to obtain an
appropriate balance sheet mix that maximizes earnings while protecting against
unanticipated changes in interest rates.
One method of monitoring rate risk is through the analysis of gap
positions. Gap is the difference between the amount of assets and the amount of
liabilities that mature or are repriced during a given period of time. A
positive gap results when more assets than liabilities mature or are repriced
during a given period of time. A negative gap results when there are more
liabilities than assets maturing or being repriced during a given time frame.
The short-term nature of the Company's assets and liabilities can be seen
in the interest sensitivity analysis presented in Table 11. The volume of non-
earning assets also significantly affects the analysis, limiting the amount of
assets available to reprice. As non-earning assets are returned to earning
status, the gap position will become more balanced throughout the time frames
measured. A positive gap position indicates that more assets than liabilities
will reprice, having a negative earnings impact in a falling rate environment.
<PAGE>
38
UNITED FINANCIAL BANKING COMPANIES, INC.
TABLE 11 - INTEREST SENSITIVITY ANALYSIS
- -----------------------------------------
in thousands
<TABLE>
<CAPTION>
CURRENT 0-3 4-6 7-12 1-5 OVER 5
BALANCES MONTHS RATE MONTHS RATE MONTHS RATE YEARS RATE YEARS RATE TOTAL
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
FEDERAL FUNDS SOLD 5,033 5,033 4.90% 5,033
AVAILABLE-FOR-SALE INVESTMENTS 6,814 740 5.33% 340 5.49% 472 5.81% 5,135 5.85% 127 6.19% 6,814
LOANS, NET - FIXED 24,025 4,533 8.51% 72 11.17% 2,720 8.69% 9,697 8.29% 7,003 7.39% 24,025
LOANS, NET - VARIABLE 16,650 14,527 9.07% 228 9.31% 36 8.69% 1,859 8.27% - 0.00% 16,650
---------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS 52,522 24,833 8.01% 640 7.49% 3,228 8.27% 16,691 7.54% 7,130 7.37% 52,522
LOAN LOSS RESERVE (783)
NON-ACCRUAL LOANS 16 -
CASH AND DUE FROM BANKS 2,105 -
REAL ESTATE OWNED 1,425 -
FIXED ASSETS 311 -
OTHER NONINTEREST-BEARING ASSETS 860 -
---------------------------------------------------------------------------------------------------
TOTAL NONEARNING ASSETS 3,934 - - - - - -
---------------------------------------------------------------------------------------------------
TOTAL ASSETS 56,456 24,833 640 3,228 16,691 7,130 52,522
===================================================================================================
LIABILITIES
NOW ACCOUNTS 4,365 4,365 2.79% 4,365
MONEY MARKET ACCOUNTS 11,474 11,474 3.15% 11,474
SAVINGS ACCOUNTS 537 537 2.98% 537
CERTIFICATES OF DEPOSIT
* $100,000 15,514 2,435 4.87% 3,554 4.93% 3,848 5.04% 5,677 5.31% 15,514
CERTIFICATES OF DEPOSIT
** $100,000 5,053 1,328 4.86% 1,084 5.08% 2,094 5.11% 547 4.88% 5,053
---------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING DEPOSITS 36,943 19,602 3.40% 4,638 4.97% 5,942 5.06% 6,761 5.09% - 36,943
---------------------------------------------------------------------------------------------------
NONINTEREST-BEARING DEPOSITS 12,248 -
---------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 49,191 19,602 4,638 5,942 6,761 - 36,943
TOTAL OTHER LIABILITIES 337 -
TOTAL CAPITAL 6,928 -
---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES & CAPITAL 56,456 19,602 4,638 5,942 6,761 - 36,943
===================================================================================================
INTERVAL GAP/GAP SPREAD 5,231 4.61% (3,998) 2.52% (2,714) 3.20% 9,930 2.45% 7,130 7.37%
CUMULATIVE GAP 5,231 1,233 (1,481) 8,449 15,579
INTERVAL GAP/TOTAL ASSETS 9.27% (7.08)% (4.81)% 17.59% 12.63%
CUMULATIVE GAP/TOTAL ASSETS 9.27% 2.18% (2.62)% 14.97% 27.59%
INTERVAL GAP/EARNING ASSETS 9.96% (7.61)% (5.17)% 18.91% 13.58%
CUMULATIVE GAP/EARNING ASSETS 9.96% 2.35% (2.82)% 16.09% 29.66%
MATCHED 19,602 3.40% 640 4.97% 3,228 8.27% 16,691 7.54% - 0.00%
OPEN 5,231 4.61% (3,998) 2.52% (2,714) 3.20% 9,930 2.45% 7,130 7.37%
</TABLE>
<PAGE>
39
UNITED FINANCIAL BANKING COMPANIES, INC.
YEAR 2000
- ----------
During 1999, management completed the process of preparing for the Year
2000 date change. This process involved identifying and remediating date
recognition problems in computer systems, software and other operating
equipment, working with third parties to address their Year 2000 issues and
developing plans to address potential risks in the event of Year 2000 failures.
To date, the Company has successfully managed the transition.
Although, considered unlikely, unanticipated problems in core business
processes, including problems associated with non-compliant third parties and
disruptions to the economy in general, could still occur despite efforts to date
to remediate affected systems and develop contingency plans. Management will
continue to monitor all business processes, including interaction with the
Company's customers, vendors and other third parties, throughout 2000 to address
any issues and ensure all processes continue to function properly.
During 1999, the Company incurred approximately $154,000 for costs
associated with the Year 2000 issue, including salary allocations. The Year
2000 project was headed by senior management and primarily utilized internal
personnel.
EFFECTS OF INFLATION
- --------------------
The effect of changing prices on financial institutions is different than
that of non-banking companies since substantially all assets and liabilities are
monetary in nature. Interest rates are affected by inflation and deflation.
Neither the timing nor the magnitude of the changes in interest rates is
necessarily related to price level indexes. Consequently, management believes
the Company can best counter inflation over the long term by managing net
interest income, diversifying its asset and liability mix and controlling
noninterest income and expenses.
<PAGE>
40
UNITED FINANCIAL BANKING COMPANIES, INC.
DIRECTORS OFFICERS
- --------- --------
Jeffery T. Valcourt Harold C. Rauner
Chairman of the Board President/CEO
United Financial Banking Companies, Inc.
President/CEO, Valcourt Building Services, Inc. Sharon A. Stakes
Executive Vice President
Manuel V. Fernandez
Vice Chairman
United Financial Banking Companies, Inc. Lisa M. Porter
President, 650 Water Street, Inc. Chief Financial
Officer/Controller
Corporate Secretary
William J. McCormick, Jr.
President, Jordan Kitts Music, Inc. F. Janette Collins
Assistant Secretary
Dennis I. Meyer
Partner, Baker & McKenzie, Attorneys
Edward H. Pechan
President, E. H. Pechan and Associates, Inc.
Harold C. Rauner
President/CEO, United Financial Banking Companies, Inc.
President/CEO, The Business Bank
Sharon A. Stakes
Executive Vice President, United Financial Banking Companies, Inc.
Executive Vice President, The Business Bank
THE BUSINESS BANK BOARD OF DIRECTORS
Harold C. Rauner Jeffery T. Valcourt
Chairman of the Board Vice Chairman
The Business Bank The Business Bank
President/CEO, The Business Bank President/CEO, Valcourt
Building Services, Inc
President/CEO, United Financial Banking Companies, Inc.
Robert E. Carpenter Charles S. Evans
Partner, Weller and Scott President, Computerware
Robert W. Pitts
Partner, Pitts and Pitts
Sharon A. Stakes
Executive Vice President, The Business Bank
Executive Vice President, United Financial Banking Companies, Inc.
<PAGE>
41
UNITED FINANCIAL BANKING COMPANIES, INC.
CORPORATE INFORMATION
---------------------
The Company did not accrue or pay dividends during the years ended December 31,
1999 and 1998. The Company will not resume the issuance of stock dividends until
retained earnings are returned to a positive level.
The Company had 425 shareholders of record as of December 31, 1999.
FORM 10KSB
----------
For a free copy of the Annual Report on Form 10KSB, shareholders should write
to:
Corporate Secretary
United Financial Banking Companies, Inc.
8399 Leesburg Pike
P.O. Box 2459
Vienna, Virginia 22182
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-KSB 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,104,515
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,033,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 6,914,100
<INVESTMENTS-MARKET> 7,014,672
<LOANS> 40,652,769
<ALLOWANCE> 783,143
<TOTAL-ASSETS> 56,455,892
<DEPOSITS> 49,191,302
<SHORT-TERM> 0
<LIABILITIES-OTHER> 336,525
<LONG-TERM> 0
0
0
<COMMON> 963,234
<OTHER-SE> 5,964,831
<TOTAL-LIABILITIES-AND-EQUITY> 56,455,892
<INTEREST-LOAN> 3,280,787
<INTEREST-INVEST> 696,413
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,977,200
<INTEREST-DEPOSIT> 1,558,711
<INTEREST-EXPENSE> 28,505
<INTEREST-INCOME-NET> 2,389,984
<LOAN-LOSSES> 79,866
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,261,310
<INCOME-PRETAX> 340,109
<INCOME-PRE-EXTRAORDINARY> 340,109
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 850,113
<EPS-BASIC> 1.00
<EPS-DILUTED> 0.99
<YIELD-ACTUAL> 8.86
<LOANS-NON> 15,781
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 747,374
<CHARGE-OFFS> 46,895
<RECOVERIES> 2,798
<ALLOWANCE-CLOSE> 783,143
<ALLOWANCE-DOMESTIC> 783,143
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 537,000
</TABLE>
