<PAGE>
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
----
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
X Act of 1934.
----
For the quarterly period ended September 30, 2000.
Or
----
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
----
For the transition period from to
------------------- -------------------
Commission File No. 0-13395
UNITED FINANCIAL BANKING COMPANIES, INC.
A Virginia Corporation IRS Employer Identification
No. 54-1201253
8399 Leesburg Pike, Vienna, Virginia 22182
Telephone: (703) 734-0070
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Common Stock $1.00 Par Value
1,001,499 Shares Outstanding
as of September 30, 2000
Transitional Small Business Disclosure Format: Yes No X
--- ---
<PAGE>
Part 1. Financial Information
Item 1: Financial Statements
<TABLE>
<CAPTION>
UNITED FINANCIAL BANKING COMPANIES, INC., AND SUBSIDIARIES
Consolidated Statements of Income and Comprehensive Income / Results of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------- ---------------------------------------
2000 1999 2000 1999
------------------ ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans/leases $ 1,178,614 $ 814,172 $ 3,115,822 $ 2,432,102
Interest on investment securities 158,692 120,867 406,747 325,089
Interest on federal funds sold 79,803 67,108 295,499 189,303
------------------ ------------------ ------------------ -----------------
Total interest income 1,417,109 1,002,147 3,818,068 2,946,494
------------------ ------------------ ------------------ -----------------
Interest expense:
Interest on deposits 518,387 393,038 1,364,145 1,166,828
Interest on short-term borrowings 8,343 14,664 8,343 21,998
------------------ ------------------ ------------------ -----------------
Total interest expense 526,730 407,702 1,372,488 1,188,826
------------------ ------------------ ------------------ -----------------
Net interest income 890,379 594,445 2,445,580 1,757,668
Provision for loan/lease losses 62,600 22,200 128,600 56,479
------------------ ------------------ ------------------ -----------------
Net interest income after provision
for loan/lease losses 827,779 572,245 2,316,980 1,701,189
Noninterest income:
Gain (loss) on sale of real estate
owned and other earning assets 2,534 82,492 2,254 80,028
Loan servicing and other fees 17,881 18,041 49,901 54,595
Other income 47,842 37,214 132,527 104,835
------------------ ------------------ ------------------ -----------------
Total noninterest income 68,257 137,747 184,682 239,458
------------------ ------------------ ------------------ -----------------
Noninterest expense:
Salaries 291,154 267,547 852,911 744,757
Employee benefits 47,676 50,725 146,990 143,673
Occupancy 97,527 93,593 294,803 264,315
Furniture and equipment 32,445 28,772 107,508 67,683
Legal 4,650 9,687 19,290 22,356
FDIC insurance 2,638 1,328 7,501 11,204
Other insurance 6,286 6,263 19,415 22,063
Data processing 36,337 31,367 112,812 93,746
Real estate owned holding expense 8,005 3,863 20,167 12,377
Other expense 89,714 91,061 299,598 240,136
------------------ ------------------ ------------------ -----------------
Total noninterest expense 616,432 584,206 1,880,995 1,622,310
------------------ ------------------ ------------------ -----------------
Income (loss) before income taxes 279,604 125,786 620,667 318,337
Provision (credit) for income taxes - 2,304 - 6,912
------------------ ------------------ ------------------ -----------------
Net income (loss) $ 279,604 $ 123,482 $ 620,667 $ 311,425
================== ================== ================== =================
Net income (loss) per common share (Note 3)
Basic $ 0.28 $ 0.14 $ 0.62 $ 0.37
================== ================== ================== =================
Diluted $ 0.28 $ 0.14 $ 0.62 $ 0.37
================== ================== ================== =================
Comprehensive Income (Note 4)
----------------------------
Net income $ 279,604 $ 123,482 $ 620,667 $ 311,425
Other comprehensive income, net of tax
Unrealized gains (losses) on
available-for-sale securities 25,764 (19,274) 12,201 (90,932)
------------------ ------------------ ------------------ -----------------
Comprehensive income $ 305,368 $ 104,208 $ 632,868 $ 220,493
================== ================== ================== =================
</TABLE>
2
<PAGE>
UNITED FINANCIAL BANKING COMPANIES, INC., AND SUBSIDIARIES
Consolidated Balance Sheets / Financial Condition
<TABLE>
<CAPTION>
(Unaudited) (Audited)
September 30, December 31
Assets 2000 1999
------ ------------------ -------------------
<S> <C> <C>
Cash and due from banks $ 2,590,802 $ 2,104,515
Federal funds sold 350,000 5,033,000
Investment Securities:
Available-for-sale (AFS) 8,234,419 6,813,528
Held-to-maturity (HTM) 2,330,833 -
Loans and lease financing, net of unearned
income of $128,048 and $38,805 53,840,593 40,652,769
Less: Allowance for loan/lease losses (907,272) (783,143)
------------------ -------------------
Net loans and lease financing 52,933,321 39,869,626
Real estate owned held for sale, net 1,254,407 1,424,650
Premises and equipment, net 228,778 283,020
Deferred income taxes 511,424 511,424
Other assets 605,973 416,129
------------------ -------------------
Total assets $ 69,039,957 $ 56,455,892
================== ===================
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Demand $ 14,378,749 $ 12,248,025
Savings and NOW 5,266,379 4,902,524
Money market 14,484,012 11,473,851
Time deposits:
Under $100,000 13,818,838 15,513,608
$100,000 and over 8,933,930 5,053,294
------------------ -------------------
Total deposits 56,881,908 49,191,302
------------------ -------------------
Short-term borrowings 3,785,000 -
Other liabilities 467,731 336,525
------------------ -------------------
Total liabilities 61,134,639 49,527,827
------------------ -------------------
Stockholders' Equity:
Preferred stock of no par value, authorized
5,000,000 shares, no shares issued - -
Common Stock, par value $1; authorized 3,500,000 shares,
issued 1,001,499 shares at 9/30/00 and 963,234 at 12/31/99 1,001,499 963,234
Capital in excess of par value 15,975,810 15,669,690
Retained earnings (8,983,620) (9,604,287)
Unrealized holding gain (loss) - AFS securities (88,371) (100,572)
------------------ -------------------
Total stockholders' equity 7,905,318 6,928,065
------------------ -------------------
Total liabilities and stockholders' equity $ 69,039,957 $ 56,455,892
================== ===================
</TABLE>
3
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UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------------------------
September 30, 2000 September 30, 1999
---------------------- ----------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ $ 620,667 $ 311,425
Adjustment to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation & amortization 68,109 39,733
Provision for loan/lease losses 128,600 56,479
Amortization of investment security discount 2,034 -
Amortization of loan fees and discounts, net 87,849 5,491
Net (gain) loss on sale of securities 2,831 -
Net (gain) loss on disposal of equipment 2,735 (43,228)
Net (gain) loss on sale of other real estate owned (2,254) (80,476)
(Increase) decrease in other assets (189,844) (86,037)
Increase (decrease) in other liabilities 131,206 40,644
---------------------- ----------------------
Net cash provided by (used in) operating activities 851,933 244,031
---------------------- ----------------------
Cash flows from investing activities:
Loans originated - non-bank subsidiaries (475,832) (50,000)
Principal collected - non-bank subsidiaries 251,923 23,673
Loans and lease originations, net of collections (13,172,625) (1,136,130)
Purchases of securities available-for-sale (3,345,122) 25,382
Purchases of securities held-to-maturity (2,478,062) (4,040,724)
Investment made in other real estate owned (105,947) -
Proceeds received from maturity of securities available-for-sale 1,932,465 (225,907)
Proceeds received from maturity of securities held to maturity 146,331 1,410,823
Proceeds from real estate owned 394,834 1,120,970
Purchases of premises and equipment (22,602) 530,601
Proceeds from disposal of equipment 6,000 (178,846)
---------------------- ----------------------
Net cash provided by (used in) investing activities (16,868,637) (2,520,158)
---------------------- ----------------------
Cash flow from financing activities:
Net increase (decrease) in demand deposits, savings
accounts, NOW accounts and money market accounts 5,504,740 344,004
Certificates of deposit sold (matured), net 2,185,866 (3,187,547)
Net change in short-term borrowings 3,785,000 1,100,000
Proceeds from sale of common stock 344,385 374,999
---------------------- ----------------------
Net cash provided by (used in) financing activities 11,819,991 (1,368,544)
---------------------- ----------------------
Net increase (decrease) in cash and cash equivalents (4,196,713) (3,644,671)
Cash and cash equivalents at beginning of the year 7,137,515 10,170,910
---------------------- ----------------------
Cash and cash equivalents at end of the quarter $ 2,940,802 $ 6,526,239
====================== ======================
Supplemental disclosures of cash flow information:
Cash paid during the years for:
Interest on deposits and other borrowings $ 1,309,188 $ 1,206,666
Income taxes 1,513 10,885
Non-Cash Items:
Effect on stockholders' equity of an unrealized gain (loss)
on debt and equity securities available-for-sale $ 12,201 $ 90,932
Increase in foreclosed properties and decrease in loans $ 116,390 $ -
</TABLE>
4
<PAGE>
Notes to Consolidated Financial Statements
------------------------------------------
Note 1 - The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-QSB and,
therefore, do not include all information and footnotes required by
generally accepted accounting principles for complete financial
statements. The interim financial statements have been prepared
utilizing the interim basis of reporting and, as such, reflect all
adjustments which are, in the opinion of management, necessary for a
fair presentation of the results for the periods presented. The
results of operations for the interim periods are not necessarily
indicative of the results for the full year.
Note 2 - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Note 3 - 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. Prior period amounts have been restated, where appropriate, to
conform to the requirements of SFAS 128.
Note 4 - On January 1, 1998, United Financial Banking Companies, Inc. adopted
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income (SFAS 130). Under SFAS 130, each company is
required to present a `Statement of Comprehensive Income'.
Comprehensive income is defined as the change in equity during a
period from transactions and other events and circumstances from
non-owner sources such as foreign currency items, minimum pension
liability adjustments and unrealized gains and losses on certain
investments in debt and equity securities.
5
<PAGE>
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UNITED FINANCIAL BANKING COMPANIES, INC.
CONSOLIDATED AVERAGE BALANCES/NET INTEREST ANALYSIS/
YIELDS AND RATES
---------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, 2000 September 30, 1999
---------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
---------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans/Leases:
Commercial $ 28,839,400 $ 2,013,071 9.30% $ 23,720,733 $ 1,622,506 9.15%
Real estate construction 5,594,850 456,019 10.86% 4,019,759 276,186 9.19%
Real estate mortgage 8,273,496 504,023 8.12% 7,410,499 429,853 7.76%
Installment 2,291,389 142,709 8.30% 1,563,362 103,557 8.86%
Leases - - - - - -
--------------- -------------- --------------- --------------
Total loans/leases 44,999,135 3,115,822 9.22% 36,714,353 2,432,102 8.86%
--------------- -------------- --------------- --------------
Interest-bearing deposits - - - - - -
Federal funds sold 6,475,562 295,432 6.08% 5,186,830 189,058 4.87%
Investment securities 8,649,332 406,814 6.27% 7,415,244 325,089 5.86%
--------------- -------------- --------------- --------------
Total earning assets 60,124,029 3,818,068 8.46% 49,316,427 2,946,249 7.99%
============== ==============
Noninterest-earning assets
Cash and due from banks 1,967,030 1,907,990
Other assets 2,568,118 2,211,556
Allowance for loan losses/lease (837,999) (746,334)
--------------- ---------------
Total assets $ 63,821,178 $ 52,689,639
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and NOW accounts 5,384,734 117,991 2.92% 3,314,078 56,448 2.28%
Money market accounts 13,990,050 373,742 3.56% 9,559,792 224,713 3.14%
Time:
Under $100,000 14,810,260 593,635 5.34% 16,802,962 648,439 5.16%
$100,000 and over 6,708,803 278,777 5.54% 6,378,328 238,479 5.00%
--------------- -------------- --------------- --------------
Total interest-bearing
deposits 40,893,847 1,364,145 4.44% 36,055,160 1,168,079 4.33%
Short-term borrowings 159,019 8,343 6.99% 566,667 21,998 5.19%
--------------- -------------- --------------- --------------
Total interest-bearing
liabilities 41,052,866 1,372,488 4.45% 36,621,827 1,190,077 4.34%
============== ==============
Non interest-bearing liabilities:
Demand deposits 14,927,488 10,609,167
Other liabilities 414,170 329,234
Stockholders' equity 7,426,654 5,129,411
--------------- ---------------
Total liabilities and
stockholders' equity $ 63,821,178 $ 52,689,639
=============== ===============
Net interest income $ 2,445,580 $ 1,756,172
============== ==============
Net interest margin (1) 5.42% 4.76%
========= =========
Net interest spread (2) 4.01% 3.65%
========= =========
Fees included in loan income $ 126,162 $ 73,888
============== ==============
Taxable equivalent adjustment $ - $ -
============== ==============
Average balances for the years presented are calculated on a monthly basis. Nonaccruing loans are included in the average loan
balance.
(1) Net interest income divided by total earning assets.
(2) Average rate earned on total earning assets less average rate paid for interest-bearing liabilities.
</TABLE>
6
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward looking statements. This discussion contains forward looking statements,
including statements of goals, intentions and expectations as to future trends,
plans, or results of Company operations and policies and regarding general
economic conditions. These statements are based upon current and anticipated
economic conditions, nationally and in the Company's market, interest rates and
interest rate policy, competitive factors, statements by suppliers of data
processing equipment and services, government agencies and of third parties, as
to Year 2000 compliance, and other conditions which, by their nature, are not
susceptible to accurate forecast, and are subject to significant uncertainty.
Because of these uncertainties and the assumptions on which this discussion and
the forward looking statements are based, actual future operations and results
may differ materially from those indicated herein.
A. Results of Operations for the Nine Months Ended September 30, 2000 as
---------------------------------------------------------------------
Compared to the Nine Months Ended September 30, 1999
----------------------------------------------------
General
-------
The following discussion provides an overview of the financial condition
and results of operations of United Financial Banking Companies, Inc. (UFBC) and
its subsidiaries, The Business Bank and Business Venture Capital, Inc., which is
presented on a consolidated basis. UFBC reported net income of $620,667 for the
nine-month period ended September 30, 2000. This compares with net income of
$311,425 for the same period of 1999. Basic earnings per share were $.62 for the
first nine months ended September 30, 2000 compared to $.37 for the first nine
months of 1999.
Earnings for the first nine months of 2000 are primarily due to the
increased volume of earning assets and an improved net interest margin. During
the past year, UFBC's primary subsidiary, The Business Bank (the Bank),
continued to increase the Company's earning asset base. At September 30, 2000,
average total earning assets increased $10,807,602 or 21.9% when compared to the
first nine months of September 30, 1999 (Consolidated Average Balances table).
The increase contributed favorably to the Company's operating earnings. The net
interest margin increased sixty-six basis points from 4.76% at September 30,
1999 to 5.42% at September 30, 2000. The improved margin also contributed
favorably to the Company's net income.
Subsequent to September 30, 2000, the Bank sold a portion of its
one-to-four family residential mortgage portfolio. The Bank sold twenty-one
loans for $2,600,000. The sale price was at a 5% discount of book value.
One-half of the discount, $67,000, was charged against the Bank's loan loss
allowance. The remaining $67,000 was charged against October 2000 earnings. The
majority of the loans sold originated in the Bank's 100% financing program for
its Reva, Virginia real estate owned (REO). Though not required by any
regulatory body, management believes the Reva loans created a significant credit
concentration and that disposition would be beneficial to the Bank and to the
Company. The sale contributed to the Company's liquidity and has been reemployed
in assets which yield approximately 200 basis points higher than the loans sold.
Net Interest Income
-------------------
For the nine-month period ended September 30, 2000, net interest income
increased $687,912 or 39.1% from $1,757,668 at September 30, 1999 to $2,445,580
at September 30, 2000. The improvement is primarily attributable to increased
loan volume. As shown in the Consolidated Average Balances table, average total
loans increased $8,284,782 or 22.6% from $36,714,353 at September 30, 1999 to
$44,999,135 at September 30, 2000. Interest income on loans increased $683,720
or 28.1% during the past year.
The rate environment also contributed to the increased net interest income.
The prime rate increased 125 basis points from 8.25% at September 30, 1999 to
9.50% at September 30, 2000. An increased prime rate notably impacts the Bank's
earnings as approximately one third of the Bank's loan portfolio is tied to
prime. The yield on total loans rose thirty-six basis points from 8.86% at
September 30, 1999 to 9.22% at September 30, 2000. The rate environment also
favorably impacted the yield on federal funds sold and investment securities
which together increased seventy-five basis at September 30, 2000 when compared
to September 30, 1999.
The change in the deposit mix over the past year also contributed to the
increase in net interest income.
7
<PAGE>
Though the average volume of deposits increased $4,838,687or 13.4% during the
past year, the cost of deposits increased only eleven basis points at September
30, 2000 when compared to September 30, 1999. The minimal increase was due to
the growth of money market, savings and NOW and demand deposit accounts which
are less costly funding than certificates of deposit. The average volume of
money market, savings and NOW and demand deposit accounts increased $10,819,235
or 46.1% when comparing September 30, 1999 and 2000. The average volume of
certificate of deposit accounts decreased $1,662,227 or 7.2% for the comparable
period. Rate sensitive certificate of deposits (customers without an established
banking relationship) were allowed to runoff as they matured during the past
year.
Provision for Loan/Lease Losses
-------------------------------
Provision expense increased $72,121 or 127.7% from $56,479 at September 30,
1999 to $128,600 at September 30, 2000. The Bank's loan volume is a significant
factor in determining the appropriate amount to fund the loan loss allowance.
The Bank's increased volume during the three month and nine month period ended
September 30, 2000 primarily accounted for the rise in the provision for loan
losses during the past year.
Noninterest Income
------------------
Total noninterest income decreased $54,776 or 22.9% for the nine month
period and $69,490 or 50.5% for the three month period ended September 30, 2000
compared to the same periods of 1999, respectively. The decreases were primarily
attributable to a gain on the sale of an REO property. During the third quarter
of 1999, an REO property was sold by the Business Venture Capital, Inc. (BVCI)
subsidiary for a gain of $82,940.
Noninterest Expense
-------------------
Total noninterest expense increased $258,685 or 15.9% during the nine
months ended September 30, 2000 when compared to the same period of 1999. The
rise was primarily attributable to costs associated with operating the McLean
branch which opened in July 1999. During the first nine months of 2000, branch
operating costs impacted expenses such as salaries, employee benefits,
occupancy, furniture and equipment, communications and advertising.
Salaries and employee benefits increased $111,471 or 12.6% from $888,430 at
September 30, 1999 to $999,901 at September 30, 2000. Occupancy increased
$30,488 or 11.5% for the comparable period. The increases were due to additional
staffing and leased space necessary for the Company to expands its banking
operations, most notably the McLean branch.
Furniture and equipment expense increased $39,825 or 58.8% over the past
year. During the third and fourth quarters of 1999, the Company purchased
furniture and equipment for the McLean branch. The Company also purchased
equipment for technological upgrading and Year 2000 compliance. Most of the
equipment was placed on a three year amortization schedule. Depreciation
initiated by the purchases accounted for the increased expense when comparing
the nine month periods ended September 30, 1999 and September 30, 2000.
Other expense rose $59,462 or 24.7% during the nine-month period ended
September 30, 2000 when compared to the first nine months of 1999. The increase
was primarily attributable to expanded banking operations and growth. Costs such
as data processing, franchise tax, advertising and communications increased
$41,986 or 31.9% from $131,695 at September 30, 1999 to $173,681 at September
30, 2000.
Income Taxes
------------
The Company does not anticipate accruing a tax liability during 2000.
Management expects to utilize UFBC's deferred income tax benefit to off-set any
tax liability that may be incurred during 2000.
B. Financial Condition as of September 30, 2000
--------------------------------------------
Assets
------
Total assets increased $12,408,074 or 21.9% during the first nine months of
2000. The rise in assets was attributable to the Bank's increased volume of
deposits and short-term borrowings which increased the volume of assets
available for investment. Total deposits escalated $7,690,606 or 15.6% from
$49,191,302 at December 31,
8
<PAGE>
1999 to $56,881,908 at September 30, 2000 due to new deposit relationships
generated by both the Main and McLean offices. The increased volume of assets
were invested into loans which rose $13,187,824 or 32.4% from $40,652, 769 at
December 31, 1999 to $53,840,593 at September 30, 2000 and investment securities
which grew $3,751,724 or 55.1% for the comparable period.
Allowance for Loan/Lease Losses
-------------------------------
The allowance for loan/lease losses (allowance) represents an amount which
management believes will be adequate to absorb potential losses inherent in the
loan/lease portfolio. The provision for loan losses represents the charge to
earnings during the year to fund the allowance to cover potential future losses.
The amount charged to expense during the year is dependent upon management's and
the Board of Directors' assessment of the adequacy of the allowance. Principal
factors used in evaluation include prior loss experience, changes in the
composition and volume of the portfolio, overall portfolio quality, the value of
underlying collateral, reviews of portfolio quality by state and federal
supervisory authorities, specific problem loans, and current and anticipated
economic conditions that may affect a borrower's ability to repay.
At September 30, 2000 and December 31, 1999, the allowance was $907,272 and
$783,143, respectively, or 1.7% and 1.9% of total loans and leases.
Nonperforming loans for the nine-month period ended September 30, 2000 totaled
$170,278, of which $153,130 resided in the Bank and of which $17,148 resided in
BVCI. This compares to a balance of $15,781 at December 31, 1999 which was held
by BVCI. The consolidated allowance for loan/lease losses covered nonperforming
loans 5.3 times at September 30, 2000 compared to coverage of 49.6 times at year
end 1999.
Deferred Tax Asset
------------------
At December 31, 1999, the Company had potential off-balance sheet deferred
income tax credits of $2,471,000. The deferred income tax credits primarily
resulted from net operating loss carryforwards. The Company used the following
criteria to determine an appropriate and reasonable amount of deferred income
tax credits to recognize as an asset for the year ended December 31, 1999. The
Company projected income three years forward, 2000, 2001 and 2002. A discount
was applied to each year's income projection in consideration for unknown
variables. Other factors such as the Company's historical earnings performance,
growth potential, the local and national economy and market competition were
also used to determine the reasonableness of the Company's income projections.
Once the projected income was ascertained, a 34% tax rate was applied to the
projection to determine the amount of deferred income tax credits to
beneficially recognize. Until all of the deferred tax credits have either been
utilized to off-set income or beneficially recognized as an asset, the amount of
tax credits appropriately recognized as an asset will be reevaluated annually.
Liabilities and Equity
----------------------
Total deposits increased $7,690,606 or 15.6% during the first nine months
of 2000 when compared to the year ended 1999. Core deposits, which consist of
demand, savings, NOW, money market and certificate of deposits less than
$100,000, grew $3,809,970 or 8.6%. Although deposit growth was notable, loan
growth during the first nine months of 2000 was almost double the volume of
deposit growth. To supplement liquidity, the Bank utilized short-term lines of
credit. Subsequent to September 30, 2000, the lines of credit have been paid
down to $2,000,000. Management expects to pay off the remaining $2,000,000
during November 2000.
Stockholders' equity increased $977,253 or 14.1% during the nine months
ended September 30, 2000 when compared to the year ended December 31, 1999. The
increase was due to earnings and sales of common stock. During the first quarter
of 2000, the Company sold 38,265 shares of common stock at $9.00 per share, or
$344,385, through a Public Offering which began in September 1999 for the
purpose of expanding banking operations. $300,000 of the first quarter 2000
proceeds were downstreamed to BVCI for investment purposes. The balance of the
proceeds has been held as working capital for UFBC. The offering closed in
February 2000. In total, the Public Offering sold 155,909 shares of common stock
at $9.00 per share and raised $1,403,181 of capital. Offering costs totaled
approximately $44,000.
9
<PAGE>
Liquidity and Investment
------------------------
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.
Consolidated average liquid assets were 26.8% of average total assets at
September 30, 2000 compared to 27.5% for the same period ended September 30,
1999 (Consolidated Average Balances table). The Company's liquidity needs exist
primarily in the Bank subsidiary. To ensure adequate liquidity, the Bank
purchases certain traditional assets such as government and other investment
securities in addition to maintaining several lines of credit. The Bank's
securities portfolio is generally comprised of U.S. Treasury securities, U.S.
Government agency securities, state and municipal securities and equity
securities. The Bank has strategically grown its securities portfolio to ensure
safe levels of liquidity, to enhance the overall credit quality of its asset
base, to generate increased interest income, to balance assets and liabilities
and to hedge interest rate risk. The securities portfolio includes both
instruments available-for-sale and held-to-maturity. Securities classified as
available-for-sale may be sold in response to changes in market interest rates,
changes in prepayment or extension risk, management of the federal tax position,
liquidity needs and other asset/liability management issues. Securities
classified as held-to-maturity are intended for investment purposes.
At September 30, 2000, the Bank's investment portfolio consisted of the
following:
Available-for-Sale Held-to-Maturity
------------------ ----------------
U.S. Treasury -- --
U.S. Government Agency 8,005,269 2,330,833
State and Municipal -- --
Equity 229,150 --
10
<PAGE>
Capital Requirements
--------------------
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 September 30, 2000, 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 have been no conditions or
events since December 31, 1999 that management believes would result in the
institution not being adequately capitalized.
<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 September 30, 2000:
Total capital (to risk-weighted
assets)
Company 8,323,411 15.84% 4,204,180 8.00% 5,255,225 10.00%
The Business Bank 7,492,613 14.36% 4,173,708 8.00% 5,217,134 10.00%
Tier 1 capital (to risk-weighted
assets)
Company 7,663,417 14.58% 2,102,090 4.00% 3,153,135 6.00%
The Business Bank 6,837,751 13.11% 2,086,854 4.00% 3,130,281 6.00%
Tier 1 capital (to average assets)
Company 7,663,417 11.20% 2,735,977 4.00% 3,419,971 5.00%
The Business Bank 6,837,751 10.18% 2,687,700 4.00% 3,359,625 5.00%
As of September 30, 1999:
Total capital (to risk-weighted
assets)
Company 6,214,868 16.67% 2,982,017 8.00% 3,727,521 10.00%
The Business Bank 6,010,770 16.18% 2,971,985 8.00% 3,714,982 10.00%
Tier 1 capital (to risk-weighted
assets)
Company 5,745,181 15.41% 1,491,008 4.00% 2,236,513 6.00%
The Business Bank 5,542,687 14.92% 1,485,993 4.00% 2,228,989 6.00%
Tier 1 capital (to average assets)
Company 5,745,181 10.65% 2,157,946 4.00% 2,697,432 5.00%
The Business Bank 5,542,687 10.33% 2,146,194 4.00% 2,682,743 5.00%
</TABLE>
11
<PAGE>
Earnings Per Share
------------------
The following table is a reconciliation of earnings per common share as
computed under SFAS 128. (See note 3).
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
---------------- ------------ --------------
<S> <C> <C> <C>
Basic Earnings Per Share:
For the nine months ended September 30, 2000
Net Income $ 620,667
Income available to common stockholders $ 620,667 994,796 $ .62
========== =========== ==========
For the nine months ended September 30, 1999
Net Income $ 311,425
Income available to common stockholders $ 311,425 831,743 $ .37
========== =========== ==========
Diluted Earnings Per Share:
For the nine months ended September 30, 2000
Net Income available to common stockholders $ 620,667 994,796
Add: Contracts to issue common stock
Warrants - expire 9/30/01 5,333
Warrants - expire 1/27/07 333
Options - expire 12/31/05 - 6/30/08 7,955
-----------
Weighted-average diluted shares outstanding 13,621
Diluted earnings per common share: $ 620,667 1,008,417 $ .62
========== =========== ==========
For the nine months ended September 30, 1999
Net Income available to common stockholders $ 311,425 831,743
Add: Contracts to issue common stock
Warrants expire 12/31/99 2,334
Warrants - expire 9/30/01 5,334
Warrants - expire 1/27/07 286
Options - expire 12/31/05 - 6/30/08 8,132
-----------
Weighted-average diluted shares outstanding 16,086
Diluted earnings per common share: $ 311,425 847,829 $ .37
========== =========== ==========
</TABLE>
Contingencies & Commitments
---------------------------
In the opinion of management, there were no legal matters pending as of
September 30, 2000 which would have a material adverse effect on the Company`s
financial statements.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(4) None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(6) None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED FINANCIAL BANKING COMPANIES, INC.
By: / s / HAROLD C. RAUNER
------------------------------
Harold C. Rauner
President and CEO
/ s / LISA M. PORTER
-------------------------------
Lisa M. Porter
Chief Financial Officer
Date: November 14, 2000
--------------------------
13
