<PAGE>
Registration No. 333- 88583
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
AMENDMENT NO. 2 TO
FORM S-4 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
ON
FORM S-2
____________________
UNITED FINANCIAL BANKING COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1201253
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
8399 Leesburg Pike
Vienna, Virginia 22182
(703) 734-0070
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Harold C. Rauner
President and Chief Executive Officer
United Financial Banking Companies, Inc.
8399 Leesburg Pike
Vienna, Virginia 22182
(703) 734-0070
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
David H. Baris, Esquire
Noel M. Gruber, Esquire
Kennedy, Baris & Lundy, L.L.P.
4701 Sangamore Road, Suite P-15
Bethesda, Maryland 20816
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If the registrant elects to deliver a copy of its latest annual report to
securityholders or a complete and legible facsimile thereof, pursuant to item
11(a)(1) of this form, check the following box. [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] __________
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] __________
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Prospectus
UNITED FINANCIAL BANKING COMPANIES, INC.
678,150 Shares of Common Stock
Warrants to purchase 34,000 shares of Common Stock
United Financial Banking Companies, Inc., the holding company for The
Business Bank, Vienna, Virginia. This prospectus relates to the public offering,
which is not being underwritten, of 678,150 shares of our common stock,
including 34,000 shares of common stock issuable upon the exercise of warrants
to purchase common stock, that may be sold by persons who are currently
shareholders of UFBC, or by pledgees, donees, transferees, or other successors
in interest that receive the shares as gifts, distributions or other non-sale
related transfers. The selling shareholders may offer their shares from time to
time through or to brokers or dealers in the over-the-counter market, at market
prices prevailing at the time of sale, or in one or more negotiated transactions
at prices acceptable to the selling shareholder. Except for receipt of the
exercise prices of the warrants, we will not receive any proceeds from the sale
of shares by selling shareholders.
An active market for our common stock does not exist. The common stock
is traded infrequently in the over-the-counter market under the symbol "UFBC".
-----------------
Shares of UFBC's common stock are not deposits, savings accounts, or other
obligations of a depository institution and are not insured by the Federal
Deposit Insurance Corporation or any other governmental agency. Investing in
common stock involves investment risks.
-----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the common stock or determined if this
prospectus is accurate or adequate. Any representation to the contrary is a
criminal offense.
------------------
Consider carefully the "Risk Factors" beginning on page 3 of this prospectus.
The date of this prospectus is , 2000
<PAGE>
SUMMARY
This summary presents selected information from this prospectus. You should
carefully read this entire document and the documents to which the prospectus
refers in order to understand this offering. See "Additional Information About
UFBC and documents Included with this Prospectus" at page 17. Items in this
summary include page references that direct you to more complete descriptions in
this document of the topics discussed.
General
United Financial Banking Companies, Inc. is registering for sale 678,150
shares of its common stock, including 34,000 shares which may be issued upon the
exercise of outstanding warrants to purchase common stock, on behalf of certain
selling shareholders. All of the shares and the warrants were issued in private
placement transactions, or result from the conversion or exchange of other
securities issued in private placements.
The selling shareholders named in the table at page 8, or pledgees, donees,
transferees or other successors in interest of the named shareholders, may offer
to sell their shares from time to time through or to brokers or dealers in the
over-the-counter market, at the prevailing market prices at the time of sale, or
in negotiated transactions at prices acceptable to the selling shareholder.
Except for the exercise prices of the warrants, an aggregate of $255,000,
we will not receive any proceeds from the sale of shares by selling
shareholders. See "Plan of Distribution" at page 7.
Our common stock is traded infrequently in the over-the-counter market
under the symbol "UFBC". An active market for the common stock does not
exist.
United Financial Banking Companies, Inc.
United Financial Banking Companies, Inc.
8399 Leesburg Pike
Vienna, Virginia 22182
(703)-734-0070
UFBC is a one-bank holding company headquartered in Vienna, Virginia. It
provides commercial and consumer banking services through its banking
subsidiary, The Business Bank. UFBC was organized in 1982 to be the holding
company for The Business Bank, and acquired all of the stock of the Bank in July
1983. The Business Bank was chartered under Virginia law in 1980 and began full
scale operations in 1982. At June 30, 2000, UFBC had total assets of $69
million, deposits of $61 million, and shareholders' equity of $8 million.
Shareholders' equity increased in 1999 and 2000 as a result of sales in a public
offering of 155,909 shares of common stock and as a result of the exercise of
warrants for the purchase of 14,000 shares of common stock.
The Business Bank, UFBC's primary subsidiary, conducts a general commercial
banking business and specializes in offering banking services to businesses and
professionals. 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 collections processing. The
Business Bank is an insured state bank which is not a member of the Federal
Reserve System and its deposits are insured by the Bank Insurance Fund of the
Federal Deposit Insurance Corporation.
The Business Bank markets its services to professionals and small and
medium sized businesses in its service area of Northern Virginia and surrounding
communities, through its main office in Vienna, Virginia and one branch office
located in McLean, Virginia, which opened in June 1999. The bank believes that
professionals and small businesses represent a profitable market segment whose
needs have not been met by many retail banks. In order to fully meet the banking
needs of its business and professional customer base, and to remain competitive
in the current market, the services offered by The Business Bank also include
products such as consumer installment and mortgage loans. The Business Bank
expects that this expanded product line will help it maintain its core accounts
and enable it to diversify asset growth.
The Business Bank intends to establish additional branches in the
communities surrounding its main office in Tysons Corner, as a means of
enhancing the attractiveness of its services to professionals and businesses in
the Northern Virginia area, and of expanding its consumer oriented retail
banking business. We cannot be certain as to when or if suitable locations will
be found, whether regulatory approval for additional branches will be obtained,
or if additional branches will be profitable.
History of Operating Losses
Beginning in 1990 and continuing through 1996, UFBC experienced a
consistent pattern of operating losses. These losses resulted primarily from
high levels of non-performing assets, and related provisions for loan losses and
charge-offs resulting from defaulted real estate acquisition, development and
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construction loans and investments. As a result of the substantial economic
downturn in the Northern Virginia real estate related markets in the late 1980's
and early 1990's, a significant portion of UFBC's and The Business Bank's loan
portfolios became non-performing. Since that time, UFBC and The Business Bank
have reduced their exposure to these types of loans.
The Business Bank has recorded operating profits in every quarter since
June 1996. UFBC had consolidated earnings of $113,233 in 1998, before accrued
dividends of $50,000 to the then outstanding class of preferred stock, and
$850,113 in 1999, including $511,424 resulting from beneficial recognition of
deferred income taxes in 1999. UFBC had consolidated earnings of $341,063 for
the first six months of 2000. At December 31, 1999, the level of nonperforming
assets had been reduced to $1,440,431, representing 2.55% of UFBC's total
assets, and at June 30, 2000, the level of nonperforming assets was $1,471,945,
or 2.14% of total assets.
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RISK FACTORS
You should carefully consider the risk factors listed below. These risk
factors may cause UFBC's future earnings to be less or its financial condition
to be less favorable than it expects. You should read this section together with
the other information in this prospectus and the documents that are incorporated
into the prospectus by reference.
An active public market for our common stock does not currently exist, and
will probably not exist after the offering. As a result, shareholders may not be
able to sell their common stock easily.
There is currently no active public trading market for the common stock.
While the common stock is traded in the over-the-counter market and one market
maker currently makes a market in the common stock, the common stock trades on
an infrequent basis. Historically, there has been a large difference between the
bid and ask prices of the common stock. There can be no assurance that prices
quoted for the common stock currently, or in the future, will accurately reflect
the value of the common stock. Because it does not currently meet the listing
requirements of any exchange or Nasdaq, there are no current plans to obtain
trading privileges for the common stock. There can be no assurance that an
active market will develop for the common stock or, if such a market develops,
that it will continue. See "Market for Common Stock and Dividends" at page
9.
From 1990 to 1996, we incurred losses of over $12.5 million. Although we
are achieving operating profits now, we cannot provide assurance of our
continued ability to do so.
Commencing in 1990 and continuing through 1996, UFBC experienced a
consistent pattern of operating losses. These losses, over $12.5 million in all,
resulted primarily from high levels of non-performing assets, and related
provisions for loan losses and charge-offs resulting from defaulted real estate
acquisition, development and construction loans and investments. As a result of
the substantial economic downturn in the Northern Virginia real estate related
market in the late 1980's and early 1990's, a significant portion of UFBC's and
The Business Bank's loan portfolios became non-performing. Although UFBC and The
Business Bank have reduced their exposure to these types of loans, they cannot
be sure that adverse changes in economic conditions will not cause them to have
losses in the future.
The price at which the common stock trades would likely decline if all of
the shares being registered are sold by the selling shareholders, and may be
adversely affected as a result of the availability for sale of the shares.
The shares being registered for sale constitute 64% of the outstanding
shares of common stock at June 30, 2000, including approximately 60% of the
outstanding shares owned by directors and executive officers. If directors,
officers or other selling shareholders sought to sell all or a significant part
of their shares in the market over a short period of time, it is likely that the
trading price of the common stock would decline. Also, as a result of the
increased supply of shares readily available for sale, the price of the common
stock may be adversely affected. As a result, you may not be able to sell your
shares at or above the price at which you purchase them.
Approximately 60% of the common stock outstanding is owned by directors of
UFBC and The Business Bank. As a result of their ownership, they could decide
the outcome of matters submitted to shareholder vote, including votes on some
acquisitions of the company, without the votes of other shareholders. The
results of the vote may be contrary to the desires or interests of the other
shareholders.
Members of the Boards of Directors of UFBC and The Business Bank and their
immediate families collectively own approximately 60% of the outstanding shares
of the common stock. As a result of this ownership, they can exert significant
influence over the election of UFBC's Board of Directors and other corporate
actions requiring shareholder approval. This may increase the likelihood that
current management will continue to have effective control of UFBC. See
"Beneficial Ownership of Securities" at page 12.
By voting against a proposal submitted to shareholders, the directors and
officers of UFBC and The Business Bank, as a group, would be able to approve or
block approval of any proposal submitted to shareholders which requires a
majority vote of shareholders, such as certain business combinations, amendments
to the Articles of Incorporation, and removal of directors.
If directors and officers sold a significant portion of their shares, it
could result in a person who does not currently control UFBC acquiring
control.
Changes in ownership of common stock could cause a limitation of our
ability to take advantage of its tax benefits, which could have an adverse
affect on UFBC's earnings and financial condition.
Purchase of common stock by people who are not currently holders of the
common stock, or by current holders whose acquisition would increase their
equity ownership in the company above certain levels during a specified period,
could result in an "ownership change" for federal income tax purposes. If an
"ownership change" occurs, an annual limitation would
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be imposed on UFBC's ability to deduct
. its net operating loss carryforwards, $5,947,986 from its 1996 and prior
taxable years and
. certain built in losses which have not yet been recognized for tax purposes
if certain threshold limitations on the amount of such unrecognized losses
were exceeded.
See "United Financial Banking Companies, Inc. - Certain Federal Tax
Issues; Net Operating Loss Carryforwards" at page 11.
Loan charge-offs or problem loans could be higher than expected, which
would adversely affect our earnings and financial condition.
The loan portfolio contains a high percentage of commercial and
commercial real estate loans in relation to its total loans and total assets.
Commercial and commercial real estate loans are generally viewed as having more
risk of default than residential real estate loans or other loans or
investments. These types of loans are also typically larger than residential
real estate loans and other consumer loans. Because the loan portfolio contains
a significant number of commercial and commercial real estate loans with
relatively large balances, the deterioration of one or a few of these loans may
cause a significant increase in nonperforming assets. An increase in
nonperforming loans could result in: a loss of earnings from these loans; an
increase in the provision for loan losses, which would reduce operating income;
and an increase in loan charge-offs.
At any time, there are loans included in the loan portfolio that will
result in losses, but that have not been identified as nonperforming or
potential problem loans. UFBC and The Business Bank have procedures that they
use to help identify potential problem loans at a time when they can be worked
out with minimal loss. However, UFBC and The Business Bank cannot be sure that
they will be able to identify deteriorating loans before they become
nonperforming assets, or that they will be able to limit losses on those loans
that are identified.
If economic conditions in our markets grow worse, our income and
growth could be adversely affected, and we could experience higher levels of
problem loans and charge-offs.
We make loans, and most of our assets are located, in the Northern
Virginia portion of the metropolitan Washington D.C. market. Adverse changes in
economic conditions in that area could hurt our ability to collect loans, could
reduce the demand for loans, and otherwise could negatively affect UFBC's
performance and financial condition.
Adverse changes in the real estate market could lead to higher levels
of problem loans and charge-offs, and adversely affect our earnings and
financial condition.
We have a substantial amount of commercial real estate loans and loans
to individuals and businesses involved in the construction industry. At June 30,
2000, 31% of UFBC's loans were commercial real estate loans and 12% involved
loans to individuals and businesses in the construction industry. Additionally,
9% of UFBC's loans are to purchasers in a single development being operated by
the company in resolution of a piece of REO. These concentrations expose UFBC
and the Bank to the risk that adverse developments in the real estate market
could increase the levels of nonperforming loans and charge-offs, and reduce
loan demand and deposit growth. In each case, however, the concentrations are
spread among a large number of borrowers with relatively low loan balances. UFBC
does not have any concentrations of loans to a single individual or business or
related group of more than 2% of total loans.
Virginia law and our Articles of Incorporation contain provisions that
could prevent a takeover.
The Virginia Stock Corporation Law includes provisions that make an
acquisition of UFBC more difficult. These provisions may prevent a future
takeover attempt in which shareholders of the Company otherwise might receive a
substantial premium for their shares over then-current market prices.
These provisions include supermajority vote requirements for the approval
of certain business combinations and limitations on the voting of certain
acquirors of substantial blocks of the common stock. The Articles of
Incorporation also authorize the issuance of additional shares without
shareholder approval on terms or in circumstances that could deter a future
takeover attempt. See "Description of the Capital Stock" at page 13.
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We have not historically paid cash dividends, and have no current plans to
pay cash dividends.
UFBC's ability to pay dividends on the common stock largely depends on its
receipt of dividends from The Business Bank. The amount of dividends that The
Business Bank may pay is limited by state and federal laws and regulations. UFBC
and The Business Bank may decide, and they presently intend, to limit the
payment of dividends even where they have the legal ability to pay them, in
order to retain earnings for use in expansion activities. See "Market for Common
Stock and Dividends" at page 9.
CAUTION ABOUT FORWARD LOOKING STATEMENTS
We make forward looking statements in this prospectus that are subject to
risks and uncertainties. These forward looking statements include:
. Statements of goals, intentions, and expectations; o Estimates of risks
and of future costs and benefits; and o Statements of the ability to
achieve financial and other goals.
. These forward looking statements are subject to significant
uncertainties because they are based upon or are affected by:
. Management's estimates and projections of future interest rates and
other economic conditions;
. Future laws and regulations; and
. A variety of other matters.
Because of these uncertainties, the actual future results may be materially
different from the results indicated by these forward looking statements. In
addition, our past results of operations do not necessarily indicate future
results.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following table shows selected historical consolidated financial
data for UFBC. You should read it in connection with the historical consolidated
financial information contained in the Annual Report to Shareholders for the
year ended December 31, 1999 and the Quarterly Report on Form 10-QSB for the
period ended June 30, 2000 included in this prospectus and with the other
information provided and incorporated by reference in this prospectus. See
"Additional Information about UFBC and Documents Included with this Prospectus"
at page 16.
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
June 30,
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2000 1999 1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C> <C> <C> <C>
Results of operations:
Total interest income $ 2,400,959 $ 1,944,347 $ 3,977,200 $ 4,055,420 $ 3,433,867 $ 2,828,278 $ 2,191,867
Total interest expense 845,758 781,124 1,587,216 1,813,788 1,495,204 1,562,851 1,343,596
Net Interest income 1,555,201 1,163,223 2,389,984 2,241,632 1,938,663 1,265,427 848,271
Provision for loan/lease losses 66,000 34,279 79,866 323,500 249,300 694,203 (295)
Net interest income after provision 1,489,201 1,128,944 2,310,118 1,918,132 1,689,363 571,224 848,566
for loan/lease losses
Other income 116,425 101,711 291,301 400,188 224,716 651,882 231,796
Other expenses 1,264,563 1,038,103 2,261,310 2,195,869 1, 897,780 2,133,176 2,403,850
Income before income taxes 341,063 192,552 340,109 122,451 16,299 (910,070) (1,323,488)
Income tax expense (benefit) - 4,608 (510,004) 9,218 - (2,461) 2,598
Net income(loss) 341,063 187,944 850,113 113,233 16,299 (907,609) (1,326,086)
Earnings per share:
Net income (loss) 341,063 187,944 850,113 113,233 16,299 (907,609) (1,326,086)
Less: preferred stock dividends - - - (50,000) (117,250) (18,750) -
Income available to common shareholders 341,063 187,944 850,113 63,233 (100,951) (926,359) (1,326,086)
Basic earnings (loss) per common share 0.34 0.23 1.00 0.09 (0.18) (1.65) (2.40)
Diluted earnings (loss) per common share 0.34 0.22 0.99 0.08 -/(1)/ (1.65) (2.40)
Period-ending balances:
Total loans 46,245,397 36,451,550 40,652,769 36,962,213 38,084,861 30,618,335 23,874,982
Total assets 68,863,966 54,458,397 56,455,892 55,573,072 48,074,006 41,601,689 43,065,970
Total deposits 60,844,844 47,824,081 49,191,302 50,185,459 43,761,761 37,734,574 37,475,235
Shareholders' equity 7,599,950 5,191,993 6,928,065 5,075,708 2,639,999 2,738,070 3,670,047
Shareholders' equity per share $ 7.59 $ 6.24 $ 7.19 6.10 4.70 4.88 6.53
Average weighted shares outstanding
at period end:
Basic 991,407 831,590 847,805 716,395 561,640 561,640 551,550
Diluted 1,004,695 843,830 861,093 814,752 585,873 561,640 551,550
Asset Quality Ratios:
Allowance for loan losses to loans 1.84% 2.09% 1.93% 2.02% 1.88% 1.91 1.94%
Nonperforming loans to loans 0.30% 0.04% 0.04% 0.16% 0.27% 1.06 1.69%
Allowance for loan losses to 608.90% 4833.24% 4962.57% 1,237.83% 701.29% 177.89 114.76%
nonperforming loans
Nonperforming assets to loans and 3.09% 4.08% 3.42% 4.80% 6.11% 10.21 26.16%
other real estate
Net loan charge-offs to average loans 0.01% 0.02% 0.12% 0.80% 0.36% 2.11 1.24%
Capital Ratios:
Tier I risk-based capital ratio 15.56% 14.46% 17.08% 13.75% 7.33% 8.72 11.00%
Total risk-based capital ratio 16.82% 15.72% 18.33% 15.01% 11.51% 12.31 12.20%
Leverage ratio 11.47% 9.93% 12.14% 9.28% 5.71% 6.42 8.40%
Selected ratios:
Return on average total assets 1.12% 0.73% 1.59% .22% 0.04% (2.07) (3.45)
Return on average earning assets 1.19% 0.78% 1.71% .23% 0.04% (2.68) (5.23)
Return on average shareholders' equity 9.52% 7.47% 16.14% 2.90% 0.61% (27.51) (29.73)
Average shareholders' equity to 11.80% 9.79% 9.87% 7.50% 5.87% 7.54 11.60%
average total assets
</TABLE>
/(1)/ Anti-dilutive
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USE OF PROCEEDS
UFBC will not receive any cash proceeds from the sale of any shares and
warrants being offered by this prospectus. Other than the exercise price, an
aggregate of $255,000, UFBC will not receive any cash proceeds from the issuance
of shares upon the exercise of warrants.
PLAN OF DISTRIBUTION
UFBC is registering 678,150 shares of Common Stock, including 34,000 shares
subject to issuance upon exercise of the warrants, on behalf of the selling
shareholders listed at page 8.
The selling shareholders, or pledgees, donees, transferees or other
successors in interest to the named selling shareholders selling shares acquired
by gift, partnership distribution or other non-sale related transfer after the
date of this prospectus, may sell the shares in one or more transactions from
time to time. The selling shareholders will have complete control over the sale
of shares, and will act independently from UFBC with respect to the timing,
manner and size of each sale. The selling shareholders may sell the shares in
the over-the-counter market, or in another market or exchange which may develop
for the common stock, at the then prevailing prices, or in negotiated
transactions, at prices acceptable to the selling shareholder.
We will pay all expenses associated with registering the selling
shareholder's shares, including legal fees incurred by the selling shareholder.
The selling shareholder will pay any brokerage commissions and similar expenses
attributable to the sale of the shares. The common stock may be sold in:
. a block trade, where a broker or dealer will try to sell the common stock
as agent but may position and resell a portion of the block as principal to
facilitate the transaction;
. transactions where a broker or dealer acts as principal and resells the
common stock for its account pursuant to this prospectus;
. an exchange distribution in accordance with the rules of such exchange; and
. ordinary brokerage transactions and transactions in which the broker
solicits purchases.
The common stock may also be sold through short sales of shares, put or
call option transactions, loans or pledges of the shares, hedging or similar
transactions, or a combination of such methods. The selling shareholder may or
may not involve brokers or dealers in any of these transactions. In effecting
sales, brokers or dealers engaged by the selling shareholder may arrange for
other brokers or dealers to participate. The selling shareholder may, from time
to time, authorize underwriters acting as its agent to offer and sell the common
stock upon such terms and conditions as shall be set forth in a prospectus
supplement. Underwriters, brokers or dealers will receive commissions or
discounts from the selling shareholder in amounts to be negotiated immediately
prior to sale. Offers and sales may also be made directly by the selling
shareholder, or other bona fide owner of the common stock, so long as an
applicable exemption from state broker-dealer registration requirements is
available in the jurisdiction of sale. The selling shareholder, underwriters,
brokers or dealers and any other participating brokers or dealers may be deemed
to be "underwriters" within the meaning of the Securities Act in connection with
these sales, and any discounts and commission received by them and any profit
realized by them on the resale of the common stock may be deemed to be
underwriting discounts and commissions under the Securities Act.
All or any portion of the shares of common stock covered by this prospectus
that qualify for sale under Rule 144 under the Securities Act may be sold under
Rule 144 rather than pursuant to this prospectus.
There is no assurance that the selling shareholder will offer for sale or
sell any or all of the shares of common stock covered by this prospectus, or as
to the price at which the shares may be sold.
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SELLING SECURITYHOLDERS
Set forth below are the names of each holder of shares of common stock
and/or warrants to purchase shares of common stock which were acquired in or as
a result of private placements of securities and the number of shares and/or
warrants owned by such holder. Also set forth below is the status of any such
person as a director or officer of UFBC or The Business Bank, or as an affiliate
of such persons, or as 5% or greater beneficial shareholder of UFBC.
All of the shares owned by the selling shareholders, including the shares
subject to warrants, may be sold by the selling shareholders. Selling
shareholders who are directors or executive officers of UFBC and The Business
Bank have indicated that they have no present intention to sell any of their
shares of common stock, except that certain of them may pledge shares as
collateral for extension of credit by third party institutions. The intentions
of directors and executive officers may change in the future based upon their
personal financial situation, investment and financial planning requirements and
the market price of the common stock.
<TABLE>
<CAPTION>
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Name Number of Shares Number of Warrants Relationship to UFBC
and Shares Subject to
Warrants
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<S> <C> <C> <C>
D.F. Antonielli, Jr. 1,600 -
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Cyrus Stevens Avery II 1,600 -
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William Chenault 4,000 -
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Cede & Co. 30,894 -
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Jean M. Carpenter 3,500 - Spouse of Bank director
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Robert E. Carpenter, Sr. 11,500 1,333 Bank director
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Elizabeth Diane Conklin 3,000 -
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Nicholas F. Coward 4,000 -
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Joseph R. Daniel, Trust 6,000 -
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Delaware Charter Guaranty 4,000 -
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James M. Earnest 3,600 -
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Charles S. Evans 5,715 - Bank Director
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R. Scott Faley 4,000 -
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Antonio I. Fernandez 9,400 -
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Manuel V. Fernandez 92,132 6,667 Director, Vice Chairman, 5%
shareholder
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Richard Fura 16,000 -
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Stuart Gary 4,000 -
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Robert & Allison Hanson 3,000 -
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Isolep Enterprises, Inc. 4,000 -
--------------------------------------------------------------------------------------------------------------------------
James K. Jeanblanc 46,000 -
--------------------------------------------------------------------------------------------------------------------------
Lindsey R. Jeanblanc 2,000 -
--------------------------------------------------------------------------------------------------------------------------
JNV Limited Partnership II 135,000 16,000 General Partner is a Director,
Chairman and 5% shareholder
--------------------------------------------------------------------------------------------------------------------------
Jordan Kitts Music, Inc. 22,666 1,334 President is a Director
--------------------------------------------------------------------------------------------------------------------------
Guruganesha S. Khalsa 4,000 -
--------------------------------------------------------------------------------------------------------------------------
Richard J. Leeds 800 -
--------------------------------------------------------------------------------------------------------------------------
Stephen R. Leeds 2,400 -
--------------------------------------------------------------------------------------------------------------------------
Robert F. Long 44,943 - 5% shareholder
--------------------------------------------------------------------------------------------------------------------------
Merrill Lynch, Pierce, Fenner & Smith, 4,000 -
Inc.
--------------------------------------------------------------------------------------------------------------------------
Abigail Meyer - 4,000 Child of Director
--------------------------------------------------------------------------------------------------------------------------
Rita M. Meyer 76,000 - Director's spouse, 5% shareholder
--------------------------------------------------------------------------------------------------------------------------
Michael P. Mullen 3,000 -
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<S> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
Paul C. Nassetta 2,000 -
--------------------------------------------------------------------------------------------------------------------------
Edward H. Pechan 4,000 - Director
--------------------------------------------------------------------------------------------------------------------------
E.H. Pechan Retirement Trust - 2,666 Trustee is a director
--------------------------------------------------------------------------------------------------------------------------
Leland H. & Sheila M. Phillips 3,600 -
--------------------------------------------------------------------------------------------------------------------------
Robert W. Pitts 6,000 - Director of The Business Bank
--------------------------------------------------------------------------------------------------------------------------
Harold C. Rauner 4,000 - CEO, President, Director
--------------------------------------------------------------------------------------------------------------------------
Rinnis Associates, Inc. 16,000 -
--------------------------------------------------------------------------------------------------------------------------
Theodore & Roberta Roumel 4,000 -
--------------------------------------------------------------------------------------------------------------------------
Lawton Rogers, III 16,000 -
--------------------------------------------------------------------------------------------------------------------------
Peter H. Ross - 2,000
--------------------------------------------------------------------------------------------------------------------------
Smith Barney, Inc. 16,000 -
--------------------------------------------------------------------------------------------------------------------------
Frank A. & Beverly B. Spellman 4,000 -
--------------------------------------------------------------------------------------------------------------------------
Sharon A. Stakes 200 - Director, Executive Vice President
--------------------------------------------------------------------------------------------------------------------------
Scott & Stringfellow, Inc. 3,000 -
--------------------------------------------------------------------------------------------------------------------------
Lawanda Swope 4,000 -
--------------------------------------------------------------------------------------------------------------------------
United Missouri Bank NA 4,000 -
--------------------------------------------------------------------------------------------------------------------------
WFBS FBO Paul Nassetta 1,600 -
--------------------------------------------------------------------------------------------------------------------------
Montague Yudelman 3,000 -
--------------------------------------------------------------------------------------------------------------------------
TOTAL 644,150 34,000
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
MARKET FOR COMMON STOCK AND DIVIDENDS
Market for Common Stock. There is no established trading market for the
common stock, which is traded infrequently in the over the counter market under
the symbol "UFBC". One firm, Scott & Stringfellow, Inc., currently makes a
market in the common stock. As of June 30, 2000, the common stock was held by
approximately 425 shareholders of record.
As of June 30, 2000, there were outstanding options to purchase 82,480
shares of common stock pursuant to UFBC's stock option plans, of which 58,757
are presently exercisable, outstanding warrants to purchase 32,000 shares of
common stock, all of which are exercisable, and additional non-incentive
warrants to purchase 2,000 shares of common stock, all of which are presently
exercisable. As of June 30, 2000, 644,150 outstanding shares of common stock
issued in private placement transactions were eligible to be sold in accordance
with the provisions of Rule 144.
Dividends. Holders of the common stock are entitled to receive dividends as
and when declared by the Board of Directors. The Company has not paid cash
dividends since its organization.
UFBC and The Business Bank are subject to regulatory capital requirements
that may limit dividends. Regulatory capital ratios may be a factor in the
determination of the Boards of Directors, or the ability of The Business Bank,
to pay dividends. Even if sufficient funds for the payment of dividends are
available, there can be no assurance that the Board of Directors will elect to
pay dividends, as opposed to retaining earnings to fund growth or expansion, or
for other corporate purposes. It is the Board of Directors' present intention to
retain any earnings for use in the expansion of the company's business.
Set forth below are the high and low bid prices for the common stock for
each quarter of 1998 and 1999, and for 2000 through June 30, 2000. These prices
reflect inter-dealer prices without retail mark-up, mark-down or commission, and
may not represent actual trades. UFBC did not pay any cash dividends in 1998,
1999 or 2000.
<TABLE>
<CAPTION>
2000 1999 1998
---------------------------------------------------------------------
For the Quarter Ended High Low High Low High Low
----------- ---------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
March 31 $5.00 $4.38 $4.50 $4.50 $5.00 $5.00
</TABLE>
9
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
June 30 $8.00 $4.50 $5.00 $5.00 $9.50 $9.00
September 30 5.25 5.25 $7.35 $7.35
December 31 9.00 4.00 $5.00 $5.00
</TABLE>
UNITED FINANCIAL BANKING COMPANIES, INC.
United Financial Banking Companies, Inc. 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,
a banking company organized under the laws of the Commonwealth of Virginia. UFBC
also wholly owns Business Venture Capital, Inc. (BVCI), a subsidiary which holds
and develops certain foreclosed real estate and other assets.
The Business Bank was organized in 1980. In October 1981, it commenced
limited operations and began full scale operations in August 1982, when its main
office building was completed.
As of June 30, 2000, UFBC had consolidated total assets of $68,863,966,
total deposits of $60,844,844, total loans of $46,245,397, and total
shareholders' equity of $7,599,950. On June 30, 2000, UFBC and its subsidiaries
employed 28 full-time employees.
The Business Bank
The Business Bank, UFBC's primary subsidiary, is a state banking
corporation engaging in a general commercial banking business and specializing
in offering banking services to businesses and professionals. 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 Business Bank is a
federally insured state bank which is not a member of the Federal Reserve
System, and its deposits are insured by the Bank Insurance Fund of the Federal
Deposit Insurance Corporation (FDIC).
The Business Bank operates out of its main office, located at 8399 Leesburg
Pike, Vienna, Virginia, and its one branch office, located at 1451 Dolley
Madison Blvd., McLean, Virginia, which opened in June 1999.
The Business Bank markets its services to professionals and small and
medium sized businesses in its service area of Northern Virginia and surrounding
communities. The Bank believes that professionals and small businesses represent
a market segment whose needs have not been met by many retail banks. By
emphasizing individual 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. In order to fully meet the banking needs of its
business and professional customer base, and to remain competitive in the
current market, the services offered by the bank also include products such as
consumer installment and mortgage loans. The Bank expects that this expanded
product line will help it maintain its core accounts and enable it to diversify
asset growth.
The Business Bank intends to establish additional branches in the
communities surrounding its main office in Tysons Corner (Vienna, McLean and the
Reston/Herndon area in Virginia), as a means of enhancing the attractiveness of
its services to professionals and businesses in the Northern Virginia area, and
of expanding its banking franchise. There can be no assurance, however, as to
when or if suitable locations will be found, that The Business Bank will obtain
regulatory approval for additional branches, or that such additional branches
will prove profitable.
Competition
UFBC experiences a high degree of competition in the Washington
Metropolitan area. All of its 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 UFBC and its
subsidiaries. As a result of federal and state legislation regarding interstate
branching and mergers, additional competitors not currently in the Company'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
10
<PAGE>
community position us with the unique ability to meet those needs expeditiously.
Certain Federal Tax Issues; Net Operating Loss Carryforwards
For federal income tax purposes, the amount of the net operating loss
carryforwards that a corporation may utilize to offset future taxable income or
income tax payable in any taxable year may be limited under Section 382 of the
Internal Revenue Code if an "ownership change" occurs with respect to such
corporation. In addition, if the corporation has a net built-in loss on the date
it undergoes an ownership change, any built-in losses it recognizes in any
taxable year that includes any day in the three-year period beginning on the
date of the ownership change will be subject to limitation under Section 382
until the amount of such recognized built-in losses exceeds the amount of the
net built-in loss. Ownership changes will result in certain limitations being
imposed on the amount of taxable income generated in a future year that may be
offset by net operating losses incurred prior to such ownership changes. In
addition to reducing the amount of net operating loss carryforwards that may be
used in any single year, the limitations may result in net operating losses
expiring prior to being utilized. At December 31, 1999, UFBC had net operating
loss carryforwards for income tax purposes of $5,947,986.
The determination of whether an "ownership change" has occurred is made by
(i) determining, in the case of any direct or indirect holder of 5% or more of a
corporation's stock (for this purpose all holders of less than 5% are
collectively treated as a single holder, although in certain circumstances such
holders may be segregated into separate groups, each of which would be treated
as a 5% shareholder) (referred to herein as a "5% shareholder"), the increase,
if any, in the percentage ownership of such shareholder at the end of any three-
year testing period relative to such shareholder's lowest percentage ownership
at any time during such testing period, and expressing such increase in terms of
percentage points rather than as a percentage (for example, a shareholder whose
percentage ownership increased from 5% to 20% during the testing period will be
considered to have had an increase of 15 percentage points), and (ii)
aggregating such percentage point increases for all 5% shareholders during the
applicable testing period. An "ownership change " will occur as of the end of
any three-year testing period if the aggregate percentage point increases for
such testing period exceeds 50 percentage points.
UFBC will carefully monitor the sale of equity interests in any future
offering in order to minimize the risk that an "ownership change" and the
consequent limitation of tax benefits will occur. There can be no assurance,
however, that the Company will be able to accurately monitor and restrict the
distributions of its equity securities, or have sufficient information available
to avoid an "ownership change."
11
<PAGE>
Beneficial Ownership of Securities
The following table shows the common stock owned by directors and executive
officers of UFBC and The Business Bank and persons known by UFBC to beneficially
own more than 5% of the outstanding common stock as of June 30, 2000, and the
number and percentage of shares which such persons will own following the
offering, based upon the preliminary indications of officers and directors
regarding purchasing shares in the offering. The directors and officers are not
obligated to purchase the number of shares indicated, and may purchase a greater
or lesser number of shares.
This information has been prepared based upon the SEC's "beneficial
ownership" rules. Under these rules a person is deemed to be a beneficial owner
of a security if that person has or shares voting power, which includes the
power to vote or to direct the voting of a security, or investment power, which
includes the power to dispose or to direct the disposition of a security. More
than one person may be deemed to be a beneficial owner of the same securities. A
person is deemed to be a beneficial owner of any security that the person has
the right to acquire within 60 days. The shares of common stock issuable upon
exercise of options exercisable within 60 days are assumed to be outstanding for
the purpose of determining the percentage of shares beneficially owned by that
person. The SEC's rules sometimes cause the total percentage ownership disclosed
to be less than the sum of the individual ownership percentages.
<TABLE>
<CAPTION>
Name Shares Owned/(1)/ Percent of Class
--------------------------------- ---------------------- --------------------
<S> <C> <C>
Directors of the Company
Manuel V. Fernandez/(2)/ 135,925 13.48%
650 Water Street, SW
Washington, DC 20024
William J. McCormick, Jr./(3)/ 31,555 3.14%
Dennis I. Meyer/(4)/ 104,207 10.34%
6307 Olmi Landrith Drive
Alexandria, VA 22307
Edward H. Pechan/(5)/ 8,866 .88%
Harold C. Rauner/(6)/ 41,722 4.04%
Sharon A. Stakes/(7)/ 7,725 .77%
Jeffery T. Valcourt/(8)/ 284,411 27.90%
1001 N. Highland Street
Suite 200
Arlington, Virginia 22201
Bank Directors
Robert E. Carpenter/(9)/ 23,333 2.32%
Charles S. Evans/(10)/ 6,700 .67%
Robert W. Pitts/(11)/ 9,969 1.00%
Executive Officers
Lisa M. Porter/(12)/ 3,625 .36%
All Directors and Executive Officers 659,773 60.72%
as a group (11 persons)/(13)/
Other Holders of More than 5% of the
Common Stock
Robert F. Long 71,569 7.15%
300 Belvedere Street
Carlisle, PA 17013
Rita M. Meyer/(14)/ 104,207 10.34%
6307 Olmi Landrith Drive
Alexandria, VA 22307
JNV Limited Partnership II/(8)/ 284,411 27.90%
Jeffery T. Valcourt
1001 N. Highland Street
Suite 200
Arlington, VA 22201
</TABLE>
---------------------------------
---------------------------------
(1) A person is deemed to be the beneficial owner of shares as to which he owns
or shares voting or investment power. Except as otherwise indicated, all
shares are owned directly. Ownership is based on 1,001,499 shares of common
stock. In calculating the percentage of shares owned for warrant and option
holders, the total number of shares outstanding is deemed to include the
warrant and option shares granted and exercisable within sixty days of June
30, 2000.
12
<PAGE>
(2) Includes a warrant to purchase 6,666 shares of common stock and an option
to purchase 400 shares of common stock pursuant to UFBC's 1996 & 1999
Nonqualified Stock Option Plan for Non-Employee Directors (the "Directors
Plan").
(3) Includes a warrant to purchase 1,333 shares of common stock owned by a
company of which Mr. McCormick is the owner and President. Also includes
options to purchase 2,000 shares of common stock pursuant to the Directors
Plan.
(4) Includes 175 shares owned by each of Mr. Meyer's five children 875 shares
in the aggregate, 239 shares owned by Mr. Meyer and 97,093 shares owned by
his spouse, Rita Meyer. Also includes options to purchase 2,000 shares of
common stock pursuant to the Directors Plan and a warrant to purchase 4,000
shares of common stock owned by one of Mr. Meyer's children.
(5) Includes options to purchase 2,000 shares of common stock pursuant to the
Directors Plan. Also includes a warrant to purchase 2,666 shares of common
stock owned by a retirement trust of which Mr. Pechan is a trustee.
(6) Includes options to purchase 31,457 shares of common stock pursuant to
UFBC's 1990 Executive Stock Plan.
(7) Includes options to purchase 7,325 shares of common stock pursuant to the
Executive Stock Plan.
(8) Includes 1,000 shares of common stock owned by Mr. Valcourt and options to
purchase 2,000 shares of common stock pursuant to the Directors Plan. Also
includes 265,411 shares of common stock and warrants to purchase 16,000
shares of common stock owned by JNV Limited Partnership II, of which Mr.
Valcourt is the general partner.
(9) Includes 8,500 shares of common stock beneficially owned by Mr. Carpenter's
spouse. Includes options to purchase 2,000 shares of common stock pursuant
to the Directors Plan and a warrant to purchase 1,333 shares of common
stock.
(10) Includes an option to purchase 400 shares of common stock pursuant to the
Directors Plan.
(11) Includes an option to purchase 400 shares of common stock pursuant to the
Directors Plan.
(12) Includes options to purchase 3,125 shares of common stock pursuant to the
Executive Stock Plan.
(13) Includes options to purchase 11,200 shares outstanding pursuant to the
Directors Plan, options to purchase 41,907 shares outstanding pursuant to
the Executive Stock Plan and warrants to purchase 31,998 shares of common
stock.
(14) Includes 175 shares owned by each of Mrs. Meyer's five children, 875 shares
in the aggregate, and 239 shares owned by her spouse, Dennis I. Meyer.
Includes options to purchase 2,000 shares of common stock owned by Mr.
Meyer pursuant to the Directors Plan and a warrant to purchase 4,000 shares
of common stock owned by one of Mrs. Meyer's children.
DESCRIPTION OF CAPITAL STOCK
The Company has 8,500,000 shares of capital stock authorized, of which
3,500,000 are shares of common stock, and 5,000,000 are shares of serial
preferred stock. As of June 30, 2000, there were 1,001,499 shares of common
stock, and no shares of serial preferred stock, issued and outstanding.
Common Stock
Each share of common stock is entitled to one vote on all matters
submitted to shareholders. Cumulative voting is not permitted in the election of
directors.
Holders of shares of common stock do not have preemptive rights to
subscribe for shares of common stock or any other class of stock that may be
issued in the future. The shares of common stock are not subject to redemption
and, upon receipt of the full purchase price thereof, will be fully paid and
nonassessable.
Each share of common stock participates equally in dividends which are
payable when, as and if declared by the Board of Directors out of funds legally
available for such purpose, and is entitled to share equally in the assets of
UFBC available for distribution to common shareholders in the event of
liquidation of UFBC. If any shares of preferred stock are outstanding, such
shares may have priority in dividends or liquidation over the common stock.
Preferred Stock
The Board of Directors of UFBC is authorized to issue serial preferred
stock and to fix and state voting powers, designations, preferences or other
special rights of such shares and the qualifications, limitations and
restrictions thereof. The serial preferred stock may rank prior to the shares as
to dividend rights or liquidation preferences, or both, and may have full or
limited voting rights.
The ability of the company to issue additional shares of common stock
and preferred stock could be construed as having an anti-takeover effect because
it can dilute the voting or other rights of the proposed acquiror or create a
13
<PAGE>
substantial voting block in institutional or other hands.
State Anti-Takeover Statutes.
Virginia has two anti-takeover statutes in force, the Affiliated
Transactions Statute and the Control Share Acquisitions Statute.
Affiliated Transactions. The Virginia Stock Corporation Act contains
provisions governing "affiliated transactions" (including, among other various
transactions, mergers, share exchanges, sales, leases, or other dispositions of
material assets, issuances of securities, dissolutions, and similar
transactions) with an "interested shareholder" (generally the beneficial owner
of more than 10% of any class of the corporation's outstanding voting shares).
During the three years following the date a shareholder becomes an interested
shareholder, any affiliated transaction with the interested shareholder must be
approved by both a majority of the "disinterested directors" (those directors
who were directors before the interested shareholder became an interested
shareholder or who were recommended for election by a majority of disinterested
directors) and by the affirmative vote of the holders of two-thirds of the
corporation's voting shares other than shares beneficially owned by the
interested shareholder. The foregoing requirements do not apply to affiliated
transactions if, among other things, a majority of the disinterested directors
approve the interested shareholder's acquisition of voting shares making such a
person an interested shareholder prior to such acquisition. Beginning three
years after the shareholder becomes an interested shareholder, the corporation
may engage in an affiliated transaction with the interested shareholder if (1)
the transaction is approved by the holders of two-thirds of the corporation's
voting shares, other than shares beneficially owned by the interested
shareholder, (2) the affiliated transaction has been approved by a majority of
the disinterested directors, or (3) subject to certain additional requirements,
in the affiliated transaction the holders of each class or series of voting
shares will receive consideration meeting specified fair price and other
requirements designed to ensure that all shareholders receive fair and
equivalent consideration, regardless of when they tendered their shares.
Control Share Acquisitions. Under the Virginia Stock Corporation Act's
control share acquisitions law, voting rights of shares of stock of a Virginia
corporation acquired by an acquiring person at ownership levels of 20%, 33 1/3%,
and 50% of the outstanding shares may, under certain circumstances, be denied
unless conferred by a special shareholder vote of a majority of the outstanding
shares entitled to vote for directors, other than shares held by the acquiring
person and officers and directors of the corporation or, among other exceptions,
such acquisition of shares is made pursuant to a merger agreement with the
corporation or the corporation's articles of incorporation or by-laws permit the
acquisition of such shares prior to the acquiring person's acquisition thereof.
If authorized in the corporation's articles of incorporation or by-laws, the
statute also permits the corporation to redeem the acquired shares at the
average per share price paid for them if the voting rights are not approved or
if the acquiring person does not file a "control share acquisition statement"
with the corporation within sixty days of the last acquisition of such shares.
If voting rights are approved for control shares comprising more than fifty
percent of the corporation's outstanding stock, objecting shareholders may have
the right to have their shares repurchased by the corporation for "fair value".
The provisions of the Affiliated Transactions Statute and the Control
Share Acquisition Statute are only applicable to public corporations that have
more than 300 shareholders. UFBC has not elected to opt-out of the Control Share
Acquisitions Statute.
Board of Directors Divided Into Classes
UFBC's Articles of Incorporation and Bylaws provide that the Board of
Directors shall be divided into three classes which shall be as nearly equal in
number as possible. The directors of each class hold office following their
election for a period of three years, with only one-third (1/3) of the directors
coming up for re-election each year. Each director serves until his or her
successor is elected and qualified. Although such provisions may have the effect
of making it more difficult and time consuming for a shareholder to gain control
of the company , the Board of Directors believes these provisions provide
greater continuity and stability in the management of UFBC and provide the Board
with greater ability to negotiate with respect to any proposal for a business
combination, corporate restructuring or other significant transaction in order
to help assure that favorable terms are made available to all of the company's
shareholders.
The Articles of Incorporation authorizes UFBC to issue 3,500,000 shares of
common stock and 5,000,000 shares of preferred stock, from time to time as
approved by the Board of Directors, without the approval of shareholders.
Warrants
14
<PAGE>
The warrants were issued in the private placement transactions effected by
UFBC between 1994 and 1997. The exercise price per share, as adjusted to reflect
the 1 for 5 reverse split effective December 31, 1997, term and number of
warrants currently outstanding, as adjusted to reflect the reverse split, are
set forth below.
<TABLE>
<CAPTION>
Date of original issue Number of shares Exercise price per share Expiration date
----------------------- ---------------- ------------------------ ----------------
<S> <C> <C> <C>
September 30, 1996 20,000 $7.50 September 30, 2001
January 15, 1997 12,000 $7.50 September 30, 2001
January 24, 1997 2,000 $7.50 January 24, 2002
</TABLE>
The number of shares for which the warrants may be exercised and the
exercise price per share are subject to proportionate adjustment to reflect any
stock dividend, stock split, reverse stock split or other combination or
subdivision of the common stock, and will be subject to adjustment to reflect
any other reclassification, spin-off or other extraordinary transaction effected
by UFBC.
LEGAL MATTERS
The validity of the shares offered hereby and certain other legal matters
will be passed upon for UFBC by the law firm of Kennedy, Baris & Lundy, L.L.P.,
Bethesda, Maryland.
EXPERTS
The consolidated financial statements at December 31, 1999 and 1998 and for
each of the three years in the period ended December 31, 1999 included and
incorporated by reference in this prospectus have been audited by D.R. Maxfield
& Company, independent auditors, as stated in their reports, which are included
and incorporated by reference herein, and have been so included and incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
15
<PAGE>
ADDITIONAL INFORMATION ABOUT UFBC
AND DOCUMENTS INCLUDED WITH THIS PROSPECTUS
This prospectus includes and is being delivered with copies of UFBC's
Annual Report to Shareholders for the year ended December 31, 1999, and its
Quarterly Report on Form 10-QSB for the period ended June 30, 2000.
UFBC files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements or
other information that UFBC files with the SEC at the SEC's public reference
room at 450 Fifth Street, NW, Washington, D.C. 20549. Please call the SEC at 1-
800-SEC-0330 for further information on the public reference room. The SEC
maintains a World Wide Web site on the Internet at "http://www.sec.gov" that
contains reports, proxy and information statements, and other information
regarding companies, including UFBC, that file electronically with the SEC.
UFBC filed a Registration Statement on Form S-2 (the "Registration
Statement") to register the common stock to be sold in the offering. This
prospectus is a part of that Registration Statement. As allowed by SEC rules,
this prospectus does not contain all the information you can find in the
Registration Statement or the exhibits to that Registration Statement. SEC
regulations allow us to "incorporate by reference" information into this
prospectus, which means that UFBC can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is considered part of this prospectus. Information
incorporated by reference from earlier documents is superceded by information
that has been incorporated by reference from more recent documents.
This prospectus incorporates by reference the documents listed below that
UFBC has previously filed with the SEC (file no. 0-13395). These documents
contain important information about UFBC and its finances. Some of these filings
have been amended by later filings, which are also listed.
(1) Annual Report on Form 10-KSB for the year ended December 31, 1999;
(2) Annual Report to Shareholders for the year ended December 31, 1999;
and
(3) Quarterly Report on Form 10-QSB for the quarter ended June 30,
2000.
Also incorporated by reference are additional documents that may be
filed with the SEC by UFBC after the date of this prospectus and before the
termination of the offering. These additional documents shall be deemed to be
incorporated by reference in this prospectus and to be a part hereof from the
date of filing of such documents. These include periodic reports, such as Annual
Reports on Form 10-KSB, Quarterly Reports on Form 10-QSB, and Current Reports on
Form 8-K.
You can obtain any of the documents incorporated by reference through UFBC,
the SEC or the SEC's Internet web site as described above. Documents
incorporated by reference are available from UFBC without charge, including any
exhibits, specifically incorporated by reference therein. You may obtain
documents incorporated by reference in this prospectus by requesting them in
writing or by telephone from UFBC at the following address:
Corporate Secretary
United Financial Banking Companies, Inc.
8399 Leesburg Pike
Vienna, Virginia 22182
Telephone (703) 734-0070
You should rely only on the information contained or incorporated by
reference in this prospectus. UFBC has not authorized anyone to provide you with
information that is different from what is contained in this prospectus. This
prospectus is dated ____________, 2000. You should not assume that the
information contained in this prospectus is accurate as of any date other than
that date.
16
<PAGE>
Annual Report to Shareholders
for the year ended December 31, 1999
<PAGE>
[LOGO]
UNITED FINANCIAL BANKING COMPANIES, INC.
The Business Bank
Business Venture Capital, Inc.
ANNUAL REPORT
1999
<PAGE>
LETTER TO STOCKHOLDERS
Dear Shareholder:
Solid loan growth and increasing profitability characterized our performance in
1999. Net loans grew over 10.1% and pre-tax income increased 177.8% before
recognition of deferred tax benefits of $511,400. Including adjustment of taxes
and deferred tax benefits, earnings increased 650.8% to $850,100 in 1999. The
year was also punctuated by the opening of our branch in the central business
district of McLean and the flawless transition of our systems into the Year
2000.
In 1999, fierce competition for loans and deposits influenced our approach to
growth and asset composition. Rather than participating in pricing wars, we
chose to focus on restructuring our organization for efficiency, profitability,
and customer service. We substantially reduced overhead while decreasing our
turnaround time on loans and other services. These changes have already
benefitted our performance in the Year 2000, as expressed in our first quarter's
report. We also used this period to build core deposits and to invest our excess
liquidity and short-term securities into higher-yielding assets. Our higher-
interest deposit accounts decreased from 50.5% of funding in 1998 to 41.8% in
1999, favorably impacting our net interest margin which increased from 4.6% to
4.8%. Conversely non-interest bearing and low cost deposits increased from 49.5%
of funding to 58.2%.
The most salient issue in our 1999 Annual Report is the recognition of a portion
of our future tax benefits derived from our past operating losses. The items
described as "Deferred Income Taxes" on the balance sheet and "Deferred
(benefit) for federal income taxes" on the income statement reflect the
estimated value of future federal income tax savings. The importance of this
asset to you, the shareholder, is simply that the Company keeps nearly 100% of
every dollar of earned income until all past operating losses are offset or
expire. This means greater capital growth through greater earnings retention.
Similar companies would normally experience a 34% income tax expense. Greater
earnings retention will support our growth goal of $100 million in assets. We
believe we are positioned to achieve this goal without further capital raising
efforts.
We have built the foundation for a competitive and agile financial services
company in the 21/st/ century. In 1999, we made a number of technology
investments, redesigned basic products and added new products in response to the
changing demands of our market. Our Directors and Management have structured the
Company and refined our Strategic Plan to build our franchise and increase
shareholder value. We invite you to join us, support us and become part of our
success story. Come bank with us!
/s/ Harold C. Rauner /s/ Jeffery T. Valcourt
-------------------- -----------------------
Harold C. Rauner Jeffery T. Valcourt
President and CEO Chairman of the Board
<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
[LOGO]
Consolidated Financial Statements
and
Notes to the Financial Statements
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
<PAGE>
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report on Form 10-QSB
for the period ended June 30, 2000
<PAGE>
Part 1. Financial Information
Item 1: Financial Statements
UNITED FINANCIAL BANKING COMPANIES, INC., AND SUBSIDIARIES
Consolidated Statements of Income and Comprehensive Income / Results
of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ----------
Interest income:
Interest and fees on
loans/leases $1,001,283 $ 814,828 $1,937,208 $1,617,930
Interest on investment
securities 130,990 104,567 248,055 204,222
Interest on federal
funds sold 138,627 50,452 215,696 122,195
---------- --------- ---------- ----------
Total interest income 1,270,900 969,847 2,400,959 1,944,347
---------- --------- ---------- ----------
Interest expense:
Interest on deposits 447,148 376,075 845,758 773,790
Interest on short-term
borrowings - 7,334 - 7,334
---------- --------- ---------- ----------
Total interest expense 447,148 383,409 845,758 781,124
---------- --------- ---------- ----------
Net interest income 823,752 586,438 1,555,201 1,163,223
Provision for
loan/lease losses 33,000 22,200 66,000 34,279
---------- --------- ---------- ----------
Net interest income
after provision
for loan/lease losses 790,752 564,238 1,489,201 1,128,944
Noninterest income:
Gain (loss) on sale of
real estate
owned and other
earning assets - 500 (280) (2,464)
Loan servicing and
other fees 17,007 18,174 32,020 36,554
Other income 41,541 31,444 84,685 67,621
---------- --------- ---------- ----------
Total noninterest
income 58,548 50,118 116,425 101,711
---------- --------- ---------- ----------
Noninterest expense:
Salaries 285,554 247,558 561,757 477,210
Employee benefits 49,534 46,285 99,314 92,948
Occupancy 99,429 94,201 197,276 173,122
Furniture and
equipment 31,992 19,113 75,063 38,911
Legal 8,983 5,484 14,640 12,669
FDIC insurance 2,446 4,979 4,863 9,876
Other insurance 7,076 6,835 13,129 15,800
Data processing 38,240 28,523 76,475 61,379
Real estate owned
holding expense 5,359 853 12,162 8,514
Other expense 105,852 75,741 209,884 147,674
---------- --------- ---------- ----------
Total noninterest
expense 634,465 529,572 1,264,563 1,038,103
---------- --------- ---------- ----------
Income (loss) before
income taxes 214,835 84,784 341,063 192,552
Provision (credit) for
income taxes - 4,608 - 4,608
---------- --------- ---------- ----------
Net income (loss) $ 214,835 $ 80,176 $ 341,063 $ 187,944
========== ========= ========== ==========
Net income (loss) per
common share (Note 3)
Basic $ 0.21 $ 0.10 $ 0.34 $ 0.23
========== ========= ========== ==========
Diluted $ 0.21 $ 0.10 $ 0.34 $ 0.23
========== ========= ========== ==========
Comprehensive Income
(Note 4)
Net income $ 214,835 $ 80,176 $ 341,063 $ 187,944
Other comprehensive
income, net of tax
Unrealized gains
(losses) on
available-for-sale
securities 3,166 (55,263) (13,563) (71,658)
---------- --------- ---------- ----------
Comprehensive income $ 218,001 $ 24,913 $ 327,500 $ 116,286
========== ========= ========== ==========
2
<PAGE>
UNITED FINANCIAL BANKING COMPANIES, INC., AND SUBSIDIARIES
Consolidated Balance Sheets / Financial Condition
(Unaudited) (Audited)
June 30, December 31
Assets 2000 1999
------ ----------- -----------
Cash and due from banks $ 2,323,153 $ 2,104,515
Federal funds sold 9,950,000 5,033,000
Investment Securities:
Available-for-sale (AFS) 6,982,612 6,813,528
Held-to-maturity (HTM) 1,678,959 -
Loans and lease financing, net of unearned
income of $63,136 and $38,805 46,245,397 40,652,769
Less: Allowance for loan/lease losses (849,651) (783,143)
------------ ------------
Net loans and lease financing 45,395,746 39,869,626
Real estate owned held for sale, net 1,332,407 1,424,650
Premises and equipment, net 270,341 310,784
Deferred income taxes 511,424 511,424
Other assets 419,324 388,365
------------ ------------
Total assets $ 68,863,966 $ 56,455,892
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Demand $ 17,277,170 $ 12,248,025
Savings and NOW 5,572,905 4,902,524
Money market 16,672,852 11,473,851
Time deposits:
Under $100,000 14,567,351 15,513,608
$100,000 and over 6,754,566 5,053,294
------------ ------------
Total deposits 60,844,844 49,191,302
------------ ------------
Other liabilities 419,172 336,525
------------ ------------
Total liabilities 61,264,016 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 6/30/00 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 (9,263,224) (9,604,287)
Unrealized holding gain (loss) - AFS
securities (114,135) (100,572)
------------ ------------
Total stockholders' equity 7,599,950 6,928,065
------------ ------------
Total liabilities and stockholders' equity $ 68,863,966 $ 56,455,892
============ ============
3
<PAGE>
UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
----------------------------
June 30, 2000 June 30, 1999
------------- -------------
Cash flows from operating activities:
Net Income $ 341,063 $ 187,943
Adjustment to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation & amortization 53,058 24,322
Provision for loan/lease losses 66,000 34,279
Amortization of investment security
discount (6) 3,608
Amortization of loan fees and discounts,
net 33,864 (48,396)
Net (gain) loss on disposal of equipment (2,735) -
Net (gain) loss on sale of other real
estate owned 280 2,964
(Increase) decrease in other assets (30,959) (39,936)
Increase (decrease) in other liabilities 82,647 30,419
------------ ------------
Net cash provided by (used in) operating
activities 543,212 195,203
------------ ------------
Cash flows from investing activities:
Loans originated - non-bank subsidiaries (428,187) (50,000)
Principal collected - non-bank
subsidiaries 245,177 23,169
Loans and lease originations, net of
collections (5,442,974) 557,574
Purchases of securities
available-for-sale (1,167,326) 9,397
Purchases of securities held-to-maturity (1,751,539) (2,969,945)
Investment made in other real estate
owned (34,657) -
Proceeds received from maturity of
securities available-for-sale 987,399 (41,552)
Proceeds received from maturity of
securities held to maturity 69,866 1,019,451
Proceeds from real estate owned 126,620 1,105,000
Purchases of premises and equipment (15,880) 303,236
Proceeds from disposal of equipment 6,000 (111,598)
------------ ------------
Net cash provided by (used in) investing
activities (7,405,501) (155,268)
------------ ------------
Cash flow from financing activities:
Net increase (decrease) in demand
deposits, savings accounts, NOW
accounts and money market accounts 10,898,527 470,279
Certificates of deposit sold (matured),
net 755,015 (2,831,657)
Net change in short-term borrowings - 1,100,000
Proceeds from sale of common stock 344,385 -
------------ ------------
Net cash provided by (used in) financing
activities 11,997,927 (1,261,378)
------------ ------------
Net increase (decrease) in cash and cash
equivalents 5,135,638 (1,221,443)
Cash and cash equivalents at beginning of
the year 7,137,515 10,170,910
------------ ------------
Cash and cash equivalents at end of the
quarter $ 12,273,153 $ 8,949,467
============ ============
Supplemental disclosures of cash flow
information:
Cash paid during the years for:
Interest on deposits and other borrowings $ 826,017 $ 800,804
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 $ (13,563) $ 71,658
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>
----------------------------------------------------
UNITED FINANCIAL BANKING COMPANIES, INC.
CONSOLIDATED AVERAGE BALANCES/NET INTEREST ANALYSIS/
YIELDS AND RATES
----------------------------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, 2000 June 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 $26,713,185 $ 1,222,468 9.18% $23,939,845 $ 1,065,581 8.98%
Real estate
construction 5,369,608 285,690 10.67% 3,854,964 196,381 10.27%
Real estate
mortgage 8,526,253 338,734 7.97% 7,163,116 286,306 8.06%
Installment 2,132,454 90,316 8.49% 1,578,338 69,662 8.90%
Leases - - - - - -
----------- ----------- ----------- -----------
Total loans/leases 42,741,500 1,937,208 9.09% 36,536,263 1,617,930 8.93%
----------- ----------- ----------- -----------
Interest-bearing
deposits - - - - - -
Federal funds sold 7,195,942 215,696 6.01% 5,200,585 122,195 4.74%
Investment securities 8,059,869 248,055 6.17% 7,066,139 204,222 5.83%
----------- ----------- ----------- -----------
Total earning assets 57,997,311 2,400,959 8.30% 48,802,987 1,944,347 8.03%
=========== ===========
Noninterest-earning
assets
Cash and due from banks 1,931,199 1,924,608
Other assets 2,499,181 2,156,443
Allowance for loan
losses/lease (813,721) (739,055)
----------- -----------
Total assets $61,613,970 $52,144,983
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing
liabilities:
Interest-bearing
deposits:
Savings and NOW
accounts 5,457,900 74,751 2.75% 3,480,845 38,861 2.25%
Money market accounts 13,246,335 218,001 3.30% 8,828,378 134,981 3.08%
Time:
Under $100,000 15,081,675 395,420 5.26% 16,932,376 436,097 5.19%
$100,000 and over 6,011,958 157,586 5.26% 6,484,373 163,851 5.10%
----------- ----------- ----------- -----------
Total
interest-bearing
deposits 39,797,868 845,758 4.26% 35,725,972 773,790 4.37%
Short-term
borrowings - - 300,000 7,334 4.93%
----------- ----------- ----------- -----------
Total
interest-bearing
liabilities 39,797,868 845,758 4.26% 36,025,972 781,124 4.37%
=========== ===========
Non
interest-bearing
liabilities:
Demand deposits 14,138,581 10,691,024
Other liabilities 409,374 323,077
Stockholders'
equity 7,268,147 5,104,910
----------- -----------
Total liabilities and
stockholders' equity $61,613,970 $52,144,983
============ ============
Net interest income $1,555,201 $1,163,223
========== ==========
Net interest margin (1) 5.38% 4.81%
===== =====
Net interest spread (2) 4.04% 3.66%
===== =====
Fees included in
loan income $ 70,530 $ 73,888
========== ==========
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) Net interest income divided by total earning assets.
(2) Average rate earned on total earning assets less average rate paid for
interest-bearing liabilities.
6
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 Six Months Ended June 30, 2000 as Compared to
---------------------------------------------------------------------------
the Six Months Ended June 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
$341,063 for the six-month period ended June 30, 2000. This compares with net
income of $187,943 for the same period of 1999. Basic earnings per share were
$.34 for the first six months ended June 30, 2000 and $.23 for the first six
months of 1999.
Earnings for the first six months of 2000 are primarily due to increased
earning assets and decreased cost of funds. During the past year, UFBC's primary
subsidiary, The Business Bank (the Bank), continued to increase the Company's
earning asset base. At June 30, 2000, average total earning assets increased
$9,194,324 or 18.8% when compared to the first six months of June 30, 1999
(Consolidated Average Balances table). The increase contributed favorably to the
Company's operating earnings. The cost of total interest-bearing liabilities
declined eleven basis points from 4.37% at June 30, 1999 to 4.26% at June 30,
2000. The rate decline also contributed favorably to the Company's net income.
Net Interest Income
-------------------
For the six-month period ended June 30, 2000, net interest income increased
$391,978 or 33.7% from $1,163,223 at June 30, 1999 to $1,555,201 at June 30,
2000. The increase is primarily attributable to increased loan volume. As shown
in the Consolidated Average Balances table, average total loans increased
$6,205,237 or 16.9% from $36,536,263 at June 30, 1999 to $42,741,500 at June 30,
2000. The rate environment also contributed to the increased net interest
income. The prime rate increased 175 basis points from 7.75% at June 30, 1999 to
9.50% at June 30, 2000.
The change in the deposit mix over the past year also contributed to the
increase in net interest income at June 30, 2000 when compared to June 30, 1999.
Though the average volume of deposits increased during the past year, interest
expense on deposits increased minimally, $71,968 or 9.3% during the comparable
period. The minimal increase was due to the growth of money market, savings and
NOW and demand deposit accounts which are less costly funding. The average
volume of money market, savings and NOW and demand deposit accounts increased
$9,842,569 or 42.8% when comparing June 30, 1999 and 2000. The average volume of
certificate of deposit accounts decreased $2,323,116 or 9.9% for the comparable
period and the related interest expense decreased $46,942 or 7.8%. 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 $31,721 or 92.5% from $34,279 at June 30, 1999
to $66,000 at June 30, 2000. During the first quarter of 1999, the parent
company, UFBC, sold its only booked loan which resulted in a $19,529 charge to
its allowance of $30,940. The remaining UFBC allowance of $11,411 was reversed
and credited to the Company's provision expense.
7
<PAGE>
Noninterest Income
------------------
Total noninterest income increased $14,714 or 14.4% for the six month
period ended June 30, 2000 compared to the same period of 1999. The increase was
primarily attributable to revenue generated from an increased number of deposit
accounts.
Noninterest Expense
-------------------
Total noninterest expense increased $226,459 or 21.8% during the six
months ended June 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 six 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 $90,913 or 15.9% from $570,158
at June 30, 1999 to $661,071 at June 30, 2000. Occupancy increased $24,154 or
13.9% 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.
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. Premises and
equipment rose $63,727 or 30.8% from $206,614 at June 30, 1999 to $270,341 at
June 30, 2000. Equipment represented 83% of the fixed asset purchases. 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 three months and six month periods ended June 30, 1999 and June 30, 2000.
Other expense rose $30,111 or 39.7% during the three month period ended
June 30, 2000 and $62,210 or 42.1% during six-month period ended June 30, 2000
when compared to the first six 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 $33,108 or
38.0% when comparing the six month periods ended June 30, 1999 and June 30,
2000.
Income Taxes
------------
The Company does 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 June 30, 2000
---------------------------------------
Assets
------
Total assets increased $12,408,074 or 21.9% during the first six months
of 2000 when compared to the period ended December 31, 1999. The rise in assets
was primarily attributable to the Bank's increased volume of deposits which
increased the volume of assets available for investment. Total deposits
escalated $11,653,542 or 23.7% from $49,191,302 at December 31, 1999 to
$60,844,844 at June 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 $5,592,628 or 13.8% from $40,652, 769 at December 31, 1999 to
$46,245,397 at June 30, 2000 and federal funds sold which grew $4,917,700 or
97.7% 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.
8
<PAGE>
At June 30, 2000 and December 31, 1999, the allowance was $849,651 and
$783,143, respectively, or 1.8% and 1.9% of total loans and leases.
Nonperforming loans for the six-month period ended June 30, 2000 totaled
$139,538, of which $121,990 resided in the Bank and of which $17,548 resided in
the subsidiary, Business Venture Capital, Inc. (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 6.1 times at June
30, 2000 compared to a 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 $11,653,542 or 23.7% during the first six
months of 2000 when compared to the year ended 1999. During the six months ended
June 30, 2000, the deposit mix grew favorably in response to the rate
environment and the Bank's liquidity and investment requirements. Core deposits,
which consist of demand, savings, NOW, money market and certificate of deposits
less than $100,000, grew $9,952,270 or 22.6% during the first six months of 2000
while more volatile and costly certificates of deposits over $100,000 grew
$1,701,272 or 33.7%.
Stockholders' equity increased $671,885 or 9.7% during the six months
ended June 30, 2000 when compared to the year ended 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.
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 27.9% of average total assets
at June 30, 2000 compared to 27.2% for the same period ended June 30, 1999
(Consolidated Average Balances table). The Company's liquidity needs exist
primarily in the Bank subsidiary. To maintain adequate liquidity, the Bank
purchases certain traditional assets such as government and other investment
securities. The Bank's securities portfolio 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 June 30, 2000, the Bank's investment portfolio consisted of the
following:
9
<PAGE>
Available-for-Sale Held-to-Maturity
------------------ ----------------
U.S. Treasury -- --
U.S. Government Agency 6,753,462 1,678,959
State and Municipal -- --
Equity 229,150 --
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 June 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
Adequacy Required To Be
Actual Purposes Well Capitalized
------------------- ----------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
======================================================================================================
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 2000:
Total capital (to risk-weighted assets)
Company 7,980,038 16.82% 3,795,567 8.00% 4,744,459 10.00%
The Business Bank 7,157,665 15.21% 3,764,009 8.00% 4,705,011 10.00%
Tier 1 capital (to risk-weighted assets)
Company 7,383,813 15.56% 1,897,784 4.00% 2,846,676 6.00%
The Business Bank 6,566,739 13.96% 1,882,004 4.00% 2,823,007 6.00%
Tier 1 capital (to average assets)
Company 7,383,813 11.47% 2,574,586 4.00% 3,218,232 5.00%
The Business Bank 6,566,739 10.27% 2,558,699 4.00% 3,198,374 5.00%
As of June 30, 1999:
Total capital (to risk-weighted assets)
Company 5,704,078 15.72% 2,902,790 8.00% 3,628,487 10.00%
The Business Bank 5,554,609 15.35% 2,894,172 8.00% 3,617,715 10.00%
Tier 1 capital (to risk-weighted assets)
Company 5,246,700 14.46% 1,451,395 4.00% 2,177,092 6.00%
The Business Bank 5,098,617 14.09% 1,447,086 4.00% 2,170,629 6.00%
Tier 1 capital (to average assets)
Company 5,246,700 9.93% 2,112,604 4.00% 2,640,755 5.00%
The Business Bank 5,098,617 9.92% 2,056,242 4.00% 2,570,302 5.00%
</TABLE>
10
<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 six months ended June 30, 2000
Net Income $ 341,063
Income available to common stockholders $ 341,063 991,407 $ .34
========= ========= =========
For the six months ended June 30, 1999
Net Income $ 187,944
Income available to common stockholders $ 187,944 831,590 $ .23
========= ========= =========
Diluted Earnings Per Share:
For the six months ended June 30, 2000
Net Income available to common stockholders $ 341,063 991,407
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 7,622
---------
Weighted-average diluted shares outstanding 13,288
Diluted earnings per common share: $ 341,063 1,004,695 $ .34
========= ========= =========
For the six months ended June 30, 1999
Net Income available to common stockholders $ 187,944 831,590
Add: Contracts to issue common stock
Warrants expire 12/31/99 2,000
Warrants - expire 9/30/01 4,571
Warrants - expire 1/27/07 286
Options - expire 12/31/05 - 6/30/08 5,383
---------
Weighted-average diluted shares outstanding 12,240
Diluted earnings per common share: $ 187,944 843,830 $ .23
========= ========= =========
</TABLE>
Contingencies & Commitments
---------------------------
In the opinion of management, there were no legal matters pending as of
June 30, 2000 which would have a material adverse effect on the Company's
financial statements.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(4) At the United Financial Banking Companies, Inc. Annual Meeting of
Shareholders held on June 4, 1999, the shareholders elected Manuel V.
Fernandez and William J. McCormick, Jr. to serve as Class One directors
until the 2003 Annual Meeting of Shareholders .
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: July 28, 2000
-----------------------
12
<PAGE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 3
Caution About Forward Looking Statements................................. 5
Selected Consolidated Financial Data..................................... 6
Use of Proceeds.......................................................... 7
Plan of Distribution..................................................... 8
Market For Common Stock and Dividends.................................... 9
United Financial Banking Companies, Inc.................................. 10
Description of Capital Stock............................................. 13
Legal Matters............................................................ 15
Experts.................................................................. 15
Additional Information About UFBC and Documents
Included With This Prospectus....................................... 16
</TABLE>
__________________
UFBC has not authorized anyone to give any information or make any
representation about the offering that differs from, or adds to, the information
in this prospectus or in its documents that are publicly filed with the
Securities and Exchange Commission. Therefore, if anyone does give you different
or additional information, you should not rely on it. The delivery of this
prospectus and/or the sale of shares of common stock do not mean that there have
not been any changes in UFBC's condition since the date of this prospectus. If
you are in a jurisdiction where it is unlawful to offer to sell, or to ask for
offers to buy, the securities offered by this prospectus, or if you are a person
to whom it is unlawful to direct such activities, then the offer presented by
this prospectus does not extend to you. This prospectus speaks only as of its
date except where it indicates that another date applies. Documents that are
incorporated by reference in this prospectus speak only as of their date, except
where they specify that other dates apply.
Companies, Inc.
Common Stock
and
Warrants to Purchase
Common Stock
Prospectus
___________, 2000
___________________
================================================================================
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The expenses payable by the Company in connection with the Offering
described in this Registration Statement (other than underwriting discounts and
commissions) are as follows:
Registration Fee.................................. $ 1,708
*Legal Fees....................................... 5,000
*Printing, Engraving and Edgar.................... 2,500
*Accounting Fees and Expenses..................... 1,000
*Other Expenses................................... 792
Total............................. $11,000
=======
_________
* Estimated
Item 15. Indemnification of Directors and Officers
UFBC's Bylaws provide that the Company shall, to the full extent required or
permitted by the Virginia Stock Corporation Act or other applicable law,
indemnify an officer or director of the company who is or was a party to any
proceeding by reason of the fact of service as an officer or director, or
service at UFBC's request as an officer, director, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise.
The Virginia Stock Corporation Act provides in relevant part as
follows:
(S) 13.1-696
Definitions
In this article:
"Corporation" includes any domestic or foreign predecessor entity of a
corporation in a merger or other transaction in which the predecessor's
existence ceased upon consummation of the transaction.
"Director" means an individual who is or was a director of a corporation or an
individual who, while a director of a corporation, is or was serving at the
corporation's request as a director, officer, partner, trustee, employee, or
agent of another foreign or domestic corporation, partnership, joint venture,
trust, employee benefit plan, or other enterprise. A director is considered to
be serving an employee benefit plan at the corporation's request if his duties
to the corporation also impose duties on, or otherwise involve services by, him
to the plan or to participants in or beneficiaries of the plan. "Director"
includes, unless the context requires otherwise, the estate or personal
representative of a director.
"Expenses" includes counsel fees.
"Liability" means the obligation to pay a judgment, settlement, penalty, fine,
including any excise tax assessed with respect to an employee benefit plan, or
reasonable expenses incurred with respect to a proceeding.
"Official capacity" means, (i) when used with respect to a director, the office
of director in a corporation; or (ii) when used with respect to an individual
other than a director, as contemplated in (S)13.1-702, the office in a
corporation held by the officer or the employment or agency relationship
undertaken by the employee or agent on behalf of the corporation. "Official
capacity" does not include service for any other foreign or domestic corporation
or any partnership, joint venture, trust, employee benefit plan, or other
enterprise.
"Party" includes an individual who was, is, or is threatened to be made a named
defendant or respondent in a proceeding.
"Proceeding" means any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative or investigative and whether
formal or informal.
(S) 13.1-697
Authority to indemnify
A. Except as provided in subsection D of this section, a corporation may
indemnify an individual made a party to a proceeding because he is or was a
director against liability incurred in the proceeding if:
1. He conducted himself in good faith; and
2. He believed:
a. In the case of conduct in his official capacity with the corporation, that
his conduct was in its best interests; and b. In all other cases, that his
conduct was at least not opposed to its best interests; and
3. In the case of any criminal proceeding, he had no reasonable cause to believe
his conduct was unlawful.
B. A director's conduct with respect to an employee benefit plan for a purpose
he believed to be in the interests of the participants in and beneficiaries of
the plan is conduct that satisfies the requirement of subdivision 2 b of
subsection A of this section.
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C. The termination of a proceeding by judgment,
order, settlement or conviction is not, of itself, determinative that the
director did not meet the standard of conduct described in this section.
D. A corporation may not indemnify a director under this section:
1. In connection with a proceeding by or in the right of the corporation in
which the director was adjudged liable to the corporation; or
2. In connection with any other proceeding charging improper personal benefit to
him, whether or not involving action in his official capacity, in which he was
adjudged liable on the basis that personal benefit was improperly received by
him.
E. Indemnification permitted under this section in connection with a proceeding
by or in the right of the corporation is limited to reasonable expenses incurred
in connection with the proceeding.
(S) 13.1-698
Mandatory indemnification
Unless limited by its articles of incorporation, a corporation shall indemnify a
director who entirely prevails in the defense of any proceeding to which he was
a party because he is or was a director of the corporation against reasonable
expenses incurred by him in connection with the proceeding.
(S) 13.1-699
Advance for expenses
A. A corporation may pay for or reimburse the reasonable expenses incurred by a
director who is a party to a proceeding in advance of final disposition of the
proceeding if:
1. The director furnishes the corporation a written statement of his good faith
belief that he has met the standard of conduct described in (S) 13.1-697;
2. The director furnishes the corporation a written undertaking, executed
personally or on his behalf, to repay the advance if it is ultimately determined
that he did not meet the standard of conduct; and
3. A determination is made that the facts then known to those making the
determination would not preclude indemnification under this article.
B. The undertaking required by subdivision 2 of subsection A of this section
shall be an unlimited general obligation of the director but need not be secured
and may be accepted without reference to financial ability to make repayment.
C. Determinations and authorizations of payments under this section shall be
made in the manner specified in (S)13.1-701.
(S)13.1-700.1
Court orders for advances, reimbursement or indemnification
A. An individual who is made a party to a proceeding because he is or was a
director of a corporation may apply to a court for an order directing the
corporation to make advances or reimbursement for expenses or to provide
indemnification. Such application may be made to the court conducting the
proceeding or to another court of competent jurisdiction.
B. The court shall order the corporation to make advances and/or reimbursement
for expenses or to provide indemnification if it determines that the director is
entitled to such advances, reimbursement or indemnification and shall also order
the corporation to pay the director's reasonable expenses incurred to obtain the
order.
C. With respect to a proceeding by or in the right of the corporation, the court
may (i) order indemnification of the director to the extent of his reasonable
expenses if it determines that, considering all the relevant circumstances, the
director is entitled to indemnification even though he was adjudged liable to
the corporation and (ii) also order the corporation to pay the director's
reasonable expenses incurred to obtain the order of indemnification.
D. Neither (i) the failure of the corporation, including its board of directors,
its independent legal counsel and its shareholders, to have made an independent
determination prior to the commencement of any action permitted by this section
that the applying director is entitled to receive advances and/or reimbursement
nor (ii) the determination by the corporation, including its board of directors,
its independent legal counsel and its shareholders, that the applying director
is not entitled to receive advances and/or reimbursement or indemnification
shall create a presumption to that effect or otherwise of itself be a defense to
that director's application for advances for expenses, reimbursement or
indemnification.
(S)13.1-701
Determination and authorization of indemnification
A. A corporation may not indemnify a director under (S)13.1-697 unless
authorized in the specific case after a determination has been made that
indemnification of the director is permissible in the circumstances because he
has met the standard of conduct set forth in (S)13.1-697.
B. The determination shall be made:
1. By the board of directors by a majority vote of a quorum consisting of
directors not at the time parties to the proceeding;
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2. If a quorum cannot be obtained under subdivision 1 of this subsection, by
majority vote of a committee duly designated by the board of directors (in which
designation directors who are parties may participate), consisting solely of two
or more directors not at the time parties to the proceeding;
3. By special legal counsel:
a. Selected by the board of directors or its committee in the manner prescribed
in subdivisions 1 and 2 of this subsection; or
b. If a quorum of the board of directors cannot be obtained under subdivision 1
of this subsection and a committee cannot be designated under subdivision 2 of
this subsection, selected by majority vote of the full board of directors, in
which selection directors who are parties may participate; or
4. By the shareholders, but shares owned by or voted under the control of
directors who are at the time parties to the proceeding may not be voted on the
determination.
C. Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subdivision 3
of subsection B of this section to select counsel.
(S) 13.1-702
Indemnification of officers, employees and agents
Unless limited by a corporation's articles of incorporation,
1. An officer of the corporation is entitled to mandatory indemnification under
(S)13.1-698 and is entitled to apply for court-ordered indemnification under
(S)13.1-700.1, in each case to the same extent as a director; and
2. The corporation may indemnify and advance expenses under this article to an
officer, employee, or agent of the corporation to the same extent as to a
director.
(S)13.1-703
Insurance
A corporation may purchase and maintain insurance on behalf of an individual who
is or was a director, officer, employee, or agent of the corporation, or who,
while a director, officer, employee, or agent of the corporation, is or was
serving at the request of the corporation as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise,
against liability asserted against or incurred by him in that capacity or
arising from his status as a director, officer, employee, or agent, whether or
not the corporation would have power to indemnify him against the same liability
under (S)13.1-697 or (S)13.1-698.
(S)13.1-704
Application of article
A. Unless the articles of incorporation or bylaws expressly provide otherwise,
any authorization of indemnification in the articles of incorporation or bylaws
shall not be deemed to prevent the corporation from providing the indemnity
permitted or mandated by this article.
B. Any corporation shall have power to make any further indemnity, including
indemnity with respect to a proceeding by or in the right of the corporation,
and to make additional provision for advances and reimbursement of expenses, to
any director, officer, employee or agent that may be authorized by the articles
of incorporation or any bylaw made by the shareholders or any resolution
adopted, before or after the event, by the shareholders, except an indemnity
against (i) his willful misconduct, or (ii) a knowing violation of the criminal
law. Unless the articles of incorporation, or any such bylaw or resolution
expressly provide otherwise, any determination as to the right to any further
indemnity shall be made in accordance with (S)13.1-701 B. Each such indemnity
may continue as to a person who has ceased to have the capacity referred to
above and may inure to the benefit of the heirs, executors and administrators of
such a person.
C. No right provided to any person pursuant to this section may be reduced or
eliminated by any amendment of the articles of incorporation or bylaws with
respect to any act or omission occurring before such amendment.
Item 16. Exhibits and Financial Statement Schedules.
The exhibits filed as part of this registration statement are as
follows:
(a) List of Exhibits
Number Description
------ -----------
5 Form of Opinion of Kennedy, Baris & Lundy, L.L.P.(1)
11 Statement Regarding Computation of Earnings Per Share
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23.1 Consent of D.R. Maxfield & Company, Independent Auditors(1)
23.2 Consent of Kennedy, Baris & Lundy, L.L.P. (included in
Exhibit 5)
(1) Previously filed
Item 17. Undertakings
The undersigned Registrant here by undertakes:
(1) To file, during an period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or event arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represents a fundamental
change in the information set forth in the Registration
Statement notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration
Statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the information required to be included in a post-
effective amendment by those paragraphs is contained in periodic
reports filed by the Registrant pursuant to section 13 or section
15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) That, for the purposes of determining any liability under
the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
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securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 (the "Act"), each
filing of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Vienna, Commonwealth of Virginia, on August 29,
2000.
UNITED FINANCIAL BANKING COMPANIES, INC.
By: /s/ Harold C. Rauner
---------------------------------
Harold C. Rauner
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
/s/ Manuel V. Fernandez Vice Chairman of the Board August 29, 2000
--------------------------------------
Manuel V. Fernandez of Directors
/s/ William J. McCormick, Jr. Director August 29, 2000
--------------------------------------
William J. McCormick, Jr.
/s/ Dennis I. Meyer Director August 29, 2000
--------------------------------------
Dennis I. Meyer
/s/ Edward H. Pechan Director August 29, 2000
--------------------------------------
Edward H. Pechan
/s/ Harold C. Rauner President, Chief Executive Officer August 29, 2000
--------------------------------------
Harold C. Rauner and Director (Principal Executive
Officer)
/s/ Sharon A. Stakes Executive Vice President and Director August 29, 2000
--------------------------------------
Sharon A. Stakes
/s/ Jeffery T. Valcourt Chairman of the Board of Directors August 29, 2000
-------------------------------------
Jeffery T. Valcourt
/s/ Lisa M. Porter Chief Financial Officer (Principal August 29, 2000
--------------------------------------
Lisa M. Porter Accounting and Financial
Officer)
</TABLE>
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