<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                                 WASHINGTON D.C.
                                   FORM 10-KSB

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF

                       THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2001       Commission File Number 0-13395

                            UNITED FINANCIAL BANKING
                                 COMPANIES, INC.
             (Exact name of registrant as specified in its charter)

           VIRGINIA                                          54-1201253
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                         Identification Number)

           8399 Leesburg Pike
              P.O. Box 2459

            Vienna, Virginia                                   22182
(Address of principal executive offices)                    (Zip Code)

       Registrant's telephone number, including area code: (703) 734-0070

      Securities registered pursuant to Section 12(g) of the Exchange Act:

                               Title of each class
                          Common Stock, $1.00 par value

   Indicate  by check mark  whether  the  registrant  (1) has filed all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]   No  [__]

   Indicate by check mark if disclosure of  delinquent  filers  pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [X]

   For the year ended December 31, 2001,  United  Financial  Banking  Companies,
Inc. reported revenues of $6,131,428.

   The aggregate market value of the Common Stock held by  non-affiliates of the
registrant was $4,933,501 as of March 1, 2002.

   As of March 1, 2002,  the  registrant  had  1,035,349  shares of  outstanding
common stock, $1.00 par value.

                       DOCUMENTS INCORPORATED BY REFERENCE

   Selected  information  from the Company's 2001 Proxy Statement for the Annual
Meeting to be held June 7, 2002 is  incorporated  by reference  into Part III of
this report,  and information  from the 2001 Annual Report to  Shareholders  are
incorporated by reference into Parts I, II and III of this report.

<PAGE>

                                     PART I

Item 1. Business

   United Financial  Banking  Companies,  Inc.  ("UFBC"),  is a one-bank holding
company which was organized  under the laws of the State of Virginia in February
1982.  In July 1983,  UFBC  acquired  all the  outstanding  common  stock of The
Business Bank (the "Bank"),  a banking  company  organized under the laws of the
State of Virginia.  UFBC also wholly owns Business Venture Capital, Inc. (BVCI),
a subsidiary  which holds and has developed  certain  foreclosed real estate and
conducts limited lending activities.  Collectively,  UFBC, the Bank and BVCI are
referred to as "the Company".

   The Bank was organized in 1980. In October 1981, the Bank  commenced  limited
operations and began full scale  operations in August 1982, when its main office
building was completed.

   At  December  31,  2001,  the  Company  had  consolidated   total  assets  of
$85,529,236, total deposits of $71,690,272, total loans of $58,535,131 and total
stockholders' equity of $10,818,401.

   On March 1, 2002,  the Company  and its  subsidiaries  employed 27  full-time
employees.

The Bank

   The Bank, UFBC's primary subsidiary,  is a state banking association engaging
in a general  commercial  banking  business and specializing in offering banking
services to business and  professional  customers.  These  services  include the
usual deposit  functions of commercial  banks,  including  business and personal
checking accounts, "NOW" accounts and savings accounts;  business and commercial
loans;  and  processing of  collections.  The Bank is a Federally  insured state
non-member  bank  and its  deposits  are  insured  up to  $100,000  by the  Bank
Insurance Fund of the Federal Deposit Insurance Corporation (FDIC).

   The Bank  markets its  services to  professionals  and small and medium sized
businesses in its service area of Northern Virginia and surrounding  communities
because it  believes  that  business  accounts  are more  profitable  than small
consumer accounts, which comprise the majority of accounts at most retail banks.
The Bank further believes that  professionals  and small businesses  represent a
market segment whose needs have not been met by many retail banks.

   It is the Bank's belief that business  accounts can be more profitable due to
the income  generated from business'  higher average  balances for both deposits
and loans.  Business  accounts  are less costly than  consumer  accounts as they
usually require fewer conveniences such as numerous branches, extended hours and
drive-thru facilities.  The Bank had previously limited its service relationship
with customers to primarily  encompass  their business  needs. In order to fully
meet customers' needs and to remain  competitive in the current market, the Bank
has  broadened  service to  business  and  professional  customers  by  offering
products  such as  consumer  installment  and  mortgage  loans to the owners and
employees of the businesses. It is the Bank's belief that this augmentation will
help  maintain  the Bank's core  accounts  and will enable the  organization  to
diversify asset growth.

   By emphasizing  individualized  relationships between the Bank's officers and
its customers,  the Bank believes it attracts customers that have been neglected
by retail banks that direct their  services to more numerous  consumer  accounts
and large business customers.

   The  Company  experiences  a high  degree of  competition  in the  Washington
Metropolitan  area. All of the Company's  products and services compete actively
with national and state banks,  savings  banks,  savings and loan  associations,
credit unions, finance companies,  money market funds, mortgage banks, insurance
companies,   investment  banking  firms,   brokerage  firms  and  other  nonbank
institutions that provide one or more of the services offered by the Company and
its  subsidiaries,  primarily  the  Bank.  As a  result  of  federal  and  state
legislation regarding interstate branching and mergers,  additional  competitors
not currently in the Bank's service area may enter the market.  Among commercial
banks,  the  principal  method of  competition  is the provision and delivery of
financial services that are specific to the needs of the community.  The Company
believes  that the  expertise  in and  awareness  of the demands of our business
community position us with the unique ability to meet those needs expeditiously.

   The  Company  does not  believe  that  there will be any  material  effect on
capital  expenditures,   results  of  operations,  financial  condition  or  the
competitive  position  of  itself  or any of its  subsidiaries  with  regard  to
compliance  with  federal,  state or local  requirements  related to the general
protection of the environment.

                                        2

<PAGE>
Supervision and Regulation

General

   United Financial Banking Companies, Inc. is a bank holding company subject to
supervision  and  regulation  by the Board of Governors  of the Federal  Reserve
System (the "Federal  Reserve  Board")  pursuant to the BHCA, and files with the
Federal  Reserve  Board an annual  report  and such  additional  reports  as the
Federal Reserve Board may require. As a bank holding company,  UFBC's activities
and those of its banking and  nonbanking  subsidiary are limited to the business
of banking and activities closely related or incidental to banking. UFBC may not
directly or  indirectly  acquire the ownership or control of more than 5 percent
of any class of voting shares or substantially all of the assets of any company,
including a bank, without prior approval of the Federal Reserve Board.

   The  deposits of UFBC's  subsidiary  bank are insured by, and  therefore  the
subsidiary  bank is subject to the  regulations of the FDIC, and is also subject
to regulation and  examination by the State of Virginia.  Various  consumer laws
and regulations also affect the operations of the Bank.  Regulatory  limitations
on the payment of dividends to UFBC by its banking  subsidiary  are discussed in
Note 12 to the consolidated financial statements.

Holding Company Liability

   Federal  Reserve Board policy  requires bank holding  companies to serve as a
source of financial  strength to their subsidiary banks by standing ready to use
available resources to provide adequate capital funds to subsidiary banks during
periods of financial  stress or adversity.  A bank holding company also could be
liable  under  certain  provisions  of law for the  capital  deficiencies  of an
undercapitalized  bank  subsidiary.  In the  event of a bank  holding  company's
bankruptcy  under Chapter 11 of the U.S.  Bankruptcy  Code,  the trustee will be
deemed to have assumed and is required to cure immediately any deficit under any
commitment by the debtor to any of the federal banking  agencies to maintain the
capital of an insured  depository  institution,  and any claim for a  subsequent
breach of such obligation will generally have priority over most other unsecured
claims.

Supervisory Agreements

   At December 31, 2001,  neither UFBC nor it  subsidiaries  were subject to any
formal or informal supervisory agreements with their regulators.

Enforcement Actions and Administrative Sanctions

   Failure to comply with applicable  laws and  regulations  could subject UFBC,
its    subsidiary    bank   and   their    officers,    directors    and   other
institution-affiliated  parties  to  administrative  sanctions  and  potentially
substantial civil money penalties.

Transactions with Affiliates

   UFBC's  subsidiary  bank is subject to  restrictions  under federal law which
limit a bank's  extensions  of credit to, and certain other  transactions  with,
affiliates.  Such transactions by any subsidiary bank with any one affiliate are
limited in amount to 10 percent of such  subsidiary  bank's  capital and surplus
and with all  affiliates  to 20 percent of such  subsidiary  bank's  capital and
surplus.  Furthermore,  such loans and extensions of credit,  as well as certain
other  transactions,  are  required to be secured in  accordance  with  specific
statutory  requirements.  The purchase of low quality assets from  affiliates is
generally  prohibited.  Federal law also provides that certain transactions with
affiliates,  including  loans  and asset  purchases,  must be on terms and under
circumstances,  including credit standards,  that are substantially the same, or
at least as favorable to the  institution  as those  prevailing  at the time for
comparable  transactions  involving  other  non-affiliated  companies or, in the
absence of comparable transactions, on terms and under circumstances,  including
credit  standards,  that in good faith  would be offered  to, or would apply to,
non-affiliated companies.

                                       3

<PAGE>

CAPITAL REQUIREMENTS

   Under  the  prompt  corrective  action  provisions  of  the  Federal  Deposit
Insurance Act ("FDIA")  federal  banking  regulators are required to take prompt
corrective action in respect of depository institutions that do not meet minimum
capital   requirements.   FDIA  establishes  five  capital   categories:   "well
capitalized,"  "adequately  capitalized,"   "undercapitalized,"   "significantly
undercapitalized," and "critically undercapitalized ."

   Under the regulations,  a "well capitalized"  institution has a minimum total
capital to total  risk-weighted  assets ratio of at least 10 percent,  a minimum
Tier I capital to total  risk-weighted  assets  ratio of at least 6  percent,  a
minimum  leverage  ratio of at least 5 percent and is not subject to any written
order, agreement, or directive;  an "adequately  capitalized"  institution has a
total capital to total risk-weighted  assets ratio of at least 8 percent, a Tier
I capital  to total  risk-weighted  assets  ratio of at least 4  percent,  and a
leverage ratio of at least 4 percent (3 percent if given the highest  regulatory
rating and not experiencing  significant  growth), but does not qualify as "well
capitalized."  An  "undercapitalized"  institution  fails to meet any one of the
three  minimum  capital   requirements.   A   "significantly   undercapitalized"
institution has a total capital to total risk-weighted assets ratio of less than
6 percent, a Tier I capital to total  risk-weighted  assets ratio of less than 3
percent  or a Tier I  leverage  ratio  of less  than 3  percent.  A  "critically
undercapitalized"  institution has a Tier I leverage ratio of 2 percent or less.
Under certain circumstances,  a "well capitalized,"  "adequately capitalized" or
"undercapitalized"  institution  may be  required  to  comply  with  supervisory
actions as if the institution was in the next lower capital  category.  The Bank
meets the criteria of a well capitalized institution.

   A  depository  institution  is generally  prohibited  from making any capital
distribution  (including  payment of a dividend) or paying any management fee to
its  holding  company  if  the  depository   institution   would  thereafter  be
undercapitalized.   Undercapitalized  depository  institutions  are  subject  to
restrictions  on  borrowing  from  the  Federal  Reserve  System.  In  addition,
undercapitalized  depository  institutions  are  subject to growth and  activity
limitations and are required to submit  "acceptable"  capital restoration plans.
Such a plan will not be acceptable  unless,  among other things,  the depository
institution's holding company guarantees the capital plan, up to an amount equal
to the lesser of five percent of the depository institution's assets at the time
it becomes  undercapitalized  or the amount of the capital  deficiency  when the
institution  fails to comply with the plan.  Federal  banking  agencies  may not
accept a capital plan without determining,  among other things, that the plan is
based on  realistic  assumptions  and is  likely to  succeed  in  restoring  the
depository institution's capital. If a depository institution fails to submit an
acceptable  plan, it is treated as if it is significantly  undercapitalized  and
may be placed into conservatorship or receivership.

   Significantly  undercapitalized  depository  institutions may be subject to a
number of requirements  and  restrictions,  including  orders to sell sufficient
voting stock to become adequately  capitalized,  more stringent  requirements to
reduce total assets,  cessation of receipt of deposits from correspondent banks,
further  activity  restricting  prohibitions on dividends to the holding company
and requirements that the holding company divest its bank subsidiary, in certain
instances. Subject to certain exceptions, critically undercapitalized depository
institutions  must have a  conservator  or receiver  appointed for them within a
certain period after becoming critically undercapitalized.

Brokered Deposits

   FDIC regulations prohibit a bank from accepting brokered deposits (which term
is defined to  include  any  deposit  with an  interest  rate more than 75 basis
points above  prevailing  rates in the applicable  market area) unless (i) it is
well  capitalized,  or (ii) it is adequately  capitalized  and receives a waiver
from the FDIC.  For  purposes of this  regulation,  a bank is defined to be well
capitalized  if  it  maintains  a  leverage  ratio  of at  least  5  percent,  a
risk-adjusted  Tier I capital  ratio of at least 6 percent  and a  risk-adjusted
total  capital  ratio of at least 10 percent and is not otherwise in a "troubled
condition",  as specified by its appropriate  federal  regulatory agency. A bank
that is not adequately  capitalized may not pay an interest rate on any deposits
in excess of 75 basis points over the  prevailing  market rates of its specified
market area. There are no such  restrictions on a bank that is well capitalized.
At December 31, 2001, the Company had no brokered deposits.

FDIC Insurance Assessments

   The Bank is  subject  to FDIC  deposit  insurance  assessments.  The FDIC has
adopted a risk-based system for determining  deposit insurance  assessments.  An
insured   institution  is  assessed  at  rates  depending  on  its  capital  and
supervisory classifications,  as assigned by its primary federal regulator. As a
result of the bank  insurance fund ("BIF"),  which insures the Bank's  deposits,
reaching the  mandated  level of reserves,  the range of deposit  premium  rates
range from .00 percent to .27 percent. Certain studies indicate that the BIF may
fall below the minimum reserve level,  potentially  resulting in all banks being
required to pay assessments.

                                       4

<PAGE>

Conservatorship and Receivership Powers of Federal Banking Agencies

   The authority of the federal banking regulators over depository  institutions
includes, among other things, appointment of the FDIC as conservator or receiver
of an undercapitalized  institution under certain circumstances.  In the event a
bank is placed  into  conservatorship  or  receivership,  the FDIC is  required,
subject  to  certain  exceptions,   to  choose  the  method  for  resolving  the
institution that is least costly to the BIF of the FDIC, such as liquidation.

   The FDIC may provide federal assistance to a "troubled  institution"  without
placing the institution  into  conservatorship  or  receivership.  In such case,
pre-existing  debtholders and  shareholders  may be required to make substantial
concessions and, insofar as practical,  the FDIC will succeed to their interests
in proportion to the amount of federal assistance provided.

   Various  other  legislation,  including  proposals  to  overhaul  the banking
regulatory system and to limit the investments that a depository institution may
make with  insured  funds  are from time to time  introduced  in  Congress.  The
Company cannot  determine the ultimate  effect that recent  legislation  and the
implementing  regulations  to be  adopted  thereunder,  or any  other  potential
legislation,  if enacted,  would have upon its financial condition or results of
operations.

United Financial Banking Companies, Inc. Subsidiaries

The Business Bank

   The  Business  Bank was  organized  on April 17,  1980 to provide  commercial
banking services.

Business Venture Capital, Inc.

   Business  Venture  Capital,  Inc.  was  incorporated  February  26,  1985 for
investment,  to hold  certain  foreclosed  real  estate and to  provide  limited
lending activity.

Item 2. Properties

   The main  offices of the Company  and the Bank are  located at 8399  Leesburg
Pike, Vienna, Virginia 22182.

   A  portion  of the  information  required  by this  item is  incorporated  by
reference  to  the  section  entitled,  "Note  6 of the  Consolidated  Financial
Statements " appearing on page 12 of the Annual Report to  Shareholders  for the
year ended December 31, 2001.

   Management  believes that the Company's  current  facilities are adequate for
operating in the normal course of business.

Item 3. Legal Proceedings

   In the  ordinary  course  of its  business,  the  Company  is  party to legal
proceedings. There is no litigation currently pending against the Company or any
of its subsidiaries which individually or in the aggregate would have a material
adverse affect on the Company's financial condition or results of operation.

Item 4. Submission of Matters to a Vote of Security Holders No matters were
        submitted to security holders during the fourth quarter of

the Company's fiscal year.

                                     PART II

Item 5. Market for the Registrant's Common Equity and Related Shareholder
        Matters

   A. The common  stock of the  Company is traded  infrequently  in the over the
counter market under the symbol "UFBC".  Scott &  Stringfellow,  Inc.  currently
serves as a market maker in the common stock.

   B. There were 440 holders of record of the  Registrant's  common  stock as of
December 31, 2001.

   C. The Company's  stock price and dividend  information  is  incorporated  by
reference to the section entitled "Corporate  Information"  appearing on page 36
of the Annual Report to Shareholders for the year ended December 31, 2001.

                                       5

<PAGE>

Item 6.  Management's Discussion and Analysis

    The  information  required by this item is  incorporated by reference to the
section entitled,  "Management's  Discussion and Analysis" appearing on pages 23
through 36 of the Annual Report to Shareholders  for the year ended December 31,
2001.

Item 7.  Financial Statements and Supplementary Data

    The information  required by this item is incorporated by reference from the
information appearing on pages 1 through 22 of the Annual Report to Shareholders
for the year ended December 31, 2001.

Item 8.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

    On January 1, 2001,  D.R.  Maxfield  & Company,  the  independent  certified
public  accountants which audited UFBC's financial  statements as of and for the
three years ended  December 31,  2000,  advised UFBC that it had merged with the
firm Brown, Dakes & Wannall,  P.C. to form the firm of Brown,  Dakes,  Wannall &
Maxfield, P.C.

    D.R. Maxfield & Company's report on UFBC's financial statements for the year
ended  December  31, 2000 did not contain an adverse  opinion or  disclaimer  of
opinion,  and were not  modified as to  uncertainty,  audit scope or  accounting
principles.

    During the period  January 1, 1998 to December 31, 2000 and through the date
on which they merged,  there were no disagreements  with D.R. Maxfield & Company
on any  matter  of  accounting  principles  or  practices,  financial  statement
disclosure, audit scope or procedure which, if not resolved to its satisfaction,
would have caused it to make reference to such  disagreement  in connection with
this report.

    During  the period  January  1, 2001 to  December  31,  2001,  there were no
disagreements  with  Brown,  Dakes,  Wannall &  Maxfield,  P.C. on any matter of
accounting principles or practices,  financial statement disclosure, audit scope
or procedure which, if not resolved to its satisfaction, would have caused it to
make reference to such disagreement in connection with this report.

                                    PART III

Item 9.  Directors and Executive Officers of the Registrant

    Information  as to the  Registrant's  Executive  Officers  and  Directors is
incorporated  by reference from the  information  contained  under  "Election of
Directors" in the Registrant's  Proxy Statement filed with respect to the Annual
Meeting of Shareholders to be held on June 7, 2002.

Item 10. Executive Compensation

    The  information  required by this item is  incorporated by reference to the
information  contained  under  "Executive  Officers" in the  Registrant's  Proxy
Statement filed with respect to the Annual Meeting of Shareholders to be held on
June 7, 2002.

Item 11. Security Ownership of Certain Beneficial Owners and Management

    The  information  required by this item is  incorporated by reference to the
information   contained  under  "Stock  Ownership"  in  the  Registrant's  Proxy
Statement filed with respect to the Annual Meeting of Shareholders to be held on
June 7, 2002.

Item 12. Certain Relationships and Related Transactions

    The  information  required by this item is  incorporated by reference to the
information  contained under "Certain  Relationships" in the Registrant's  Proxy
Statement filed with respect to the Annual Meeting of Shareholders to be held on
June 7, 2002.

                                       6

<PAGE>

Item 13. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K

(a)(1) Financial Statements

   The following financial statements of United Financial Banking Companies,
Inc. and subsidiaries are incorporated by reference to the Registrant's 2001
Annual Report to Shareholders as listed below:

                                                                            Page
                                                                           -----
Report of Independent Certified Public Accountants........................    1
Consolidated Balance Sheets--December 31, 2001 and 2000...................    2
Consolidated Statements of Income --
Years Ended December 31, 2001, 2000 and 1999 .............................    3
Consolidated Statements of Changes in Shareholders' Equity --
Years Ended December 31, 2001, 2000 and 1999..............................    4
Consolidated Statements of Cash Flows --
Years Ended December 31, 2001, 2000 and 1999..............................    5
Notes to Financial Statements............................................. 6-22

(a)(2) Schedules

   All schedules are omitted since the required information is either not
applicable, not deemed material or is shown in the respective financial
statements or in the notes thereto.

(b) Reports on Form 8-K

   There were no items reported on Form 8-K during the quarter ended December
31, 2001.

(c)  Exhibits

Exhibit 11 -- Statement Regarding Computation of Per Share Earnings

   Earnings per share are computed as expressed in Note 17 to the consolidated
financial statements, incorporated by reference to the 2001 Annual Report.

Exhibit 13 -- Annual Report to Security Holders

Exhibit 21 -- Subsidiaries of the Registrant

                                           Jurisdiction           Percent of
                                            under laws          Voting Security
                                             of which              owned by
                                             organized          Immediate Parent
                                           ------------         ----------------
Name of Subsidiary

The Business Bank                             Virginia               100%
   The Business Bank Insurance Agency, Inc.   Virginia               100%
Business Venture Capital, Inc.                Virginia               100%
   United Title LLC                           Virginia               100%






                                       7

<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report or amendment
thereto to be signed on its behalf by the undersigned, thereunto duly authorized
on the 15th day of April, 2002.
       ----        -----

                                    UNITED FINANCIAL BANKING COMPANIES, INC.
                                    (Registrant)

                                    By: /s/  JEFFERY T. VALCOURT
                                        ----------------------------------------
                                        Jeffery T. Valcourt, Chairman

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.

/s/  JEFFERY T. VALCOURT               Chairman/Director                 4/15/02
---------------------------------                                        -------
Jeffery T. Valcourt

/s/ HAROLD C. RAUNER                   President, CEO/Director           4/15/02
---------------------------------                                        -------
Harold C. Rauner

/s/ MANUEL V. FERNANDEZ                Vice Chairman/Director            4/15/02
---------------------------------                                        -------
Manuel V. Fernandez

/s/ WILLIAM J. MCCORMICK, JR.          Director                          4/15/02
---------------------------------                                        -------
William J. McCormick, Jr.

/s/ DENNIS I. MEYER                    Director                          4/15/02
---------------------------------                                        -------
Dennis I. Meyer

/s/ EDWARD H. PECHAN                   Director                          4/15/02
---------------------------------                                        -------
Edward H. Pechan

/s/ SHARON A. STAKES                   Director                          4/15/02
---------------------------------                                        -------
Sharon A. Stakes

/s/ LISA M. PORTER                     Principal Financial Officer       4/15/02
---------------------------------                                        -------
Lisa M. Porter                         Principal Accounting Officer

                                       8

<PAGE>

                            UNITED FINANCIAL BANKING

                        COMPANIES, INC. AND SUBSIDIARIES

                                FINANCIAL REPORT

                                DECEMBER 31, 2001

<PAGE>

                                 C O N T E N T S

                                                                            Page

INDEPENDENT AUDITOR'S REPORT                                                  11

FINANCIAL STATEMENTS

  Consolidated balance sheets                                                 12
  Consolidated statements of income and comprehensive income                  13
  Consolidated statements of stockholders' equity                             14
  Consolidated statements of cash flows                                       15
  Notes to financial statements                                            16-32


<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  sheets of United  Financial
       Banking  Companies,  Inc., and  subsidiaries  as of December 31, 2001 and
       2000, and the related  consolidated  statements of income,  comprehensive
       income, stockholders' equity, and cash flows for the years ended December
       31,  2001,   2000  and  1999.   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 auditing  standards  generally
       accepted in the United States of America. 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,
       2001 and 2000, and the consolidated results of their operations and their
       cash  flows for the  years  ended  December  31,  2001,  2000 and 1999 in
       conformity with accounting  principles  generally  accepted in the United
       States of America.

                                                                             /s/
                                          Brown, Dakes, Wannall & Maxfield, P.C.

       Fairfax, Virginia

       February 28, 2002

<PAGE>

            UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2001 and 2000

<TABLE>
<S>                                                                                         <C>                         <C>
                           ASSETS                                                           2001                        2000
                                                                                       ----------                   -----------
  Cash and due from banks (Note 12)                                                $    2,970,328              $      2,990,025
  Interest-bearing deposits in other banks                                                130,607                             -
  Federal funds sold                                                                   16,325,000                       600,000
                                                                                       ----------                   -----------
     Total cash and cash equivalents                                                   19,425,935                     3,590,025
                                                                                       ----------                   -----------
  Securities available-for-sale (Note 2)                                                3,320,516                     8,101,889
  Securities held-to-maturity  (Note 2)                                                 2,247,459                     2,270,483
                                                                                       ----------                  -----------
     Total securities                                                                   5,567,975                    10,372,372
                                                                                       ----------                   -----------
  Loans, net of unearned income of
    $105,785 in 2001; $113,153 in 2000 (Notes 3, 4 and 11)                             58,535,131                    55,701,135
  Less:  Allowance for loan/lease losses                                               (1,057,344)                    (973,431)
                                                                                       ----------                   -----------
  Net loans and lease financing                                                        57,477,787                    54,727,704
  Real estate owned, net (Note 5)                                                         644,407                     1,364,066
  Premises and equipment, net (Note 6)                                                    176,384                       206,669
  Deferred income tax (Note 9)                                                          1,752,890                       919,156
  Other assets                                                                            483,858                       674,121
                                                                                       ----------                   -----------
                                                                                       60,535,326                    57,891,716
                                                                                       ----------                   -----------
     Total assets                                                                  $   85,529,236              $     71,854,113
                                                                                       ==========                   ===========
                      LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
  Deposits:
    Demand                                                                         $   19,570,684              $     15,103,101
    Savings and NOW                                                                    11,316,541                     5,232,987
    Money market                                                                       14,297,094                    13,896,824
    Time:
      Under $100,000                                                                   15,476,230                    15,937,455
      $100,000 and over                                                                11,029,723                    10,472,041
                                                                                       ----------                   -----------
        Total deposits (Note 8)                                                        71,690,272                    60,642,408
  Short-term borrowings (Note 7)                                                        2,600,000                     2,186,000
  Accounts payable and accrued expenses                                                   420,563                       474,922
                                                                                       ----------                   -----------

     Total liabilities
                                                                                       74,710,835                    63,303,330
                                                                                       ----------                   -----------
COMMITMENTS AND CONTINGENCIES (Notes 6 and 10)

STOCKHOLDERS' EQUITY (Notes 12, 15 and 17)
  Preferred stock $-0- par value,
    authorized 5,000,000 shares, no shares issued                                              --                            --
  Common stock, par value $1; authorized 3,500,000
    shares, issued 1,035,349 shares in 2001 and 1,001,499 shares in 2000                1,035,349                     1,001,499
  Surplus                                                                              16,197,085                    15,975,810
  Accumulated deficit                                                                  (6,420,112)                  (8,384,469)
  Accumulated other comprehensive income (loss)                                             6,079                      (42,057)
                                                                                       ----------                   -----------
     Total stockholders' equity                                                        10,818,401                     8,550,783
                                                                                       ----------                   -----------
     Total liabilities and stockholders' equity                                    $   85,529,236              $     71,854,113
                                                                                   ==============              ================
</TABLE>

See Notes to Consolidated Financial Statements.

<PAGE>

            UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                  Years Ended December 31, 2001, 2000 and 1999
<TABLE>
<S>                                                                   <C>                    <C>                    <C>
                                                                      2001                   2000               1999
                                                              --------------     -----------------     ------------------
Interest income:
  Interest and fees on loans/leases                           $    5,113,683     $       4,412,647      $       3,280,787
  Interest on investment securities                                  438,006               578,532                426,556
  Interest on interest bearing deposits                                4,036                   512                     --
  Interest on federal funds sold                                     231,383               342,626                269,857
                                                              --------------     -----------------     ------------------
                                                                   5,787,108             5,334,317              3,977,200
Interest expense:                                             --------------     -----------------     ------------------
  Interest on deposits (Note 14)                                   2,013,777             1,900,845              1,558,711
  Interest on short-term borrowings (Note 7)                         139,765                33,462                 28,505
                                                              --------------     -----------------     ------------------
                                                                   2,153,542             1,934,307              1,587,216
                                                              --------------     -----------------     ------------------
Net interest income                                                3,633,566             3,400,010              2,389,984
Provision for loan/lease losses (Note 3)                             154,448               340,117                 79,866
                                                              --------------     -----------------     ------------------
Net interest income after provision
  for loan/lease losses                                            3,479,118             3,059,893              2,310,118
                                                              --------------     -----------------     ------------------
Noninterest income (loss):
  Loan servicing and other fees                                       88,436                69,427                 66,543
  Other income (Note 13)                                             255,884               194,015                224,758
                                                              --------------     -----------------     ------------------
                                                                     344,320               263,442                291,301
                                                              --------------     -----------------     ------------------
Noninterest expense:
  Salaries                                                         1,272,199             1,156,617              1,027,289
  Employee benefits (Note 15)                                        235,664               194,632                191,856
  Occupancy (Note 6)                                                 371,567               381,373                360,893
  Furniture and equipment                                            116,049               138,458                110,687
  Other (Note 16)                                                    680,020               621,437                570,585
                                                              --------------     -----------------     ------------------
                                                                   2,675,499             2,492,517              2,261,310
                                                              --------------     -----------------     ------------------
Income before federal income taxes                                 1,147,939               830,818                340,109
Provision (benefit) for federal income taxes:
  Federal, current (Note 9)                                           17,316                18,732                  1,420
  Deferred  (Note 9)                                                (833,734)             (407,732)              (511,424)
                                                              --------------     -----------------     ------------------
Net income                                                    $    1,964,357     $       1,219,818      $         850,113
                                                              ==============     =================     ==================
Net income per common share (Notes 1 and 17)
     Basic                                                    $         1.94     $            1.22      $            1.00
                                                              ==============     =================     ==================
     Diluted                                                  $         1.90     $            1.21      $            0.99
                                                              ==============     =================     ==================
Comprehensive Income

     Net income                                                    1,964,357             1,219,818                850,113
     Other comprehensive income, net of tax
        Unrealized gains (losses) on available-for-sale
          securities                                                  48,136                58,515               (117,523)
                                                              --------------     -----------------     ------------------
    Comprehensive income
    --------------------                                      $    2,012,493     $       1,278,333      $         732,590
                                                              ==============     =================     ==================



See Notes to Consolidated Financial Statements.
</TABLE>

<PAGE>

           UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES
      CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
      Years Ended December 31, 2001, 2000 and 1999
<TABLE>
<S>                                           <C>                  <C>                    <C>                 <C>           <C>
                                                                                                            Accumulated
                                                                                                               Other
                                             Common                                   Accumulated          Comprehensive
                                             Stock                Surplus               Deficit               Income          Total
                                         -----------         -------------------       ------------         ---------------- ------
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
                                       -------------         ------------------        ----------      --------------- ------------

Net income                                        --                     --             1,219,818               --        1,219,818

Net proceeds from issuance
  of shares of common
  stock                                       38,265                306,120                    --               --          344,385

Change in unrealized
    holding gain (loss) on
    available-for-sale
    securities (AFS), net
    of taxes                                      --                     --                    --           58,515           58,515
                                         -----------         ------------------    --------------      -----------     ------------
Balance December 31, 2000                $ 1,001,499          $  15,975,810        $   (8,384,469)     $   (42,057)    $  8,550,783
                                         -----------         ------------------    --------------      -----------     ------------
Net income                                        --                     --             1,964,357               --        1,964,357
Net proceeds from issuance
  of shares of common
  stock                                       33,850                221,275                    --               --          255,125
Change in unrealized
    holding gain (loss) on
    available-for-sale
    securities (AFS), net
    of taxes                                      --                     --                    --           48,136           48,136
                                         -----------         ------------------    --------------      -----------     ------------
Balance December 31, 2001                $ 1,035,349          $  16,197,085        $   (6,420,112)     $     6,079     $ 10,818,401
                                         ===========         ===================   ==============      ===========     ============
See Notes to Consolidated Financial Statements.
</TABLE>

<PAGE>

            UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                                 2001           2000            1999
                                                             ------------   -------------   ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                          <C>            <C>             <C>
Net income                                                   $ 1,964,357    $  1,219,818    $   850,113
Adjustments to reconcile net income
 to net cash provided by (used in) operating activities:
Depreciation and amortization                                     78,908          90,208         71,814
Provision for loan/lease losses                                  154,448         340,117         79,866
Amortization of investment security discounts                      9,590           4,694         10,316
Amortization of loan fees and discounts                           (9,627)        (73,335)       (23,113)
Net loss on sale of securities                                       --            2,831            --
Net (gain) on disposal of fixed assets                               --           (2,735)           --
Net (gain) on the sale of real estate owned                       (1,279)         (3,054)       (77,478)
(Increase) in other assets                                      (604,925)       (665,724)      (525,308)
Increase (decrease) in other liabilities                         (54,359)        138,397         24,621
                                                             ------------   -------------   ------------
Net cash provided by operating activities                      1,537,113       1,051,217        410,831
                                                             ------------   -------------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Non-bank loans and leases repaid, net of originations            173,554        (136,434)      (142,296)
Bank loans and leases repaid, net of originations             (3,068,458)    (15,246,946)    (3,696,144)
Purchases of securities available-for-sale                    (1,111,795)     (3,617,571)    (5,211,772)
Purchases of securities held-to-maturity                      (1,829,063)     (2,478,062)           --
Investments made in real estate owned                         (1,359,884)       (202,466)      (225,907)
Proceeds received from maturity of securities
 available-for-sale                                            5,893,168       2,381,098      3,400,619
Proceeds received from maturity of securities
 held-to-maturity                                              1,852,087         206,681      1,763,891
Proceeds received from real estate owned                       2,080,822         524,624        805,033
Purchases of premises and equipment                              (48,623)        (19,857)      (263,260)
Proceeds from sale of premises and equipment                         --            8,735            --
                                                             ------------   -------------   ------------
Net cash provided by (used) for investing activities           2,581,808     (18,580,198)    (3,569,836)
                                                             ------------   -------------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand
 deposits, savings accounts, NOW
 accounts and money market accounts                           10,951,407       5,608,512      3,784,367
Certificates of deposit sold (matured), net                       96,457       5,842,594     (4,778,524)
Net change in short-term borrowings                              414,000       2,186,000            --
Proceeds from issuance of common stock                           255,125         344,385      1,119,767
                                                             ------------   -------------   ------------
Net cash provided by financing activities                     11,716,989      13,981,491        125,610
                                                             ------------   -------------   ------------
Net increase (decrease) in cash and cash equivalents          15,835,910      (3,547,490)    (3,033,395)

Cash and cash equivalents at beginning of year                 3,590,025       7,137,515     10,170,910
                                                             ------------   -------------   ------------
Cash and cash equivalents at end of year                     $19,425,935    $  3,590,025    $ 7,137,515
                                                             ============   =============   ============
SUPPLEMENTAL DISCLOSURES OF CASH
 FLOW INFORMATION
Cash paid during the years for:

Interest on deposits and other borrowings                    $ 2,217,035    $  1,865,269    $ 1,614,597
                                                             ============   =============   ============
Income taxes                                                 $    37,606    $      1,420    $     9,218
                                                             ============   =============   ============
NON-CASH ITEMS
Increase in foreclosed properties and
 decrease in loans                                           $       --     $    258,520    $   126,900

Effect on stockholders' equity of an
 unrealized gain (loss) on debt and
 equity securities in available-for-sale                          48,136          58,515       (117,523)
</TABLE>

See Notes to Consolidated Financial Statements.

                                       15

<PAGE>

            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 in the United States of America 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 Subsidiary (the Bank) Commercial Bank

                 Business Venture Capital, Inc. (BVCI)       Investment

             All  material  intercompany  accounts  and  transactions  have been
             eliminated in consolidation.

          Pervasiveness of Estimates:

             The   preparation  of  financial   statements  in  conformity  with
             accounting  principles  generally  accepted in the United States of
             America 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,  2001  and  2000,  the  Company  held  no  securities
             classified as trading.

                                       16

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

             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 (REO)  consists  of  properties  held for resale
             which were acquired  through  foreclosure  on loans secured by real
             estate.  REO 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.

                                       17

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

          Other assets:

             The Business Bank Insurance Agency,  Inc. (TBBIA) is a wholly owned
             subsidiary  of  The  Business  Bank.   TBBIA's  only  asset  is  an
             investment  in  Virginia  Bankers  Insurance  Center  as a  limited
             liability  company  member.  TBBIA  ownership  of Virginia  Bankers
             Insurance  Center at December 31, 2001 and 2000,  totaled  $107,042
             and $113,152, respectively.

          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.

          Reclassifications:

             Certain   amounts   for  fiscal   year  2000  and  1999  have  been
             reclassified to conform to the presentation for fiscal year 2001.

                                       18

<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






Note 2.  Securities

              The amortized cost, gross unrealized gains and losses, and fair
              value related to the securities portfolio are as follows:

              Securities Available-for-Sale
              -----------------------------
<TABLE>
                  <S>                                   <C>                  <C>                <C>            <C>
                                                                             Gross              Gross
                                                                          Unrealized          Unrealized       Fair
                                                   Amortized Cost           Gains               Losses         Value
                                                   --------------         ----------          ----------       -----
              December 31, 2001:

              U.S. Government Agencies            $     1,834,528   $             --   $            (432)  $      1,834,096
              Mortgage-backed Securities                1,250,759              6,511                  --          1,257,270
              Equity                                      229,150                 --                  --            229,150
                                                  ---------------   ----------------   -----------------   ----------------
              Total                               $     3,314,437   $          6,511   $            (432)  $      3,320,516
                                                  ===============   ================   ==================  ================



              December 31, 2000:

              U.S. Government Agencies            $     6,750,892   $            735   $         (38,553)  $      6,713,074
              Mortgage-backed Securities                1,163,904              2,340              (6,579)         1,159,665
              Equity                                      229,150                 --                  --            229,150
                                                  ---------------   ----------------   -----------------   ----------------
              Total                               $     8,143,946   $          3,075   $         (45,132)  $      8,101,889
                                                  ===============   ================   =================   ================




              Securities Held-to-Maturity
              ---------------------------
              December 31, 2001:

              U.S. Government Agencies            $     2,072,498   $         34,266   $              --   $      2,106,764
              Mortgage-backed Securities                  174,961              7,301                  --            182,262
                                                  ---------------   ----------------   -----------------   ----------------
              Total                               $     2,247,459   $         41,567   $              --   $      2,289,026
                                                  ===============   ================   =================   ================



              December 31, 2000:

              U.S. Government Agencies            $     2,001,111   $         13,617   $            (411)  $      2,014,317
              Mortgage-backed Securities                  269,372              2,666                  --            272,038
                                                  ---------------   -----------------  -----------------   -----------------
              Total                               $     2,270,483   $         16,283   $            (411)  $      2,286,355
                                                  ===============   =================  ==================  =================
</TABLE>



                                       19

<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2.  Securities (continued)

              The  amortized  cost and  estimated  fair value of  securities  at
              December  31,  2001  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>
                     <S>                                                                    <C>                <C>

              Securities Available-for-Sale                                               Amortized Cost       Fair Value
              -----------------------------                                               --------------       ----------
              Due in one year or less                                                  $      1,121,039   $      1,127,362
              Due after 1 year through 5 years                                                1,176,451          1,176,365
              Due after 5 years through 10 years                                                401,714            401,614
              Due after 10 years                                                                386,083            386,025
                                                                                       -----------------   ----------------
                                                                                              3,085,287          3,091,366
                                                                                       -----------------   ----------------

              Equity securities                                                                 229,150            229,150
                                                                                       -----------------   ----------------
              Total                                                                    $      3,314,437   $      3,320,516
                                                                                       =================   ================

              Securities Held-to-Maturity                                                 Amortized Cost       Fair Value
              ---------------------------                                                 --------------       ----------

              Due in one year or less                                                  $          9,625   $          9,617
              Due after 1 year through 5 years                                                2,237,834          2,279,409
              Due after 5 years through 10 years                                                     --                 --
              Due after 10 years                                                                     --                 --
                                                                                       -----------------   ----------------
              Total                                                                    $       2,247,459   $      2,289,026
                                                                                       =================   ================
</TABLE>


              Held-to-maturity  securities with an amortized cost of $250,000 at
              December 31, 2001 were pledged as collateral to the Treasury Board
              of Virginia for public funds held by the Bank.

              Gross  losses of $-0- and $2,831  were  realized in 2001 and 2000,
              respectively.

              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 exists.

              At December 31, 2001, 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, 2001.

Note 3.       Loans and Lease Financing and Related Accounts

              Major  classifications of loans and lease financing are summarized
              as follows:

<TABLE>
<CAPTION>
                      <S>                                                                    <C>                 <C>


                                                                                              2001               2000
                                                                                        ----------------   ----------------

                    Commercial                                                          $     41,667,899   $     37,160,119
                    Real estate construction                                                   8,645,076          8,707,666
                    Real estate mortgage                                                       4,693,400          6,945,500
                    Installment                                                                3,634,541          3,001,003
                                                                                        ----------------   ----------------
                                                                                              58,640,916         55,814,288

                    Less unearned discount                                                      (105,785)          (113,153)
                                                                                        ----------------   -----------------
                                                                                              58,535,131         55,701,135

                    Allowance for loan/lease losses                                           (1,057,344)          (973,431)
                                                                                        ----------------   -----------------
                    Loans and lease financing, net                                      $     57,477,787   $     54,727,704
                                                                                        ================   =================
</TABLE>

              At December 31, 2001 and 2000, overdrafts of $425,634 and $74,195,
              respectively,  have been  reclassed and are included in commercial
              loans.


                                       20

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 3.       Loans and Lease Financing and Related Accounts (continued)

              Changes in the allowance for loan/lease losses were as follows:
<TABLE>
<CAPTION>
                       <S>                                                  <C>                <C>                <C>

                                                                            2001              2000                1999
                                                                     -----------------   ---------------   ----------------

                    Balance, beginning of year                       $        973,431   $        783,143   $        747,374
                    Provision charged to operations                           154,448            340,117             79,866
                    Loans charged off                                         (93,639)          (151,441)           (46,895)
                    Recoveries                                                 23,104              1,612              2,798
                                                                     ----------------   ----------------   ----------------
                    Balance, end of year                             $      1,057,344   $        973,431   $        783,143
                                                                     ================   ================   ================
</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:

<TABLE>
<CAPTION>
<S>                                                                         <C>               <C>                <C>
                                                                            2001              2000               1999
                                                                     -----------------  ----------------   ----------------

                    Non-accrual                                      $         28,367   $         12,507   $         15,781
                    Restructured                                                   --            142,672            142,739
                    Other impaired loans                                           --                 --                 --
                                                                     ----------------   ----------------   ----------------
                    Total impaired loans                             $         28,367   $        155,179   $        158,520
                                                                     ================   ================   ================
</TABLE>

              The allowance for loan losses  related to impaired  loans amounted
              to  approximately  $5,673,  $31,036,  and $31,656 at December  31,
              2001, 2000 and 1999, respectively.

              The  following  is an  analysis  of  approximate  interest  income
              related to impaired loans which is recognized on a cash basis:
<TABLE>
<CAPTION>
                           <S>                                              <C>                <C>               <C>
                                                                            2001              2000               1999
                                                                     ----------------   ----------------   ----------------

                    Interest that would have
                      been accrued as income                         $          3,936   $             --   $          3,000
                    Interest paid and recognized
                      as interest income                                       (2,571)                --                 --
                                                                     ----------------   ----------------   ----------------
                    Interest forgone                                 $          1,365   $             --   $          3,000
                                                                     ================   ================   ================
</TABLE>

              The annual  average  balance of impaired loans on which income was
              recognized on a cash basis was $33,000,  $16,000,  and $27,000 for
              the years ending December 31, 2001,  2000 and 1999,  respectively.
              There were no  commitments to lend  additional  funds to customers
              whose loans were classified as impaired at December 31, 2001.

Note 4.       Significant Concentrations of Credit Risk

              Concentrations  of credit  risk arise  when a number of  customers
              have  similar  characteristics  that would cause their  ability to
              meet contractual  obligations to be similarly  affected by changes
              in  economic  or other  conditions.  The  Company  does not have a
              significant   concentration  of  credit  risk  to  any  individual
              customer;  however, a portion of the Company's lending activity is
              to customers  with loans  secured by  commercial  real  estate.  A
              geographic  concentration  exists  because  the  Company  operates
              primarily in Northern  Virginia and the  surrounding  metropolitan
              area.  As of  December  31,  2001,  the  Company had loans to such
              customers  totaling   $20,809,743.   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,
              2001, the Company had uninsured cash of $204,780.

              At December 31, 2001, six deposit relationships held approximately
              23.7% of the Bank's total deposits.


                                       21

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 5.       Real Estate Owned
<TABLE>
<CAPTION>
                        <S>                                                                     <C>               <C>

                                                                                               2001               2000
                                                                                        ----------------   ----------------

                    Real estate owned                                                   $      1,265,107   $      1,984,766
                    Allowances for losses on real estate owned                                  (620,700)          (620,700)
                                                                                        ----------------   ----------------
                    Real estate owned, net                                              $        644,407   $      1,364,066
                                                                                        ================   ================
</TABLE>

              The  Company  did not  capitalized  interest  for the years  ended
              December 31, 2001 and 2000.

              Changes  in the  allowance  for  losses on real  estate  owned are
              summarized as follows:
<TABLE>
<CAPTION>
                         <S>                                                                  <C>                 <C>

                                                                                               2001               2000
                                                                                        ----------------   ----------------

                    Balance, beginning                                                  $        620,700   $        620,700
                    Provision charged to operations                                                   --                 --
                    Realized losses charged to allowance                                              --                 --
                                                                                        ----------------   ----------------
                    Balance, ending                                                     $        620,700   $        620,700
                                                                                        ================   ================
</TABLE>


Note 6.       Premises and Equipment

              Major  classifications of premises and equipment are summarized as
              follows:
<TABLE>
<CAPTION>
                           <S>                                                                <C>                <C>

                                                                                             2001                2000
                                                                                       ----------------   -----------------

                    Leasehold improvements                                             $         64,571   $          64,571
                    Furniture and equipment                                                     781,476             732,853
                                                                                       ----------------   -----------------
                                                                                                846,047             797,424

                    Accumulated depreciation and amortization                                  (669,663)           (590,755)
                                                                                       ----------------   -----------------
                                                                                       $        176,384   $         206,669
                                                                                       ================   =================
</TABLE>

              Depreciation and amortization  expense of $78,908 in 2001, $90,208
              in 2000 and $71,814 in 1999,  is included in occupancy  expense or
              furniture and equipment expense,  depending upon the nature of the
              asset.

              Future minimum lease payments for noncancellable  operating leases
              with initial or remaining terms of one year or more as of December
              31, 2001, are as follows:
<TABLE>
<CAPTION>
                                                                             <S>                                      <C>

                                                                            2002                              $     286,501
                                                                            2003                                    280,501
                                                                            2004                                    279,301
                                                                            2005                                    279,301
                                                                            2006                                    279,301
                                                                     Later years                                    171,435
                                                                                                              -------------
                                                    Total minimum lease payments                              $   1,576,340
                                                                                                              =============
</TABLE>

              At December 31, 2001,  the  Company's  operations  included  three
              leased  properties.  The main  offices of the Company and the Bank
              are  located  in Vienna,  Virginia.  The lease  term  includes  an
              initial  period of one year,  three options for renewal,  totaling
              twenty years,  and a right of first offer.  The lease commenced on
              December 31, 1996.

              The Company  leases  space for a branch in McLean,  Virginia.  The
              lease term is for ten years and two months that commenced April 1,
              1999.

              The Bank leases storage space in Reston,  Virginia. The lease term
              is for two years that commenced February 7, 2001.

              Rental expense for operating leases amounted to $294,995, $280,942
              and $259,398 for the years ended December 31, 2001, 2000 and 1999,
              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.


                                       22

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 7.       Short-term Borrowings
<TABLE>
<CAPTION>
                           <S>                                                                 <C>                 <C>
                                                                                              2001                2000
                                                                                        ----------------   ----------------

                    Federal funds purchased                                             $             --   $      2,186,000
                                                                                        ================   ================

                    Federal Home Loan Bank of Atlanta                                   $      2,600,000   $             --
                                                                                        ================   ================

                    Average daily amount outstanding                                    $      2,493,036   $        491,914
                                                                                        ================   ================

                    Weighted average interest rate                                                  5.52%              6.80%
                                                                                        ================   ================

                    Maximum outstanding at any month-end                                $      2,600,000   $      3,786,000
                                                                                        ================   ================
</TABLE>

              During  the years  ended  December  31,  2001 and  2000,  the Bank
              purchased  overnight  investments and borrowed  short-term funding
              from the Federal Home Loan Bank of Atlanta.  At December 31, 2002,
              the Bank pledged 16 loans totaling $4,402,667 as collateral to the
              Federal Home Loan Bank of Atlanta.

Note 8.       Deposits

              Deposit  account  balances  at  December  31,  2000  and  1999 are
              summarized as follows:

<TABLE>
<CAPTION>
                            <S>                                                                <C>                <C>
                                                                                               2001               2000
                                                                                        ----------------   ----------------

                    Noninterest bearing                                                 $     19,570,684   $     15,103,101
                    Interest-bearing demand                                                   19,425,782         18,366,728
                    Savings deposits                                                           6,187,853            763,083
                    Certificates of deposits                                                  26,505,953         26,409,496
                                                                                        ----------------   ----------------
                                                                                        $     71,690,272   $     60,642,408
                                                                                        ================   ================
</TABLE>

              Certificates  maturing in years ending December 31, as of December
              31, 2001:

<TABLE>
<CAPTION>
<S>                                                     <C>                                                       <C>
                                                                       2002                                       $  19,834,329
                                                                       2003                                           5,233,509
                                                                       2004                                           1,400,148
                                                                       2005                                              17,497
                                                        2006 and thereafter                                              20,470
                                                                                                                  -------------
                                                                                                                  $  26,505,953
</TABLE>

              At December 31, 2001 and 2000, overdrafts of $425,634 and $74,195,
              respectively,  have been  reclassed and are included in commercial
              loans.

Note 9.       Income Taxes

              Provision (credit) for income taxes in the consolidated statements
              of income are summarized as follows:
<TABLE>
<CAPTION>
                                <S>                                         <C>                  <C>               <C>
                                                                            2001                 2000               1999
                                                                     ------------------    --------------     --------------

                    Current                                          $         17,316   $         18,732   $          1,420
                    Deferred                                                 (833,734)          (407,732)          (511,424)
                                                                     ----------------   -----------------  ----------------
                                                                     $       (816,418)  $       (389,000)  $       (510,004)
                                                                     ================   =================  =================
</TABLE>


                                       23

<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




Note 9. Income Taxes (continued)
<TABLE>
<CAPTION>
                                                                2001             2000           1999
                                                             -----------      ---------       ---------
        <S>                                                  <C>              <C>             <C>
        Income before income taxes                           $1,147,939       $ 830,818       $ 340,109
        Applicable statutory income tax rate                         34%             34%             34%
                                                             ----------       ---------       ---------
        Computed "expected" federal tax  expense             $  390,299       $ 282,478       $ 115,637


        Adjustments to federal income tax resulting from:

           Nondeductible expenses                            $    3,872       $   5,975       $   3,289
           Alternative minimum tax                               17,316          18,732           1,420
           Net operating loss carryforward                     (394,171)       (288,453)       (118,926)
           Decrease in deferred tax valuation allowance        (833,734)       (407,732)       (511,424)
                                                             ----------       ---------       ---------
           Provision for federal income tax                  $ (816,418)      $(389,000)      $(510,004)
                                                             ==========       =========       =========


           Other comprehensive income                        $   48,136       $  58,515       $(117,523)
           Applicable tax                                        16,366          19,895         (39,958)
           Net operating loss carryforward                      (16,366)        (19,895)         39,958
                                                             ----------       ---------       ---------
              Other comprehensive income, net of tax         $   48,136       $  58,515       $(117,523)
                                                             ==========       =========       =========
</TABLE>

        The major components of deferred tax assets and liabilities are as
follows:
<TABLE>

                                                               2001           2000
                                                            ----------   -----------
        <S>                                                 <C>          <C>
        Deferred tax assets (liabilities):

           Accelerated depreciation                         $    2,607   $    (2,986)
           Provision for loan losses                           291,749       263,218
           Valuation adjustments of real property              211,038       211,038
           Deferred loan fees                                   35,967        38,472
           Unrealized gain/loss on investment securities        (2,067)       14,299
           Deferred rent                                        49,590        41,751
           Net operating loss carryforward                   1,164,006     1,597,281
                                                            ----------   -----------
        Net deferred tax assets before valuation allowance  $1,752,890   $ 2,163,073
        Deferred tax valuation allowance                            --    (1,243,917)
                                                            ----------   ------------

        Net deferred tax assets                             $1,752,890   $   919,156
                                                            ==========   ===========
</TABLE>


        The  change in the net  deferred  tax  asset  for 2001 in the  amount of
        $833,734  was to  recognize  amounts  of the  Company's  net tax  assets
        considered by  management as more likely than not to be realized.  Based
        on the same analysis, $407,732 was recognized in 2000.

        At December 31, 2001, the Company had net operating  loss  carryforwards
        for  regular  income  tax  purposes  of  $3,423,547  which  will  expire
        $1,433,756  in 2011 and  $1,989,791  in 2012.  The  Company  also has an
        alternative  minimum tax credit  carryforward of approximately  $358,000
        which may be carried forward indefinitely.

                                       24

<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




Note 10.      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,  2001  which  would  have a
              material adverse effect on the Company's financial statements.

              Financial Instruments With Off-Balance Risk
              -------------------------------------------

              In the  normal  course of  business,  the  Company  makes  various
              commitments and incurs certain contingent liabilities that 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  cash,  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  credit that the
              Company  is  willing to extend.  At  December  31,  2001 and 2000,
              unused  commitments  that  were  extended  under  lines of  credit
              amounted to approximately $9,886,395 and $9,647,685, respectively.

              The Company's  outstanding  standby  letters of credit amounted to
              approximately  $2,387,088  and  $2,622,039 as of December 31, 2001
              and 2000,  respectively.  The  credit  risk  involved  in  issuing
              letters  of credit is  essentially  the same as that  involved  in
              making loans to customers. Most of the Company's letters of credit
              are cash secured.

Note 11.      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, 1999                $      1,501,416
                      Additions                                      1,245,394
                      Reductions                                       (97,158)
                                                              ----------------
                    Balance, December 31, 2000                $      2,649,652
                      Additions                                        814,071
                      Reductions                                    (1,053,817)
                                                              ----------------
                    Balance, December 31, 2001                $      2,409,906
                                                              ================


              The December 31, 2001 balance  consists of secured loans  totaling
              $2,212,716  and unsecured  loans  totaling  $197,190.  None of the
              loans to related  parties were  classified  as  non-performing  at
              December 31, 2001.

              The Bank held related party deposits of  approximately  $6,671,000
              and $6,110,000 at December 31, 2001 and 2000, respectively.

Note 12.      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 2001, 2000 and 1999.


                                       25

<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12.      Regulatory Requirements and Restrictions  (continued)


              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  $8,159,900  at December 31, 2001;  thus net assets of the
              Bank in excess of approximately  $816,000 were restricted from use
              by the  Holding  Company  in the form of loans  or  advances.  The
              Holding  Company had no such  borrowings  from the Bank in 2001 or
              2000.

              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, 2001 was $775,000.

              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 Bank to maintain  minimum amounts and ratios
              of Total and Tier 1 capital to risk-weighted assets, and of Tier 1
              capital  to  average  assets.   The  Federal   Reserve's   capital
              guidelines do not currently apply to the Company.  They will apply
              to the  Company  at such  time as it has  total  assets  equal  to
              $150,000,000 or more, it has public debt, or it engages in certain
              highly  leveraged  activities.  At December 31, 2001, the Bank met
              the criteria to be well capitalized under the regulatory framework
              for  prompt   corrective   action.   To  be  categorized  as  well
              capitalized,  the Bank  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  and have  been no  events  since
              December  31, 2001 that  management  believes  would result in the
              institution not being adequately capitalized.

              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, 2001:
 Total capital (to risk-weighted assets)
          Company                             10,096,694   16.01%        5,045,498    8.00%        6,306,873   10.00%
          The Business Bank                    8,918,435   14.63%        4,875,611    8.00%        6,094,514   10.00%
 Tier 1 capital (to risk-weighted assets)
          Company                              9,305,014   14.75%        2,522,749    4.00%        3,784,124    6.00%
          The Business Bank                    8,152,998   13.38%        2,437,806    4.00%        3,656,709    6.00%
 Tier 1 capital (to average assets)
          Company                              9,305,014   11.07%        3,362,033    4.00%        4,202,541    5.00%
          The Business Bank                    8,152,998    9.88%        3,301,240    4.00%        4,126,550    5.00%
As of December 31, 2000:
 Total capital (to risk-weighted assets)
          Company                              8,783,519   15.80%        4,447,981    8.00%        5,559,976   10.00%
          The Business Bank                    7,722,888   14.07%        4,389,875    8.00%        5,487,343   10.00%
 Tier 1 capital (to risk-weighted assets)
          Company                              8,085,084   14.54%        2,223,991    4.00%        3,335,986    6.00%
          The Business Bank                    7,033,839   12.82%        2,194,937    4.00%        3,292,406    6.00%
 Tier 1 capital (to average assets)
          Company                              8,085,084   11.48%        2,818,231    4.00%        3,522,789    5.00%
          The Business Bank                    7,033,839   10.08%        2,792,032    4.00%        3,490,040    5.00%

</TABLE>

                                       26

<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 13. Other Income

                                                2001         2000         1999
                                            ----------   ----------   ----------


         Service charges on deposits        $  219,357   $  173,567   $  131,310
         Fees on letters of credit              17,910       17,221        6,188
         Gain (loss) on sale of real
              estate owned                       1,279        3,054       72,807
         Other                                  17,338          173       14,453
                                            ----------   ----------   ----------
                                            $  255,884   $  194,015   $  224,758
                                            ==========   ==========   ==========




Note 14. Interest on Deposits


                                                2001         2000         1999
                                            ----------   ----------   ----------

         Savings and NOW                    $  153,170   $  157,156   $   81,074
         Money market                          408,297      512,446      322,645
         Time:
           Under $100,000                      868,854      807,087      851,284
           $100,000 and over                   583,455      424,156      303,708
                                            ----------   ----------   ----------
                                            $2,013,776   $1,900,845   $1,558,711
                                            ==========   ==========   ==========



Note 15. 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  $1,900  in 2001,
         $1,800 in 2000 and $2,000 in 1999.  The Company made  contributions  to
         the 401(K) Plan of $30,000 in 2001 and $24,000 in 2000 and 1999. 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 (Plans)  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.  At December 31,  2001,  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 56,113.  The 1999 Plan  expires
         December 31, 2003.  At December  31, 2001,  22,500  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 common stock were awarded. The maximum
         number of shares  issuable under the 1999 Directors Plan is 35,000.  At
         December 31,  2001,  14,000  options to purchase  common stock had been
         granted under the 1999 Directors  Plan. The 1999 Directors Plan expires
         on August 1, 2003.

                                       27

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15. Employee Benefit Programs (continued)

         The following table summarizes the Company's stock option plan activity
         for the years ended December 31, 2001 and December 31, 2000:

                                            Average
                                           Price Per
                                             Share       Options     Exercisable
                                           ---------     -------     -----------
         Outstanding at December 31, 1999    $ 8.11       82,480        58,757
            Granted                            9.00        4,600
            Exercised                            --           --
            Canceled or expired                9.00         (400)
                                                         -------       -------
         Outstanding at December 31, 2000    $ 8.15       86,680        65,707
            Granted                            8.50       27,800
            Exercised                          8.18       (1,850)
            Canceled or expired                8.72       (1,850)
                                                         -------       -------
         Outstanding at December 31, 2001    $ 8.23      110,780        91,381
                                                         =======       =======

         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, 2001, 2000 and 1999.

Note 16. Other Expense

                                                2001        2000        1999
                                             ---------   ---------   ---------
         Data processing                     $ 160,283   $ 148,041   $ 131,090
         Professional fees                      83,547      78,849      78,084
         State franchise tax                    45,200      38,184      15,350
         Stationery, printing and supplies      45,450      53,040      68,142
         Insurance                              39,886      36,036      40,956
         Postage                                27,480      21,191      24,208
         Telephone                              36,737      34,115      25,694
         Advertising                            19,021       7,268      11,069
         Real estate owned, holding expense     26,788      18,812      51,146
         Other                                 195,628     185,901     124,846
                                             ---------   ---------   ---------
                                             $ 680,020   $ 621,437   $ 570,585
                                             =========   =========   =========

         Advertising costs are expensed as incurred.

Note 17. Shareholder's Equity

         The Company has authorized  5,000,000  shares of no par value preferred
         stock. At December 31, 2001 and 2000, there were no shares of preferred
         stock   outstanding.   Preferences  are  determined  by  the  Board  of
         Directors.

         The  Company has  authorized  3,500,000  shares of $1 par value  common
         stock.  At  December  31,  2001 and  2000,  there  were  1,035,349  and
         1,001,499  common  shares  outstanding,   respectively.  Common  shares
         reserved by the Company for future  issuance  (stock  option  plans and
         stock warrants) total 169,242.

         Warrants and Options
         --------------------

         During 2001,  warrants to purchase thirty-two thousand shares of common
         stock were exercised at $7.50 per share. Additionally, stock options to
         purchase  one thousand  eight  hundred and fifty shares of common stock
         pursuant to the  Executive  Stock Plan were  exercised  during  2001. A
         warrant to purchase 2,000 shares of common stock was  unexercised as of
         December 31, 2001 and expires January 27, 2007.

                                       28

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17. Shareholder's Equity (continued)

         Public Offering
         ---------------

         During 2000, the Company  completed a Public  Offering of common stock.
         The  Offering  was  initiated  during 1999 for the purpose of expanding
         banking operations.  The Company sold 155,909 shares of common stock at
         $9.00  per  share.   $1,000,000   of  the   $1,403,181   proceeds  were
         downstreamed  to the Bank to support  growth.  $300,000 of the proceeds
         were  downstreamed  to BVCI for  investment  purposes.  Offering  costs
         totaled approximately $44,000. The Company sold 38,265 shares of common
         stock during 2000.

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
Basic Earnings Per Share                                -----------     -------------     ----------
------------------------
<S>                                                     <C>              <C>              <C>
For the year ended December 31, 2001
   Basic earnings per common share:
      Net income available to common stockholders       $ 1,964,357        1,010,341      $     1.94
                                                        ===========      ===========      ==========

For the year ended December 31, 2000
   Basic earnings per common share:
      Net income available to common stockholders       $ 1,219,818          996,481      $     1.22
                                                        ===========      ===========      ==========
For the year ended December 31, 1999
   Basic earnings per common share:
      Income available to common stockholders           $   850,113          847,805      $     1.00
                                                        ===========      ===========      ==========

Diluted Earnings Per Share
--------------------------

For the year ended December 31, 2001
      Net Income available to common stockholders       $ 1,964,357        1,010,341

      Add: Contracts to issue common stock
           Warrant - expires   1/27/07                                           537
           Options - expire 12/31/05 -12/31/10                                21,790
                                                                         -----------
           Weighted-average diluted shares outstanding                        22,327

      Diluted earnings  per common share:               $ 1,964,357        1,032,668      $     1.90
                                                        ===========      ===========      ==========
For the year ended December 31, 2000

      Net Income available to common stockholders       $ 1,219,818          996,481

      Add: Contracts to issue common stock

           Warrants - expire   9/30/01                                         3,765
           Warrant - expires   1/27/07                                           235
           Options - expire 12/31/05 -12/31/09                                 5,186
                                                                         -----------
           Weighted-average diluted shares outstanding                         9,186

      Diluted earnings  per common share:               $ 1,219,818        1,005,667      $     1.21
                                                        ===========      ===========      ==========

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
                                                        ===========      ===========      ==========
</TABLE>

                                       29

<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 18. 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, 2001
         and 2000. The fair value of fixed maturity  certificates  of deposit is
         estimated  using the rates  currently  offered for  deposits of similar
         remaining maturities.

<TABLE>
<CAPTION>

                                                 2001                           2000
                                      ---------------------------     ---------------------------
                                         Book            Fair            Book            Fair
                                         Value           Value           Value           Value
                                      -----------     -----------     -----------     -----------
         <S>                          <C>             <C>             <C>             <C>
         Financial Assets:
           Cash and short-term
             investments              $19,426,000     $19,426,000     $ 3,590,000     $ 3,590,000
           Investment securities        5,568,000       5,610,000      10,380,000      10,396,000
           Net loans                   57,478,000      59,432,000      54,728,000      57,117,000

         Financial Liabilities:
           Deposits                    71,690,000      71,753,000      60,642,000      60,727,000
           Short-term borrowings        2,600,000       2,600,000       2,186,000       2,186,000
</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.

                                       30

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




Note 19.      Parent Company Financial Statements

              Condensed financial statements of the parent company, United
              Financial Banking Companies, Inc. as of December 31, 2001 and
              2000, and for the years ended December 31, 2001, 2000 and 1999,
              follow:


<TABLE>
<CAPTION>
                                                       BALANCE SHEETS
                                                 December 31, 2001 and 2000

                           ASSETS                                                            2001         2000
                                                                                        ------------   ----------
<S>                                                                                    <C>             <C>

                Cash on deposit with subsidiary bank                                    $    354,459   $  134,707
                Investment in The Business Bank                                            8,159,900    7,008,500
                Investments in other subsidiaries                                            584,220      543,673
                Loans and leases receivable, net                                                  --           --
                Other assets                                                               1,754,374      919,156
                                                                                        ------------   ----------

                           Total assets                                                 $ 10,852,953   $8,606,036
                                                                                        ============   ==========


                           LIABILITIES AND STOCKHOLDERS' EQUITY

              LIABILITIES

                Other liabilities                                                       $    34,552   $   55,253
                                                                                        -----------   ----------
                           Total liabilities                                                 34,552       55,253
                                                                                        -----------   ----------


              STOCKHOLDERS' EQUITY                                                       10,818,401    8,550,783
                                                                                        -----------   ----------

                           Total liabilities and stockholders' equity                   $10,852,953   $8,606,036
                                                                                         ==========    ========


<CAPTION>
                                                    STATEMENTS OF INCOME
                                        Years Ended December 31, 2001, 2000 and 1999

                                                                         2001        2000         1999
                                                                     ----------   ----------   ---------
<S>                                                                  <C>          <C>          <C>
              Income:

                Interest                                             $    2,903   $    3,524   $   2,246
                Other                                                    90,000       91,804          --
                                                                     ----------   ----------   ---------
                           Total income                                  92,903       95,328       2,246
              Expenses                                                   88,775       97,044     104,345
                                                                     ----------   ----------   ---------
                                                                          4,128       (1,716)   (102,099)
              Undistributed net gain (loss) of subsidiaries           1,143,811      832,534     442,208
                                                                     ----------   ----------   ---------
              Income (loss) before income taxes                       1,147,939      830,818     340,109
              Federal income tax expense (benefit)                     (816,418)    (389,000)   (510,004)
                                                                     ----------   -----------  ----------
              Net income (loss)                                      $1,964,357   $1,219,818   $ 850,113
                                                                     ==========   ==========   =========


<CAPTION>

                                                    COMPREHENSIVE INCOME
                                        Years Ended December 31, 2001, 2000 and 1999

                                                                        2001         2000         1999
                                                                     ----------   ----------   ---------
<S>                                                                  <C>          <C>          <C>



              Net income                                             $1,964,357   $1,219,818   $ 850,113
              Other comprehensive income, net of tax
                Unrealized gains (losses) on available-for-sale

                   securities                                            48,136       58,515    (117,523)
                                                                     ----------   ----------   ---------
              Comprehensive income                                   $2,012,493   $1,278,333   $ 732,590
                                                                     ==========   ==========   =========
</TABLE>

                                       31

<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




Note 19. Parent Company Financial Statements (continued)

                            STATEMENTS OF CASH FLOWS

                  Years Ended December 31, 2001, 2000 and 1999
<TABLE>
<S>                                                                            <C>                <C>                <C>

                                                                              1999                2001               2000
                                                                          ------------        -------------       ---------




CASH FLOWS FROM OPERATING ACTIVITIES:

   Net income (loss)                                                 $      1,964,357   $      1,219,818   $        850,113
   Adjustments to reconcile net income (loss) to net cash used
   in operating activities:

      Provision for loan losses                                                    --                 --            (12,001)
      Undistributed net (gain) loss of:
          The Business Bank                                                (1,103,264)          (808,558)          (375,081)
          Other Subsidiaries                                                  (40,547)           (23,976)           (67,127)
      (Increase) decrease in other assets                                    (835,218)          (407,733)          (508,173)
      Increase (decrease) in other liabilities                                (20,701)            13,510             (5,081)
                                                                     ----------------   ----------------   ----------------

              Net cash used in operating activities                           (35,373)            (6,939)          (117,350)
                                                                     ----------------   ----------------   -----------------

CASH FLOWS FROM INVESTING ACTIVITIES

   Principal collected on loans                                                    --                 --             56,710
   Loans and leases purchased from subsidiary                                      --                 --                 --
   (Investment in) distributions from
      subsidiaries                                                                 --           (300,000)        (1,000,000)
                                                                     ----------------   -----------------  ----------------
              Net cash provided by (used in)

                investing activities                                               --           (300,000)          (943,290)
                                                                     ----------------   ----------------   -----------------

CASH FLOWS FROM FINANCING ACTIVITIES

   Proceeds from issuance of common stock                                     255,125            344,385          1,119,767
                                                                     ----------------   ----------------   ----------------
              Net cash provided by financing activities                       255,125            344,385          1,119,767
                                                                     ----------------   ----------------   ----------------

   Net increase (decrease) in cash and cash equivalents                       219,752             37,446             59,127

   Cash and cash equivalents at beginning of year                             134,707             97,261             38,134
                                                                     ----------------   ----------------   ----------------

   Cash and cash equivalents at end of year                          $        354,459   $        134,707   $         97,261
                                                                     ================   ================   ================


SUPPLEMENTAL DISCLOSURES OF CASH FLOW

  INFORMATION

   Cash paid during the years for:

      Interest on borrowings                                         $             --   $             --   $          2,021
                                                                     ================   ================   ================

      Income taxes                                                   $         37,606   $          1,420   $          9,218

                                                                     ================   ================   ================

</TABLE>

                                       32

<PAGE>
<TABLE>
<S>                                                 <C>            <C>              <C>               <C>                <C>

-----------------------------------------------------------------------------------------------------------------------------------
TABLE  1    Selected Consolidated Financial Data

-----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,                             2001           2000             1999              1998               1997
-----------------------------------------------------------------------------------------------------------------------------------

Results of operations:
  Total interest income                        $  5,787,108    $  5,334,317    $  3,977,200     $  4,055,420    $      3,433,867
  Total interest expense                          2,153,542       1,934,307       1,587,216        1,813,788           1,495,204
                                                ------------     -----------    ------------     ------------     ---------------
  Net Interest income                             3,633,566       3,400,010       2,389,984        2,241,632           1,938,663

  Provision for loan/lease losses                   154,448         340,117          79,866          323,500             249,300
                                                ------------     -----------    ------------     ------------     ---------------

  Net interest income after provision
    for loan/lease losses                         3,479,118       3,059,893       2,310,118        1,918,132           1,689,363

  Other income                                      344,320         263,442         291,301          400,188             224,716

  Other expenses                                  2,675,499       2,492,517       2,261,310        2,195,869           1,897,780
                                                ------------     -----------    ------------     ------------     ---------------
  Income before income taxes                      1,147,939         830,818         340,109          122,451              16,299

  Income tax expense (benefit)                     (816,418)       (389,000)       (510,004)           9,218                   -
                                                ------------     -----------    ------------     ------------     ---------------
  Net income                                   $  1,964,357    $  1,219,818    $    850,113     $    113,233    $         16,299
                                                ============     ===========    ============     ============     ===============

Earnings per share:
Net income                                        1,964,357       1,219,818         850,113          113,233              16,299
  Less:  preferred stock dividends                        -               -               -          (50,000)           (117,250)
                                                ------------     -----------    ------------     ------------     ---------------
  Income available to common stockholders         1,964,357       1,219,818         850,113           63,233            (100,951)
Basic earnings (loss) per common share         $       1.94    $       1.22    $       1.00     $       0.09    $          (0.18)
Diluted earnings (loss) per common share:      $       1.90    $       1.21    $       0.99     $       0.09    $              -

Average weighted shares outstanding:
      Basic                                       1,010,341         996,481         847,805          716,395             561,640
      Dilutive                                    1,032,668       1,005,667         861,094          729,492             585,873

Period-ending balances:

  Total loans                                  $ 58,535,131    $ 55,701,135    $ 40,652,769     $ 36,962,213    $     38,084,861
  Total assets                                   85,529,236      71,854,113      56,455,892       55,573,072          48,074,006
  Total deposits                                 71,690,272      60,642,408      49,191,302       50,185,459          43,761,761
  Shareholders' equity                           10,818,401       8,550,783       6,928,065        5,075,708           2,639,999

Selected ratios:

  Return on average total assets                      2.55%           1.86%           1.59%            0.22%               0.04%

  Return on average earning assets                    2.71%           1.98%           1.71%            0.23%               0.04%

  Return on average shareholders' equity             21.20%          16.09%          16.14%            2.90%               0.61%

  Average shareholders' equity
    to average total assets                          12.02%          11.55%           9.87%            7.50%               5.87%
</TABLE>

                                       33

<PAGE>

                    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
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  $1,964,357  for the year  ended
December  31, 2001  compared  with net income of  $1,219,818  for the year ended
December 31,  2000.  Basic  earnings  per share were $1.94 for 2001  compared to
$1.22 basic earnings per share for 2000. Earnings for 2001 were primarily due to
an  increased  volume  of  earning  assets  and  beneficial  recognition  of the
Company's   deferred  income  taxes.   During  the  past  year,  UFBC's  primary
subsidiary,  the Bank,  continued to increase the Company's  earning asset base.
For the year ended  December 31, 2001,  average total earning  assets  increased
$10,835,092 or 17.6% when compared to 2000 (Consolidated Average Balances, Table
2). The increase contributed favorably to the Company's operating earnings.  The
deferred income tax benefit  represented  42.4% of net income for the year ended
December 31, 2001  compared to 33.4% of net income for 2000.  Net income  before
net deferred  income tax benefits  increased  $317,121 or 38.2% from $830,818 at
December 31, 2000 to $1,147,939 at December 31, 2001.

                                       34

<PAGE>

TABLE  2
CONSOLIDATED AVERAGE BALANCES/NET INTEREST ANALYSIS/
YIELDS AND RATES
<TABLE>
<CAPTION>
====================================================================================================================================
For the Year Ended                        December 31, 2001                December 31, 2000                December 31, 1999
------------------------------------------------------------------------------------------------------------------------------------
                                     Average                 Yield/   Average                Yield/    Average                Yield/
                                     Balance      Interest    Rate    Balance    Interest     Rate     Balance     Interest    Rate
------------------------------------------------------------------------------------------------------------------------------------
              ASSETS

Earning assets:
 Loans/Leases:
<S>                                <C>           <C>         <C>    <C>          <C>         <C>     <C>          <C>         <C>
  Commercial                       $39,228,583   $3,461,314  8.82%  $30,567,856  $2,872,879   9.40%  $23,644,022  $2,112,988   8.94%
  Real estate construction           9,619,817      953,766  9.91%    6,103,426     670,568  10.99%    4,151,679     422,128  10.17%
  Real estate mortgage               5,770,152      491,528  8.52%    8,032,728     667,005   8.30%    7,651,694     604,872   7.91%
  Installment                        3,228,198      207,075  6.41%    2,434,971     202,195   8.30%    1,574,821     140,799   8.94%
  Leases                                   --           --    --            --          --     --            --          --     --
                                   -----------   ----------         -----------  ----------          -----------  ----------
   Total loans/leases               57,846,750    5,113,683  8.84%   47,138,981   4,412,647   9.36%   37,022,216   3,280,787   8.86%
                                   -----------   ----------         -----------  ----------          -----------  ----------
  Interest-bearing deposits            110,363        4,036  3.66%          --          --    0.00%          --          --    0.00%
  Federal funds sold                 7,232,408      231,383  3.20%    5,511,609     343,138   6.23%    5,362,759     269,857   5.03%
  Investment securities              7,397,208      447,595  6.05%    9,101,047     578,532   6.36%    7,448,088     426,556   5.73%
                                   -----------   ----------         -----------  ----------          -----------  ----------
   Total earning assets             72,586,729    5,796,697  7.99%   61,751,637   5,334,317   8.64%   49,833,063   3,977,200   7.98%
                                                 ==========                      ==========                       ==========
  Noninterest-earning assets
   Cash and due from banks           2,766,725                        2,021,578                        2,046,384
   Other assets                      2,745,895                        2,730,260                        2,227,639
   Allowance for loan losses/lease  (1,021,066)                        (860,414)                        (755,737)
                                   -----------                      -----------                      -----------
    Total assets                   $77,078,283                      $65,643,061                      $53,351,349
                                   ===========                      ===========                      ===========

         LIABILITIES AND
       STOCKHOLDERS' EQUITY

Interest-bearing liabilities:
Interest-bearing deposits:
 Savings and NOW accounts            6,229,714      153,170  2.46%    5,369,945     157,165   2.93%    3,389,515      81,074   2.39%
 Money market accounts              14,534,980      408,297  2.81%   14,301,086     512,440   3.58%   10,284,048     322,645   3.14%
 Time:
  Under $100,000                    15,821,546      868,855  5.49%   14,750,470     807,087   5.47%   16,613,670     851,284   5.12%
  $100,000 and over                 10,987,933      583,455  5.31%    7,553,286     424,153   5.62%    6,071,187     303,708   5.00%
                                   -----------   ----------         -----------  ----------          -----------  ----------
   Total interest-bearing
    deposits                        47,574,173    2,013,777  4.23%   41,974,787   1,900,845   4.52%   36,358,420   1,558,711   4.84%
 Short-term borrowings               2,610,205      139,765  5.35%      495,166      33,462   6.76%      425,000      28,505   6.71%
                                   -----------   ----------         -----------  ----------          -----------  ----------
  Total interest-bearing
   liabilities                      50,184,378    2,153,542  4.29%   42,469,953   1,934,307   4.56%   36,783,420   1,587,216   4.32%
                                                 ==========                      ==========                       ==========
Noninterest-bearing liabilities:
 Demand deposits                    17,080,710                       15,159,490                       10,853,570
 Other liabilities                     545,462                          434,418                          448,696
 Stockholders' equity                      --                         7,579,200                        5,265,663
                                   -----------                      -----------                      -----------
  Total liabilities and             $9,267,733
   stockholders' equity            $77,078,283                      $65,643,061                      $53,351,349
                                   ===========                      ===========                      ===========
Net interest income                              $3,643,155                      $3,400,010                       $2,389,984
                                                 ==========                      ==========                       ==========
Net interest margin (1)                                      5.02%                            5.51%                            4.80%
                                                             ====                            =====                            =====
Net interest spread (2)                                      3.69%                            4.08%                            3.66%
                                                             ====                            =====                            =====
Fees included in loan income                     $  200,928                      $  172,486                       $  133,193
                                                 ==========                      ==========                       ==========
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.

                                       35

<PAGE>

                    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 $233,556 or 6.9% from $3,400,010 at December 31, 2000 to $3,633,566 at
December  31, 2001 as a result of increased  loan  volume.  Interest and fees on
loans rose  $701,036  during  2001.  The prime rate  decreased  475 basis points
during 2001 and negatively  impacted net interest  income.  As shown in Table 3,
Analysis of the  Changes in the  Components  of Net  Interest  Income,  interest
income increased  $1,077,120 due to volume while rate decreased  interest income
by $628,365.

         The declining  rate  environment of 2001  significantly  influenced net
interest  income.  The prime  rate  decreased  475 basis  points  from  9.50% at
December 31, 2000 to 4.75% at December 31, 2001. A decreased  prime rate notably
impacts  the Bank's  earnings  as  approximately  one third of the  Bank's  loan
portfolio is tied to prime repricing.  The yield on total loans dropped 52 basis
points from 9.36% at December 31, 2000 to 8.84% at December  31, 2001.  The rate
environment  also  negatively  impacted  the  yield on  federal  funds  sold and
investment  securities.  During 2001,  the yield on federal funds  decreased 303
basis points and the yield on investment securities decreased 31 basis points.

         The   2001   rate   environment   also   impacted   interest   paid  on
interest-bearing deposits. Historically, in a competitive market, liabilities do
not  reprice  at the same  pace or to the same  degree  as  assets.  The cost of
deposits declined 29 basis points at December 31, 2001 when compared to December
31,  2000  (Consolidated  Average  Balances,  Table  2).  The cost  decline  was
primarily   attributable  to  the  rate  environment.   The  average  volume  of
interest-bearing  deposits  increased  $5,599,386  or 13.3% during the past year
while interest paid on  interest-bearing  deposits  increased $112,932 or 5.94%.
Average  short-term  borrowings  increased  $2,115,039 or 427.1% when  comparing
December 31, 2000 and 2001. The rise in short-term borrowings contributed to the
$219,235 increase in interest expense during 2001. As shown in Table 3, Analysis
of the Changes in the Components of Net Interest Income,  total interest expense
increased  $649,170  due to volume  while  rate  decreased  interest  expense by
$208,715.

         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.  At December  31, 2001,  the Company had a net interest  margin of
5.02% and the Bank had a net interest margin of 5.03%. At December 31, 2001, the
Bank's peer institutions had a net interest margin of 4.28%.

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>

 TABLE 3

 Analysis of the Changes in the Components of Net Interest Income  (tax equivalent basis)
------------------------------------------------------------------------------------------------------------------------------------



 For the Year Ended December 31,                   2001 Compared to 2000                                2000 Compared to 1999
                                  ----------------------------------------------     -----------------------------------------------

                                       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                    $ 588,435      $ (225,532)   $  813,967      $  759,891      $ 141,131    $  618,760
   Real estate - construction      283,198        (103,139)      386,337         248,440         49,993       198,447
   Real estate - mortgage         (175,477)         12,398      (187,875)         62,133         32,012        30,121
   Installment                       4,880         (60,988)       65,868          61,396        (15,507)       76,903
                                  ---------       ---------    ----------      ----------      ---------    ----------
     Total loans/leases            701,036        (377,261)    1,078,297       1,131,860        207,629       924,231
 Interest-bearing deposits           4,036               -             -               -              -             -
 Federal funds sold               (111,755)       (218,887)      107,132          73,281         65,791         7,490
 Investment securities            (140,526)        (32,217)     (108,309)        151,976         57,310        94,666
                                  ---------       ---------    ----------      ----------      ---------    ----------
     Total interest income         452,791        (628,365)    1,077,120       1,357,117        330,730     1,026,387
                                  ---------       ---------    ----------      ----------      ---------    ----------

 Interest expense:

   Savings and NOW accounts         (3,995)        (29,158)       25,163          76,092         28,723        47,369
   Money markets accounts         (104,143)       (112,524)        8,381         189,793         63,764       126,029
   Time:
     Under $100,000                 61,768           3,163        58,605         (44,197)        51,273       (95,470)
     $100,000 and over             159,302         (33,570)      192,872         120,446         46,305        74,141
   Short-term borrowings           106,303         (36,626)      142,929           4,957            251         4,706
                                  ---------       ---------    ----------      ----------      ---------    ----------
     Total interest expense        219,235        (208,715)      427,950         347,091        190,316       156,775
                                  ---------       ---------    ----------      ----------      ---------    ----------
     Net interest income         $ 233,556      $ (419,650)   $  649,170      $1,010,026      $ 140,414    $  869,612
                                  ---------       ---------    ----------      ----------      ---------    ----------
</TABLE>

                                       36

<PAGE>
                    UNITED FINANCIAL BANKING COMPANIES, INC.


PROVISION FOR LOAN/LEASE LOSSES
-------------------------------
          Provision  expense  decreased  $185,669  or  54.6%  from  $340,117  at
December 31, 2000 to $154,448 at December 31,  2001.  The decline was  primarily
attributable to one-time allowance activity that occurred during 2000. A $23,000
recovery  during 2001 also  contributed  to the decline.  During 2000,  the Bank
reviewed and priced a portion of its  one-to-four  family  residential  mortgage
portfolio for sale. The review  resulted in a $134,000  charge to the allowance.
The allowance was then  replenished  $134,000 through a charge to the provision.
The Bank sold twenty-one  loans for  $2,600,000.  The majority of the loans sold
originated in the Bank's 100% financing program for its Culpeper,  Virginia real
estate owned asset. Management believed the Culpeper loans created a significant
credit concentration and that disposition would be beneficial to the Bank and to
the Company.  The sale  contributed to the Company's  liquidity and the proceeds
have been reemployed in assets that yield  approximately 200 basis points higher
than the loans sold.  See Note 1 to the  Consolidated  Financial  Statements for
more detail on maintaining a reserve for risks inherent to a loan portfolio.

NONINTEREST INCOME
------------------
          Total  noninterest  income increased $80,878 or 30.7% at year end 2001
compared to year end 2001. Total noninterest income decreased $27,859 or 9.7% at
year end 2000  compared  to year end  1999.  The  2001  increase  was  primarily
attributable to fees earned on deposit  products which were  implemented  during
the  fourth  quarter of 2000.  Loan  servicing  and other fees also  contributed
favorably to the  improvement.  The 2000 decrease  resulted from the variance of
gains on the sales of REO.  During 1999,  BVCI had net gains on the sales of REO
of  $72,807.  Detail  of other  income  is shown in Note 13 to the  consolidated
financial statements.

NONINTEREST EXPENSE
-------------------
          Total noninterest  expense increased  $182,982 or 7.3% during the year
ended 2001 as compared to 2000 and  increased  $231,207 or 10.2% during the year
ended 2000 as compared to 1999 (Table 4, Noninterest Expense). The 2001 increase
was primarily  attributable to costs  associated  with growth.  During 2001, the
Company added employees that increased  salaries and employee  benefit  expense.
The 2000 rise was primarily  attributable to costs associated with operating the
McLean branch which began  operations  in September  1999.  During 2000,  branch
operating  costs  impacted  expenses  such  as  salaries,   employee   benefits,
occupancy, furniture and equipment, communications and advertising.

          Salaries  and  employee  benefits  increased  $156,614  or 11.6%  from
$1,351,249 at December 31, 2000 to $1,507,863 at December 31, 2001. Salaries and
employee benefits rose $132,104 or 10.8% during the year ended December 31, 2000
as compared to December  31, 1999 and  occupancy  expense rose $20,480 or 5.8% .
The increases were due to additional staffing and leased space necessary for the
Company to expands its banking operations, most notably the McLean branch.

          Furniture  and  equipment  expense  decreased  $22,409 or 16.2% during
2001.  During  2001,  several  items  became fully  depreciated.  Furniture  and
equipment  expense  increased $27,771 or 25.1% during 2000. During the third and
fourth quarters of 1999, the Company  purchased  furniture and equipment for the
McLean branch. The Company also purchased equipment for technological  upgrading
and Year 2000  compliance.  Most of the  equipment  was  placed on a three  year
amortization schedule. Depreciation initiated by the purchases accounted for the
increased expense.

          Other  expense as shown in Table 4 rose $20,480 or 5.7% from  $301,515
at December  31, 2000 to $324,316 at December 31, 2001 and $47,556 or 18.7% from
$259,959 at December 31, 1999 to $324,316 at December 31,  2000.  The  increases
were primarily  attributable to expanded  banking  operations and growth.  Costs
such as data processing, franchise tax, advertising and communications increased
$33,633 or 14.9%  during 2001  compared to 2000 and $44,405 or 24.2% during 2000
compared to 1999.

          REO holding  expense  increased  $7,976 or 42.4% at December  31, 2001
compared to December 31, 2000 and decreased  $32,234 or 63.2% for the year ended
December  31, 2000  compared to year ended  December  31,  1999.  Increases  and
decreases in REO holding  expense are  attributable  to the  disposition  of the
Company's REO properties.  Various factors such as the economy,  the real estate
market and weather can impact the amount of expense  incurred to accomplish  the
liquidation and sale of REO.

                                       37

<PAGE>

                    UNITED FINANCIAL BANKING COMPANIES, INC.


         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>
<CAPTION>
<S>                                            <C>                    <C>                 <C>                <C>              <C>

TABLE  4     NONINTEREST EXPENSE
====================================================================================================================================
                                                                                                                    Percentage
                                                                                                               increase (decrease)
                                               2001                  2000               1999            2001 / 2000      2000 / 1999
------------------------------------------------------------------------------------------------------------------------------------

Salaries and employee benefits              1,507,863             1,351,249            1,219,145             11.59            10.84
Occupancy, net                                371,567               381,373              360,893             (2.57)            5.67
Furniture and equipment                       116,049               138,458              110,687            (16.18)           25.09
Professional fees                              83,547                78,849               78,084              5.96             0.98
State franchise tax                            45,200                38,184               15,350             18.37           148.76
Insurance                                      39,886                36,036               40,956             10.68           (12.01)
Data processing                               160,283               148,041              131,090              8.27            12.93
Real estate owned holding expense              26,788                18,812               51,146             42.40           (63.22)
Other expenses                                324,316               301,515              253,959              7.56            18.73
                                      ---------------       ---------------       --------------
     Total                                  2,675,499             2,492,517            2,261,310              7.34            10.22
                                      ===============       ===============       ==============

Noninterest expense as a percentage of :

   Average assets                                     3.47 %                4.67 %               4.34 %
                                            ==================    ==================    ==================
   Average earning assets                             3.69 %                5.00 %               4.68 %
                                            ==================    ==================    ==================
   Gross income                                      43.64 %               58.39 %              50.75 %
                                            ==================    ==================    ==================
</TABLE>

BALANCE SHEET ANALYSIS
----------------------

         Total assets rose  $13,675,123 or 19.0% during 2001. The rise in assets
was  attributable  to the Bank's  increased  volume of deposits  and  short-term
borrowings which increased the volume of assets available for investment.  Total
deposits increased $11,047,864 or 18.2% from $60,642,408 at December 31, 2000 to
$71,690,272 at December 31, 2000. The increase was  attributable  to new deposit
relationships and expansion of core deposit relationships.  The increased volume
of assets were  invested  into federal  funds sold and into loans.  During 2001,
calls within the security portfolio also contributed to the assets available for
reinvestment.   Security   investments   decreased   $4,804,397  or  46.3%  from
$10,372,372 at December 31, 2000 to $5,567,975 at December 31, 2001.  Management
considers  such factors as the  Company's  strategic  goals,  the  economy,  the
market, liquidity and return opportunity for the investment mix. Management also
considers  the  projected  duration and the nature of the assets  available  for
investment.  Due to the  market  and  the  projected  duration  of the  deposits
available for investment,  most of the excess liquidity at December 31, 2001 was
invested into overnight federal funds. Federal funds sold increased  $15,725,000
at December 31, 2001 compared to December 31, 2000.

         Earnings of  $1,147,939,  net  deferred  tax  benefits of $816,418  and
additional  capital of $255,125  contributed to the $2,267,618 or 26.5% increase
in  stockholders'  equity at December  31, 2001  compared to December  31, 2000.
During 2001,  warrants to purchase  32,000 shares of common stock were exercised
at $7.50 per share.  The  proceeds  contributed  to the parent's  liquidity  and
increase  opportunity to expand banking  operations.  Further details  regarding
stockholder  equity  are  provided  in  Note  17 to the  consolidated  financial
statements. Both the Company and the Bank were well capitalized,  per regulatory
capital requirements, for the years ended December 31, 2001 and 2000.


                                       38

<PAGE>

                    UNITED FINANCIAL BANKING COMPANIES, INC.

LOAN PORTFOLIO
--------------

         Net loans increased $2,833,996 or 5.1% from $55,701,135 at December 31,
2000 to  $58,535,131  at December  31, 2001.  Loans were 68.4%  percent of total
assets at December 31, 2001  compared to 77.5% at December 31, 2000. In managing
risk for what is predominantly a commercial loan portfolio, management maintains
clearly defined credit standards.

<TABLE>
<CAPTION>

<S>                                   <C>                     <C>               <C>                   <C>                <C>

TABLE 5 - LOAN PORTFOLIO

------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
December 31,                           2001                 2000                  1999                 1998                 1997
------------------------------------------------------------------------------------------------------------------------------------

Commercial                 $     41,591,724     $     37,097,497     $      25,160,558     $     24,721,939     $     27,039,144
Real estate construction          8,621,773            8,661,702             4,934,806            3,499,723            2,252,943
Real estate mortgage              4,686,547            6,939,635             8,786,994            7,076,032            6,743,695
Installment                       3,635,087            3,002,301             1,770,411            1,664,519            1,744,437
Leveraged leases                          -                    -                     -                    -              304,642
                             ---------------      ---------------      ----------------      ---------------      ---------------
          Total loans       $    58,535,131     $     55,701,135     $      40,652,769     $     36,962,213     $     38,084,861
                             ===============      ===============      ================      ===============      ===============
</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 real estate construction.

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
                                                          One Year            One Through           Over Five
                                                          or Less             Five Years              Years                Total
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                 <C>                  <C>                   <C>                  <C>
Commercial                                          $     12,761,784     $      10,628,773     $     18,201,167     $     41,591,724
Real estate construction                                   5,608,159               890,400            2,123,214            8,621,773
                                                       ---------------      ----------------      ---------------      -------------
                                                    $     18,369,943     $      11,519,173     $     20,324,381     $     50,213,497
                                                       ===============      ================      ===============      =============
</TABLE>

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 71.1%
and 66.6% of total loans at December 31, 2001 and 2000, respectively.

                                       39

<PAGE>

                    UNITED FINANCIAL BANKING COMPANIES, INC.

ALLOWANCE FOR LOAN/LEASE LOSSES
-------------------------------

         In response to the growth of the loan portfolio, the allowance for loan
losses  increased  $83,913 or 8.6% during 2001.  The ratio of allowance for loan
losses to total  loans was 1.8% at  December  31,  2001 and  2000.  A  five-year
history of the activity in the allowance for loan/lease losses follows:

<TABLE>
<S>                                  <C>            <C>                <C>                    <C>                      <C>

-----------------------------------------------------------------------------------------------------------------------------------
TABLE  6     ALLOWANCE FOR LOAN/LEASE LOSSES

-----------------------------------------------------------------------------------------------------------------------------------


---------------------------------------------------------------------------------------------------------------------------------
Period Ending December 31,           2001            2000                   1999                   1998                  1997
---------------------------------------------------------------------------------------------------------------------------------

Balance at beginning of period  $   973,431    $    783,143    $           747,374    $          715,399    $          584,106
                                 -----------     -----------     ------------------     -----------------     -----------------

Charge-offs:
  Installment                             -               -                 15,809                 5,787                 4,165
  Commercial                         56,282             841                 31,086                88,486                38,445
  Mortgage                           37,357         150,600                      -                 4,743                14,643
  Construction                            -               -                      -                     -                22,800
  Leveraged leases                        -               -                      -               203,201                60,000

Recoveries:
  Installment                             -               -                      -                   392                 2,508
  Commercial                         23,104           1,612                  2,798                10,300                16,538
  Construction                            -               -                      -                     -                 3,000
  Leveraged leases                        -               -                      -                     -                     -
                                 -----------     -----------     ------------------     -----------------     -----------------
Net charge-offs                      70,535         149,829                 44,097               291,525               118,007
                                 -----------     -----------     ------------------     -----------------     -----------------

Provision charged to operations     154,448         340,117                 79,866               323,500               249,300
                                 -----------     -----------     ------------------     -----------------     -----------------
Balance at end of period        $ 1,057,344    $    973,431    $           783,143    $          747,374    $          715,399
                                 ===========     ===========     ==================     =================     =================

Average total loans             $57,846,750    $ 47,138,981    $        37,022,216    $       36,785,634    $       32,905,901
                                 ===========     ===========     ==================     =================     =================

Ratio of net charge-offs
  to average total loans              0.12%           0.32%                  0.12%                 0.79%                 0.36%
                                 ===========     ===========     ==================     =================     =================
</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,           2001         2000                   1999                   1998                  1997
-----------------------------------------------------------------------------------------------------------------------------------

<S>                             <C>            <C>          <C>                    <C>                   <C>
Commercial                      $   687,000    $ 606,000    $           434,000    $          480,000    $          466,000
Real estate construction            165,000      130,000                 74,000                52,000                34,000
Real estate mortgage                 99,000      141,000                208,000               165,000               160,000
Installment                          62,000       50,000                 31,000                32,000                34,000
Leases                                    -            -                      -                     -                 4,600
Unallocated                          44,344       46,431                 36,143                18,374                16,799
                                  ----------    ---------     ------------------     -----------------     -----------------
                                $ 1,057,344    $ 973,431    $           783,143    $          747,374    $          715,399
                                  ----------    ---------     ------------------     -----------------     -----------------
</TABLE>

                                       40

<PAGE>

                    UNITED FINANCIAL BANKING COMPANIES, INC.


DEFERRED TAX ASSET

         At December  31,  2001,  the Company had  potential  off-balance  sheet
deferred  income tax  credits  of  $833,734.  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,
2001. The Company  projected income three years forward,  2002, 2003 and 2004. 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.  The amount of tax  credits  appropriately
recognized as an asset will be reevaluated annually.

NONPERFORMING ASSETS

         Nonperforming assets are assets on which accrued income recognition has
been discontinued. Nonperforming assets include nonaccrual loans and loans which
have become  foreclosed  real estate.  For the years ended December 31, 2001 and
2000, nonperforming assets were .8% and 1.9% of total assets, respectively.

         Nonaccruing  loans at year  end  2001  totaled  $28,367  compared  to a
balance of $12,507 at year end 2000.  The Company  had no loans  still  accruing
interest  that were ninety days or more past due as to  principal or interest at
December 31, 2001.  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>
<CAPTION>
<S>                                                                           <C>              <C>                 <C>

TABLE  7     NONPERFORMING ASSETS
------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------
Period ending December 31,                                                  2001               2000               1999
------------------------------------------------------------------------------------------------------------------------

Nonaccruing loans (90 days or more past due)                       $       28,367     $       12,507     $       15,781

Real estate owned                                                         644,407          1,364,066          1,424,650
                                                                     -------------      -------------      -------------
    Total nonperforming assets                                     $      672,774     $    1,376,573     $    1,440,431
                                                                     =============      =============      =============

Nonaccruing loans as a % of total loans                                     0.05%              0.02%              0.04%

Reserve for loans losses to nonaccruing loans                            3727.37%           7783.09%           4962.57%

Nonperforming assets to total loans                                         1.15%              2.47%              3.54%
</TABLE>

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.  REO was .8% and  1.9% of
total assets at December 31, 2001 and 2000, respectively. REO was comprised of a
property  located in  Culpeper,  Virginia.  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, 2001 and 2000 are presented in Table 8.

<TABLE>
<CAPTION>
<S>                                                                          <C>                    <C>

TABLE  8     REAL ESTATE OWNED
----------------------------------------------------------------------------------------------------------
Aging of Foreclosed Properties
----------------------------------------------------------------------------------------------------------
Period ending December 31,                                                    2001                 2000
----------------------------------------------------------------------------------------------------------

From 1 to 6 months                                                 $               -     $        148,659
From 7 to 12 months                                                                -                    -
From 13 to 24 months                                                               -                    -
Over 24 months                                                               644,407            1,215,407
                                                                     ----------------     ----------------
                                                                   $         644,407     $      1,364,066
                                                                     ================     ================

Foreclosed Properties by Project Type
----------------------------------------------------------------------------------------------------------
Period ending December 31,                                                    2001                 2000
----------------------------------------------------------------------------------------------------------

Undeveloped land                                                   $               -     $              -
1 - 4 family dwelling                                                              -              148,659
Developed land                                                               644,407            1,215,407
                                                                     ----------------     ----------------
                                                                   $         644,407     $      1,364,066
                                                                     ================     ================
</TABLE>



                                       41

<PAGE>

                    UNITED FINANCIAL BANKING COMPANIES, INC.

DEPOSITS
--------

     As shown in Table 10, Deposits  Structure and  Certificates of Deposit 100K
and Over,  total  deposits rose  $11,047,864  or 18.2% at December 31, 2001 when
compared to December 31, 2000. As shown in Table 9,  Deposits  Balance and Rate,
the cost of funds decreased during 2001 though the volume of deposits increased.
The cost decrease is attributable to the declining rate  environment of 2001 and
to the deposit  mix.  By design,  the  deposit  mix  continued  to focus on core
deposits.  Core deposits consist of demand,  savings, NOW, money market accounts
and time  deposits  under  $100,000.  As shown in Table 9,  total  average  core
deposits  increased  $4,085,959 or 8.2% from $49,580,991 at December 31, 2000 to
$53,666,950  at December 31, 2001.  When  comparing  average core deposit growth
from December 31, 2000 to December 31, 2001,  the change was as follows:  demand
deposits  (noninterest-bearing)  increased  $1,921,220  or 12.7%,  money  market
deposits increased $233,894 or 1.6%, savings and NOW deposits increased $859,769
or  16.0%  and  time  deposits  under  $100,000  increased  1,071,076  or  7.3%.
Additionally,  management  sought  to  maintain  an even  balance  between  time
deposits and other deposit accounts that are generally less costly.  As shown in
Table  10,  other  deposit  accounts   represented  63.0%  while  time  deposits
represented 37.0% of total deposits at year end 2001.

<TABLE>
<CAPTION>
TABLE  9    DEPOSITS BALANCE AND RATE
============================================================================================================================

Rates paid on each classification of deposits are shown below:
----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,      2001                 2000                1999                1998                1997
----------------------------------------------------------------------------------------------------------------------------
                            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                     $17,080,710     -%  $15,159,490     -%  $10,853,570     -%  $ 9,843,027     -%  $ 8,104,143     -%

Savings and NOW              6,229,714  2.46     5,369,945  2.93     3,389,515  2.39     2,360,360  2.39     2,598,967  2.43
   accounts

Money market                14,534,980  2.81    14,301,086  3.58    10,284,048  3.14     8,817,006  3.60     6,918,458  3.35
   accounts

Time:
  Under $100,000            15,821,546  5.49    14,750,470  5.47    16,613,670  5.12    19,638,531  5.49    17,579,511  5.40
  $100,000 and over         10,987,933  5.31     7,553,286  5.62     6,071,187  5.00     6,636,143  5.44     5,976,740  5.33
                           -----------         -----------         -----------         -----------         -----------
     Total                 $64,654,883  3.11%  $57,134,277  3.33%  $47,211,990  3.30%  $47,295,067  3.83%  $41,177,819  3.63%
                           ===========         ===========         ===========         ===========         ===========
</TABLE>
<TABLE>
<CAPTION>

TABLE  10   DEPOSITS STRUCTURE AND CERTIFICATES OF DEPOSIT 100K AND OVER
====================================================================================================================================
                                                           Year Ended December 31,
------------------------------------------------------------------------------------------------------------------------------------
               2001                 2000                 1999                1998                 1997                1996
------------------------------------------------------------------------------------------------------------------------------------
                          % of                % of                % of                % of                % of                % of
              Amount      Total     Amount    Total      Amount   Total     Amount    Total      Amount   Total      Amount   Total
------------------------------------------------------------------------------------------------------------------------------------
<S>         <C>          <C>     <C>         <C>     <C>         <C>     <C>         <C>     <C>         <C>      <C>         <C>
Demand      $19,570,684   27.30  $15,103,101  24.91% $12,248,025  24.91% $14,264,071  28.42% $ 7,778,077  17.77% $ 7,897,677  20.93%

Savings
 and NOW
 accounts    11,316,541   15.785   5,232,987   8.63    4,902,524   9.97    3,051,446   6.08    2,508,666   5.73    2,779,982   7.37

Money
 market
 accounts    14,297,094  19.943   13,896,824  22.92   11,473,851  23.32    7,524,516  14.99    7,568,652  17.30    3,970,348  10.52

Time:
 Under
  $100,000   15,476,230  21.588   15,937,455  26.28   15,513,608  31.54   18,048,129  35.96   19,478,244  44.51   16,763,355  44.42
 $100,000
  and over   11,029,723  15.385   10,472,041  17.27    5,053,294  10.27    7,297,297  14.54    6,428,122  14.69    6,323,212  16.76
            ----------- -------  ----------- ------  ----------- ------  ----------- ------  ----------- ------  ----------- ------
   Total    $71,690,272 100.000% $60,642,408 100.00% $49,191,302 100.00% $50,185,459 100.00% $43,761,761 100.00% $37,734,574 100.00%
            =========== =======  =========== ======  =========== ======  =========== ======  =========== ======  =========== ======
</TABLE>

The maturity schedule that follows categorizes time deposits of $100,000 or more
as of December 31, 2001.

--------------------------------------------------------------------------------
Maturing                                      Balance            Percent
--------------------------------------------------------------------------------
Three months or less                     $   2,580,483            23.40 %
Over three months to six months              1,399,601            12.69
Over six months to twelve months             4,376,347            39.68
Over twelve months                           2,673,292            24.24
                                         -------------           ------
  Total                                  $  11,029,723           100.00 %
                                         =============           ======

                                       42

<PAGE>

                    UNITED FINANCIAL BANKING COMPANIES, INC.


INVESTMENTS
-----------
         The Bank held all of the  Company's  investment  securities at December
31, 2001 and 2000.  The  securities  portfolio was comprised of 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 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 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  pricing  of its  assets and
liabilities.  Management seeks to accomplish this through maintaining sufficient
liquid assets,  increasing  core deposits  and/or raising funds in various money
markets.  Cash and due from banks, money market investments,  AFS securities and
loan maturities are the Company's  primary  sources of liquidity.  Liquid assets
were 26.6% of total  assets for 2001 and 16.3% for 2000.  Additional  sources of
liquidity  are  available  through  lines  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 retained from completed
capital offerings and reimbursements from inter-company  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 can significantly  affect the analysis by limiting the amount
of assets  available to reprice.  A positive gap  position  indicates  that more
assets than  liabilities  will reprice,  having a negative  earnings impact in a
falling rate environment.

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.

                                       43

<PAGE>

                    UNITED FINANCIAL BANKING COMPANIES, INC.

TABLE 11 - INTEREST SENSITIVITY ANALYSIS
----------------------------------------
<TABLE>
<CAPTION>
( thousands )

                                     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                 $16,325  16,325  6.22%                                                                 $16,325
  INVESTMENTS                          5,568     329  5.21%     406    4.50%     402  5.07%   3,414  5.50%   1,017   5.15%    5,568
  LOANS, NET - FIXED                  19,533   7,689  8.16%     513    8.67%   1,269  8.68%   8,013  8.73%   2,049   8.32%   19,533
  LOANS, NET - VARIABLE               39,080  18,596  6.76%     985    8.32%   2,092  8.04%  17,407  8.31%       -       -   39,080
                                     -----------------------------------------------------------------------------------------------
     TOTAL EARNING ASSETS             80,506  42,939  6.79%   1,904    7.60%   3,763  7.94%  28,834  8.09%   3,066   7.27%   80,506

  LOAN LOSS RESERVE                   (1,057)
  NON-ACCRUAL LOANS                       28                                                                                      -
  CASH AND DUE FROM BANKS              3,101                                                                                      -
  REAL ESTATE OWNED                      644                                                                                      -
  FIXED ASSETS                           176                                                                                      -
  OTHER NONINTEREST-BEARING ASSETS     2,131                                                                                      -
                                     -----------------------------------------------------------------------------------------------
     TOTAL NONEARNING ASSETS           5,023       -              -                -              -              -                -
                                     -----------------------------------------------------------------------------------------------
     TOTAL ASSETS                    $85,529  42,939          1,904            3,763         28,834          3,066          $80,506
                                     ===============================================================================================

          LIABILITIES

  NOW ACCOUNTS                       $ 5,129   5,129  1.55%                                                                 $ 5,129
  MONEY MARKET ACCOUNTS               14,297  14,297  1.74%                                                                  14,297
  SAVINGS ACCOUNTS                     6,188                                                  6,188  3.00%                    6,188
  CERTIFICATES OF DEPOSIT
     (Less Than) $100,000             15,476   2,673  5.72%   2,407    5.76%   6,398  5.98%   3,998  4.60%                   15,476
  CERTIFICATES OF DEPOSIT
     (Greater Than) $100,000          11,030   2,580  5.14%   1,400    5.02%   4,376  3.72%   2,674  4.24%                   11,030
                                     -----------------------------------------------------------------------------------------------
     TOTAL INTEREST-BEARING DEPOSITS  52,120  24,679  2.49%   3,807    5.49%  10,774  5.06%  12,860  3.76%       -           52,120
                                     -----------------------------------------------------------------------------------------------
  NONINTEREST-BEARING DEPOSITS        19,570                                                                                      -
                                     -----------------------------------------------------------------------------------------------
     TOTAL DEPOSITS                   71,690  24,679          3,807           10,774         12,860              -           52,120

     TOTAL OTHER LIABILITIES           3,021                                                                                      -
     TOTAL CAPITAL                    10,818                                                                                      -
                                     -----------------------------------------------------------------------------------------------
     TOTAL LIABILITIES & CAPITAL     $85,529  24,679          3,807           10,774         12,860              -          $52,120
                                     ===============================================================================================

INTERVAL GAP/GAP SPREAD                       18,260  4.30%  (1,903)   2.11%  (7,011) 2.88%  15,974  4.34%   3,066   7.27%
CUMULATIVE GAP                                18,260         18,357            9,346         25,320         28,386

INTERVAL GAP/TOTAL ASSETS                     21.35%          (2.22)%          (8.20)%        18.68%          3.58%
CUMULATIVE GAP/TOTAL ASSETS                   21.35%          19.12%           10.93%         29.60%         33.19%

INTERVAL GAP/EARNING ASSETS                   22.68%          (2.36)%          (8.71)%        19.84%          3.81%
CUMULATIVE GAP/EARNING ASSETS                 22.68%          20.32%           11.61%         31.45%         35.26%

MATCHED                                       24,679  2.49%   1,904    5.49%   3,763  7.94%  28,834  8.09%       -   0.00%
OPEN                                          18,260  4.30%  (1,903)   2.11%  (7,011) 2.88%  15,974  4.34%   3,066   7.27%
</TABLE>

                                       44

<PAGE>

                    UNITED FINANCIAL BANKING COMPANIES, INC.

                                                                             37

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                                     Assistant Secretary
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.

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
President/CEO, United Financial Banking                   Building Services, Inc
  Companies, Inc.

Robert E. Carpenter                                     Charles S. Evans
Partner, Weller and Scott (retired)                     Chairman, Computerware

John R. Motz                                            Robert W. Pitts
Commercial Condominium Management Company               Partner, Pitts and Pitts

Sharon A. Stakes
Executive Vice President, The Business Bank
Executive Vice President, United Financial Banking
  Companies, Inc.

<PAGE>

                    UNITED FINANCIAL BANKING COMPANIES, INC.

                                                                              38

                              CORPORATE INFORMATION

The Company did not accrue or pay dividends during the years ended December 31,
2001 and 2000.

The Company had 440 shareholders of record as of December 31, 2001.

Below are the high and low bid prices for the common stock for each quarter of
2001 and 2000. These prices reflect inter-dealer prices without retail mark-up,
mark-down or commission, and may not represent actual trades.

                                       2001                         2000
--------------------------------------------------------------------------------
For the Quarter Ended:             High        Low             High       Low
--------------------------------------------------------------------------------
March 31                         $ 8.63      $ 8.63           $ 5.00      $ 5.00
June 30                          $ 9.25      $ 9.00           $ 8.38      $ 6.75
September 30                     $ 9.10      $ 9.10           $ 7.59      $ 7.59
December 31                      $ 10.25     $10.25           $ 8.50      $ 7.75




                                   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