EXHIBIT 13



UNITED FINANCIAL BANKING

COMPANIES, INC. AND SUBSIDIARIES



FINANCIAL
REPORT



DECEMBER 31, 2003



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CONTENTS



|                                                           |  |     
|---------------------------------------------------------- |  | ----
|                                                           |  | Page
|REPORT OF INDEPENDENT AUDITORS                             |  | 1   
|                                                           | 
|FINANCIAL STATEMENTS                                       |  |     
|                                                           | 
|Consolidated Balance Sheets                                |  | 2   
|Consolidated Statements of Income and Comprehensive Income |  | 3   
|Consolidated Statements of Stockholders Equity            |  | 4   
|Consolidated Statements of Cash Flows                      |  | 5   
|Notes to Financial Statements                              |  | 6-27



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REPORT OF INDEPENDENT AUDITORS



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 (Company) as of December 31,
2003, and the related consolidated statements of income and comprehensive income, stockholders equity and cash flows for the year then ended. 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 audit. The consolidated financial statements of the Company as of December 31, 2002, and for each of the two years in the period then ended, were audited by other
auditors whose report dated February 18, 2003, expressed an unqualified opinion on those statements.



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, 2003, and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the
United States of America.



/S/ Goodman &
Company, L.L.P.



Norfolk, Virginia

February 10, 2004



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UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

December 31, 2003 and 2002



|                                                                                                                      |  |      |             |   |      |   |             |  
|--------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                                                                                      |  | 2003 |             |   | 2002 |  
|ASSETS                                                                                                                |  |      |             |   |      |   |             |  
|                                                                                                                      |  |     
|Cash and due from banks                                                                                               |  | $    | 4,340,579   |   |      | $ | 5,064,434   |  
|Interest-bearing deposits in other banks                                                                              |  |      | 2,268,173   |   |      |   | 928,061     |  
|Federal funds sold                                                                                                    |  |      | 3,900,000   |   |      |   | 8,050,000   |  
|                                                                                                                      |  |      |             |   |      |   |             |  
|Total cash and cash equivalents                                                                                       |  |      | 10,508,752  |   |      |   | 14,042,495  |  
|                                                                                                                      |  |      |             |   |      |   |             |  
|Securities available-for-sale                                                                                         |  |      | 24,966,285  |   |      |   | 15,101,994  |  
|Securities held-to-maturity                                                                                           |  |      | 6,035,368   |   |      |   | 1,313,779   |  
|                                                                                                                      |  |      |             |   |      |   |             |  
|Total securities                                                                                                      |  |      | 31,001,653  |   |      |   | 16,415,773  |  
|                                                                                                                      |  |      |             |   |      |   |             |  
|Loans, net of unearned income of $317,232 in 2003; $219,870 in 2002                                                   |  |      | 99,114,122  |   |      |   | 76,217,605  |  
|Less: Allowance for loan losses                                                                                       |  |      | (1,515,875  | ) |      |   | (1,251,764  | )
|                                                                                                                      |  |      |             |   |      |   |             |  
|Net loans and lease financing                                                                                         |  |      | 97,598,247  |   |      |   | 74,965,841  |  
|Real estate owned, net                                                                                                |  |      |            |   |      |   | 222,621     |  
|Premises and equipment, net                                                                                           |  |      | 2,106,672   |   |      |   | 1,769,278   |  
|Deferred income tax                                                                                                   |  |      | 930,187     |   |      |   | 1,359,079   |  
|Other assets                                                                                                          |  |      | 784,815     |   |      |   | 569,180     |  
|                                                                                                                      |  |      |             |   |      |   |             |  
|Total assets                                                                                                          |  | $    | 142,930,326 |   |      | $ | 109,344,267 |  
|                                                                                                                      |  |      |             |   |      |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                  |  |      |             |   |      |   |             |  
|                                                                                                                      |  |     
|LIABILITIES                                                                                                           |  |      |             |   |      |   |             |  
|Deposits:                                                                                                             |  |      |             |   |      |   |             |  
|Demand                                                                                                                |  | $    | 34,504,653  |   |      | $ | 23,977,619  |  
|Savings and NOW                                                                                                       |  |      | 41,947,627  |   |      |   | 21,547,324  |  
|Money market                                                                                                          |  |      | 16,562,967  |   |      |   | 13,405,082  |  
|Time:                                                                                                                 |  |      |             |   |      |   |             |  
|Under $100,000                                                                                                        |  |      | 17,999,566  |   |      |   | 17,976,949  |  
|$100,000 and over                                                                                                     |  |      | 14,217,017  |   |      |   | 14,576,217  |  
|                                                                                                                      |  |      |             |   |      |   |             |  
|Total deposits                                                                                                        |  |      | 125,231,830 |   |      |   | 91,483,191  |  
|Short-term borrowings                                                                                                 |  |      | 1,000,000   |   |      |   | 1,013,495   |  
|Long-term debt                                                                                                        |  |      | 3,780,155   |   |      |   | 4,780,155   |  
|Accounts payable and accrued expenses                                                                                 |  |      | 513,284     |   |      |   | 484,548     |  
|                                                                                                                      |  |      |             |   |      |   |             |  
|Total liabilities                                                                                                     |  |      | 130,525,269 |   |      |   | 97,761,389  |  
|                                                                                                                      |  |      |             |   |      |   |             |  
|COMMITMENTS AND CONTINGENCIES                                                                                         |  |      |             |   |      |   |             |  
|                                                                                                                      |  |     
|STOCKHOLDERS EQUITY                                                                                                  |  |      |             |   |      |   |             |  
|Preferred stock $-0-par value, authorized 5,000,000 shares, no shares issued                                          |  |      |            |   |      |   |            |  
|Common stock, par value $1; authorized 3,500,000 shares, issued 1,038,637 shares in 2003 and 1,036,999 shares in 2002 |  |      | 1,038,637   |   |      |   | 1,036,999   |  
|Surplus                                                                                                               |  |      | 16,221,687  |   |      |   | 16,208,535  |  
|Accumulated deficit                                                                                                   |  |      | (4,847,015  | ) |      |   | (5,677,981  | )
|Accumulated other comprehensive income (loss)                                                                         |  |      | (8,252      | ) |      |   | 15,325      |  
|                                                                                                                      |  |      |             |   |      |   |             |  
|Total stockholders equity                                                                                            |  |      | 12,405,057  |   |      |   | 11,582,878  |  
|                                                                                                                      |  |      |             |   |      |   |             |  
|                                                                                                                      |  |      |             |   |      |   |             |  
|Total liabilities and stockholders equity                                                                            |  | $    | 142,930,326 |   |      | $ | 109,344,267 |  
|                                                                                                                      |  |      |             |   |      |   |             |  



See
Notes to Consolidated Financial Statements.



2



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UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

Years Ended December 31, 2003, 2002 and
2001



|                                                                                                  |  |      |           |   |      |   |           |  |   |           |  
|------------------------------------------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- |  | - | --------- | -
|                                                                                                  |  | 2003 |           |   | 2002 |   | 2001      | 
|Interest income:                                                                                  |  |      |           |   |      |   |           |  |   |           |  
|Interest and fees on loans                                                                        |  | $    | 6,092,703 |   |      | $ | 5,273,240 |  | $ | 5,113,683 |  
|Interest on investment securities                                                                 |  |      | 212,252   |   |      |   | 246,232   |  |   | 438,006   |  
|Interest on interest-bearing deposits                                                             |  |      | 16,616    |   |      |   | 12,202    |  |   | 4,036     |  
|Interest on federal funds sold                                                                    |  |      | 278,966   |   |      |   | 194,665   |  |   | 231,383   |  
|                                                                                                  |  |      |           |   |      |   |           |  |   |           |  
|                                                                                                  |  |      | 6,600,537 |   |      |   | 5,726,339 |  |   | 5,787,108 |  
|                                                                                                  |  |      |           |   |      |   |           |  |   |           |  
|Interest expense:                                                                                 |  |      |           |   |      |   |           |  |   |           |  
|Interest on deposits                                                                              |  |      | 1,664,835 |   |      |   | 1,655,526 |  |   | 2,013,777 |  
|Interest on short-term borrowings                                                                 |  |      | 45,152    |   |      |   | 27,794    |  |   | 139,765   |  
|Interest on long-term debt                                                                        |  |      | 192,208   |   |      |   | 114,427   |  |   |          |  
|                                                                                                  |  |      |           |   |      |   |           |  |   |           |  
|                                                                                                  |  |      | 1,902,195 |   |      |   | 1,797,747 |  |   | 2,153,542 |  
|                                                                                                  |  |      |           |   |      |   |           |  |   |           |  
|Net interest income                                                                               |  |      | 4,698,342 |   |      |   | 3,928,592 |  |   | 3,633,566 |  
|Provision for loan losses                                                                         |  |      | 280,000   |   |      |   | 219,300   |  |   | 154,448   |  
|                                                                                                  |  |      |           |   |      |   |           |  |   |           |  
|Net interest income after provision for loan/lease losses                                         |  |      | 4,418,342 |   |      |   | 3,709,292 |  |   | 3,479,118 |  
|                                                                                                  |  |      |           |   |      |   |           |  |   |           |  
|Noninterest income:                                                                               |  |      |           |   |      |   |           |  |   |           |  
|Loan servicing and other fees                                                                     |  |      | 187,628   |   |      |   | 139,684   |  |   | 67,457    |  
|Other income                                                                                      |  |      | 447,801   |   |      |   | 378,868   |  |   | 276,863   |  
|                                                                                                  |  |      |           |   |      |   |           |  |   |           |  
|                                                                                                  |  |      | 635,429   |   |      |   | 518,552   |  |   | 344,320   |  
|                                                                                                  |  |      |           |   |      |   |           |  |   |           |  
|Noninterest expense:                                                                              |  |      |           |   |      |   |           |  |   |           |  
|Salaries                                                                                          |  |      | 1,740,995 |   |      |   | 1,506,179 |  |   | 1,272,199 |  
|Employee benefits                                                                                 |  |      | 318,405   |   |      |   | 274,134   |  |   | 235,664   |  
|Occupancy                                                                                         |  |      | 546,722   |   |      |   | 397,779   |  |   | 371,567   |  
|Furniture and equipment                                                                           |  |      | 220,533   |   |      |   | 138,982   |  |   | 116,049   |  
|Other                                                                                             |  |      | 961,161   |   |      |   | 779,591   |  |   | 680,020   |  
|                                                                                                  |  |      |           |   |      |   |           |  |   |           |  
|                                                                                                  |  |      | 3,787,816 |   |      |   | 3,096,665 |  |   | 2,675,499 |  
|                                                                                                  |  |      |           |   |      |   |           |  |   |           |  
|Income before federal income taxes                                                                |  |      | 1,265,955 |   |      |   | 1,131,179 |  |   | 1,147,939 |  
|Provision (benefit) for income taxes:                                                             |  |      |           |   |      |   |           |  |   |           |  
|Current                                                                                           |  |      |          |   |      |   |          |  |   | 17,316    |  
|Deferred                                                                                          |  |      | 434,989   |   |      |   | 389,048   |  |   | (833,734  | )
|                                                                                                  |  |      |           |   |      |   |           |  |   |           |  
|Net income                                                                                        |  | $    | 830,966   |   |      | $ | 742,131   |  | $ | 1,964,357 |  
|                                                                                                  |  |      |           |   |      |   |           |  |   |           |  
|Net income per common share                                                                       |  |      |           |   |      |   |           |  |   |           |  
|Basic                                                                                             |  | $    | 0.80      |   |      | $ | 0.72      |  | $ | 1.94      |  
|                                                                                                  |  |      |           |   |      |   |           |  |   |           |  
|Diluted                                                                                           |  | $    | 0.75      |   |      | $ | 0.68      |  | $ | 1.90      |  
|                                                                                                  |  |      |           |   |      |   |           |  |   |           |  
|Comprehensive Income                                                                              |  |      |           |   |      |   |           |  |   |           |  
|Net income                                                                                        |  |      | 830,966   |   |      |   | 742,131   |  |   | 1,964,357 |  
|Other comprehensive income, net of tax Unrealized gains (losses) on available-for-sale securities |  |      | (23,577   | ) |      |   | 9,246     |  |   | 48,136    |  
|                                                                                                  |  |      |           |   |      |   |           |  |   |           |  
|Comprehensive income                                                                              |  | $    | 807,389   |   |      | $ | 751,377   |  | $ | 2,012,493 |  
|                                                                                                  |  |      |           |   |      |   |           |  |   |           |  



See
Notes to Consolidated Financial Statements.



3



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UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

Years Ended December 31, 2003, 2002 and 2001



|                                                                                        |  |             |           |         |   |                    |  |   |                                            |   |  |       |         |   |  |   |            |  
|--------------------------------------------------------------------------------------- |  | ----------- | --------- | ------- | - | ------------------ |  | - | ------------------------------------------ | - |  | ----- | ------- | - |  | - | ---------- | -
|                                                                                        |  | CommonStock |           | Surplus |   | AccumulatedDeficit |  |   | AccumulatedOtherComprehensiveIncome (Loss) |   |  | Total |        
|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, 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 |  
|                                                                                        |  |             |           |         |   |                    |  |   |                                            |   |  |       |         |   |  |   |            |  
|Net income                                                                              |  |             |          |         |   |                   |  |   | 742,131                                    |   |  |       |        |   |  |   | 742,131    |  
|                                                                                        |  |             |           |         |  
|Net proceeds from issuance of shares of common stock                                    |  |             | 1,650     |         |   | 11,450             |  |   |                                           |   |  |       |        |   |  |   | 13,100     |  
|                                                                                        |  |             |           |         |  
|Change in unrealized holding gain (loss) on available-for-sale securities, net of taxes |  |             |          |         |   |                   |  |   |                                           |   |  |       | 9,246   |   |  |   | 9,246      |  
|                                                                                        |  |             |           |         |   |                    |  |   |                                            |   |  |       |         |   |  |   |            |  
|Balance December 31, 2002                                                               |  |             | 1,036,999 |         |   | 16,208,535         |  |   | (5,677,981                                 | ) |  |       | 15,325  |   |  |   | 11,582,878 |  
|                                                                                        |  |             |           |         |   |                    |  |   |                                            |   |  |       |         |   |  |   |            |  
|Net income                                                                              |  |             |          |         |   |                   |  |   | 830,966                                    |   |  |       |        |   |  |   | 830,966    |  
|                                                                                        |  |             |           |         |  
|Net proceeds from issuance of shares of common stock                                    |  |             | 1,638     |         |   | 13,152             |  |   |                                           |   |  |       |        |   |  |   | 14,790     |  
|                                                                                        |  |             |           |        
|                                                                                        |  |             |           |        
|                                                                                        |  |             |           |         |  
|Change in unrealized holding gain (loss) on available-for-sale securities, net of taxes |  |             |          |         |   |                   |  |   |                                           |   |  |       | (23,577 | ) |  |   | (23,577    | )
|                                                                                        |  |             |           |         |   |                    |  |   |                                            |   |  |       |         |   |  |   |            |  
|Balance December 31, 2003                                                               |  | $           | 1,038,637 |         | $ | 16,221,687         |  | $ | (4,847,015                                 | ) |  | $     | (8,252  | ) |  | $ | 12,405,057 |  
|                                                                                        |  |             |           |         |   |                    |  |   |                                            |   |  |       |         |   |  |   |            |  



See
Notes to Consolidated Financial Statements.



4



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UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2003, 2002 and 2001



|                                                                                            |  |      |             |   |      |   |             |      |  |   |            |  
|------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | ---------- | -
|                                                                                            |  | 2003 |             |   | 2002 |   |             | 2001 | 
|CASH FLOWS FROM OPERATING ACTIVITIES                                                        |  |      |             |   |      |   |             |      |  |   |            |  
|                                                                                            |  |      |            
|Net income                                                                                  |  | $    | 830,966     |   |      | $ | 742,131     |      |  | $ | 1,964,357  |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |      |             |   |      |   |             |      |  |   |            |  
|Depreciation and amortization                                                               |  |      | 154,271     |   |      |   | 91,533      |      |  |   | 78,908     |  
|Provision for loan losses                                                                   |  |      | 280,000     |   |      |   | 219,300     |      |  |   | 154,448    |  
|Amortization of investment security discounts                                               |  |      | 75,713      |   |      |   | 11,052      |      |  |   | 9,590      |  
|Amortization of loan fees and discounts                                                     |  |      | 80,436      |   |      |   | 117,201     |      |  |   | (9,627     | )
|Net (gain) on the sale of real estate owned                                                 |  |      | (94,809     | ) |      |   | (121,419    | )    |  |   | (1,279     | )
|(Increase) decrease in other assets                                                         |  |      | 213,257     |   |      |   | 326,095     |      |  |   | (604,925   | )
|Increase (decrease) in other liabilities                                                    |  |      | 28,736      |   |      |   | 63,985      |      |  |   | (54,359    | )
|                                                                                            |  |      |             |   |      |   |             |      |  |   |            |  
|Net cash provided by operating activities                                                   |  |      | 1,568,570   |   |      |   | 1,449,878   |      |  |   | 1,537,113  |  
|                                                                                            |  |      |             |   |      |   |             |      |  |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                        |  |      |             |   |      |   |             |      |  |   |            |  
|Nonbank loans and leases repaid, net of originations                                        |  |      | (391,140    | ) |      |   | (85,428     | )    |  |   | 173,554    |  
|Bank loans and leases repaid, net of originations                                           |  |      | (22,601,702 | ) |      |   | (17,739,127 | )    |  |   | (3,068,458 | )
|Purchases of securities available-for-sale                                                  |  |      | (55,488,080 | ) |      |   | (13,075,186 | )    |  |   | (1,111,795 | )
|Purchases of securities held-to-maturity                                                    |  |      | (26,689,648 | ) |      |   | (1,942,051  | )    |  |   | (1,829,063 | )
|Investments made in real estate owned                                                       |  |      | (992,358    | ) |      |   | (1,447,714  | )    |  |   | (1,359,884 | )
|Proceeds received from maturity of securities available-for-sale                            |  |      | 45,524,499  |   |      |   | 1,274,296   |      |  |   | 5,893,168  |  
|Proceeds received from maturity of securities held-to-maturity                              |  |      | 21,968,059  |   |      |   | 2,875,731   |      |  |   | 1,852,087  |  
|Proceeds received from real estate owned                                                    |  |      | 1,309,788   |   |      |   | 1,990,919   |      |  |   | 2,080,822  |  
|Purchases of premises and equipment                                                         |  |      | (491,665    | ) |      |   | (1,684,427  | )    |  |   | (48,623    | )
|                                                                                            |  |      |             |   |      |   |             |      |  |   |            |  
|Net cash provided by (used) for investing activities                                        |  |      | (37,852,247 | ) |      |   | (29,832,987 | )    |  |   | 2,581,808  |  
|                                                                                            |  |      |             |   |      |   |             |      |  |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                        |  |      |             |   |      |   |             |      |  |   |            |  
|Net increase in demand deposits, savings accounts, NOW accounts and money market accounts   |  |      | 34,085,222  |   |      |   | 13,745,706  |      |  |   | 10,951,407 |  
|                                                                                            |  |     
|Certificates of deposit sold (matured), net                                                 |  |      | (336,583    | ) |      |   | 6,047,213   |      |  |   | 96,457     |  
|Net change in short-term borrowings                                                         |  |      |            |   |      |   | (1,600,000  | )    |  |   | 414,000    |  
|Net payments on long-term debt                                                              |  |      | (1,013,495  | ) |      |   | 4,793,650   |      |  |   |           |  
|Proceeds from issuance of common stock                                                      |  |      | 14,790      |   |      |   | 13,100      |      |  |   | 255,125    |  
|                                                                                            |  |      |             |   |      |   |             |      |  |   |            |  
|Net cash provided by financing activities                                                   |  |      | 32,749,934  |   |      |   | 22,999,669  |      |  |   | 11,716,989 |  
|                                                                                            |  |      |             |   |      |   |             |      |  |   |            |  
|Net increase (decrease) in cash and cash equivalents                                        |  |      | (3,533,743  | ) |      |   | (5,383,440  | )    |  |   | 15,835,910 |  
|                                                                                            |  |      |            
|Cash and cash equivalents at beginning of year                                              |  |      | 14,042,495  |   |      |   | 19,425,935  |      |  |   | 3,590,025  |  
|                                                                                            |  |      |             |   |      |   |             |      |  |   |            |  
|Cash and cash equivalents at end of year                                                    |  | $    | 10,508,752  |   |      | $ | 14,042,495  |      |  | $ | 19,425,935 |  
|                                                                                            |  |      |             |   |      |   |             |      |  |   |            |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                           |  |      |             |   |      |   |             |      |  |   |            |  
|Cash paid during the year for:                                                              |  |      |             |   |      |   |             |      |  |   |            |  
|Interest on deposits and other borrowings                                                   |  | $    | 1,920,365   |   |      | $ | 1,806,211   |      |  | $ | 2,217,035  |  
|                                                                                            |  |      |             |   |      |   |             |      |  |   |            |  
|Income taxes                                                                                |  | $    |            |   |      | $ | 18,514      |      |  | $ | 37,606     |  
|                                                                                            |  |      |             |   |      |   |             |      |  |   |            |  



See
Notes to Consolidated Financial Statements.



5



---

UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1. Business and Summary of Significant Accounting Policies



Nature of Operations:



United Financial Banking Companies, Inc. (UFBC), is a one-bank financial holding company which was organized under the laws of the Commonwealth 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 Commonwealth of Virginia. UFBC also wholly owns Business Venture Capital, Inc. (BVCI), a subsidiary that conducts limited lending and other
investment activities and United Facilities LLC (UFLLC) that holds Bank premises. Collectively, UFBC, the Bank, BVCI and UFLLC are referred to as the Company. Primarily through its banking subsidiary, the Company offers loan
and deposit products and other financial services to commercial and retail customers in the Northern Virginia metropolitan area.



Basis of Accounting:



The accounting and reporting policies used in preparing these financial statements conform to accounting principles generally accepted 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             
|The Business Bank Insurance Agency, Inc. (TBBIA)     |  | Insurance Agency            
|Business Venture Capital, Inc. (BVCI) and Subsidiary |  | Limited Lending & Investment
|United Title LLC (UTL)                               |  | Title Agency                
|United Facilities LLC (UFL)                          |  | Holding Bank facilities     



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.



6



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1. Business and Summary of Significant Accounting Policies (continued)



Debt securities not classified as held-to-maturity or trading are classified
as available-for-sale (AFS). Marketable equity securities not classified as trading are also classified as AFS. AFS securities are stated at fair value with unrealized gains and losses reported as a separate component of stockholders equity.
At December 31, 2003 and 2002, the Company held no securities classified as trading.



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:



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 nonaccrual 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 nonaccrual loans is recognized only to the extent of interest payments received.



Allowance for Loan Losses:



The allowance for loan losses is an estimate of the losses that may be sustained in the Companys loan portfolio. The allowance is based on two
basic principles of accounting: (i) Statement of Financial Accounting Standards (SFAS) No. 5, Accounting for Contingencies, which requires that losses be accrued when they are probable of occurring and estimable and (ii) SFAS 114,
Accounting by Creditors for Impairment of a Loan, which requires that losses be accrued based on the differences between the value of the collateral, present value of future cash flows or values that are observable in the secondary market and the
loan balance.



A loan is considered impaired when, based on
current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in
determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of each factor and determines impairment by taking into
consideration all of the circumstances surrounding the loan and the borrower, the present value of expected future cash flows discounted at the loans effective interest rate, the loans obtainable market price, or the fair value of the
collateral if the loan is collateral dependent.



The allowance
for loan losses is maintained at a level, that in managements judgment, is adequate to absorb credit losses inherent in the existing loan portfolio. The allowance for loan losses is based on managements evaluation of the collectibility
of the loan 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. Due to uncertainties associated with
economic conditions and the inherent subjectivity of the evaluation process, it is possible that a material change could occur in the allowance for loan losses in the near term. However, the amount of the possible change cannot be reasonably
estimated.



7



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1. Business and Summary of Significant Accounting Policies (continued)



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 fair market value, less estimated costs to sell. In the normal course of business, it is possible that the estimated market value will
change in the near term. Write-downs to fair market value at the date of foreclosure are charged to the allowance for loan losses. Subsequent declines in fair market value are charged to noninterest 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.



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 Bankers Insurance LLC as a limited liability company member. TBBIA ownership of Bankers Insurance LLC at December 31, 2003 and 2002, totaled $115,765 and
$110,067, respectively.



Income Taxes:



The Company accounts for certain income and expense items in different time
periods for financial reporting purposes other than for income tax purposes. Provisions for deferred taxes are made in recognition of such temporary differences using an asset and liability approach.



Comprehensive Income:



Accounting principles generally require that recognized revenue, expenses,
gains and losses be included in net income. Additionally, certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance
sheet. Such items, along with net income, are components of comprehensive income.



Stock-Based Compensation:



The Company applies Accounting Principles Bulletin (APB) Opinion 25, Accounting for Stock Issued to Employees, and related Interpretations to account for employee stock compensation plans, and accordingly, does not recognize
compensation expense for stock options granted when the option price is greater than or equal to the underlying stock price. The Company presents the pro forma disclosures required by SFAS 123, Accounting for Stock-Based Compensation, and as amended
by SFAS 148, as follows:



8



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1. Business and Summary of Significant Accounting Policies (continued)



|                                                                                                                    |  |      |         |   |      |   |         |      |  |   |           |  
|------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | --------- | -
|December 31,                                                                                                        |  | 2003 |         |   | 2002 |   |         | 2001 | 
|Net income, as reported                                                                                             |  | $    | 830,966 |   |      | $ | 742,131 |      |  | $ | 1,964,357 |  
|Deduct: total stock-based employee compensation expense determined based on fair value method of awards, net of tax |  |      | (22,277 | ) |      |   | (15,928 | )    |  |   | (12,401   | )
|                                                                                                                    |  |      |         |   |      |   |         |      |  |   |           |  
|Pro forma net income                                                                                                |  | $    | 808,689 |   |      | $ | 726,203 |      |  | $ | 1,951,956 |  
|                                                                                                                    |  |      |         |   |      |   |         |      |  |   |           |  
|Basic earnings per share:                                                                                           |  |      |         |   |      |   |         |      |  |   |           |  
|As reported                                                                                                         |  | $    | 0.80    |   |      | $ | 0.72    |      |  | $ | 1.94      |  
|Pro forma                                                                                                           |  | $    | 0.77    |   |      | $ | 0.69    |      |  | $ | 1.92      |  
|                                                                                                                    |  |      |        
|Diluted earnings per share:                                                                                         |  |      |         |   |      |   |         |      |  |   |           |  
|As reported                                                                                                         |  | $    | 0.75    |   |      | $ | 0.68    |      |  | $ | 1.90      |  
|Pro forma                                                                                                           |  | $    | 0.73    |   |      | $ | 0.66    |      |  | $ | 1.89      |  
|                                                                                                                    |  |      |        
|Assumptions                                                                                                         |  |      |         |   |      |   |         |      |  |   |           |  
|Risk-free interest rate                                                                                             |  |      | 3.52    | % |      |   | 4.30    | %    |  |   | 4.88      | %
|Dividend yield                                                                                                      |  |      |        |   |      |   |        |      |  |   |          |  
|Volatility factor                                                                                                   |  |      | 10.00   | % |      |   | 10.00   | %    |  |   | 10.00     | %
|Weighted average expected life (years)                                                                              |  |      | 6.7     |   |      |   | 6.9     |      |  |   | 7.3       |  



Recent Accounting
Pronouncements:



Derivatives



On January 1, 2001, the Company adopted Financial Accounting Standards Board
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (FASB No. 133). This statement requires that all derivatives be recognized as assets or liabilities in the balance sheet and measured at fair value. The adoption of FASB
No. 133 did not have a material impact on the Companys results of operations or financial condition.



On March 13, 2002, the Financial Accounting Standard Board (FASB) determined that loan commitments related to the acquisition or origination of mortgage
loans that will be held for sale must be accounted for as derivative instruments, effective for fiscal quarters beginning after April 10, 2002. Accordingly, the Company adopted such accounting on July 1, 2002.



The Company enters into commitments to originate such loans whereby the
interest rate on the loan is determined prior to funding (rate lock commitments). Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. Accordingly, such commitments, along with any related fees
received from potential borrowers, are recorded at fair value in derivative assets or liabilities, with changes in fair value recorded in the net gain or loss on sale of mortgage loans. Fair value in based on fees currently charged to enter into
similar agreements, and for fixed-rate commitments also considers the difference between current levels for interest rates and the committed rates. Prior to July 1, 2002, such commitments were recorded to the extent of fees received. Fees received
were subsequently included in the net gain or loss on sale of mortgage loans.



The cumulative effect of adopting FASB No. 133, for rate lock commitments as of July 1, 2002 was not material.



9



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1. Business and Summary of Significant Accounting Policies (continued)



Business Combinations



Effective January 1, 2002, the Company adopted Financial
Accounting Board Statement No. 142, Goodwill and Other Intangible Assets (FASB No. 142). Accordingly, goodwill is no longer subject to amortization over its estimated useful life, but is subject to an annual assessment for impairment by applying a
fair value test. Additionally, under FASB No. 142, acquired intangible assets are separately recognized if the benefit of the asset can be sold, transferred, licensed, rented, or exchanged, and amortized over their useful life.



Branch acquisition transactions were outside the initial scope of FASB No.
142 and, accordingly, intangible assets related to such transactions continued to amortize upon the adoption of FASB No. 142. However, in October 2002, the Financial Accounting Standards Board issued Statement No. 147, Acquisitions of Certain
Financial Institutions  an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9. This statement amends previous interpretive guidance on the application of the purchase method of accounting to acquisitions of financial
institutions, and requires the application of FASB Statement No. 141, Business Combinations, and FASB No. 142 to branch acquisitions if such transactions meet the definition of a business combination.



The Company has not been party to any of the transactions described and
therefore, the adoption of FASB No. 141, 142 and 147 did not have a material impact on the results of operations or financial condition of the Company.



Accounting for Long-Lived Assets



Effective January 1, 2002, the Company adopted Financial Accounting Standards Board Statement No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (FASB No. 144). The statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The statement specifies criteria for classifying assets as held for sale. The adoption of this
Statement did not have a material impact on the Companys financial condition and results of operations.



Stock-Based Compensation



FASB Statement No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure (FASB No. 148) was issued in December 2002. This
statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation (FASB No. 123), to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation. In
addition, effective for fiscal years ending after December 15, 2002, FASB No. 148 amends the disclosure requirements of FASB No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported results of operations. Accordingly, the Company has incorporated such disclosures. We are currently assessing the fair value approach under FASB No. 123, and the
transitional provisions of FASB No. 148.



Guarantees



FASB
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees (FIN 45), requires that a liability be recognized, at inception, for the fair value of certain guarantees and for the ongoing obligation, if any, to
perform over the term of the guarantee. The recognition provisions of FIN 45 are effective for certain guarantees modified or issued after December 31, 2002. The adoption of FIN 45 did not have a material impact on the Companys results of
operation or financial condition.



The disclosure provisions of
FIN 45 are effective for financial statements with periods ended after December 15, 2002. Accordingly, the Company has incorporated such disclosures.



10



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1. Business and Summary of Significant Accounting Policies (continued)



Asset Retirements and Disposal Costs



In June of 2001 and 2002, the FASB issued Statement No. 143, Accounting
for Asset Retirement Obligations (FASB No. 143), and Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities (FASB No. 146), respectively. FASB No. 143 addresses financial accounting requirements for obligations
associated with the retirement of tangible long-lived assets, and FASB No. 146 requires the recognition of a liability, when incurred, for a cost associated with an exit or disposal activity. The resultant obligations and liabilities should be
recognized at fair value. The provisions of these statements were first effective in 2003. The adoption of these statements did not have a material impact on the Companys results of operations or financial condition.



Financial Instruments



In April 2003, the FASB issued Statement No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging Activities (FASB No. 149). This statement amends FASB No. 133, Accounting for Derivative Instruments and Hedging Activities, for decisions made by the FASBs Derivative
Implementation Group, other FASB Projects dealing with financial instruments, and in response to implementation issues raised in relation to the application of the definition of a derivative. This statement is generally effective for contracts
entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The adoption of this standard did not have a material impact on the Companys results of operations or financial condition.



The FASB issued Statement No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity (FASB No. 150), in May 2003. FASB No. 150 clarifies the definition of a liability as currently defined in FASB Concepts Statement No. 6, Elements of Financial Statements, as well as
other planned revisions. This statement requires a financial instrument that embodies an obligation of an issuer to be classified as a liability. In addition, the statement establishes standards for the initial and subsequent measurement of these
financial instruments and disclosure requirements. FASB No. 150 is effective for financial instruments entered into or modified after May 31, 2003. The adoption of this statement did not have a material impact on the Companys results of
operations and financial position.



New Accounting
Pronouncement



In
December 2003, the FASB issued a revision to FASB Statement No. 132, Employers Disclosures about Pensions and Other Postretirement Benefits (FASB No. 132). This statement does not change the measurement recognition aspects for pension and
other postretirement benefit plans. However, it does revise employers disclosures to include more information about the plan assets, obligations to pay benefits and funding obligations. These disclosures are effective for the 2003 financial
statements. Accordingly, the Company has incorporated such disclosures.



Reclassifications:



Certain amounts for 2002
and 2001 have been reclassified to conform to the presentation for fiscal year 2003.



11



---

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:



|                              |  |                |            |                      |   |                       |  |   |            |   |  |   |           
|----------------------------- |  | -------------- | ---------- | -------------------- | - | --------------------- |  | - | ---------- | - |  | - | ----------
|                              |  | Amortized Cost |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair Value
|Securities Available-for-Sale |  |                |            |                      |   |                       |  |   |            |   |  |   |           
|December 31, 2003:            |  |                |            |                      |   |                       |  |   |            |   |  |   |           
|U.S. Treasury                 |  | $              | 2,200,545  |                      | $ |                      |  | $ | (3,477     | ) |  | $ | 2,197,068 
|U.S. Government Agencies      |  |                | 21,092,471 |                      |   | 7,648                 |  |   |           |   |  |   | 21,100,119
|Mortgage-Backed Securities    |  |                | 1,050,619  |                      |   |                      |  |   | (5,774     | ) |  |   | 1,044,845 
|Corporate Debt Securities     |  |                | 309,343    |                      |   |                      |  |   | (551       | ) |  |   | 308,792   
|Other Securities              |  |                | 2,711      |                      |   |                      |  |   |           |   |  |   | 2,711     
|Equity Securities             |  |                | 312,750    |                      |   |                      |  |   |           |   |  |   | 312,750   
|                              |  |                |            |                      |   |                       |  |   |            |   |  |   |           
|Total                         |  | $              | 24,968,439 |                      | $ | 7,648                 |  | $ | (9,802     | ) |  | $ | 24,966,285
|                              |  |                |            |                      |   |                       |  |   |            |   |  |   |           
|December 31, 2002:            |  |                |            |                      |   |                       |  |   |            |   |  |   |           
|U.S. Treasury                 |  | $              | 9,999,739  |                      | $ |                      |  | $ |           |   |  | $ | 9,999,739 
|U.S. Government Agencies      |  |                | 1,868,051  |                      |   | 27,155                |  |   |           |   |  |   | 1,895,206 
|Mortgage-Backed Securities    |  |                | 901,366    |                      |   |                      |  |   | (7,067     | ) |  |   | 894,299   
|Mutual Funds                  |  |                | 2,000,000  |                      |   |                      |  |   |           |   |  |   | 2,000,000 
|Equity                        |  |                | 312,750    |                      |   |                      |  |   |           |   |  |   | 312,750   
|                              |  |                |            |                      |   |                       |  |   |            |   |  |   |           
|Total                         |  | $              | 15,081,906 |                      | $ | 27,155                |  | $ | (7,067     | ) |  | $ | 15,101,994
|                              |  |                |            |                      |   |                       |  |   |            |   |  |   |           
|Securities Held-to-Maturity   |  |                |            |                      |   |                       |  |   |            |   |  |   |           
|December 31, 2003:            |  |                |            |                      |   |                       |  |   |            |   |  |   |           
|U.S. Government Agencies      |  | $              | 5,998,329  |                      | $ |                      |  | $ | (18,488    | ) |  | $ | 5,979,841 
|Mortgage-Backed Securities    |  |                | 37,039     |                      |   | 705                   |  |   |           |   |  |   | 37,744    
|                              |  |                |            |                      |   |                       |  |   |            |   |  |   |           
|Total                         |  | $              | 6,035,368  |                      | $ | 705                   |  | $ | (18,488    | ) |  | $ | 6,017,585 
|                              |  |                |            |                      |   |                       |  |   |            |   |  |   |           
|December 31, 2002:            |  |                |            |                      |   |                       |  |   |            |   |  |   |           
|U.S. Government Agencies      |  | $              | 1,218,719  |                      | $ | 2,235                 |  | $ |           |   |  | $ | 1,220,954 
|Mortgage-Backed Securities    |  |                | 95,060     |                      |   | 3,720                 |  |   |           |   |  |   | 98,780    
|                              |  |                |            |                      |   |                       |  |   |            |   |  |   |           
|Total                         |  | $              | 1,313,779  |                      | $ | 5,955                 |  | $ |           |   |  | $ | 1,319,734 
|                              |  |                |            |                      |   |                       |  |   |            |   |  |   |           



12



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 2. Securities (continued)



The amortized cost and estimated fair value of securities at December 31, 2003, 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:



|                                   |  |                |            |            |   |           
|---------------------------------- |  | -------------- | ---------- | ---------- | - | ----------
|                                   |  | Amortized Cost |            | Fair Value
|Securities Available-for-Sale      |  |                |            |            |   |           
|Due in one year or less            |  | $              | 15,392,081 |            | $ | 15,392,443
|Due after 1 year through 5 years   |  |                | 3,645,310  |            |   | 3,658,175 
|Due after 5 years through 10 years |  |                | 1,455,678  |            |   | 1,454,103 
|Due after 10 years                 |  |                | 4,162,620  |            |   | 4,148,814 
|                                   |  |                |            |            |   |           
|                                   |  |                | 24,655,690 |            |   | 24,653,535
|                                   |  |                |            |            |   |           
|Equity securities                  |  |                | 312,750    |            |   | 312,750   
|                                   |  |                |            |            |   |           
|Total                              |  | $              | 24,968,439 |            | $ | 24,966,285
|                                   |  |                |            |            |   |           



|                                   |  |                |           |            |   |          
|---------------------------------- |  | -------------- | --------- | ---------- | - | ---------
|                                   |  | Amortized Cost |           | Fair Value
|Securities Held-to-Maturity        |  |                |           |            |   |          
|Due in one year or less            |  | $              | 37,039    |            | $ | 37,743   
|Due after 1 year through 5 years   |  |                | 5,499,785 |            |   | 5,490,184
|Due after 5 years through 10 years |  |                | 498,544   |            |   | 489,657  
|Due after 10 years                 |  |                |          |            |   |         
|                                   |  |                |           |            |   |          
|Total                              |  | $              | 6,035,368 |            | $ | 6,017,585
|                                   |  |                |           |            |   |          



At December 31, 2003,
a held-to-maturity security with an amortized cost of $500,000 was pledged as collateral to the Treasury Board of Virginia for public funds held by the Bank, and another held-to-maturity security with an amortized cost of $498,544 was pledged as
collateral to the Federal Reserve Bank of Richmond for the Banks treasury, tax and loan account.



No gains or losses were realized on the sale of investment securities in 2003, 2002 and 2001.



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, $250,000, since no active trading market exists.



At December 31, 2003, 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, 2003.



Note 3. Loans and Related Accounts



Major classifications of loans are summarized as follows:



|                                |  |      |            |   |      |   |            |  
|------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                |  | 2003 |            |   | 2002 |  
|Commercial                      |  | $    | 72,111,718 |   |      | $ | 58,673,221 |  
|Real estate construction        |  |      | 14,503,009 |   |      |   | 7,790,391  |  
|Real estate mortgage            |  |      | 8,315,566  |   |      |   | 5,278,302  |  
|Installment                     |  |      | 4,501,061  |   |      |   | 4,695,561  |  
|                                |  |      |            |   |      |   |            |  
|                                |  |      | 99,431,354 |   |      |   | 76,437,475 |  
|Less unearned discount          |  |      | (317,232   | ) |      |   | (219,870   | )
|                                |  |      |            |   |      |   |            |  
|                                |  |      | 99,114,122 |   |      |   | 76,217,605 |  
|Allowance for loan/lease losses |  |      | (1,515,875 | ) |      |   | (1,251,764 | )
|                                |  |      |            |   |      |   |            |  
|Loans, net                      |  | $    | 97,598,247 |   |      | $ | 74,965,841 |  
|                                |  |      |            |   |      |   |            |  



At December 31, 2003
and 2002, overdrafts of $345,225 and $372,894, respectively, are included in commercial loans.



13



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 3. Loans and Related Accounts (continued)



Changes in the allowance for loan losses were as follows:



|                                |  |      |           |   |      |   |           |      |  |   |           |  
|------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                |  | 2003 |           |   | 2002 |   |           | 2001 | 
|Balance, beginning of year      |  | $    | 1,251,764 |   |      | $ | 1,057,344 |      |  | $ | 973,431   |  
|Provision charged to operations |  |      | 280,000   |   |      |   | 219,300   |      |  |   | 154,448   |  
|Loans charged off               |  |      | (28,176   | ) |      |   | (29,645   | )    |  |   | (93,639   | )
|Recoveries                      |  |      | 12,287    |   |      |   | 4,765     |      |  |   | 23,104    |  
|                                |  |      |           |   |      |   |           |      |  |   |           |  
|Balance, end of year            |  | $    | 1,515,875 |   |      | $ | 1,251,764 |      |  | $ | 1,057,344 |  
|                                |  |      |           |   |      |   |           |      |  |   |           |  



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:



|                     |  |      |        |      |   |         |  |   |       
|-------------------- |  | ---- | ------ | ---- | - | ------- |  | - | ------
|                     |  | 2003 |        | 2002 |   | 2001   
|Nonaccrual           |  | $    | 33,457 |      | $ | 98,055  |  | $ | 28,367
|Restructured         |  |      |       |      |   | 14,879  |  |   |      
|Other impaired loans |  |      |       |      |   | 18,966  |  |   |      
|                     |  |      |        |      |   |         |  |   |       
|Total impaired loans |  | $    | 33,457 |      | $ | 131,900 |  | $ | 28,367
|                     |  |      |        |      |   |         |  |   |       



The allowance for loan
losses related to impaired loans amounted to approximately $6,691, $26,380 and $5,673 at December 31, 2003, 2002 and 2001, respectively.



The following is an analysis of approximate interest income related to impaired loans that is recognized on a cash basis:



|                                                |  |      |        |   |      |   |        |      |  |   |        |  
|----------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                |  | 2003 |        |   | 2002 |   |        | 2001 | 
|Interest that would have been accrued as income |  | $    | 2,719  |   |      | $ | 6,472  |      |  | $ | 3,936  |  
|Interest paid and recognized as interest income |  |      | (1,973 | ) |      |   | (1,268 | )    |  |   | (2,571 | )
|                                                |  |      |        |   |      |   |        |      |  |   |        |  
|Interest forgone                                |  | $    | 746    |   |      | $ | 5,204  |      |  | $ | 1,365  |  
|                                                |  |      |        |   |      |   |        |      |  |   |        |  



The annual average
balance of impaired loans on which income was recognized on a cash basis was $38,000, $114,000, and $33,000 for the years ending December 31, 2003, 2002 and 2001, respectively. There were no commitments to lend additional funds to customers whose
loans were classified as impaired at December 31, 2003.



Note 4. Significant
Concentrations of 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. A geographic concentration exists because the Company operates primarily in Northern Virginia and the surrounding metropolitan area.



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, 2003, the Company had uninsured cash of $2,510,647.



At December 31, 2003, two deposit relationships constituted approximately 6.0% of the Banks total deposits.



14



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 5. Real Estate Owned



|                                           |  |      |   |      |   |         |  
|------------------------------------------ |  | ---- | - | ---- | - | ------- | -
|                                           |  | 2003 |   | 2002 |  
|Real estate owned                          |  | $    |  |      | $ | 265,428 |  
|Allowances for losses on real estate owned |  |      |  |      |   | (42,807 | )
|                                           |  |      |   |      |   |         |  
|Real estate owned, net                     |  | $    |  |      | $ | 222,621 |  
|                                           |  |      |   |      |   |         |  



Changes in the
allowance for losses on real estate owned are summarized as follows:



|                                     |  |      |         |   |      |   |          |  
|------------------------------------ |  | ---- | ------- | - | ---- | - | -------- | -
|                                     |  | 2003 |         |   | 2002 |  
|Balance, beginning                   |  | $    | 42,807  |   |      | $ | 620,700  |  
|Provision charged to operations      |  |      |        |   |      |   |         |  
|Realized losses charged to allowance |  |      | (42,807 | ) |      |   | (577,893 | )
|                                     |  |      |         |   |      |   |          |  
|Balance, ending                      |  | $    |        |   |      | $ | 42,807   |  
|                                     |  |      |         |   |      |   |          |  



Note 6. Premises and Equipment



Major classifications of premises and equipment are
summarized as follows:



|                                          |  |      |           |   |      |   |           |  
|----------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                          |  | 2003 |           |   | 2002 |  
|Land                                      |  | $    | 818,910   |   |      | $ | 818,910   |  
|Building                                  |  |      | 495,566   |   |      |   | 495,566   |  
|Leasehold improvements                    |  |      | 330,934   |   |      |   | 110,410   |  
|Furniture, fixtures and equipment         |  |      | 1,376,730 |   |      |   | 1,105,589 |  
|                                          |  |      |           |   |      |   |           |  
|                                          |  |      | 3,022,140 |   |      |   | 2,530,475 |  
|Accumulated depreciation and amortization |  |      | (915,468  | ) |      |   | (761,197  | )
|                                          |  |      |           |   |      |   |           |  
|                                          |  | $    | 2,106,672 |   |      | $ | 1,769,278 |  
|                                          |  |      |           |   |      |   |           |  



Depreciation and
amortization expense of $154,271 in 2003, $91,533 in 2002 and $78,908 in 2001, 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, 2003, are as follows:



|                             |  |   |          
|---------------------------- |  | - | ---------
|2004                         |  | $ | 531,377  
|2005                         |  |   | 531,377  
|2006                         |  |   | 531,377  
|2007                         |  |   | 323,015  
|2008                         |  |   | 323,015  
|Later years                  |  |   | 1,205,913
|                             |  |   |          
|Total minimum lease payments |  | $ | 3,446,074
|                             |  |   |          



At December 31, 2003,
the Companys operations included one owned and three leased properties. The main office 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 for 7,780 square feet commenced on December 31, 1996.



In June 2002, United Facilities LLC, a subsidiary of the parent, purchased a branch location in Reston, Virginia. The land and building, net totaled
$1,294,860 at December 31, 2003.



The Company leases 3,016
square feet for a Bank branch in McLean, Virginia. The lease term is for ten years and two months with three options, each granting five year extensions. The lease commenced April 1, 1999.



The Bank leases 12,184 square feet in Vienna, Virginia for a branch location
and for its operations center. The lease term is for ten years with four options, each granting five-year extensions. The lease commenced September 1, 2003.



15



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 6. Premises and Equipment (continued)



Rental expense for operating leases amounted to $387,766, $291,743 and $294,995 for the years ended December 31, 2003, 2002
and 2001, respectively. Leases are straightlined based on the current terms of the lease. Customarily, the leases provide that the Company pay taxes, maintenance, insurance and certain other operating expenses applicable to the leased property.



Note 7. Short-term Borrowings



|                                            |  |      |           |   |      |   |           |  
|------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                            |  | 2003 |           |   | 2002 |  
|Federal Home Loan Bank of Atlanta           |  | $    | 1,000,000 |   |      | $ | 1,013,495 |  
|                                            |  |      |           |   |      |   |           |  
|Average daily amount outstanding            |  | $    | 1,443,836 |   |      | $ | 303,014   |  
|                                            |  |      |           |   |      |   |           |  
|Weighted average interest rate              |  |      | 3.01      | % |      |   | 4.72      | %
|                                            |  |      |           |   |      |   |           |  
|Maximum amount outstanding at any month-end |  | $    | 2,000,000 |   |      | $ | 2,600,000 |  
|                                            |  |      |           |   |      |   |           |  



Advances from the
Federal Home Loan Bank of Atlanta were secured by liens on the Banks residential and commercial mortgages totaling $9,597,063 at December 31, 2003 and $11,957,515 at December 31, 2002.



At December 31, 2003, the Bank had unsecured lines of credit with
correspondent banks totaling $17,700,000 available for overnight borrowing. There were no amounts drawn on the lines of credit at either December 31, 2003 or December 31, 2002.



Note 8. Long-term Debt



At December 31, 2003, long-term debt consisted of $3,000,000 in advances from the Federal Home Loan Bank of Atlanta and a $780,155 term note. The Federal
Home Loan Bank of Atlanta advances are at rates ranging from 3.84% to 4.57%. Advances from the Federal Home Loan Bank of Atlanta are secured by liens on the Banks residential and commercial mortgages. The term note has a contractual fixed rate
of 6.50% and is secured by a first deed of trust on Company property. Long-term debt maturing in each of the five years subsequent to December 31, 2003 is as follows: 2004 - $14,265; 2005 - $1,015,381; 2006 - $1,016,426; 2007 - $1,734,083; 2008 -
$0.



Note 9. Deposits



Deposit account balances at December 31, 2003 and 2002 are summarized as
follows:



|                                           |  |      |             |      |   |           
|------------------------------------------ |  | ---- | ----------- | ---- | - | ----------
|                                           |  | 2003 |             | 2002
|Noninterest-bearing demand                 |  | $    | 34,504,653  |      | $ | 23,977,619
|Interest-bearing demand                    |  |      | 27,239,392  |      |   | 19,153,712
|Savings deposits                           |  |      | 31,271,202  |      |   | 15,798,694
|Certificates of deposits under $100,000    |  |      | 17,999,566  |      |   | 17,976,949
|Certificates of deposits $100,000 and over |  |      | 14,217,017  |      |   | 14,576,217
|                                           |  |      |             |      |   |           
|                                           |  | $    | 125,231,830 |      | $ | 91,483,191
|                                           |  |      |             |      |   |           



Certificates maturing
in years ending December 31, as of December 31, 2003:



|                    |  |   |           
|------------------- |  | - | ----------
|2004                |  | $ | 22,032,544
|2005                |  |   | 6,145,795 
|2006                |  |   | 2,510,395 
|2007                |  |   | 1,457,460 
|2008 and thereafter |  |   | 70,389    
|                    |  |   |           
|                    |  | $ | 32,216,583
|                    |  |   |           



16



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 10. Income Taxes



Provision (benefit) for income taxes in the consolidated statements of income are summarized as follows:



|                                                  |  |      |           |   |      |   |           |      |  |   |           |  
|------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                  |  | 2003 |           |   | 2002 |   |           | 2001 | 
|Current                                           |  | $    |          |   |      | $ |          |      |  | $ | 17,316    |  
|Deferred                                          |  |      | 434,989   |   |      |   | 389,048   |      |  |   | (833,734  | )
|                                                  |  |      |           |   |      |   |           |      |  |   |           |  
|                                                  |  |      | $434,989  |   |      | $ | 389,048   |      |  | $ | (816,418  | )
|                                                  |  |      |           |   |      |   |           |      |  |   |           |  
|                                                  |  |      |          
|                                                  |  | 2003 |           |   | 2002 |   |           | 2001 | 
|Income before income taxes                        |  | $    | 1,265,955 |   |      | $ | 1,131,179 |      |  | $ | 1,147,939 |  
|Applicable statutory income tax rate              |  |      | 34        | % |      |   | 34        | %    |  |   | 34        | %
|                                                  |  |      |           |   |      |   |           |      |  |   |           |  
|Computed expected federal tax expense           |  |      | 430,425   |   |      |   | 384,601   |      |  |   | 390,299   |  
|                                                  |  |      |          
|Adjustments to federal income tax resulting from: |  |      |           |   |      |   |           |      |  |   |           |  
|Nondeductible expenses                            |  |      | 4,564     |   |      |   | 4,447     |      |  |   | 3,872     |  
|Alternative minimum tax                           |  |      |          |   |      |   |          |      |  |   | 17,316    |  
|Net operating loss carryforward                   |  |      |          |   |      |   |          |      |  |   | (394,171  | )
|Decrease in deferred tax valuation allowance      |  |      |          |   |      |   |          |      |  |   | (833,734  | )
|                                                  |  |      |           |   |      |   |           |      |  |   |           |  
|Provision for federal income tax                  |  | $    | 434,989   |   |      | $ | 389,048   |      |  | $ | (816,418  | )
|                                                  |  |      |           |   |      |   |           |      |  |   |           |  
|Other comprehensive income                        |  | $    | (17,932   | ) |      | $ | 14,009    |      |  | $ | 48,136    |  
|Applicable tax                                    |  |      | (5,645    | ) |      |   | 4,763     |      |  |   | 16,366    |  
|Net operating loss carryforward                   |  |      |          |   |      |   |          |      |  |   | (16,366   | )
|                                                  |  |      |           |   |      |   |           |      |  |   |           |  
|Other comprehensive income, net of tax            |  | $    | (23,577   | ) |      | $ | 9,246     |      |  | $ | 48,136    |  
|                                                  |  |      |           |   |      |   |           |      |  |   |           |  



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



|                                              |  |      |         |   |      |   |           |  
|--------------------------------------------- |  | ---- | ------- | - | ---- | - | --------- | -
|                                              |  | 2003 |         |   | 2002 |  
|Deferred tax assets (liabilities):            |  |      |         |   |      |   |           |  
|Accelerated depreciation                      |  | $    | (4,373  | ) |      | $ | (1,376    | )
|Provision for loan losses                     |  |      | 447,649 |   |      |   | 357,851   |  
|Valuation adjustments of real property        |  |      |        |   |      |   | 14,554    |  
|Deferred loan fees                            |  |      | 107,859 |   |      |   | 74,756    |  
|Unrealized gain/loss on investment securities |  |      | (733    | ) |      |   | (6,830    | )
|Deferred rent                                 |  |      | 44,505  |   |      |   | 47,149    |  
|Net operating loss carryforward               |  |      | 335,280 |   |      |   | 872,975   |  
|                                              |  |      |         |   |      |   |           |  
|Net deferred tax asset                        |  | $    | 930,187 |   |      | $ | 1,359,079 |  
|                                              |  |      |         |   |      |   |           |  



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.



At December 31, 2003, the Company had net operating loss carryforwards for regular income tax purposes of $980,130 which
will expire in 2012. The Company also has an alternative minimum tax credit carryforward of approximately $358,000 which may be carried forward indefinitely.



17



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 11. 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, 2003, that would have a material adverse effect on the Companys financial statements.



Financial Instruments With Off-Balance Sheet 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/or assets of the business. Because many commitments and almost all standby letters of credit expire without being funded, the contractual commitments do not necessarily represent future cash
requirements.



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, 2003 and 2002, unused commitments that were extended under lines of credit amounted to $17,950,808 and $12,063,652,
respectively.



Commitments to extend credit are agreements to
lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. At December 31, 2003 and 2002,
commitments to extend credit amounted to $15,527,200 and $2,575,500, respectively.



The Companys outstanding standby letters of credit amounted to $4,320,335 and $3,924,088 as of December 31, 2003 and 2002, respectively. The credit risk involved in issuing letters of credit is essentially the
same as that involved in making loans to customers. At December 31, 2003, 84% of the Companys letters of credit were cash secured.



Note 12. Related Party Transactions



Directors and executive officers, including family members and businesses in which the directors or executive officers have 5 percent or more beneficial
ownership of the Company, were customers of, and entered into transactions with, the Company in the ordinary course of business. In the opinion of management, loan transactions with directors and officers were made on 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 are summarized as follows:



|                           |  |   |            |  
|-------------------------- |  | - | ---------- | -
|Balance, December 31, 2001 |  | $ | 2,409,906  |  
|Additions                  |  |   | 2,023,354  |  
|Reductions                 |  |   | (878,888   | )
|                           |  |   |            |  
|Balance, December 31, 2002 |  | $ | 3,554,372  |  
|Additions                  |  |   | 2,679,450  |  
|Reductions                 |  |   | (1,027,783 | )
|                           |  |   |            |  
|Balance, December 31, 2003 |  | $ | 5,206,039  |  
|                           |  |   |            |  



As of December 31,
2003, this balance consists of secured loans totaling $4,752,134 and unsecured loans totaling $453,905. No loans to related parties were classified as impaired or nonperforming at December 31, 2003.



The Bank held related party deposits of approximately $9,797,000 and
$8,371,000 at December 31, 2003 and 2002, respectively.



18



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 12. Related Party Transactions (continued)



The Bank entered into a lease with 133 Maple Ave LC, a limited liability company organized in the Commonwealth of Virginia,
for 12,184 square feet in Vienna, Virginia. Mr. Harold C. Rauner, Chief Executive Officer and President of the Company and of the Bank and a shareholder, is a member of the limited liability company. Mr. Manuel V. Fernandez, Vice Chairman and
Director of the Company, and a beneficial shareholder owning in excess of 5% of the Companys common stock, is also a member of the limited liability company. A third shareholder, owning less than 5% of the Companys common stock, is also
a member of the limited liability company. The lease term is for ten years with four options, each granting five-year extensions. The lease commenced September 1, 2003. The terms of the lease are substantially the same as those prevailing for
similar leases within the market area that the building is located.



Note
13. Regulatory Requirements and Restrictions



The
Companys banking subsidiary is subject to federal and/or state statutes that 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 2003, 2002 and 2001.



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 $10,247,156 at December 31, 2003; thus net assets of the Bank in
excess of $1,024,716 were restricted from use by the Holding Company in the form of loans or advances. The Company had no such borrowings from the Bank in 2003 or 2002.



As a participant in the Federal Reserve system, the Bank is required to maintain certain average reserve balances which are
noninterest bearing. The daily average reserve requirement for the week including December 31, 2003 was $1,103,000.



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 its 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 its 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, 2003, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as 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 nor events, since December 31, 2003, that management believes would result in the institution not being well capitalized.



19



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 13. Regulatory Requirements and Restrictions (continued)



The following table presents the Company and the Banks actual
regulatory capital amounts and ratios:



|                                         |  |            |  |       |                                        |  |           |                                 |       |   |  |           |  |       |  
|---------------------------------------- |  | ---------- |  | ----- | -------------------------------------- |  | --------- | ------------------------------- | ----- | - |  | --------- |  | ----- | -
|                                         |  | Actual     |  |       | Required for Capital Adequacy Purposes |  |           | Required To Be Well Capitalized |      
|                                         |  | Amount     |  | Ratio |                                        |  | Amount    |                                 | Ratio |   |  | Amount    |  | Ratio |  
|As of December 31, 2003:                 |  |            |  |       |                                        |  |           |                                 |       |   |  |           |  |       |  
|Total capital (to risk-weighted assets)  |  |            |  |       |                                        |  |           |                                 |       |   |  |           |  |       |  
|Company                                  |  | 12,807,697 |  | 13.03 | %                                      |  | 7,861,170 |                                 | 8.00  | % |  | 9,826,463 |  | N/A   |  
|The Business Bank                        |  | 11,451,744 |  | 11.95 | %                                      |  | 7,665,996 |                                 | 8.00  | % |  | 9,582,496 |  | 10.00 | %
|Tier 1 capital (to risk-weighted assets) |  |            |  |       |                                        |  |           |                                 |       |   |  |           |  |       |  
|Company                                  |  | 11,575,839 |  | 11.78 | %                                      |  | 3,930,585 |                                 | 4.00  | % |  | 5,895,878 |  | N/A   |  
|The Business Bank                        |  | 10,250,044 |  | 10.70 | %                                      |  | 3,832,998 |                                 | 4.00  | % |  | 5,749,497 |  | 6.00  | %
|Tier 1 capital (to average assets)       |  |            |  |       |                                        |  |           |                                 |       |   |  |           |  |       |  
|Company                                  |  | 11,575,839 |  | 8.14  | %                                      |  | 5,689,582 |                                 | 4.00  | % |  | 7,111,978 |  | N/A   |  
|The Business Bank                        |  | 10,250,044 |  | 7.41  | %                                      |  | 5,532,520 |                                 | 4.00  | % |  | 6,915,650 |  | 5.00  | %
|As of December 31, 2002:                 |  |            |  |       |                                        |  |           |                                 |       |   |  |           |  |       |  
|Total capital (to risk-weighted assets)  |  |            |  |       |                                        |  |           |                                 |       |   |  |           |  |       |  
|Company                                  |  | 11,457,679 |  | 14.31 | %                                      |  | 6,403,334 |                                 | 8.00  | % |  | 8,004,168 |  | N/A   |  
|The Business Bank                        |  | 10,409,455 |  | 13.39 | %                                      |  | 6,219,215 |                                 | 8.00  | % |  | 7,774,019 |  | 10.00 | %
|Tier 1 capital (to risk-weighted assets) |  |            |  |       |                                        |  |           |                                 |       |   |  |           |  |       |  
|Company                                  |  | 10,454,056 |  | 13.06 | %                                      |  | 3,201,667 |                                 | 4.00  | % |  | 4,802,501 |  | N/A   |  
|The Business Bank                        |  | 9,434,284  |  | 12.14 | %                                      |  | 3,109,608 |                                 | 4.00  | % |  | 4,664,411 |  | 6.00  | %
|Tier 1 capital (to average assets)       |  |            |  |       |                                        |  |           |                                 |       |   |  |           |  |       |  
|Company                                  |  | 10,454,056 |  | 10.07 | %                                      |  | 4,151,064 |                                 | 4.00  | % |  | 5,188,831 |  | N/A   |  
|The Business Bank                        |  | 9,434,284  |  | 9.47  | %                                      |  | 3,986,538 |                                 | 4.00  | % |  | 4,983,173 |  | 5.00  | %



Note 14. Other Income



|                                  |  |      |         |      |   |         |  |   |        
|--------------------------------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                  |  | 2003 |         | 2002 |   | 2001   
|Service charges on deposits       |  | $    | 292,004 |      | $ | 211,126 |  | $ | 219,357
|Fees on letters of credit         |  |      | 13,507  |      |   | 23,945  |  |   | 17,910 
|Gain on sale of real estate owned |  |      | 105,536 |      |   | 121,419 |  |   | 1,279  
|Sweep income                      |  |      | 6,204   |      |   | 7,656   |  |   | 20,979 
|Other                             |  |      | 30,550  |      |   | 14,722  |  |   | 17,338 
|                                  |  |      |         |      |   |         |  |   |        
|                                  |  | $    | 447,801 |      | $ | 378,868 |  | $ | 276,863
|                                  |  |      |         |      |   |         |  |   |        



Note 15. Interest on Deposits



|                  |  |      |           |      |   |           |  |   |          
|----------------- |  | ---- | --------- | ---- | - | --------- |  | - | ---------
|                  |  | 2003 |           | 2002 |   | 2001     
|Savings and NOW   |  | $    | 499,028   |      | $ | 393,736   |  | $ | 153,171  
|Money market      |  |      | 160,081   |      |   | 192,968   |  |   | 408,297  
|Time:             |  |      |           |      |   |           |  |   |          
|Under $100,000    |  |      | 591,620   |      |   | 635,703   |  |   | 868,854  
|$100,000 and over |  |      | 414,106   |      |   | 433,119   |  |   | 583,455  
|                  |  |      |           |      |   |           |  |   |          
|                  |  | $    | 1,664,835 |      | $ | 1,655,526 |  | $ | 2,013,777
|                  |  |      |           |      |   |           |  |   |          



20



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 16. Employee Benefit Plan



The Company has a 401(k) Plan covering all employees who meet specified age and employment requirements. The administrative
expense associated with the 401(k) Plan was approximately $2,180 in 2003, $2,800 in 2002 and $1,900 in 2001. The Company made contributions of $30,000 in 2003, 2002 and 2001. Future contributions, if any, will be determined annually at the
discretion of the Board of Directors.



Note 17. Stock-Based Compensation



The Company has Executive Incentive Stock Option Plans
(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 Compensation Committee, consisting of non-employee members of the Board of Directors, may designate the characteristics and terms of the granted options or SARs.



The Compensation Committee establishes the price of each
option share granted, but not less than the fair market value at the date of grant. The maximum number of options to purchase common stock issuable under the 1990 Plan was 69,880. The 1990 Plan expired December 31, 1999 and all options were granted.
The maximum number of options to purchase common stock issuable under the 1999 Plan was 56,113. The 1999 Plan expired December 31, 2003 and 52,201 options were granted. The maximum number of options to purchase common stock issuable under the 2003
Plan is 90,000. As of December 31, 2003, no options had been granted under the 2003 Plan. Under the 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 grants are subject to vesting over four years.



The
Company also has 1996, 1999 and 2003 Nonqualified Stock Option Plans for Non-Employee Directors (the Directors Plan) that awards options to purchase common stock to non-employee directors of the Company and of the Bank. The 1999 and 2003 Directors
Plans also include 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 was 35,000. The 1999 Directors Plan expired on August 1, 2003 and 32,400 options to purchase common stock were awarded. The maximum number of shares issuable under the 2003 Directors Plan is
60,000. The 2003 Directors Plan expires on July 31, 2008 and no options had been awarded as of December 31, 2003.



The following table summarizes the Companys stock option plan status and activity for the years ended December 31, 2003, 2002 and 2001:



|                                 |  |                 |   |      |                              |       |                 |         |   |                              |   |                 |  |         |                              |  |   |     
|-------------------------------- |  | --------------- | - | ---- | ---------------------------- | ----- | --------------- | ------- | - | ---------------------------- | - | --------------- |  | ------- | ---------------------------- |  | - | ----
|                                 |  | 2003            |   | 2002 |                              | 2001 
|                                 |  | Numberof Shares |   |      | WeightedAverageExercisePrice |       | Numberof Shares |         |   | WeightedAverageExercisePrice |   | Numberof Shares |  |         | WeightedAverageExercisePrice
|Outstanding at beginning of year |  | 136,680         |   |      | $                            | 8.66  |                 | 110,780 |   |                              | $ | 8.23            |  | 86,680  |                              |  | $ | 8.15
|Granted                          |  | 16,313          |   |      |                              | 16.43 |                 | 29,200  |   |                              |   | 10.25           |  | 27,800  |                              |  |   | 8.50
|Exercised                        |  | (1,638          | ) |      |                              | 9.03  |                 | (1,650  | ) |                              |   | 7.94            |  | (1,850  | )                            |  |   | 8.18
|Forfeited                        |  | (3,912          | ) |      |                              | 12.33 |                 | (1,500  | ) |                              |   | 8.50            |  | (500    | )                            |  |   | 8.50
|Expired                          |  |                |   |      |                              |      |                 | (150    | ) |                              |   | 9.00            |  | (1,350  | )                            |  |   | 8.80
|                                 |  |                 |   |      |                              |       |                 |         |   |                              |   |                 |  |         |                              |  |   |     
|Outstanding at end of year       |  | 147,443         |   |      |                              | 9.42  |                 | 136,680 |   |                              |   | 8.66            |  | 110,780 |                              |  |   | 8.23
|                                 |  |                 |   |      |                              |       |                 |         |   |                              |   |                 |  |         |                              |  |   |     
|Exercisable at end of year       |  | 115,993         |   |      |                              |       |                 | 96,857  |   |                              |   |                 |  | 91,381  |                              |  |   |     
|                                 |  |                 |   |      |                              |       |                 |         |   |                              |   |                 |  |         |                              |  |   |     



21



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 17. Stock-Based Compensation (continued)



Information pertaining to options outstanding at December 31, 2003 is as follows:



|                                            |  |                        |       |                                      |         |                                      |        
|------------------------------------------- |  | ---------------------- | ----- | ------------------------------------ | ------- | ------------------------------------ | -------
|Weighted Average Contractual Life
Remaining |  | Range ofExercisePrices |       | NumberOutstanding atDecember 31,2003 |         | NumberExercisable atDecember 31,2003
|2.0 years                                   |  | $                      | 7.50  |                                      | 42,082  |                                      | 42,082 
|4.3 years                                   |  |                        | 8.75  |                                      | 5,100   |                                      | 5,100  
|5.0 years                                   |  |                        | 8.75  |                                      | 18,098  |                                      | 18,098 
|5.6 years                                   |  |                        | 8.75  |                                      | 4,600   |                                      | 4,600  
|6.0 years                                   |  |                        | 9.00  |                                      | 12,100  |                                      | 12,098 
|7.0 years                                   |  |                        | 8.50  |                                      | 23,300  |                                      | 18,051 
|8.0 years                                   |  |                        | 10.25 |                                      | 27,450  |                                      | 10,764 
|9.0 years                                   |  |                        | 16.43 |                                      | 14,713  |                                      | 5,200  
|                                            |  |                        |       |                                      |         |                                      |        
|                                            |  |                        |       |                                      | 147,443 |                                      | 115,993
|                                            |  |                        |       |                                      |         |                                      |        



The Financial
Accounting Standards Board issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of Statement No. 123, in December 2002. The Statement amends SFAS 123 to provide alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS 148 also amends APB Opinion No. 28, Interim Financial Reporting, to require disclosure about the effects of
stock options in interim financial information. The amendments to SFAS 123 are effective for financial statements for fiscal years ending after December 15, 2002. The amendments to APB No. 28 are effective for financial reports containing condensed
financial statements for interim periods beginning after December 15, 2002.



The Company has elected to continue to account for stock-based compensation under the intrinsic value guidelines of APB Opinion No. 25. Under the intrinsic value based method, compensation cost is measured as the
excess of the market price of the stock underlying the option at the date granted over the exercise price. The Companys policy is to grant options at market value. Accordingly, no compensation cost has been recognized for its stock options.
Pro forma information regarding net income and earnings per share as required by SFAS 123 has been determined as if the Company had accounted for its employee stock options under the fair-value method. The fair values of the options granted were
estimated using the Black-Scholes option pricing model. A summary of the assumptions used and pro forma results for 2003, 2002 and 2001 is presented in Note 1 to the Consolidated Financial Statements.





22



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 18. Other Expense



|                                   |  |      |         |      |   |         |  |   |        
|---------------------------------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                   |  | 2003 |         | 2002 |   | 2001   
|Data processing                    |  | $    | 208,286 |      | $ | 171,132 |  | $ | 160,283
|Professional fees                  |  |      | 119,536 |      |   | 104,443 |  |   | 83,547 
|State franchise tax                |  |      | 79,900  |      |   | 61,200  |  |   | 45,200 
|Stationery, printing and supplies  |  |      | 73,416  |      |   | 56,016  |  |   | 45,450 
|Insurance                          |  |      | 58,551  |      |   | 46,159  |  |   | 39,886 
|Postage                            |  |      | 33,334  |      |   | 30,538  |  |   | 27,480 
|Telephone                          |  |      | 61,720  |      |   | 49,986  |  |   | 36,737 
|Advertising                        |  |      | 26,832  |      |   | 15,296  |  |   | 19,021 
|Real estate owned, holding expense |  |      | 2,130   |      |   | 15,670  |  |   | 26,788 
|Other                              |  |      | 297,456 |      |   | 229,151 |  |   | 195,628
|                                   |  |      |         |      |   |         |  |   |        
|                                   |  | $    | 961,161 |      | $ | 779,591 |  | $ | 680,020
|                                   |  |      |         |      |   |         |  |   |        



Advertising costs are
expensed as incurred.



Note 19. Stockholders Equity



The Company has authorized 5,000,000 shares of no par value preferred stock.
At December 31, 2003 and 2002, 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, 2003 and 2002, there were 1,038,637 and 1,036,999 common shares
outstanding, respectively. Common shares reserved by the Company for future issuance (stock option plans and stock warrants) total 313,995.



Warrants and Options



During 2003, stock options to purchase 1,638 of common stock pursuant to the Executive Stock Plan were exercised.



During 2002, stock options to purchase 650 of common stock pursuant to the
Executive Stock Plan were exercised. Stock options to purchase 1,000 of common stock pursuant to the Directors Stock Plan were exercised during 2002. A warrant to purchase 2,000 shares of common stock was unexercised as of December 31, 2003 and
expires January 27, 2007.



The following table is a
reconciliation of earnings per common share:





|                                            |  |                   |           |                     |           |                 |   |     
|------------------------------------------- |  | ----------------- | --------- | ------------------- | --------- | --------------- | - | ----
|                                            |  | Income(Numerator) |           | Shares(Denominator) |           | Per ShareAmount
|Basic Earnings Per Share                    |  |                   |           |                     |           |                 |   |     
|For the year ended December 31, 2003        |  |                   |           |                     |           |                 |   |     
|Basic earnings per common share:            |  |                   |           |                     |           |                 |   |     
|Income available to common stockholders     |  | $                 | 830,966   |                     | 1,037,135 |                 | $ | .80 
|                                            |  |                   |           |                     |           |                 |   |     
|For the year ended December 31, 2002        |  |                   |           |                     |           |                 |   |     
|Basic earnings per common share:            |  |                   |           |                     |           |                 |   |     
|Income available to common stockholders     |  | $                 | 742,131   |                     | 1,035,783 |                 | $ | .72 
|                                            |  |                   |           |                     |           |                 |   |     
|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
|                                            |  |                   |           |                     |           |                 |   |     



23



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 19. Stockholders Equity (continued)



|                                            |  |   |           |  |           |  |   |     
|------------------------------------------- |  | - | --------- |  | --------- |  | - | ----
|Diluted Earnings Per Share                  |  |   |           |  |           |  |   |     
|                                            |  |   |          
|For the year ended December 31, 2003        |  |   |           |  |           |  |   |     
|Net Income available to common stockholders |  | $ | 830,966   |  | 1,037,135 |  |   |     
|                                            |  |   |           |  |           |  |   |     
|Add: Contracts to issue common stock        |  |   |           |  |           |  |   |     
|Warrant - expires 01/27/07                  |  |   |           |  | 1,164     |  |   |     
|Options - expire 12/31/05 - 01/27/13        |  |   |           |  | 70,054    |  |   |     
|                                            |  |   |           |  |           |  |   |     
|Weighted-average dilutive shares            |  |   |           |  | 71,218    |  |   |     
|                                            |  |   |           |  |           |  |   |     
|Diluted earnings per common share:          |  | $ | 830,966   |  | 1,108,353 |  | $ | .75 
|                                            |  |   |           |  |           |  |   |     
|For the year ended December 31, 2002        |  |   |           |  |           |  |   |     
|Net Income available to common stockholders |  | $ | 742,131   |  | 1,035,783 |  |   |     
|                                            |  |   |           |  |           |  |   |     
|Add: Contracts to issue common stock        |  |   |           |  |           |  |   |     
|Warrant - expires 01/27/07                  |  |   |           |  | 1,016     |  |   |     
|Options - expire 12/31/05 - 01/01/12        |  |   |           |  | 59,048    |  |   |     
|                                            |  |   |           |  |           |  |   |     
|Weighted-average dilutive shares            |  |   |           |  | 60,064    |  |   |     
|                                            |  |   |           |  |           |  |   |     
|Diluted earnings per common share:          |  | $ | 742,131   |  | 1,095,847 |  | $ | .68 
|                                            |  |   |           |  |           |  |   |     
|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 01/27/07                  |  |   |           |  | 537       |  |   |     
|Options - expire 12/31/05 - 01/01/11        |  |   |           |  | 21,790    |  |   |     
|                                            |  |   |           |  |           |  |   |     
|Weighted-average dilutive shares            |  |   |           |  | 22,327    |  |   |     
|                                            |  |   |           |  |           |  |   |     
|Diluted earnings per common share:          |  | $ | 1,964,357 |  | 1,032,668 |  | $ | 1.90
|                                            |  |   |           |  |           |  |   |     





24



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 20. 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, 2003 and 2002. The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.



|                                |  |            |             |            |   |             |  |            |            |  |   |           
|------------------------------- |  | ---------- | ----------- | ---------- | - | ----------- |  | ---------- | ---------- |  | - | ----------
|                                |  | 2003       |             | 2002      
|                                |  | Book Value |             | Fair Value |   | Book Value  |  | Fair Value
|Financial Assets:               |  |            |             |            |   |             |  |            |            |  |   |           
|Cash and short-term investments |  | $          | 10,509,000  |            | $ | 10,509,000  |  | $          | 14,042,000 |  | $ | 14,042,000
|Investment securities           |  |            | 31,002,000  |            |   | 30,984,000  |  |            | 16,416,000 |  |   | 16,422,000
|Net loans                       |  |            | 97,598,000  |            |   | 101,092,247 |  |            | 74,966,000 |  |   | 78,784,000
|Financial Liabilities:          |  |            |             |            |   |             |  |            |            |  |   |           
|Deposits                        |  |            | 125,232,000 |            |   | 125,631,000 |  |            | 91,483,000 |  |   | 92,256,000
|Short-term borrowings           |  |            | 1,000,000   |            |   | 1,000,000   |  |            | 1,014,000  |  |   | 1,024,000 
|Long-term debt                  |  |            | 3,780,000   |            |   | 3,903,000   |  |            | 4,780,000  |  |   | 4,961,000 



SFAS 107 excludes
certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amount presented should not be interpreted as representing the underlying value of the Company.



25



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 21. Parent Company Financial Statements



Condensed financial statements of the parent company, United Financial Banking Companies, Inc. as of December 31, 2003 and
2002, and for the years ended December 31, 2003, 2002 and 2001, follow:



BALANCE SHEETS

December 31, 2003 and 2002



|                                           |  |      |            |      |   |           
|------------------------------------------ |  | ---- | ---------- | ---- | - | ----------
|                                           |  | 2003 |            | 2002
|ASSETS                                     |  |      |            |      |   |           
|Cash on deposit with subsidiary bank       |  | $    | 264,969    |      | $ | 273,913   
|Investment in The Business Bank            |  |      | 10,238,954 |      |   | 9,451,676 
|Investments in other subsidiaries          |  |      | 1,146,874  |      |   | 1,088,446 
|Other assets                               |  |      | 805,819    |      |   | 814,928   
|                                           |  |      |            |      |   |           
|Total assets                               |  | $    | 12,456,616 |      | $ | 11,628,963
|                                           |  |      |            |      |   |           
|LIABILITIES AND STOCKHOLDERS EQUITY       |  |      |            |      |   |           
|LIABILITIES                                |  |      |            |      |   |           
|Other liabilities                          |  | $    | 51,559     |      | $ | 46,085    
|                                           |  |      |            |      |   |           
|Total liabilities                          |  |      | 51,559     |      |   | 46,085    
|                                           |  |      |            |      |   |           
|STOCKHOLDERS EQUITY                       |  |      | 12,405,057 |      |   | 11,582,878
|                                           |  |      |            |      |   |           
|Total liabilities and stockholders equity |  | $    | 12,456,616 |      | $ | 11,628,963
|                                           |  |      |            |      |   |           



STATEMENTS OF INCOME

Years Ended December 31, 2003, 2002 and 2001



|                                           |  |      |         |   |      |   |         |      |  |   |           |  
|------------------------------------------ |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | --------- | -
|                                           |  | 2003 |         |   | 2002 |   |         | 2001 | 
|Income:                                    |  |      |         |   |      |   |         |      |  |   |           |  
|Interest                                   |  | $    | 2,086   |   |      | $ | 3,922   |      |  | $ | 2,903     |  
|Other                                      |  |      | 98,736  |   |      |   | 91,368  |      |  |   | 90,000    |  
|                                           |  |      |         |   |      |   |         |      |  |   |           |  
|Total income                               |  |      | 100,822 |   |      |   | 95,290  |      |  |   | 92,903    |  
|Expenses                                   |  |      | 148,678 |   |      |   | 133,307 |      |  |   | 88,775    |  
|                                           |  |      |         |   |      |   |         |      |  |   |           |  
|                                           |  |      | (47,856 | ) |      |   | (38,017 | )    |  |   | 4,128     |  
|Undistributed net earnings of subsidiaries |  |      | 869,282 |   |      |   | 771,265 |      |  |   | 1,539,428 |  
|                                           |  |      |         |   |      |   |         |      |  |   |           |  
|Income before income taxes                 |  |      | 821,426 |   |      |   | 733,248 |      |  |   | 1,543,556 |  
|Federal income tax expense (benefit)       |  |      | (9,540  | ) |      |   | (8,883  | )    |  |   | (420,801  | )
|                                           |  |      |         |   |      |   |         |      |  |   |           |  
|Net income                                 |  | $    | 830,966 |   |      | $ | 742,131 |      |  | $ | 1,964,357 |  
|                                           |  |      |         |   |      |   |         |      |  |   |           |  



COMPREHENSIVE INCOME



Years Ended December 31, 2003, 2002 and 2001



|                                                           |  |      |         |   |      |   |         |  |   |          
|---------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- |  | - | ---------
|                                                           |  | 2003 |         |   | 2002 |   | 2001   
|Net income                                                 |  | $    | 830,966 |   |      | $ | 742,131 |  | $ | 1,964,357
|Other comprehensive income, net of tax                     |  |      |         |   |      |   |         |  |   |          
|Unrealized gains (losses) on available-for-sale securities |  |      | (23,577 | ) |      |   | 9,246   |  |   | 48,136   
|                                                           |  |      |         |   |      |   |         |  |   |          
|Comprehensive income                                       |  | $    | 807,389 |   |      | $ | 751,377 |  | $ | 2,012,493
|                                                           |  |      |         |   |      |   |         |  |   |          



26



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 21. Parent Company Financial Statements (continued)



STATEMENTS OF CASH FLOWS

Years Ended December 31, 2003, 2002 and 2001



|                                                                                                             |  |      |          |   |      |   |          |      |  |   |            |  
|------------------------------------------------------------------------------------------------------------ |  | ---- | -------- | - | ---- | - | -------- | ---- |  | - | ---------- | -
|                                                                                                             |  | 2003 |          |   | 2002 |   |          | 2001 | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                        |  |      |          |   |      |   |          |      |  |   |            |  
|Net income                                                                                                   |  | $    | 830,966  |   |      | $ | 742,131  |      |  | $ | 1,964,357  |  
|Adjustments to reconcile net income to net cash used in operating activities:                                |  |      |          |   |      |   |          |      |  |   |            |  
|Undistributed earnings of:                                                                                   |  |      |          |   |      |   |          |      |  |   |            |  
|The Business Bank                                                                                            |  |      | (810,854 | ) |      |   | (684,963 | )    |  |   | (1,333,170 | )
|Other subsidiaries                                                                                           |  |      | (58,427  | ) |      |   | (86,302  | )    |  |   | (206,258   | )
|Increase in other assets                                                                                     |  |      | (9,107   | ) |      |   | (26,045  | )    |  |   | (439,601   | )
|Increase (decrease) in other liabilities                                                                     |  |      | 5,474    |   |      |   | 11,533   |      |  |   | (20,701    | )
|                                                                                                             |  |      |          |   |      |   |          |      |  |   |            |  
|Net cash used in operating activities                                                                        |  |      | (23,734  | ) |      |   | (43,646  | )    |  |   | (35,373    | )
|                                                                                                             |  |      |          |   |      |   |          |      |  |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                         |  |      |          |   |      |   |          |      |  |   |            |  
|Investment in subsidiaries                                                                                   |  |      |         |   |      |   | (50,000  | )    |  |   |           |  
|                                                                                                             |  |      |          |   |      |   |          |      |  |   |            |  
|Net cash used in investing activities                                                                        |  |      |         |   |      |   | (50,000  | )    |  |   |           |  
|                                                                                                             |  |      |          |   |      |   |          |      |  |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                         |  |      |          |   |      |   |          |      |  |   |            |  
|Proceeds from issuance of common stock                                                                       |  |      | 14,790   |   |      |   | 13,100   |      |  |   | 255,125    |  
|                                                                                                             |  |      |          |   |      |   |          |      |  |   |            |  
|Net cash provided by financing activities                                                                    |  |      | 14,790   |   |      |   | 13,100   |      |  |   | 255,125    |  
|                                                                                                             |  |      |          |   |      |   |          |      |  |   |            |  
|Net increase (decrease) in cash and cash equivalents                                                         |  |      | (8,944   | ) |      |   | (80,546  | )    |  |   | 219,752    |  
|Cash and cash equivalents at beginning of year                                                               |  |      | 273,913  |   |      |   | 354,459  |      |  |   | 134,707    |  
|                                                                                                             |  |      |          |   |      |   |          |      |  |   |            |  
|Cash and cash equivalents at end of year                                                                     |  | $    | 264,969  |   |      | $ | 273,913  |      |  | $ | 354,459    |  
|                                                                                                             |  |      |          |   |      |   |          |      |  |   |            |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                                            |  |      |          |   |      |   |          |      |  |   |            |  
|Cash paid during the years for:                                                                              |  |      |          |   |      |   |          |      |  |   |            |  
|Income taxes                                                                                                 |  | $    |         |   |      | $ | 18,514   |      |  | $ | 37,606     |  
|                                                                                                             |  |      |          |   |      |   |          |      |  |   |            |  
|NONCASH ITEMS                                                                                                |  |      |          |   |      |   |          |      |  |   |            |  
|Effect on stockholders equity of an unrealized gain (loss) on debt and equity securities available-for-sale |  | $    | (23,577  | ) |      | $ | 9,246    |      |  | $ | 48,136     |  
|                                                                                                             |  |      |          |   |      |   |          |      |  |   |            |  



27



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UNITED FINANCIAL BANKING COMPANIES, INC.



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



|                                                     |  |      |             |   |      |   |             |      |  |   |            |   |  |      |            |   |  |   |            |  
|---------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | ---------- | - |  | ---- | ---------- | - |  | - | ---------- | -
|Year Ended December 31,                              |  | 2003 |             |   | 2002 |   |             | 2001 |  |   | 2000       |   |  | 1999 |           
|Results of operations:                               |  |      |             |   |      |   |             |      |  |   |            |   |  |      |            |   |  |   |            |  
|Total interest income                                |  | $    | 6,600,537   |   |      | $ | 5,726,339   |      |  | $ | 5,787,108  |   |  | $    | 5,334,317  |   |  | $ | 3,977,200  |  
|Total interest expense                               |  |      | 1,902,195   |   |      |   | 1,797,747   |      |  |   | 2,153,542  |   |  |      | 1,934,307  |   |  |   | 1,587,216  |  
|                                                     |  |      |             |   |      |   |             |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net interest income                                  |  |      | 4,698,342   |   |      |   | 3,928,592   |      |  |   | 3,633,566  |   |  |      | 3,400,010  |   |  |   | 2,389,984  |  
|Provision for loan losses                            |  |      | 280,000     |   |      |   | 219,300     |      |  |   | 154,448    |   |  |      | 340,117    |   |  |   | 79,866     |  
|                                                     |  |      |             |   |      |   |             |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net interest income after provision for loan losses  |  |      | 4,418,342   |   |      |   | 3,709,292   |      |  |   | 3,479,118  |   |  |      | 3,059,893  |   |  |   | 2,310,118  |  
|Other income                                         |  |      | 635,429     |   |      |   | 518,552     |      |  |   | 344,320    |   |  |      | 263,442    |   |  |   | 291,301    |  
|Other expenses                                       |  |      | 3,787,816   |   |      |   | 3,096,665   |      |  |   | 2,675,499  |   |  |      | 2,492,517  |   |  |   | 2,261,310  |  
|                                                     |  |      |             |   |      |   |             |      |  |   |            |   |  |      |            |   |  |   |            |  
|Income before income taxes                           |  |      | 1,265,955   |   |      |   | 1,131,179   |      |  |   | 1,147,939  |   |  |      | 830,818    |   |  |   | 340,109    |  
|Income tax expense (benefit)                         |  |      | 434,989     |   |      |   | 389,048     |      |  |   | (816,418   | ) |  |      | (389,000   | ) |  |   | (510,004   | )
|                                                     |  |      |             |   |      |   |             |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net income                                           |  | $    | 830,966     |   |      | $ | 742,131     |      |  | $ | 1,964,357  |   |  | $    | 1,219,818  |   |  | $ | 850,113    |  
|                                                     |  |      |             |   |      |   |             |      |  |   |            |   |  |      |            |   |  |   |            |  
|Earnings per share:                                  |  |      |             |   |      |   |             |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net income                                           |  |      | 830,966     |   |      |   | 742,131     |      |  |   | 1,964,357  |   |  |      | 1,219,818  |   |  |   | 850,113    |  
|Less: preferred stock dividends                      |  |      |            |   |      |   |            |      |  |   |           |   |  |      |           |   |  |   |           |  
|                                                     |  |      |             |   |      |   |             |      |  |   |            |   |  |      |            |   |  |   |            |  
|Income available to common stockholders              |  |      | 830,966     |   |      |   | 742,131     |      |  |   | 1,964,357  |   |  |      | 1,219,818  |   |  |   | 850,113    |  
|Basic earnings per common share                      |  |      | 0.80        |   |      |   | 0.72        |      |  |   | 1.94       |   |  |      | 1.22       |   |  |   | 1.00       |  
|Diluted earnings per common share:                   |  |      | 0.75        |   |      |   | 0.68        |      |  |   | 1.90       |   |  |      | 1.21       |   |  |   | 0.99       |  
|                                                     |  |      |             |   |     
|Average weighted shares outstanding:                 |  |      |             |   |      |   |             |      |  |   |            |   |  |      |            |   |  |   |            |  
|Basic                                                |  |      | 1,037,135   |   |      |   | 1,035,783   |      |  |   | 1,010,341  |   |  |      | 996,481    |   |  |   | 847,805    |  
|Dilutive                                             |  |      | 1,108,353   |   |      |   | 1,095,847   |      |  |   | 1,032,668  |   |  |      | 1,005,667  |   |  |   | 861,094    |  
|                                                     |  |      |             |   |     
|Period-ending balances:                              |  |      |             |   |      |   |             |      |  |   |            |   |  |      |            |   |  |   |            |  
|                                                     |  |      |             |   |     
|Total loans                                          |  |      | 99,114,122  |   |      |   | 76,217,605  |      |  |   | 58,535,131 |   |  |      | 55,701,135 |   |  |   | 40,652,769 |  
|Total assets                                         |  |      | 142,930,326 |   |      |   | 109,344,267 |      |  |   | 85,529,236 |   |  |      | 71,854,113 |   |  |   | 56,455,892 |  
|Total deposits                                       |  |      | 125,231,830 |   |      |   | 91,483,191  |      |  |   | 71,690,272 |   |  |      | 60,642,408 |   |  |   | 49,191,302 |  
|Stockholders equity                                 |  |      | 12,405,057  |   |      |   | 11,582,878  |      |  |   | 10,818,401 |   |  |      | 8,550,783  |   |  |   | 6,928,065  |  
|                                                     |  |      |             |   |     
|Selected ratios:                                     |  |      |             |   |      |   |             |      |  |   |            |   |  |      |            |   |  |   |            |  
|                                                     |  |      |             |   |     
|Return on average total assets                       |  |      | 0.64        | % |      |   | 0.81        | %    |  |   | 2.55       | % |  |      | 1.86       | % |  |   | 1.59       | %
|                                                     |  |      |             |   |     
|Return on average earning assets                     |  |      | 0.68        | % |      |   | 0.87        | %    |  |   | 2.71       | % |  |      | 1.98       | % |  |   | 1.71       | %
|                                                     |  |      |             |   |     
|Return on average stockholders equity               |  |      | 7.00        | % |      |   | 6.63        | %    |  |   | 21.20      | % |  |      | 16.09      | % |  |   | 16.14      | %
|                                                     |  |      |             |   |     
|Average stockholders equity to average total assets |  |      | 9.17        | % |      |   | 12.21       | %    |  |   | 12.02      | % |  |      | 11.55      | % |  |   | 9.87       | %



28



---

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) and United Facilities LLC (UFLLC). Collectively, UFBC, the Bank, BVCI and UFLLC are referred to as the Company. The
following commentary provides an overview of the consolidated financial condition and results of operations 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 $830,966 for the year ended
December 31, 2003, compared with net income of $724,131 for the year ended December 31, 2002. Basic earnings per share were $.80 for the year 2003, compared to $.72 basic earnings per share for 2002. Net income increased $88,835 or 11.9% from 2002.
An increased volume of earning assets primarily accounted for the increase. For the year ended December 31, 2003, average total earning assets increased $37,312,298 or 43.6% when compared to 2002 (Consolidated Average Balances, Table 2).
Earnings from the increased earning assets were off-set by increased expenses associated with opening a third Bank branch and the de novo status of a second Bank branch.



The Company reported net income of $742,131 for the year ended December 31, 2002, compared with net income of $1,964,357 for
the year ended December 31, 2001. Basic earnings per share were $.72 for the year 2002, compared to $1.94 basic earnings per share for 2001. Net income declined $1,222,226 from 2001. The difference in the net provision for federal income tax
accounted for 98.6% of the decline in net income, when comparing December 31, 2002 and 2001. Beginning January 1, 2002, the Company began to accrue tax expense as the balance of the Companys deferred tax assets was recorded in 2001. Net income
for 2001 was significantly impacted by the beneficial recognition of the Companys deferred income taxes. The deferred income tax benefit represented 42.4% of net income for the year ended December 31, 2001. Income before income taxes decreased
$16,760, or 1.5%, from $1,147,939 at December 31, 2002 to $1,131,179 at December 31, 2001. The pre-tax decline was attributable to the depressed interest rate environment and costs associated with opening a second Bank branch.



29



---

UNITED FINANCIAL BANKING COMPANIES, INC.



TABLE 2

CONSOLIDATED AVERAGE BALANCES/NET INTEREST ANALYSIS/YIELDS AND RATES



|                                           |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|------------------------------------------ |  | ----------------- | ----------- | - | ----------------- | - | ---------- | ----------------- | ---- | -------------- |  | - | ---------- | - | ---------- | - | --------- | -------------- | ---- | - | -------- | - | ---------- | - |  | - | --------- |  | ---- | -
|For the Year Ended                         |  | December 31, 2003 |             |   | December 31, 2002 |   |            | December 31, 2001 |     
|                                           |  | AverageBalance    |             |   | Interest          |   | Yield/Rate |                   |      | AverageBalance |  |   | Interest   |   | Yield/Rate |   |           | AverageBalance |      |   | Interest |   | Yield/Rate |  
|ASSETS                                     |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|Earning assets:                            |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|Loans:                                     |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|Commercial                                 |  | $                 | 63,052,458  |   |                   | $ | 4,623,196  |                   | 7.33 | %              |  | $ | 48,843,393 |   |            | $ | 3,749,348 |                | 7.68 | % |          | $ | 39,228,583 |   |  | $ | 3,461,314 |  | 8.82 | %
|Real estate construction                   |  |                   | 9,888,936   |   |                   |   | 792,988    |                   | 8.02 | %              |  |   | 9,212,255  |   |            |   | 792,550   |                | 8.60 | % |          |   | 9,619,817  |   |  |   | 953,766   |  | 9.91 | %
|Real estate mortgage                       |  |                   | 6,964,942   |   |                   |   | 456,950    |                   | 6.56 | %              |  |   | 4,083,186  |   |            |   | 321,041   |                | 7.86 | % |          |   | 5,770,152  |   |  |   | 491,528   |  | 8.52 | %
|Installment                                |  |                   | 5,220,415   |   |                   |   | 219,569    |                   | 4.21 | %              |  |   | 5,102,071  |   |            |   | 410,300   |                | 8.04 | % |          |   | 3,228,198  |   |  |   | 207,075   |  | 6.41 | %
|                                           |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|Total loans                                |  |                   | 85,126,751  |   |                   |   | 6,092,703  |                   | 7.16 | %              |  |   | 67,240,905 |   |            |   | 5,273,239 |                | 7.84 | % |          |   | 57,846,750 |   |  |   | 5,113,683 |  | 8.84 | %
|                                           |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|Interest-bearing deposits                  |  |                   | 1,761,214   |   |                   |   | 16,616     |                   | 0.94 | %              |  |   | 730,857    |   |            |   | 12,203    |                | 1.67 | % |          |   | 110,363    |   |  |   | 4,036     |  | 3.66 | %
|Federal funds sold                         |  |                   | 25,688,568  |   |                   |   | 278,966    |                   | 1.09 | %              |  |   | 12,243,460 |   |            |   | 194,665   |                | 1.59 | % |          |   | 7,232,408  |   |  |   | 231,383   |  | 3.20 | %
|Investment securities                      |  |                   | 10,362,012  |   |                   |   | 212,252    |                   | 2.05 | %              |  |   | 5,411,025  |   |            |   | 246,232   |                | 4.55 | % |          |   | 7,397,208  |   |  |   | 438,006   |  | 5.92 | %
|                                           |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|Total earning assets                       |  |                   | 122,938,545 |   |                   |   | 6,600,537  |                   | 5.37 | %              |  |   | 85,626,247 |   |            |   | 5,726,339 |                | 6.69 | % |          |   | 72,586,729 |   |  |   | 5,787,108 |  | 7.97 | %
|                                           |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|Noninterest-earning assets                 |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|Cash and due from banks                    |  |                   | 4,337,446   |   |                   |   |            |                   |      |                |  |   | 3,403,982  |   |            |   |           |                |      |   |          |   | 2,766,725  |   |  |   |           |  |      |  
|Other assets                               |  |                   | 3,652,714   |   |                   |   |            |                   |      |                |  |   | 3,867,700  |   |            |   |           |                |      |   |          |   | 2,745,895  |   |  |   |           |  |      |  
|Allowance for loan losses                  |  |                   | (1,457,294  | ) |                   |   |            |                   |      |                |  |   | (1,185,948 | ) |            |   |           |                |      |   |          |   | (1,021,066 | ) |  |   |           |  |      |  
|                                           |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|Total assets                               |  | $                 | 129,471,411 |   |                   |   |            |                   |      |                |  | $ | 91,711,981 |   |            |   |           |                |      |   |          | $ | 77,078,283 |   |  |   |           |  |      |  
|                                           |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|LIABILITIES AND STOCKHOLDERS EQUITY       |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|Interest-bearing liabilities:              |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|Interest-bearing deposits:                 |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|Savings and NOW accounts                   |  |                   | 29,114,312  |   |                   |   | 499,028    |                   | 1.71 | %              |  |   | 15,911,801 |   |            |   | 393,736   |                | 2.47 | % |          |   | 6,229,714  |   |  |   | 153,170   |  | 2.46 | %
|Money market accounts                      |  |                   | 16,620,842  |   |                   |   | 160,081    |                   | 0.96 | %              |  |   | 12,370,980 |   |            |   | 192,968   |                | 1.56 | % |          |   | 14,534,980 |   |  |   | 408,297   |  | 2.81 | %
|Time:                                      |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|Under $100,000                             |  |                   | 19,202,705  |   |                   |   | 591,620    |                   | 3.08 | %              |  |   | 16,635,973 |   |            |   | 635,703   |                | 3.82 | % |          |   | 15,821,546 |   |  |   | 868,855   |  | 5.49 | %
|$100,000 and over                          |  |                   | 15,764,091  |   |                   |   | 414,106    |                   | 2.63 | %              |  |   | 11,687,340 |   |            |   | 433,119   |                | 3.71 | % |          |   | 10,987,933 |   |  |   | 583,455   |  | 5.31 | %
|                                           |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|Total interest-bearing deposits            |  |                   | 80,701,950  |   |                   |   | 1,664,835  |                   | 2.06 | %              |  |   | 56,606,094 |   |            |   | 1,655,526 |                | 2.92 | % |          |   | 47,574,173 |   |  |   | 2,013,777 |  | 4.23 | %
|Short-term borrowings                      |  |                   | 1,531,821   |   |                   |   | 45,152     |                   | 2.95 | %              |  |   | 303,014    |   |            |   | 14,316    |                | 4.72 | % |          |   | 2,610,205  |   |  |   | 139,765   |  | 5.35 | %
|Long-term debt                             |  |                   | 4,171,226   |   |                   |   | 192,208    |                   | 4.61 | %              |  |   | 3,061,582  |   |            |   | 127,905   |                | 4.18 | % |          |   |           |   |  |   |          |  | 0.00 | %
|                                           |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|Total interest-bearing liabilities         |  |                   | 86,404,997  |   |                   |   | 1,902,195  |                   | 2.20 | %              |  |   | 59,970,690 |   |            |   | 1,797,747 |                | 3.00 | % |          |   | 50,184,378 |   |  |   | 2,153,542 |  | 4.29 | %
|                                           |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|Noninterest-bearing liabilities:           |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|Demand deposits                            |  |                   | 30,594,263  |   |                   |   |            |                   |      |                |  |   | 19,451,361 |   |            |   |           |                |      |   |          |   | 17,080,710 |   |  |   |           |  |      |  
|Other liabilities                          |  |                   | 593,187     |   |                   |   |            |                   |      |                |  |   | 1,096,052  |   |            |   |           |                |      |   |          |   | 545,462    |   |  |   |           |  |      |  
|Stockholders equity                       |  |                   | 11,878,964  |   |                   |   |            |                   |      |                |  |   | 11,193,878 |   |            |   |           |                |      |   |          |   | 9,267,733  |   |  |   |           |  |      |  
|                                           |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|Total liabilities and stockholders equity |  | $                 | 129,471,411 |   |                   |   |            |                   |      |                |  | $ | 91,711,981 |   |            |   |           |                |      |   |          | $ | 77,078,283 |   |  |   |           |  |      |  
|                                           |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|Net interest income                        |  |                   |             |   |                   | $ | 4,698,342  |                   |      |                |  |   |            |   |            | $ | 3,928,592 |                |      |   |          |   |            |   |  | $ | 3,633,566 |  |      |  
|                                           |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|Net interest margin (1)                    |  |                   |             |   |                   |   |            |                   | 3.82 | %              |  |   |            |   |            |   |           |                | 4.59 | % |          |   |            |   |  |   |           |  | 5.01 | %
|                                           |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|Net interest spread (2)                    |  |                   |             |   |                   |   |            |                   | 3.17 | %              |  |   |            |   |            |   |           |                | 3.69 | % |          |   |            |   |  |   |           |  | 3.68 | %
|                                           |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|Fees included in loan income               |  |                   |             |   |                   | $ | 281,854    |                   |      |                |  |   |            |   |            | $ | 196,520   |                |      |   |          |   |            |   |  | $ | 200,928   |  |      |  
|                                           |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  
|Taxable equivalent adjustment              |  |                   |             |   |                   | $ |           |                   |      |                |  |   |            |   |            | $ |          |                |      |   |          |   |            |   |  | $ |          |  |      |  
|                                           |  |                   |             |   |                   |   |            |                   |      |                |  |   |            |   |            |   |           |                |      |   |          |   |            |   |  |   |           |  |      |  

---

Average balances for
the years presented are calculated on a monthly basis. Nonaccruing loans are included in the average loan balance.

|(1) |  | Net interest income divided by total earning assets.
|--- |  | ----------------------------------------------------

|(2) |  | Average rate earned on total earning assets less average rate paid for interest-bearing liabilities.
|--- |  | ----------------------------------------------------------------------------------------------------



30



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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 assets exceeds interest paid on interest-bearing liabilities.



Comparison of 2003 to 2002



Net interest income increased $796,750, or 19.6%, from $3,928,592 at December 31, 2002 to $4,698,342 at December 31, 2003, as a result of an increased
volume of earning assets. Average total earning assets increased $37,312,298 or 43.6% from $85,626,247 at December 31, 2002 to $122,938,545 at December 31, 2003 (Consolidated Average Balances, Table 2). Contributing $819,463 of earnings, the
increased volume of the loan portfolio predominately accounted for the rise in net interest income. Rates continued to impact earnings during 2003. As shown in Table 3, Analysis of the Changes in the Components of Net Interest Income, rates
decreased loan income by $565,573 and total interest income by $967,111.



Total interest expense increased $104,448 for the year ended December 31, 2003, compared to the year ended December 31, 2002. As shown in Table 3, Analysis of the Changes in the Components of Net Interest
Income, the compressed rate environment during 2003 favorably impacted total interest expense and mitigated its increase due to the increased volume of interest-bearing liabilities. During 2003, total interest expense increased $746,561 due to
volume while rates decreased total interest expense by $660,057. Average total interest-bearing liabilities increased $26,434,307, or 44.1%, from $59,970,690 at December 31, 2002 to $86,404,997 at December 31, 2003 (Consolidated Average
Balances, Table 2). The Banks deposit mix also contributed to the constrained interest expense and net interest income during 2003. As shown in the Consolidated Average Balances table, average demand deposits increased $11,142,902,
or 57.3%, from $19,451,361 at December 31, 2002 to $30,594,263 at December 31, 2003.



The suppressed rate environment of 2003 significantly influenced net interest income. Company earnings are primarily derived from the core operation of lending. The suppressed prime rate notably impacts the
Banks earnings as approximately one half of the Banks loan portfolio is tied to prime repricing. The yield on total loans dropped 68 basis points from 7.84% at December 31, 2002 to 7.16% at December 31, 2003. The rate environment also
negatively impacted short-term investments, federal funds sold and investment securities. The effective duration of the Banks investment securities portfolio is less than one year. During 2003, the yield on federal funds decreased 50 basis
points and the yield on investment securities decreased 250 basis points (Consolidated Average Balances, Table 2).



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, 2003, the Company had a net interest margin of 3.82% and the Bank had a net interest margin of 3.91%.



31



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UNITED FINANCIAL BANKING COMPANIES, INC.



Comparison of 2002 to 2001



Net interest income increased $295,026 or 8.1% from $3,633,566 at December 31, 2001 to $3,928,592 at December 31, 2002 as a
result of increased loan volume and decreased rates on interest-bearing liabilities. Total interest income decreased $60,769 for the year ended December 31, 2002, compared to the year ended December 31, 2001; however, as shown in Table 3,
Analysis of the Changes in the Components of Net Interest Income, the increased volume of earning assets mitigated the 2002 loss due to changes in rates. During 2002, total interest income increased $849,848 due to volume, while changes in
rates decreased total interest income by $910,617. Average total earning assets increased $13,039,518, or 17.7%, from $72,586,729 at December 31, 2001 to $85,626,247 at December 31, 2002 (Consolidated Average Balances, Table 2).



Total interest expense decreased $355,795 for the year ended December 31,
2002, compared to the year ended December 31, 2001. As shown in Table 3, Analysis of the Changes in the Components of Net Interest Income, decreased rates during 2002 significantly contributed to decreased interest expense at December 31,
2002 compared to December 31, 2001. During 2002, total interest expense increased $263,494 due to volume while changes in rates decreased total interest expense by $619,289.



The suppressed rate environment of 2002 significantly influenced net interest income. Company earnings are primarily derived
from the core operation of lending. The suppressed prime rate notably impacts the Banks earnings as approximately one half of the Banks loan portfolio is tied to prime repricing. The yield on total loans dropped 100 basis points from
8.84% at December 31, 2001 to 7.84% at December 31, 2002. The rate environment also negatively impacted short-term investments, federal funds sold and investment securities. The effective duration of the Banks investment securities portfolio
is less than one year. During 2002, the yield on federal funds decreased 161 basis points and the yield on investment securities decreased 131 basis points (Consolidated Average Balances, Table 2).



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, 2002, the Company had a net interest margin of 4.59% and the Bank had a net interest
margin of 4.50%.



32



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UNITED FINANCIAL BANKING COMPANIES, INC.



CHANGE IN NET INTEREST INCOME (RATE/VOLUME VARIANCE)



The analysis of the changes for the components of net interest income
presented in Table 3 shows the direct causes of the changes in net interest earnings from year to year on a tax equivalent basis. It is computed as prescribed by the Securities and Exchange Commission. UFBCs net yield on earning assets,
interest income and expense is affected by fluctuating interest rates, volumes of and changes in the mix between earning assets and interest-bearing liabilities, and the interaction between these factors.



TABLE 3



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



|                                |  |                          |          |                       |                |        |                          |   |      |                |           |        |   |          |   |  |   |          |   |  |   |          |  
|------------------------------- |  | ------------------------ | -------- | --------------------- | -------------- | ------ | ------------------------ | - | ---- | -------------- | --------- | ------ | - | -------- | - |  | - | -------- | - |  | - | -------- | -
|For the Year Ended December 31, |  | 2003 Compared to 2002    |          | 2002 Compared to 2001 |               
|                                |  | TotalIncrease (Decrease) |          |                       | Change Due To: |        | TotalIncrease (Decrease) |   |      | Change Due To: |          
|                                |  |                          | Rate     |                       |                | Volume |                          |   | Rate |                |           | Volume |  
|Interest income:                |  |                          |          |                       |                |        |                          |   |      |                |           |        |   |          |   |  |   |          |   |  |   |          |  
|Loans & lease financing:        |  |                          |          |                       |                |        |                          |   |      |                |           |        |   |          |   |  |   |          |   |  |   |          |  
|Commercial                      |  | $                        | 873,848  |                       |                | $      | (216,877                 | ) |      | $              | 1,090,725 |        | $ | 288,034  |   |  | $ | (560,324 | ) |  | $ | 848,358  |  
|Real estate - construction      |  |                          | 438      |                       |                |        | (57,778                  | ) |      |                | 58,216    |        |   | (161,216 | ) |  |   | (120,808 | ) |  |   | (40,408  | )
|Real estate - mortgage          |  |                          | 135,909  |                       |                |        | (90,669                  | ) |      |                | 226,578   |        |   | (170,487 | ) |  |   | (26,784  | ) |  |   | (143,703 | )
|Installment                     |  |                          | (190,731 | )                     |                |        | (200,248                 | ) |      |                | 9,517     |        |   | 203,225  |   |  |   | 83,024   |   |  |   | 120,201  |  
|                                |  |                          |          |                       |                |        |                          |   |      |                |           |        |   |          |   |  |   |          |   |  |   |          |  
|Total loans/leases              |  |                          | 819,464  |                       |                |        | (565,573                 | ) |      |                | 1,385,037 |        |   | 159,556  |   |  |   | (624,891 | ) |  |   | 784,447  |  
|Interest-bearing deposits       |  |                          | 4,413    |                       |                |        | (12,791                  | ) |      |                | 17,204    |        |   | 8,167    |   |  |   | (14,525  | ) |  |   | 22,692   |  
|Federal funds sold              |  |                          | 84,301   |                       |                |        | (129,470                 | ) |      |                | 213,771   |        |   | (36,718  | ) |  |   | (197,034 | ) |  |   | 160,316  |  
|Investment securities           |  |                          | (33,980  | )                     |                |        | (259,278                 | ) |      |                | 225,298   |        |   | (191,774 | ) |  |   | (74,167  | ) |  |   | (117,607 | )
|                                |  |                          |          |                       |                |        |                          |   |      |                |           |        |   |          |   |  |   |          |   |  |   |          |  
|Total interest income           |  |                          | 874,198  |                       |                |        | (967,111                 | ) |      |                | 1,841,309 |        |   | (60,769  | ) |  |   | (910,617 | ) |  |   | 849,848  |  
|                                |  |                          |          |                       |                |        |                          |   |      |                |           |        |   |          |   |  |   |          |   |  |   |          |  
|Interest expense:               |  |                          |          |                       |                |        |                          |   |      |                |           |        |   |          |   |  |   |          |   |  |   |          |  
|Savings and NOW accounts        |  |                          | 105,292  |                       |                |        | (221,403                 | ) |      |                | 326,695   |        |   | 240,566  |   |  |   | 2,512    |   |  |   | 238,054  |  
|Money markets accounts          |  |                          | (32,887  | )                     |                |        | (99,178                  | ) |      |                | 66,291    |        |   | (215,329 | ) |  |   | (154,541 | ) |  |   | (60,788  | )
|Time:                           |  |                          |          |                       |                |        |                          |   |      |                |           |        |   |          |   |  |   |          |   |  |   |          |  
|Under $100,000                  |  |                          | (44,083  | )                     |                |        | (142,164                 | ) |      |                | 98,081    |        |   | (233,152 | ) |  |   | (277,877 | ) |  |   | 44,725   |  
|$100,000 and over               |  |                          | (19,013  | )                     |                |        | (170,093                 | ) |      |                | 151,080   |        |   | (150,336 | ) |  |   | (187,474 | ) |  |   | 37,138   |  
|Short-term borrowings           |  |                          | 30,836   |                       |                |        | (27,219                  | ) |      |                | 58,055    |        |   | (125,449 | ) |  |   | (1,909   | ) |  |   | (123,540 | )
|Long-term debt                  |  |                          | 64,303   |                       |                |        |                         |   |      |                | 46,358    |        |   | 127,905  |   |  |   |         |   |  |   | 127,905  |  
|                                |  |                          |          |                       |                |        |                          |   |      |                |           |        |   |          |   |  |   |          |   |  |   |          |  
|Total interest expense          |  |                          | 104,448  |                       |                |        | (660,057                 | ) |      |                | 746,561   |        |   | (355,795 | ) |  |   | (619,289 | ) |  |   | 263,494  |  
|                                |  |                          |          |                       |                |        |                          |   |      |                |           |        |   |          |   |  |   |          |   |  |   |          |  
|Net interest income             |  | $                        | 769,750  |                       |                | $      | (307,054                 | ) |      | $              | 1,094,749 |        | $ | 295,026  |   |  | $ | (291,329 | ) |  | $ | 586,355  |  
|                                |  |                          |          |                       |                |        |                          |   |      |                |           |        |   |          |   |  |   |          |   |  |   |          |  





33



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UNITED FINANCIAL BANKING COMPANIES, INC.



PROVISION FOR LOAN LOSSES



The provision for loan losses is based upon managements estimate of the amount required to maintain an adequate
allowance for loan losses reflective of the risks in the loan portfolio. The Company and Bank generate a quarterly analysis of the allowance for loan losses, with the objective of quantifying portfolio risk into a dollar figure of inherent losses,
thereby translating the subjective risk value into an objective number. Emphasis is placed on an annual independent external loan review. The determination of the allowance for loan losses is based on qualitative factors as well as any specific
allowance for impaired loans. Qualitative factors include: levels and trends in delinquencies and nonaccruals, trends in volumes and terms of loans, effects of any changes in lending policies, the experience, ability and depth of management,
national and local economic trends and conditions, concentrations of credit, quality of the Companys and the Banks loan review system and regulatory requirements. The total allowance required changes as each factor is increased or
decreased due to its particular circumstance, as the various types and categories of loans change as a percentage of total loans and as specific allowances are required due to an increase in impaired loans. See Note 1 to the Consolidated Financial
Statements for more information regarding factors considered to determine an adequate allowance for loan loss.



Provision for loan loss expense increased $60,700, or 27.7%, from $219,300 at December 31, 2002 to $280,000 at December 31, 2003. For the year ended
December 31, 2003, charge-offs totaled $28,176 and recoveries totaled $12,287. For the year ended December 31, 2002, charge-offs totaled $29,645 and recoveries totaled $4,765. General risks inherent in all loan portfolios account for the variance
between the 2003 and 2002 provision for loan loss expense.



Provision for loan loss expense increased $64,852, or 41.9%, from $154,448 at December 31, 2001 to $219,300 at December 31, 2002. For the year ended December 31, 2002, charge-offs totaled $29,645 and recoveries totaled $4,765. For the year
ended December 31, 2001, charge-offs totaled $93,639 and recoveries totaled $23,078. General risks inherent in all loan portfolios account for the variance between the 2003 and 2002 provision for loan loss expense.



NONINTEREST INCOME



Total noninterest income increased $116,877, or 22.5%, at December 31, 2003
compared to December 31, 2002. The 2003 increase was primarily attributable to income earned on an increased volume of deposits and the resulting accounts. Average total deposits increased $35,238,758, or 46.3%, from $76,057,455 at December 31, 2002
to $111,296,213 at December 31, 2003 (Table 9, Deposits Balance and Rate).



Total noninterest income increased $174,232, or 50.6%, at year ended December 31, 2002 compared to year ended December 31, 2001. The 2002 increase was primarily attributable to income earned from the sales of real
estate owned. During the year ended 2002, BVCI had net gains of $121,419 on the sales of real estate owned versus $1,279 during 2001. Fee income of $57,284 from the BVCI subsidiary, United Title LLC, also contributed to noninterest income during the
year ended December 31, 2002. United Title LLC began operations in April 2002.



34



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UNITED FINANCIAL BANKING COMPANIES, INC.



NONINTEREST EXPENSE



Comparison of 2003 to 2002



Total noninterest expense increased $691,151, or 22.3%, during the year ended December 31, 2003 as compared to 2002. The 2003 increase was primarily
attributable to costs associated with growth. During 2003, Company assets grew $33,586,059, or 30.7%, from $109,344,267 at December 31, 2002 to $142,930,326 at December 31, 2003. Growth costs generally impact salary, benefits, occupancy, furniture
and equipment, communications, data processing, printing and supply expense.



Salaries and employee benefits increased $279,087, or 15.7%, from $1,780,313 at year ended December 31, 2002 to $2,059,400 at December 31, 2003. The increase was principally due to additional staff hired to facilitate
the Companys expansion of its lending operations and employees hired to staff the Vienna branch that opened during 2003.



Occupancy increased $148,943, or 37.4%, from $397,779 at year ended December 31, 2002 to $546,722 at December 31, 2003. An entire year of Reston branch
operations and the opening of the Vienna branch in September 2003 primarily account for the increase.



Furniture and equipment expense rose $81,551 or 58.7% during 2003. The rise was principally due to further renovation at the Reston branch and the build
out and furnishing of the Vienna branch. Also, in the fourth quarter of 2003, the Banks operations center was relocated to the Vienna branch. The associated costs also contributed to the increase.



Other expense rose $181,570, or 23.3%, from $779,591 at December 31, 2002 to
$961,161 at December 31, 2003. The increase was primarily attributable to expanded banking operations and growth. Costs such as data processing, communications, printing, supplies and franchise tax increased $71,288, or 20.3%, during 2003 compared
to 2002. Expense associated with the regulatory requirements and the rate environment also contributed to the increase. Costs such as accounting, subscriptions and banking fees increased $59,029, or 71.5%, during 2003 compared to 2002.



Comparison of 2002 to 2001



Total noninterest expense increased $421,166, or 15.7%, during the year
ended December 31, 2002 as compared to 2001. The 2002 increase was primarily attributable to costs associated with growth. During 2002, Company assets grew $23,815,031, or 27.8%, from $85,529,236 at December 31, 2001 to $109,344,267 at December 31,
2002. Growth costs generally impact salary, benefits, occupancy, furniture and equipment, communications, data processing, printing and supply expense. During 2002, the Company upgraded computer equipment and telephone lines that also contributed to
increased noninterest expense.



Salaries and employee benefits
increased $233,980, or 18.4%, from $1,507,863 at year ended December 31, 2001 to $1,780,313 at December 31, 2002. The increase was principally due to additional staff hired at the end of 2001 to facilitate the Companys expansion of its banking
operations, staff hired to initiate title operations during 2002, and employees hired to staff the Reston branch that opened during 2002. The Reston branch also primarily accounts for the $26,212, or 7.1%, increase in occupancy expense from $371,567
for the year ended December 31, 2001 to $397,779 at December 31, 2002.



Furniture and equipment expense increased $22,933, or 19.7%, during 2002. Equipment purchased to upgrade technology and furniture and equipment purchased for the Reston branch accounts for increased depreciation expense during 2002.



Other expense rose $99,571, or 14.7%, from $680,020 at year
ended December 31, 2001 to $779,591 at December 31, 2002. The increase was primarily attributable to expanded banking operations and growth. Costs such as data processing, communications, printing, supplies and franchise tax increased $64,364, or
22.4%, during 2002 compared to 2001.



35



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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 4
NONINTEREST EXPENSE



|                                         |  |      |           |             |      |   |             |      |  |   |                                |   |  |        |   |  |        |  
|---------------------------------------- |  | ---- | --------- | ----------- | ---- | - | ----------- | ---- |  | - | ------------------------------ | - |  | ------ | - |  | ------ | -
|                                         |  | 2003 |           |             | 2002 |   |             | 2001 |  |   | Percentage increase (decrease) |  
|                                         |  |      |           | 2003 / 2002 |      |   | 2002 / 2001 |     
|Salaries and employee benefits           |  | $    | 2,059,400 |             |      | $ | 1,780,313   |      |  | $ | 1,507,863                      |   |  | 15.68  | % |  | 18.07  | %
|Occupancy, net                           |  |      | 546,722   |             |      |   | 397,779     |      |  |   | 371,567                        |   |  | 37.44  |   |  | 7.05   |  
|Furniture and equipment                  |  |      | 220,533   |             |      |   | 138,982     |      |  |   | 116,049                        |   |  | 58.68  |   |  | 19.76  |  
|Professional fees                        |  |      | 119,536   |             |      |   | 104,443     |      |  |   | 83,547                         |   |  | 14.45  |   |  | 25.01  |  
|State franchise tax                      |  |      | 79,900    |             |      |   | 61,200      |      |  |   | 45,200                         |   |  | 30.56  |   |  | 35.40  |  
|Insurance                                |  |      | 58,551    |             |      |   | 46,159      |      |  |   | 39,886                         |   |  | 26.85  |   |  | 15.73  |  
|Data processing                          |  |      | 208,286   |             |      |   | 171,132     |      |  |   | 160,283                        |   |  | 21.71  |   |  | 6.77   |  
|Real estate owned holding expense        |  |      | 2,130     |             |      |   | 15,670      |      |  |   | 26,788                         |   |  | (86.41 | ) |  | (41.50 | )
|Other expenses                           |  |      | 492,758   |             |      |   | 380,987     |      |  |   | 324,316                        |   |  | 29.34  |   |  | 17.47  |  
|                                         |  |      |           |             |      |   |             |      |  |   |                                |   |  |        |   |  |        |  
|Total                                    |  | $    | 3,787,816 |             |      | $ | 3,096,665   |      |  | $ | 2,675,499                      |   |  | 22.32  |   |  | 15.74  |  
|                                         |  |      |           |             |      |   |             |      |  |   |                                |   |  |        |   |  |        |  
|Noninterest expense as a percentage of : |  |      |           |             |      |   |             |      |  |   |                                |   |  |        |   |  |        |  
|Average assets                           |  |      | 2.93      | %           |      |   | 3.38        | %    |  |   | 3.47                           | % |  |        |   |  |        |  
|                                         |  |      |           |             |      |   |             |      |  |   |                                |   |  |        |   |  |        |  
|Average earning assets                   |  |      | 3.08      | %           |      |   | 3.62        | %    |  |   | 3.69                           | % |  |        |   |  |        |  
|                                         |  |      |           |             |      |   |             |      |  |   |                                |   |  |        |   |  |        |  
|Gross income                             |  |      | 52.35     | %           |      |   | 49.59       | %    |  |   | 43.64                          | % |  |        |   |  |        |  
|                                         |  |      |           |             |      |   |             |      |  |   |                                |   |  |        |   |  |        |  



BALANCE SHEET ANALYSIS



Total assets grew $33,586,059, or 30.7%, from
$109,344,267 at year ended December 31, 2002 to $142,930,326 at year ended December 31, 2003. Assets rose due to the Banks increased volume of deposits that increased the volume of assets available for investment. Total deposits increased
$33,748,639, or 36.9%, from $91,483,191 at December 31, 2002 to $125,231,830 at December 31, 2003. The increase was attributable to new deposit relationships and expansion of core deposit relationships. The increased volume of assets were invested
into loans and investment securities. Management considers such factors as the Companys strategic goals, the economy, the market, liquidity and return opportunity for its investment mix. Management also considers the projected duration and the
nature of the assets available for investment.



In September
2003, the Bank opened a third branch in Vienna, Virginia. The branch also houses the Banks operations center. Also during 2003, renovations on the Reston branch were completed. The build out and renovations primarily accounted for the
$337,394, or 19.1%, increase in premises and equipment at December 31, 2003 compared to December 31, 2002.



Long-term debt decreased $1,000,000, or 20.9%, during 2003 due to the maturity and payment of an advance from the Federal Home Loan Bank of Atlanta



Earnings of $830,966 and additional capital, through exercised
stock options of $14,790, primarily accounted for the $822,179, or 7.1%, increase in stockholders equity at December 31, 2003 compared to December 31, 2002. Further details regarding stockholders equity are provided in Note 19 to the
consolidated financial statements. The Bank was well capitalized, per regulatory capital requirements, for the years ended December 31, 2003 and 2002.



36



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UNITED FINANCIAL BANKING COMPANIES, INC.



LOAN PORTFOLIO



Net loans increased $22,896,517, or 30.0%, from $76,217,605 at December 31, 2002 to $99,114,122 at December 31, 2003. Loans
were 69.3% percent of total assets at December 31, 2003, compared to 69.7% at December 31, 2002.



TABLE 5 - LOAN PORTFOLIO



|                         |  |      |            |      |   |            |  |      |            |      |   |            |  |   |           
|------------------------ |  | ---- | ---------- | ---- | - | ---------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ----------
|December 31,             |  | 2003 |            | 2002 |   | 2001       |  | 2000 |            | 1999
|Commercial               |  | $    | 71,886,557 |      | $ | 58,518,565 |  | $    | 41,591,724 |      | $ | 37,097,497 |  | $ | 25,160,558
|Real estate construction |  |      | 14,445,992 |      |   | 7,746,431  |  |      | 8,621,773  |      |   | 8,661,702  |  |   | 4,934,806 
|Real estate mortgage     |  |      | 8,282,734  |      |   | 5,259,090  |  |      | 4,686,547  |      |   | 6,939,635  |  |   | 8,786,994 
|Installment              |  |      | 4,498,839  |      |   | 4,693,519  |  |      | 3,635,087  |      |   | 3,002,301  |  |   | 1,770,411 
|                         |  |      |            |      |   |            |  |      |            |      |   |            |  |   |           
|Total loans              |  | $    | 99,114,122 |      | $ | 76,217,605 |  | $    | 58,535,131 |      | $ | 55,701,135 |  | $ | 40,652,769
|                         |  |      |            |      |   |            |  |      |            |      |   |            |  |   |           



The loan portfolio is structured to
mitigate interest rate risk. The following chart shows the maturities of the Companys two largest loan classes, commercial and real estate construction.



|                         |  |                  |            |                       |   |                |  |       |            |  |   |           
|------------------------ |  | ---------------- | ---------- | --------------------- | - | -------------- |  | ----- | ---------- |  | - | ----------
|                         |  | One Year or Less |            | One ThroughFive Years |   | Over FiveYears |  | Total
|Commercial               |  | $                | 16,519,882 |                       | $ | 15,965,680     |  | $     | 39,400,995 |  | $ | 71,886,557
|Real estate construction |  |                  | 9,413,501  |                       |   | 2,279,868      |  |       | 2,752,623  |  |   | 14,445,992
|                         |  |                  |            |                       |   |                |  |       |            |  |   |           
|                         |  | $                | 25,933,383 |                       | $ | 18,245,548     |  | $     | 42,153,618 |  | $ | 86,332,549
|                         |  |                  |            |                       |   |                |  |       |            |  |   |           



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 72.5% and 76.7% of total loans at December 31, 2003 and 2002, respectively.



37



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UNITED FINANCIAL BANKING COMPANIES, INC.



ALLOWANCE FOR LOAN LOSSES



The allowance for loan losses increased $264,111, or 21.1%, during 2003. The ratio of allowance for loan losses to total
loans was 1.5% and 1.6%, respectively, at December 31, 2003 and 2002. A five-year history of the activity in the allowance for loan/lease losses follows:



TABLE 6 ALLOWANCE FOR LOAN LOSSES



|                                                |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|----------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | - |  | ---- | ---------- | - |  | - | ---------- | -
|Period Ending December 31,                      |  | 2003 |            |   | 2002 |   |            | 2001 |  |   | 2000       |   |  | 1999 |           
|Balance at beginning of period                  |  | $    | 1,251,764  |   |      | $ | 1,057,344  |      |  | $ | 973,431    |   |  | $    | 783,143    |   |  | $ | 747,374    |  
|                                                |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Charge-offs:                                    |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Installment                                     |  |      | 14,905     |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   | 15,809     |  
|Commercial                                      |  |      | 13,271     |   |      |   | 29,645     |      |  |   | 56,282     |   |  |      | 841        |   |  |   | 31,086     |  
|Mortgage                                        |  |      |           |   |      |   |           |      |  |   | 37,357     |   |  |      | 150,600    |   |  |   |           |  
|Construction                                    |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Recoveries:                                     |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Installment                                     |  |      | 493        |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Commercial                                      |  |      | 11,794     |   |      |   | 4,765      |      |  |   | 23,104     |   |  |      | 1,612      |   |  |   | 2,798      |  
|Mortgage                                        |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Construction                                    |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|                                                |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net charge-offs                                 |  |      | 15,889     |   |      |   | 24,880     |      |  |   | 70,535     |   |  |      | 149,829    |   |  |   | 44,097     |  
|                                                |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Provision charged to operations                 |  |      | 280,000    |   |      |   | 219,300    |      |  |   | 154,448    |   |  |      | 340,117    |   |  |   | 79,866     |  
|                                                |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Balance at end of period                        |  | $    | 1,515,875  |   |      | $ | 1,251,764  |      |  | $ | 1,057,344  |   |  | $    | 973,431    |   |  | $ | 783,143    |  
|                                                |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Average total loans                             |  | $    | 85,126,751 |   |      | $ | 67,240,905 |      |  | $ | 57,846,750 |   |  | $    | 47,138,981 |   |  | $ | 37,022,216 |  
|                                                |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Ratio of net charge-offs to average total loans |  |      | 0.02       | % |      |   | 0.04       | %    |  |   | 0.12       | % |  |      | 0.32       | % |  |   | 0.12       | %
|                                                |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  



The allowance for loan
losses is a general allowance applicable to all loan categories. The following allocation of the allowance for loan 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:



|                           |  |      |           |      |   |           |  |      |           |      |   |         |  |   |        
|-------------------------- |  | ---- | --------- | ---- | - | --------- |  | ---- | --------- | ---- | - | ------- |  | - | -------
|Period ending December 31, |  | 2003 |           | 2002 |   | 2001      |  | 2000 |           | 1999
|Commercial                 |  | $    | 1,078,000 |      | $ | 913,000   |  | $    | 687,000   |      | $ | 606,000 |  | $ | 434,000
|Real estate construction   |  |      | 216,000   |      |   | 116,000   |  |      | 165,000   |      |   | 130,000 |  |   | 74,000 
|Real estate mortgage       |  |      | 124,000   |      |   | 84,000    |  |      | 99,000    |      |   | 141,000 |  |   | 208,000
|Installment                |  |      | 67,000    |      |   | 80,000    |  |      | 62,000    |      |   | 50,000  |  |   | 31,000 
|Unallocated                |  |      | 30,875    |      |   | 58,764    |  |      | 44,344    |      |   | 46,431  |  |   | 36,143 
|                           |  |      |           |      |   |           |  |      |           |      |   |         |  |   |        
|                           |  | $    | 1,515,875 |      | $ | 1,251,764 |  | $    | 1,057,344 |      | $ | 973,431 |  | $ | 783,143
|                           |  |      |           |      |   |           |  |      |           |      |   |         |  |   |        



38



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UNITED FINANCIAL BANKING COMPANIES, INC.



DEFERRED TAX ASSET



The deferred income tax asset primarily resulted from net operating loss carryforwards and the timing differences on loan
loss expense. Using factors such as the Companys historical earnings performance, growth potential, the local and national economy and market competition, management determined that it was more likely than not that the Company will utilize the
amounts available at December 31, 2003.



NONPERFORMING ASSETS



Nonperforming assets are assets on which accrued income
recognition has been discontinued. Nonperforming assets include nonaccrual loans and loans that have become foreclosed real estate. For the years ended December 31, 2003 and 2002, nonperforming assets were .02% and .29% of total assets,
respectively.



Nonaccruing loans at year end 2003 totaled
$33,457 compared to a balance of $97,613 at year end 2002. The Company had no loans still accruing interest that were ninety days or more past due as to principal or interest at December 31, 2003. Managements policy for placing loans into
nonaccrual status is to consider the repayment probability, overall security and character of the loan. Foreclosed real estate is discussed in Real Estate Owned.



The following is a summary of nonperforming assets:



TABLE 7 NONPERFORMING ASSETS



|                                              |  |      |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|Period ending December 31,                    |  | 2003 |         |   | 2002 |   |         | 2001 | 
|Nonaccruing loans (90 days or more past due)  |  | $    | 33,457  |   |      | $ | 97,613  |      |  | $ | 28,367  |  
|Real estate owned                             |  |      |        |   |      |   | 222,621 |      |  |   | 644,407 |  
|                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Total nonperforming assets                    |  | $    | 33,457  |   |      | $ | 320,234 |      |  | $ | 672,774 |  
|                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Nonaccruing loans as a % of total loans       |  |      | 0.03    | % |      |   | 0.13    | %    |  |   | 0.05    | %
|Reserve for loans losses to nonaccruing loans |  |      | 4530.82 | % |      |   | 1282.37 | %    |  |   | 3727.37 | %
|Nonperforming assets to total loans           |  |      | 0.03    | % |      |   | 0.42    | %    |  |   | 1.15    | %



39



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UNITED FINANCIAL BANKING COMPANIES, INC.



REAL ESTATE OWNED



Real Estate Owned (REO) includes foreclosed properties in which the Company has taken title. Accounting policies for real
estate owned are outlined in Note 1 to the consolidated financial statements. REO was 0% and .2% of total assets at December 31, 2003 and 2002, respectively. At December 31, 2002, REO was comprised of a property located in Culpeper, Virginia. The
property was acquired through foreclosure by the Bank in 1989. To liquidate the asset, the property was developed and lots and residential homes were sold. In December 2002, the balance of the project was transferred to BVCI. The project was sold
out during 2003.



An aging of real estate owned and a breakdown
by project type as of December 31, 2003 and 2002 are presented in Table 8.



TABLE 8 REAL ESTATE OWNED



|                                      |  |      |   |      |   |        
|------------------------------------- |  | ---- | - | ---- | - | -------
|Aging of Foreclosed Properties        |  |      |   |     
|Period ending December 31,            |  | 2003 |   | 2002
|From 1 to 6 months                    |  | $    |  |      | $ |       
|From 7 to 12 months                   |  |      |  |      |   |       
|From 13 to 24 months                  |  |      |  |      |   |       
|Over 24 months                        |  |      |  |      |   | 222,621
|                                      |  |      |   |      |   |        
|                                      |  | $    |  |      | $ | 222,621
|                                      |  |      |   |      |   |        
|                                      |  |     
|Foreclosed Properties by Project Type |  |      |   |     
|Period ending December 31,            |  | 2003 |   | 2002
|Undeveloped land                      |  | $    |  |      | $ |       
|1 - 4 family dwelling                 |  |      |  |      |   |       
|Developed land                        |  |      |  |      |   | 222,621
|                                      |  |      |   |      |   |        
|                                      |  | $    |  |      | $ | 222,621
|                                      |  |      |   |      |   |        



DEPOSITS



As shown in Table 10, Deposits Structure and
Certificates of Deposit 100K and Over, total deposits rose $33,748,639, or 36.9%,at December 31, 2003 compared to December 31, 2002. As shown in Table 9, Deposits Balance and Rate, the cost of funds decreased 68 basis points during 2003.
The cost decrease is attributable to the suppressed rate environment of 2003 and to the deposit mix. During 2003, management continued to focus on maintaining a deposit mix predominantly consisting of core deposits. Core deposits consist of demand,
savings, NOW and money market accounts, and are generally less costly and more stable than certificates of deposits. As shown in Table 9, total average core deposits increased $28,595,275, or 59.9%, from $47,734,142 at December 31, 2002 to
$76,329,417 at December 31, 2003. When comparing average core deposit growth from December 31, 2002 to December 31, 2003, the change was as follows: demand deposits (noninterest-bearing) increased $11,142,902, or 57.3%, money market deposits
increased $4,249,862 or 34.4%, savings and NOW deposits increased $13,202,511 or 83.0%. As shown in Table 10, core deposit accounts represented 74.3% while time deposits represented 25.7% of total deposits at year end 2003.



40



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UNITED FINANCIAL BANKING COMPANIES, INC.



TABLE 9 DEPOSITS BALANCE AND RATE



Rates paid on each classification of deposits are shown below:



|                         |  |                |             |      |                |   |      |                |            |  |                |      |  |                |            |  |      |   |      |   |            |      |      |      |  |   |            |  |      |  
|------------------------ |  | -------------- | ----------- | ---- | -------------- | - | ---- | -------------- | ---------- |  | -------------- | ---- |  | -------------- | ---------- |  | ---- | - | ---- | - | ---------- | ---- | ---- | ---- |  | - | ---------- |  | ---- | -
|Year Ended December 31,  |  | 2003           |             | Rate |                |   | 2002 |                | Rate       |  |                | 2001 |  | Rate           |            |  | 2000 |   | Rate |   |            | 1999 |      | Rate | 
|                         |  | AverageBalance |             |      | AverageBalance |   |      | AverageBalance |            |  | AverageBalance |      |  | AverageBalance |           
|Demand                   |  | $              | 30,594,263  |      |               | % |      | $              | 19,451,361 |  |               | %    |  | $              | 17,080,710 |  |     | % |      | $ | 15,159,490 |      |     | %    |  | $ | 10,853,570 |  |     | %
|Savings and NOW accounts |  |                | 29,114,312  |      | 1.71           |   |      |                | 15,911,801 |  | 2.47           |      |  |                | 6,229,714  |  | 2.46 |   |      |   | 5,369,945  |      | 2.93 |      |  |   | 3,389,515  |  | 2.39 |  
|Money market accounts    |  |                | 16,620,842  |      | 0.96           |   |      |                | 12,370,980 |  | 1.56           |      |  |                | 14,534,980 |  | 2.81 |   |      |   | 14,301,086 |      | 3.58 |      |  |   | 10,284,048 |  | 3.14 |  
|Time:                    |  |                |             |      |                |   |      |                |            |  |                |      |  |                |            |  |      |   |      |   |            |      |      |      |  |   |            |  |      |  
|Under $100,000           |  |                | 19,202,705  |      | 3.08           |   |      |                | 16,635,973 |  | 3.82           |      |  |                | 15,821,546 |  | 5.49 |   |      |   | 14,750,470 |      | 5.47 |      |  |   | 16,613,670 |  | 5.12 |  
|$100,000 and over        |  |                | 15,764,091  |      | 2.63           |   |      |                | 11,687,340 |  | 3.71           |      |  |                | 10,987,933 |  | 5.31 |   |      |   | 7,553,286  |      | 5.62 |      |  |   | 6,071,187  |  | 5.00 |  
|                         |  |                |             |      |                |   |      |                |            |  |                |      |  |                |            |  |      |   |      |   |            |      |      |      |  |   |            |  |      |  
|Total                    |  | $              | 111,296,213 |      | 1.50           | % |      | $              | 76,057,455 |  | 2.18           | %    |  | $              | 64,654,883 |  | 3.11 | % |      | $ | 57,134,277 |      | 3.33 | %    |  | $ | 47,211,990 |  | 3.30 | %
|                         |  |                |             |      |                |   |      |                |            |  |                |      |  |                |            |  |      |   |      |   |            |      |      |      |  |   |            |  |      |  



TABLE 10 DEPOSITS STRUCTURE AND
CERTIFICATES OF DEPOSIT 100K AND OVER



|                         |  |        |             |            |        |   |      |        |            |  |        |      |  |            |            |  |        |   |            |   |            |      |        |           |  |   |            |  |        |  
|------------------------ |  | ------ | ----------- | ---------- | ------ | - | ---- | ------ | ---------- |  | ------ | ---- |  | ---------- | ---------- |  | ------ | - | ---------- | - | ---------- | ---- | ------ | --------- |  | - | ---------- |  | ------ | -
|Year Ended December 31,  |  | 2003   |             | % of Total |        |   | 2002 |        | % of Total |  |        | 2001 |  | % of Total |            |  | 2000   |   | % of Total |   |            | 1999 |        | % ofTotal | 
|                         |  | Amount |             |            | Amount |   |      | Amount |            |  | Amount |      |  | Amount     |           
|Demand                   |  | $      | 34,504,653  |            | 27.55  |   |      | $      | 23,977,619 |  | 26.21  |      |  | $          | 19,570,684 |  | 27.30  |   |            | $ | 15,103,101 |      | 24.91  | %         |  | $ | 12,248,025 |  | 24.91  | %
|Savings and NOW accounts |  |        | 41,947,627  |            | 33.50  |   |      |        | 21,547,324 |  | 23.55  |      |  |            | 11,316,541 |  | 15.79  |   |            |   | 5,232,987  |      | 8.63   |           |  |   | 4,902,524  |  | 9.97   |  
|Money market accounts    |  |        | 16,562,967  |            | 13.23  |   |      |        | 13,405,082 |  | 14.65  |      |  |            | 14,297,094 |  | 19.94  |   |            |   | 13,896,824 |      | 22.92  |           |  |   | 11,473,851 |  | 23.32  |  
|Time:                    |  |        |             |            |        |   |      |        |            |  |        |      |  |            |            |  |        |   |            |   |            |      |        |           |  |   |            |  |        |  
|Under $100,000           |  |        | 17,999,566  |            | 14.37  |   |      |        | 17,976,949 |  | 19.65  |      |  |            | 15,476,230 |  | 21.59  |   |            |   | 15,937,455 |      | 26.28  |           |  |   | 15,513,608 |  | 31.54  |  
|$100,000 and over        |  |        | 14,217,017  |            | 11.35  |   |      |        | 14,576,217 |  | 15.93  |      |  |            | 11,029,723 |  | 15.39  |   |            |   | 10,472,041 |      | 17.27  |           |  |   | 5,053,294  |  | 10.27  |  
|                         |  |        |             |            |        |   |      |        |            |  |        |      |  |            |            |  |        |   |            |   |            |      |        |           |  |   |            |  |        |  
|Total                    |  | $      | 125,231,830 |            | 100.00 | % |      | $      | 91,483,191 |  | 100.00 | %    |  | $          | 71,690,272 |  | 100.00 | % |            | $ | 60,642,408 |      | 100.00 | %         |  | $ | 49,191,302 |  | 100.00 | %
|                         |  |        |             |            |        |   |      |        |            |  |        |      |  |            |            |  |        |   |            |   |            |      |        |           |  |   |            |  |        |  



The maturity schedule that follows
categorizes time deposits of $100,000 or more as of December 31, 2003.



|                                 |  |         |           
|-------------------------------- |  | ------- | ----------
|Maturing                         |  | Balance
|Three months or less             |  | $       | 2,608,038 
|Over three months to six months  |  |         | 3,862,497 
|Over six months to twelve months |  |         | 4,789,079 
|Over twelve months               |  |         | 2,957,403 
|                                 |  |         |           
|Total                            |  | $       | 14,217,017
|                                 |  |         |           



41



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UNITED FINANCIAL BANKING COMPANIES, INC.



INVESTMENTS



The Bank held all of the Companys investment securities at December 31, 2003 and 2002. The securities portfolio was comprised of U.S. Treasury
securities, U.S. Government agency securities, mortgage-backed securities, mutual fund securities and other 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 24.8% of total assets for 2003 and 26.7% for 2002. 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.



42



---

UNITED FINANCIAL BANKING COMPANIES, INC.



TABLE 11 - INTEREST SENSITIVITY ANALYSIS

( thousands )



|                                   |  |                   |         |   |            |   |        |      |  |      |            |  |   |        |    |  |             |   |  |      |        |    |           |      |   |      |   |        |              |  |      |      |  |   |        |   |  |      |   |  |   |        
|---------------------------------- |  | ----------------- | ------- | - | ---------- | - | ------ | ---- |  | ---- | ---------- |  | - | ------ | -- |  | ----------- | - |  | ---- | ------ | -- | --------- | ---- | - | ---- | - | ------ | ------------ |  | ---- | ---- |  | - | ------ | - |  | ---- | - |  | - | -------
|                                   |  | BALANCES 12/31/03 |         |   | 0-3 MONTHS |   |        | RATE |  |      | 4-6 MONTHS |  |   | RATE   |    |  | 7-12 MONTHS |   |  | RATE |        |    | 1-5 YEARS |      |   | RATE |   |        | OVER 5 YEARS |  |      | RATE |  |   | TOTAL 
|ASSETS                             |  |                   |         |   |            |   |        |      |  |      |            |  |   |        |    |  |             |   |  |      |        |    |           |      |   |      |   |        |              |  |      |      |  |   |        |   |  |      |   |  |   |        
|FEDERAL FUNDS SOLD                 |  | $                 | 3,900   |   |            | $ | 3,900  |      |  | 0.91 | %          |  | $ |       |    |  | 0.00        | % |  | $    |       |    |           | 0.00 | % |      | $ |       |              |  | 0.00 | %    |  | $ |       |   |  | 0.00 | % |  | $ | 3,900  
|INVESTMENTS                        |  |                   | 33,245  |   |            |   | 16,710 |      |  | 3.99 | %          |  |   | 798    |    |  | 1.89        | % |  |      | 3,865  |    |           | 1.48 | % |      |   | 9,232  |              |  | 2.46 | %    |  |   | 2,640  |   |  | 2.65 | % |  |   | 33,245 
|LOANS, NET - FIXED                 |  |                   | 21,756  |   |            |   | 13,131 |      |  | 6.26 | %          |  |   | 1,480  |    |  | 7.46        | % |  |      | 1,930  |    |           | 6.91 | % |      |   | 4,435  |              |  | 6.76 | %    |  |   | 780    |   |  | 7.16 | % |  |   | 21,756 
|LOANS, NET - VARIABLE              |  |                   | 77,666  |   |            |   | 37,192 |      |  | 6.14 | %          |  |   | 3,793  |    |  | 7.37        | % |  |      | 2,759  |    |           | 7.12 | % |      |   | 33,839 |              |  | 6.18 | %    |  |   | 83     |   |  | 7.75 | % |  |   | 77,666 
|                                   |  |                   |         |   |            |   |        |      |  |      |            |  |   |        |    |  |             |   |  |      |        |    |           |      |   |      |   |        |              |  |      |      |  |   |        |   |  |      |   |  |   |        
|TOTAL EARNING ASSETS               |  |                   | 136,567 |   |            |   | 70,933 |      |  | 5.37 | %          |  |   | 6,071  |    |  | 6.67        | % |  |      | 8,554  |    |           | 4.52 | % |      |   | 47,506 |              |  | 5.51 | %    |  |   | 3,503  |   |  | 3.77 | % |  |   | 136,567
|LOAN LOSS RESERVE                  |  |                   | (1,516  | ) |            |   |        |      |  |      |            |  |   |        |    |  |             |   |  |      |        |    |           |      |   |      |   |        |              |  |      |      |  |   |        |   |  |      |   |  |   |       
|NON-ACCRUAL LOANS                  |  |                   | 33      |   |            |   |        |      |  |      |            |  |   |        |    |  |             |   |  |      |        |    |           |      |   |      |   |        |              |  |      |      |  |   |        |   |  |      |   |  |   |       
|CASH AND DUE FROM BANKS            |  |                   | 4,341   |   |            |   |        |      |  |      |            |  |   |        |    |  |             |   |  |      |        |    |           |      |   |      |   |        |              |  |      |      |  |   |        |   |  |      |   |  |   |       
|REAL ESTATE OWNED                  |  |                   |        |   |            |   |        |      |  |      |            |  |   |        |    |  |             |   |  |      |        |    |           |      |   |      |   |        |              |  |      |      |  |   |        |   |  |      |   |  |   |       
|FIXED ASSETS                       |  |                   | 2,107   |   |            |   |        |      |  |      |            |  |   |        |    |  |             |   |  |      |        |    |           |      |   |      |   |        |              |  |      |      |  |   |        |   |  |      |   |  |   |       
|OTHER NONINTEREST-BEARING ASSETS   |  |                   | 1,398   |   |            |   |        |      |  |      |            |  |   |        |    |  |             |   |  |      |        |    |           |      |   |      |   |        |              |  |      |      |  |   |        |   |  |      |   |  |   |       
|                                   |  |                   |         |   |            |   |        |      |  |      |            |  |   |        |    |  |             |   |  |      |        |    |           |      |   |      |   |        |              |  |      |      |  |   |        |   |  |      |   |  |   |        
|TOTAL NONEARNING ASSETS            |  |                   | 6,363   |   |            |   |       |      |  |      |            |  |   |       |    |  |             |   |  |      |       |    |           |      |   |      |   |       |              |  |      |      |  |   |       |   |  |      |   |  |   |       
|                                   |  |                   |         |   |            |   |        |      |  |      |            |  |   |        |    |  |             |   |  |      |        |    |           |      |   |      |   |        |              |  |      |      |  |   |        |   |  |      |   |  |   |        
|TOTAL ASSETS                       |  | $                 | 142,930 |   |            | $ | 70,933 |      |  |      |            |  | $ | 6,071  |    |  |             |   |  | $    | 8,554  |    |           |      |   |      | $ | 47,506 |              |  |      |      |  | $ | 3,503  |   |  |      |   |  | $ | 136,567
|                                   |  |                   |         |   |            |   |        |      |  |      |            |  |   |        |    |  |             |   |  |      |        |    |           |      |   |      |   |        |              |  |      |      |  |   |        |   |  |      |   |  |   |        
|LIABILITIES                        |  |                   |         |   |            |   |        |      |  |      |            |  |   |        |    |  |             |   |  |      |        |    |           |      |   |      |   |        |              |  |      |      |  |   |        |   |  |      |   |  |   |        
|NOW ACCOUNTS                       |  | $                 | 10,677  |   |            | $ | 10,677 |      |  | 0.86 | %          |  | $ |       |    |  | 0.00        | % |  | $    |       |    |           | 0.00 | % |      | $ |       |              |  | 0.00 | %    |  | $ |       |   |  | 0.00 | % |  | $ | 10,677 
|MONEY MARKET ACCOUNTS              |  |                   | 16,562  |   |            |   | 16,562 |      |  | 0.88 | %          |  |   |        |    |  |             |   |  |      |        |    |           |      |   |      |   |        |              |  |      |      |  |   |        |   |  |      |   |  |   | 16,562 
|SAVINGS ACCOUNTS                   |  |                   | 31,271  |   |            |   | 8,000  |      |  | 1.73 | %          |  |   |        |    |  |             |   |  |      | 3,000  |    |           | 1.73 | % |      |   | 20,271 |              |  | 1.73 | %    |  |   |        |   |  |      |   |  |   | 31,271 
|CERTIFICATES OF DEPOSIT < $100,000 |  |                   | 18,000  |   |            |   | 2,335  |      |  | 2.79 | %          |  |   | 2,650  |    |  | 2.54        | % |  |      | 5,788  |    |           | 2.20 | % |      |   | 5,699  |              |  | 3.15 | %    |  |   | 1,528  |   |  | 3.93 | % |  |   | 18,000 
|CERTIFICATES OF DEPOSIT > $100,000 |  |                   | 14,217  |   |            |   | 2,608  |      |  | 2.08 | %          |  |   | 3,863  |    |  | 1.60        | % |  |      | 4,789  |    |           | 2.82 | % |      |   | 2,957  |              |  | 2.91 | %    |  |   |        |   |  |      |   |  |   | 14,217 
|                                   |  |                   |         |   |            |   |        |      |  |      |            |  |   |        |    |  |             |   |  |      |        |    |           |      |   |      |   |        |              |  |      |      |  |   |        |   |  |      |   |  |   |        
|TOTAL INTEREST-BEARING DEPOSITS    |  |                   | 90,727  |   |            |   | 40,182 |      |  | 1.23 | %          |  |   | 6,513  |    |  | 1.98        | % |  |      | 13,577 |    |           | 2.31 | % |      |   | 28,927 |              |  | 2.13 | %    |  |   | 1,528  |   |  |      |   |  |   | 90,727 
|                                   |  |                   |         |   |            |   |        |      |  |      |            |  |   |        |    |  |             |   |  |      |        |    |           |      |   |      |   |        |              |  |      |      |  |   |        |   |  |      |   |  |   |        
|NONINTEREST-BEARING DEPOSITS       |  |                   | 34,505  |   |            |   |        |      |  |      |            |  |   |        |    |  |             |   |  |      |        |    |           |      |   |      |   |        |              |  |      |      |  |   |        |   |  |      |   |  |   |       
|TOTAL DEPOSITS                     |  |                   | 125,232 |   |            |   | 40,182 |      |  |      |            |  |   | 6,513  |    |  |             |   |  |      | 13,577 |    |           |      |   |      |   | 28,927 |              |  |      |      |  |   | 1,528  |   |  |      |   |  |   | 90,727 
|TOTAL OTHER LIABILITIES            |  |                   | 5,293   |   |            |   |        |      |  |      |            |  |   |        |    |  |             |   |  |      |        |    |           |      |   |      |   |        |              |  |      |      |  |   |        |   |  |      |   |  |   |       
|TOTAL CAPITAL                      |  |                   | 12,405  |   |            |   |        |      |  |      |            |  |   |        |    |  |             |   |  |      |        |    |           |      |   |      |   |        |              |  |      |      |  |   |        |   |  |      |   |  |   |       
|                                   |  |                   |         |   |            |   |        |      |  |      |            |  |   |        |    |  |             |   |  |      |        |    |           |      |   |      |   |        |              |  |      |      |  |   |        |   |  |      |   |  |   |        
|TOTAL LIABILITIES & CAPITAL        |  | $                 | 142,930 |   |            | $ | 40,182 |      |  |      |            |  | $ | 6,513  |    |  |             |   |  | $    | 13,577 |    |           |      |   |      | $ | 28,927 |              |  |      |      |  | $ | 1,528  |   |  |      |   |  | $ | 90,727 
|                                   |  |                   |         |   |            |   |        |      |  |      |            |  |   |        |    |  |             |   |  |      |        |    |           |      |   |      |   |        |              |  |      |      |  |   |        |   |  |      |   |  |   |        
|INTERVAL GAP/GAP SPREAD            |  |                   |         |   |            |   | 30,751 |      |  | 4.14 | %          |  |   | (442   | )  |  | 4.69        | % |  |      | (5,023 | )  |           | 2.21 | % |      |   | 18,579 |              |  | 3.38 | %    |  |   | 1,975  |   |  | 3.77 | % |  |   |        
|CUMULATIVE GAP                     |  |                   |         |   |            |   | 30,751 |      |  |      |            |  |   | 30,309 |    |  |             |   |  |      | 25,286 |    |           |      |   |      |   | 43,865 |              |  |      |      |  |   | 45,840 |   |  |      |   |  |   |        
|INTERVAL GAP/TOTAL ASSETS          |  |                   |         |   |            |   | 21.51  | %    |  |      |            |  |   | (0.31  | )% |  |             |   |  |      | (3.51  | )% |           |      |   |      |   | 13.00  | %            |  |      |      |  |   | 1.38   | % |  |      |   |  |   |        
|CUMULATIVE GAP/TOTAL ASSETS        |  |                   |         |   |            |   | 21.51  | %    |  |      |            |  |   | 21.21  | %  |  |             |   |  |      | 17.69  | %  |           |      |   |      |   | 30.69  | %            |  |      |      |  |   | 32.07  | % |  |      |   |  |   |        
|INTERVAL GAP/EARNING ASSETS        |  |                   |         |   |            |   | 22.52  | %    |  |      |            |  |   | (0.32  | )% |  |             |   |  |      | (3.68  | )% |           |      |   |      |   | 13.60  | %            |  |      |      |  |   | 1.45   | % |  |      |   |  |   |        
|CUMULATIVE GAP/EARNING ASSETS      |  |                   |         |   |            |   | 22.52  | %    |  |      |            |  |   | 22.19  | %  |  |             |   |  |      | 18.52  | %  |           |      |   |      |   | 32.12  | %            |  |      |      |  |   | 33.57  | % |  |      |   |  |   |        
|MATCHED                            |  |                   |         |   |            |   | 40,182 |      |  | 1.23 | %          |  |   | 6,071  |    |  | 1.98        | % |  |      | 8,554  |    |           | 4.52 | % |      |   | 47,506 |              |  | 5.51 | %    |  |   | 1,528  |   |  | 0.00 | % |  |   |        
|OPEN                               |  |                   |         |   |            |   | 30,751 |      |  | 4.14 | %          |  |   | (442   | )  |  | 4.69        | % |  |      | (5,023 | )  |           | 2.21 | % |      |   | 18,579 |              |  | 3.38 | %    |  |   | 1,975  |   |  | 3.77 | % |  |   |        



43



---

UNITED FINANCIAL BANKING COMPANIES, INC.



CONTRACTUAL OBLIGATIONS, CONTINGENT LIABILITIES AND COMMITMENTS



Financial Instruments With Off-Balance Sheet Risk



In the normal course of business, the Company make various
commitments and incur 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 and
the Bank evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company and the Bank, 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/or assets of the business. Because many commitments and almost all standby letters of credit expire without being funded, the contractual commitments do not
necessarily represent future cash requirements.



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, 2003 and 2002, unused commitments that were extended under lines of credit amounted
to $17,950,808 and $12,063,652, respectively.



The
Companys and the Banks outstanding standby letters of credit amounted to $4,320,335 and $3,924,088 as of December 31, 2003 and 2002, respectively. The credit risk involved in issuing letters of credit is essentially the same as that
involved in making loans to customers. At December 31, 2003, 84% of the Companys letters of credit were cash secured.



The following table summarizes the Companys and the Banks significant contractual obligations, contingent liabilities and certain other
commitments outstanding as of December 31, 2003:



TABLE 12



|                                                                                                                   |  |                        |            |           |   |             |  |             |           |           |   |           |  |   |          
|------------------------------------------------------------------------------------------------------------------ |  | ---------------------- | ---------- | --------- | - | ----------- |  | ----------- | --------- | --------- | - | --------- |  | - | ---------
|                                                                                                                   |  | Payments due by period
|                                                                                                                   |  |                        |            | Less than |   |             |  |             |           | More than
|Contractual Obligations                                                                                            |  | Total                  |            | 1 year    |   | 1 - 3 years |  | 3 - 5 years |           | 5 years  
|Operating leases                                                                                                   |  | $                      | 3,446,074  |           | $ | 531,377     |  | $           | 1,062,754 |           | $ | 646,030   |  | $ | 1,205,913
|Other long-term liabilities reflected on the registrants balance sheet under GAAP Federal Home Loan Bank Advances |  |                        | 4,000,000  |           |   | 1,000,000   |  |             | 2,000,000 |           |   | 1,000,000 |  |   |         
|Other debt payments                                                                                                |  |                        | 780,155    |           |   | 14,265      |  |             | 31,807    |           |   | 734,083   |  |   |         
|Other commitments                                                                                                  |  |                        |            |           |   |             |  |             |           |           |   |           |  |   |          
|Standby letters of credit                                                                                          |  |                        | 4,320,335  |           |   | 4,094,179   |  |             | 211,510   |           |   | 10,500    |  |   | 4,146    
|Commitments to extend credit                                                                                       |  |                        | 33,478,008 |           |   | 27,680,333  |  |             | 3,099,753 |           |   | 739,288   |  |   | 1,958,634
|                                                                                                                   |  |                        |            |           |   |             |  |             |           |           |   |           |  |   |          
|Total contractual obligations                                                                                      |  | $                      | 46,024,572 |           | $ | 33,320,154  |  | $           | 6,405,824 |           | $ | 3,129,901 |  | $ | 3,168,693
|                                                                                                                   |  |                        |            |           |   |             |  |             |           |           |   |           |  |   |          





44



---

UNITED FINANCIAL BANKING COMPANIES, INC.



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.



CRITICAL ACCOUNTING POLICIES



The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates in certain circumstances that affect amounts reported in our consolidated financial statements
and the accompanying footnotes. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from
managements current judgments. The critical accounting policies used are significantly affected by judgments, assumptions and estimates used by our management in the preparation of the consolidated financial statements.



SARBANES-OXLEY ACT



Congress enacted the Sarbanes-Oxley Act (the Act) on July 30, 2002, which
pertains to the oversight of the accounting profession and corporate responsibility. All companies subject to the Form 10-K, 10-Q and 8-K reporting requirements under the Securities and Exchange Act of 1934 will be subject to the Act. Under the Act,
the SEC is required to adopt various rules related to officer certification of quarterly and annual reports, audit firm independence, audit committee responsibilities, officer and director prohibited activities, financial reporting and disclosure,
and internal control reporting.



45



---

UNITED FINANCIAL BANKING COMPANIES, INC.



|                                                                   |  |                                          
|------------------------------------------------------------------ |  | -----------------------------------------
|DIRECTORS                                                          |  | OFFICERS                                 
|Jeffery T. Valcourt                                                |  | Harold C. Rauner                         
|Chairman of the Board                                              |  | President/CEO                            
|United Financial Banking Companies, Inc.                           |  |                                          
|President/CEO, Valcourt Building Services                          |  | 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                                                    |  |                                          
|Investor, Baker & McKenzie, Attorneys                              |  |                                          
|                                                                   | 
|Edward H. Pechan                                                   |  |                                          
|Environmental Consultant (retired)                                 |  |                                          
|                                                                   | 
|Harold C. Rauner                                                   |  |                                          
|President/CEO, United Financial Banking Companies, Inc.            |  |                                          
|President/CEO, The Business Bank                                   |  |                                          
|President/CEO, Business Venture Capital, Inc.                      |  |                                          
|                                                                   | 
|Sharon A. Stakes                                                   |  |                                          
|Executive Vice President, United Financial Banking Companies, Inc. |  |                                          
|Executive Vice President, The Business Bank                        |  |                                          
|President, The Business Bank Insurance Agency, Inc.                |  |                                          
|                                                                   | 
|The Business Bank Board of Directors                               |  |                                          
|                                                                   | 
|Harold C. Rauner                                                   |  | Jeffery T. Valcourt                      
|Chairman of the Board                                              |  | Vice Chairman                            
|The Business Bank                                                  |  | The Business Bank                        
|President/CEO, The Business Bank                                   |  | President/CEO, Valcourt Building Services
|President/CEO, United Financial Banking Companies, Inc.            |  |                                          
|President/CEO, Business Venture Capital, Inc.                      |  |                                          
|                                                                   | 
|Robert E. Carpenter                                                |  | Charles S. Evans                         
|Managing Member, McLean Management                                 |  | Chairman, Computerware                   
|                                                                   | 
|John R. Motz                                                       |  | Robert W. Pitts                          
|President, 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. |  |                                          
|President, The Business Bank Insurance Agency, Inc.                |  |                                          



46



---

UNITED FINANCIAL BANKING COMPANIES, INC.



The Business Bank Advisory Board



|                                          |  |                                              
|----------------------------------------- |  | ---------------------------------------------
|Michael P. Mullen                         |  | Carl F. Desmarais                            
|Chairman                                  |  | Partner, OConnor & Desmarais, P.C.          
|President, Washington Financial           |  |                                              
|                                          | 
|Thomas J. Robertson                       |  | Mark A. Karl                                 
|Investment Advisor, Linsco/Private Ledger |  | President, Advanced Mailing Services         
|                                          | 
|Dean M. Xenos                             |  | Charles W. Bray                              
|President, Leros Technologies Corporation |  | Director, Not-for-profit, RSM McGladrey, Inc.
|                                          | 
|Puneet Alhuwalia                          |  | Casey Veatch                                 
|President, Loans and Mortgages LLC        |  | Vice President, Trammell Crow Company        



CORPORATE INFORMATION



The Company did not accrue or pay dividends during the years ended
December 31, 2003 and 2002.



The Company had 317 shareholders of record as of
December 31, 2003.



Below are the high and low bid prices for
the common stock for each quarter of 2003 and 2002. These prices reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual trades.



|                       |  |      |       |      |   |       |  |     |       |  |   |      
|---------------------- |  | ---- | ----- | ---- | - | ----- |  | --- | ----- |  | - | -----
|                       |  | 2003 |       | 2002
|                       |  | High |       | Low  |   | High  |  | Low
|For the Quarter Ended: |  |      |       |      |   |       |  |     |       |  |   |      
|March 31               |  | $    | 15.45 |      | $ | 15.40 |  | $   | 10.95 |  | $ | 10.75
|June 30                |  | $    | 16.50 |      | $ | 15.60 |  | $   | 13.75 |  | $ | 12.00
|September 30           |  | $    | 17.10 |      | $ | 15.85 |  | $   | 13.75 |  | $ | 13.75
|December 31            |  | $    | 18.05 |      | $ | 18.05 |  | $   | 15.25 |  | $ | 14.40



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



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