EXHIBIT 13



UNITED FINANCIAL BANKING

COMPANIES, INC. AND SUBSIDIARIES



FINANCIAL REPORT



DECEMBER 31, 2002







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C O N T E N
T S



|                                                           |  | Page
|---------------------------------------------------------- |  | ----
|INDEPENDENT AUDITORS REPORT                               |  | 1   
|FINANCIAL STATEMENTS                                       |  |     
|Consolidated balance sheets                                |  | 2   
|Consolidated statements of income and comprehensive income |  | 3   
|Consolidated statements of stockholders equity            |  | 4   
|Consolidated statements of cash flows                      |  | 5   
|Notes to financial statements                              |  | 6-24







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INDEPENDENT
AUDITORS REPORT



To the Stockholders and Board of
Directors

United Financial Banking Companies, Inc. and Subsidiaries



We have audited the consolidated balance sheets of United Financial Banking Companies, Inc., and subsidiaries
as of December 31, 2002 and 2001, and the related consolidated statements of income, comprehensive income, stockholders equity, and cash flows for the years ended December 31, 2002, 2001 and 2000. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.



In our opinion, the
financial statements referred to above present fairly in all material respects, the consolidated financial position of United Financial Banking Companies, Inc., and subsidiaries as of December 31, 2002 and 2001, and the consolidated results of their
operations and their cash flows for the years ended December 31, 2002, 2001 and 2000 in conformity with accounting principles generally accepted in the United States of America.



/s/

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



Fairfax, Virginia



February 18, 2002







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UNITED
FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS

December 31, 2002 and 2001



|ASSETS                                                                                                                 |  | 2002 |             |   | 2001 |  
|---------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | -
|Cash and due from banks (Note 13)                                                                                      |  | $    | 5,064,434   |   |      | $
|Interest-bearing deposits in other banks                                                                               |  |      | 928,061     |   |      |  
|Federal funds sold                                                                                                     |  |      | 8,050,000   |   |      |  
|                                                                                                                       |  |      |             |   |      |  
|Total cash and cash equivalents                                                                                        |  |      | 14,042,495  |   |      |  
|                                                                                                                       |  |      |             |   |      |  
|Securities available-for-sale (Note 2)                                                                                 |  |      | 15,101,994  |   |      |  
|Securities held-to-maturity (Note 2)                                                                                   |  |      | 1,313,779   |   |      |  
|                                                                                                                       |  |      |             |   |      |  
|Total securities                                                                                                       |  |      | 16,415,773  |   |      |  
|                                                                                                                       |  |      |             |   |      |  
|Loans, net of unearned income of $219,870 in 2002; $105,785 in 2001 (Notes 3, 4 and
12)                                |  |      | 76,217,605  |   |      |  
|Less: Allowance for loan losses                                                                                        |  |      | (1,251,764  | ) |      |  
|                                                                                                                       |  |      |             |   |      |  
|Net loans                                                                                                              |  |      | 74,965,841  |   |      |  
|Real estate owned, net (Note 5)                                                                                        |  |      | 222,621     |   |      |  
|Premises and equipment, net (Note 6)                                                                                   |  |      | 1,769,278   |   |      |  
|Deferred income tax (Note 10)                                                                                          |  |      | 1,359,079   |   |      |  
|Other assets                                                                                                           |  |      | 569,180     |   |      |  
|                                                                                                                       |  |      |             |   |      |  
|                                                                                                                       |  |      | 78,885,999  |   |      |  
|                                                                                                                       |  |      |             |   |      |  
|Total assets                                                                                                           |  | $    | 109,344,267 |   |      | $
|                                                                                                                       |  |      |             |   |      |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                   |  |      |             |   |      |  
|LIABILITIES                                                                                                            |  |      |             |   |      |  
|Deposits:                                                                                                              |  |      |             |   |      |  
|Demand                                                                                                                 |  | $    | 23,977,619  |   |      | $
|Savings and NOW                                                                                                        |  |      | 21,547,324  |   |      |  
|Money market                                                                                                           |  |      | 13,405,082  |   |      |  
|Time:                                                                                                                  |  |      |             |   |      |  
|Under $100,000                                                                                                         |  |      | 17,976,949  |   |      |  
|$100,000 and over                                                                                                      |  |      | 14,576,217  |   |      |  
|                                                                                                                       |  |      |             |   |      |  
|Total deposits (Note 9)                                                                                                |  |      | 91,483,191  |   |      |  
|Short-term borrowings (Note 7)                                                                                         |  |      | 1,013,495   |   |      |  
|Long-term debt (Note 8)                                                                                                |  |      | 4,780,155   |   |      |  
|Accounts payable and accrued expenses                                                                                  |  |      | 484,548     |   |      |  
|                                                                                                                       |  |      |             |   |      |  
|Total liabilities                                                                                                      |  |      | 97,761,389  |   |      |  
|                                                                                                                       |  |      |             |   |      |  
|COMMITMENTS AND CONTINGENCIES (Notes 6 and 11)                                                                         |  |      |             |   |      |  
|STOCKHOLDERS EQUITY (Notes 13, 17 and 19)Preferred stock $-0- par
value,authorized 5,000,000 shares, no shares issued |  |      |            |   |      |  
|Common stock, par value $1; authorized 3,500,000shares, issued 1,036,999 shares in
2002 and 1,035,349 shares in 2001   |  |      | 1,036,999   |   |      |  
|Surplus                                                                                                                |  |      | 16,208,535  |   |      |  
|Accumulated deficit                                                                                                    |  |      | (5,677,981  | ) |      |  
|Accumulated other comprehensive income                                                                                 |  |      | 15,325      |   |      |  
|                                                                                                                       |  |      |             |   |      |  
|Total stockholders equity                                                                                             |  |      | 11,582,878  |   |      |  
|                                                                                                                       |  |      |             |   |      |  
|Total liabilities and stockholders equity                                                                             |  | $    | 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, 2002, 2001 and 2000



|                                                                                        |  | 2002 |           | 2001 |   |           | 2000 | 
|--------------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | ---- | 
|Interest income:                                                                        |  |      |           |      |   |           |      | 
|Interest and fees on loans                                                              |  | $    | 5,273,240 |      | $ | 5,113,683 |      | 
|Interest on investment securities                                                       |  |      | 246,232   |      |   | 438,006   |      | 
|Interest on interest bearing deposits                                                   |  |      | 12,202    |      |   | 4,036     |      | 
|Interest on federal funds sold                                                          |  |      | 194,665   |      |   | 231,383   |      | 
|                                                                                        |  |      |           |      |   |           |      | 
|                                                                                        |  |      | 5,726,339 |      |   | 5,787,108 |      | 
|                                                                                        |  |      |           |      |   |           |      | 
|Interest expense:                                                                       |  |      |           |      |   |           |      | 
|Interest on deposits (Note 15)                                                          |  |      | 1,655,526 |      |   | 2,013,777 |      | 
|Interest on short-term borrowings (Note 7)                                              |  |      | 14,316    |      |   | 139,765   |      | 
|Interest on long-term debt (Note 8)                                                     |  |      | 127,905   |      |   |          |      | 
|                                                                                        |  |      |           |      |   |           |      | 
|                                                                                        |  |      | 1,797,747 |      |   | 2,153,542 |      | 
|                                                                                        |  |      |           |      |   |           |      | 
|Net interest income                                                                     |  |      | 3,928,592 |      |   | 3,633,566 |      | 
|Provision for loan losses (Note 3)                                                      |  |      | 219,300   |      |   | 154,448   |      | 
|                                                                                        |  |      |           |      |   |           |      | 
|Net interest income after provisionfor loan/lease losses                                |  |      | 3,709,292 |      |   | 3,479,118 |      | 
|                                                                                        |  |      |           |      |   |           |      | 
|Noninterest income (loss):                                                              |  |      |           |      |   |           |      | 
|Loan servicing and other fees                                                           |  |      | 139,684   |      |   | 67,457    |      | 
|Other income (Note 14)                                                                  |  |      | 378,868   |      |   | 276,863   |      | 
|                                                                                        |  |      |           |      |   |           |      | 
|                                                                                        |  |      | 518,552   |      |   | 344,320   |      | 
|                                                                                        |  |      |           |      |   |           |      | 
|Noninterest expense:                                                                    |  |      |           |      |   |           |      | 
|Salaries                                                                                |  |      | 1,506,179 |      |   | 1,272,199 |      | 
|Employee benefits (Note 16)                                                             |  |      | 274,134   |      |   | 235,664   |      | 
|Occupancy (Note 6)                                                                      |  |      | 397,779   |      |   | 371,567   |      | 
|Furniture and equipment                                                                 |  |      | 138,982   |      |   | 116,049   |      | 
|Other (Note 18)                                                                         |  |      | 779,591   |      |   | 680,020   |      | 
|                                                                                        |  |      |           |      |   |           |      | 
|                                                                                        |  |      | 3,096,665 |      |   | 2,675,499 |      | 
|                                                                                        |  |      |           |      |   |           |      | 
|Income before federal income taxes                                                      |  |      | 1,131,179 |      |   | 1,147,939 |      | 
|Provision (benefit) for federal income taxes:                                           |  |      |           |      |   |           |      | 
|Federal, deferred (Note 10)                                                             |  |      | 389,048   |      |   | 17,316    |      | 
|Deferred (Note 10)                                                                      |  |      |          |      |   | (833,734  | )    | 
|                                                                                        |  |      |           |      |   |           |      | 
|Net income                                                                              |  | $    | 742,131   |      | $ | 1,964,357 |      | 
|                                                                                        |  |      |           |      |   |           |      | 
|Net income per common share (Notes 1 and 19)                                            |  |      |           |      |   |           |      | 
|Basic                                                                                   |  | $    | 0.72      |      | $ | 1.94      |      | 
|                                                                                        |  |      |           |      |   |           |      | 
|Diluted                                                                                 |  | $    | 0.68      |      | $ | 1.90      |      | 
|                                                                                        |  |      |           |      |   |           |      | 
|Comprehensive Income (Note 1)                                                           |  |      |           |      |   |           |      | 
|Net income                                                                              |  | $    | 742,131   |      | $ | 1,964,357 |      | 
|Other comprehensive income, net of taxUnrealized gains on available-for-sale
securities |  |      | 9,246     |      |   | 48,136    |      | 
|                                                                                        |  |      |           |      |   |           |      | 
|Comprehensive income                                                                    |  | $    | 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, 2002, 2001 and 2000



|                                                                                              |  | Common Stock |           | Surplus |   | Accumulated Deficit |  |    | Accumulated Other Comprehensive Income |   |  | Total
|--------------------------------------------------------------------------------------------- |  | ------------ | --------- | ------- | - | ------------------- |  | -- | -------------------------------------- | - |  | -----
|Balance December 31, 1999                                                                     |  | $            | 963,234   |         | $ | 15,669,690          |  | ($ | 9,604,287                              | ) |  | ($   
|Net income                                                                                    |  |              |          |         |   |                    |  |    | 1,219,818                              |   |  |      
|Net proceeds from issuance of shares of common stock                                          |  |              | 38,265    |         |   | 306,120             |  |    |                                       |   |  |      
|Change in unrealized holding gain (loss) on available-for-sale securities (AFS), net of
taxes |  |              |          |         |   |                    |  |    |                                       |   |  |      
|                                                                                              |  |              |           |         |   |                     |  |    |                                        |   |  |      
|Balance December 31, 2000                                                                     |  | $            | 1,001,499 |         | $ | 15,975,810          |  | ($ | 8,384,469                              | ) |  | ($   
|                                                                                              |  |              |           |         |   |                     |  |    |                                        |   |  |      
|Net income                                                                                    |  |              |          |         |   |                    |  |    | 1,964,357                              |   |  |      
|Net proceeds from issuance of shares of common stock                                          |  |              | 33,850    |         |   | 221,275             |  |    |                                       |   |  |      
|Change in unrealized holding gain (loss) on available-for-sale securities (AFS), net of
taxes |  |              |          |         |   |                    |  |    |                                       |   |  |      
|                                                                                              |  |              |           |         |   |                     |  |    |                                        |   |  |      
|Balance December 31, 2001                                                                     |  | $            | 1,035,349 |         | $ | 16,197,085          |  | ($ | 6,420,112                              | ) |  | $    
|                                                                                              |  |              |           |         |   |                     |  |    |                                        |   |  |      
|Net income                                                                                    |  |              |          |         |   |                    |  |    | 742,131                                |   |  |      
|Net proceeds from issuance of shares of common stock                                          |  |              | 1,650     |         |   | 11,450              |  |    |                                       |   |  |      
|Change in unrealized holding gain (loss) on available-for-sale securities (AFS), net of
taxes |  |              |          |         |   |                    |  |    |                                       |   |  |      
|                                                                                              |  |              |           |         |   |                     |  |    |                                        |   |  |      
|Balance December 31, 2002                                                                     |  | $            | 1,036,999 |         | $ | 16,208,535          |  | ($ | 5,677,981                              | ) |  | $    
|                                                                                              |  |              |           |         |   |                     |  |    |                                        |   |  |      



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, 2002, 2001 and 2000



|                                                                                                             |  | 2002 |             |   | 2001 |   |            | 2000 | 
|------------------------------------------------------------------------------------------------------------ |  | ---- | ----------- | - | ---- | - | ---------- | ---- | 
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                         |  |      |             |   |      |   |            |      | 
|Net income                                                                                                   |  | $    | 742,131     |   |      | $ | 1,964,357  |      | 
|Adjustments to reconcile net income to net cash provided by (used in) operating
activities:                  |  |      |             |   |      |   |            |      | 
|Depreciation and amortization                                                                                |  |      | 91,533      |   |      |   | 78,908     |      | 
|Provision for loan losses                                                                                    |  |      | 219,300     |   |      |   | 154,448    |      | 
|Amortization of investment security discounts                                                                |  |      | 11,052      |   |      |   | 9,590      |      | 
|Amortization of loan fees and discounts                                                                      |  |      | 117,201     |   |      |   | (9,627     | )    | 
|Net loss on sale of securities                                                                               |  |      |            |   |      |   |           |      | 
|Net (gain) on disposal of fixed assets                                                                       |  |      |            |   |      |   |           |      | 
|Net (gain) on the sale of real estate owned                                                                  |  |      | (121,419    | ) |      |   | (1,279     | )    | 
|(Increase) decrease in other assets                                                                          |  |      | 326,095     |   |      |   | (604,925   | )    | 
|Increase (decrease) in other liabilities                                                                     |  |      | 63,985      |   |      |   | (54,359    | )    | 
|                                                                                                             |  |      |             |   |      |   |            |      | 
|Net cash provided by operating activities                                                                    |  |      | 1,449,878   |   |      |   | 1,537,113  |      | 
|                                                                                                             |  |      |             |   |      |   |            |      | 
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                         |  |      |             |   |      |   |            |      | 
|Non-bank loans repaid, net of originations                                                                   |  |      | (85,428     | ) |      |   | 173,554    |      | 
|Bank loans repaid, net of originations                                                                       |  |      | (17,739,127 | ) |      |   | (3,068,458 | )    | 
|Purchases of securities available-for-sale                                                                   |  |      | (13,075,186 | ) |      |   | (1,111,795 | )    | 
|Purchases of securities held-to-maturity                                                                     |  |      | (1,942,051  | ) |      |   | (1,829,063 | )    | 
|Investments made in real estate owned                                                                        |  |      | (1,447,714  | ) |      |   | (1,359,884 | )    | 
|Proceeds received from maturity of securities available-for-sale                                             |  |      | 1,274,296   |   |      |   | 5,893,168  |      | 
|Proceeds received from maturity of securities held-to-maturity                                               |  |      | 2,875,731   |   |      |   | 1,852,087  |      | 
|Proceeds received from real estate owned                                                                     |  |      | 1,990,919   |   |      |   | 2,080,822  |      | 
|Purchases of premises and equipment                                                                          |  |      | (1,684,427  | ) |      |   | (48,623    | )    | 
|Proceeds from sale of premises and equipment                                                                 |  |      |            |   |      |   |           |      | 
|                                                                                                             |  |      |             |   |      |   |            |      | 
|Net cash provided by (used) for investing activities                                                         |  |      | (29,832,987 | ) |      |   | 2,581,808  |      | 
|                                                                                                             |  |      |             |   |      |   |            |      | 
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                         |  |      |             |   |      |   |            |      | 
|Net increase in demand deposits, savings accounts, NOW accounts and money market
accounts                    |  |      | 13,745,706  |   |      |   | 10,951,407 |      | 
|Certificates of deposit sold (matured), net                                                                  |  |      | 6,047,213   |   |      |   | 96,457     |      | 
|Net change in short-term borrowings                                                                          |  |      | (1,600,000  | ) |      |   | 414,000    |      | 
|Net change in long-term debt                                                                                 |  |      | 4,793,650   |   |      |   |           |      | 
|Proceeds from issuance of common stock                                                                       |  |      | 13,100      |   |      |   | 255,125    |      | 
|                                                                                                             |  |      |             |   |      |   |            |      | 
|Net cash provided by financing activities                                                                    |  |      | 22,999,669  |   |      |   | 11,716,989 |      | 
|                                                                                                             |  |      |             |   |      |   |            |      | 
|Net increase (decrease) in cash and cash equivalents                                                         |  |      | (5,383,440  | ) |      |   | 15,835,910 |      | 
|Cash and cash equivalents at beginning of year                                                               |  |      | 19,425,935  |   |      |   | 3,590,025  |      | 
|                                                                                                             |  |      |             |   |      |   |            |      | 
|Cash and cash equivalents at end of year                                                                     |  | $    | 14,042,495  |   |      | $ | 19,425,935 |      | 
|                                                                                                             |  |      |             |   |      |   |            |      | 
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                                            |  |      |             |   |      |   |            |      | 
|Cash paid during the years for:                                                                              |  |      |             |   |      |   |            |      | 
|Interest on deposits and other borrowings                                                                    |  | $    | 1,806,211   |   |      | $ | 2,217,035  |      | 
|                                                                                                             |  |      |             |   |      |   |            |      | 
|Income taxes                                                                                                 |  | $    | 18,514      |   |      | $ | 37,606     |      | 
|                                                                                                             |  |      |             |   |      |   |            |      | 
|NON-CASH ITEMS                                                                                               |  |      |             |   |      |   |            |      | 
|Increase in foreclosed properties and decrease in loans                                                      |  | $    |            |   |      | $ |           |      | 
|Effect on stockholders equity of an unrealized gain (loss) on debt and equity
securities available-for-sale |  |      | 9,246       |   |      |   | 48,136     |      | 



See Notes to
Consolidated Financial Statements.



5



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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 State of Virginia. UFBC also wholly owns Business Venture Capital, Inc. (BVCI), a subsidiary which conducts limited lending and other investment activities and United Facilities LLC (UFLLC) which 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



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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, 2002 and 2001, the Company held no securities classified as trading as defined in SFAS 125.



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 non-accrual status when a loan is
specifically determined to be impaired or when principal or interest is delinquent for 90 days or more. Any unpaid interest previously accrued on those loans is reversed from income. Interest income generally is not recognized on specific impaired
loans unless the likelihood of further loss is remote. Interest payments received on such loans are applied as a reduction of the loan principal balance. Interest income on other non-accrual loans is recognized only to the extent of interest
payments received.



Allowance for loan 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) SFAS 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, which
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 market value. In the normal course of
business, it is possible that the estimated market value will change in the near term. Write-downs to market value at the date of foreclosure are charged to the allowance for loan losses. Subsequent declines in market value are charged to expense.
Routine holding costs, subsequent declines and recoveries in appraised value are included in noninterest expense. Net gains or losses on disposal are included in noninterest income.



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, 2002 and 2001, totaled $110,067 and $107,042, 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, in Note 17 to the consolidated financial statements.





8



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





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



Reclassifications:



Certain amounts for fiscal year 2001 and 2000 have been reclassified to conform to the presentation for fiscal year 2002.



Recently Issued Accounting Standards:



Recently issued accounting standards are not expected to materially affect the Companys financial statements.



Note 2.    Securities



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



|Securities Available-for-Sale |  | Amortized Cost |            | Gross Unrealized Gains |   | Gross Unrealized Losses |  |   | Fair Value
|----------------------------- |  | -------------- | ---------- | ---------------------- | - | ----------------------- |  | - | ----------
|December 31, 2002:            |  |                |            |                        |   |                         |  |   |           
|U.S. Treasury                 |  | $              | 9,999,739  |                        | $ |                        |  | $ |          
|U.S. Government Agencies      |  |                | 1,868,051  |                        |   | 27,155                  |  |   |          
|Mortgage-backed Securities    |  |                | 901,366    |                        |   |                        |  |   | (7,067    
|Mutual Funds                  |  |                | 2,000,000  |                        |   |                        |  |   |          
|Equity                        |  |                | 312,750    |                        |   |                        |  |   |          
|                              |  |                |            |                        |   |                         |  |   |           
|Total                         |  | $              | 15,081,906 |                        | $ | 27,155                  |  | $ | (7,067    
|                              |  |                |            |                        |   |                         |  |   |           
|December 31, 2001:            |  |                |            |                        |   |                         |  |   |           
|U.S. Government Agencies      |  | $              | 1,834,528  |                        | $ |                        |  | $ | (432      
|Mortgage-backed Securities    |  |                | 1,250,759  |                        |   | 6,511                   |  |   |          
|Equity                        |  |                | 229,150    |                        |   |                        |  |   |          
|                              |  |                |            |                        |   |                         |  |   |           
|Total                         |  | $              | 3,314,437  |                        | $ | 6,511                   |  | $ | (432      
|                              |  |                |            |                        |   |                         |  |   |           
|Securities Held-to-Maturity   |  |                |            |                        |   |                         |  |   |           
|December 31, 2002:            |  |                |            |                        |   |                         |  |   |           
|U.S. Government Agencies      |  | $              | 1,218,719  |                        | $ | 2,235                   |  | $ |          
|Mortgage-backed Securities    |  |                | 95,060     |                        |   | 3,720                   |  |   |          
|                              |  |                |            |                        |   |                         |  |   |           
|Total                         |  | $              | 1,313,779  |                        | $ | 5,955                   |  | $ |          
|                              |  |                |            |                        |   |                         |  |   |           
|December 31, 2001:            |  |                |            |                        |   |                         |  |   |           
|U.S. Government Agencies      |  | $              | 2,072,498  |                        | $ | 34,266                  |  | $ |          
|Mortgage-backed Securities    |  |                | 174,961    |                        |   | 7,301                   |  |   |          
|                              |  |                |            |                        |   |                         |  |   |           
|Total                         |  | $              | 2,247,459  |                        | $ | 41,567                  |  | $ |          
|                              |  |                |            |                        |   |                         |  |   |           



9



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note
2.    Securities (continued)



The amortized cost and estimated fair value of securities at December 31, 2002 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:



|Securities Available-for-Sale      |  | Amortized Cost |            | Fair Value
|---------------------------------- |  | -------------- | ---------- | ----------
|Due in one year or less            |  | $              | 11,999,739 |           
|Due after 1 year through 5 years   |  |                | 499,270    |           
|Due after 5 years through 10 years |  |                | 174,389    |           
|Due after 10 years                 |  |                | 2,095,758  |           
|                                   |  |                |            |           
|                                   |  |                | 14,769,156 |           
|                                   |  |                |            |           
|Equity securities                  |  |                | 312,750    |           
|                                   |  |                |            |           
|Total                              |  | $              | 15,081,906 |           
|                                   |  |                |            |           
|Securities Held-to-Maturity        |  | Amortized Cost |            | Fair Value
|Due in one year or less            |  | $              |           |           
|Due after 1 year through 5 years   |  |                | 595,060    |           
|Due after 5 years through 10 years |  |                | 718,719    |           
|Due after 10 years                 |  |                |           |           
|                                   |  |                |            |           
|Total                              |  | $              | 1,313,779  |           
|                                   |  |                |            |           



Held-to-maturity securities with an amortized cost of $500,000 at December 31, 2002 were pledged as collateral to the Treasury Board of Virginia for public funds held by the Bank and to the Federal Reserve Bank of Richmond for the
Banks treasury, tax and loan account.



No
gross gains or gross losses were realized in 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, 2002, 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, 2002.



Note 3.    Loans and Related Accounts



Major classifications of loans are summarized as follows:



|                                |  | 2002 |            |   | 2001 |  
|------------------------------- |  | ---- | ---------- | - | ---- | -
|Commercial                      |  | $    | 58,673,221 |   |      | $
|Real estate construction        |  |      | 7,790,391  |   |      |  
|Real estate mortgage            |  |      | 5,278,302  |   |      |  
|Installment                     |  |      | 4,695,561  |   |      |  
|                                |  |      |            |   |      |  
|                                |  |      | 76,437,475 |   |      |  
|Less unearned discount          |  |      | (219,870   | ) |      |  
|                                |  |      |            |   |      |  
|                                |  |      | 76,217,605 |   |      |  
|Allowance for loan/lease losses |  |      | (1,251,764 | ) |      |  
|                                |  |      |            |   |      |  
|Loans, net                      |  | $    | 74,965,841 |   |      | $
|                                |  |      |            |   |      |  



At
December 31, 2002 and 2001, overdrafts of $372,894 and $425,634, respectively, are included in commercial loans.





10



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note
3.    Loans and Related Accounts (continued)



Changes in the allowance for loan losses were as follows:



|                                |  | 2002 |           |   | 2001 |   |           | 2000 | 
|------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- | 
|Balance, beginning of year      |  | $    | 1,057,344 |   |      | $ | 973,431   |      | 
|Provision charged to operations |  |      | 219,300   |   |      |   | 154,448   |      | 
|Loans charged off               |  |      | (29,645   | ) |      |   | (93,639   | )    | 
|Recoveries                      |  |      | 4,765     |   |      |   | 23,104    |      | 
|                                |  |      |           |   |      |   |           |      | 
|Balance, end of year            |  | $    | 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:



|                     |  | 2002 |         | 2001 |   | 2000  
|-------------------- |  | ---- | ------- | ---- | - | ------
|Non-accrual          |  | $    | 98,055  |      | $ | 28,367
|Restructured         |  |      | 14,879  |      |   |      
|Other impaired loans |  |      | 18,966  |      |   |      
|                     |  |      |         |      |   |       
|Total impaired loans |  | $    | 131,900 |      | $ | 28,367
|                     |  |      |         |      |   |       



The
allowance for loan losses related to impaired loans amounted to approximately $26,380, $5,673, and $31,036 at December 31, 2002, 2001 and 2000, respectively.



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



|                                                |  | 2002 |        |   | 2001 |   |        | 2000
|----------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ----
|Interest that would have been accrued as income |  | $    | 6,472  |   |      | $ | 3,936  |     
|Interest paid and recognized as interest income |  |      | (1,268 | ) |      |   | (2,571 | )   
|                                                |  |      |        |   |      |   |        |     
|Interest forgone                                |  | $    | 5,204  |   |      | $ | 1,365  |     
|                                                |  |      |        |   |      |   |        |     



The
annual average balance of impaired loans on which income was recognized on a cash basis was $114,000, $33,000, and $16,000 for the years ending December 31, 2002, 2001 and 2000, respectively. There were no commitments to lend additional funds to
customers whose loans were classified as impaired at December 31, 2002.



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, 2002, the Company had uninsured cash of $1,190,002.



At December 31, 2002, four deposit relationships held
approximately 12.0% of the Banks total deposits.





11



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note
5.    Real Estate Owned



|                                           |  | 2002 |         |   | 2001 |  
|------------------------------------------ |  | ---- | ------- | - | ---- | -
|Real estate owned                          |  | $    | 265,428 |   |      | $
|Allowances for losses on real estate owned |  |      | (42,807 | ) |      |  
|                                           |  |      |         |   |      |  
|Real estate owned, net                     |  | $    | 222,621 |   |      | $
|                                           |  |      |         |   |      |  



The
Company did not capitalize interest on real estate owned for the years ended December 31, 2002 and 2001.



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



|                                     |  | 2002 |          |   | 2001
|------------------------------------ |  | ---- | -------- | - | ----
|Balance, beginning                   |  | $    | 620,700  |   |     
|Provision charged to operations      |  |      |         |   |     
|Realized losses charged to allowance |  |      | (577,893 | ) |     
|                                     |  |      |          |   |     
|Balance, ending                      |  | $    | 42,807   |   |     
|                                     |  |      |          |   |     



Note
6.    Premises and Equipment



Major classifications of premises and equipment are summarized as follows:



|                                          |  | 2002 |           |   | 2001 |  
|----------------------------------------- |  | ---- | --------- | - | ---- | -
|Land                                      |  | $    | 818,910   |   |      | $
|Building                                  |  |      | 495,566   |   |      |  
|Leasehold improvements                    |  |      | 110,410   |   |      |  
|Furniture, fixtures and equipment         |  |      | 1,105,588 |   |      |  
|                                          |  |      |           |   |      |  
|                                          |  |      | 2,530,474 |   |      |  
|Accumulated depreciation and amortization |  |      | (761,197  | ) |      |  
|                                          |  |      |           |   |      |  
|                                          |  | $    | 1,769,277 |   |      | $
|                                          |  |      |           |   |      |  



Depreciation and amortization expense of $91,533 in 2002, $78,908 in 2001 and $90,208 in 2000, 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, 2002, are as follows:



|2003                         |  | $ | 280,501  
|---------------------------- |  | - | ---------
|2004                         |  |   | 279,301  
|2005                         |  |   | 279,301  
|2006                         |  |   | 279,301  
|2007                         |  |   | 70,939   
|Later years                  |  |   | 100,497  
|                             |  |   |          
|Total minimum lease payments |  | $ | 1,289,840
|                             |  |   |          



At
December 31, 2002, the Companys operations included one owned and two 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 $1,307,249 at December 31, 2002.



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 3,185 square feet of storage space in Reston,
Virginia. The lease term is for two years that commenced February 7, 2001.





12



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note
6.    Premises and Equipment (continued)



Subsequent to December 31, 2002, the Bank entered into a lease for 12,184 square feet in Vienna, Virginia. The lease term is for ten years with four options, each granting five year extensions. The lease commences September 1, 2003.



Rental expense for operating leases amounted to
$291,743, $294,995 and $280,942 for the years ended December 31, 2002, 2001 and 2000, 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



|                                            |  | 2002 |           |   | 2001 |  
|------------------------------------------- |  | ---- | --------- | - | ---- | -
|Federal Home Loan Bank of Atlanta           |  | $    | 1,013,495 |   |      | $
|                                            |  |      |           |   |      |  
|Average daily amount outstanding            |  | $    | 303,014   |   |      | $
|                                            |  |      |           |   |      |  
|Weighted average interest rate              |  |      | 4.72      | % |      |  
|                                            |  |      |           |   |      |  
|Maximum amount outstanding at any month-end |  | $    | 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 $11,957,515 at December 31, 2002 and $4,402,667 at December 31, 2001.



At December 31, 2002, the Bank had unsecured lines of credit
with correspondent banks totaling $17,000,000 available for overnight borrowing. There were no amounts drawn on these lines of credit. At December 31, 2001, the Bank had $2,600,000 of overnight borrowing.



Note 8.    Long-term Debt



At December 31, 2002, long-term debt consisted of $4,000,000
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 3.19% 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%. Long-term debt maturing in each of the five years subsequent to December 31, 2002, is as follows: 2003$0; 2004$1,014,265;
2005$1,015,381; 2006$1,016,426; 2007$1,734,083.



Note 9.    Deposits



Deposit account balances at December 31, 2002 and 2001 are summarized as follows:



|                                           |  | 2002 |            | 2001
|------------------------------------------ |  | ---- | ---------- | ----
|Noninterest-bearing demand                 |  | $    | 23,977,619 |     
|Interest-bearing demand                    |  |      | 19,153,712 |     
|Savings deposits                           |  |      | 15,798,694 |     
|Certificates of deposits under $100,000    |  |      | 17,976,949 |     
|Certificates of deposits $100,000 and over |  |      | 14,576,217 |     
|                                           |  |      |            |     
|                                           |  | $    | 91,483,191 |     
|                                           |  |      |            |     



Certificates maturing in years ending December 31, as of December 31, 2002:



|2003                |  | $ | 19,772,305
|------------------- |  | - | ----------
|2004                |  |   | 9,017,664 
|2005                |  |   | 2,776,687 
|2006                |  |   | 966,012   
|2007 and thereafter |  |   | 20,498    
|                    |  |   |           
|                    |  | $ | 32,553,166
|                    |  |   |           





13



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note
10.    Income Taxes



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



|         |  | 2002 |         | 2001 |   |          | 2000 | 
|-------- |  | ---- | ------- | ---- | - | -------- | ---- | 
|Current  |  | $    |        |      | $ | 17,316   |      | 
|Deferred |  |      | 389,048 |      |   | (833,734 | )    | 
|         |  |      |         |      |   |          |      | 
|         |  | $    | 389,048 |      | $ | (816,418 | )    | 
|         |  |      |         |      |   |          |      | 



|                                                  |  | 2002 |           |   | 2001 |   |           | 2000 | 
|------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- | 
|Income before income taxes                        |  | $    | 1,131,179 |   |      | $ | 1,147,939 |      | 
|Applicable statutory income tax rate              |  |      | 34        | % |      |   | 34        | %    | 
|                                                  |  |      |           |   |      |   |           |      | 
|Computed expected federal tax expense           |  | $    | 384,601   |   |      | $ | 390,299   |      | 
|Adjustments to federal income tax resulting from: |  |      |           |   |      |   |           |      | 
|Nondeductible expenses                            |  | $    | 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                  |  | $    | 389,048   |   |      | $ | (816,418  | )    | 
|                                                  |  |      |           |   |      |   |           |      | 
|Other comprehensive income                        |  | $    | 14,009    |   |      | $ | 48,136    |      | 
|Applicable tax                                    |  |      | 4,763     |   |      |   | 16,366    |      | 
|Net operating loss carryforward                   |  |      |          |   |      |   | (16,366   | )    | 
|                                                  |  |      |           |   |      |   |           |      | 
|Other comprehensive income, net of tax            |  | $    | 9,246     |   |      | $ | 48,136    |      | 
|                                                  |  |      |           |   |      |   |           |      | 



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



|                                                  |  | 2002 |           |   | 2001 |  
|------------------------------------------------- |  | ---- | --------- | - | ---- | -
|Deferred tax assets (liabilities):                |  |      |           |   |      |  
|Accelerated depreciation                          |  | $    | (1,376    | ) |      | $
|Provision for loan losses                         |  |      | 357,851   |   |      |  
|Valuation adjustments of real property            |  |      | 14,554    |   |      |  
|Deferred loan fees                                |  |      | 74,756    |   |      |  
|Unrealized gain/loss on investment securities     |  |      | (6,830    | ) |      |  
|Deferred rent                                     |  |      | 47,149    |   |      |  
|Net operating loss carryforward                   |  |      | 872,975   |   |      |  
|                                                  |  |      |           |   |      |  
|Net deferred tax asset before valuation allowance |  | $    | 1,359,079 |   |      | $
|Deferred tax valuation allowance                  |  |      |          |   |      |  
|                                                  |  |      |           |   |      |  
|Net deferred tax asset                            |  | $    | 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. Based on the same analysis, $407,732 was
recognized in 2000.



At December 31, 2002, the
Company had net operating loss carryforwards for regular income tax purposes of $2,567,572 which will expire $577,781 in 2011 and $1,989,791 in 2012. The Company also has an alternative minimum tax credit carryforward of approximately $358,000 which
may be carried forward indefinitely.





14



---

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, 2002 which would have a material adverse effect on the Companys financial statements.



Financial Instruments With Off-Balance
Risk

In the normal course of business, the Company makes various commitments and incurs certain contingent liabilities
that are not reflected in the accompanying financial statements. These commitments and contingent liabilities include commitments to extend credit and standby letters of credit. The Company evaluates each customers creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company, upon extension of credit, is based on managements credit evaluation of the customer. Such collateral, where required, generally consists of cash, real
estate and/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, 2002 and 2001, unused commitments that were extended under lines of credit amounted to $12,063,652 and $9,886,395, respectively.



The Companys outstanding standby letters
of credit amounted to $3,924,088 and $2,387,088 as of December 31, 2002 and 2001, respectively. The credit risk involved in issuing letters of credit is essentially the same as that involved in making loans to customers. Most of the Companys
letters of credit are cash secured.



Note
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, 2000 |  | $ | 2,649,652  |  
|-------------------------- |  | - | ---------- | -
|Additions                  |  |   | 814,071    |  
|Reductions                 |  |   | (1,053,817 | )
|                           |  |   |            |  
|Balance, December 31, 2001 |  | $ | 2,409,906  |  
|Additions                  |  |   | 2,023,354  |  
|Reductions                 |  |   | (878,888   | )
|                           |  |   |            |  
|Balance, December 31, 2002 |  | $ | 3,554,372  |  
|                           |  |   |            |  



The
December 31, 2002 balance consists of secured loans totaling $3,373,772 and unsecured loans totaling $180,600. None of the loans to related parties were classified as impaired or non-performing at December 31, 2002.



The Bank held related party deposits of approximately
$8,371,000 and $6,671,000 at December 31, 2002 and 2001, respectively.



Subsequent to December 31, 2002, 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 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 commences 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.





15



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note
13.    Regulatory Requirements and Restrictions



The Companys banking subsidiary is subject to federal and/or state statutes which prohibit or restrict certain of its activities, including the transfer of funds to the Company. There are restrictions on loans from the
Bank to the Company, and the Bank is limited as to the amount of cash dividends it can pay. The Bank paid no dividends in 2002, 2001 and 2000.



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 $9,451,676 at December 31, 2002; thus net
assets of the Bank in excess of $945,168 were restricted from use by the Holding Company in the form of loans or advances. The Holding Company had no such borrowings from the Bank in 2002 or 2001.



As a participant in the Federal Reserve system, the Bank is
required to maintain certain average reserve balances which are non-interest bearing. The daily average reserve requirement for the week including December 31, 2002 was $827,000.



The Company is subject to various regulatory capital requirements administered by the Federal banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Companys financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and bank subsidiary must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance
sheet items as calculated under regulatory accounting practices. The Company and bank subsidiary are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.



Quantitative measures established by regulation to ensure
capital adequacy require the Bank to maintain minimum amounts and ratios of Total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. The Federal Reserves capital guidelines do not currently apply to the
Company. They will apply to the Company at such time as it has total assets equal to $150,000,000 or more, it has public debt, or it engages in certain highly leveraged activities. At December 31, 2002, the Bank met the criteria to be well
capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain Total risk-based, Tier 1 risk-based and Tier 1 average asset ratios as set forth in the table. There are no
conditions and have been no events since December 31, 2002 that management believes would result in the institution not being well capitalized.



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
|As of December 31, 2002:                 |  |            |  |       |                                        |  |           |                                 |      
|Total capital (to risk-weighted assets)  |  |            |  |       |                                        |  |           |                                 |      
|Company                                  |  | 11,457,679 |  | 14.31 | %                                      |  | 6,403,334 |                                 | 8.00 
|The Business Bank                        |  | 10,409,455 |  | 13.39 | %                                      |  | 6,219,215 |                                 | 8.00 
|Tier 1 capital (to risk-weighted assets) |  |            |  |       |                                        |  |           |                                 |      
|Company                                  |  | 10,454,056 |  | 13.06 | %                                      |  | 3,201,667 |                                 | 4.00 
|The Business Bank                        |  | 9,434,284  |  | 12.14 | %                                      |  | 3,109,608 |                                 | 4.00 
|Tier 1 capital (to average assets)       |  |            |  |       |                                        |  |           |                                 |      
|Company                                  |  | 10,454,056 |  | 10.07 | %                                      |  | 4,151,064 |                                 | 4.00 
|The Business Bank                        |  | 9,434,284  |  | 9.47  | %                                      |  | 3,986,538 |                                 | 4.00 
|As of December 31, 2001:                 |  |            |  |       |                                        |  |           |                                 |      
|Total capital (to risk-weighted assets)  |  |            |  |       |                                        |  |           |                                 |      
|Company                                  |  | 10,096,694 |  | 16.01 | %                                      |  | 5,045,498 |                                 | 8.00 
|The Business Bank                        |  | 8,918,435  |  | 14.63 | %                                      |  | 4,875,611 |                                 | 8.00 
|Tier 1 capital (to risk-weighted assets) |  |            |  |       |                                        |  |           |                                 |      
|Company                                  |  | 9,305,014  |  | 14.75 | %                                      |  | 2,522,749 |                                 | 4.00 
|The Business Bank                        |  | 8,152,998  |  | 13.38 | %                                      |  | 2,437,806 |                                 | 4.00 
|Tier 1 capital (to average assets)       |  |            |  |       |                                        |  |           |                                 |      
|Company                                  |  | 9,305,014  |  | 11.07 | %                                      |  | 3,362,033 |                                 | 4.00 
|The Business Bank                        |  | 8,152,998  |  | 9.88  | %                                      |  | 3,301,240 |                                 | 4.00 



16



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note
14    Other Income



|                                  |  | 2002 |         | 2001 |   | 2000   
|--------------------------------- |  | ---- | ------- | ---- | - | -------
|Service charges on deposits       |  | $    | 211,126 |      | $ | 219,357
|Fees on letters of credit         |  |      | 23,945  |      |   | 17,910 
|Gain on sale of real estate owned |  |      | 121,419 |      |   | 1,279  
|Sweep income                      |  |      | 7,656   |      |   | 20,979 
|Other                             |  |      | 14,722  |      |   | 17,338 
|                                  |  |      |         |      |   |        
|                                  |  | $    | 378,868 |      | $ | 276,863
|                                  |  |      |         |      |   |        



Note
15.    Interest on Deposits



|                  |  | 2002 |           | 2001 |   | 2000     
|----------------- |  | ---- | --------- | ---- | - | ---------
|Savings and NOW   |  | $    | 393,736   |      | $ | 153,170  
|Money market      |  |      | 192,968   |      |   | 408,297  
|Time:             |  |      |           |      |   |          
|Under $100,000    |  |      | 635,703   |      |   | 868,854  
|$100,000 and over |  |      | 433,119   |      |   | 583,455  
|                  |  |      |           |      |   |          
|                  |  | $    | 1,655,526 |      | $ | 2,013,776
|                  |  |      |           |      |   |          



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 $2,800 in 2002, $1,900 in 2001 and $1,800 in 2000.
The Company made contributions of $30,000 in 2002 and 2001and $24,000 in 2000. 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 based on formula adjustments since adoption of the 1990 Plan. 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 is 56,113. The 1999 Plan expires December 31, 2003. At December 31, 2002, 47,000 options to purchase
common stock had been granted under the 1999 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 a 1996 and
1999 Nonqualified Stock Option Plan for Non-Employee Directors (the Directors Plan) which awards options to purchase common stock to non-employee directors of the Company and of the Bank. The 1999 Directors Plan also includes awards to advisory
board members. The maximum number of shares issuable under the 1996 Directors Plan was 8,000. The 1996 Directors Plan expired on July 1, 1998 and all options to purchase common stock were awarded. The maximum number of shares issuable under the 1999
Directors Plan is 35,000. At December 31, 2002, 26,200 options to purchase common stock had been granted under the 1999 Directors Plan. The 1999 Directors Plan expires on August 1, 2003.





17



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





The
following table summarizes the Companys stock option plan status and activity for the years ended December 31, 2002, 2001 and 2000:



|                                 |  | 2002             |   | 2001 |                                 | 2000 
|-------------------------------- |  | ---------------- | - | ---- | ------------------------------- | -----
|                                 |  | Number of Shares |   |      | Weighted Average Exercise Price |      
|Outstanding at beginning of year |  | 110,780          |   |      | $                               | 8.23 
|Granted                          |  | 29,200           |   |      | $                               | 10.25
|Exercised                        |  | (1,650           | ) |      | $                               | 7.94 
|Forfeited                        |  | (1,500           | ) |      | $                               | 8.50 
|Expired                          |  | (150             | ) |      | $                               | 9.00 
|                                 |  |                  |   |      |                                 |      
|Outstanding at end of year       |  | 136,680          |   |      | $                               | 8.66 
|                                 |  |                  |   |      |                                 |      
|Exercisable at end of year       |  | 96,857           |   |      |                                 |      



Information pertaining to options outstanding at December 31, 2002 is as follows:



|Weighted Average Contractual Life Remaining |  | Range of Exercise Prices |       | Number Outstanding at December 31, 2002 |         | Number Exercisable at December 31, 2002
|------------------------------------------- |  | ------------------------ | ----- | --------------------------------------- | ------- | ---------------------------------------
|3.0 years                                   |  | $                        | 7.50  |                                         | 42,082  |                                        
|5.3 years                                   |  | $                        | 8.75  |                                         | 5,100   |                                        
|6.0 years                                   |  | $                        | 8.75  |                                         | 18,098  |                                        
|6.6 years                                   |  | $                        | 8.75  |                                         | 4,600   |                                        
|7.0 years                                   |  | $                        | 9.00  |                                         | 12,300  |                                        
|8.0 years                                   |  | $                        | 8.50  |                                         | 25,300  |                                        
|9.0 years                                   |  | $                        | 10.25 |                                         | 29,200  |                                        
|                                            |  |                          |       |                                         |         |                                        
|                                            |  |                          |       |                                         | 136,680 |                                        
|                                            |  |                          |       |                                         |         |                                        



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. Early application is encouraged for both amendments.



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. A summary of the assumptions used and pro forma results for 2002, 2001 and 2000 is as follows:





18



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





|December 31,                           |  | 2002 |         |   | 2001 |   |           | 2000 | 
|-------------------------------------- |  | ---- | ------- | - | ---- | - | --------- | ---- | 
|Assumptions                            |  |      |         |   |      |   |           |      | 
|Risk-free interest rate                |  |      | 3.82    | % |      |   | 4.56      | %    | 
|Dividend yield                         |  |      |        |   |      |   |          |      | 
|Volatility factor                      |  |      | 10.00   | % |      |   | 10.00     | %    | 
|Weighted average expected life (years) |  |      | 5.0     |   |      |   | 5.0       |      | 
|Pro forma results                      |  |      |         |   |      |   |           |      | 
|Net income:                            |  |      |         |   |      |   |           |      | 
|As reported                            |  | $    | 742,131 |   |      | $ | 1,964,357 |      | 
|Pro forma                              |  | $    | 677,537 |   |      | $ | 1,953,817 |      | 
|Basic earnings per share:              |  |      |         |   |      |   |           |      | 
|As reported                            |  | $    | 0.72    |   |      | $ | 1.94      |      | 
|Pro forma                              |  | $    | 0.65    |   |      | $ | 1.93      |      | 
|Diluted earnings per share             |  |      |         |   |      |   |           |      | 
|As reported                            |  | $    | 0.68    |   |      | $ | 1.90      |      | 
|Pro forma                              |  | $    | 0.62    |   |      | $ | 1.89      |      | 
|Fair value of options per share        |  | $    | 6.33    |   |      | $ | 1.53      |      | 



Note
18.    Other Expense



|                                   |  | 2002 |         | 2001 |   | 2000   
|---------------------------------- |  | ---- | ------- | ---- | - | -------
|Data processing                    |  | $    | 171,132 |      | $ | 160,283
|Professional fees                  |  |      | 104,443 |      |   | 83,547 
|State franchise tax                |  |      | 61,200  |      |   | 45,200 
|Stationery, printing and supplies  |  |      | 56,016  |      |   | 45,450 
|Insurance                          |  |      | 46,159  |      |   | 39,886 
|Postage                            |  |      | 30,538  |      |   | 27,480 
|Telephone                          |  |      | 49,986  |      |   | 36,737 
|Advertising                        |  |      | 15,296  |      |   | 19,021 
|Real estate owned, holding expense |  |      | 15,670  |      |   | 26,788 
|Other                              |  |      | 229,151 |      |   | 195,628
|                                   |  |      |         |      |   |        
|                                   |  | $    | 779,591 |      | $ | 680,020
|                                   |  |      |         |      |   |        



Advertising costs are expensed as incurred.



Note
19.    Shareholders Equity



The Company has authorized 5,000,000 shares of no par value preferred stock. At December 31, 2002 and 2001, 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, 2002 and 2001, there were 1,036,999 and 1,035,349 common shares outstanding, respectively. Common shares reserved by the Company for future issuance (stock option plans and stock warrants) total 165,592.



Warrants and Options

During 2002, stock options to purchase six hundred and fifty shares of common stock pursuant to the Executive Stock Plan were exercised.
Stock options to purchase one thousand shares of common stock pursuant to the Directors Stock Plan also were exercised during 2002. A warrant to purchase 2,000 shares of common stock was unexercised as of December 31, 2002 and expires January 27,
2007.



During 2001, warrants to purchase
thirty-two thousand shares of common stock were exercised at $7.50 per share. Additionally, stock options to purchase one thousand eight hundred and fifty shares of common stock pursuant to the Executive Stock Plan were exercised during 2001.





19



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note
19.    Shareholders Equity (continued)



The following table is a reconciliation of earnings per common share as computed under SFAS 128 (Note 1).



|                                            |  | Income (Numerator) |           | Shares (Denominator) |           | Per Share Amount
|------------------------------------------- |  | ------------------ | --------- | -------------------- | --------- | ----------------
|                                            |  |                    |           |                      |           |                 
|Basic Earnings Per Share                    |  |                    |           |                      |           |                 
|For the year ended December 31, 2002        |  |                    |           |                      |           |                 
|Basic earnings per common share:            |  |                    |           |                      |           |                 
|Income available to common stockholders     |  | $                  | 742,131   |                      | 1,035,783 |                 
|                                            |  |                    |           |                      |           |                 
|For the year ended December 31, 2001        |  |                    |           |                      |           |                 
|Basic earnings per common share:            |  |                    |           |                      |           |                 
|Net income available to common stockholders |  | $                  | 1,964,357 |                      | 1,010,341 |                 
|                                            |  |                    |           |                      |           |                 
|For the year ended December 31, 2000        |  |                    |           |                      |           |                 
|Basic earnings per common share:            |  |                    |           |                      |           |                 
|Net income available to common stockholders |  | $                  | 1,219,818 |                      | 996,481   |                 
|                                            |  |                    |           |                      |           |                 
|Diluted Earnings Per Share                  |  |                    |           |                      |           |                 
|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12/31/11            |  |                    |           |                      | 59,048    |                 
|                                            |  |                    |           |                      |           |                 
|Weighted-average dilutive shares            |  |                    |           |                      | 60,064    |                 
|Diluted earnings per common share:          |  | $                  | 742,131   |                      | 1,095,847 |                 
|                                            |  |                    |           |                      |           |                 
|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12/31/10            |  |                    |           |                      | 21,790    |                 
|                                            |  |                    |           |                      |           |                 
|Weighted-average dilutive shares            |  |                    |           |                      | 22,327    |                 
|Diluted earnings per common share:          |  | $                  | 1,964,357 |                      | 1,032,668 |                 
|                                            |  |                    |           |                      |           |                 
|For the year ended December 31, 2000        |  |                    |           |                      |           |                 
|Net Income available to common stockholders |  | $                  | 1,219,818 |                      | 996,481   |                 
|                                            |  |                    |           |                      |           |                 
|Add: Contracts to issue common stock        |  |                    |           |                      |           |                 
|Warrantsexpire 9/30/01                     |  |                    |           |                      | 3,765     |                 
|Warrantexpires 01/27/07                    |  |                    |           |                      | 235       |                 
|Optionsexpire 12/31/0512/31/09            |  |                    |           |                      | 5,186     |                 
|                                            |  |                    |           |                      |           |                 
|Weighted-average dilutive shares            |  |                    |           |                      | 9,186     |                 
|Diluted earnings per common share:          |  | $                  | 1,219,818 |                      | 1,005,667 |                 
|                                            |  |                    |           |                      |           |                 





20



---

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, 2002 and 2001. The fair value of fixed maturity certificates of deposit is estimated using the
rates currently offered for deposits of similar remaining maturities.



|                                |  | 2002       |            | 2001      
|------------------------------- |  | ---------- | ---------- | ----------
|                                |  | Book Value |            | Fair Value
|Financial Assets:               |  |            |            |           
|Cash and short-term investments |  | $          | 14,042,000 |           
|Investment securities           |  |            | 16,416,000 |           
|Net loans                       |  |            | 74,966,000 |           
|Financial Liabilities:          |  |            |            |           
|Deposits                        |  |            | 91,483,000 |           
|Short-term borrowings           |  |            | 1,014,000  |           
|Long-term debt                  |  |            | 4,780,000  |           



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





21



---

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, 2002 and 2001, and for the years ended December 31, 2002, 2001 and 2000, follow:



BALANCE SHEETS

December 31, 2002 and 2001



|ASSETS                                     |  | 2002 |            | 2001
|------------------------------------------ |  | ---- | ---------- | ----
|Cash on deposit with subsidiary bank       |  | $    | 273,913    |     
|Investment in The Business Bank            |  |      | 9,451,676  |     
|Investments in other subsidiaries          |  |      | 1,088,446  |     
|Other assets                               |  |      | 814,928    |     
|                                           |  |      |            |     
|Total assets                               |  | $    | 11,628,963 |     
|                                           |  |      |            |     
|LIABILITIES AND STOCKHOLDERS EQUITY       |  |      |            |     
|LIABILITIES                                |  |      |            |     
|Other liabilities                          |  | $    | 46,085     |     
|                                           |  |      |            |     
|Total liabilities                          |  |      | 46,085     |     
|                                           |  |      |            |     
|STOCKHOLDERS EQUITY                       |  |      | 11,582,878 |     
|                                           |  |      |            |     
|Total liabilities and stockholders equity |  | $    | 11,628,963 |     
|                                           |  |      |            |     



STATEMENTS OF INCOME

Years Ended December 31, 2002, 2001 and 2000



|                                       |  | 2002 |         |   | 2001 |   |           | 2000 | 
|-------------------------------------- |  | ---- | ------- | - | ---- | - | --------- | ---- | 
|Income:                                |  |      |         |   |      |   |           |      | 
|Interest                               |  | $    | 3,922   |   |      | $ | 2,903     |      | 
|Other                                  |  |      | 91,368  |   |      |   | 90,000    |      | 
|                                       |  |      |         |   |      |   |           |      | 
|Total income                           |  |      | 95,290  |   |      |   | 92,903    |      | 
|Expenses                               |  |      | 133,307 |   |      |   | 88,775    |      | 
|                                       |  |      |         |   |      |   |           |      | 
|                                       |  |      | (38,017 | ) |      |   | 4,128     |      | 
|Undistributed net gain of subsidiaries |  |      | 771,265 |   |      |   | 1,539,428 |      | 
|                                       |  |      |         |   |      |   |           |      | 
|Income before income taxes             |  |      | 733,248 |   |      |   | 1,543,556 |      | 
|Federal income tax expense (benefit)   |  |      | (8,883  | ) |      |   | (420,801  | )    | 
|                                       |  |      |         |   |      |   |           |      | 
|Net income                             |  | $    | 742,131 |   |      | $ | 1,964,357 |      | 
|                                       |  |      |         |   |      |   |           |      | 



COMPREHENSIVE INCOME

Years Ended December 31, 2002, 2001 and 2000



|                                                           |  | 2002 |         | 2001 |   | 2000     
|---------------------------------------------------------- |  | ---- | ------- | ---- | - | ---------
|Net income                                                 |  | $    | 742,131 |      | $ | 1,964,357
|Other comprehensive income, net of tax                     |  |      |         |      |   |          
|Unrealized gains (losses) on available-for-sale securities |  |      | 9,246   |      |   | 48,136   
|                                                           |  |      |         |      |   |          
|Comprehensive income                                       |  | $    | 751,377 |      | $ | 2,012,493
|                                                           |  |      |         |      |   |          





22



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note
21.    Parent Company Financial Statements (continued)



STATEMENTS OF CASH FLOWS

Years Ended December 31, 2002, 2001 and 2000



|                                                                              |  | 2002 |          |   | 2001 |   |            | 2000 | 
|----------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | ---------- | ---- | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                         |  |      |          |   |      |   |            |      | 
|Net income                                                                    |  | $    | 742,131  |   |      | $ | 1,964,357  |      | 
|Adjustments to reconcile net income to net cash used in operating
activities: |  |      |          |   |      |   |            |      | 
|Undistributed gain of:                                                        |  |      |          |   |      |   |            |      | 
|The Business Bank                                                             |  |      | (694,208 | ) |      |   | (1,333,170 | )    | 
|Other Subsidiaries                                                            |  |      | (86,302  | ) |      |   | (206,258   | )    | 
|Increase in other assets                                                      |  |      | (16,800  | ) |      |   | (439,601   | )    | 
|Increase (decrease) in other liabilities                                      |  |      | 11,533   |   |      |   | (20,701    | )    | 
|                                                                              |  |      |          |   |      |   |            |      | 
|Net cash used in operating activities                                         |  |      | (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                                        |  |      | 13,100   |   |      |   | 255,125    |      | 
|                                                                              |  |      |          |   |      |   |            |      | 
|Net cash provided by financing activities                                     |  |      | 13,100   |   |      |   | 255,125    |      | 
|                                                                              |  |      |          |   |      |   |            |      | 
|Net increase (decrease) in cash and cash equivalents                          |  |      | (80,546  | ) |      |   | 219,752    |      | 
|Cash and cash equivalents at beginning of year                                |  |      | 354,459  |   |      |   | 134,707    |      | 
|                                                                              |  |      |          |   |      |   |            |      | 
|Cash and cash equivalents at end of year                                      |  | $    | 273,913  |   |      | $ | 354,459    |      | 
|                                                                              |  |      |          |   |      |   |            |      | 
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                             |  |      |          |   |      |   |            |      | 
|Cash paid during the years for:                                               |  |      |          |   |      |   |            |      | 
|Income taxes                                                                  |  | $    | 18,514   |   |      | $ | 37,606     |      | 
|                                                                              |  |      |          |   |      |   |            |      | 





23



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UNITED FINANCIAL BANKING COMPANIES, INC.





TABLE
1    Selected Consolidated Financial Data



|Year Ended December 31,                              |  | 2002 |             |   | 2001 |   |            | 2000 |  |   | 1999       |   |  | 1998 |           
|---------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ---------- | ---- |  | - | ---------- | - |  | ---- | ----------
|Results of operations:                               |  |      |             |   |      |   |            |      |  |   |            |   |  |      |           
|Total interest income                                |  | $    | 5,726,339   |   |      | $ | 5,787,108  |      |  | $ | 5,334,317  |   |  | $    | 3,977,200 
|Total interest expense                               |  |      | 1,797,746   |   |      |   | 2,153,542  |      |  |   | 1,934,307  |   |  |      | 1,587,216 
|                                                     |  |      |             |   |      |   |            |      |  |   |            |   |  |      |           
|Net interest income                                  |  |      | 3,928,593   |   |      |   | 3,633,566  |      |  |   | 3,400,010  |   |  |      | 2,389,984 
|Provision for loan losses                            |  |      | 219,300     |   |      |   | 154,448    |      |  |   | 340,117    |   |  |      | 79,866    
|                                                     |  |      |             |   |      |   |            |      |  |   |            |   |  |      |           
|Net interest income after provision for loan losses  |  |      | 3,709,293   |   |      |   | 3,479,118  |      |  |   | 3,059,893  |   |  |      | 2,310,118 
|Other income                                         |  |      | 518,552     |   |      |   | 344,320    |      |  |   | 263,442    |   |  |      | 291,301   
|Other expenses                                       |  |      | 3,096,666   |   |      |   | 2,675,499  |      |  |   | 2,492,517  |   |  |      | 2,261,310 
|                                                     |  |      |             |   |      |   |            |      |  |   |            |   |  |      |           
|Income before income taxes                           |  |      | 1,131,179   |   |      |   | 1,147,939  |      |  |   | 830,818    |   |  |      | 340,109   
|Income tax expense (benefit)                         |  |      | 389,048     |   |      |   | (816,418   | )    |  |   | (389,000   | ) |  |      | (510,004  
|                                                     |  |      |             |   |      |   |            |      |  |   |            |   |  |      |           
|Net income                                           |  | $    | 742,131     |   |      | $ | 1,964,357  |      |  | $ | 1,219,818  |   |  | $    | 850,113   
|                                                     |  |      |             |   |      |   |            |      |  |   |            |   |  |      |           
|Earnings per share:                                  |  |      |             |   |      |   |            |      |  |   |            |   |  |      |           
|Net income                                           |  |      | 742,131     |   |      |   | 1,964,357  |      |  |   | 1,219,818  |   |  |      | 850,113   
|Less: preferred stock dividends                      |  |      |            |   |      |   |           |      |  |   |           |   |  |      |          
|                                                     |  |      |             |   |      |   |            |      |  |   |            |   |  |      |           
|Income available to common stockholders              |  |      | 742,131     |   |      |   | 1,964,357  |      |  |   | 1,219,818  |   |  |      | 850,113   
|Basic earnings per common share                      |  | $    | 0.72        |   |      | $ | 1.94       |      |  | $ | 1.22       |   |  | $    | 1.00      
|Diluted earnings per common share:                   |  | $    | 0.68        |   |      | $ | 1.90       |      |  | $ | 1.21       |   |  | $    | 0.99      
|Average weighted shares outstanding:                 |  |      |             |   |      |   |            |      |  |   |            |   |  |      |           
|Basic                                                |  |      | 1,035,783   |   |      |   | 1,010,341  |      |  |   | 996,481    |   |  |      | 847,805   
|Dilutive                                             |  |      | 1,095,847   |   |      |   | 1,032,668  |      |  |   | 1,005,667  |   |  |      | 861,094   
|Period-ending balances:                              |  |      |             |   |      |   |            |      |  |   |            |   |  |      |           
|Total loans                                          |  | $    | 76,217,605  |   |      | $ | 58,535,131 |      |  | $ | 55,701,135 |   |  | $    | 40,652,769
|Total assets                                         |  |      | 109,344,267 |   |      |   | 85,529,236 |      |  |   | 71,854,113 |   |  |      | 56,455,892
|Total deposits                                       |  |      | 91,483,191  |   |      |   | 71,690,272 |      |  |   | 60,642,408 |   |  |      | 49,191,302
|Stockholders equity                                 |  |      | 11,582,878  |   |      |   | 10,818,401 |      |  |   | 8,550,783  |   |  |      | 6,928,065 
|Selected ratios:                                     |  |      |             |   |      |   |            |      |  |   |            |   |  |      |           
|Return on average total assets                       |  |      | 0.81        | % |      |   | 2.55       | %    |  |   | 1.86       | % |  |      | 1.59      
|Return on average earning assets                     |  |      | 0.87        | % |      |   | 2.71       | %    |  |   | 1.98       | % |  |      | 1.71      
|Return on average stockholders equity               |  |      | 6.63        | % |      |   | 21.20      | %    |  |   | 16.09      | % |  |      | 16.14     
|Average stockholders equity to average total assets |  |      | 12.21       | % |      |   | 12.02      | %    |  |   | 11.55      | % |  |      | 9.87      



24



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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 operation of the Company, and should be read together with the consolidated financial statements and accompanying notes presented in this report.



The Company reported net income of $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 2002. 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. Net income before tax 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.



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



25



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UNITED FINANCIAL BANKING COMPANIES, INC.





TABLE 2



CONSOLIDATED AVERAGE BALANCES/NET INTEREST ANALYSIS/



YIELDS AND RATES



|For the Year Ended                         |  | December 31, 2002 |            |   | December 31, 2001 |   |             | December 31, 2000 |     
|------------------------------------------ |  | ----------------- | ---------- | - | ----------------- | - | ----------- | ----------------- | ----
|                                           |  | Average Balance   |            |   | Interest          |   | Yield/ Rate |                   |     
|ASSETS                                     |  |                   |            |   |                   |   |             |                   |     
|Earning assets:                            |  |                   |            |   |                   |   |             |                   |     
|Loans:                                     |  |                   |            |   |                   |   |             |                   |     
|Commercial                                 |  | $                 | 48,843,393 |   |                   | $ | 3,749,348   |                   | 7.68
|Real estate construction                   |  |                   | 9,212,255  |   |                   |   | 792,550     |                   | 8.60
|Real estate mortgage                       |  |                   | 4,083,186  |   |                   |   | 321,041     |                   | 7.86
|Installment                                |  |                   | 5,102,071  |   |                   |   | 410,300     |                   | 8.04
|                                           |  |                   |            |   |                   |   |             |                   |     
|Total loans                                |  |                   | 67,240,905 |   |                   |   | 5,273,239   |                   | 7.84
|                                           |  |                   |            |   |                   |   |             |                   |     
|Interest-bearing deposits                  |  |                   | 730,857    |   |                   |   | 12,203      |                   | 1.67
|Federal funds sold                         |  |                   | 12,243,460 |   |                   |   | 194,665     |                   | 1.59
|Investment securities                      |  |                   | 5,411,025  |   |                   |   | 246,232     |                   | 4.55
|                                           |  |                   |            |   |                   |   |             |                   |     
|Total earning assets                       |  |                   | 85,626,247 |   |                   |   | 5,726,339   |                   | 6.69
|                                           |  |                   |            |   |                   |   |             |                   |     
|Noninterest-earning assets                 |  |                   |            |   |                   |   |             |                   |     
|Cash and due from banks                    |  |                   | 3,403,982  |   |                   |   |             |                   |     
|Other assets                               |  |                   | 3,867,700  |   |                   |   |             |                   |     
|Allowance for loan losses                  |  |                   | (1,185,948 | ) |                   |   |             |                   |     
|                                           |  |                   |            |   |                   |   |             |                   |     
|Total assets                               |  | $                 | 91,711,981 |   |                   |   |             |                   |     
|                                           |  |                   |            |   |                   |   |             |                   |     
|LIABILITIES AND STOCKHOLDERS EQUITY       |  |                   |            |   |                   |   |             |                   |     
|Interest-bearing liabilities:              |  |                   |            |   |                   |   |             |                   |     
|Interest-bearing deposits:                 |  |                   |            |   |                   |   |             |                   |     
|Savings and NOW accounts                   |  |                   | 15,911,801 |   |                   |   | 393,736     |                   | 2.47
|Money market accounts                      |  |                   | 12,370,980 |   |                   |   | 192,968     |                   | 1.56
|Time:                                      |  |                   |            |   |                   |   |             |                   |     
|Under $100,000                             |  |                   | 16,635,973 |   |                   |   | 635,703     |                   | 3.82
|$100,000 and over                          |  |                   | 11,687,340 |   |                   |   | 433,119     |                   | 3.71
|                                           |  |                   |            |   |                   |   |             |                   |     
|Total interest-bearing deposits            |  |                   | 56,606,094 |   |                   |   | 1,655,526   |                   | 2.92
|Short-term borrowings                      |  |                   | 303,014    |   |                   |   | 14,316      |                   | 4.72
|Long-term debt                             |  |                   | 3,061,582  |   |                   |   | 127,905     |                   | 4.18
|                                           |  |                   |            |   |                   |   |             |                   |     
|Total interest-bearing liabilities         |  |                   | 59,970,690 |   |                   |   | 1,797,747   |                   | 3.00
|                                           |  |                   |            |   |                   |   |             |                   |     
|Noninterest-bearing liabilities:           |  |                   |            |   |                   |   |             |                   |     
|Demand deposits                            |  |                   | 19,451,361 |   |                   |   |             |                   |     
|Other liabilities                          |  |                   | 1,096,052  |   |                   |   |             |                   |     
|Stockholders equity                       |  |                   | 11,193,878 |   |                   |   |             |                   |     
|                                           |  |                   |            |   |                   |   |             |                   |     
|Total liabilities and stockholders equity |  | $                 | 91,711,981 |   |                   |   |             |                   |     
|                                           |  |                   |            |   |                   |   |             |                   |     
|Net interest income                        |  |                   |            |   |                   | $ | 3,928,592   |                   |     
|                                           |  |                   |            |   |                   |   |             |                   |     
|Net interest margin (1)                    |  |                   |            |   |                   |   |             |                   | 4.59
|                                           |  |                   |            |   |                   |   |             |                   |     
|Net interest spread (2)                    |  |                   |            |   |                   |   |             |                   | 3.69
|                                           |  |                   |            |   |                   |   |             |                   |     
|Fees included in loan income               |  |                   |            |   |                   | $ | 196,520     |                   |     
|                                           |  |                   |            |   |                   |   |             |                   |     
|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.
|--- |  | ----------------------------------------------------------------------------------------------------



26



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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 2002 to 2001

Net interest income increased $295,026 or 8.1% from $3,928,592 at December 31, 2002 to $3,633,566 at December 31, 2001 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 rate. During 2002, total interest income increased $849,848 due to volume while rate 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 the decreased total interest expense at December 31, 2002 compared to December 31, 2001. During 2002, total interest expense increased $263,494 due to volume while rate
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%. At December 31, 2002, the Banks peer
institutions had a net interest margin of 4.27%.



Comparison of 2001 to 2000

Net interest income increased $233,556 or 6.9% from $3,400,010 at
December 31, 2000 to $3,633,566 at December 31, 2001 as a result of increased loan volume. As shown in Table 3, Analysis of the Changes in the Components of Net Interest Income, interest income on loans increased $1,078,297 due to volume
while rate decreased interest income by $377,261. Interest and fees on loans rose $701,036 during 2001. The prime rate decreased 475 basis points during 2001 and negatively impacted net interest income.



Though the rates declined on interest-bearing liabilities
during 2001, expense due to volume surpassed the savings. As shown in Table 3, Analysis of the Changes in the Components of Net Interest Income, total interest expense increased $427,950 due to volume while rate decreased interest expense by
$208,715. The average volume of interest-bearing deposits increased $5,599,386 or 13.3% during 2001.



The declining rate environment of 2001 significantly influenced net interest income. The prime rate decreased 475 basis points from 9.50%
at December 31, 2000 to 4.75% at December 31, 2001. A decreased prime rate notably impacts the Banks earnings as approximately one third of the Banks loan portfolio is tied to prime repricing. The yield on total loans dropped 52 basis
points from 9.36% at December 31, 2000 to 8.84%



27



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UNITED FINANCIAL BANKING COMPANIES, INC.



at December 31, 2001. The rate environment also negatively impacted the yield on federal funds sold
and investment securities. During 2001, the yield on federal funds decreased 303 basis points and the yield on investment securities decreased 31 basis points.



Net interest margin is a key measure of net interest income performance. Representing the Companys net yield on its average earning
assets, net interest margin is calculated as net interest income divided by average earning assets. Both net interest margin and net interest income are affected by many factors, including competition, the economy, and the volume and mix of balance
sheet components and their relative sensitivity to interest rate fluctuations. At December 31, 2001, the Company had a net interest margin of 5.02% and the Bank had a net interest margin of 5.03%. At December 31, 2001, the Banks peer
institutions had a net interest margin of 4.28%.



CHANGE IN
NET INTEREST INCOME (RATE/VOLUME VARIANCE)

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



TABLE 3

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



|For the Year Ended December 31, |  | 2002 Compared to 2001     |          |   | 2001 Compared to 2000 |  
|------------------------------- |  | ------------------------- | -------- | - | --------------------- | -
|                                |  |                           |          |   | Change Due To:        |  
|                                |  | Total Increase (Decrease) |          |   | Rate                  |  
|Interest income:                |  |                           |          |   |                       |  
|Loans :                         |  |                           |          |   |                       |  
|Commercial                      |  | $                         | 288,034  |   |                       | $
|Real estateconstruction        |  |                           | (161,216 | ) |                       |  
|Real estatemortgage            |  |                           | (170,487 | ) |                       |  
|Installment                     |  |                           | 203,225  |   |                       |  
|                                |  |                           |          |   |                       |  
|Total loans                     |  |                           | 159,556  |   |                       |  
|Interest-bearing deposits       |  |                           | 8,167    |   |                       |  
|Federal funds sold              |  |                           | (36,718  | ) |                       |  
|Investment securities           |  |                           | (191,774 | ) |                       |  
|                                |  |                           |          |   |                       |  
|Total interest income           |  |                           | (60,769  | ) |                       |  
|                                |  |                           |          |   |                       |  
|Interest expense:               |  |                           |          |   |                       |  
|Savings and NOW accounts        |  |                           | 240,566  |   |                       |  
|Money markets accounts Time:    |  |                           | (215,329 | ) |                       |  
|Under $100,000                  |  |                           | (233,152 | ) |                       |  
|$100,000 and over               |  |                           | (150,336 | ) |                       |  
|Short-term borrowings           |  |                           | (125,449 | ) |                       |  
|Long-term debt                  |  |                           | 127,905  |   |                       |  
|                                |  |                           |          |   |                       |  
|Total interest expense          |  |                           | (355,795 | ) |                       |  
|                                |  |                           |          |   |                       |  
|Net interest income             |  | $                         | 295,026  |   |                       | $
|                                |  |                           |          |   |                       |  



28



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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 non-accruals, 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 loan review system and regulatory requirements. The total allowance required thus 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 $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. Loan growth during 2002 and the 2001 recovery account for the
variance between the 2002 and 2001 provision for loan loss expense. Net loans increased $17,682,474 or 30.2% from $58,53,131 at December 31, 2001 to $76,217,605 at December 31, 2002.



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



NONINTEREST INCOME

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.



Total noninterest income increased $80,878 or 30.7% at year end 2001 compared to year end 2000. The 2001 increase was primarily
attributable to fees earned on deposit products which were implemented during the fourth quarter of 2000. Loan servicing and other fees also contributed favorably to the improvement.





29



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UNITED FINANCIAL BANKING COMPANIES, INC.





NONINTEREST
EXPENSE



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,
benefit, occupancy, furniture and equipment, communications, data processing, printing and supply expense. The Company upgraded computer equipment and telephone lines during 2002 which 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 which opened during 2002. The Reston branch also primarily accounts for the $26,212 or 7.1% increase in occupancy expense from $371,567 at 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.



Comparison of 2001 to
2000

Total noninterest expense increased $182,982 or 7.3% during the year ended December 31, 2001 as compared to
2000 (Table 4, Noninterest Expense). The 2001 increase was primarily attributable to costs associated with growth.



During 2001, the Company added employees which increased salaries and employee benefit expense. Salaries and employee benefits increased
$156,614 or 11.6% from $1,351,249 at December 31, 2000 to $1,507,863 at December 31, 2001.



Furniture and equipment expense decreased $22,409 or 16.2% during the year ended December 31, 2001 compared to December 31, 2000. During 2001, several items became fully depreciated which reduced
expense.



Other expense rose $58,583 or 9.4% from
$621,437 at December 31, 2000 to $621,437 at December 31, 2001. The increase was primarily attributable to expanded banking operations and growth. Costs such as data processing, franchise tax, advertising and communications increased $33,633 or
14.9% during 2001 compared to 2000. REO holding expense, included in other expense, increased $7,976 or 42.4% at December 31, 2001 compared to December 31, 2000. The increases was attributable to the disposition of the Companys REO properties.





30



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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



|                                         |  |           |   |  |           |   |  |           |   |  | Percentage increase (decrease) |  
|---------------------------------------- |  | --------- | - |  | --------- | - |  | --------- | - |  | ------------------------------ | -
|                                         |  | 2002      |   |  | 2001      |   |  | 2000      |   |  | 2002 / 2001                    |  
|Salaries and employee benefits           |  | 1,780,313 |   |  | 1,507,863 |   |  | 1,351,249 |   |  | 18.07                          |  
|Occupancy, net                           |  | 397,779   |   |  | 371,567   |   |  | 381,373   |   |  | 7.05                           |  
|Furniture and equipment                  |  | 138,982   |   |  | 116,049   |   |  | 138,458   |   |  | 19.76                          |  
|Professional fees                        |  | 104,443   |   |  | 83,547    |   |  | 78,849    |   |  | 25.01                          |  
|State franchise tax                      |  | 61,200    |   |  | 45,200    |   |  | 38,184    |   |  | 35.40                          |  
|Insurance                                |  | 46,159    |   |  | 39,886    |   |  | 36,036    |   |  | 15.73                          |  
|Data processing                          |  | 171,132   |   |  | 160,283   |   |  | 148,041   |   |  | 6.77                           |  
|Real estate owned holding expense        |  | 15,670    |   |  | 26,788    |   |  | 18,812    |   |  | (41.50                         | )
|Other expenses                           |  | 380,987   |   |  | 324,316   |   |  | 301,515   |   |  | 17.47                          |  
|                                         |  |           |   |  |           |   |  |           |   |  |                                |  
|Total                                    |  | 3,096,665 |   |  | 2,675,499 |   |  | 2,492,517 |   |  | 15.74                          |  
|                                         |  |           |   |  |           |   |  |           |   |  |                                |  
|Noninterest expense as a percentage of : |  |           |   |  |           |   |  |           |   |  |                                |  
|Average assets                           |  | 3.38      | % |  | 3.47      | % |  | 4.67      | % |  |                                |  
|                                         |  |           |   |  |           |   |  |           |   |  |                                |  
|Average earning assets                   |  | 3.62      | % |  | 3.69      | % |  | 5.00      | % |  |                                |  
|                                         |  |           |   |  |           |   |  |           |   |  |                                |  
|Gross income                             |  | 49.59     | % |  | 43.64     | % |  | 58.39     | % |  |                                |  
|                                         |  |           |   |  |           |   |  |           |   |  |                                |  



BALANCE SHEET
ANALYSIS

Total assets grew $23,815,031 or 27.8% from $85,529,236 at year ended December 31, 2001 to $109,344,267 at
year ended December 31, 2002. The rise in assets was attributable to the Banks increased volume of deposits and increased borrowings which increased the volume of assets available for investment. Total deposits increased $19,792,919 or 27.6%
from $71,690,272 at December 31, 2001 to $91,483,191 at December 31, 2002. The increase was attributable to new deposit relationships and expansion of core deposit relationships. The increased volume of assets were invested into federal funds sold
and into loans. The variance between 2002 and 2001 securities available-for-sale as shown on the consolidated balance sheets was due to a $10,000,000 short term investment transacted for tax planning. Average federal funds sold was $12,243,460
during 2002 (Consolidated Average Balances, Table 2). Management considers such factors as the Companys strategic goals, the economy, the market, liquidity and return opportunity for the investment mix. Management also considers the
projected duration and the nature of the assets available for investment.



In June 2002, United Facilities LLC, a subsidiary of the parent, purchased a branch location in Reston, Virginia. The building and land totaled $1,307,249 at December 31, 2002 and primarily accounted for the $1,592,894 or
903.1% increase in premises and equipment during 2002. Purchases to upgrade technology and communications also contributed to the increase.



Short-term borrowings decreased $1,586,505 or 61.05% during 2002 due to the Companys improved liquidity position. The Company
borrowed $4,000,000 from the Federal Home Loan Bank of Atlanta to match loans in the portfolio. Financing for the Reston branch purchase totaled $800,000.



Earnings of $742,131 and additional capital, through exercised stock options, of $13,100 primarily accounted for the $764,477 or 7.1%
increase in stockholders equity at December 31, 2002 compared to December 31, 2001. Further details regarding stockholder equity are provided in Note 19 to the consolidated financial statements. Both the Company and the Bank were well
capitalized, per regulatory capital requirements, for the years ended December 31, 2002 and 2001.





31



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UNITED FINANCIAL BANKING COMPANIES, INC.





LOAN PORTFOLIO

Net loans increased $17,682,474 or 30.2% from $58,535,131 at December 31, 2001 to $76,217,605 at December 31, 2002.
Loans were 69.2% percent of total assets at December 31, 2002 compared to 68.4% at December 31, 2001. In managing risk for what is predominantly a commercial loan portfolio, management maintains clearly defined credit standards.



TABLE 5LOAN PORTFOLIO



|December 31,             |  | 2002 |            | 2001 |   | 2000       |  | 1999 |            | 1998
|------------------------ |  | ---- | ---------- | ---- | - | ---------- |  | ---- | ---------- | ----
|Commercial               |  | $    | 58,518,566 |      | $ | 41,591,724 |  | $    | 37,097,497 |     
|Real estate construction |  |      | 7,746,431  |      |   | 8,621,773  |  |      | 8,661,702  |     
|Real estate mortgage     |  |      | 5,259,090  |      |   | 4,686,547  |  |      | 6,939,635  |     
|Installment              |  |      | 4,693,519  |      |   | 3,635,087  |  |      | 3,002,301  |     
|                         |  |      |            |      |   |            |  |      |            |     
|Total loans              |  | $    | 76,217,606 |      | $ | 58,535,131 |  | $    | 55,701,135 |     
|                         |  |      |            |      |   |            |  |      |            |     



The loan
portfolio is predominately short-term in nature which can work to mitigate interest rate risk. The following chart shows the maturities of the Companys two largest loan classes, commercial and real estate construction.



|                         |  | One Year or Less |            | One Through Five Years |   | Over Five Years |  | Total
|------------------------ |  | ---------------- | ---------- | ---------------------- | - | --------------- |  | -----
|Commercial               |  | $                | 12,990,465 |                        | $ | 18,164,917      |  | $    
|Real estate construction |  |                  | 4,780,814  |                        |   | 1,740,267       |  |      
|                         |  |                  |            |                        |   |                 |  |      
|                         |  | $                | 17,771,279 |                        | $ | 19,905,184      |  | $    
|                         |  |                  |            |                        |   |                 |  |      



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 76.7% and 71.1% of total loans at December 31, 2002 and 2001, respectively.





32



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UNITED FINANCIAL BANKING COMPANIES, INC.





ALLOWANCE FOR LOAN
LOSSES

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



TABLE 6    ALLOWANCE FOR LOAN LOSSES



|Period Ending December 31,                      |  | 2002 |            |   | 2001 |   |            | 2000 |  |   | 1999       |   |  | 1998 |           
|----------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | - |  | ---- | ----------
|Balance at beginning of period                  |  | $    | 1,057,344  |   |      | $ | 973,431    |      |  | $ | 783,143    |   |  | $    | 747,374   
|                                                |  |      |            |   |      |   |            |      |  |   |            |   |  |      |           
|Charge-offs:                                    |  |      |            |   |      |   |            |      |  |   |            |   |  |      |           
|Installment                                     |  |      |           |   |      |   |           |      |  |   |           |   |  |      | 15,809    
|Commercial                                      |  |      | 29,645     |   |      |   | 56,282     |      |  |   | 841        |   |  |      | 31,086    
|Mortgage                                        |  |      |           |   |      |   | 37,357     |      |  |   | 150,600    |   |  |      |          
|Construction                                    |  |      |           |   |      |   |           |      |  |   |           |   |  |      |          
|Leveraged leases                                |  |      |           |   |      |   |           |      |  |   |           |   |  |      |          
|Recoveries:                                     |  |      |            |   |      |   |            |      |  |   |            |   |  |      |           
|Installment                                     |  |      |           |   |      |   |           |      |  |   |           |   |  |      |          
|Commercial                                      |  |      | 4,765      |   |      |   | 23,104     |      |  |   | 1,612      |   |  |      | 2,798     
|Construction                                    |  |      |           |   |      |   |           |      |  |   |           |   |  |      |          
|                                                |  |      |            |   |      |   |            |      |  |   |            |   |  |      |           
|Net charge-offs                                 |  |      | 24,880     |   |      |   | 70,535     |      |  |   | 149,829    |   |  |      | 44,097    
|                                                |  |      |            |   |      |   |            |      |  |   |            |   |  |      |           
|Provision charged to operations                 |  |      | 219,300    |   |      |   | 154,448    |      |  |   | 340,117    |   |  |      | 79,866    
|                                                |  |      |            |   |      |   |            |      |  |   |            |   |  |      |           
|Balance at end of period                        |  | $    | 1,251,764  |   |      | $ | 1,057,344  |      |  | $ | 973,431    |   |  | $    | 783,143   
|                                                |  |      |            |   |      |   |            |      |  |   |            |   |  |      |           
|Average total loans                             |  | $    | 67,240,905 |   |      | $ | 57,846,750 |      |  | $ | 47,138,981 |   |  | $    | 37,022,216
|                                                |  |      |            |   |      |   |            |      |  |   |            |   |  |      |           
|Ratio of net charge-offs to average total loans |  |      | 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, |  | 2002      |  | 2001 |           | 2000 |   | 1999    |  | 1998
|-------------------------- |  | --------- |  | ---- | --------- | ---- | - | ------- |  | ----
|Commercial                 |  | 913,000   |  | $    | 687,000   |      | $ | 606,000 |  | $   
|Real estate construction   |  | 116,000   |  |      | 165,000   |      |   | 130,000 |  |     
|Real estate mortgage       |  | 84,000    |  |      | 99,000    |      |   | 141,000 |  |     
|Installment                |  | 80,000    |  |      | 62,000    |      |   | 50,000  |  |     
|Unallocated                |  | 58,764    |  |      | 44,344    |      |   | 46,431  |  |     
|                           |  |           |  |      |           |      |   |         |  |     
|                           |  | 1,251,764 |  | $    | 1,057,344 |      | $ | 973,431 |  | $   
|                           |  |           |  |      |           |      |   |         |  |     





33



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UNITED FINANCIAL BANKING COMPANIES, INC.





DEFERRED TAX
ASSET

At December 31, 2001, the Company had potential off-balance sheet deferred income tax credits of $833,734. The
deferred income tax credits primarily resulted from net operating loss carryforwards. The Company used the following criteria to determine an appropriate and reasonable amount of deferred income tax credits to recognize as an asset for the year
ended December 31, 2001. The Company projected income three years forward, 2002, 2003 and 2004. A discount was applied to each years income projection in consideration for unknown variables. Other factors such as the Companys historical
earnings performance, growth potential, the local and national economy and market competition were also used to determine the reasonableness of the Companys income projections. Once the projected income was ascertained, a 34% tax rate was
applied to the projection to determine the amount of deferred income tax credits to beneficially recognize. The amount of tax credits appropriately recognized as an asset is evaluated annually using the factors listed.



NONPERFORMING ASSETS

Nonperforming assets are assets on which accrued income recognition has been discontinued. Nonperforming assets include nonaccrual loans
and loans which have become foreclosed real estate. For the years ended December 31, 2002 and 2001, nonperforming assets were .3% and .8% of total assets, respectively.



Nonaccruing loans at year end 2002 totaled $97,613 compared to a balance of $28,367 at year end 2001. The
Company had no loans still accruing interest that were ninety days or more past due as to principal or interest at December 31, 2002. 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,                    |  | 2002 |         |   | 2001 |   |         | 2000 | 
|--------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- | 
|Nonaccruing loans (90 days or more past due)  |  | $    | 97,613  |   |      | $ | 28,367  |      | 
|Real estate owned                             |  |      | 222,621 |   |      |   | 644,407 |      | 
|                                              |  |      |         |   |      |   |         |      | 
|Total nonperforming assets                    |  | $    | 320,234 |   |      | $ | 672,774 |      | 
|                                              |  |      |         |   |      |   |         |      | 
|Nonaccruing loans as a % of total loans       |  |      | 0.13    | % |      |   | 0.05    | %    | 
|Reserve for loans losses to nonaccruing loans |  |      | 1282.37 | % |      |   | 3727.37 | %    | 
|Nonperforming assets to total loans           |  |      | 0.42    | % |      |   | 1.15    | %    | 



34



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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 .2% and .8% of total assets at December 31, 2002 and 2001, respectively. REO was comprised of a property located in Culpeper, Virginia. The
property was acquired through foreclosure in the Bank in 1989. To liquidate the asset, the property was developed and lots and residential homes have been sold. In December 2002, the balance of the project was transferred to BVCI. At December 31,
2002, of the 87 lots available, 81 had been sold to date and 3 were under contract and 3 remain available for sale.



An aging of real estate owned and a breakdown by project type as of December 31, 2002 and 2001 are presented in Table 8.



TABLE 8    REAL ESTATE OWNED



|Aging of Foreclosed Properties        |  |      |         |     
|------------------------------------- |  | ---- | ------- | ----
|Period ending December 31,            |  | 2002 |         | 2001
|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,            |  | 2002 |         | 2001
|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 $19,792,919 or 27.6% at year ended December 31, 2002 compared to December 31, 2001. As shown in Table 9, Deposits Balance and Rate, the cost of funds decreased 93 basis points during 2002. The cost decrease
is attributable to the depressed rate environment of 2002 and to the deposit mix. During 2002, Management continued to focus on maintaining a deposit mix prominently 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 $13,746,071 or 30.4% from $45,221,575 at December 31, 2001 to $58,967,646 at December 31,
2002. When comparing average core deposit growth from December 31, 2001 to December 31, 2002, the change was as follows: demand deposits (noninterest-bearing) increased $4,406,935 or 22.5%, money market deposits decreased $892,012 or 6.2%, savings
and NOW deposits increased $10,230,783 or 90.4%. As shown in Table 10, other deposit accounts represented 64.4% while time deposits represented 35.6% of total deposits at year end 2002.



35



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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,  |  | 2002            |            |      | 2001 |   |                 | 2000 |            |  | 1999 |                 |  | 1998 |           
|------------------------ |  | --------------- | ---------- | ---- | ---- | - | --------------- | ---- | ---------- |  | ---- | --------------- |  | ---- | ----------
|                         |  | Average Balance |            | Rate |      |   | Average Balance |      | Rate       |  |      | Average Balance |  | Rate |           
|Demand                   |  | $               | 19,451,361 |      |     | % |                 | $    | 17,080,710 |  |     | %               |  | $    | 15,159,490
|Savings and NOW accounts |  |                 | 15,911,801 |      | 2.47 |   |                 |      | 6,229,714  |  | 2.46 |                 |  |      | 5,369,945 
|Money market accounts    |  |                 | 12,370,980 |      | 1.56 |   |                 |      | 14,534,980 |  | 2.81 |                 |  |      | 14,301,086
|Time:                    |  |                 |            |      |      |   |                 |      |            |  |      |                 |  |      |           
|Under $100,000           |  |                 | 16,635,973 |      | 3.82 |   |                 |      | 15,821,546 |  | 5.49 |                 |  |      | 14,750,470
|$100,000 and over        |  |                 | 11,687,340 |      | 3.71 |   |                 |      | 10,987,933 |  | 5.31 |                 |  |      | 7,553,286 
|                         |  |                 |            |      |      |   |                 |      |            |  |      |                 |  |      |           
|Total                    |  | $               | 76,057,455 |      | 2.18 | % |                 | $    | 64,654,883 |  | 3.11 | %               |  | $    | 57,134,277
|                         |  |                 |            |      |      |   |                 |      |            |  |      |                 |  |      |           



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



|Year Ended December 31,  |  | 2002   |            |            | 2001   |   |        | 2000 |            |  | 1999   |        |  | 1998       |           
|------------------------ |  | ------ | ---------- | ---------- | ------ | - | ------ | ---- | ---------- |  | ------ | ------ |  | ---------- | ----------
|                         |  | Amount |            | % of Total |        |   | Amount |      | % of Total |  |        | Amount |  | % of Total |           
|Demand                   |  | $      | 23,977,619 |            | 26.21  |   |        | $    | 19,570,684 |  | 27.30  |        |  | $          | 15,103,101
|Savings and NOW accounts |  |        | 21,547,324 |            | 23.55  |   |        |      | 11,316,541 |  | 15.79  |        |  |            | 5,232,987 
|Money market accounts    |  |        | 13,405,082 |            | 14.65  |   |        |      | 14,297,094 |  | 19.94  |        |  |            | 13,896,824
|Time:                    |  |        |            |            |        |   |        |      |            |  |        |        |  |            |           
|Under $100,000           |  |        | 17,976,949 |            | 19.65  |   |        |      | 15,476,230 |  | 21.59  |        |  |            | 15,937,455
|$100,000 and over        |  |        | 14,576,217 |            | 15.93  |   |        |      | 11,029,723 |  | 15.39  |        |  |            | 10,472,041
|                         |  |        |            |            |        |   |        |      |            |  |        |        |  |            |           
|Total                    |  | $      | 91,483,191 |            | 100.00 | % |        | $    | 71,690,272 |  | 100.00 | %      |  | $          | 60,642,408
|                         |  |        |            |            |        |   |        |      |            |  |        |        |  |            |           



The
maturity schedule that follows categorizes time deposits of $100,000 or more as of December 31, 2002.



|Maturing                         |  | Balance
|-------------------------------- |  | -------
|Three months or less             |  | $      
|Over three months to six months  |  |        
|Over six months to twelve months |  |        
|Over twelve months               |  |        
|                                 |  |        
|Total                            |  | $      
|                                 |  |        



36



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UNITED FINANCIAL BANKING COMPANIES, INC.





INVESTMENTS

The Bank held all of the Companys investment securities at December 31, 2002 and 2001. The securities portfolio
was comprised of U.S. Treasury securities, U.S. Government agency securities, Mortgage-backed securities, Mutual Fund securities and Equity securities. The Bank has been strategically growing its securities portfolio to ensure safe levels of
liquidity, to enhance the overall credit quality of its asset base and to generate increased interest income. The securities portfolio included both instruments available-for-sale (AFS) and those held-to-maturity (HTM). Securities classified as AFS
may be sold in response to changes in market interest rates, changes in prepayment or extension risk, management of the federal tax position, liquidity needs and other asset/liability management issues. Securities classified as HTM are intended for
investment purposes. Further details on securities are discussed in Note 2 to the consolidated financial statements.



LIQUIDITY AND INTEREST SENSITIVITY

The Companys liquidity management is designed to achieve an appropriate balance between the maturities and pricing of its assets and liabilities. Management seeks to accomplish this through maintaining sufficient
liquid assets, increasing core deposits and/or raising funds in various money markets. Cash and due from banks, money market investments, AFS securities and loan maturities are the Companys primary sources of liquidity. Liquid assets were
26.7% of total assets for 2002 and 26.6% for 2001. Additional sources of liquidity are available through lines of credit held by the Bank, loan participations, deposit growth and other borrowings. Cash flows from operations are presented in the
consolidated statements of cash flows.



UFBCs operational needs have been significantly reduced in recent years as overhead has been allocated proportionately between the subsidiaries. For the near future, management projects that proceeds retained from completed
capital offerings and reimbursements from inter-company allocated expenses will provide sufficient cash flow for UFBCs continuing operational needs.



Interest rate risk is primarily the result of the imbalance between the repricing of assets and liabilities, either through maturity or
interest rate changes. Perfectly matching liabilities with assets can eliminate interest rate risk, but profits are not always enhanced. As a result, the Company manages its interest rate sensitivity in order to limit risk while at the same time
profiting from favorable market opportunities. The objective is to obtain an appropriate balance sheet mix that maximizes earnings while protecting against unanticipated changes in interest rates.



One method of monitoring rate risk is through the analysis of
gap positions. Gap is the difference between the amount of assets and the amount of liabilities that mature or are repriced during a given period of time. A positive gap results when more assets than liabilities mature or are repriced during a given
period of time. A negative gap results when there are more liabilities than assets maturing or being repriced during a given time frame.



The short-term nature of the Companys assets and liabilities can be seen in the interest sensitivity analysis presented in Table 11.
The volume of non-earning assets can significantly affect the analysis by limiting the amount of assets available to reprice. A positive gap position indicates that more assets than liabilities will reprice, having a negative earnings impact in a
falling rate environment.



EFFECTS OF INFLATION

The effect of changing prices on financial institutions is different than that of non-banking companies since
substantially all assets and liabilities are monetary in nature. Interest rates are affected by inflation and deflation. Neither the timing nor the magnitude of the changes in interest rates is necessarily related to price level indexes.
Consequently, management believes the Company can best counter inflation over the long term by managing net interest income, diversifying its asset and liability mix and controlling noninterest income and expenses.





37



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UNITED FINANCIAL BANKING COMPANIES, INC.





TABLE 11INTEREST
SENSITIVITY ANALYSIS

( thousands )



|                                   |  | BALANCES 12/31/2002 |         |   | 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                 |  | $                   | 8,050   |   |            | 8,050  |   |      | 1.38 | % |            |        |    |      |      |   |             |        |    |      |      |   |           |        |   |      |      |   |              |        |   |      |      |   |      
|INVESTMENTS                        |  |                     | 17,344  |   |            | 12,718 |   |      | 3.99 | % |            | 224    |    |      | 4.06 | % |             | 1,292  |    |      | 3.82 | % |           | 1,996  |   |      | 3.75 | % |              | 1,114  |   |      | 2.59 | % |      
|LOANS, NETFIXED                   |  |                     | 21,810  |   |            | 11,006 |   |      | 7.68 | % |            | 1,523  |    |      | 7.65 | % |             | 600    |    |      | 8.57 | % |           | 7,128  |   |      | 8.51 | % |              | 1,553  |   |      | 8.43 | % |      
|LOANS, NETVARIABLE                |  |                     | 54,539  |   |            | 28,473 |   |      | 6.78 | % |            | 1,441  |    |      | 7.18 | % |             | 1,746  |    |      | 8.54 | % |           | 22,024 |   |      | 7.85 | % |              | 855    |   |      | 7.61 | % |      
|                                   |  |                     |         |   |            |        |   |      |      |   |            |        |    |      |      |   |             |        |    |      |      |   |           |        |   |      |      |   |              |        |   |      |      |   |      
|TOTAL EARNING ASSETS               |  |                     | 101,743 |   |            | 60,247 |   |      | 5.63 | % |            | 3,188  |    |      | 7.19 | % |             | 3,638  |    |      | 6.87 | % |           | 31,148 |   |      | 7.74 | % |              | 3,522  |   |      | 6.38 | % |      
|LOAN LOSS RESERVE                  |  |                     | (1,252  | ) |            |        |   |      |      |   |            |        |    |      |      |   |             |        |    |      |      |   |           |        |   |      |      |   |              |        |   |      |      |   |      
|NON-ACCRUAL LOANS                  |  |                     | 89      |   |            |        |   |      |      |   |            |        |    |      |      |   |             |        |    |      |      |   |           |        |   |      |      |   |              |        |   |      |      |   |      
|CASH AND DUE FROM BANKS            |  |                     | 5,064   |   |            |        |   |      |      |   |            |        |    |      |      |   |             |        |    |      |      |   |           |        |   |      |      |   |              |        |   |      |      |   |      
|REAL ESTATE OWNED                  |  |                     | 223     |   |            |        |   |      |      |   |            |        |    |      |      |   |             |        |    |      |      |   |           |        |   |      |      |   |              |        |   |      |      |   |      
|FIXED ASSETS                       |  |                     | 1,769   |   |            |        |   |      |      |   |            |        |    |      |      |   |             |        |    |      |      |   |           |        |   |      |      |   |              |        |   |      |      |   |      
|OTHER NONINTEREST-BEARING ASSETS   |  |                     | 1,708   |   |            |        |   |      |      |   |            |        |    |      |      |   |             |        |    |      |      |   |           |        |   |      |      |   |              |        |   |      |      |   |      
|                                   |  |                     |         |   |            |        |   |      |      |   |            |        |    |      |      |   |             |        |    |      |      |   |           |        |   |      |      |   |              |        |   |      |      |   |      
|TOTAL NONEARNING ASSETS            |  |                     | 7,601   |   |            |       |   |      |      |   |            |       |    |      |      |   |             |       |    |      |      |   |           |       |   |      |      |   |              |       |   |      |      |   |      
|                                   |  |                     |         |   |            |        |   |      |      |   |            |        |    |      |      |   |             |        |    |      |      |   |           |        |   |      |      |   |              |        |   |      |      |   |      
|TOTAL ASSETS                       |  | $                   | 109,344 |   |            | 60,247 |   |      |      |   |            | 3,188  |    |      |      |   |             | 3,638  |    |      |      |   |           | 31,148 |   |      |      |   |              | 3,522  |   |      |      |   |      
|                                   |  |                     |         |   |            |        |   |      |      |   |            |        |    |      |      |   |             |        |    |      |      |   |           |        |   |      |      |   |              |        |   |      |      |   |      
|LIABILITIES                        |  |                     |         |   |            |        |   |      |      |   |            |        |    |      |      |   |             |        |    |      |      |   |           |        |   |      |      |   |              |        |   |      |      |   |      
|NOW ACCOUNTS                       |  | $                   | 5,749   |   |            | 5,749  |   |      | 0.97 | % |            |        |    |      |      |   |             |        |    |      |      |   |           |        |   |      |      |   |              |        |   |      |      |   |      
|MONEY MARKET ACCOUNTS              |  |                     | 13,405  |   |            | 13,405 |   |      | 0.98 | % |            |        |    |      |      |   |             |        |    |      |      |   |           |        |   |      |      |   |              |        |   |      |      |   |      
|SAVINGS ACCOUNTS                   |  |                     | 15,799  |   |            |        |   |      |      |   |            |        |    |      |      |   |             |        |    |      |      |   |           | 15,799 |   |      | 3.00 | % |              |        |   |      |      |   |      
|CERTIFICATES OF DEPOSIT < $100,000 |  |                     | 17,977  |   |            | 2,122  |   |      | 3.56 | % |            | 2,677  |    |      | 3.36 | % |             | 6,951  |    |      | 2.79 | % |           | 6,227  |   |      | 3.95 | % |              |        |   |      |      |   |      
|CERTIFICATES OF DEPOSIT > $100,000 |  |                     | 14,576  |   |            | 1,927  |   |      | 2.98 | % |            | 1,733  |    |      | 3.35 | % |             | 4,362  |    |      | 2.93 | % |           | 6,554  |   |      | 2.81 | % |              |        |   |      |      |   |      
|                                   |  |                     |         |   |            |        |   |      |      |   |            |        |    |      |      |   |             |        |    |      |      |   |           |        |   |      |      |   |              |        |   |      |      |   |      
|TOTAL INTEREST-BEARING DEPOSITS    |  |                     | 67,506  |   |            | 23,203 |   |      | 1.38 | % |            | 4,410  |    |      | 3.36 | % |             | 11,313 |    |      | 2.84 | % |           | 28,580 |   |      | 3.16 | % |              |       |   |      |      |   |      
|                                   |  |                     |         |   |            |        |   |      |      |   |            |        |    |      |      |   |             |        |    |      |      |   |           |        |   |      |      |   |              |        |   |      |      |   |      
|NONINTEREST-BEARING DEPOSITS       |  |                     | 23,976  |   |            |        |   |      |      |   |            |        |    |      |      |   |             |        |    |      |      |   |           |        |   |      |      |   |              |        |   |      |      |   |      
|                                   |  |                     |         |   |            |        |   |      |      |   |            |        |    |      |      |   |             |        |    |      |      |   |           |        |   |      |      |   |              |        |   |      |      |   |      
|TOTAL DEPOSITS                     |  |                     | 91,482  |   |            | 23,203 |   |      |      |   |            | 4,410  |    |      |      |   |             | 11,313 |    |      |      |   |           | 28,580 |   |      |      |   |              |       |   |      |      |   |      
|TOTAL OTHER LIABILITIES            |  |                     | 6,279   |   |            |        |   |      |      |   |            |        |    |      |      |   |             |        |    |      |      |   |           |        |   |      |      |   |              |        |   |      |      |   |      
|TOTAL CAPITAL                      |  |                     | 11,583  |   |            |        |   |      |      |   |            |        |    |      |      |   |             |        |    |      |      |   |           |        |   |      |      |   |              |        |   |      |      |   |      
|                                   |  |                     |         |   |            |        |   |      |      |   |            |        |    |      |      |   |             |        |    |      |      |   |           |        |   |      |      |   |              |        |   |      |      |   |      
|TOTAL LIABILITIES & CAPITAL        |  | $                   | 109,344 |   |            | 23,203 |   |      |      |   |            | 4,410  |    |      |      |   |             | 11,313 |    |      |      |   |           | 28,580 |   |      |      |   |              |       |   |      |      |   |      
|                                   |  |                     |         |   |            |        |   |      |      |   |            |        |    |      |      |   |             |        |    |      |      |   |           |        |   |      |      |   |              |        |   |      |      |   |      
|INTERVAL GAP/GAP SPREAD            |  |                     |         |   |            | 37,044 |   |      | 4.25 | % |            | (1,222 | )  |      | 3.83 | % |             | (7,675 | )  |      | 4.02 | % |           | 2,568  |   |      | 4.57 | % |              | 3,522  |   |      | 6.38 | % |      
|CUMULATIVE GAP                     |  |                     |         |   |            | 37,044 |   |      |      |   |            | 35,822 |    |      |      |   |             | 28,147 |    |      |      |   |           | 30,715 |   |      |      |   |              | 34,237 |   |      |      |   |      
|INTERVAL GAP/TOTAL ASSETS          |  |                     |         |   |            | 33.88  | % |      |      |   |            | (1.12  | )% |      |      |   |             | (7.02  | )% |      |      |   |           | 2.35   | % |      |      |   |              | 3.22   | % |      |      |   |      
|CUMULATIVE GAP/TOTAL ASSETS        |  |                     |         |   |            | 33.88  | % |      |      |   |            | 32.76  | %  |      |      |   |             | 25.74  | %  |      |      |   |           | 28.09  | % |      |      |   |              | 31.31  | % |      |      |   |      
|INTERVAL GAP/EARNING ASSETS        |  |                     |         |   |            | 36.41  | % |      |      |   |            | (1.20  | )% |      |      |   |             | (7.54  | )% |      |      |   |           | 2.52   | % |      |      |   |              | 3.46   | % |      |      |   |      
|CUMULATIVE GAP/EARNING ASSETS      |  |                     |         |   |            | 36.41  | % |      |      |   |            | 35.21  | %  |      |      |   |             | 27.66  | %  |      |      |   |           | 30.19  | % |      |      |   |              | 33.65  | % |      |      |   |      
|MATCHED                            |  |                     |         |   |            | 23,203 |   |      | 1.38 | % |            | 3,188  |    |      | 3.36 | % |             | 3,638  |    |      | 6.87 | % |           | 31,148 |   |      | 7.74 | % |              |       |   |      | 0.00 | % |      
|OPEN                               |  |                     |         |   |            | 37,044 |   |      | 4.25 | % |            | (1,222 | )  |      | 3.83 | % |             | (7,675 | )  |      | 4.02 | % |           | 2,568  |   |      | 4.57 | % |              | 3,522  |   |      | 6.38 | % |      



38



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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                         
|Partner, Weller and Scott (retired)                                |  | Chairman, Computerware                   
|                                                                   |  |                                          
|John R. Motz                                                       |  | Robert W. Pitts                          
|Commercial Condominium Management Company                          |  | Partner, Pitts and Pitts                 
|                                                                   |  |                                          
|Sharon A. Stakes                                                   |  |                                          
|Executive Vice President, The Business Bank                        |  |                                          
|Executive Vice President, United Financial Banking Companies,
Inc. |  |                                          
|President, The Business Bank Insurance Agency, Inc.                |  |                                          



39



---

UNITED FINANCIAL BANKING COMPANIES, INC.





CORPORATE INFORMATION



The Company did not accrue or pay dividends during the years ended December 31, 2002 and 2001.



The Company had 448 shareholders of record as of December 31, 2002.



Below are the high and low bid prices for the common stock for each quarter of 2002 and 2001. These prices
reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual trades.



|                       |  | 2002 |       | 2001
|---------------------- |  | ---- | ----- | ----
|For the Quarter Ended: |  | High |       | Low 
|March 31               |  | $    | 10.95 |     
|June 30                |  | $    | 13.75 |     
|September 30           |  | $    | 13.75 |     
|December 31            |  | $    | 15.25 |     



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



40