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EXHIBIT 13



UNITED FINANCIAL BANKING

COMPANIES, INC. AND SUBSIDIARIES



FINANCIAL
REPORT



DECEMBER 31, 2004



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CONTENTS



|                                                           |  |     
|---------------------------------------------------------- |  | ----
|                                                           |  | Page
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM    |  | 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                              |  | 6-31



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of Directors and Stockholders

United Financial Banking Companies, Inc. and Subsidiaries



We have audited the accompanying consolidated balance sheets of United
Financial Banking Companies, Inc. and Subsidiaries (Company) as of December 31, 2004 and 2003, and the related consolidated statements of income and comprehensive income, stockholders equity and cash flows for the years then ended.
These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.



We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall consolidated 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, 2004 and 2003, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United
States of America.



|                             
|-----------------------------
|/S/ Goodman & Company, L.L.P.
|                             
|Norfolk, Virginia            
|April 8, 2005                



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UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

December 31, 2004 and 2003



|                                                                                                                      |  |      |             |   |      |   |             |  
|--------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                                                                                      |  | 2004 |             |   | 2003 |  
|ASSETS                                                                                                                |  |      |             |   |      |   |             |  
|                                                                                                                      |  |     
|Cash and due from banks                                                                                               |  | $    | 5,377,787   |   |      | $ | 4,340,579   |  
|Interest-bearing deposits in other banks                                                                              |  |      | 2,006,161   |   |      |   | 2,268,173   |  
|Federal funds sold                                                                                                    |  |      | 6,625,000   |   |      |   | 3,900,000   |  
|                                                                                                                      |  |      |             |   |      |   |             |  
|Total cash and cash equivalents                                                                                       |  |      | 14,008,948  |   |      |   | 10,508,752  |  
|                                                                                                                      |  |      |             |   |      |   |             |  
|Securities available-for-sale                                                                                         |  |      | 25,987,380  |   |      |   | 24,966,285  |  
|Securities held-to-maturity                                                                                           |  |      | 2,998,667   |   |      |   | 6,035,368   |  
|                                                                                                                      |  |      |             |   |      |   |             |  
|Total securities                                                                                                      |  |      | 28,986,047  |   |      |   | 31,001,653  |  
|                                                                                                                      |  |      |             |   |      |   |             |  
|Loans, net of unearned income of $320,014 in 2004; $317,232 in 2003                                                   |  |      | 128,851,646 |   |      |   | 99,114,122  |  
|Less: Allowance for loan losses                                                                                       |  |      | (1,914,616  | ) |      |   | (1,515,875  | )
|                                                                                                                      |  |      |             |   |      |   |             |  
|Net loans                                                                                                             |  |      | 126,937,030 |   |      |   | 97,598,247  |  
|Premises and equipment, net                                                                                           |  |      | 2,348,343   |   |      |   | 2,106,672   |  
|Deferred income tax                                                                                                   |  |      | 809,625     |   |      |   | 930,187     |  
|Other assets                                                                                                          |  |      | 1,224,749   |   |      |   | 784,815     |  
|                                                                                                                      |  |      |             |   |      |   |             |  
|Total assets                                                                                                          |  | $    | 174,314,742 |   |      | $ | 142,930,326 |  
|                                                                                                                      |  |      |             |   |      |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                  |  |      |             |   |      |   |             |  
|                                                                                                                      |  |     
|LIABILITIES                                                                                                           |  |      |             |   |      |   |             |  
|Deposits:                                                                                                             |  |      |             |   |      |   |             |  
|Demand                                                                                                                |  | $    | 44,799,016  |   |      | $ | 34,504,653  |  
|Savings and NOW                                                                                                       |  |      | 37,476,465  |   |      |   | 41,947,627  |  
|Money market                                                                                                          |  |      | 25,539,882  |   |      |   | 16,562,967  |  
|Time:                                                                                                                 |  |      |             |   |      |   |             |  
|Under $100,000                                                                                                        |  |      | 20,557,642  |   |      |   | 17,999,566  |  
|$100,000 and over                                                                                                     |  |      | 22,840,161  |   |      |   | 14,217,017  |  
|                                                                                                                      |  |      |             |   |      |   |             |  
|Total deposits                                                                                                        |  |      | 151,213,166 |   |      |   | 125,231,830 |  
|Short-term borrowings                                                                                                 |  |      | 1,000,000   |   |      |   | 1,000,000   |  
|Trust preferred capital notes                                                                                         |  |      | 5,155,000   |   |      |   |            |  
|Long-term debt                                                                                                        |  |      | 2,765,867   |   |      |   | 3,780,155   |  
|Accounts payable and accrued expenses                                                                                 |  |      | 618,876     |   |      |   | 513,284     |  
|                                                                                                                      |  |      |             |   |      |   |             |  
|Total liabilities                                                                                                     |  |      | 160,752,909 |   |      |   | 130,525,269 |  
|                                                                                                                      |  |      |             |   |      |   |             |  
|COMMITMENTS AND CONTINGENCIES                                                                                         |  |      |             |   |      |   |             |  
|                                                                                                                      |  |     
|STOCKHOLDERS EQUITY                                                                                                  |  |      |             |   |      |   |             |  
|Preferred stock $-0- par value, authorized 5,000,000 shares, no shares issued                                         |  |      |            |   |      |   |            |  
|Common stock, par value $1; authorized 3,500,000 shares, issued 1,041,080 shares in 2004 and 1,038,637 shares in 2003 |  |      | 1,041,080   |   |      |   | 1,038,637   |  
|Surplus                                                                                                               |  |      | 16,250,826  |   |      |   | 16,221,687  |  
|Accumulated deficit                                                                                                   |  |      | (3,677,271  | ) |      |   | (4,847,015  | )
|Accumulated other comprehensive income (loss)                                                                         |  |      | (52,802     | ) |      |   | (8,252      | )
|                                                                                                                      |  |      |             |   |      |   |             |  
|Total stockholders equity                                                                                            |  |      | 13,561,833  |   |      |   | 12,405,057  |  
|                                                                                                                      |  |      |             |   |      |   |             |  
|Total liabilities and stockholders equity                                                                            |  | $    | 174,314,742 |   |      | $ | 142,930,326 |  
|                                                                                                                      |  |      |             |   |      |   |             |  



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, 2004 and 2003



|                                                                                                  |  |      |           |   |      |   |           |  
|------------------------------------------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                                                                                  |  | 2004 |           |   | 2003 |  
|Interest income:                                                                                  |  |      |           |   |      |   |           |  
|Interest and fees on loans                                                                        |  | $    | 7,578,601 |   |      | $ | 6,092,703 |  
|Interest on investment securities                                                                 |  |      | 354,844   |   |      |   | 212,252   |  
|Interest on interest-bearing deposits                                                             |  |      | 28,597    |   |      |   | 16,616    |  
|Interest on federal funds sold                                                                    |  |      | 169,671   |   |      |   | 278,966   |  
|                                                                                                  |  |      |           |   |      |   |           |  
|                                                                                                  |  |      | 8,131,713 |   |      |   | 6,600,537 |  
|                                                                                                  |  |      |           |   |      |   |           |  
|Interest expense:                                                                                 |  |      |           |   |      |   |           |  
|Interest on deposits                                                                              |  |      | 1,687,769 |   |      |   | 1,664,835 |  
|Interest on short-term borrowings                                                                 |  |      | 35,882    |   |      |   | 45,152    |  
|Interest on long-term debt                                                                        |  |      | 157,956   |   |      |   | 192,208   |  
|                                                                                                  |  |      |           |   |      |   |           |  
|                                                                                                  |  |      | 1,881,607 |   |      |   | 1,902,195 |  
|                                                                                                  |  |      |           |   |      |   |           |  
|Net interest income                                                                               |  |      | 6,250,106 |   |      |   | 4,698,342 |  
|Provision for loan losses                                                                         |  |      | 412,017   |   |      |   | 280,000   |  
|                                                                                                  |  |      |           |   |      |   |           |  
|Net interest income after provision for loan losses                                               |  |      | 5,838,089 |   |      |   | 4,418,342 |  
|                                                                                                  |  |      |           |   |      |   |           |  
|Noninterest income:                                                                               |  |      |           |   |      |   |           |  
|Loan servicing and other fees                                                                     |  |      | 279,345   |   |      |   | 187,628   |  
|Other income                                                                                      |  |      | 456,204   |   |      |   | 447,801   |  
|                                                                                                  |  |      |           |   |      |   |           |  
|                                                                                                  |  |      | 735,549   |   |      |   | 635,429   |  
|                                                                                                  |  |      |           |   |      |   |           |  
|Noninterest expense:                                                                              |  |      |           |   |      |   |           |  
|Salaries                                                                                          |  |      | 2,520,248 |   |      |   | 1,740,995 |  
|Employee benefits                                                                                 |  |      | 459,649   |   |      |   | 318,405   |  
|Occupancy                                                                                         |  |      | 811,609   |   |      |   | 546,722   |  
|Furniture and equipment                                                                           |  |      | 309,968   |   |      |   | 220,533   |  
|Other                                                                                             |  |      | 1,115,657 |   |      |   | 961,161   |  
|                                                                                                  |  |      |           |   |      |   |           |  
|                                                                                                  |  |      | 5,217,131 |   |      |   | 3,787,816 |  
|                                                                                                  |  |      |           |   |      |   |           |  
|Income before federal income taxes                                                                |  |      | 1,356,507 |   |      |   | 1,265,955 |  
|Provision for income taxes:                                                                       |  |      |           |   |      |   |           |  
|Current                                                                                           |  |      | 39,000    |   |      |   |          |  
|Deferred                                                                                          |  |      | 147,763   |   |      |   | 434,989   |  
|                                                                                                  |  |      |           |   |      |   |           |  
|Net income                                                                                        |  | $    | 1,169,744 |   |      | $ | 830,966   |  
|                                                                                                  |  |      |           |   |      |   |           |  
|Net income per common share                                                                       |  |      |           |   |      |   |           |  
|Basic                                                                                             |  | $    | 1.13      |   |      | $ | 0.80      |  
|                                                                                                  |  |      |           |   |      |   |           |  
|Diluted                                                                                           |  | $    | 1.05      |   |      | $ | 0.75      |  
|                                                                                                  |  |      |           |   |      |   |           |  
|Comprehensive Income                                                                              |  |      |           |   |      |   |           |  
|Net income                                                                                        |  |      | 1,169,744 |   |      |   | 830,966   |  
|Other comprehensive income, net of tax Unrealized gains (losses) on available-for-sale securities |  |      | (44,550   | ) |      |   | (23,577   | )
|                                                                                                  |  |      |           |   |      |   |           |  
|Comprehensive income                                                                              |  | $    | 1,125,194 |   |      | $ | 807,389   |  
|                                                                                                  |  |      |           |   |      |   |           |  



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, 2004 and 2003



|                                                                                        |  |              |           |         |   |                     |  |   |                                               |   |  |       |         |   |  |   |            |  
|--------------------------------------------------------------------------------------- |  | ------------ | --------- | ------- | - | ------------------- |  | - | --------------------------------------------- | - |  | ----- | ------- | - |  | - | ---------- | -
|                                                                                        |  | Common Stock |           | Surplus |   | Accumulated Deficit |  |   | Accumulated Other Comprehensive Income (Loss) |   |  | Total |        
|Balance December 31, 2002                                                               |  | $            | 1,036,999 |         | $ | 16,208,535          |  | $ | (5,677,981                                    | ) |  | $     | 15,325  |   |  | $ | 11,582,878 |  
|                                                                                        |  |              |           |         |   |                     |  |   |                                               |   |  |       |         |   |  |   |            |  
|Net income                                                                              |  |              |          |         |   |                    |  |   | 830,966                                       |   |  |       |        |   |  |   | 830,966    |  
|Net proceeds from issuance of shares of common stock                                    |  |              | 1,638     |         |   | 13,152              |  |   |                                              |   |  |       |        |   |  |   | 14,790     |  
|Change in unrealized holding gain (loss) on available-for-sale securities, net of taxes |  |              |          |         |   |                    |  |   |                                              |   |  |       | (23,577 | ) |  |   | (23,577    | )
|                                                                                        |  |              |           |         |   |                     |  |   |                                               |   |  |       |         |   |  |   |            |  
|Balance December 31, 2003                                                               |  |              | 1,038,637 |         |   | 16,221,687          |  |   | (4,847,015                                    | ) |  |       | (8,252  | ) |  |   | 12,405,057 |  
|                                                                                        |  |              |           |         |   |                     |  |   |                                               |   |  |       |         |   |  |   |            |  
|Net income                                                                              |  |              |          |         |   |                    |  |   | 1,169,744                                     |   |  |       |        |   |  |   | 1,169,744  |  
|Net proceeds from issuance of shares of common stock                                    |  |              | 2,443     |         |   | 21,228              |  |   |                                              |   |  |       |        |   |  |   | 23,671     |  
|Change in unrealized holding gain (loss) on available-for-sale securities, net of taxes |  |              |          |         |   |                    |  |   |                                              |   |  |       | (44,550 | ) |  |   | (44,550    | )
|Other                                                                                   |  |              |          |         |   | 7,911               |  |   |                                              |   |  |       |        |   |  |   | 7,911      |  
|                                                                                        |  |              |           |         |   |                     |  |   |                                               |   |  |       |         |   |  |   |            |  
|Balance December 31, 2004                                                               |  | $            | 1,041,080 |         | $ | 16,250,826          |  | $ | (3,677,271                                    | ) |  | $     | (52,802 | ) |  | $ | 13,561,833 |  
|                                                                                        |  |              |           |         |   |                     |  |   |                                               |   |  |       |         |   |  |   |            |  



See
Notes to Consolidated Financial Statements.



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UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2004 and 2003



|                                                                                            |  |      |             |   |      |   |             |  
|------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                                                            |  | 2004 |             |   | 2003 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                        |  |      |             |   |      |   |             |  
|                                                                                            |  |     
|Net income                                                                                  |  | $    | 1,169,744   |   |      | $ | 830,966     |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |      |             |   |      |   |             |  
|Depreciation and amortization                                                               |  |      | 243,793     |   |      |   | 154,271     |  
|Provision for loan losses                                                                   |  |      | 412,017     |   |      |   | 280,000     |  
|Amortization of investment security discounts                                               |  |      | 62,918      |   |      |   | 75,713      |  
|Amortization of loan fees and discounts                                                     |  |      | 20,906      |   |      |   | 80,436      |  
|Net gain on the sale of real estate owned                                                   |  |      |            |   |      |   | (94,809     | )
|Net gain on the sale of available-for-sale securities                                       |  |      | (22,770     | ) |      |   |            |  
|(Increase) decrease in other assets                                                         |  |      | (164,372    | ) |      |   | 213,257     |  
|Increase in other liabilities                                                               |  |      | 105,097     |   |      |   | 28,736      |  
|                                                                                            |  |      |             |   |      |   |             |  
|Net cash provided by operating activities                                                   |  |      | 1,827,333   |   |      |   | 1,568,570   |  
|                                                                                            |  |      |             |   |      |   |             |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                        |  |      |             |   |      |   |             |  
|Nonbank loans repaid, net of originations                                                   |  |      | 188,006     |   |      |   | (391,140    | )
|Bank loans repaid, net of originations                                                      |  |      | (29,959,712 | ) |      |   | (22,601,702 | )
|Purchases of securities available-for-sale                                                  |  |      | (46,283,719 | ) |      |   | (55,488,080 | )
|Purchases of securities held-to-maturity                                                    |  |      | (750,000    | ) |      |   | (26,689,648 | )
|Investments made in real estate owned                                                       |  |      |            |   |      |   | (992,358    | )
|Proceeds received from sale of securities                                                   |  |      | 522,770     |   |      |   |            |  
|Proceeds received from maturity of securities available-for-sale                            |  |      | 44,654,875  |   |      |   | 45,524,499  |  
|Proceeds received from maturity of securities held-to-maturity                              |  |      | 3,786,982   |   |      |   | 21,968,059  |  
|Proceeds received from real estate owned                                                    |  |      |            |   |      |   | 1,309,788   |  
|Purchases of premises and equipment                                                         |  |      | (485,464    | ) |      |   | (491,665    | )
|                                                                                            |  |      |             |   |      |   |             |  
|Net cash provided by (used) for investing activities                                        |  |      | (28,326,262 | ) |      |   | (37,852,247 | )
|                                                                                            |  |      |             |   |      |   |             |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                        |  |      |             |   |      |   |             |  
|Net increase in demand deposits, savings accounts, NOW accounts and money market accounts   |  |      | 14,800,611  |   |      |   | 34,085,222  |  
|Certificates of deposit sold (matured), net                                                 |  |      | 11,181,220  |   |      |   | (336,583    | )
|Net change in short-term borrowings                                                         |  |      |            |   |      |   |            |  
|Proceeds from issuance of trust preferred securities                                        |  |      | 5,000,000   |   |      |   |            |  
|Payments on long-term debt                                                                  |  |      | (1,014,288  | ) |      |   | (1,013,495  | )
|Proceeds from issuance of common stock                                                      |  |      | 31,582      |   |      |   | 14,790      |  
|                                                                                            |  |      |             |   |      |   |             |  
|Net cash provided by financing activities                                                   |  |      | 29,999,125  |   |      |   | 32,749,934  |  
|                                                                                            |  |      |             |   |      |   |             |  
|Net increase (decrease) in cash and cash equivalents                                        |  |      | 3,500,196   |   |      |   | (3,533,743  | )
|                                                                                            |  |     
|Cash and cash equivalents at beginning of year                                              |  |      | 10,508,752  |   |      |   | 14,042,495  |  
|                                                                                            |  |      |             |   |      |   |             |  
|Cash and cash equivalents at end of year                                                    |  | $    | 14,008,948  |   |      | $ | 10,508,752  |  
|                                                                                            |  |      |             |   |      |   |             |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                           |  |      |             |   |      |   |             |  
|Cash paid during the year for:                                                              |  |      |             |   |      |   |             |  
|                                                                                            |  |     
|Interest on deposits and other borrowings                                                   |  | $    | 1,839,016   |   |      | $ | 1,920,365   |  
|                                                                                            |  |      |             |   |      |   |             |  
|Income taxes                                                                                |  | $    | 179,000     |   |      | $ |            |  
|                                                                                            |  |      |             |   |      |   |             |  



Noncash item:



During 2004, the Company received $155,000 in common stock
from the subsidiary, UFBC Capital Trust I, through the issuance of a $155,000 note payable



See Notes to Consolidated Financial Statements.



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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 organized under the laws of the Commonwealth of
Virginia in February 1982. In July 1983, UFBC acquired all the outstanding common stock of The Business Bank (the Bank), a banking company organized under the laws of the Commonwealth of Virginia. UFBC also wholly owns Business Venture
Capital, Inc. (BVCI), a subsidiary that conducts limited lending and other investment activities and United Facilities LLC (UFLLC) that holds Bank premises. Collectively, UFBC, the Bank, BVCI and UFLLC are referred to as the Company.
Primarily through its banking subsidiary, the Company offers loan and deposit products and other financial services to commercial and retail customers in the Northern Virginia metropolitan area.



Basis of Accounting:



The accounting and reporting policies used in preparing these financial
statements conform to accounting principles generally accepted in the United States of America and to general practices within the commercial banking industry.



Principles of Consolidation:



The accompanying consolidated financial statements include the accounts of United Financial Banking Companies, Inc. and subsidiaries (the Company).
Following is a summary of each subsidiary and its primary business activity:



|                                                     |  |                               
|---------------------------------------------------- |  | ------------------------------
|The Business Bank and Subsidiary (the Bank)          |  | Commercial Bank               
|The Business Bank Insurance Agency, Inc. (TBBIA)     |  | Insurance Agency              
|Business Venture Capital, Inc. (BVCI) and Subsidiary |  | Limited Lending and Investment
|United Title LLC (UTL)                               |  | Title Agency                  
|United Facilities LLC (UFL)                          |  | Holding Bank Facilities       
|UFBC Capital Trust I                                 |  | Trust Preferred Entity        



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.



Material estimates that are particularly susceptible to significant change
in the near term relate to the determination of the allowance for loan losses and the fair value of investment securities. While management uses available information to recognize losses on loans and changes to the fair value of investment
securities, modifications to the allowance for loan losses and unrealized gains and losses on investment securities may by necessary based on changes in economic conditions and other factors.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



Presentation of Cash Flows:



For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks, federal funds sold and investments in certificates of deposit. Generally, federal funds are purchased and sold for one-day periods. Cash flows from loans not acquired for resale, demand, interest checking, savings,
and time deposits are reported net.



Securities:



Management determines the appropriate classification of
debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Debt securities are classified as held-to-maturity (HTM) when the Company has the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost.



Debt securities not classified as held-to-maturity or trading 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, 2004 and 2003, the Company held no securities classified as trading.



The amortized cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization and accretion is included in interest income from investments.



Loans:



Loans are stated at unpaid principal balances, net of unearned income and the allowance for loan losses. Interest on discounted loans is recognized using
the effective yield method. For all other loans, interest is accrued daily on the outstanding balances. Net deferred loan fees and discounts on loans are being amortized over the contractual and/or the estimated average life of the loans as an
adjustment of the yield. The estimated average lives of such loans range from one to ten years.



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



Allowance for Loan Losses:



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



7



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



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



Real Estate Owned:



Real estate owned (REO) consists of properties held for resale that were
acquired through foreclosure on loans secured by real estate. REO is carried at the lower of cost or appraised fair value, less estimated costs to sell. In the normal course of business, it is possible that the estimated fair value will change in
the near term. Write-downs to fair value at the date of foreclosure are charged to the allowance for loan losses. Subsequent declines in fair value are charged to noninterest expense. Routine holding costs and subsequent declines in fair 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, 2004 and 2003, totaled $128,652 and
$115,765, 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.



8



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



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 FASB 123, Accounting for Stock-Based Compensation, and as amended
by FASB 148, as follows:



|                                                                                                                    |  |      |           |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                                    |  | 2004 |           |   | 2003 |   |         | 2002 | 
|Net income, as reported                                                                                             |  | $    | 1,169,744 |   |      | $ | 830,966 |      |  | $ | 742,131 |  
|                                                                                                                    |  |      |          
|Deduct: total stock-based employee compensation expense determined based on fair value method of awards, net of tax |  |      | (21,265   | ) |      |   | (22,277 | )    |  |   | (15,928 | )
|                                                                                                                    |  |      |           |   |      |   |         |      |  |   |         |  
|Pro forma net income                                                                                                |  | $    | 1,148,479 |   |      | $ | 808,689 |      |  | $ | 726,203 |  
|                                                                                                                    |  |      |           |   |      |   |         |      |  |   |         |  
|Basic earnings per share:                                                                                           |  |      |           |   |      |   |         |      |  |   |         |  
|As reported                                                                                                         |  | $    | 1.13      |   |      | $ | 0.80    |      |  | $ | 0.72    |  
|Pro forma                                                                                                           |  | $    | 1.09      |   |      | $ | 0.77    |      |  | $ | 0.69    |  
|                                                                                                                    |  |      |          
|Diluted earnings per share:                                                                                         |  |      |           |   |      |   |         |      |  |   |         |  
|As reported                                                                                                         |  | $    | 1.05      |   |      | $ | 0.75    |      |  | $ | 0.68    |  
|Pro forma                                                                                                           |  | $    | 1.03      |   |      | $ | 0.73    |      |  | $ | 0.66    |  
|                                                                                                                    |  |      |          
|Assumptions                                                                                                         |  |      |           |   |      |   |         |      |  |   |         |  
|                                                                                                                    |  |      |           |   |      |   |         |      |  |   |         |  
|Risk-free interest rate                                                                                             |  |      | 3.84      | % |      |   | 3.52    | %    |  |   | 4.30    | %
|Dividend yield                                                                                                      |  |      |          |   |      |   |        |      |  |   |        |  
|Volatility factor                                                                                                   |  |      | 10.00     | % |      |   | 10.00   | %    |  |   | 10.00   | %
|Weighted average expected life (years)                                                                              |  |      | 7.9       |   |      |   | 6.7     |      |  |   | 6.9     |  



Recent Accounting
Pronouncements:



Derivatives



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



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



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



In March 2004, the staff of the SEC issued Staff Accounting Bulletin (SAB) No. 105, Application of Accounting Principles to Loan
Commitments. Under Statement No. 133, as amended, mortgage loan commitments that relate to the origination of mortgage loans that will be held for sale should be accounted for as derivative instruments by the issuer of the loan commitment. SAB
No. 105 clarifies that expected future cash flows related to the servicing of the loan should not be recognized as part of the loan commitment, and is effective for loan commitments entered into after March 31, 2004. . The adoption of SAB No. 104
did not have a material effect on the financial statements.



Investment Securities



In November
2003, the FASBs Emerging Issues Task Force (EITF) reached consensus on new disclosure requirements related to unrealized losses on investment securities. The new disclosure requirements apply to marketable equity and debt securities accounted
for under Financial Accounting Board Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, and are required for inclusion in annual reports with fiscal years ended after December 15, 2003. Accordingly, the
required disclosures have been incorporated into the financial statements.



Business Combinations



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



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



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



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



Limited Liability Companies



In March 2004, the FASB ratified the consensus reached in
Emerging Issues Task Force (EITF) Issue No. 03-16, Accounting for Investments in Limited Liability Companies. Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock,
prescribes the accounting for investments in the common stock of corporations that are not consolidated. In EITF Abstract Topic No. D-46, Accounting for Limited Liability Partnership Investments, the Securities and Exchange Commission
staff clarified its view that investments in limited partnerships of more than 3 to 5 percent are considered to be more that minor and, therefore, should be accounted for using the equity method. Limited liability companies (LLCs) have
characteristics of both corporations and partnerships, but are dissimilar from both in certain respects. Due to those similarities and differences, diversity in practice exists with respect to accounting for noncontrolling investments in LLCs. The
EITF reached a consensus that an investment in an LLC that maintains a specific ownership account for each investor - similar to a partnership capital account structure - should be viewed as similar to an investment in a limited
partnership for purposes of determining whether a noncontrolling investment in an LLC should be accounted for using the cost method or the equity method. The consensus is effective for the first reporting period beginning after June 15, 2004. The
adoption of this consensus did not have a material effect on the financial statements.



Accounting for Long-Lived Assets



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



Stockholders Equity



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



In April 2004, the FASB issued FASB Staff Position (FSP) No. 129-1, Disclosure Requirements under FASB Statement No. 129, Disclosure of Information about Capital Structure Relating to
Contingently Convertible Securities. This FSP provides guidance pertaining to how the disclosure provisions of Statement No. 129 apply to contingently convertible securities and to their potentially dilutive effects on earnings per share
(EPS). The FASB concluded that the disclosure requirements in Statement No. 129 apply to all contingently convertible securities, including those containing conversion requirements that have not been met and are not otherwise required to be included
in EPS. The guidance in this FSP is effective immediately and applies to all existing and newly created securities. The adoption of FSP 129-1 did not have a material effect on the financial statements.



11



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



In October 2004, the FASB ratified the consensus reached
on Emerging Issues Task Force (EITF) Issue No. 04-08, The Effect of Contingently Convertible Debt on Diluted Earnings Per Share. Contingently convertible debt instruments, commonly referred to as Co-Cos, are structured financial
transactions that combine the features of contingently issuable shares with a convertible debt instrument. Co-Cos are convertible into common shares of the issuer after the common stock price has exceeded a predetermined threshold for a specified
time period (market price trigger). A consensus was reached that Co-Cos should be included in the computation of earning per share, if dilutive, regardless of whether the market price trigger has been reached. The consensus is effective immediately,
and may require the restatement of previously disclosed earnings per share. The adoption of this consensus did not have a material effect on the financial statements.



The dilutive effect of common stock equivalents is determined using the treasury stock method, that calculates the number of
additional shares that would have to be issued if exercised (net of proceeds from exercise).



Guarantees



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



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



Asset Retirements and Disposal Costs



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



Financial Instruments



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



12



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



Variable Interest
Entities



In January 2003, the Financial
Accounting Standards Board (FASB) issued Interpretation (FIN) No. 46, Consolidation of Variable Interest Entities and in December 2003, a revised interpretation was issued (FIN No. 46®)). In general, a variable interest entity (VIE) is a corporation,
partnership, trust, or any other legal structure used for business purposes that either does not have equity investors with voting rights nor has equity investors providing sufficient financial resources for the entity to support its activities. FIN
No. 46 requires a VIE to be consolidated by a company if that company is designated as the primary beneficiary. Generally, the interpretation applies to VIEs created after January 31, 2003, and for all financial statements issued after December 15,
2003, for VIEs in which an enterprise held a variable interest that it acquired before February 1, 2003. The adoption of this standard did not have a material effect on the financial statements.



On March 3, 2005, the FASB staff posted FASB Staff Position (FSP) No. FIN
46®)-5 to its website. The FSP, entitled Implicit
Variable Interests under FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, is effective for reporting periods beginning after March 3, 2005. This issue commonly arises in leasing arrangements
among related parties. As the Company has leasing arrangements with certain officers, directors and shareholders, these arrangements will be evaluated in the context of this FASB Staff Position during the second quarter of 2005. If the reporting
enterprise (the Company in this case) is considered the primary beneficiary of the leasing arrangements, then the financial position and results of operations of the variable interest entities (the limited liability companies owned by certain
officers, directors, and shareholders) should be consolidated with the reporting enterprise. At this time, the Company cannot determine what impact, if any, the application of the FSP might have on its consolidated financial position and results of
operations.



New Accounting Pronouncements



In December 2003, the American Institute of Certified
Public Accountants issued Statement of Position (SOP) 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer. This SOP prohibits carrying over or creation of valuation allowances in the initial
accounting of all loans acquired in a transfer that are within the scope of this SOP. The prohibition of the valuation allowance carryover applies to the purchase of an individual loan, a pool of loans, a group of loans, and loans acquired in a
purchase business combination after December 15, 2004. The SOP also requires the recognition of expected decreases in cash flows on such loans as impairment losses prospectively, regardless or whether or not they were acquired before or after
December 15, 2004. The potential effect of SOP 03-3 on the financial statements is currently being considered.



13



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



In December 2004, the FASB issued Statement No.
123®), Share-Based Compensation, which requires the recognition of costs resulting from transactions involving the acquisition of goods and services by issuing its shares, share options, or other equity instruments. This standard
requires a fair value-based measurement method in accounting for share-based payment transactions with both employees and nonemployees. This standard replaces Statement No. 123, Accounting for Stock-Based Compensation, and supersedes
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, the use of the intrinsic value method as provided under APB Opinion No. 25 will be eliminated. SFAS No. 123®) is
effective for all awards of share-based payments granted, modified, or cancelled after June 15, 2005, except for public entities filing as small business issuers. Public entities that file as small business issuers will be required to apply
Statement 123®) in the first interim or reporting period that begins after December 15, 2005. In addition, compensation costs for the unvested portion of awards, issued prior to and outstanding as of June 15, 2005, would continue to be
recognized at the grant-date fair value as the remaining requisite service is rendered. The potential effect of Statement No. 123®) on the financial statements is currently being considered.



Reclassifications:



Certain amounts for 2003 have been reclassified to conform to the presentation for fiscal year 2004.



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 2. Securities



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





|                              |  |                |            |                       |   |                       |  |   |            |   |  |   |           
|----------------------------- |  | -------------- | ---------- | --------------------- | - | --------------------- |  | - | ---------- | - |  | - | ----------
|                              |  | Amortized Cost |            | Gross UnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair Value
|Securities Available-for-Sale |  |                |            |                       |   |                       |  |   |            |   |  |   |           
|December 31, 2004:            |  |                |            |                       |   |                       |  |   |            |   |  |   |           
|U.S. Treasury                 |  | $              | 3,466,214  |                       | $ | 94                    |  | $ | (24,253    | ) |  | $ | 3,442,055 
|U.S. Government Agencies      |  |                | 20,153,463 |                       |   | 2,256                 |  |   | (51,287    | ) |  |   | 20,104,432
|Mortgage-Backed Securities    |  |                | 765,608    |                       |   | 1,412                 |  |   | (3,293     | ) |  |   | 763,727   
|Corporate Debt Securities     |  |                | 563,918    |                       |   | 318                   |  |   | (5,250     | ) |  |   | 558,986   
|Other Securities              |  |                | 638,930    |                       |   |                      |  |   |           |   |  |   | 638,930   
|Equity Securities             |  |                | 479,250    |                       |   |                      |  |   |           |   |  |   | 479,250   
|                              |  |                |            |                       |   |                       |  |   |            |   |  |   |           
|Total                         |  | $              | 26,067,383 |                       | $ | 4,080                 |  | $ | (84,083    | ) |  | $ | 25,987,380
|                              |  |                |            |                       |   |                       |  |   |            |   |  |   |           
|December 31, 2003:            |  |                |            |                       |   |                       |  |   |            |   |  |   |           
|U.S. Treasury                 |  | $              | 2,200,545  |                       | $ | 2,459                 |  | $ | (5,936     | ) |  | $ | 2,197,068 
|U.S. Government Agencies      |  |                | 21,092,471 |                       |   | 28,012                |  |   | (20,364    | ) |  |   | 21,100,119
|Mortgage-Backed Securities    |  |                | 1,050,619  |                       |   | 2,066                 |  |   | (7,843     | ) |  |   | 1,044,845 
|Corporate Debt Securities     |  |                | 309,343    |                       |   | 566                   |  |   | (1,117     | ) |  |   | 308,792   
|Other Securities              |  |                | 2,711      |                       |   |                      |  |   |           |   |  |   | 2,711     
|Equity Securities             |  |                | 312,750    |                       |   |                      |  |   |           |   |  |   | 312,750   
|                              |  |                |            |                       |   |                       |  |   |            |   |  |   |           
|Total                         |  | $              | 24,968,439 |                       | $ | 33,106                |  | $ | (35,260    | ) |  | $ | 24,966,285
|                              |  |                |            |                       |   |                       |  |   |            |   |  |   |           
|Securities Held-to-Maturity   |  |                |            |                       |   |                       |  |   |            |   |  |   |           
|December 31, 2004:            |  |                |            |                       |   |                       |  |   |            |   |  |   |           
|U.S. Government Agencies      |  | $              | 2,998,667  |                       | $ |                      |  | $ | (35,819    | ) |  | $ | 2,962,848 
|                              |  |                |            |                       |   |                       |  |   |            |   |  |   |           
|Total                         |  | $              | 2,998,667  |                       | $ |                      |  | $ | (35,819    | ) |  | $ | 2,962,848 
|                              |  |                |            |                       |   |                       |  |   |            |   |  |   |           
|December 31, 2003:            |  |                |            |                       |   |                       |  |   |            |   |  |   |           
|U.S. Government Agencies      |  | $              | 5,998,329  |                       | $ |                      |  | $ | (18,488    | ) |  | $ | 5,979,841 
|Mortgage-Backed Securities    |  |                | 37,039     |                       |   | 705                   |  |   |           |   |  |   | 37,744    
|                              |  |                |            |                       |   |                       |  |   |            |   |  |   |           
|Total                         |  | $              | 6,035,368  |                       | $ | 705                   |  | $ | (18,488    | ) |  | $ | 6,017,585 
|                              |  |                |            |                       |   |                       |  |   |            |   |  |   |           





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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 2. Securities (continued)



Following is a summary of securities which were in an unrealized loss
position at December 31, 2004, and 2003. Of the total securities in an unrealized loss position for less than twelve months at December 31, 2004, 97.0% were U.S. Government Agency and Treasury securities with a weighted duration of 2.01 years. As
the Company has the ability and intent to hold these securities until maturity, or until such time as the value recovers, no declines were deemed to be other-than-temporary.





|                              |  |                                                 |            |                  |                                                 |         |            |  |                  |           |  |   |        |  
|----------------------------- |  | ----------------------------------------------- | ---------- | ---------------- | ----------------------------------------------- | ------- | ---------- |  | ---------------- | --------- |  | - | ------ | -
|                              |  | Continuous Unrealized LossesLess Than 12 Months |            |                  | Continuous Unrealized LossesMore Than 12 Months |        
|                              |  | Fair Value                                      |            | UnrealizedLosses |                                                 |         | Fair Value |  | UnrealizedLosses |          
|Securities Available-for-Sale |  |                                                 |            |                  |                                                 |         |            |  |                  |           |  |   |        |  
|December 31, 2004:            |  |                                                 |            |                  |                                                 |         |            |  |                  |           |  |   |        |  
|U.S. Treasury                 |  | $                                               | 3,422,200  |                  | $                                               | (24,252 | )          |  | $                |          |  | $ |       |  
|U.S. Government Agencies      |  |                                                 | 8,028,735  |                  |                                                 | (46,933 | )          |  |                  | 628,542   |  |   | (4,356 | )
|Mortgage-Backed Securities    |  |                                                 |           |                  |                                                 |        |            |  |                  | 392,267   |  |   | (3,293 | )
|Corporate Debt Securities     |  |                                                 | 434,367    |                  |                                                 | (5,249  | )          |  |                  |          |  |   |       |  
|Other Securities              |  |                                                 |           |                  |                                                 |        |            |  |                  |          |  |   |       |  
|                              |  |                                                 |            |                  |                                                 |         |            |  |                  |           |  |   |        |  
|                              |  | $                                               | 11,885,302 |                  | $                                               | (76,434 | )          |  | $                | 1,020,809 |  | $ | (7,649 | )
|                              |  |                                                 |            |                  |                                                 |         |            |  |                  |           |  |   |        |  
|December 31, 2003:            |  |                                                 |            |                  |                                                 |         |            |  |                  |           |  |   |        |  
|U.S. Treasury                 |  | $                                               | 759,669    |                  | $                                               | (5,936  | )          |  | $                |          |  | $ |       |  
|U.S. Government Agencies      |  |                                                 | 2,837,563  |                  |                                                 | (18,560 | )          |  |                  | 770,999   |  |   | (1,804 | )
|Mortgage-Backed Securities    |  |                                                 |           |                  |                                                 |        |            |  |                  | 681,540   |  |   | (7,843 | )
|Corporate Debt Securities     |  |                                                 | 201,161    |                  |                                                 | (1,117  | )          |  |                  |          |  |   |       |  
|Other Securities              |  |                                                 |           |                  |                                                 |        |            |  |                  |          |  |   |       |  
|                              |  |                                                 |            |                  |                                                 |         |            |  |                  |           |  |   |        |  
|                              |  | $                                               | 3,798,393  |                  | $                                               | (25,613 | )          |  | $                | 1,452,539 |  | $ | (9,647 | )
|                              |  |                                                 |            |                  |                                                 |         |            |  |                  |           |  |   |        |  
|Securities Held-to-Maturity   |  |                                                 |            |                  |                                                 |         |            |  |                  |           |  |   |        |  
|December 31, 2004:            |  |                                                 |            |                  |                                                 |         |            |  |                  |           |  |   |        |  
|U.S. Government Agencies      |  | $                                               | 2,473,843  |                  | $                                               | (26,014 | )          |  | $                | 489,006   |  | $ | (9,805 | )
|                              |  |                                                 |            |                  |                                                 |         |            |  |                  |           |  |   |        |  
|                              |  | $                                               | 2,473,843  |                  | $                                               | (26,014 | )          |  | $                | 489,006   |  | $ | (9,805 | )
|                              |  |                                                 |            |                  |                                                 |         |            |  |                  |           |  |   |        |  
|December 31, 2003:            |  |                                                 |            |                  |                                                 |         |            |  |                  |           |  |   |        |  
|U.S. Government Agencies      |  | $                                               | 2,979,762  |                  | $                                               | (18,488 | )          |  | $                |          |  | $ |       |  
|Mortgage-Backed Securities    |  |                                                 |           |                  |                                                 |        |            |  |                  |          |  |   |       |  
|                              |  |                                                 |            |                  |                                                 |         |            |  |                  |           |  |   |        |  
|                              |  | $                                               | 2,979,762  |                  | $                                               | (18,488 | )          |  | $                |          |  | $ |       |  
|                              |  |                                                 |            |                  |                                                 |         |            |  |                  |           |  |   |        |  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 2. Securities (continued)



The amortized cost and estimated fair value of securities at December 31, 2004, 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            |  | $              | 13,482,312 |            | $ | 13,471,019
|Due after 1 year through 5 years   |  |                | 9,545,940  |            |   | 9,487,915 
|Due after 5 years through 10 years |  |                | 357,450    |            |   | 354,870   
|Due after 10 years                 |  |                | 2,202,431  |            |   | 2,194,326 
|                                   |  |                |            |            |   |           
|                                   |  |                | 25,588,133 |            |   | 25,508,130
|                                   |  |                |            |            |   |           
|Equity securities                  |  |                | 479,250    |            |   | 479,250   
|                                   |  |                |            |            |   |           
|Total                              |  | $              | 26,067,383 |            | $ | 25,987,380
|                                   |  |                |            |            |   |           
|                                   |  |               
|Securities Held-to-Maturity        |  | Amortized Cost |            | Fair Value
|Due in one year or less            |  | $              | 1,000,000  |            | $ | 993,449   
|Due after 1 year through 5 years   |  |                | 1,998,667  |            |   | 1,969,399 
|Due after 5 years through 10 years |  |                |           |            |   |          
|Due after 10 years                 |  |                |           |            |   |          
|                                   |  |                |            |            |   |           
|Total                              |  | $              | 2,998,667  |            | $ | 2,962,848 
|                                   |  |                |            |            |   |           



At December 31, 2004,
a held-to-maturity security with an amortized cost of $500,000 was pledged as collateral to the Treasury Board of Virginia for public funds held by the Bank, and another held-to-maturity security with an amortized cost of $498,811 was pledged as
collateral to the Federal Reserve Bank of Richmond for the Banks treasury, tax and loan account.



A gain of $22,770 was realized on the sale of investment securities during 2004. No gains or losses were realized on the sale of investment securities
during 2003 and 2002.



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, $416,500, since no active trading market exists.



At December 31, 2004 and 2003, the Bank owned $62,750 of Community Bankers Bank stock. The stock is restricted from sale,
transfer, pledge or other disposal unless permitted by an opinion of Community Bankers Bank counsel. The stock, which has no stated maturity, is carried at cost since no active trading market exits.



Neither equity stock was pledged at December 31, 2004.



Note 3. Loans and Related Accounts



Major classifications of loans are summarized as follows:



|                                |  |      |             |   |      |   |            |  
|------------------------------- |  | ---- | ----------- | - | ---- | - | ---------- | -
|                                |  | 2004 |             |   | 2003 |  
|Commercial                      |  | $    | 93,462,033  |   |      | $ | 72,111,718 |  
|Real estate construction        |  |      | 20,568,245  |   |      |   | 14,503,009 |  
|Real estate mortgage            |  |      | 7,669,903   |   |      |   | 8,315,566  |  
|Installment                     |  |      | 7,471,479   |   |      |   | 4,501,061  |  
|                                |  |      |             |   |      |   |            |  
|                                |  |      | 129,171,660 |   |      |   | 99,431,354 |  
|Less unearned discount          |  |      | (320,014    | ) |      |   | (317,232   | )
|                                |  |      |             |   |      |   |            |  
|                                |  |      | 128,851,646 |   |      |   | 99,114,122 |  
|Allowance for loan/lease losses |  |      | (1,914,616  | ) |      |   | (1,515,875 | )
|                                |  |      |             |   |      |   |            |  
|Loans, net                      |  | $    | 126,937,030 |   |      | $ | 97,598,247 |  
|                                |  |      |             |   |      |   |            |  



At December 31, 2004
and 2003, overdrafts of $750,498 and $345,225, respectively, are included in commercial loans.





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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 3. Loans and Related Accounts (continued)



Changes in the allowance for loan losses were as follows:



|                                |  |      |           |   |      |   |           |  
|------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                |  | 2004 |           |   | 2003 |  
|Balance, beginning of year      |  | $    | 1,515,875 |   |      | $ | 1,251,764 |  
|Provision charged to operations |  |      | 412,017   |   |      |   | 280,000   |  
|Loans charged off               |  |      | (38,772   | ) |      |   | (28,176   | )
|Recoveries                      |  |      | 25,496    |   |      |   | 12,287    |  
|                                |  |      |           |   |      |   |           |  
|Balance, end of year            |  | $    | 1,914,616 |   |      | $ | 1,515,875 |  
|                                |  |      |           |   |      |   |           |  



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:



|                     |  |      |        |      |   |       
|-------------------- |  | ---- | ------ | ---- | - | ------
|                     |  | 2004 |        | 2003
|Nonaccrual           |  | $    | 37,202 |      | $ | 33,457
|Restructured         |  |      |       |      |   |      
|Other impaired loans |  |      |       |      |   |      
|                     |  |      |        |      |   |       
|Total impaired loans |  | $    | 37,202 |      | $ | 33,457
|                     |  |      |        |      |   |       



The allowance for loan
losses related to impaired loans amounted to approximately $7,440 and $6,691 at December 31, 2004 and 2003, respectively.



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



|                                                |  |      |       |      |   |        |  
|----------------------------------------------- |  | ---- | ----- | ---- | - | ------ | -
|                                                |  | 2004 |       | 2003 |  
|Interest that would have been accrued as income |  | $    | 5,338 |      | $ | 2,719  |  
|Interest paid and recognized as interest income |  |      |      |      |   | (1,973 | )
|                                                |  |      |       |      |   |        |  
|Interest forgone                                |  | $    | 5,338 |      | $ | 746    |  
|                                                |  |      |       |      |   |        |  



The annual average
balance of impaired loans on which income was recognized on a cash basis was $74,442, and $38,000 for the years ending December 31, 2004 and 2003, respectively. There were no commitments to lend additional funds to customers whose loans were
classified as impaired at December 31, 2004.



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, 2004, the Company had uninsured cash of $2,257,605.



At December 31, 2004, six deposit relationships constituted approximately 19.0% of the Companys total deposits.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 5. Premises and Equipment



Major classifications of premises and equipment are summarized as follows:



|                                          |  |      |            |   |      |   |           |  
|----------------------------------------- |  | ---- | ---------- | - | ---- | - | --------- | -
|                                          |  | 2004 |            |   | 2003 |  
|Land                                      |  | $    | 818,910    |   |      | $ | 818,910   |  
|Building                                  |  |      | 495,566    |   |      |   | 495,566   |  
|Leasehold improvements                    |  |      | 533,482    |   |      |   | 330,934   |  
|Furniture, fixtures and equipment         |  |      | 1,659,646  |   |      |   | 1,376,730 |  
|                                          |  |      |            |   |      |   |           |  
|                                          |  |      | 3,507,604  |   |      |   | 3,022,140 |  
|Accumulated depreciation and amortization |  |      | (1,159,261 | ) |      |   | (915,468  | )
|                                          |  |      |            |   |      |   |           |  
|                                          |  | $    | 2,348,343  |   |      | $ | 2,106,672 |  
|                                          |  |      |            |   |      |   |           |  



Depreciation and
amortization expense of $243,793 in 2004 and $154,271 in 2003, 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, 2004, are as follows:



|                             |  |   |          
|---------------------------- |  | - | ---------
|2005                         |  | $ | 531,377  
|2006                         |  |   | 531,377  
|2007                         |  |   | 323,015  
|2008                         |  |   | 323,015  
|2009                         |  |   | 281,634  
|Later years                  |  |   | 924,279  
|                             |  |   |          
|Total minimum lease payments |  | $ | 2,914,696
|                             |  |   |          



At December 31, 2004,
the Companys operations included one owned and three leased properties. The main office of the Company and the Bank are located in Vienna, Virginia. The lease term includes an initial period of one year with 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
$1,282,471 at December 31, 2004.



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



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



Rental expense for operating leases amounted to $576,828, $387,766 and $291,743 for the years ended December 31, 2004, 2003 and 2002, respectively. Rental
exposure on leases are amortized on the straight-line method, 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.





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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 6. Short-term Borrowings



|                                            |  |      |           |   |      |   |           |  
|------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                            |  | 2004 |           |   | 2003 |  
|Federal Home Loan Bank of Atlanta           |  | $    | 1,000,000 |   |      | $ | 1,000,000 |  
|                                            |  |      |           |   |      |   |           |  
|Average daily amount outstanding            |  | $    | 1,024,658 |   |      | $ | 1,443,836 |  
|                                            |  |      |           |   |      |   |           |  
|Weighted average interest rate              |  |      | 3.59      | % |      |   | 3.01      | %
|                                            |  |      |           |   |      |   |           |  
|Maximum amount outstanding at any month-end |  | $    | 1,000,000 |   |      | $ | 2,000,000 |  
|                                            |  |      |           |   |      |   |           |  



Advances from the
Federal Home Loan Bank of Atlanta were secured by liens on the Banks qualifying residential and commercial mortgages totaling $8,424,452 at December 31, 2004 and $9,597,063 at December 31, 2003.



At December 31, 2004, the Bank had unsecured lines of credit with
correspondent banks totaling $7,400,000 available for overnight borrowing. There were no amounts drawn on the lines of credit at either December 31, 2004 or December 31, 2003.



Note 7. Trust Preferred Capital Notes



On December 30, 2004, the Company completed a private placement issuance of $5.0 million of trust preferred securities through a newly formed,
wholly-owned, subsidiary trust (UFBC Capital Trust I) which issued $155,000 in common equity to the Company. The securities bear a fixed rate of interest of 6.175% until March 15, 2010, at which time, the securities will then bear a floating rate of
interest, adjusting quarterly, of 210 basis points over three-month Libor. The securities have a thirty-year term and are callable at par beginning March 15, 2010. The principal asset of the trust is a similar amount of the Companys junior
subordinated debt securities with like maturities and interest rates to the trust preferred securities. The obligations of the Company with respect to the issuance of the trust preferred securities constitute a full and unconditional guarantee by
the Company of the Trusts obligations with respect to the trust preferred securities to the extent set forth in the related guarantees. Subject to certain exceptions and limitations, the Company may elect from time to time to defer interest
payments on the junior subordinated debt securities, resulting in a deferral of distribution payments on the related trust preferred securities.



The Trust Preferred Securities may be included in Tier 1 capital for regulatory capital adequacy purposes up to 25.0% of Tier 1 capital after its
inclusion. The portion of the trust preferred securities not qualifying as Tier 1 capital may be included as part of total qualifying capital in Tier 2 capital.



Note 8. Long-term Debt



At December 31, 2004, long-term debt consisted of $2,000,000 in advances from the Federal Home Loan Bank of Atlanta and a $765,867 term note. The Federal
Home Loan Bank of Atlanta advances are at rates ranging from 4.35% to 4.57%. Advances from the Federal Home Loan Bank of Atlanta are secured by liens on the Banks residential and commercial mortgages. The term note has a contractual fixed rate
of 6.50% and is secured by a first deed of trust on Company property. Long-term debt maturing in each of the five years subsequent to December 31, 2004 is as follows: 2005 - $15,358; 2006 - $1,016,426; 2007 - $1,734,083; 2008 - $0; 2009 - $0.



20



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 9. Deposits



Deposit account balances at December 31, 2004 and 2003 are summarized as follows:



|                                           |  |      |             |      |   |            
|------------------------------------------ |  | ---- | ----------- | ---- | - | -----------
|                                           |  | 2004 |             | 2003
|Noninterest-bearing demand                 |  | $    | 44,799,511  |      | $ | 34,504,653 
|Interest-bearing demand                    |  |      | 36,499,746  |      |   | 27,239,392 
|Savings deposits                           |  |      | 26,516,601  |      |   | 31,271,202 
|Certificates of deposits under $100,000    |  |      | 20,557,642  |      |   | 17,999,566 
|Certificates of deposits $100,000 and over |  |      | 22,840,161  |      |   | 14,217,017 
|                                           |  |      |             |      |   |            
|                                           |  | $    | 151,213,661 |      | $ | 125,231,830
|                                           |  |      |             |      |   |            



Certificates maturing
in years ending December 31, as of December 31, 2004:



|                    |  |   |           
|------------------- |  | - | ----------
|2005                |  | $ | 16,430,092
|2006                |  |   | 5,904,888 
|2007                |  |   | 14,948,681
|2008                |  |   | 5,381,438 
|2009 and thereafter |  |   | 732,704   
|                    |  |   |           
|                    |  | $ | 43,397,803
|                    |  |   |           



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 10. Income Taxes



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



|                                                  |  |      |           |   |      |   |           |  
|------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                                  |  | 2004 |           |   | 2003 |  
|Current                                           |  | $    | 39,000    |   |      | $ |          |  
|Deferred                                          |  |      | 147,763   |   |      |   | 434,989   |  
|                                                  |  |      |           |   |      |   |           |  
|                                                  |  | $    | 186,763   |   |      | $ | 434,989   |  
|                                                  |  |      |           |   |      |   |           |  
|                                                  |  |     
|                                                  |  | 2004 |           |   | 2003 |  
|Income before income taxes                        |  | $    | 1,356,705 |   |      | $ | 1,265,955 |  
|Applicable statutory income tax rate              |  |      | 34        | % |      |   | 34        | %
|                                                  |  |      |           |   |      |   |           |  
|Computed expected federal tax expense           |  |      | 461,280   |   |      |   | 430,425   |  
|                                                  |  |     
|Adjustments to federal income tax resulting from: |  |      |           |   |      |   |           |  
|Nondeductible expenses                            |  |      | 5,573     |   |      |   | 4,564     |  
|Valuation allowance                               |  |      | (301,828  | ) |      |   |          |  
|Other                                             |  |      | 21,738    |   |      |   |          |  
|                                                  |  |      |           |   |      |   |           |  
|Provision for federal income tax                  |  | $    | 186,763   |   |      | $ | 434,989   |  
|                                                  |  |      |           |   |      |   |           |  
|Other comprehensive income                        |  | $    | (77,848   | ) |      | $ | (17,932   | )
|Applicable tax (benefit)                          |  |      | (33,298   | ) |      |   | 5,645     |  
|                                                  |  |      |           |   |      |   |           |  
|Other comprehensive income, net of tax            |  | $    | (44,550   | ) |      | $ | (23,577   | )
|                                                  |  |      |           |   |      |   |           |  



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



|                                                  |  |      |         |      |   |           |  
|------------------------------------------------- |  | ---- | ------- | ---- | - | --------- | -
|                                                  |  | 2004 |         | 2003 |  
|Deferred tax assets (liabilities):                |  |      |         |      |   |           |  
|Accelerated depreciation                          |  | $    | 1,155   |      | $ | (4,373    | )
|Provision for loan losses                         |  |      | 583,221 |      |   | 447,649   |  
|Alternative minimum tax                           |  |      | 43,828  |      |   | 301,828   |  
|Deferred loan fees                                |  |      | 108,805 |      |   | 107,859   |  
|Unrealized gain/loss on investment securities     |  |      | 27,201  |      |   | (733      | )
|Deferred rent                                     |  |      | 45,415  |      |   | 44,505    |  
|Net operating loss carryforward                   |  |      |        |      |   | 335,280   |  
|                                                  |  |      |         |      |   |           |  
|Net deferred tax asset before valuation allowance |  |      | 809,625 |      |   | 1,232,015 |  
|                                                  |  |      |         |      |   |           |  
|Less - valuation allowance                        |  |      |        |      |   | (301,828  | )
|                                                  |  |      |         |      |   |           |  
|Net deferred tax asset                            |  | $    | 809,625 |      | $ | 930,187   |  
|                                                  |  |      |         |      |   |           |  



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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, 2004, that would have a material adverse effect on the Companys financial
statements.



Financial Instruments With Off-Balance Sheet
Risk



In the normal course of business, the Company
makes various commitments and incurs certain contingent liabilities that are not reflected in the accompanying financial statements. These commitments and contingent liabilities include commitments to extend credit and standby letters of credit. The
Company evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company, upon extension of credit, is based on managements credit evaluation of the customer. Such
collateral, where required, generally consists of cash, real estate and/or assets of the business. Because many commitments and almost all standby letters of credit expire without being funded, the contractual commitments do not necessarily
represent future cash requirements.



Lines of credit are
established for a potential borrower as an indication of the aggregate amount of outstanding credit that the Company is willing to extend. At December 31, 2004 and 2003, unused commitments that were extended under lines of credit amounted to
$22,575,754 and $17,950,808, respectively.



Commitments to
extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. At
December 31, 2004 and 2003, commitments to extend credit amounted to $7,921,147 and $15,527,200, respectively.



The Companys outstanding standby letters of credit amounted to $2,533,249 and $4,320,335 as of December 31, 2004 and 2003, respectively. The credit
risk involved in issuing letters of credit is essentially the same as that involved in making loans to customers. At December 31, 2004, 59% of the Companys letters of credit were cash secured.



Note 12. Related Party Transactions



Directors and executive officers, including family members and businesses in
which the directors or executive officers have 5 percent or more beneficial ownership of the Company, are customers, and entered into transactions with the Company. 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, 2002 |  | $ | 3,554,372  |  
|Additions                  |  |   | 2,679,450  |  
|Reductions                 |  |   | (1,027,783 | )
|                           |  |   |            |  
|Balance, December 31, 2003 |  | $ | 5,206,039  |  
|Additions                  |  |   | 2,688,942  |  
|Reductions                 |  |   | (2,931,304 | )
|                           |  |   |            |  
|Balance, December 31, 2004 |  | $ | 4,963,677  |  
|                           |  |   |            |  



As of December 31,
2004, this balance consists of secured loans totaling $4,520,340 and unsecured loans totaling $443,677. No loans to related parties were classified as impaired or nonperforming at December 31, 2004.



The Bank held related party deposits of approximately $12,886,157 and
$9,797,000 at December 31, 2004 and 2003, respectively.



23



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 12. Related Party Transactions (continued)



The building which serves as the Companys headquarters is owned by a
limited liability company of which Mr. Manuel V. Fernandez, a director and beneficial shareholder owning in excess of 5% of the Companys common stock, has 50% beneficial ownership. A second shareholder, owning less than 5% of the
Companys common stock, also has 50% beneficial ownership in the limited liability company. The lease terms include three options for renewal and a right of first offer. During 1997, the Bank exercised one renewal option for a nine-year
extension. At December 31, 2004, the future minimum lease payments for the Companys headquarters totaled $416,724.



The Bank entered into a lease with 133 Maple Ave LC, a limited liability company organized in the Commonwealth of Virginia, for 12,184 square feet in
Vienna, Virginia. Mr. Harold C. Rauner, Chief Executive Officer and President of the Company and of the Bank and a shareholder, is a member of the limited liability company. Mr. Manuel V. Fernandez, Vice Chairman and Director of the Company, and a
beneficial shareholder owning in excess of 5% of the Companys common stock, is also a member of the limited liability company. A third shareholder, owning less than 5% of the Companys common stock, is also a member of the limited
liability company. The lease term is for ten years with four options, each granting five-year extensions. The lease commenced September 1, 2003. The terms of the lease are substantially the same as those prevailing for similar leases within the
market area that the building is located. At December 31, 2004, the future minimum lease payments for the Companys headquarters totaled $2,184,659.



Note 13. Regulatory Requirements and Restrictions



The Companys banking subsidiary is subject to federal and/or state statutes that prohibit or restrict certain of its activities, including the
transfer of funds to the Company. There are restrictions on loans from the Bank to the Company, and the Bank is limited as to the amount of cash dividends it can pay. The Bank paid no dividends in 2004, 2003 and 2002.



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 $15,589,728 at December 31, 2004; thus net assets of the Bank in excess of $1,558,973 were restricted from use by the Holding Company in the form of loans or advances. The Company had no such borrowings from the Bank in 2004 or
2003.



As a participant in the Federal Reserve system, the
Bank is required to maintain certain average reserve balances which are noninterest bearing. The daily average reserve requirement for the week including December 31, 2004 was $2,121,000.



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



Quantitative measures established by regulation to ensure
capital adequacy require the Company and 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. At December 31, 2004, the most recent notification from the
Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain Total risk-based, Tier 1 risk-based and Tier 1
average asset ratios as set forth in the table. There are no conditions nor events, since December 31, 2004, that management believes would result in the institution not being well capitalized.



24



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 13. Regulatory Requirements and Restrictions (continued)



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



|                                         |  |        |            |       |                                       |   |        |                                 |            |  |      |        |  |       |            |  |       |  
|---------------------------------------- |  | ------ | ---------- | ----- | ------------------------------------- | - | ------ | ------------------------------- | ---------- |  | ---- | ------ |  | ----- | ---------- |  | ----- | -
|                                         |  | Actual |            |       | Required for CapitalAdequacy Purposes |   |        | Required To Be Well Capitalized |           
|                                         |  | Amount |            | Ratio |                                       |   | Amount |                                 | Ratio      |  |      | Amount |  | Ratio |           
|As of December 31, 2004:                 |  |        |            |       |                                       |   |        |                                 |            |  |      |        |  |       |            |  |       |  
|Total capital (to risk-weighted assets)  |  |        |            |       |                                       |   |        |                                 |            |  |      |        |  |       |            |  |       |  
|Company                                  |  | $      | 19,487,819 |       | 14.90                                 | % |        | $                               | 10,466,315 |  | 8.00 | %      |  | $     | 13,082,894 |  | N/A   |  
|The Business Bank                        |  |        | 16,760,995 |       | 13.01                                 | % |        |                                 | 10,306,391 |  | 8.00 | %      |  |       | 12,882,989 |  | 10.00 | %
|Tier 1 capital (to risk-weighted assets) |  |        |            |       |                                       |   |        |                                 |            |  |      |        |  |       |            |  |       |  
|Company                                  |  |        | 17,131,971 |       | 13.09                                 | % |        |                                 | 5,233,157  |  | 4.00 | %      |  |       | 7,849,736  |  | N/A   |  
|The Business Bank                        |  |        | 15,146,904 |       | 11.76                                 | % |        |                                 | 5,153,196  |  | 4.00 | %      |  |       | 7,729,793  |  | 6.00  | %
|Tier 1 capital (to average assets)       |  |        |            |       |                                       |   |        |                                 |            |  |      |        |  |       |            |  |       |  
|Company                                  |  |        | 17,131,971 |       | 10.36                                 | % |        |                                 | 6,617,784  |  | 4.00 | %      |  |       | 8,272,230  |  | N/A   |  
|The Business Bank                        |  |        | 15,146,904 |       | 9.27                                  | % |        |                                 | 6,537,174  |  | 4.00 | %      |  |       | 8,171,468  |  | 5.00  | %
|                                         |  |        |            |       |                                       |  
|As of December 31, 2003:                 |  |        |            |       |                                       |   |        |                                 |            |  |      |        |  |       |            |  |       |  
|Total capital (to risk-weighted assets)  |  |        |            |       |                                       |   |        |                                 |            |  |      |        |  |       |            |  |       |  
|Company                                  |  | $      | 12,807,697 |       | 13.03                                 | % |        | $                               | 7,861,170  |  | 8.00 | %      |  | $     | 9,826,463  |  | N/A   |  
|The Business Bank                        |  |        | 11,451,744 |       | 11.95                                 | % |        |                                 | 7,665,996  |  | 8.00 | %      |  |       | 9,582,496  |  | 10.00 | %
|Tier 1 capital (to risk-weighted assets) |  |        |            |       |                                       |   |        |                                 |            |  |      |        |  |       |            |  |       |  
|Company                                  |  |        | 11,575,839 |       | 11.78                                 | % |        |                                 | 3,930,585  |  | 4.00 | %      |  |       | 5,895,878  |  | N/A   |  
|The Business Bank                        |  |        | 10,250,044 |       | 10.70                                 | % |        |                                 | 3,832,998  |  | 4.00 | %      |  |       | 5,749,497  |  | 6.00  | %
|Tier 1 capital (to average assets)       |  |        |            |       |                                       |   |        |                                 |            |  |      |        |  |       |            |  |       |  
|Company                                  |  |        | 11,575,839 |       | 8.14                                  | % |        |                                 | 5,689,582  |  | 4.00 | %      |  |       | 7,111,978  |  | N/A   |  
|The Business Bank                        |  |        | 10,250,044 |       | 7.41                                  | % |        |                                 | 5,532,520  |  | 4.00 | %      |  |       | 6,915,650  |  | 5.00  | %



Note 14. Other Income



|                                  |  |      |         |      |   |        
|--------------------------------- |  | ---- | ------- | ---- | - | -------
|                                  |  | 2004 |         | 2003
|Service charges on deposits       |  | $    | 267,744 |      | $ | 292,004
|Fees on letters of credit         |  |      | 30,136  |      |   | 13,507 
|Gain on sale of real estate owned |  |      |        |      |   | 105,536
|Gain on sale of loans             |  |      | 74,105  |      |   |       
|Sweep income                      |  |      | 8,384   |      |   | 6,204  
|Other                             |  |      | 75,835  |      |   | 30,550 
|                                  |  |      |         |      |   |        
|                                  |  | $    | 456,204 |      | $ | 447,801
|                                  |  |      |         |      |   |        



Note 15. Interest on Deposits



|                  |  |      |           |      |   |          
|----------------- |  | ---- | --------- | ---- | - | ---------
|                  |  | 2004 |           | 2003
|Savings and NOW   |  | $    | 607,911   |      | $ | 499,028  
|Money market      |  |      | 212,651   |      |   | 160,081  
|Time:             |  |      |           |      |   |          
|Under $100,000    |  |      | 490,129   |      |   | 591,620  
|$100,000 and over |  |      | 377,078   |      |   | 414,106  
|                  |  |      |           |      |   |          
|                  |  | $    | 1,687,769 |      | $ | 1,664,835
|                  |  |      |           |      |   |          



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 16. Employee Benefit Plan



The Company has a 401(k) Plan covering all employees who meet specified age
and employment requirements. The administrative expense associated with the 401(k) Plan was $2,190 in 2004 and $2,180 in 2003. The Company made contributions of $52,875 in 2004 and $30,000 in 2003. 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 value at the date of grant. The maximum number of options to purchase common stock issuable under the 1990 Plan was 69,880. The 1990 Plan expired December 31, 1999 and all options were granted.
The maximum number of options to purchase common stock issuable under the 1999 Plan was 56,113. The 1999 Plan expired December 31, 2003 and 52,201 options were granted. The maximum number of options to purchase common stock issuable under the 2003
Plan is 90,000. As of December 31, 2004, no options had been granted under the 2003 Plan. Under the Plans, options are exercisable at any time over a ten-year period from the date of grant as long as the option holder is an employee of the Company.
Certain grants are subject to vesting over four years.



The
Company also has 1996, 1999 and 2003 Nonqualified Stock Option Plans for Non-Employee Directors (the Directors Plan) that awards options to purchase common stock to non-employee directors of the Company and of the Bank. The 1999 and 2003 Directors
Plans also include awards to advisory board members. The maximum number of shares issuable under the 1996 Directors Plan was 8,000. The 1996 Directors Plan expired on July 1, 1998 and all options to purchase common stock were awarded. The maximum
number of shares issuable under the 1999 Directors Plan was 35,000. The 1999 Directors Plan expired on August 1, 2003 and 6,000 options to purchase common stock were awarded to advisory board members and 18,000 options to purchase common stock were
awarded to non-employee directors. The maximum number of shares issuable under the 2003 Directors Plan is 60,000. The 2003 Directors Plan expires on July 31, 2008 and 9,350 options to purchase common stock, 1,150 to advisory board members and 8,200
to non-employee directors, were granted as of December 31, 2004 .



The following table summarizes the Companys stock option plan status and activity for the years ended December 31, 2004 and 2003:



|                                 |  |                 |   |      |                               |       |                 |         |   |                               |   |      
|-------------------------------- |  | --------------- | - | ---- | ----------------------------- | ----- | --------------- | ------- | - | ----------------------------- | - | -----
|                                 |  | 2004            |   | 2003
|                                 |  | Numberof Shares |   |      | WeightedAverage ExercisePrice |       | Numberof Shares |         |   | WeightedAverage ExercisePrice
|Outstanding at beginning of year |  | 147,043         |   |      | $                             | 9.41  |                 | 136,480 |   |                               | $ | 8.66 
|Granted                          |  | 9,350           |   |      |                               | 18.50 |                 | 16,113  |   |                               |   | 16.43
|Exercised                        |  | (2,443          | ) |      |                               | 9.69  |                 | (1,638  | ) |                               |   | 9.03 
|Forfeited                        |  |                |   |      |                               |      |                 | (3,912  | ) |                               |   | 12.33
|Expired                          |  | (500            | ) |      |                               | 16.43 |                 |        |   |                               |   |     
|                                 |  |                 |   |      |                               |       |                 |         |   |                               |   |      
|Outstanding at end of year       |  | 153,450         |   |      |                               | 9.91  |                 | 147,043 |   |                               |   | 9.41 
|                                 |  |                 |   |      |                               |       |                 |         |   |                               |   |      
|Exercisable at end of year       |  | 132,940         |   |      |                               | 9.58  |                 | 115,593 |   |                               |   | 8.76 
|                                 |  |                 |   |      |                               |       |                 |         |   |                               |   |      



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 17. Stock-Based Compensation (continued)



Information pertaining to options outstanding at December 31, 2004 is as
follows:



|                                            |  |                         |       |                                         |         |                                         |        
|------------------------------------------- |  | ----------------------- | ----- | --------------------------------------- | ------- | --------------------------------------- | -------
|Weighted Average Contractual
Life Remaining |  | Range of ExercisePrices |       | Number Outstanding at December 31, 2004 |         | Number Exercisable at December 31, 2004
|1.0 years                                   |  | $                       | 7.50  |                                         | 42,082  |                                         | 42,082 
|3.3 years                                   |  |                         | 8.75  |                                         | 5,100   |                                         | 5,100  
|4.0 years                                   |  |                         | 8.75  |                                         | 18,098  |                                         | 18,098 
|4.6 years                                   |  |                         | 8.75  |                                         | 4,600   |                                         | 4,600  
|5.0 years                                   |  |                         | 9.00  |                                         | 11,100  |                                         | 11,100 
|6.0 years                                   |  |                         | 8.50  |                                         | 22,350  |                                         | 19,726 
|7.0 years                                   |  |                         | 10.25 |                                         | 26,950  |                                         | 15,825 
|8.0 years                                   |  |                         | 16.43 |                                         | 13,820  |                                         | 7,059  
|9.0 years                                   |  |                         | 18.05 |                                         | 9,350   |                                         | 9,350  
|                                            |  |                         |       |                                         |         |                                         |        
|                                            |  |                         |       |                                         | 153,450 |                                         | 132,940
|                                            |  |                         |       |                                         |         |                                         |        



The Company has
elected to continue to account for stock-based compensation under the intrinsic value guidelines of APB Opinion No. 25. Under the intrinsic value based method, compensation cost is measured as the excess of the market price of the stock underlying
the option at the date granted over the exercise price. The Companys policy is to grant options at market value. Accordingly, no compensation cost has been recognized for its stock options. Pro forma information regarding net income and
earnings per share as required by SFAS 123 has been determined as if the Company had accounted for its employee stock options under the fair-value method. The fair values of the options granted were estimated using the Black-Scholes option pricing
model. A summary of the assumptions used and pro forma results for 2004 and 2003 is presented in Note 1 to the Consolidated Financial Statements.



Note 18. Other Expense



|                                   |  |      |           |      |   |        
|---------------------------------- |  | ---- | --------- | ---- | - | -------
|                                   |  | 2004 |           | 2003
|Data processing                    |  | $    | 221,171   |      | $ | 208,286
|Professional fees                  |  |      | 124,416   |      |   | 119,536
|State franchise tax                |  |      | 81,600    |      |   | 79,900 
|Stationery, printing and supplies  |  |      | 80,188    |      |   | 73,416 
|Insurance                          |  |      | 64,335    |      |   | 58,551 
|Postage                            |  |      | 40,168    |      |   | 33,334 
|Telephone                          |  |      | 75,033    |      |   | 61,720 
|Advertising                        |  |      | 85,592    |      |   | 26,832 
|Real estate owned, holding expense |  |      |          |      |   | 2,130  
|Other                              |  |      | 343,154   |      |   | 297,456
|                                   |  |      |           |      |   |        
|                                   |  | $    | 1,115,657 |      | $ | 961,161
|                                   |  |      |           |      |   |        



Advertising costs are
expensed as incurred.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 19. Stockholders Equity



The Company has authorized 5,000,000 shares of no par value preferred stock.
At December 31, 2004 and 2003, 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, 2004 and 2003, there were 1,041,080 and 1,038,637 common shares
outstanding, respectively. Common shares reserved by the Company for future issuance (stock option plans and stock warrants) total 296,100.



Warrants and Options



During 2004, stock options to purchase 2,443 shares of common stock pursuant to the Executive Stock Plan were exercised. A warrant to purchase 2,000
shares of common stock was unexercised as of December 31, 2004 and expires January 27, 2007.



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



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



|                                            |  |                   |           |                     |           |                 |   |     
|------------------------------------------- |  | ----------------- | --------- | ------------------- | --------- | --------------- | - | ----
|                                            |  | Income(Numerator) |           | Shares(Denominator) |           | Per ShareAmount
|Basic Earnings Per Share                    |  |                   |           |                     |           |                 |   |     
|                                            |  |                   |          
|For the year ended December 31, 2004        |  |                   |           |                     |           |                 |   |     
|Basic earnings per common share:            |  |                   |           |                     |           |                 |   |     
|Net income available to common stockholders |  | $                 | 1,169,744 |                     | 1,039,248 |                 | $ | 1.13
|                                            |  |                   |           |                     |           |                 |   |     
|For the year ended December 31, 2003        |  |                   |           |                     |           |                 |   |     
|Basic earnings per common share:            |  |                   |           |                     |           |                 |   |     
|Income available to common stockholders     |  | $                 | 830,966   |                     | 1,037,135 |                 | $ | .80 
|                                            |  |                   |           |                     |           |                 |   |     
|Diluted Earnings Per Share                  |  |                   |           |                     |           |                 |   |     
|                                            |  |                   |          
|For the year ended December 31, 2004        |  |                   |           |                     |           |                 |   |     
|Net Income available to common stockholders |  | $                 | 1,169,744 |                     | 1,039,248 |                 |   |     
|                                            |  |                   |           |                     |           |                 |   |     
|Add: Contracts to issue common stock        |  |                   |           |                     |           |                 |   |     
|Warrant - expires 01/27/07                  |  |                   |           |                     | 1,259     |                 |   |     
|Options - expire 12/31/05 - 01/01/11        |  |                   |           |                     | 78,350    |                 |   |     
|                                            |  |                   |           |                     |           |                 |   |     
|Weighted-average dilutive shares            |  |                   |           |                     | 79,609    |                 |   |     
|                                            |  |                   |           |                     |           |                 |   |     
|Diluted earnings per common share:          |  | $                 | 1,169,744 |                     | 1,118,857 |                 | $ | 1.05
|                                            |  |                   |           |                     |           |                 |   |     
|For the year ended December 31, 2003        |  |                   |           |                     |           |                 |   |     
|Net Income available to common stockholders |  | $                 | 830,966   |                     | 1,037,135 |                 |   |     
|                                            |  |                   |           |                     |           |                 |   |     
|Add: Contracts to issue common stock        |  |                   |           |                     |           |                 |   |     
|Warrant - expires 01/27/07                  |  |                   |           |                     | 1,164     |                 |   |     
|Options - expire 12/31/05 - 01/27/13        |  |                   |           |                     | 70,054    |                 |   |     
|                                            |  |                   |           |                     |           |                 |   |     
|Weighted-average dilutive shares            |  |                   |           |                     | 71,218    |                 |   |     
|                                            |  |                   |           |                     |           |                 |   |     
|Diluted earnings per common share:          |  | $                 | 830,966   |                     | 1,108,353 |                 | $ | .75 
|                                            |  |                   |           |                     |           |                 |   |     



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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 and Borrowings



The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at December 31, 2004 and 2003. The fair value for all other deposits and borrowings is determined using the discounted
cash flow method. The discount rate was equal to the rate currently offered on similar products.



Accrued Interest



The carrying amounts of accrued interest approximate fair value.



|                                |  |            |             |            |   |             |  |            |             |  |   |            
|------------------------------- |  | ---------- | ----------- | ---------- | - | ----------- |  | ---------- | ----------- |  | - | -----------
|                                |  | 2004       |             | 2003      
|                                |  | Book Value |             | Fair Value |   | Book Value  |  | Fair Value
|Financial Assets:               |  |            |             |            |   |             |  |            |             |  |   |            
|Cash and short-term investments |  | $          | 14,009,000  |            | $ | 14,009,000  |  | $          | 10,509,000  |  | $ | 10,509,000 
|Investment securities           |  |            | 28,986,000  |            |   | 28,950,000  |  |            | 31,002,000  |  |   | 30,984,000 
|Net loans                       |  |            | 126,937,000 |            |   | 129,263,000 |  |            | 97,598,000  |  |   | 101,092,247
|Accrued interest receivable     |  |            | 532,000     |            |   | 532,000     |  |            | 387,000     |  |   | 387,000    
|                                |  |            |             |           
|Financial Liabilities:          |  |            |             |            |   |             |  |            |             |  |   |            
|Deposits                        |  |            | 151,214,000 |            |   | 151,290,000 |  |            | 125,232,000 |  |   | 125,631,000
|Short-term borrowings           |  |            | 1,000,000   |            |   | 1,005,000   |  |            | 1,000,000   |  |   | 1,000,000  
|Long-term debt                  |  |            | 2,766,000   |            |   | 2,814,000   |  |            | 3,780,000   |  |   | 3,903,000  
|Trust preferred capital notes   |  |            | 5,155,000   |            |   | 5,142,000   |  |            |            |  |   |           
|Accrued interest payable        |  |            | 141,000     |            |   | 141,000     |  |            | 98,000      |  |   | 98,000     



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



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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, 2004 and 2003, and for the years ended December 31, 2004 and 2003 follow:



BALANCE SHEETS

December 31, 2004 and 2003



|                                           |  |      |            |      |   |           
|------------------------------------------ |  | ---- | ---------- | ---- | - | ----------
|                                           |  | 2004 |            | 2003
|ASSETS                                     |  |      |            |      |   |           
|Cash on deposit with subsidiary bank       |  | $    | 645,243    |      | $ | 264,969   
|Securities available-for-sale              |  |      | 617,500    |      |   |          
|Investment in The Business Bank            |  |      | 15,859,727 |      |   | 10,238,954
|Investments in other subsidiaries          |  |      | 1,122,573  |      |   | 1,146,874 
|Other assets                               |  |      | 558,862    |      |   | 805,819   
|                                           |  |      |            |      |   |           
|Total assets                               |  | $    | 18,803,905 |      | $ | 12,456,616
|                                           |  |      |            |      |   |           
|LIABILITIES AND STOCKHOLDERS EQUITY       |  |      |            |      |   |           
|LIABILITIES                                |  |      |            |      |   |           
|Other liabilities                          |  | $    | 87,072     |      | $ | 51,559    
|Trust preferred subordinated debt          |  |      | 5,155,000  |      |   |          
|                                           |  |      |            |      |   |           
|Total liabilities                          |  |      | 5,242,072  |      |   | 51,559    
|                                           |  |      |            |      |   |           
|STOCKHOLDERS EQUITY                       |  |      | 13,561,833 |      |   | 12,405,057
|                                           |  |      |            |      |   |           
|Total liabilities and stockholders equity |  | $    | 18,803,905 |      | $ | 12,456,616
|                                           |  |      |            |      |   |           



STATEMENTS OF INCOME

Years Ended December 31, 2004 and 2003



|                                           |  |      |           |   |      |   |         |  
|------------------------------------------ |  | ---- | --------- | - | ---- | - | ------- | -
|                                           |  | 2004 |           |   | 2003 |  
|Income:                                    |  |      |           |   |      |   |         |  
|Interest                                   |  | $    | 2,226     |   |      | $ | 2,086   |  
|Other                                      |  |      | 118,590   |   |      |   | 98,736  |  
|                                           |  |      |           |   |      |   |         |  
|Total income                               |  |      | 120,816   |   |      |   | 100,822 |  
|Expenses                                   |  |      | 174,281   |   |      |   | 148,678 |  
|                                           |  |      |           |   |      |   |         |  
|                                           |  |      | (53,465   | ) |      |   | (47,856 | )
|Undistributed net earnings of subsidiaries |  |      | 1,199,780 |   |      |   | 869,282 |  
|                                           |  |      |           |   |      |   |         |  
|Income before income taxes                 |  |      | 1,146,315 |   |      |   | 821,426 |  
|Federal income tax expense (benefit)       |  |      | (23,429   | ) |      |   | (9,540  | )
|                                           |  |      |           |   |      |   |         |  
|Net income                                 |  | $    | 1,169,744 |   |      | $ | 830,966 |  
|                                           |  |      |           |   |      |   |         |  



COMPREHENSIVE INCOME

Years Ended December 31, 2004 and 2003



|                                                           |  |      |           |   |      |   |         |  
|---------------------------------------------------------- |  | ---- | --------- | - | ---- | - | ------- | -
|                                                           |  | 2004 |           |   | 2003 |  
|Net income                                                 |  | $    | 1,169,744 |   |      | $ | 830,966 |  
|Other comprehensive income, net of tax                     |  |      |           |   |      |   |         |  
|Unrealized gains (losses) on available-for-sale securities |  |      | (44,550   | ) |      |   | (23,577 | )
|                                                           |  |      |           |   |      |   |         |  
|Comprehensive income                                       |  | $    | 1,125,194 |   |      | $ | 807,389 |  
|                                                           |  |      |           |   |      |   |         |  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 21. Parent Company Financial Statements (continued)



STATEMENTS OF CASH FLOWS

Years Ended December 31, 2004 and 2003



|                                                                                                             |  |      |            |   |      |   |          |  
|------------------------------------------------------------------------------------------------------------ |  | ---- | ---------- | - | ---- | - | -------- | -
|                                                                                                             |  | 2004 |            |   | 2003 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                        |  |      |            |   |      |   |          |  
|Net income                                                                                                   |  | $    | 1,169,744  |   |      | $ | 830,966  |  
|Adjustments to reconcile net income to net cash used in operating activities:                                |  |      |            |   |      |   |          |  
|Undistributed earnings of:                                                                                   |  |      |            |   |      |   |          |  
|The Business Bank                                                                                            |  |      | (1,165,324 | ) |      |   | (810,854 | )
|Other subsidiaries                                                                                           |  |      | (34,456    | ) |      |   | (58,427  | )
|Increase in other assets                                                                                     |  |      | (39,285    | ) |      |   | (9,107   | )
|Increase (decrease) in other liabilities                                                                     |  |      | 43,424     |   |      |   | 5,474    |  
|                                                                                                             |  |      |            |   |      |   |          |  
|Net cash used in operating activities                                                                        |  |      | (25,897    | ) |      |   | (23,734  | )
|                                                                                                             |  |      |            |   |      |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                         |  |      |            |   |      |   |          |  
|Investment in subsidiaries                                                                                   |  |      | (4,000,000 | ) |      |   |         |  
|Investment in available-for-sale securities                                                                  |  |      | (617,500   | ) |      |   |         |  
|                                                                                                             |  |      |            |   |      |   |          |  
|Net cash used in investing activities                                                                        |  |      | (4,617,500 | ) |      |   |         |  
|                                                                                                             |  |      |            |   |      |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                         |  |      |            |   |      |   |          |  
|Proceeds from subordinated debt                                                                              |  |      | 5,000,000  |   |      |   |         |  
|Proceeds from issuance of common stock                                                                       |  |      | 23,671     |   |      |   | 14,790   |  
|                                                                                                             |  |      |            |   |      |   |          |  
|Net cash provided by financing activities                                                                    |  |      | 5,023,671  |   |      |   | 14,790   |  
|                                                                                                             |  |      |            |   |      |   |          |  
|Net increase (decrease) in cash and cash equivalents                                                         |  |      | 380,274    |   |      |   | (8,944   | )
|Cash and cash equivalents at beginning of year                                                               |  |      | 264,969    |   |      |   | 273,913  |  
|                                                                                                             |  |      |            |   |      |   |          |  
|Cash and cash equivalents at end of year                                                                     |  | $    | 645,243    |   |      | $ | 264,969  |  
|                                                                                                             |  |      |            |   |      |   |          |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                                            |  |      |            |   |      |   |          |  
|                                                                                                             |  |     
|Cash paid during the years for:                                                                              |  |      |            |   |      |   |          |  
|Income taxes                                                                                                 |  | $    |           |   |      | $ |         |  
|                                                                                                             |  |      |            |   |      |   |          |  
|NONCASH ITEMS                                                                                                |  |      |            |   |      |   |          |  
|                                                                                                             |  |     
|Effect on stockholders equity of an unrealized gain (loss) on debt and equity securities available-for-sale |  | $    | (44,550    | ) |      | $ | (23,577  | )
|                                                                                                             |  |      |            |   |      |   |          |  
|Effect on stockholders equity of share-based payment                                                        |  | $    | 7,911      |   |      | $ |         |  
|                                                                                                             |  |      |            |   |      |   |          |  



During 2004, the parent received
$155,000 in common stock from the subsidiary, UFBC Capital Trust I, through the issuance of a $155,000 note payable.



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|                                                                                       |  |      |             |   |      |   |             |      |  |   |             |   |  |      |            |   |  |   |            |  
|-------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | - |  | ---- | ---------- | - |  | - | ---------- | -
|UNITED FINANCIAL BANKING COMPANIES, INC.  TABLE 1 Selected Consolidated Financial Data | 
|Year Ended December 31,                                                                |  | 2004 |             |   | 2003 |   |             | 2002 |  |   | 2001        |   |  | 2000 |           
|Results of operations:                                                                 |  |      |             |   |      |   |             |      |  |   |             |   |  |      |            |   |  |   |            |  
|Total interest income                                                                  |  | $    | 8,131,713   |   |      | $ | 6,600,537   |      |  | $ | 5,726,339   |   |  | $    | 5,787,108  |   |  | $ | 5,334,317  |  
|Total interest expense                                                                 |  |      | 1,881,607   |   |      |   | 1,902,195   |      |  |   | 1,797,747   |   |  |      | 2,153,542  |   |  |   | 1,934,307  |  
|                                                                                       |  |      |             |   |      |   |             |      |  |   |             |   |  |      |            |   |  |   |            |  
|Net interest income                                                                    |  |      | 6,250,106   |   |      |   | 4,698,342   |      |  |   | 3,928,592   |   |  |      | 3,633,566  |   |  |   | 3,400,010  |  
|                                                                                       |  |      |             |   |     
|Provision for loan losses                                                              |  |      | 412,017     |   |      |   | 280,000     |      |  |   | 219,300     |   |  |      | 154,448    |   |  |   | 340,117    |  
|                                                                                       |  |      |             |   |      |   |             |      |  |   |             |   |  |      |            |   |  |   |            |  
|Net interest income after provision for loan losses                                    |  |      | 5,838,089   |   |      |   | 4,418,342   |      |  |   | 3,709,292   |   |  |      | 3,479,118  |   |  |   | 3,059,893  |  
|                                                                                       |  |      |             |   |     
|Other income                                                                           |  |      | 735,549     |   |      |   | 635,429     |      |  |   | 518,552     |   |  |      | 344,320    |   |  |   | 263,442    |  
|                                                                                       |  |      |             |   |     
|Other expenses                                                                         |  |      | 5,217,131   |   |      |   | 3,787,816   |      |  |   | 3,096,665   |   |  |      | 2,675,499  |   |  |   | 2,492,517  |  
|                                                                                       |  |      |             |   |      |   |             |      |  |   |             |   |  |      |            |   |  |   |            |  
|Income before income taxes                                                             |  |      | 1,356,507   |   |      |   | 1,265,955   |      |  |   | 1,131,179   |   |  |      | 1,147,939  |   |  |   | 830,818    |  
|                                                                                       |  |      |             |   |     
|Income tax expense (benefit)                                                           |  |      | 186,763     |   |      |   | 434,989     |      |  |   | 389,048     |   |  |      | (816,418   | ) |  |   | (389,000   | )
|                                                                                       |  |      |             |   |      |   |             |      |  |   |             |   |  |      |            |   |  |   |            |  
|Net income                                                                             |  | $    | 1,169,744   |   |      | $ | 830,966     |      |  | $ | 742,131     |   |  | $    | 1,964,357  |   |  | $ | 1,219,818  |  
|                                                                                       |  |      |             |   |      |   |             |      |  |   |             |   |  |      |            |   |  |   |            |  
|Earnings per share:                                                                    |  |      |             |   |      |   |             |      |  |   |             |   |  |      |            |   |  |   |            |  
|Net income                                                                             |  |      | 1,169,744   |   |      |   | 830,966     |      |  |   | 742,131     |   |  |      | 1,964,357  |   |  |   | 1,219,818  |  
|Less: preferred stock dividends                                                        |  |      |            |   |      |   |            |      |  |   |            |   |  |      |           |   |  |   |           |  
|                                                                                       |  |      |             |   |      |   |             |      |  |   |             |   |  |      |            |   |  |   |            |  
|Income available to common stockholders                                                |  |      | 1,169,744   |   |      |   | 830,966     |      |  |   | 742,131     |   |  |      | 1,964,357  |   |  |   | 1,219,818  |  
|                                                                                       |  |      |             |   |     
|Basic earnings per common share                                                        |  |      | 1.13        |   |      |   | 0.80        |      |  |   | 0.72        |   |  |      | 1.94       |   |  |   | 1.22       |  
|                                                                                       |  |      |             |   |     
|Diluted earnings per common share:                                                     |  |      | 1.05        |   |      |   | 0.75        |      |  |   | 0.68        |   |  |      | 1.90       |   |  |   | 1.21       |  
|                                                                                       |  |      |             |   |     
|Average weighted shares outstanding:                                                   |  |      |             |   |      |   |             |      |  |   |             |   |  |      |            |   |  |   |            |  
|Basic                                                                                  |  |      | 1,039,248   |   |      |   | 1,037,135   |      |  |   | 1,035,783   |   |  |      | 1,010,341  |   |  |   | 996,481    |  
|Dilutive                                                                               |  |      | 1,118,857   |   |      |   | 1,108,353   |      |  |   | 1,095,847   |   |  |      | 1,032,668  |   |  |   | 1,005,667  |  
|                                                                                       |  |      |             |   |     
|Period-ending balances:                                                                |  |      |             |   |      |   |             |      |  |   |             |   |  |      |            |   |  |   |            |  
|                                                                                       |  |      |             |   |     
|Total loans                                                                            |  |      | 128,851,646 |   |      |   | 99,114,122  |      |  |   | 76,217,605  |   |  |      | 58,535,131 |   |  |   | 55,701,135 |  
|Total assets                                                                           |  |      | 174,314,742 |   |      |   | 142,930,326 |      |  |   | 109,344,267 |   |  |      | 85,529,236 |   |  |   | 71,854,113 |  
|Total deposits                                                                         |  |      | 151,213,661 |   |      |   | 125,231,830 |      |  |   | 91,483,191  |   |  |      | 71,690,272 |   |  |   | 60,642,408 |  
|Stockholders equity                                                                   |  |      | 13,561,833  |   |      |   | 12,405,057  |      |  |   | 11,582,878  |   |  |      | 10,818,401 |   |  |   | 8,550,783  |  
|                                                                                       |  |      |             |   |     
|Selected ratios:                                                                       |  |      |             |   |      |   |             |      |  |   |             |   |  |      |            |   |  |   |            |  
|                                                                                       |  |      |             |   |     
|Return on average total assets                                                         |  |      | 0.76        | % |      |   | 0.64        | %    |  |   | 0.81        | % |  |      | 2.55       | % |  |   | 1.86       | %
|                                                                                       |  |      |             |   |     
|Return on average earning assets                                                       |  |      | 0.80        | % |      |   | 0.68        | %    |  |   | 0.87        | % |  |      | 2.71       | % |  |   | 1.98       | %
|                                                                                       |  |      |             |   |     
|Return on average stockholders equity                                                 |  |      | 9.11        | % |      |   | 7.00        | %    |  |   | 6.63        | % |  |      | 21.20      | % |  |   | 16.09      | %
|                                                                                       |  |      |             |   |     
|Average stockholders equity to average total assets                                   |  |      | 8.37        | % |      |   | 9.17        | %    |  |   | 12.21       | % |  |      | 12.02      | % |  |   | 11.55      | %





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



The Company reported net income of $1,169,744 for the year
ended December 31, 2004, compared with net income of $830,966 for the year ended December 31, 2003. Basic earnings per share were $1.13 for the year 2004, compared to $.80 basic earnings per share for 2003. Net income increased $338,778 or 40.8%
from 2003. An increased volume of earning assets primarily accounted for the increase. For the year ended December 31, 2004, average total earning assets increased $23,186,394 or 18.9% when compared to 2003 (Consolidated Average Balances, Table 2).
Revenue from the increased earning assets was off-set by increased expenses associated with branches and growth. Utilization of alternative minimum tax credits contributed approximately $263,000 to net income for 2004.



The Company reported net income of $830,966 for the year ended December 31,
2003, compared with net income of $724,131 for the year ended December 31, 2002. Basic earnings per share were $.80 for the year 2003, compared to $.72 basic earnings per share for 2002. Net income increased $88,835 or 11.9% from 2002. An increased
volume of earning assets primarily accounted for the increase. For the year ended December 31, 2003, average total earning assets increased $37,312,298 or 43.6% when compared to 2002 (Consolidated Average Balances, Table 2). Earnings from the
increased earning assets were off-set by increased expenses associated with opening a third Bank branch and the de novo status of a second Bank branch.



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



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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, 2004 |             |          | December 31, 2003 |            |           | December 31, 2002 |               
|                                                                                                                        | AverageBalance |                   |             | Interest |                   | Yield/Rate |           |                   | AverageBalance |   |  | Interest |             | Yield/Rate |  |   | AverageBalance |  |      | Interest |  | Yield/Rate |           
|ASSETS                                                                                                                  |                |                   |             |          |                   |            |           |                   |                |   |  |          |             |            |  |   |                |  |      |          |  |            |            |   |  |   |           |  |      |  
|                                                                                                                        |                |                   |             |          |                   |            |           |                   |               
|Earning assets:                                                                                                         |                |                   |             |          |                   |            |           |                   |                |   |  |          |             |            |  |   |                |  |      |          |  |            |            |   |  |   |           |  |      |  
|Loans:                                                                                                                  |                |                   |             |          |                   |            |           |                   |                |   |  |          |             |            |  |   |                |  |      |          |  |            |            |   |  |   |           |  |      |  
|Commercial                                                                                                              |                | $                 | 85,158,732  |          |                   | $          | 5,606,665 |                   | 6.58           | % |  | $        | 63,052,458  |            |  | $ | 4,623,196      |  | 7.33 | %        |  | $          | 48,843,393 |   |  | $ | 3,749,348 |  | 7.68 | %
|Real estate construction                                                                                                |                |                   | 16,410,264  |          |                   |            | 1,137,413 |                   | 6.93           | % |  |          | 9,888,936   |            |  |   | 792,988        |  | 8.02 | %        |  |            | 9,212,255  |   |  |   | 792,550   |  | 8.60 | %
|Real estate mortgage                                                                                                    |                |                   | 7,742,599   |          |                   |            | 501,167   |                   | 6.47           | % |  |          | 6,964,942   |            |  |   | 456,950        |  | 6.56 | %        |  |            | 4,083,186  |   |  |   | 321,041   |  | 7.86 | %
|Installment                                                                                                             |                |                   | 5,998,021   |          |                   |            | 333,356   |                   | 5.56           | % |  |          | 5,220,415   |            |  |   | 219,569        |  | 4.21 | %        |  |            | 5,102,071  |   |  |   | 410,300   |  | 8.04 | %
|                                                                                                                        |                |                   |             |          |                   |            |           |                   |                |   |  |          |             |            |  |   |                |  |      |          |  |            |            |   |  |   |           |  |      |  
|Total loans                                                                                                             |                |                   | 115,309,616 |          |                   |            | 7,578,601 |                   | 6.57           | % |  |          | 85,126,751  |            |  |   | 6,092,703      |  | 7.16 | %        |  |            | 67,240,905 |   |  |   | 5,273,239 |  | 7.84 | %
|                                                                                                                        |                |                   |             |          |                   |            |           |                   |                |   |  |          |             |            |  |   |                |  |      |          |  |            |            |   |  |   |           |  |      |  
|Interest-bearing deposits                                                                                               |                |                   | 2,214,206   |          |                   |            | 28,597    |                   | 1.29           | % |  |          | 1,761,214   |            |  |   | 16,616         |  | 0.94 | %        |  |            | 730,857    |   |  |   | 12,203    |  | 1.67 | %
|Federal funds sold                                                                                                      |                |                   | 13,373,952  |          |                   |            | 169,671   |                   | 1.27           | % |  |          | 25,688,568  |            |  |   | 278,966        |  | 1.09 | %        |  |            | 12,243,460 |   |  |   | 194,665   |  | 1.59 | %
|Investment securities                                                                                                   |                |                   | 15,227,165  |          |                   |            | 354,844   |                   | 2.33           | % |  |          | 10,362,012  |            |  |   | 212,252        |  | 2.05 | %        |  |            | 5,411,025  |   |  |   | 246,232   |  | 4.55 | %
|                                                                                                                        |                |                   |             |          |                   |            |           |                   |                |   |  |          |             |            |  |   |                |  |      |          |  |            |            |   |  |   |           |  |      |  
|Total earning assets                                                                                                    |                |                   | 146,124,939 |          |                   |            | 8,131,713 |                   | 5.56           | % |  |          | 122,938,545 |            |  |   | 6,600,537      |  | 5.37 | %        |  |            | 85,626,247 |   |  |   | 5,726,339 |  | 6.69 | %
|                                                                                                                        |                |                   |             |          |                   |            |           |                   |                |   |  |          |             |            |  |   |                |  |      |          |  |            |            |   |  |   |           |  |      |  
|Noninterest-earning assets                                                                                              |                |                   |             |          |                   |            |           |                   |                |   |  |          |             |            |  |   |                |  |      |          |  |            |            |   |  |   |           |  |      |  
|Cash and due from banks                                                                                                 |                |                   | 5,447,841   |          |                   |            |           |                   |                |   |  |          | 4,337,446   |            |  |   |                |  |      |          |  |            | 3,403,982  |   |  |   |           |  |      |  
|Other assets                                                                                                            |                |                   | 3,532,746   |          |                   |            |           |                   |                |   |  |          | 3,652,714   |            |  |   |                |  |      |          |  |            | 3,867,700  |   |  |   |           |  |      |  
|Allowance for loan losses                                                                                               |                |                   | (1,694,057  | )        |                   |            |           |                   |                |   |  |          | (1,457,294  | )          |  |   |                |  |      |          |  |            | (1,185,948 | ) |  |   |           |  |      |  
|                                                                                                                        |                |                   |             |          |                   |            |           |                   |                |   |  |          |             |            |  |   |                |  |      |          |  |            |            |   |  |   |           |  |      |  
|Total assets                                                                                                            |                | $                 | 153,411,469 |          |                   |            |           |                   |                |   |  | $        | 129,471,411 |            |  |   |                |  |      |          |  | $          | 91,711,981 |   |  |   |           |  |      |  
|                                                                                                                        |                |                   |             |          |                   |            |           |                   |                |   |  |          |             |            |  |   |                |  |      |          |  |            |            |   |  |   |           |  |      |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                    |                |                   |             |          |                   |            |           |                   |                |   |  |          |             |            |  |   |                |  |      |          |  |            |            |   |  |   |           |  |      |  
|                                                                                                                        |                |                   |             |          |                   |            |           |                   |               
|Interest-bearing liabilities:                                                                                           |                |                   |             |          |                   |            |           |                   |                |   |  |          |             |            |  |   |                |  |      |          |  |            |            |   |  |   |           |  |      |  
|Interest-bearing deposits:                                                                                              |                |                   |             |          |                   |            |           |                   |                |   |  |          |             |            |  |   |                |  |      |          |  |            |            |   |  |   |           |  |      |  
|Savings and NOW accounts                                                                                                |                |                   | 39,927,335  |          |                   |            | 607,911   |                   | 1.52           | % |  |          | 29,114,312  |            |  |   | 499,028        |  | 1.71 | %        |  |            | 15,911,801 |   |  |   | 393,736   |  | 2.47 | %
|Money market accounts                                                                                                   |                |                   | 22,032,925  |          |                   |            | 212,651   |                   | 0.97           | % |  |          | 16,620,842  |            |  |   | 160,081        |  | 0.96 | %        |  |            | 12,370,980 |   |  |   | 192,968   |  | 1.56 | %
|Time:                                                                                                                   |                |                   |             |          |                   |            |           |                   |                |   |  |          |             |            |  |   |                |  |      |          |  |            |            |   |  |   |           |  |      |  
|Under $100,000                                                                                                          |                |                   | 17,877,422  |          |                   |            | 490,129   |                   | 2.74           | % |  |          | 19,202,705  |            |  |   | 591,620        |  | 3.08 | %        |  |            | 16,635,973 |   |  |   | 635,703   |  | 3.82 | %
|$100,000 and over                                                                                                       |                |                   | 14,280,954  |          |                   |            | 377,078   |                   | 2.64           | % |  |          | 15,764,091  |            |  |   | 414,106        |  | 2.63 | %        |  |            | 11,687,340 |   |  |   | 433,119   |  | 3.71 | %
|                                                                                                                        |                |                   |             |          |                   |            |           |                   |                |   |  |          |             |            |  |   |                |  |      |          |  |            |            |   |  |   |           |  |      |  
|Total interest-bearing deposits                                                                                         |                |                   | 94,118,636  |          |                   |            | 1,687,769 |                   | 1.79           | % |  |          | 80,701,950  |            |  |   | 1,664,835      |  | 2.06 | %        |  |            | 56,606,094 |   |  |   | 1,655,526 |  | 2.92 | %
|Short-term borrowings                                                                                                   |                |                   | 1,036,698   |          |                   |            | 35,882    |                   | 3.46           | % |  |          | 1,531,821   |            |  |   | 45,152         |  | 2.95 | %        |  |            | 303,014    |   |  |   | 14,316    |  | 4.72 | %
|Long-term debt                                                                                                          |                |                   | 3,235,646   |          |                   |            | 157,956   |                   | 4.88           | % |  |          | 4,171,226   |            |  |   | 192,208        |  | 4.61 | %        |  |            | 3,061,582  |   |  |   | 127,905   |  | 4.18 | %
|                                                                                                                        |                |                   |             |          |                   |            |           |                   |                |   |  |          |             |            |  |   |                |  |      |          |  |            |            |   |  |   |           |  |      |  
|Total interest-bearing liabilities                                                                                      |                |                   | 98,390,980  |          |                   |            | 1,881,607 |                   | 1.91           | % |  |          | 86,404,997  |            |  |   | 1,902,195      |  | 2.20 | %        |  |            | 59,970,690 |   |  |   | 1,797,747 |  | 3.00 | %
|                                                                                                                        |                |                   |             |          |                   |            |           |                   |                |   |  |          |             |            |  |   |                |  |      |          |  |            |            |   |  |   |           |  |      |  
|Noninterest-bearing liabilities:                                                                                        |                |                   |             |          |                   |            |           |                   |                |   |  |          |             |            |  |   |                |  |      |          |  |            |            |   |  |   |           |  |      |  
|Demand deposits                                                                                                         |                |                   | 41,521,695  |          |                   |            |           |                   |                |   |  |          | 30,594,263  |            |  |   |                |  |      |          |  |            | 19,451,361 |   |  |   |           |  |      |  
|Other liabilities                                                                                                       |                |                   | 665,167     |          |                   |            |           |                   |                |   |  |          | 593,187     |            |  |   |                |  |      |          |  |            | 1,096,052  |   |  |   |           |  |      |  
|Stockholders equity                                                                                                    |                |                   | 12,833,627  |          |                   |            |           |                   |                |   |  |          | 11,878,964  |            |  |   |                |  |      |          |  |            | 11,193,878 |   |  |   |           |  |      |  
|                                                                                                                        |                |                   |             |          |                   |            |           |                   |                |   |  |          |             |            |  |   |                |  |      |          |  |            |            |   |  |   |           |  |      |  
|Total liabilities and stockholders equity                                                                              |                | $                 | 153,411,469 |          |                   |            |           |                   |                |   |  | $        | 129,471,411 |            |  |   |                |  |      |          |  | $          | 91,711,981 |   |  |   |           |  |      |  
|                                                                                                                        |                |                   |             |          |                   |            |           |                   |                |   |  |          |             |            |  |   |                |  |      |          |  |            |            |   |  |   |           |  |      |  
|Net interest income                                                                                                     |                |                   |             |          |                   | $          | 6,250,106 |                   |                |   |  |          |             |            |  | $ | 4,698,342      |  |      |          |  |            |            |   |  | $ | 3,928,592 |  |      |  
|                                                                                                                        |                |                   |             |          |                   |            |           |                   |                |   |  |          |             |            |  |   |                |  |      |          |  |            |            |   |  |   |           |  |      |  
|Net interest margin (1)                                                                                                 |                |                   |             |          |                   |            |           |                   | 4.28           | % |  |          |             |            |  |   |                |  | 3.82 | %        |  |            |            |   |  |   |           |  | 4.59 | %
|                                                                                                                        |                |                   |             |          |                   |            |           |                   |                |   |  |          |             |            |  |   |                |  |      |          |  |            |            |   |  |   |           |  |      |  
|Net interest spread (2)                                                                                                 |                |                   |             |          |                   |            |           |                   | 3.65           | % |  |          |             |            |  |   |                |  | 3.17 | %        |  |            |            |   |  |   |           |  | 3.69 | %
|                                                                                                                        |                |                   |             |          |                   |            |           |                   |                |   |  |          |             |            |  |   |                |  |      |          |  |            |            |   |  |   |           |  |      |  
|Fees included in loan income                                                                                            |                |                   |             |          |                   | $          | 389,935   |                   |                |   |  |          |             |            |  | $ | 281,854        |  |      |          |  |            |            |   |  | $ | 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.
|--- | ----------------------------------------------------------------------------------------------------



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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 2004 to 2003



Net interest income increased $1,551,764, or 33.0%, from $4,698,342 at December 31, 2003 to $6,250,106 at December 31, 2004, as a result of an increased
volume of earning assets. Average total earning assets increased $23,186,394 or 18.9% from $122,938,545 at December 31, 2003 to $146,124,939 at December 31, 2004 (Consolidated Average Balances, Table 2). Contributing $1,485,898 of earnings, the
increased volume of the loan portfolio predominately accounted for the rise in net interest income. The changing rate environment during 2004 contributed favorably to net interest income. As shown in Table 3, Analysis of the Changes in the
Components of Net Interest Income, rates decreased loan income by $741,668 and total interest income by $666,589 in 2004 versus decreasing loan income by $565,573 and total interest income by $967,111 in 2003.



Total interest expense decreased $20,588 for the year ended December 31,
2004, compared to the year ended December 31, 2003. As shown in Table 3, Analysis of the Changes in the Components of Net Interest Income, the changing rate environment during 2004 also impacted total interest expense. During 2004, total interest
expense increased $99,968 due to volume while rates decreased total interest expense by $129,415. Average total interest-bearing liabilities increased $11,985,983, or 13.9%, from $86,404,997 at December 31, 2003 to $98,390,980 at December 31, 2004
(Consolidated Average Balances, Table 2). The Banks deposit mix also contributed to the constrained interest expense and net interest income during 2004. As shown in the Consolidated Average Balances table, average demand deposits increased
$10,927,432, or 35.7%, from $30,594,263 at December 31, 2003 to $41,521,695 at December 31, 2004.



The rate environment of 2004 significantly influenced net interest income. Company earnings are primarily derived from the core operation of lending. The
prime rate notably impacts the Banks earnings as approximately one half of the Banks loan portfolio is tied to prime repricing. Though rates increased during the latter half of 2004, the prevailing compressed rate environment negatively
impacted the yield on loans and longer term investments. The yield on total loans dropped 59 basis points from 7.16% at December 31, 2003 to 6.57% at December 31, 2004. However, the changing rate environment positively impacted short-term
investments, federal funds sold, interest-bearing deposits and investment securities. The effective duration of the Banks investment securities portfolio is less than one year. During 2004, the yield on federal funds increased 18 basis points,
interest-bearing deposits increased 35 basis points and the yield on investment securities increased 28 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, 2004, the Companys net interest margin increased 46 basis points from 3.82% at December 31, 2003 to 4.28% at December 31, 2004.



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##### Table of Contents

UNITED FINANCIAL BANKING COMPANIES, INC.



Comparison of 2003 to 2002



Net interest income increased $796,750, or 19.6%, from $3,928,592 at
December 31, 2002 to $4,698,342 at December 31, 2003, as a result of an increased volume of earning assets. Average total earning assets increased $37,312,298 or 43.6% from $85,626,247 at December 31, 2002 to $122,938,545 at December 31, 2003
(Consolidated Average Balances, Table 2). Contributing $819,464 of earnings, the increased volume of the loan portfolio predominately accounted for the rise in net interest income. Rates continued to impact earnings during 2003. As shown in Table 3,
Analysis of the Changes in the Components of Net Interest Income, rates decreased loan income by $565,573 and total interest income by $967,111.



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



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



Net interest margin is a key measure of net interest income performance. Representing the Companys net yield on its
average earning assets, net interest margin is calculated as net interest income divided by average earning assets. Both net interest margin and net interest income are affected by many factors, including competition, the economy, and the volume and
mix of balance sheet components and their relative sensitivity to interest rate fluctuations. At December 31, 2003, the Company had a net interest margin of 3.82% and the Bank had a net interest margin of 3.91%.



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##### Table of Contents

UNITED FINANCIAL BANKING COMPANIES, INC.



CHANGE IN NET INTEREST INCOME (RATE/VOLUME VARIANCE)



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



TABLE 3

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



|                                |  |                          |           |   |                       |        |          |                          |  |      |                |   |        |   |          |   |  |   |          |   |  |   |          
|------------------------------- |  | ------------------------ | --------- | - | --------------------- | ------ | -------- | ------------------------ |  | ---- | -------------- | - | ------ | - | -------- | - |  | - | -------- | - |  | - | ---------
|For the Year Ended December 31, |  | 2004 Compared to 2003    |           |   | 2003 Compared to 2002
|                                |  | Total Increase(Decrease) |           |   | Change Due To:        |        |          | TotalIncrease (Decrease) |  |      | Change Due To:
|                                |  |                          | Rate      |   |                       | Volume |          |                          |  | Rate |                |   | Volume
|Interest income:                |  |                          |           |   |                       |        |          |                          |  |      |                |   |        |   |          |   |  |   |          |   |  |   |          
|Loans & lease financing:        |  |                          |           |   |                       |        |          |                          |  |      |                |   |        |   |          |   |  |   |          |   |  |   |          
|Commercial                      |  | $                        | 983,469   |   |                       | $      | (637,430 | )                        |  | $    | 1,620,899      |   |        | $ | 873,848  |   |  | $ | (216,877 | ) |  | $ | 1,090,725
|Real estate - construction      |  |                          | 344,425   |   |                       |        | (178,516 | )                        |  |      | 522,941        |   |        |   | 438      |   |  |   | (57,778  | ) |  |   | 58,216   
|Real estate - mortgage          |  |                          | 44,217    |   |                       |        | (6,803   | )                        |  |      | 51,020         |   |        |   | 135,909  |   |  |   | (90,669  | ) |  |   | 226,578  
|Installment                     |  |                          | 113,787   |   |                       |        | 81,081   |                          |  |      | 32,706         |   |        |   | (190,731 | ) |  |   | (200,248 | ) |  |   | 9,517    
|                                |  |                          |           |   |                       |        |          |                          |  |      |                |   |        |   |          |   |  |   |          |   |  |   |          
|Total loans/leases              |  |                          | 1,485,898 |   |                       |        | (741,668 | )                        |  |      | 2,227,566      |   |        |   | 819,464  |   |  |   | (565,573 | ) |  |   | 1,385,037
|                                |  |                          |           |   |                       |       
|Interest-bearing deposits       |  |                          | 11,981    |   |                       |        | 7,707    |                          |  |      | 4,274          |   |        |   | 4,413    |   |  |   | (12,791  | ) |  |   | 17,204   
|Federal funds sold              |  |                          | (109,295  | ) |                       |        | 24,436   |                          |  |      | (133,731       | ) |        |   | 84,301   |   |  |   | (129,470 | ) |  |   | 213,771  
|Investment securities           |  |                          | 142,592   |   |                       |        | 42,936   |                          |  |      | 99,656         |   |        |   | (33,980  | ) |  |   | (259,278 | ) |  |   | 225,298  
|                                |  |                          |           |   |                       |        |          |                          |  |      |                |   |        |   |          |   |  |   |          |   |  |   |          
|Total interest income           |  |                          | 1,531,176 |   |                       |        | (666,589 | )                        |  |      | 2,197,765      |   |        |   | 874,198  |   |  |   | (967,111 | ) |  |   | 1,841,309
|                                |  |                          |           |   |                       |        |          |                          |  |      |                |   |        |   |          |   |  |   |          |   |  |   |          
|Interest expense:               |  |                          |           |   |                       |        |          |                          |  |      |                |   |        |   |          |   |  |   |          |   |  |   |          
|Savings and NOW accounts        |  |                          | 108,883   |   |                       |        | (76,455  | )                        |  |      | 185,338        |   |        |   | 105,292  |   |  |   | (221,403 | ) |  |   | 326,695  
|Money markets accounts          |  |                          | 52,570    |   |                       |        | 444      |                          |  |      | 52,126         |   |        |   | (32,887  | ) |  |   | (99,178  | ) |  |   | 66,291   
|Time:                           |  |                          |           |   |                       |        |          |                          |  |      |                |   |        |   |          |   |  |   |          |   |  |   |          
|Under $100,000                  |  |                          | (101,491  | ) |                       |        | (60,660  | )                        |  |      | (40,831        | ) |        |   | (44,083  | ) |  |   | (142,164 | ) |  |   | 98,081   
|$100,000 and over               |  |                          | (37,028   | ) |                       |        | 1,932    |                          |  |      | (38,960        | ) |        |   | (19,013  | ) |  |   | (170,093 | ) |  |   | 151,080  
|Short-term borrowings           |  |                          | (9,270    | ) |                       |        | 5,324    |                          |  |      | (14,594        | ) |        |   | 30,836   |   |  |   | (27,219  | ) |  |   | 58,055   
|Long-term debt                  |  |                          | (34,252   | ) |                       |        | 8,859    |                          |  |      | (43,111        | ) |        |   | 64,303   |   |  |   | 17,945   |   |  |   | 46,358   
|                                |  |                          |           |   |                       |        |          |                          |  |      |                |   |        |   |          |   |  |   |          |   |  |   |          
|Total interest expense          |  |                          | (20,588   | ) |                       |        | (120,555 | )                        |  |      | 99,967         |   |        |   | 104,448  |   |  |   | (642,113 | ) |  |   | 746,561  
|                                |  |                          |           |   |                       |        |          |                          |  |      |                |   |        |   |          |   |  |   |          |   |  |   |          
|Net interest income             |  | $                        | 1,551,764 |   |                       | $      | (546,033 | )                        |  | $    | 2,097,797      |   |        | $ | 769,750  |   |  | $ | (324,999 | ) |  | $ | 1,094,749
|                                |  |                          |           |   |                       |        |          |                          |  |      |                |   |        |   |          |   |  |   |          |   |  |   |          



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UNITED FINANCIAL BANKING COMPANIES, INC.



PROVISION FOR LOAN LOSSES



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



Provision for loan loss expense increased $132,017, or 47.2%, from $280,000 at December 31, 2003 to $412,017 at December 31, 2004. For the year ended
December 31, 2004, charge-offs totaled $38,772 and recoveries totaled $25,496. For the year ended December 31, 2003, charge-offs totaled $28,176 and recoveries totaled $12,287. General risks inherent in all loan portfolios account for the variance
between the 2004 and 2003 provision for loan loss expense.



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



NONINTEREST INCOME



Total noninterest income increased $100,120, or 15.8%, at December 31, 2004
compared to December 31, 2003. The 2004 increase was primarily attributable to net fee income generated by the United Title LLC. Net fee income from United Title LLC totaled $63,311 for the year ended December 31, 2003 versus $148,401 for the year
ended December 31, 2004.



Total noninterest income increased
$116,877, or 22.5%, at December 31, 2003 compared to December 31, 2002. The 2003 increase was primarily attributable to income earned on an increased volume of deposits and the resulting accounts. Average total deposits increased $35,238,758, or
46.3%, from $76,057,455 at December 31, 2002 to $111,296,213 at December 31, 2003 (Table 8, Deposits Balance and Rate).



38



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##### Table of Contents

UNITED FINANCIAL BANKING COMPANIES, INC.



NONINTEREST EXPENSE



Comparison of 2004 to 2003



Total noninterest expense increased $1,429,315, or 37.7%, during the year
ended December 31, 2004 as compared to 2003. The 2004 increase was primarily attributable to costs associated with growth. During 2004, Company assets grew $31,384,416, or 21.9%, from $142,930,326 at December 31, 2003 to $174,314,742 at December 31,
2004. Growth costs generally impact salary, benefits, occupancy, furniture and equipment, communications, data processing, printing and supply expense.



Salaries and employee benefits increased $920,497, or 44.7%, from $2,059,400 at year ended December 31, 2003 to $2,979,897 at December 31, 2004. The
increase was principally due to additional staff hired to facilitate the Companys expansion of its lending operations and deposit generation during 2004.



Occupancy increased $264,887, or 48.5%, from $546,722 at year ended December 31, 2003 to $811,609 at December 31, 2004. A full year of rent expense for
the Vienna branch primarily accounts for the increase.



Furniture and equipment expense rose $89,435 or 40.6% during 2004. The rise was principally due to renovation of the Companys headquarters located in Tysons Corner. Costs and depreciation associated with build out and furnishing of
the Vienna branch also contributed to the increase.



Other
expense rose $154,496, or 16.1%, from $961,161 at December 31, 2003 to $1,115,657 at December 31, 2004. The increase was primarily attributable to expanded banking operations and growth. Costs such as data processing, communications, printing,
supplies, delivery and advertising increased $105,282, or 26.3%, during 2004 compared to 2003.



Comparison of 2003 to 2002



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



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



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



Furniture and equipment expense rose $81,551 or 58.7% during 2003. The rise
was principally due to further renovation at the Reston branch and the build out and furnishing of the Vienna branch. Also, in the fourth quarter 0f 2003, the Banks operations center was relocated to the Vienna branch. The associated costs
also contributed to the increase.



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



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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) |  
|                                         |  | 2004 |           |   | 2003 |   |           | 2002 |  |   | 2004 / 2003                   |   |  | 2003 / 2002 |  
|Salaries and employee benefits           |  | $    | 2,979,897 |   |      | $ | 2,059,400 |      |  | $ | 1,780,313                     |   |  | 44.70       | % |  | 15.68  | %
|Occupancy, net                           |  |      | 811,609   |   |      |   | 546,722   |      |  |   | 397,779                       |   |  | 48.45       |   |  | 37.44  |  
|Furniture and equipment                  |  |      | 309,968   |   |      |   | 220,533   |      |  |   | 138,982                       |   |  | 40.55       |   |  | 58.68  |  
|Professional fees                        |  |      | 109,579   |   |      |   | 119,536   |      |  |   | 104,443                       |   |  | (8.33       | ) |  | 14.45  |  
|State franchise tax                      |  |      | 81,600    |   |      |   | 79,900    |      |  |   | 61,200                        |   |  | 2.13        |   |  | 30.56  |  
|Insurance                                |  |      | 64,335    |   |      |   | 58,551    |      |  |   | 46,159                        |   |  | 9.88        |   |  | 26.85  |  
|Data processing                          |  |      | 221,170   |   |      |   | 208,286   |      |  |   | 171,132                       |   |  | 6.19        |   |  | 21.71  |  
|Real estate owned holding expense        |  |      |          |   |      |   | 2,130     |      |  |   | 15,670                        |   |  | (100.00     | ) |  | (86.41 | )
|Other expenses                           |  |      | 638,973   |   |      |   | 492,758   |      |  |   | 380,987                       |   |  | 29.67       |   |  | 29.34  |  
|                                         |  |      |           |   |      |   |           |      |  |   |                               |   |  |             |   |  |        |  
|Total                                    |  | $    | 5,217,131 |   |      | $ | 3,787,816 |      |  | $ | 3,096,665                     |   |  | 37.73       |   |  | 22.32  |  
|                                         |  |      |           |   |      |   |           |      |  |   |                               |   |  |             |   |  |        |  
|Noninterest expense as a percentage of : |  |      |           |   |      |   |           |      |  |   |                               |   |  |             |   |  |        |  
|                                         |  |      |           |   |     
|Average assets                           |  |      | 3.40      | % |      |   | 2.93      | %    |  |   | 3.38                          | % |  |             |   |  |        |  
|                                         |  |      |           |   |      |   |           |      |  |   |                               |   |  |             |   |  |        |  
|Average earning assets                   |  |      | 3.57      | % |      |   | 3.08      | %    |  |   | 3.62                          | % |  |             |   |  |        |  
|                                         |  |      |           |   |      |   |           |      |  |   |                               |   |  |             |   |  |        |  
|Gross income                             |  |      | 58.84     | % |      |   | 52.35     | %    |  |   | 49.59                         | % |  |             |   |  |        |  
|                                         |  |      |           |   |      |   |           |      |  |   |                               |   |  |             |   |  |        |  



BALANCE SHEET ANALYSIS



Total assets grew $31,384,416, or 21.9%, from
$142,930,326 at year ended December 31, 2003 to $174,314,742 at year ended December 31, 2004. Assets rose primarily due to the Banks increased volume of deposits that increased the volume of assets available for investment. Total deposits
increased $25,981,831, or 20.8%, from $125,231,830 at December 31, 2003 to $151,213,661 at December 31, 2004. The increase was attributable to new deposit relationships and expansion of core deposit relationships. Obtaining $5,155,000 of trust
preferred notes during the fourth quarter of 2004 also contributed to the increased the volume of assets available for investment. The increased volume of assets was primarily invested into loans. Management considers such factors as the
Companys strategic goals, the economy, the market, liquidity and return opportunity for its investment mix. Management also considers the projected duration and the nature of the assets available for investment.



Long-term debt decreased approximately $1,000,000, or 26.8%, during 2004 due
to the maturity and payment of an advance from the Federal Home Loan Bank of Atlanta



Earnings of $1,169,744 and additional capital, through exercised stock options of $31,582, primarily accounted for the $1,156,776, or 9.3%, increase in stockholders equity at December 31, 2004 compared to
December 31, 2003. Further details regarding stockholders equity are provided in Note 19 to the consolidated financial statements. The Bank was well capitalized, per regulatory capital requirements, for the years ended December 31, 2004 and
2003.



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##### Table of Contents

UNITED FINANCIAL BANKING COMPANIES, INC.



LOAN PORTFOLIO



Net loans increased $29,737,524, or 30.0%, from $99,114,122 at December 31, 2003 to $128,851,646 at December 31, 2004. Loans
were 73.9% percent of total assets at December 31, 2004, compared to 69.3% at December 31, 2003.



TABLE 5 - LOAN PORTFOLIO



|                         |  |      |             |      |   |            |  |      |            |      |   |            |  |   |           
|------------------------ |  | ---- | ----------- | ---- | - | ---------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ----------
|December 31,             |  | 2004 |             | 2003 |   | 2002       |  | 2001 |            | 2000
|Commercial               |  | $    | 93,209,156  |      | $ | 71,886,557 |  | $    | 58,518,565 |      | $ | 41,591,724 |  | $ | 37,097,497
|Real estate construction |  |      | 20,502,811  |      |   | 14,445,992 |  |      | 7,746,431  |      |   | 8,621,773  |  |   | 8,661,702 
|Real estate mortgage     |  |      | 7,638,495   |      |   | 8,282,734  |  |      | 5,259,090  |      |   | 4,686,547  |  |   | 6,939,635 
|Installment              |  |      | 7,501,184   |      |   | 4,498,839  |  |      | 4,693,519  |      |   | 3,635,087  |  |   | 3,002,301 
|                         |  |      |             |      |   |            |  |      |            |      |   |            |  |   |           
|Total loans              |  | $    | 128,851,646 |      | $ | 99,114,122 |  | $    | 76,217,605 |      | $ | 58,535,131 |  | $ | 55,701,135
|                         |  |      |             |      |   |            |  |      |            |      |   |            |  |   |           



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

|                         |  |                  |            |                       |   |                |  |       |            |  |   |            
|------------------------ |  | ---------------- | ---------- | --------------------- | - | -------------- |  | ----- | ---------- |  | - | -----------
|                         |  | One Year or Less |            | One ThroughFive Years |   | Over FiveYears |  | Total
|Commercial               |  | $                | 30,096,941 |                       | $ | 17,494,481     |  | $     | 45,617,734 |  | $ | 93,209,156 
|Real estate construction |  |                  | 16,900,578 |                       |   | 3,005,620      |  |       | 596,613    |  |   | 20,502,811 
|                         |  |                  |            |                       |   |                |  |       |            |  |   |            
|                         |  | $                | 46,997,519 |                       | $ | 20,500,101     |  | $     | 46,214,347 |  | $ | 113,711,967
|                         |  |                  |            |                       |   |                |  |       |            |  |   |            



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, either through maturity or repricing, loans to small and medium-sized
businesses and professionals. Commercial loans, therefore, remain the most significant component of the loan portfolio, comprising 72.3% and 72.5% of total loans at December 31, 2004 and 2003, respectively.



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UNITED FINANCIAL BANKING COMPANIES, INC.



ALLOWANCE FOR LOAN LOSSES



The allowance for loan losses increased $398,741, or 26.3%, during 2004. The
ratio of allowance for loan losses to total loans was 1.5% at December 31, 2004 and 2003. 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,                      |  | 2004 |             |   | 2003 |   |            | 2002 |  |   | 2001       |   |  | 2000 |           
|Balance at beginning of period                  |  | $    | 1,515,875   |   |      | $ | 1,251,764  |      |  | $ | 1,057,344  |   |  | $    | 973,431    |   |  | $ | 783,143    |  
|                                                |  |      |             |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Charge-offs:                                    |  |      |             |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Installment                                     |  |      | 1,772       |   |      |   | 14,905     |      |  |   |           |   |  |      |           |   |  |   |           |  
|Commercial                                      |  |      | 37,000      |   |      |   | 13,271     |      |  |   | 29,645     |   |  |      | 56,282     |   |  |   | 841        |  
|Mortgage                                        |  |      |            |   |      |   |           |      |  |   |           |   |  |      | 37,357     |   |  |   | 150,600    |  
|Construction                                    |  |      |            |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|                                                |  |      |             |   |     
|Recoveries:                                     |  |      |             |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Installment                                     |  |      | 496         |   |      |   | 493        |      |  |   |           |   |  |      |           |   |  |   |           |  
|Commercial                                      |  |      | 25,000      |   |      |   | 11,794     |      |  |   | 4,765      |   |  |      | 23,104     |   |  |   | 1,612      |  
|Mortgage                                        |  |      |            |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Construction                                    |  |      |            |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|                                                |  |      |             |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net charge-offs                                 |  |      | 13,276      |   |      |   | 15,889     |      |  |   | 24,880     |   |  |      | 70,535     |   |  |   | 149,829    |  
|                                                |  |      |             |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Provision charged to operations                 |  |      | 412,017     |   |      |   | 280,000    |      |  |   | 219,300    |   |  |      | 154,448    |   |  |   | 340,117    |  
|                                                |  |      |             |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Balance at end of period                        |  | $    | 1,914,616   |   |      | $ | 1,515,875  |      |  | $ | 1,251,764  |   |  | $    | 1,057,344  |   |  | $ | 973,431    |  
|                                                |  |      |             |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Average total loans                             |  | $    | 115,309,616 |   |      | $ | 85,126,751 |      |  | $ | 67,240,905 |   |  | $    | 57,846,750 |   |  | $ | 47,138,981 |  
|                                                |  |      |             |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Ratio of net charge-offs to average total loans |  |      | 0.01        | % |      |   | 0.02       | %    |  |   | 0.04       | % |  |      | 0.12       | % |  |   | 0.32       | %
|                                                |  |      |             |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  



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, |  | 2004 |           | 2003 |   | 2002      |  | 2001 |           | 2000
|Commercial                 |  | $    | 1,344,000 |      | $ | 1,078,000 |  | $    | 913,000   |      | $ | 687,000   |  | $ | 606,000
|Real estate construction   |  |      | 307,000   |      |   | 216,000   |  |      | 116,000   |      |   | 165,000   |  |   | 130,000
|Real estate mortgage       |  |      | 115,000   |      |   | 124,000   |  |      | 84,000    |      |   | 99,000    |  |   | 141,000
|Installment                |  |      | 112,000   |      |   | 67,000    |  |      | 80,000    |      |   | 62,000    |  |   | 50,000 
|Unallocated                |  |      | 36,616    |      |   | 30,875    |  |      | 58,764    |      |   | 44,344    |  |   | 46,431 
|                           |  |      |           |      |   |           |  |      |           |      |   |           |  |   |        
|                           |  | $    | 1,914,616 |      | $ | 1,515,875 |  | $    | 1,251,764 |      | $ | 1,057,344 |  | $ | 973,431
|                           |  |      |           |      |   |           |  |      |           |      |   |           |  |   |        



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UNITED FINANCIAL BANKING COMPANIES, INC.



NONPERFORMING ASSETS



Nonperforming assets are assets on which accrued income recognition has been
discontinued. Nonperforming assets include nonaccrual loans and loans that have become foreclosed real estate. For the years ended December 31, 2004 and 2003, nonperforming assets were .02% of total assets.



Nonaccruing loans at year end 2004 totaled $37,202 compared to a balance of
$33,457 at year end 2003. The Company had no loans still accruing interest that were ninety days or more past due as to principal or interest at December 31, 2004. Managements policy for placing loans into nonaccrual status is to consider the
repayment probability, overall security and character of the loan. Accounting policies for foreclosed real estate (real estate owned) are outlined in Note 1 to the consolidated financial statements.



The following is a summary of nonperforming assets:



TABLE 7 NONPERFORMING ASSETS



|                                              |  |      |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|Period ending December 31,                    |  | 2004 |         |   | 2003 |   |         | 2002 | 
|Nonaccruing loans (90 days or more past due)  |  | $    | 37,202  |   |      | $ | 33,457  |      |  | $ | 97,613  |  
|                                              |  |      |        
|Real estate owned                             |  |      |        |   |      |   |        |      |  |   | 222,621 |  
|                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Total nonperforming assets                    |  | $    | 37,202  |   |      | $ | 33,457  |      |  | $ | 320,234 |  
|                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Nonaccruing loans as a % of total loans       |  |      | 0.03    | % |      |   | 0.03    | %    |  |   | 0.13    | %
|                                              |  |      |        
|Reserve for loans losses to nonaccruing loans |  |      | 5146.54 | % |      |   | 4530.82 | %    |  |   | 1282.37 | %
|                                              |  |      |        
|Nonperforming assets to total loans           |  |      | 0.03    | % |      |   | 0.03    | %    |  |   | 0.42    | %



DEPOSITS



As shown in Table 9, Deposits Structure and Certificates of Deposit 100K
and Over, total deposits rose $25,981,831, or 20.7%,at December 31, 2004 compared to December 31, 2003. As shown in Table 8, Deposits Balance and Rate, the cost of funds decreased 26 basis points during 2004. The cost decrease is
attributable to the suppressed rate environment of 2004 and to the deposit mix. During 2004, management continued to focus on maintaining a deposit mix predominantly consisting of core deposits. Core deposits consist of demand, savings, NOW and
money market accounts, and are generally less costly and more stable than certificates of deposits. As shown in Table 8, total average core deposits increased $27,152,538, or 35.6%, from $76,329,417 at December 31, 2003 to $103,481,955 at December
31, 2004. When comparing average core deposit growth from December 31, 2003 to December 31, 2004, the change was as follows: demand deposits (noninterest-bearing) increased $10,927,432, or 35.7%, money market deposits increased $5,412,083 or 32.6%,
savings and NOW deposits increased $10,813,023 or 37.1%. As shown in Table 9, core deposit accounts represented 71.3% while time deposits represented 28.7% of total deposits at year end 2004.



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|                                                                                                                                            |                |      |             |  |      |                |      |      |             |  |                |      |      |   |            |                |      |      |  |   |                |      |      |   |  |   |            |  |      |  
|------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ---- | ----------- |  | ---- | -------------- | ---- | ---- | ----------- |  | -------------- | ---- | ---- | - | ---------- | -------------- | ---- | ---- |  | - | -------------- | ---- | ---- | - |  | - | ---------- |  | ---- | -
|UNITED FINANCIAL BANKING COMPANIES, INC.  TABLE 8 DEPOSITS BALANCE AND RATE  Rates paid on each classification of deposits are shown below: |               
|Year Ended December 31,                                                                                                                     |                | 2004 |             |  |      |                | 2003 |      |             |  |                | 2002 |      |   |            |                | 2001 |      |  |   |                | 2000 |      |   | 
|                                                                                                                                            | AverageBalance |      | Rate        |  |      | AverageBalance |      | Rate |             |  | AverageBalance |      | Rate |   |            | AverageBalance |      | Rate |  |   | AverageBalance |      | Rate |  
|Demand                                                                                                                                      |                | $    | 41,521,695  |  |     | %              |      | $    | 30,594,263  |  |               | %    |      | $ | 19,451,361 |                |     | %    |  | $ | 17,080,710     |      |     | % |  | $ | 15,159,490 |  |     | %
|                                                                                                                                            |                |      |             |  |      |                |      |      |             | 
|Savings and NOW accounts                                                                                                                    |                |      | 39,927,335  |  | 1.52 |                |      |      | 29,114,312  |  | 1.71           |      |      |   | 15,911,801 |                | 2.47 |      |  |   | 6,229,714      |      | 2.46 |   |  |   | 5,369,945  |  | 2.93 |  
|                                                                                                                                            |                |      |             |  |      |                |      |      |             | 
|Money market accounts                                                                                                                       |                |      | 22,032,925  |  | 0.97 |                |      |      | 16,620,842  |  | 0.96           |      |      |   | 12,370,980 |                | 1.56 |      |  |   | 14,534,980     |      | 2.81 |   |  |   | 14,301,086 |  | 3.58 |  
|                                                                                                                                            |                |      |             |  |      |                |      |      |             | 
|Time:                                                                                                                                       |                |      |             |  |      |                |      |      |             |  |                |      |      |   |            |                |      |      |  |   |                |      |      |   |  |   |            |  |      |  
|Under $100,000                                                                                                                              |                |      | 17,877,422  |  | 2.74 |                |      |      | 19,202,705  |  | 3.08           |      |      |   | 16,635,973 |                | 3.82 |      |  |   | 15,821,546     |      | 5.49 |   |  |   | 14,750,470 |  | 5.47 |  
|$100,000 and over                                                                                                                           |                |      | 14,280,954  |  | 2.64 |                |      |      | 15,764,091  |  | 2.63           |      |      |   | 11,687,340 |                | 3.71 |      |  |   | 10,987,933     |      | 5.31 |   |  |   | 7,553,286  |  | 5.62 |  
|                                                                                                                                            |                |      |             |  |      |                |      |      |             |  |                |      |      |   |            |                |      |      |  |   |                |      |      |   |  |   |            |  |      |  
|Total                                                                                                                                       |                | $    | 135,640,331 |  | 1.24 | %              |      | $    | 111,296,213 |  | 1.50           | %    |      | $ | 76,057,455 |                | 2.18 | %    |  | $ | 64,654,883     |      | 3.11 | % |  | $ | 57,134,277 |  | 3.33 | %
|                                                                                                                                            |                |      |             |  |      |                |      |      |             |  |                |      |      |   |            |                |      |      |  |   |                |      |      |   |  |   |            |  |      |  



TABLE 9 DEPOSITS STRUCTURE AND
CERTIFICATES OF DEPOSIT 100K AND OVER



|                         |        |      |             |  |        |        |      |           |             |  |        |      |           |   |            |        |        |           |  |   |            |      |           |   |  |   |            |  |        |  
|------------------------ | ------ | ---- | ----------- |  | ------ | ------ | ---- | --------- | ----------- |  | ------ | ---- | --------- | - | ---------- | ------ | ------ | --------- |  | - | ---------- | ---- | --------- | - |  | - | ---------- |  | ------ | -
|Year Ended December 31,  |        | 2004 |             |  |        |        | 2003 |           |             |  |        | 2002 |           |   |            |        | 2001   |           |  |   |            | 2000 |           |   | 
|                         | Amount |      | % ofTotal   |  |        | Amount |      | % ofTotal |             |  | Amount |      | % ofTotal |   |            | Amount |        | % ofTotal |  |   | Amount     |      | % ofTotal |  
|Demand                   |        | $    | 44,799,511  |  | 29.63  |        |      | $         | 34,504,653  |  | 27.55  |      |           | $ | 23,977,619 |        | 26.21  |           |  | $ | 19,570,684 |      | 27.30     | % |  | $ | 15,103,101 |  | 24.91  | %
|                         |        |      |             |  |        |        |      |           |             | 
|Savings and NOW accounts |        |      | 37,476,465  |  | 24.78  |        |      |           | 41,947,627  |  | 33.50  |      |           |   | 21,547,324 |        | 23.55  |           |  |   | 11,316,541 |      | 15.79     |   |  |   | 5,232,987  |  | 8.63   |  
|                         |        |      |             |  |        |        |      |           |             | 
|Money market accounts    |        |      | 25,539,882  |  | 16.89  |        |      |           | 16,562,967  |  | 13.23  |      |           |   | 13,405,082 |        | 14.65  |           |  |   | 14,297,094 |      | 19.94     |   |  |   | 13,896,824 |  | 22.92  |  
|                         |        |      |             |  |        |        |      |           |             | 
|Time:                    |        |      |             |  |        |        |      |           |             |  |        |      |           |   |            |        |        |           |  |   |            |      |           |   |  |   |            |  |        |  
|Under $100,000           |        |      | 20,557,642  |  | 13.60  |        |      |           | 17,999,566  |  | 14.37  |      |           |   | 17,976,949 |        | 19.65  |           |  |   | 15,476,230 |      | 21.59     |   |  |   | 15,937,455 |  | 26.28  |  
|                         |        |      |             |  |        |        |      |           |             | 
|$100,000 and over        |        |      | 22,840,161  |  | 15.10  |        |      |           | 14,217,017  |  | 11.35  |      |           |   | 14,576,217 |        | 15.93  |           |  |   | 11,029,723 |      | 15.39     |   |  |   | 10,472,041 |  | 17.27  |  
|                         |        |      |             |  |        |        |      |           |             |  |        |      |           |   |            |        |        |           |  |   |            |      |           |   |  |   |            |  |        |  
|Total                    |        | $    | 151,213,661 |  | 100.00 | %      |      | $         | 125,231,830 |  | 100.00 | %    |           | $ | 91,483,191 |        | 100.00 | %         |  | $ | 71,690,272 |      | 100.00    | % |  | $ | 60,642,408 |  | 100.00 | %
|                         |        |      |             |  |        |        |      |           |             |  |        |      |           |   |            |        |        |           |  |   |            |      |           |   |  |   |            |  |        |  



The maturity schedule that follows
categorizes time deposits of $100,000 or more as of December 31, 2004.



|                                 |  |         |           
|-------------------------------- |  | ------- | ----------
|Maturing                         |  | Balance
|Three months or less             |  | $       | 3,076,234 
|Over three months to six months  |  |         | 2,688,435 
|Over six months to twelve months |  |         | 2,132,343 
|Over twelve months               |  |         | 14,943,149
|                                 |  |         |           
|Total                            |  | $       | 22,840,161
|                                 |  |         |           



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##### Table of Contents

UNITED FINANCIAL BANKING COMPANIES, INC.



INVESTMENTS



The Bank held 98% and 100%, respectively, of the Companys investment securities at December 31, 2004 and 2003. The
securities portfolio was comprised of U.S. Treasury securities, U.S. Government agency securities, mortgage-backed securities, mutual fund securities, corporate debt securities and other equity securities. The Bank has been strategically growing its
securities portfolio to ensure safe levels of liquidity, to enhance the overall credit quality of its asset base and to generate increased interest income. The securities portfolio included both instruments available-for-sale (AFS) and those
held-to-maturity (HTM). Securities classified as AFS may be sold in response to changes in market interest rates, changes in prepayment or extension risk, management of the federal tax position, liquidity needs and other asset/liability management
issues. Securities classified as HTM are intended for investment purposes. Further details on securities are discussed in Note 2 to the consolidated financial statements.



LIQUIDITY AND INTEREST SENSITIVITY



The Companys liquidity management is designed to achieve an appropriate balance between the maturities and pricing of its assets and liabilities.
Management seeks to accomplish this through maintaining sufficient liquid assets, increasing core deposits and/or raising funds in various money markets. Cash and due from banks, money market investments, AFS securities and loan maturities are the
Companys primary sources of liquidity. Liquid assets were 22.9% of total assets for 2004 and 24.8% for 2003. 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 10. 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.



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##### Table of Contents

|                                                                                                 |  |                    |         |   |           |   |        |      |  |      |           |  |   |        |    |  |            |   |  |      |        |   |          |      |   |      |   |        |             |  |      |      |  |   |        |    |  |      |   |  |   |        
|------------------------------------------------------------------------------------------------ |  | ------------------ | ------- | - | --------- | - | ------ | ---- |  | ---- | --------- |  | - | ------ | -- |  | ---------- | - |  | ---- | ------ | - | -------- | ---- | - | ---- | - | ------ | ----------- |  | ---- | ---- |  | - | ------ | -- |  | ---- | - |  | - | -------
|UNITED FINANCIAL BANKING COMPANIES, INC.  TABLE 10 - INTEREST SENSITIVITY ANALYSIS ( thousands )
|                                                                                                 |  | BALANCES12/31/2004 |         |   | 0-3MONTHS |   |        | RATE |  |      | 4-6MONTHS |  |   | RATE   |    |  | 7-12MONTHS |   |  | RATE |        |   | 1-5YEARS |      |   | RATE |   |        | OVER 5YEARS |  |      | RATE |  |   | TOTAL 
|ASSETS                                                                                           |  |                    |         |   |           |   |        |      |  |      |           |  |   |        |    |  |            |   |  |      |        |   |          |      |   |      |   |        |             |  |      |      |  |   |        |    |  |      |   |  |   |        
|FEDERAL FUNDS SOLD                                                                               |  | $                  | 6,625   |   |           | $ | 6,625  |      |  | 2.19 | %         |  | $ |       |    |  | 0.00       | % |  | $    |       |   |          | 0.00 | % |      | $ |       |             |  | 0.00 | %    |  | $ |       |    |  | 0.00 | % |  | $ | 6,625  
|INVESTMENTS                                                                                      |  |                    | 30,992  |   |           |   | 11,758 |      |  | 2.09 | %         |  |   | 410    |    |  | 2.12       | % |  |      | 5,072  |   |          | 1.71 | % |      |   | 9,286  |             |  | 2.82 | %    |  |   | 4,466  |    |  | 3.42 | % |  |   | 30,992 
|LOANS - FIXED                                                                                    |  |                    | 20,825  |   |           |   | 11,970 |      |  | 6.23 | %         |  |   | 1,438  |    |  | 7.11       | % |  |      | 4,262  |   |          | 6.70 | % |      |   | 2,619  |             |  | 6.16 | %    |  |   | 536    |    |  | 7.16 | % |  |   | 20,825 
|LOANS - VARIABLE                                                                                 |  |                    | 108,310 |   |           |   | 62,989 |      |  | 6.13 | %         |  |   | 2,167  |    |  | 7.63       | % |  |      | 6,006  |   |          | 6.97 | % |      |   | 37,148 |             |  | 6.12 | %    |  |   |       |    |  | 0.00 | % |  |   | 108,310
|                                                                                                 |  |                    |         |   |           |   |        |      |  |      |           |  |   |        |    |  |            |   |  |      |        |   |          |      |   |      |   |        |             |  |      |      |  |   |        |    |  |      |   |  |   |        
|TOTAL EARNING ASSETS                                                                             |  |                    | 166,752 |   |           |   | 93,342 |      |  | 5.35 | %         |  |   | 4,015  |    |  | 6.88       | % |  |      | 15,340 |   |          | 5.16 | % |      |   | 49,053 |             |  | 5.49 | %    |  |   | 5,002  |    |  | 3.82 | % |  |   | 166,752
|LOAN LOSS RESERVE                                                                                |  |                    | (1,915  | ) |           |   |        |      |  |      |           |  |   |        |    |  |            |   |  |      |        |   |          |      |   |      |   |        |             |  |      |      |  |   |        |    |  |      |   |  |   |       
|NON-ACCRUAL LOANS                                                                                |  |                    | 37      |   |           |   |        |      |  |      |           |  |   |        |    |  |            |   |  |      |        |   |          |      |   |      |   |        |             |  |      |      |  |   |        |    |  |      |   |  |   |       
|CASH AND DUE FROM BANKS                                                                          |  |                    | 5,378   |   |           |   |        |      |  |      |           |  |   |        |    |  |            |   |  |      |        |   |          |      |   |      |   |        |             |  |      |      |  |   |        |    |  |      |   |  |   |       
|REAL ESTATE OWNED                                                                                |  |                    |        |   |           |   |        |      |  |      |           |  |   |        |    |  |            |   |  |      |        |   |          |      |   |      |   |        |             |  |      |      |  |   |        |    |  |      |   |  |   |       
|FIXED ASSETS                                                                                     |  |                    | 2,348   |   |           |   |        |      |  |      |           |  |   |        |    |  |            |   |  |      |        |   |          |      |   |      |   |        |             |  |      |      |  |   |        |    |  |      |   |  |   |       
|OTHER NONINTEREST-BEARING ASSETS                                                                 |  |                    | 1,715   |   |           |   |        |      |  |      |           |  |   |        |    |  |            |   |  |      |        |   |          |      |   |      |   |        |             |  |      |      |  |   |        |    |  |      |   |  |   |       
|                                                                                                 |  |                    |         |   |           |   |        |      |  |      |           |  |   |        |    |  |            |   |  |      |        |   |          |      |   |      |   |        |             |  |      |      |  |   |        |    |  |      |   |  |   |        
|TOTAL NONEARNING ASSETS                                                                          |  |                    | 7,563   |   |           |   |       |      |  |      |           |  |   |       |    |  |            |   |  |      |       |   |          |      |   |      |   |       |             |  |      |      |  |   |       |    |  |      |   |  |   |       
|                                                                                                 |  |                    |         |   |           |   |        |      |  |      |           |  |   |        |    |  |            |   |  |      |        |   |          |      |   |      |   |        |             |  |      |      |  |   |        |    |  |      |   |  |   |        
|TOTAL ASSETS                                                                                     |  | $                  | 174,315 |   |           | $ | 93,342 |      |  |      |           |  | $ | 4,015  |    |  |            |   |  | $    | 15,340 |   |          |      |   |      | $ | 49,053 |             |  |      |      |  | $ | 5,002  |    |  |      |   |  | $ | 166,752
|                                                                                                 |  |                    |         |   |           |   |        |      |  |      |           |  |   |        |    |  |            |   |  |      |        |   |          |      |   |      |   |        |             |  |      |      |  |   |        |    |  |      |   |  |   |        
|LIABILITIES                                                                                      |  |                    |         |   |           |   |        |      |  |      |           |  |   |        |    |  |            |   |  |      |        |   |          |      |   |      |   |        |             |  |      |      |  |   |        |    |  |      |   |  |   |        
|NOW ACCOUNTS                                                                                     |  | $                  | 10,960  |   |           | $ | 10,960 |      |  | 0.93 | %         |  | $ |       |    |  | 0.00       | % |  | $    |       |   |          | 0.00 | % |      | $ |       |             |  | 0.00 | %    |  | $ |       |    |  | 0.00 | % |  | $ | 10,960 
|MONEY MARKET ACCOUNTS                                                                            |  |                    | 25,540  |   |           |   | 25,540 |      |  | 1.10 | %         |  |   |        |    |  |            |   |  |      |        |   |          |      |   |      |   |        |             |  |      |      |  |   |        |    |  |      |   |  |   | 25,540 
|SAVINGS ACCOUNTS                                                                                 |  |                    | 26,516  |   |           |   | 6,629  |      |  | 1.71 | %         |  |   |        |    |  |            |   |  |      | 6,629  |   |          | 1.71 | % |      |   | 6,629  |             |  | 1.71 | %    |  |   | 6,629  |    |  | 1.71 | % |  |   | 26,516 
|CERTIFICATES OF DEPOSIT < $100,000                                                               |  |                    | 20,558  |   |           |   | 1,472  |      |  | 2.38 | %         |  |   | 2,484  |    |  | 2.27       | % |  |      | 4,577  |   |          | 2.23 | % |      |   | 9,272  |             |  | 3.22 | %    |  |   | 2,753  |    |  | 3.85 | % |  |   | 20,558 
|CERTIFICATES OF DEPOSIT > $100,000                                                               |  |                    | 22,840  |   |           |   | 3,078  |      |  | 1.84 | %         |  |   | 2,688  |    |  | 2.11       | % |  |      | 2,132  |   |          | 2.63 | % |      |   | 11,581 |             |  | 3.05 | %    |  |   | 3,361  |    |  | 3.83 | % |  |   | 22,840 
|                                                                                                 |  |                    |         |   |           |   |        |      |  |      |           |  |   |        |    |  |            |   |  |      |        |   |          |      |   |      |   |        |             |  |      |      |  |   |        |    |  |      |   |  |   |        
|TOTAL INTEREST-BEARING DEPOSITS                                                                  |  |                    | 106,414 |   |           |   | 47,679 |      |  | 1.23 | %         |  |   | 5,172  |    |  | 2.19       | % |  |      | 13,338 |   |          | 2.04 | % |      |   | 27,482 |             |  | 2.78 | %    |  |   | 12,743 |    |  |      |   |  |   | 106,414
|                                                                                                 |  |                    |         |   |           |   |        |      |  |      |           |  |   |        |    |  |            |   |  |      |        |   |          |      |   |      |   |        |             |  |      |      |  |   |        |    |  |      |   |  |   |        
|NONINTEREST-BEARING DEPOSITS                                                                     |  |                    | 44,799  |   |           |   |        |      |  |      |           |  |   |        |    |  |            |   |  |      |        |   |          |      |   |      |   |        |             |  |      |      |  |   |        |    |  |      |   |  |   |       
|TOTAL DEPOSITS                                                                                   |  |                    | 151,213 |   |           |   | 47,679 |      |  |      |           |  |   | 5,172  |    |  |            |   |  |      | 13,338 |   |          |      |   |      |   | 27,482 |             |  |      |      |  |   | 12,743 |    |  |      |   |  |   | 106,414
|                                                                                                 |  |                    |         |   |           |   |        |      |  |      |           | 
|TOTAL OTHER LIABILITIES                                                                          |  |                    | 9,540   |   |           |   |        |      |  |      |           |  |   |        |    |  |            |   |  |      |        |   |          |      |   |      |   |        |             |  |      |      |  |   |        |    |  |      |   |  |   |       
|TOTAL CAPITAL                                                                                    |  |                    | 13,562  |   |           |   |        |      |  |      |           |  |   |        |    |  |            |   |  |      |        |   |          |      |   |      |   |        |             |  |      |      |  |   |        |    |  |      |   |  |   |       
|                                                                                                 |  |                    |         |   |           |   |        |      |  |      |           |  |   |        |    |  |            |   |  |      |        |   |          |      |   |      |   |        |             |  |      |      |  |   |        |    |  |      |   |  |   |        
|TOTAL LIABILITIES & CAPITAL                                                                      |  | $                  | 174,315 |   |           | $ | 47,679 |      |  |      |           |  | $ | 5,172  |    |  |            |   |  | $    | 13,338 |   |          |      |   |      | $ | 27,482 |             |  |      |      |  | $ | 12,743 |    |  |      |   |  | $ | 106,414
|                                                                                                 |  |                    |         |   |           |   |        |      |  |      |           |  |   |        |    |  |            |   |  |      |        |   |          |      |   |      |   |        |             |  |      |      |  |   |        |    |  |      |   |  |   |        
|INTERVAL GAP/GAP SPREAD                                                                          |  |                    |         |   |           |   | 45,663 |      |  | 4.12 | %         |  |   | (1,157 | )  |  | 4.69       | % |  |      | 2,002  |   |          | 3.12 | % |      |   | 21,571 |             |  | 2.71 | %    |  |   | (7,741 | )  |  | 3.82 | % |  |   |        
|CUMULATIVE GAP                                                                                   |  |                    |         |   |           |   | 45,663 |      |  |      |           |  |   | 44,506 |    |  |            |   |  |      | 46,508 |   |          |      |   |      |   | 68,079 |             |  |      |      |  |   | 60,338 |    |  |      |   |  |   |        
|INTERVAL GAP/TOTAL ASSETS                                                                        |  |                    |         |   |           |   | 26.20  | %    |  |      |           |  |   | (0.66  | )% |  |            |   |  |      | 1.15   | % |          |      |   |      |   | 12.37  | %           |  |      |      |  |   | (4.44  | )% |  |      |   |  |   |        
|CUMULATIVE GAP/TOTAL ASSETS                                                                      |  |                    |         |   |           |   | 26.20  | %    |  |      |           |  |   | 25.53  | %  |  |            |   |  |      | 26.68  | % |          |      |   |      |   | 39.06  | %           |  |      |      |  |   | 34.61  | %  |  |      |   |  |   |        
|INTERVAL GAP/EARNING ASSETS                                                                      |  |                    |         |   |           |   | 27.38  | %    |  |      |           |  |   | (0.69  | )% |  |            |   |  |      | 1.20   | % |          |      |   |      |   | 12.94  | %           |  |      |      |  |   | (4.64  | )% |  |      |   |  |   |        
|CUMULATIVE GAP/EARNING ASSETS                                                                    |  |                    |         |   |           |   | 27.38  | %    |  |      |           |  |   | 26.69  | %  |  |            |   |  |      | 27.89  | % |          |      |   |      |   | 40.83  | %           |  |      |      |  |   | 36.18  | %  |  |      |   |  |   |        
|MATCHED                                                                                          |  |                    |         |   |           |   | 47,679 |      |  | 1.23 | %         |  |   | 4,015  |    |  | 2.19       | % |  |      | 15,340 |   |          | 5.16 | % |      |   | 49,053 |             |  | 5.49 | %    |  |   | 12,743 |    |  | 0.00 | % |  |   |        
|OPEN                                                                                             |  |                    |         |   |           |   | 45,663 |      |  | 4.12 | %         |  |   | (1,157 | )  |  | 4.69       | % |  |      | 2,002  |   |          | 3.12 | % |      |   | 21,571 |             |  | 2.71 | %    |  |   | (7,741 | )  |  | 3.82 | % |  |   |        



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UNITED FINANCIAL BANKING COMPANIES, INC.



CONTRACTUAL OBLIGATIONS, CONTINGENT LIABILITIES AND COMMITMENTS



Financial Instruments With Off-Balance Sheet Risk



In the normal course of business, the Company makes various commitments and
incur certain contingent liabilities that are not reflected in the accompanying financial statements. These commitments and contingent liabilities include commitments to extend credit and standby letters of credit. The Company and the Bank evaluates
each customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company and the Bank, upon extension of credit, is based on managements credit evaluation of the customer. Such
collateral, where required, generally consists of cash, real estate and/or assets of the business. Because many commitments and almost all standby letters of credit expire without being funded, the contractual commitments do not necessarily
represent future cash requirements.



Lines of credit are
established for a potential borrower as an indication of the aggregate amount of outstanding credit that the Company is willing to extend. At December 31, 2004 and 2003, unused commitments that were extended under lines of credit amounted to
$22,575,754 and $17,950,808, respectively.



The Companys
and the Banks outstanding standby letters of credit amounted to $2,533,249 and $4,320,335 as of December 31, 2004 and 2003, respectively. The credit risk involved in issuing letters of credit is essentially the same as that involved in making
loans to customers. At December 31, 2003, 59% of the Companys letters of credit were cash secured.



The following table summarizes the Companys and the Banks significant contractual obligations, contingent liabilities and certain other
commitments outstanding as of December 31, 2004:



TABLE 11



|                                                                                   |  |                        |            |                  |   |             |  |             |           |                   |   |           |  |   |           
|---------------------------------------------------------------------------------- |  | ---------------------- | ---------- | ---------------- | - | ----------- |  | ----------- | --------- | ----------------- | - | --------- |  | - | ----------
|                                                                                   |  | Payments due by period
|Contractual Obligations                                                            |  | Total                  |            | Less than 1 year |   | 1 - 3 years |  | 3 - 5 years |           | More than 5 years
|Operating leases                                                                   |  | $                      | 2,914,696  |                  | $ | 531,377     |  | $           | 854,392   |                   | $ | 604,649   |  | $ | 924,278   
|Other long-term liabilities reflected on the registrants balance sheet under GAAP |  |                        |            |                  |   |             |  |             |           |                   |   |           |  |   |           
|Federal Home Loan Bank Advances                                                    |  |                        | 3,000,000  |                  |   | 1,000,000   |  |             | 2,000,000 |                   |   |          |  |   |          
|Trust preferred capital notes                                                      |  |                        | 5,155,000  |                  |   |            |  |             |          |                   |   |          |  |   | 5,155,000 
|Other debt payments                                                                |  |                        | 765,867    |                  |   | 15,358      |  |             | 750,509   |                   |   |          |  |   |          
|Other commitments                                                                  |  |                        |            |                  |   |             |  |             |           |                   |   |           |  |   |           
|Standby letters of credit                                                          |  |                        | 2,533,249  |                  |   | 2,174,935   |  |             | 167,668   |                   |   | 190,646   |  |   |          
|Commitments to extend credit                                                       |  |                        | 33,030,150 |                  |   | 23,610,356  |  |             | 4,694,565 |                   |   | 487,834   |  |   | 4,237,395 
|                                                                                   |  |                        |            |                  |   |             |  |             |           |                   |   |           |  |   |           
|Total contractual obligations                                                      |  | $                      | 47,398,962 |                  | $ | 27,332,026  |  | $           | 8,467,134 |                   | $ | 1,283,129 |  | $ | 10,316,673
|                                                                                   |  |                        |            |                  |   |             |  |             |           |                   |   |           |  |   |           



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UNITED FINANCIAL BANKING COMPANIES, INC.



EFFECTS OF INFLATION



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



CRITICAL ACCOUNTING POLICIES



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



SARBANES-OXLEY ACT



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



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##### Table of Contents

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                                                    |  |                                          
|Senior Counsel, Baker & McKenzie, Attorneys                        |  |                                          
|                                                                   | 
|Robert W. Pitts                                                    |  |                                          
|Partner, Pitts and Pitts                                           |  |                                          
|                                                                   | 
|Harold C. Rauner                                                   |  |                                          
|President/CEO, United Financial Banking Companies, Inc.            |  |                                          
|President/CEO, The Business Bank                                   |  |                                          
|President/CEO, Business Venture Capital, Inc.                      |  |                                          
|                                                                   | 
|Sharon A. Stakes                                                   |  |                                          
|Executive Vice President, United Financial Banking Companies, Inc. |  |                                          
|Executive Vice President, The Business Bank                        |  |                                          
|President, The Business Bank Insurance Agency, Inc.                |  |                                          
|                                                                   | 
|The Business Bank Board of Directors                               |  |                                          
|                                                                   | 
|Harold C. Rauner                                                   |  | Jeffery T. Valcourt                      
|Chairman of the Board                                              |  | Vice Chairman                            
|The Business Bank                                                  |  | The Business Bank                        
|President/CEO, The Business Bank                                   |  | President/CEO, Valcourt Building Services
|President/CEO, United Financial Banking Companies, Inc.            |  |                                          
|President/CEO, Business Venture Capital, Inc.                      |  |                                          
|                                                                   | 
|Robert E. Carpenter                                                |  | Charles S. Evans                         
|Managing Member, McLean Management                                 |  | Chairman, Computerware                   
|                                                                   | 
|John R. Motz                                                       |  | Robert W. Pitts                          
|President, Commercial Condominium Management Company               |  | Partner, Pitts and Pitts                 
|                                                                   | 
|Sharon A. Stakes                                                   |  |                                          
|Executive Vice President, The Business Bank                        |  |                                          
|Executive Vice President, United Financial Banking Companies, Inc. |  |                                          
|President, The Business Bank Insurance Agency, Inc.                |  |                                          



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##### Table of Contents

UNITED FINANCIAL BANKING COMPANIES, INC.



The Business Bank Advisory Board



|                                          |  |                                      
|----------------------------------------- |  | -------------------------------------
|Michael P. Mullen                         |  | Carl F. Desmarais                    
|Chairman                                  |  | Partner, OConnor & Desmarais, P.C.  
|President, Washington Financial           |  |                                      
|                                          | 
|Laura Degnon                              |  | James E. Merritt                     
|Vice President, Degnon Associates, Inc.   |  | President, Horizon Title Escrow, Inc.
|                                          | 
|Dean M. Xenos                             |  | Charles W. Bray                      
|President, Leros Technologies Corporation |  | CFO, IAAPA                           
|                                          | 
|Puneet Alhuwalia                          |  | Casey Veatch                         
|President, Loans and Mortgages LLC        |  | Vice President, Trammell Crow Company



CORPORATE INFORMATION



The Company did not accrue or pay dividends during the years ended
December 31, 2004 and 2003.



The Company had 311 shareholders of record as of
December 31, 2004.



Below are the high and low bid prices for the common stock
for each quarter of 2004 and 2003.



These prices reflect inter-dealer prices
without retail mark-up, mark-down or commission, and may

not represent actual trades.



|                       |  |      |       |      |   |       |  |     |       |  |   |      
|---------------------- |  | ---- | ----- | ---- | - | ----- |  | --- | ----- |  | - | -----
|                       |  | 2004 |       | 2003
|                       |  | High |       | Low  |   | High  |  | Low
|For the Quarter Ended: |  |      |       |      |   |       |  |     |       |  |   |      
|                       |  |      |       |     
|March 31               |  | $    | 19.57 |      | $ | 18.55 |  | $   | 15.45 |  | $ | 15.40
|June 30                |  | $    | 19.75 |      | $ | 19.00 |  | $   | 16.50 |  | $ | 15.60
|September 30           |  | $    | 19.92 |      | $ | 18.00 |  | $   | 17.10 |  | $ | 15.85
|December 31            |  | $    | 20.75 |      | $ | 19.00 |  | $   | 18.05 |  | $ | 18.05



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



50