---




UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





---




FORM 10-QSB





(Mark One)


|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|- |  | ----------------------------------------------------------------------------------------




| |  | For the quarterly period ended September 30, 2002.
| |  | --------------------------------------------------




OR





| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|- |  | -----------------------------------------------------------------------------------------




| |  | For the transition period
from    to
| |  | ------------------------------------




Commission File No. 0-13395





---




UNITED FINANCIAL BANKING
COMPANIES, INC.





A Virginia Corporation

No. 54-1201253IRS Employer Identification





8399 Leesburg Pike, Vienna, Virginia 22182


Telephone: (703) 734-0070





Common Stock
$1.00 Par Value


1,035,999 Shares Outstanding


as of
September 30, 2002





Transitional Small Business Disclosure Format: Yes  ̈ Nox





---




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





---



---




Part 1.    Financial Information





Item 1:    Financial Statements





UNITED FINANCIAL BANKING COMPANIES, INC., AND SUBSIDIARIES


Consolidated Statements of Income and Comprehensive Income / Results of Operations


(Unaudited)





Three Months Ended September 30,


Nine Months Ended September 30,2002

2001


2002

2001Interest income:Interest and fees on loans/leases

$
1,382,649

$
1,320,935


$
3,795,825

$
3,863,068Interest on investment securities


61,481


99,277



197,895


353,002Interest on federal funds sold


36,934


44,698



142,123


160,622Interest on interest-bearing deposits


6,446


521



9,244


2,387Total interest income


1,487,510


1,465,431



4,145,087


4,379,079Interest expense:Interest on deposits


416,874


508,391



1,235,547


1,560,479Interest on short-term borrowings


60,824


34,950



82,181


104,816Total interest expense


477,698


543,341



1,317,728


1,665,295Net interest income


1,009,812


922,090



2,827,359


2,713,784Provision for loan/lease losses


62,400


46,000



153,800


135,274Net interest income after provision for loan/lease losses


947,412


876,090



2,673,559


2,578,510Noninterest income:Gain (loss) on sale of real estate owned and other earning assets


54,457


(20,880
)


88,782


(11,474
)Loan servicing and other fees


16,820


17,231



40,524


69,174Other income


93,032


75,770



238,516


183,494Total noninterest income


164,309


72,121



367,822


241,194Noninterest expense:Salaries


387,213


301,593



1,122,947


958,409Employee benefits


62,204


55,925



196,225


179,770Occupancy


99,922


91,849



282,690


279,127Furniture and equipment


33,804


30,945



93,097


88,045Data processing


42,129


39,125



125,966


120,254Other insurance


9,047


6,796



25,359


22,009Real estate owned holding expense


4,233


3,998



14,029


20,263Legal


8,450


4,500



19,350


14,777FDIC insurance


3,040


2,715



8,851


8,155Other expense


128,079


114,984



355,189


316,828Total noninterest expense


778,121


652,430



2,243,703


2,007,637Income (loss) before income taxes


333,600


295,781



797,678


812,067Provision (credit) for income taxes


116,846


5,100



271,211


13,600Net income (loss)

$
216,754

$
290,681


$
526,467

$
798,467Net income (loss) per common share (Note 3)Basic

$
0.21

$
0.29


$
0.51

$
0.80Diluted

$
0.20

$
0.29


$
0.48

$
0.79Comprehensive Income (Note 4)Net income

$
216,754

$
290,681


$
526,467

$
798,467Other comprehensive income, net of tax Unrealized gains (losses) on available-for-sale securities


18,516


1,140



24,138


38,350Comprehensive income

$
235,270

$
291,821


$
550,605

$
836,817




2




---




UNITED FINANCIAL BANKING COMPANIES, INC., AND
SUBSIDIARIES


Consolidated Balance Sheets / Financial Condition





September 30, 2002


December 31, 2001(Unaudited)


(Audited)AssetsCash and due from banks

$
5,838,250


$
2,970,328Federal funds sold


14,175,000



16,325,000Interest-bearing deposits in other banks


968,936



130,607Investment Securities:Available-for-sale (AFS)


3,345,790



3,320,516Held-to-maturity (HTM)


1,780,977



2,247,459Loans, net of unearned income of $203,452 and $113,153


71,440,932



58,535,131Less: Allowance for loan/lease losses


(1,186,264
)


(1,057,344
)Net loans


70,254,668



57,477,787Real estate owned held for sale, net


611,341



644,407Premises and equipment, net


1,560,160



176,384Deferred income taxes


1,752,890



1,752,890Other assets


853,729



483,858Total assets

$
101,141,741


$
85,529,236Liabilities and Stockholders EquityDeposits:Demand

$
25,146,696


$
19,570,684Savings and NOW


18,194,749



11,316,541Money market


10,745,140



14,297,094Time deposits:Under $100,000


17,283,893



15,476,230$100,000 and over


11,188,315



11,029,723Total deposits


82,558,793



71,690,272Escrow payable


613,674



Other liabilities


797,744



420,563Short-term borrowings


5,796,924



2,600,000Total liabilities


89,767,135



74,710,835Stockholders Equity:Preferred stock of no par value, authorized 5,000,000 shares, no shares issued






Common Stock, par value $1; authorized 3,500,000 shares, issued 1,035,999 shares at 9/30/02 and 1,035,349 at
12/31/01


1,035,999



1,035,349Capital in excess of par value


16,202,035



16,197,085Retained earnings


(5,893,645
)


(6,420,112
)Unrealized holding gain (loss)  AFS securities


30,217



6,079Total stockholders equity


11,374,606



10,818,401Total liabilities and stockholders equity

$
101,141,741


$
85,529,236




3




---




UNITED FINANCIAL BANKING COMPANIES, INC. AND
SUBSIDIARIES


Consolidated Statements of Cash Flows


(Unaudited)





Nine Months EndedSeptember 30, 2002


September 30, 2001Cash flows from operating activities:Net Income

$
526,467


$
798,467Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities:Depreciation & amortization


56,824



59,226Provision for loan/lease losses


153,800



135,274Amortization of investment security discount


7,771



7,920Amortization of loan fees and discounts, net


100,782



8,764Net (gain) loss on sale of other real estate owned


(88,783
)


11,473(Increase) decrease in other assets


(369,871
)


144,119Increase (decrease) in other liabilities


990,855



(81,788
)Net cash provided by (used in) operating activities


1,377,845



1,083,455Cash flows from investing activities:Loans purchased - non-bank subsidiaries


(118,250
)


Principal collected - non-bank subsidiaries


119,437



1,857Loans and lease originations, net of collections


(13,032,650
)


(4,183,404
)Purchases of securities available-for-sale


(1,068,863
)


(1,111,795
)Purchases of securities held-to-maturity


(1,955,851
)


(1,829,063
)Investment made in other real estate owned


(1,447,713
)


(1,161,113
)Proceeds received from maturity of securities available-for-sale


1,059,412



5,244,527Proceeds received from maturity of securities held to maturity


2,422,877



1,280,567Proceeds from real estate owned


1,569,562



1,637,919Purchases of premises and equipment


(1,440,600
)


(3,062
)Net cash provided by (used in) investing activities


(13,892,639
)


(123,567
)Cash flow from financing activities:Net increase (decrease) in demand deposits, savings accounts, NOW accounts and money market accounts


8,902,266



2,764,314Certificates of deposit sold (matured), net


1,966,255



760,480Net change in short-term borrowings


3,196,924



414,000Proceeds from sale of common stock


5,600



255,125Net cash provided by (used in) financing activities


14,071,045



4,193,919Net increase (decrease) in cash and cash equivalents


1,556,251



5,153,807Cash and cash equivalents at beginning of the year


19,425,935



3,590,025Cash and cash equivalents at end of the quarter

$
20,982,186


$
8,743,832Supplemental disclosures of cash flow information:Cash paid during the years for:Interest on deposits and other borrowings

$
1,332,696


$
1,708,064Income taxes


9,856



28,206Non-Cash Items:Effect on stockholders equity of an unrealized gain (loss) on debt and equity securities
available-for-sale

$
24,138


$
38,350Increase in foreclosed properties and decrease in loans

$



$





4




---




Notes to Consolidated Financial Statements





|Note  1  - |  | The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-QSB and, therefore, do not
include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The interim financial statements have been prepared utilizing the interim basis of
reporting and, as such, reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods presented. The results of operations for the interim periods are not necessarily indicative of
the results for the full year.
|---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|Note  2  - |  | The preparation of financial statements in conformity with 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.
|---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|Note  3  - |  | On December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128, Earnings per share (SFAS 128), which supersedes Accounting
Principles Board Opinion No. 15. Under SFAS 128, earnings per common share are computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings
per share reflects the potential dilution, if any, that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock.
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|Note  4  - |  | On January 1, 1998, United Financial Banking Companies, Inc. adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income
(SFAS 130). Under SFAS 130, each company is required to present a Statement of Comprehensive Income. Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances from
non-owner sources such as foreign currency items, minimum pension liability adjustments and unrealized gains and losses on certain investments in debt and equity securities.
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------






5




---




UNITED FINANCIAL BANKING COMPANIES, INC. CONSOLIDATED AVERAGE BALANCES/NET INTEREST ANALYSIS/ YIELDS AND RATES





For the Nine Months EndedSeptember 30, 2002


September 30, 2001Average Balance


Interest

Yield/ Rate


Average Balance


Interest

Yield/ RateASSETSEarning assets:Loans/Leases:Commercial

$
46,542,044


$
2,706,803

7.78
%

$
38,569,377


$
2,538,357

8.80
%Real estate construction


8,547,438



549,877

8.60
%


9,741,424



728,307

10.00
%Real estate mortgage


5,571,248



319,154

7.66
%


6,004,210



407,319

9.07
%Installment


3,347,817



219,991

8.79
%


3,152,819



189,085

8.02
%Total loans/leases


64,008,547



3,795,825

7.93
%


57,467,830



3,863,068

8.99
%Interest-bearing deposits


653,331



9,244

1.89
%


97,622



2,387

3.27
%Federal funds sold


11,426,339



142,123

1.66
%


5,115,726



160,622

4.20
%Investment securities (1)


5,537,721



197,895

4.78
%


7,728,937



353,002

6.11
%Total earning assets


81,625,938



4,145,087

6.79
%


70,410,115



4,379,079

8.32
%Noninterest-earning assetsCash and due from banks


3,224,026









2,518,052Other assets


3,651,708









2,825,722Allowance for loan losses/lease


(1,177,902
)








(999,790
)Total assets

$
87,323,770








$
74,754,099LIABILITIES AND STOCKHOLDERS EQUITYInterest-bearing liabilities:Interest-bearing deposits:Savings and NOW accounts

$
14,373,019



273,078

2.54
%


5,431,340



106,750

2.63
%Money market accounts


12,219,038



156,235

1.71
%


14,509,021



334,180

3.08
%Time:Under $100,000


16,185,129



476,475

3.94
%


15,881,477



673,687

5.67
%$100,000 and over


11,543,311



329,759

3.82
%


10,903,870



445,862

5.47
%Total interest-bearing deposits


54,320,497



1,235,547

3.04
%


46,725,708



1,560,479

4.60
%Short-term borrowings


2,554,546



82,181

4.30
%


2,613,606



104,816

5.36
%Total interest-bearing liabilities


56,875,043



1,317,728

3.10
%


49,339,314



1,665,295

4.51
%Non interest-bearing liabilities:Demand deposits


18,188,510









15,939,248Other liabilities


1,171,258









497,043Stockholders equity


11,088,959









8,978,494Total liabilities and stockholders equity

$
87,323,770








$
74,754,099Net interest income





$
2,827,359








$
2,713,784Net interest margin (1)








4.63
%








5.15
%Net interest spread (2)








3.69
%








3.80
%Fees included in loan income





$
174,863








$
145,839Taxable equivalent adjustment





$









$






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


|(1) |  | Yields on securities available-for-sale are calculated on the basis of the historical cost of such securities and do not give effect to changes in the fair
market value of such securities which are reflected as a component of shareholders equity.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Net interest income divided by total earning assets.
|--- |  | ----------------------------------------------------

|(3) |  | Average rate earned on total earning assets less average rate paid for interest-bearing liabilities.
|--- |  | ----------------------------------------------------------------------------------------------------



6




---




|ITEM  2: |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|-------- |  | -------------------------------------------------------------------------------------




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.





|A. |  | Results of Operations for the Nine Months Ended September 30, 2002 as Compared to the Nine Months Ended September 30, 2001
|-- |  | --------------------------------------------------------------------------------------------------------------------------




General


The following
discussion provides an overview of the financial condition and results of operations of United Financial Banking Companies, Inc. (UFBC) and its subsidiaries, The Business Bank (the Bank) and Business Venture Capital
Incorporated (BVCI), which is presented on a consolidated basis. UFBC reported net income of $526,467 for the nine-month period ended September 30, 2002. This compares with net income of $798,467 for the same period of 2001. Basic
earnings per share were $.51 for the first nine months ended September 30, 2002 compared to $.80 for the first nine months of 2001.





Net income declined $272,000 when comparing the first nine months of 2002 to the first nine months of 2001. The provision for federal income tax accounted for 99.7% of the $272,000 decline in net income when comparing
September 30, 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. Increased overhead also contributed to the decline.





Net Interest Income


For the nine-month
period ended September 30, 2002, net interest income increased $113,575 or 13.7% from $2,713,784 at September 30, 2001 to $2,827,359 at September 30, 2002 (Consolidated Statements of Income and Comprehensive Income table). The numerical
change masks the impact of the current rate environment as shown in the decreased net interest margin. The net interest margin of 4.63% at September 30, 2002 was notably less than the September 30, 2001 net interest margin of 5.15% (Consolidated
Average Balancestable). The decreases in the prime interest rate during 2001 significantly contributed to the decline in the net interest margin. However, an increased volume of earning assets and repriced liabilities helped offset the
decreased net interest margin and contributed to the increased net interest income at September 30, 2002.





As
shown in the Rate Volume Variance Table, net interest income is impacted by both rate and volume. The 2001 decreases in the prime rate suppressed interest income on earning assets by $763,399 during the first nine months of 2002 when compared
to 2001. The yield on total earning assets decreased 153 basis points from 8.32% at September 30, 2001 to 6.79% at September 30, 2002 (Consolidated Average Balancestable). However, earnings lost due to rate were mitigated by the favorable
contribution of the volume of total earning assets (Rate Volume Variance table). At September 30, 2002, average total earning assets increased $6,540,717 or 11.4% when compared to the first nine months of September 30, 2001 (Consolidated
Average Balances table). The increased volume of earning assets contributed $529,407 to earnings when comparing the nine month periods ended September 30, 2002 and 2001 (Rate Volume Variance table). The combined effect of the rate and
volume variances resulted in a decrease of $233,992 in interest income (or earning assets) from $4,379,079 at September 30, 2001 to $4,145,087 at September 30, 2002.




7




---

The rate environment favorably impacted interest expense which decreased $347,567 or 20.9% from $1,665,295 at September
30, 2001 to $1,317,728 at September 30, 2002 (Consolidated Statements of Income and Comprehensive Income table). $507,226 of the decrease was due to rate (Rate Volume Variance table). The decrease due to rate was offset by an increased
volume of interest-bearing liabilities. The average volume of interest-bearing liabilities increased $7,594,789 or 16.2% during the past year (Consolidated Average Balances table). The volume increase added $159,659 of expense during the
first nine months of 2002 (Rate Volume Variance table).





The cost of interest-bearing liabilities decreased
141 basis points from 4.51% at September 30, 2001 to 3.10% at September 30, 2002 (Consolidated Average Balancestable). The drop was primarily attributable to deposits repricing during the lower rate environment. The growth of
noninterest-bearing





Analysis of the Changes in the Components of Net Interest Income (Rate Volume Variance)


---

For the Nine Months Ended September 30,2002 Compared to 2001Total Increase (Decrease)


Change Due To:Rate


VolumeInterest income:Loans & lease financing:Commercial

$
168,446


$
(356,257
)

$
524,703Real estate - construction


(178,430
)


(89,163
)


(89,267
)Real estate - mortgage


(88,165
)


(58,793
)


(29,372
)Installment


30,906



19,211



11,695Total loans/leases


(67,243
)


(485,002
)


417,759Interest-bearing deposits


6,857



(6,731
)


13,588Federal funds sold


(18,499
)


(216,638
)


198,139Investment securities


(155,107
)


(55,028
)


(100,079
)Total interest income


(233,992
)


(763,399
)


529,407Interest expense:Savings and NOW accounts


166,328



(9,416
)


175,744Money markets accounts


(177,945
)


(125,201
)


(52,744
)Time:Under $100,000


(197,212
)


(210,093
)


12,881$100,000 and over


(116,103
)


(142,250
)


26,147Short-term borrowings


(22,635
)


(20,266
)


(2,369
)Total interest expense


(347,567
)


(507,226
)


159,659Net interest income

$
113,575


$
(256,173
)

$
369,748





or demand deposits also contributed favorably to net interest income. As shown in the
Consolidated Average Balances table, average demand deposits increased $2,249,262 or 14.1% from $15,939,248 at September 30, 2001 to $18,188,510 at September 30, 2002.







8




---




Provision for Loan Losses


Provision expense increased $18,526 or 13.7% from $135,274 at September 30, 2001 to $153,800 at September 30, 2002. The Banks loan volume, composition and inherent risks were factors in
determining the appropriate amount to fund the allowance for loan losses. The allowance for loan losses was funded through a charge to provision expense.





Noninterest Income


Total noninterest income increased $126,628 or 52.5% during the past year. The increase was
primarily attributable to net gains on the sale of real estate owned (REO). Net gains on the sale of real estate owned increased $100,256 from a net loss of $11,474 at September 30, 2001 to a net gain of $88,782 at September 30, 2002.





Noninterest Expense


Total noninterest
expense increased $236,066 or 11.8% during the past year. The increase was primarily attributable to additional staffing for business expansion, most notably the opening of the Reston, Virginia branch. Salaries and employee benefits increased
$153,993 or 13.2% during the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001.





Income
Taxes


During 2002, the Company will accrue tax liability as the balance of the deferred tax benefits was recorded in 2001. The tax liability will
accrue at the historic rate of 34.0%. The provision for income taxes increased $257,611 or 1,894.2% from $13,600 at September 30, 2001 to $271,211 at September 30, 2002. During 2001, the Company did not accrue substantial tax liability as it
utilized the Companys deferred income tax benefits (the remainder of which were fully recorded as an asset at December 31, 2001). During the first nine months of 2001, $13,600 was accrued for anticipated alternative minimum tax liability.





B.    Financial Condition as of September 30, 2002





General


During the second quarter of 2002, two
Company affiliates commenced operations. United Title LLC commenced operations on March 13, 2002 and is a subsidiary of Business Venture Capital Incorporated. It is a title company that primarily services the Companys bank subsidiary. United
Facilities LLC is a subsidiary of United Financial Banking Companies, Inc. and commenced operations on June 4, 2002. United Facilities LLC was formed to purchase and to hold premises for the Bank. On June 12, 2002, United Facilities LLC purchased a
building in Reston, Virginia to serve as the Banks second branch location. The Reston branch commenced operations on September 18, 2002.





Assets


Total assets increased $15,612,505 or 18.3% during the first nine months of 2002. The increase was attributable to
the Banks short-term borrowings, escrow balances held by United Title LLC and an increased volume of deposits. The increased volume of liabilities were invested in loans, interest-bearing deposits and premises and equipment.





Loans


Loans increased $12,905,801 or
22.1% from $58,535,131 at December 31, 2001 to $71,440,932 at September 30, 2002. The increase was funded by available liquidity in federal funds sold and an increased volume of deposits.




9




---




Allowance for Loan Losses


The allowance for loan/lease losses is maintained at a level, which in managements judgment, is adequate to absorb credit losses inherent in the existing loan/lease portfolio. The amount of the
allowance is based on management's evaluation of the collectibility of the loan/lease portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, economic conditions and
other risks inherent in the portfolio. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. Although management uses available information to recognize losses on loans,
because of uncertainties associated with local economic conditions, collateral values and future cash flows on impaired loans, it is reasonably possible that a material change could occur in the allowance for loan/lease losses in the near term.
However, the amount of the change that is reasonably possible cannot be estimated. The allowance is increased by a provision for loan/lease losses, which is charged to expense and reduced by charge-offs, net of recoveries. Changes in the allowance
relating to impaired loans are charged or credited to the allowance for loan/lease losses.





At September 30, 2002
and December 31, 2001, the allowance for loan losses was $1,186,264 or 1.7% and $1,057,344 or 1.8%, respectively, of total loans and leases. Impaired loans for the nine-month period ended September 30, 2002 totaled $98,272, of which $9,338 was held
by BVCI and $88,934 was held by the Bank. This compares to a balance of $28,367 at December 31, 2001, of which $10,525 was held by BVCI and $17,842 was held by the Bank. During the nine month periods ended September 30, 2002 and 2001, the Company
had net charge-offs totaling $24,880 and $68,583, respectively.





Premises and Equipment


Premises and equipment increased $1,383,776 or 784.5% during the nine months since December 31, 2001. United Facilities LLC purchased a building in Reston, Virginia for
$1,300,000. The building is the site of the Banks second branch location and began operations on September 18, 2002. During the third quarter of 2002, the Bank began the process of updating its technology by purchasing equipment.





Deferred Tax Asset


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







10




---




Liabilities and Equity


Total deposits increased $10,868,521 or 15.2% from $71,690,272 at December 31, 2001 to $82,558,793 at September 30, 2002. At September 30, 2002, United Title LLC held escrow balances due of $613,674 in
the normal course of business. Short-term borrowings increased $3,200,000 or 123.1% during the first nine months of 2002. The $2,600,000 of short-term borrowings held at December 31, 2001 were repaid during February 2002. $5,000,000 was borrowed
during June in anticipation of loan growth. United Facilities LLC borrowed $800,000 to purchase the building in Reston, Virginia.





Stockholders equity increased $556,205 or 5.1% during the nine months ended September 30, 2002 when compared to the year ended December 31, 2001. Earnings primarily accounted for the variance at $526,467. During the second
quarter of 2002, options to purchase 650 shares of common stock pursuant to the employees Executive Stock Plan were exercised. The purchase also contributed to the increase in stockholders equity.





Liquidity and Investment


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





Consolidated
average liquid assets were 21.4% of average total assets at September 30, 2002 compared to 20.7% at September 30, 2001 (Consolidated Average Balances table). The Companys liquidity needs exist primarily in the Bank subsidiary. To ensure
adequate liquidity, the Bank purchases certain traditional assets such as government and other investment securities in addition to maintaining several lines of credit. The Bank's securities portfolio is generally comprised of U.S. Government agency
securities, mortgage-backed and equity securities. The Bank has strategically grown its securities portfolio to ensure safe levels of liquidity, to enhance the overall credit quality of its asset base, to generate increased interest income, to
balance assets and liabilities and to hedge interest rate risk. The securities portfolio includes both instruments available-for-sale and held-to-maturity. Securities classified as available-for-sale may be sold in response to changes in market
interest rates, changes in prepayment or extension risk, management of the federal tax position, liquidity needs and other asset/liability management issues. Securities classified as held-to-maturity are intended for investment purposes.





At September 30, 2002, the Bank's investment portfolio consisted of the following:





Available-for-Sale

Held-to-MaturityU.S. Government Agency

2,076,518

1,165,577Mortgage-backed Securities

956,522

115,400Equity

312,750






11




---




Capital Requirements


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





Quantitative measures established by regulation to ensure capital adequacy require the Company and the bank subsidiary to maintain minimum amounts and ratios of Total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital
to average assets. As of September 30, 2002, the Company and the Bank met the criteria to be well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company and the bank subsidiary
must maintain Total risk-based, Tier 1 risk-based and Tier 1 average asset ratios as set forth in the table. There have been no conditions or events since December 31, 2001 that management believes would result in the institution not being
adequately capitalized.





Actual


Required for Capital Adequacy Purposes

Required To Be Well CapitalizedAmount

Ratio


Amount

Ratio

Amount

RatioAs of September 30, 2002:Total capital (to risk-weighted assets)Company

10,781,462

14.32
%

6,024,691

8.00%

7,530,864

10.00
%The Business Bank

9,919,936

13.71
%

5,788,474

8.00%

7,235,593

10.00
%Tier 1 capital (to risk-weighted assets)Company

9,837,081

13.06
%

3,012,345

4.00%

4,518,518

6.00
%The Business Bank

9,012,034

12.46
%

2,894,237

4.00%

4,341,356

6.00
%Tier 1 capital (to average assets)Company

9,837,081

10.59
%

3,716,006

4.00%

4,645,007

5.00
%The Business Bank

9,012,034

10.16
%

3,546,484

4.00%

4,433,105

5.00
%As of September 30, 2001:Total capital (to risk-weighted assets)Company

9,905,882

16.21
%

4,888,280

8.00%

6,110,351

10.00
%The Business Bank

8,615,696

14.36
%

4,799,509

8.00%

5,999,386

10.00
%Tier 1 capital (to risk-weighted assets)Company

9,138,676

14.96
%

2,444,140

4.00%

3,666,210

6.00
%The Business Bank

7,862,609

13.11
%

2,399,755

4.00%

3,599,632

6.00
%Tier 1 capital (to average assets)Company

9,138,676

11.95
%

3,058,749

4.00%

3,823,437

5.00
%The Business Bank

7,862,609

10.40
%

3,023,578

4.00%

3,779,472

5.00
%




12




---




Earnings Per Share


The following table is a reconciliation of earnings per common share as computed under SFAS 128. (See note 3).





Income (Numerator)

Shares (Denominator)

Per Share AmountBasic Earnings Per Share:For the nine months ended September 30, 2002Net Income

$
526,467Income available to common stockholders

$
526,467

1,035,706

$
0.51For the nine months ended September 30, 2001Net Income

$
798,467Income available to common stockholders

$
798,467

1,001,913

$
0.80Diluted Earnings Per Share:For the nine months ended September 30, 2002Net Income available to common stockholders

$
526,467

1,035,706Add: Contracts to issue common stockWarrantsexpire 1/27/07




909Optionsexpire 12/31/056/30/08




51,033Weighted-average diluted shares outstanding




51,942Diluted earnings per common share:

$
526,467

1,087,448

$
0.48For the nine months ended September 30, 2001Net Income available to common stockholders

$
798,467

1,001,913Add: Contracts to issue common stockWarrantsexpire 1/27/07




352Optionsexpire 12/31/056/30/08




7,161Weighted-average diluted shares outstanding




7,513Diluted earnings per common share:

$
798,467

1,009,426

$
0.79





Contingencies & Commitments


In the opinion of management, there were no legal matters pending as of September 30, 2002 which would have a material adverse effect on the Companys financial statements.





ITEM 3: CONTROLS AND PROCEDURES





Within the ninety days prior to the filing of this report, the Companys Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Companys disclosure controls and procedures, as defined in
Rule 13s-14 under the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Companys disclosure controls and procedures were adequate. There were no
significant changes (including corrective actions with regard to significant material weaknesses) in the Companys internal controls or in other factors subsequent to the date of the evaluation that could significantly affect those controls.




13




---




PART II. OTHER INFORMATION





ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





|(4) |  | None.
|--- |  | -----




ITEM 6:
EXHIBITS AND REPORTS ON FORM 8-K





| |  | Exhibits
| |  | --------

| |  | 99 (a)  Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
| |  | -----------------------------------------------------------------------------------

| |  | 99 (b)  Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
| |  | -----------------------------------------------------------------------------------




| |  | Reports on Form 8-K
| |  | -------------------

| |  | None.
| |  | -----




SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.





UNITED FINANCIAL BANKING COMPANIES, INC.By:

/s/    HAROLD C. RAUNERHarold C. Rauner President and CEOBy:

/s/    LISA M. PORTERLisa M. Porter Chief Financial Officer





Date:  November 14, 2002




14




---




SECTION 302 CERTIFICATION





I, Harold C. Rauner, President and Chief Executive Officer, certify that:





| | 1. |  | I have reviewed this quarterly report on Form 10-QSB of United Financial Banking Companies, Inc.;
| | -- |  | -------------------------------------------------------------------------------------------------




| | 2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------




| | 6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Date:

November 14, 2002





/s/    HAROLD C. RAUNERHarold C. RaunerPresident and Chief Executive Officer


|
|



15




---




SECTION 302 CERTIFICATION





I, Lisa M. Porter, Chief Financial Officer, certify that:





| | 1. |  | I have reviewed this quarterly report on Form 10-QSB of United Financial Banking Companies, Inc.;
| | -- |  | -------------------------------------------------------------------------------------------------




| | 2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------




| | 6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Date:

November 14, 2002





/s/    LISA M. PORTERLisa M. Porter Chief Financial Officer




16