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United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-QSB



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(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, 2004.



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



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UNITED FINANCIAL BANKING COMPANIES, INC.



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|                       |  |                            
|---------------------- |  | ---------------------------
|A Virginia Corporation |  | IRS Employer Identification
|                       |  | No. 54-1201253             



8399 Leesburg Pike,
Vienna, Virginia 22182

Telephone: (703) 734-0070



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Common Stock $1.00 Par Value

1,039,830 Shares Outstanding

as of September 30, 2004



Transitional Small Business Disclosure Format:    Yes ̈No  x



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Part 1. Financial Information



Item 1: Financial Statements



UNITED FINANCIAL BANKING COMPANIES, INC., AND SUBSIDIARIES

Consolidated Statements of Income and Comprehensive Income

(Unaudited)



|                                                                                          |  |                                 |           |      |                                |           |      |  |   |           |   |  |   |           |  
|----------------------------------------------------------------------------------------- |  | ------------------------------- | --------- | ---- | ------------------------------ | --------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                                                                          |  | Three Months EndedSeptember 30, |           |      | Nine Months EndedSeptember 30, |          
|                                                                                          |  | 2004                            |           | 2003 |                                |           | 2004 |  |   | 2003      |  
|Interest income:                                                                          |  |                                 |           |      |                                |           |      |  |   |           |   |  |   |           |  
|Interest and fees on loans                                                                |  | $                               | 1,972,091 |      | $                              | 1,506,426 |      |  | $ | 5,482,566 |   |  | $ | 4,424,256 |  
|Interest on investment securities                                                         |  |                                 | 87,863    |      |                                | 46,739    |      |  |   | 242,774   |   |  |   | 133,241   |  
|Interest on federal funds sold                                                            |  |                                 | 49,491    |      |                                | 68,564    |      |  |   | 110,630   |   |  |   | 222,128   |  
|Interest on interest-bearing deposits                                                     |  |                                 | 8,262     |      |                                | 4,307     |      |  |   | 18,030    |   |  |   | 11,501    |  
|                                                                                          |  |                                 |           |      |                                |           |      |  |   |           |   |  |   |           |  
|Total interest income                                                                     |  |                                 | 2,117,707 |      |                                | 1,626,036 |      |  |   | 5,854,000 |   |  |   | 4,791,126 |  
|                                                                                          |  |                                 |           |      |                                |           |      |  |   |           |   |  |   |           |  
|Interest expense:                                                                         |  |                                 |           |      |                                |           |      |  |   |           |   |  |   |           |  
|Interest on deposits                                                                      |  |                                 | 425,942   |      |                                | 407,321   |      |  |   | 1,206,262 |   |  |   | 1,258,846 |  
|Interest on short-term borrowings                                                         |  |                                 | 8,604     |      |                                | 14,903    |      |  |   | 26,208    |   |  |   | 31,189    |  
|Interest on long-term debt                                                                |  |                                 | 35,145    |      |                                | 44,922    |      |  |   | 122,714   |   |  |   | 146,889   |  
|                                                                                          |  |                                 |           |      |                                |           |      |  |   |           |   |  |   |           |  
|Total interest expense                                                                    |  |                                 | 469,691   |      |                                | 467,146   |      |  |   | 1,355,184 |   |  |   | 1,436,924 |  
|                                                                                          |  |                                 |           |      |                                |           |      |  |   |           |   |  |   |           |  
|Net interest income                                                                       |  |                                 | 1,648,016 |      |                                | 1,158,890 |      |  |   | 4,498,816 |   |  |   | 3,354,202 |  
|Provision for loan losses                                                                 |  |                                 | 116,174   |      |                                |          |      |  |   | 284,313   |   |  |   | 280,000   |  
|                                                                                          |  |                                 |           |      |                                |           |      |  |   |           |   |  |   |           |  
|Net interest income after provision for loan losses                                       |  |                                 | 1,531,842 |      |                                | 1,158,890 |      |  |   | 4,214,503 |   |  |   | 3,074,202 |  
|                                                                                          |  |                                 |           |      |                                |           |      |  |   |           |   |  |   |           |  
|Noninterest income:                                                                       |  |                                 |           |      |                                |           |      |  |   |           |   |  |   |           |  
|Gain on sale of real estate owned and other earning assets                                |  |                                 |          |      |                                | 31,108    |      |  |   |          |   |  |   | 75,107    |  
|Loan servicing and other fees                                                             |  |                                 | 13,500    |      |                                | 19,697    |      |  |   | 73,137    |   |  |   | 59,783    |  
|Other income                                                                              |  |                                 | 171,110   |      |                                | 109,345   |      |  |   | 513,455   |   |  |   | 311,844   |  
|                                                                                          |  |                                 |           |      |                                |           |      |  |   |           |   |  |   |           |  
|Total noninterest income                                                                  |  |                                 | 184,610   |      |                                | 160,150   |      |  |   | 586,592   |   |  |   | 446,734   |  
|                                                                                          |  |                                 |           |      |                                |           |      |  |   |           |   |  |   |           |  
|Noninterest expense:                                                                      |  |                                 |           |      |                                |           |      |  |   |           |   |  |   |           |  
|Salaries                                                                                  |  |                                 | 667,242   |      |                                | 426,805   |      |  |   | 1,829,086 |   |  |   | 1,248,037 |  
|Employee benefits                                                                         |  |                                 | 109,892   |      |                                | 75,655    |      |  |   | 320,132   |   |  |   | 225,874   |  
|Occupancy                                                                                 |  |                                 | 207,525   |      |                                | 135,866   |      |  |   | 606,784   |   |  |   | 352,275   |  
|Furniture and equipment                                                                   |  |                                 | 75,895    |      |                                | 52,364    |      |  |   | 226,763   |   |  |   | 148,099   |  
|Data processing                                                                           |  |                                 | 59,895    |      |                                | 52,734    |      |  |   | 171,623   |   |  |   | 156,851   |  
|Other insurance                                                                           |  |                                 | 13,727    |      |                                | 11,155    |      |  |   | 34,807    |   |  |   | 30,694    |  
|Real estate owned holding expense                                                         |  |                                 |          |      |                                | 24        |      |  |   |          |   |  |   | 2,603     |  
|Legal                                                                                     |  |                                 | 7,341     |      |                                | 5,311     |      |  |   | 20,865    |   |  |   | 27,261    |  
|FDIC / FICO bond insurance                                                                |  |                                 | 4,748     |      |                                | 3,768     |      |  |   | 13,656    |   |  |   | 10,628    |  
|Other expense                                                                             |  |                                 | 192,913   |      |                                | 168,527   |      |  |   | 605,808   |   |  |   | 469,830   |  
|                                                                                          |  |                                 |           |      |                                |           |      |  |   |           |   |  |   |           |  
|Total noninterest expense                                                                 |  |                                 | 1,339,178 |      |                                | 932,209   |      |  |   | 3,829,524 |   |  |   | 2,672,152 |  
|                                                                                          |  |                                 |           |      |                                |           |      |  |   |           |   |  |   |           |  
|Income before income taxes                                                                |  |                                 | 377,274   |      |                                | 386,831   |      |  |   | 971,571   |   |  |   | 848,784   |  
|Provision for income taxes                                                                |  |                                 | 128,273   |      |                                | 131,645   |      |  |   | 322,526   |   |  |   | 288,587   |  
|                                                                                          |  |                                 |           |      |                                |           |      |  |   |           |   |  |   |           |  
|Net income                                                                                |  | $                               | 249,001   |      | $                              | 255,186   |      |  | $ | 649,045   |   |  | $ | 560,197   |  
|                                                                                          |  |                                 |           |      |                                |           |      |  |   |           |   |  |   |           |  
|Net income per common share:                                                              |  |                                 |           |      |                                |           |      |  |   |           |   |  |   |           |  
|Basic                                                                                     |  | $                               | 0.24      |      | $                              | 0.25      |      |  | $ | 0.62      |   |  | $ | 0.54      |  
|                                                                                          |  |                                 |           |      |                                |           |      |  |   |           |   |  |   |           |  
|Diluted                                                                                   |  | $                               | 0.22      |      | $                              | 0.23      |      |  | $ | 0.58      |   |  | $ | 0.51      |  
|                                                                                          |  |                                 |           |      |                                |           |      |  |   |           |   |  |   |           |  
|Comprehensive Income                                                                      |  |                                 |           |      |                                |           |      |  |   |           |   |  |   |           |  
|                                                                                          |  |                                 |           |      |                                |           |      |  |   |           |   |  |   |           |  
|Net income                                                                                |  | $                               | 249,001   |      | $                              | 255,186   |      |  | $ | 649,045   |   |  | $ | 560,197   |  
|Other comprehensive income, net of tax Unrealized losses on available-for-sale securities |  |                                 | 38,656    |      |                                | (18,548   | )    |  |   | (5,386    | ) |  |   | (18,791   | )
|                                                                                          |  |                                 |           |      |                                |           |      |  |   |           |   |  |   |           |  
|Comprehensive income                                                                      |  | $                               | 287,657   |      | $                              | 236,638   |      |  | $ | 643,659   |   |  | $ | 541,406   |  
|                                                                                          |  |                                 |           |      |                                |           |      |  |   |           |   |  |   |           |  



2



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UNITED FINANCIAL BANKING COMPANIES, INC., AND SUBSIDIARIES

Consolidated Balance Sheets



|                                                                                                                 |  |                   |             |   |                   |   |             |  
|---------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | - | ----------------- | - | ----------- | -
|                                                                                                                 |  | (Unaudited)       |             |   | (Audited)         |  
|                                                                                                                 |  | September 30,2004 |             |   | December 31, 2003 |  
|ASSETS                                                                                                           |  |                   |             |   |                   |   |             |  
|Cash and due from banks                                                                                          |  | $                 | 4,613,359   |   |                   | $ | 4,340,579   |  
|Interest-bearing deposits in other banks                                                                         |  |                   | 2,188,831   |   |                   |   | 2,268,173   |  
|Federal funds sold                                                                                               |  |                   | 6,650,000   |   |                   |   | 3,900,000   |  
|                                                                                                                 |  |                   |             |   |                   |   |             |  
|Total cash and cash equivalents                                                                                  |  |                   | 13,452,190  |   |                   |   | 10,508,752  |  
|                                                                                                                 |  |                   |             |   |                   |   |             |  
|Securities available-for-sale                                                                                    |  |                   | 26,589,812  |   |                   |   | 24,966,285  |  
|Securities held-to-maturity (fair value of $3,481,780 at September 30, 2004 and $6,017,585 at December 31, 2003) |  |                   | 3,503,366   |   |                   |   | 6,035,368   |  
|                                                                                                                 |  |                   |             |   |                   |   |             |  
|Total securities                                                                                                 |  |                   | 30,093,178  |   |                   |   | 31,001,653  |  
|                                                                                                                 |  |                   |             |   |                   |   |             |  
|Loans, net of unearned income of $363,618 in 2004; $317,232 in 2003                                              |  |                   | 124,723,624 |   |                   |   | 99,114,122  |  
|Less: Allowance for loan losses                                                                                  |  |                   | (1,825,601  | ) |                   |   | (1,515,875  | )
|                                                                                                                 |  |                   |             |   |                   |   |             |  
|Net loans                                                                                                        |  |                   | 122,898,023 |   |                   |   | 97,598,247  |  
|Land                                                                                                             |  |                   | 818,910     |   |                   |   | 818,910     |  
|Premises and equipment, net                                                                                      |  |                   | 1,414,325   |   |                   |   | 1,287,762   |  
|Deferred income taxes                                                                                            |  |                   | 637,591     |   |                   |   | 930,187     |  
|Other assets                                                                                                     |  |                   | 1,070,241   |   |                   |   | 784,815     |  
|                                                                                                                 |  |                   |             |   |                   |   |             |  
|Total assets                                                                                                     |  | $                 | 170,384,458 |   |                   | $ | 142,930,326 |  
|                                                                                                                 |  |                   |             |   |                   |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                             |  |                   |             |   |                   |   |             |  
|LIABILITIES                                                                                                      |  |                   |             |   |                   |   |             |  
|Deposits:                                                                                                        |  |                   |             |   |                   |   |             |  
|Demand                                                                                                           |  | $                 | 51,455,769  |   |                   | $ | 34,504,653  |  
|Savings and NOW                                                                                                  |  |                   | 39,491,457  |   |                   |   | 41,947,627  |  
|Money market                                                                                                     |  |                   | 28,299,466  |   |                   |   | 16,562,967  |  
|Time:                                                                                                            |  |                   |             |   |                   |   |             |  
|Under $100,000                                                                                                   |  |                   | 18,142,629  |   |                   |   | 17,999,566  |  
|$100,000 and over                                                                                                |  |                   | 15,587,647  |   |                   |   | 14,217,017  |  
|                                                                                                                 |  |                   |             |   |                   |   |             |  
|Total deposits                                                                                                   |  |                   | 152,976,968 |   |                   |   | 125,231,830 |  
|Short-term borrowings                                                                                            |  |                   | 1,003,711   |   |                   |   | 1,000,000   |  
|Long-term debt                                                                                                   |  |                   | 2,765,883   |   |                   |   | 3,780,155   |  
|Accounts payable and accrued expenses                                                                            |  |                   | 577,813     |   |                   |   | 513,284     |  
|                                                                                                                 |  |                   |             |   |                   |   |             |  
|Total liabilities                                                                                                |  |                   | 157,324,375 |   |                   |   | 130,525,269 |  
|                                                                                                                 |  |                   |             |   |                   |   |             |  
|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 1,039,830 shares in 2004 and 1,038, 637 in 2003  |  |                   | 1,039,830   |   |                   |   | 1,038,637   |  
|Surplus                                                                                                          |  |                   | 16,231,861  |   |                   |   | 16,221,687  |  
|Accumulated deficit                                                                                              |  |                   | (4,197,970  | ) |                   |   | (4,847,015  | )
|Accumulated other comprehensive loss                                                                             |  |                   | (13,638     | ) |                   |   | (8,252      | )
|                                                                                                                 |  |                   |             |   |                   |   |             |  
|Total stockholders equity                                                                                       |  |                   | 13,060,083  |   |                   |   | 12,405,057  |  
|                                                                                                                 |  |                   |             |   |                   |   |             |  
|Total liabilities and stockholders equity                                                                       |  | $                 | 170,384,458 |   |                   | $ | 142,930,326 |  
|                                                                                                                 |  |                   |             |   |                   |   |             |  



3



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UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)



|                                                                                                      |  |                    |             |   |                    |   |             |  
|----------------------------------------------------------------------------------------------------- |  | ------------------ | ----------- | - | ------------------ | - | ----------- | -
|                                                                                                      |  | Nine Months Ended  |            
|                                                                                                      |  | September 30, 2004 |             |   | September 30, 2003 |  
|Cash flows from operating activities:                                                                 |  |                    |             |   |                    |   |             |  
|Net Income                                                                                            |  | $                  | 649,045     |   |                    | $ | 560,197     |  
|Adjustment to reconcile net income to net cash provided by operating activities:                      |  |                    |             |   |                    |   |             |  
|Depreciation & amortization                                                                           |  |                    | 174,836     |   |                    |   | 106,725     |  
|Provision for loan losses                                                                             |  |                    | 284,313     |   |                    |   | 280,000     |  
|Amortization of investment security discount                                                          |  |                    | 61,656      |   |                    |   | 46,473      |  
|Amortization of loan fees and discounts, net                                                          |  |                    | 64,511      |   |                    |   | (73,780     | )
|Net gain on sale of securities                                                                        |  |                    | (22,770     | ) |                    |   |             |  
|Net gain on sale of real estate owned                                                                 |  |                    |            |   |                    |   | (75,107     | )
|Decrease in other assets                                                                              |  |                    | 7,170       |   |                    |   | 96,948      |  
|Decrease in other liabilities                                                                         |  |                    | 64,529      |   |                    |   | 578,410     |  
|                                                                                                      |  |                    |             |   |                    |   |             |  
|Net cash provided by operating activities                                                             |  |                    | 1,283,290   |   |                    |   | 1,519,866   |  
|                                                                                                      |  |                    |             |   |                    |   |             |  
|Cash flows from investing activities:                                                                 |  |                    |             |   |                    |   |             |  
|Loan originations, net of collections - non-bank subsidiaries                                         |  |                    | (15,793     | ) |                    |   |            |  
|Loan originations, net of collections                                                                 |  |                    | (25,632,807 | ) |                    |   | 3,034       |  
|Purchases of securities available-for-sale                                                            |  |                    | (29,974,524 | ) |                    |   | (10,464,972 | )
|Purchases of securities held-for-maturity                                                             |  |                    | (750,000    | ) |                    |   | (36,740,777 | )
|Investment in other real estate owned                                                                 |  |                    |            |   |                    |   | (21,689,648 | )
|Proceeds received from sale of securities available-for-sale                                          |  |                    | 522,280     |   |                    |   | (913,978    | )
|Proceeds received from maturity of securities available-for-sale                                      |  |                    | 27,784,263  |   |                    |   | 27,537,627  |  
|Proceeds received from maturity of securities held to maturity                                        |  |                    | 3,282,184   |   |                    |   | 21,445,299  |  
|Proceeds from real estate owned                                                                       |  |                    |            |   |                    |   | 1,079,300   |  
|Purchases of premises and equipment                                                                   |  |                    | (301,399    | ) |                    |   | (393,324    | )
|                                                                                                      |  |                    |             |   |                    |   |             |  
|Net cash used in investing activities                                                                 |  |                    | (25,085,796 | ) |                    |   | (20,137,439 | )
|                                                                                                      |  |                    |             |   |                    |   |             |  
|Cash flow from financing activities:                                                                  |  |                    |             |   |                    |   |             |  
|Net increase in demand deposits, savings accounts, NOW accounts and money market accounts             |  |                    | 26,231,445  |   |                    |   | 24,116,164  |  
|Certificates of deposit sold (matured), net                                                           |  |                    | 1,513,693   |   |                    |   | 1,786,607   |  
|Net change in short-term borrowings                                                                   |  |                    | 3,711       |   |                    |   | (10,009     | )
|Net payments on long-term debt                                                                        |  |                    | (1,014,272  | ) |                    |   |            |  
|Proceeds from sale of common stock                                                                    |  |                    | 11,367      |   |                    |   | 645         |  
|                                                                                                      |  |                    |             |   |                    |   |             |  
|Net cash provided by financing activities                                                             |  |                    | 26,745,944  |   |                    |   | 25,893,407  |  
|                                                                                                      |  |                    |             |   |                    |   |             |  
|Net increase in cash and cash equivalents                                                             |  |                    | 2,943,438   |   |                    |   | 7,275,834   |  
|Cash and cash equivalents at beginning of the period                                                  |  |                    | 10,508,752  |   |                    |   | 14,042,495  |  
|                                                                                                      |  |                    |             |   |                    |   |             |  
|Cash and cash equivalents at end of the period                                                        |  | $                  | 13,452,190  |   |                    | $ | 21,318,329  |  
|                                                                                                      |  |                    |             |   |                    |   |             |  
|Supplemental disclosures of cash flow information:                                                    |  |                    |             |   |                    |   |             |  
|Cash paid during the period for:                                                                      |  |                    |             |   |                    |   |             |  
|Interest on deposits and other borrowings                                                             |  | $                  | 1,348,153   |   |                    | $ | 1,444,357   |  
|Income taxes                                                                                          |  |                    | 179,000     |   |                    |   |            |  
|                                                                                                      |  |                   
|Noncash items:                                                                                        |  |                    |             |   |                    |   |             |  
|Effect on stockholders equity of an unrealized loss on debt and equity securities available-for-sale |  | $                  | (5,386      | ) |                    | $ | (18,791     | )
|                                                                                                      |  |                   
|Reclassification of long-term debt to short-term debt                                                 |  | $                  |            |   |                    | $ | 1,013,495   |  



4



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Notes to Consolidated Financial Statements



|Note 1 - | The unaudited consolidated interim financial statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America and
the instructions to Securities and Exchange Commissions Form 10-QSB. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial position and results of
operations for the periods presented have been included. The consolidated financial statements should be read in conjunction with the financial statements and notes contained in the companys Annual Report on Form 10-KSB for the year ended
December 31, 2003. The results for the nine months ended September 30, 2004 are not necessarily indicative of the results for the entire fiscal year ending December 31, 2004.
|-------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|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.
|-------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 Statement of Financial Accounting Standard (SFAS) 123,
Accounting for Stock-Based Compensation and, as amended by SFAS 148, as follows. The fair value of each grant is estimated at the grant date using the Black-Scholes option-pricing model.



|                                                                                                                    |  |                    |         |   |                   |   |         |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                                                    |  | Three Months Ended |         |   | Nine Months Ended |  
|September 30,                                                                                                       |  | 2004               |         |   | 2003              |   |         | 2004 |  |   | 2003    |  
|Net income, as reported                                                                                             |  | $                  | 249,001 |   |                   | $ | 255,186 |      |  | $ | 649,045 |   |  | $ | 560,197 |  
|Deduct: total stock-based employee compensation expense determined based on fair value method of awards, net of tax |  |                    |        |   |                   |   |        |      |  |   | (24,939 | ) |  |   | (21,765 | )
|                                                                                                                    |  |                    |         |   |                   |   |         |      |  |   |         |   |  |   |         |  
|Pro forma net income                                                                                                |  | $                  | 249,001 |   |                   | $ | 255,186 |      |  | $ | 624,106 |   |  | $ | 538,432 |  
|                                                                                                                    |  |                    |         |   |                   |   |         |      |  |   |         |   |  |   |         |  
|Basic earnings per share:                                                                                           |  |                    |         |   |                   |   |         |      |  |   |         |   |  |   |         |  
|As reported                                                                                                         |  | $                  | 0.24    |   |                   | $ | 0.25    |      |  | $ | 0.62    |   |  | $ | 0.54    |  
|Pro forma                                                                                                           |  | $                  | 0.24    |   |                   | $ | 0.25    |      |  | $ | 0.59    |   |  | $ | 0.51    |  
|                                                                                                                    |  |                    |         |  
|Diluted earnings per share:                                                                                         |  |                    |         |   |                   |   |         |      |  |   |         |   |  |   |         |  
|As reported                                                                                                         |  | $                  | 0.22    |   |                   | $ | 0.23    |      |  | $ | 0.58    |   |  | $ | 0.51    |  
|Pro forma                                                                                                           |  | $                  | 0.22    |   |                   | $ | 0.23    |      |  | $ | 0.55    |   |  | $ | 0.48    |  
|                                                                                                                    |  |                    |         |  
|Assumptions                                                                                                         |  |                    |         |   |                   |   |         |      |  |   |         |   |  |   |         |  
|Risk-free interest rate                                                                                             |  |                    | 3.33    | % |                   |   | 3.34    | %    |  |   | 3.33    | % |  |   | 3.34    | %
|Dividend yield                                                                                                      |  |                    |        |   |                   |   |        |      |  |   |        |   |  |   |        |  
|Volatility factor                                                                                                   |  |                    | 10.00   | % |                   |   | 10.00   | %    |  |   | 10.00   | % |  |   | 10.00   | %
|Weighted average expected life (years)                                                                              |  |                    | 7.0     |   |                   |   | 7.5     |      |  |   | 7.0     |   |  |   | 7.5     |  





5



---

|Note 3 - | Basic earnings per share (EPS) excludes dilution, and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding
during the period. Diluted EPS 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. The following
table is a reconciliation of numerators and denominators used in the EPS calculations.
|-------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                            |  |                    |           |                   |   |           |  |      |           |  |   |          
|------------------------------------------- |  | ------------------ | --------- | ----------------- | - | --------- |  | ---- | --------- |  | - | ---------
|                                            |  | Three Months Ended |           | Nine Months Ended
|September 30,                               |  | 2004               |           | 2003              |   | 2004      |  | 2003
|Basic earnings per common share:            |  |                    |           |                   |   |           |  |      |           |  |   |          
|Net income available to common stockholders |  | $                  | 249,001   |                   | $ | 255,186   |  | $    | 649,045   |  | $ | 560,197  
|Weighted average common shares outstanding  |  |                    | 1,039,182 |                   |   | 1,037,038 |  |      | 1,038,923 |  |   | 1,037,012
|                                            |  |                    |           |                   |   |           |  |      |           |  |   |          
|Basic earnings per common share             |  | $                  | 0.24      |                   | $ | 0.25      |  | $    | 0.62      |  | $ | 0.54     
|                                            |  |                    |           |                   |   |           |  |      |           |  |   |          
|Diluted earnings per common share:          |  |                    |           |                   |   |           |  |      |           |  |   |          
|Net income available to common stockholders |  | $                  | 249,001   |                   | $ | 255,186   |  | $    | 649,045   |  | $ | 560,197  
|                                            |  |                    |           |                  
|Weighted average common shares outstanding  |  |                    | 1,039,182 |                   |   | 1,037,038 |  |      | 1,038,923 |  |   | 1,037,012
|Common share equivalents for stock options  |  |                    | 78,984    |                   |   | 66,110    |  |      | 78,984    |  |   | 66,110   
|                                            |  |                    |           |                   |   |           |  |      |           |  |   |          
|                                            |  |                    | 1,118,166 |                   |   | 1,103,148 |  |      | 1,117,907 |  |   | 1,103,122
|                                            |  |                    |           |                   |   |           |  |      |           |  |   |          
|Diluted earnings per common share           |  | $                  | 0.22      |                   | $ | 0.23      |  | $    | 0.58      |  | $ | 0.51     
|                                            |  |                    |           |                   |   |           |  |      |           |  |   |          



|Note 4 - | Accounting principles generally accepted in the United States of America usually 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.
|-------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Note 5 - | Certain reclassifications have been made to the prior year financial statements to conform to the 2004 presentation. These reclassifications had no effect on previously reported net
income.
|-------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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,
2004 as Compared to the Nine Months Ended September 30, 2003



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), Business Venture Capital Incorporated
(BVCI) and United Facilities LLC (UFLLC), and is presented on a consolidated basis. UFBC reported net income of $649,045 for the nine-month period ended September 30, 2004. This compares with net income of $560,917 for the same period of
2003. Basic earnings per share were $.62 for the nine months ended September 30, 2004, compared to $.54 for the nine months of 2003.



Net Interest Income



For the nine-month period ended September 30, 2004, net interest income increased $1,144,614, or 34.1%, from $3,354,202 at September 30, 2003 to
$4,498,800 at September 30, 2004 (Consolidated Statements of Income and Comprehensive Income table). The increase was attributable to an increased volume of earning assets. Average total earning assets increased $23,432,438, or 19.8%, from
$118,460,500 at September 30, 2003 to $141,892,938 at September 30, 2004 (Consolidated Average Balancestable). Contributing $1,668,015 of earnings, the increased volume of the loan portfolio predominately accounted for the rise in net
interest income (Analysis of the Changes in the Components of Net Interest Income table). The same factors impacted the quarter ended September 30, 2004 compared to the quarter ended September 30, 2003.



As shown in the Analysis of the Changes in the Components of Net Interest
Income table, net interest income was impacted by both rate and volume. The compressed rate environment suppressed interest income on earning assets by $583,503 during the first nine months of 2004 when compared to 2003. However, earnings lost
due to rate were offset by the favorable contribution from the increased volume of total earning assets (Rate Volume Variance table). The increased volume of earning assets contributed $1,646,377 to earnings when comparing the nine month
periods ended September 30, 2004 and 2003 (Rate Volume Variance table). The combined effect of the rate and volume variances resulted in an increase of $1,062,874 in interest income (or earning assets) from $4,791,126 at September 30, 2003 to
$5,854,000 at September 30, 2004.



Total interest expense
decreased $81,740, or 5.7%, from $1,436,924 at September 30, 2003 to $1,355,184 at September 30, 2004 (Consolidated Statements of Income and Comprehensive Income table). As shown in the Analysis of the Changes in the Components of Net
Interest Income table, the compressed rate environment during the past year favorably impacted total interest expense and more than offset the increased expense due to the increased volume of interest-bearing liabilities. During the first nine
months of 2003, compared to the first nine months of 2004, total interest expense increased $76,260 due to volume, while rates decreased total interest expense by $158,000. Average total interest-bearing liabilities increased $12,109,801, or 12.6%,
from $83,843,529 at September 30, 2003 to $95,953,330 at September 30, 2004 (Consolidated Average Balances table).



7



---

UNITED FINANCIAL BANKING COMPANIES, INC.

CONSOLIDATED AVERAGE BALANCES/NET INTEREST ANALYSIS/YIELDS AND RATES



|                                           |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  
|------------------------------------------ |  | ------------------------- | ----------- | - | ------------------ | - | ---------- |  | ---- | ------------------ |  | - | ----------- | - | ---------- | - | --------- |  | ---- | -
|                                           |  | For the Nine Months Ended |            
|                                           |  | September 30, 2004        |             |   | September 30, 2003 |  
|                                           |  | AverageBalance (1)        |             |   | Interest           |   | Yield/Rate |  |      | AverageBalance (1) |  |   | Interest    |   | Yield/Rate |  
|ASSETS                                     |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  
|Earning assets:                            |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  
|Loans:                                     |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  
|Commercial                                 |  | $                         | 83,091,528  |   |                    | $ | 4,084,338  |  | 6.55 | %                  |  | $ | 60,810,058  |   |            | $ | 3,257,103 |  | 7.16 | %
|Real estate construction                   |  |                           | 15,429,867  |   |                    |   | 784,025    |  | 6.77 | %                  |  |   | 9,155,338   |   |            |   | 570,530   |  | 8.33 | %
|Real estate mortgage                       |  |                           | 7,865,021   |   |                    |   | 382,395    |  | 6.48 | %                  |  |   | 6,425,563   |   |            |   | 299,643   |  | 6.23 | %
|Installment                                |  |                           | 5,545,290   |   |                    |   | 231,808    |  | 5.57 | %                  |  |   | 5,254,371   |   |            |   | 296,980   |  | 7.56 | %
|                                           |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  
|Total loans                                |  |                           | 111,931,706 |   |                    |   | 5,482,566  |  | 6.52 | %                  |  |   | 81,645,330  |   |            |   | 4,424,256 |  | 7.25 | %
|                                           |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  
|Interest-bearing deposits                  |  |                           | 2,226,976   |   |                    |   | 18,030     |  | 1.08 | %                  |  |   | 1,639,593   |   |            |   | 11,501    |  | 0.94 | %
|Federal funds sold                         |  |                           | 13,404,117  |   |                    |   | 110,630    |  | 1.10 | %                  |  |   | 26,363,390  |   |            |   | 222,128   |  | 1.13 | %
|Investment securities (2)                  |  |                           | 14,330,139  |   |                    |   | 242,774    |  | 2.26 | %                  |  |   | 8,812,187   |   |            |   | 133,241   |  | 2.02 | %
|                                           |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  
|Total earning assets                       |  |                           | 141,892,938 |   |                    | $ | 5,854,000  |  | 5.50 | %                  |  |   | 118,460,500 |   |            | $ | 4,791,126 |  | 5.41 | %
|                                           |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  
|Noninterest-earning assets                 |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  
|Cash and due from banks                    |  |                           | 5,383,290   |   |                    |   |            |  |      |                    |  |   | 4,507,667   |   |            |   |           |  |      |  
|Other assets                               |  |                           | 3,503,759   |   |                    |   |            |  |      |                    |  |   | 3,631,032   |   |            |   |           |  |      |  
|Allowance for loan losses                  |  |                           | (1,634,773  | ) |                    |   |            |  |      |                    |  |   | (1,435,209  | ) |            |   |           |  |      |  
|                                           |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  
|Total assets                               |  | $                         | 149,145,214 |   |                    |   |            |  |      |                    |  | $ | 125,163,990 |   |            |   |           |  |      |  
|                                           |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  
|LIABILITIES AND STOCKHOLDERS EQUITY       |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  
|Interest-bearing liabilities:              |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  
|Interest-bearing deposits:                 |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  
|Savings and NOW accounts                   |  | $                         | 40,259,072  |   |                    | $ | 458,599    |  | 1.52 | %                  |  | $ | 26,225,614  |   |            | $ | 353,160   |  | 1.80 | %
|Money market accounts                      |  |                           | 20,610,116  |   |                    |   | 139,871    |  | 0.90 | %                  |  |   | 16,408,089  |   |            |   | 121,654   |  | 0.99 | %
|Time:                                      |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  
|Under $100,000                             |  |                           | 17,538,213  |   |                    |   | 354,594    |  | 2.69 | %                  |  |   | 19,405,915  |   |            |   | 460,251   |  | 3.17 | %
|$100,000 and over                          |  |                           | 13,142,000  |   |                    |   | 253,198    |  | 2.57 | %                  |  |   | 16,015,843  |   |            |   | 323,781   |  | 2.70 | %
|                                           |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  
|Total interest-bearing deposits            |  |                           | 91,549,401  |   |                    |   | 1,206,262  |  | 1.76 | %                  |  |   | 78,055,461  |   |            |   | 1,258,846 |  | 2.27 | %
|Short-term borrowings                      |  |                           | 1,030,182   |   |                    |   | 26,208     |  | 3.39 | %                  |  |   | 1,468,020   |   |            |   | 31,189    |  | 2.84 | %
|Long-term debt                             |  |                           | 3,373,747   |   |                    |   | 122,714    |  | 4.85 | %                  |  |   | 4,320,048   |   |            |   | 146,889   |  | 4.55 | %
|                                           |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  
|Total interest-bearing liabilities         |  |                           | 95,953,330  |   |                    | $ | 1,355,184  |  | 1.88 | %                  |  |   | 83,843,529  |   |            | $ | 1,436,924 |  | 2.29 | %
|                                           |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  
|Non interest-bearing liabilities:          |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  
|Demand deposits                            |  |                           | 39,869,143  |   |                    |   |            |  |      |                    |  |   | 28,917,971  |   |            |   |           |  |      |  
|Other liabilities                          |  |                           | 662,237     |   |                    |   |            |  |      |                    |  |   | 583,026     |   |            |   |           |  |      |  
|Stockholders equity                       |  |                           | 12,660,504  |   |                    |   |            |  |      |                    |  |   | 11,819,464  |   |            |   |           |  |      |  
|                                           |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  
|Total liabilities and stockholders equity |  | $                         | 149,145,214 |   |                    |   |            |  |      |                    |  | $ | 125,163,990 |   |            |   |           |  |      |  
|                                           |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  
|Net interest income                        |  |                           |             |   |                    | $ | 4,498,816  |  |      |                    |  |   |             |   |            | $ | 3,354,202 |  |      |  
|                                           |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  
|Net interest margin (3)                    |  |                           |             |   |                    |   |            |  | 4.22 | %                  |  |   |             |   |            |   |           |  | 3.79 | %
|                                           |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  
|Net interest spread (4)                    |  |                           |             |   |                    |   |            |  | 3.61 | %                  |  |   |             |   |            |   |           |  | 3.12 | %
|                                           |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  
|Fees included in loan income               |  |                           |             |   |                    | $ | 264,640    |  |      |                    |  |   |             |   |            | $ | 192,503   |  |      |  
|                                           |  |                           |             |   |                    |   |            |  |      |                    |  |   |             |   |            |   |           |  |      |  

---

|(1) | Average balances for the periods presented are calculated on a monthly basis. Nonaccruing loans are included in the average loan balances.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------

|(2) | 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 stockholders equity.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Net interest income divided by total earning assets.
|--- | ----------------------------------------------------

|(4) | Average rate earned on total earning assets less average rate paid for interest-bearing liabilities.
|--- | ----------------------------------------------------------------------------------------------------



8



---

The Banks deposit mix also contributed to constraining interest expense and increasing net interest
income during the comparable period. As shown in the Consolidated Average Balances table, the growth of average noninterest-bearing, or demand deposits, increased $10,951,172, or 37.9%, from $28,917,971 at September 30, 2003 to $39,869,143 at
September 30, 2004. Additionally, the average balance of low cost accounts of savings, NOW and money market increased $18,235,485 from September 30, 2003 to September 30, 2004. The concurrence of the growth in such deposits during the lower rate
environment resulted in a decreased cost of total interest-bearing liabilities, 41 basis points, from 2.29% at September 30, 2003 to 1.88% at September 30, 2004 (Consolidated Average Balances table).



Analysis of the Changes in the Components of Net Interest Income



|                                    |  |                         |           |   |                |   |          |   |  |   |           |  
|----------------------------------- |  | ----------------------- | --------- | - | -------------- | - | -------- | - |  | - | --------- | -
|For Nine Months Ended September 30, |  | 2004 Compared to 2003   |          
|                                    |  | TotalIncrease(Decrease) |           |   | Change Due To: |  
|                                    |  | Rate                    |           |   | Volume         |  
|Interest income:                    |  |                         |           |   |                |   |          |   |  |   |           |  
|Loans:                              |  |                         |           |   |                |   |          |   |  |   |           |  
|Commercial                          |  | $                       | 947,346   |   |                | $ | (246,092 | ) |  | $ | 1,193,438 |  
|Real estate - construction          |  |                         | 213,495   |   |                |   | (177,513 | ) |  |   | 391,008   |  
|Real estate - mortgage              |  |                         | 82,752    |   |                |   | 15,626   |   |  |   | 67,126    |  
|Installment                         |  |                         | (185,283  | ) |                |   | (201,726 | ) |  |   | 16,443    |  
|                                    |  |                         |           |   |                |   |          |   |  |   |           |  
|Total loans                         |  |                         | 1,058,310 |   |                |   | (609,705 | ) |  |   | 1,668,015 |  
|                                    |  |                         |          
|Interest-bearing deposits           |  |                         | 6,529     |   |                |   | 2,409    |   |  |   | 4,120     |  
|Federal funds sold                  |  |                         | (111,498  | ) |                |   | (2,308   | ) |  |   | (109,190  | )
|Investment securities               |  |                         | 109,533   |   |                |   | 26,101   |   |  |   | 83,432    |  
|                                    |  |                         |           |   |                |   |          |   |  |   |           |  
|Total interest income               |  |                         | 1,062,874 |   |                |   | (583,503 | ) |  |   | 1,646,377 |  
|                                    |  |                         |           |   |                |   |          |   |  |   |           |  
|Interest expense:                   |  |                         |           |   |                |   |          |   |  |   |           |  
|Savings and NOW accounts            |  |                         | 105,439   |   |                |   | (83,539  | ) |  |   | 188,978   |  
|Money market accounts               |  |                         | 18,217    |   |                |   | (12,938  | ) |  |   | 31,155    |  
|Time:                               |  |                         |           |   |                |   |          |   |  |   |           |  
|Under $100,000                      |  |                         | (105,657  | ) |                |   | (61,361  | ) |  |   | (44,296   | )
|$100,000 and over                   |  |                         | (70,583   | ) |                |   | (12,485  | ) |  |   | (58,098   | )
|Short-term borrowings               |  |                         | (4,981    | ) |                |   | 4,321    |   |  |   | (9,302    | )
|Long-term debt                      |  |                         | (24,175   | ) |                |   | 8,001    |   |  |   | (32,176   | )
|                                    |  |                         |           |   |                |   |          |   |  |   |           |  
|Total interest expense              |  |                         | (81,740   | ) |                |   | (158,000 | ) |  |   | 76,260    |  
|                                    |  |                         |           |   |                |   |          |   |  |   |           |  
|Net interest income                 |  | $                       | 1,144,614 |   |                | $ | (425,503 | ) |  | $ | 1,570,117 |  
|                                    |  |                         |           |   |                |   |          |   |  |   |           |  



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



9



---

impaired loans. Qualitative factors include: levels and trends in delinquencies and non-accruals, trends in volumes and
terms of loans, effects of any changes in lending policies, the experience, ability and depth of management, national and local economic trends and conditions, concentrations of credit, quality of the Companys loan review system and regulatory
requirements. The total allowance required thus changes as each factor is increased or decreased due to its particular circumstance, as the various types and categories of loans change as a percentage of total loans and as specific allowances are
required due to an increase in impaired loans.



Provision for
loan loss expense increased $116,174 from 2003 to 2004 when comparing the three months ended September 30th and increased $4,313, or 1.5%, from $280,000 for the nine months ended September 30, 2003 to $284,313 for the nine months ended September 30,
2004. Timing, general risks inherent in the loan portfolio and growth that impacts various inherent risk factors account for the three and nine month variances between the 2004 and 2003 provision for loan loss expense.



Noninterest Income



Total noninterest income increased $139,858, or 31.3%, during the nine
months ended September 30, 2003 compared to the nine months ended September 30, 2004. The increase was attributable to other income that increased $201,611, or 64.6%, when comparing the nine months ended September 30, 2003 and 2004. Three items,
totaling $221,418, primarily accounted for the increase: gain on the sale of a security, $22,770; gains from the sales of mortgages, $71,006; and fees, net of cost, from the title subsidiary, $127,642. The gains from the three items also accounted
for the increase in other income when comparing the three months ended September 30, 2003 and 2004. During the three months ended September 30, 2003, BVCI had gains from the sale of real estate owned. All of the Companys real estate owned was
sold during 2003 and, therefore, no income from the sale of real estate owned is reported during 2004.



Noninterest Expense



Total noninterest expense increased $1,157,372, or 43.3%, during the nine months ended September 30, 2003 compared to the nine months ended September 30, 2004. The increase was primarily attributable to additional staffing to enhance asset
growth and business expansion. Salaries and employee benefits increased $675,375, or 45.8%, during the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003. Growth and expansion expenses such as occupancy,
furniture and equipment and advertising expense also contributed to the increase. Occupancy, furniture and equipment and advertising expense increased $383,578, or 73.9%, during the first nine months of 2004 compared to the first nine months of
2003. The same factors impacted the increased expense when comparing the quarters ended September 30, 2003 and 2004.



Income Taxes



The provision for income taxes increased $33,939, or 11.8%, from $288,587 at September 30, 2003 to $322,526 at September 30, 2004. Income tax expense was
accrued at the effective statutory rate of 34.0%, adjusted for certain permanent differences that vary between periods. The increase when comparing the nine months ended September 30 and the decrease when comparing the three month period ended
September 30 were both attributable to earnings.



B. Financial Condition
as of September 30, 2004



General



During the first nine months of 2004, the Bank increased its professional
staff to promote sound growth. In aggregate, new staff have over eighty-five years of banking experience. The additional staff contributed to asset growth in the third quarter, and is expected to contribute to asset growth in the fourth quarter of
2004, but to negatively impact earnings in the third and fourth quarters of 2004.



10



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Assets



Total assets increased $27,454,132 or 19.2% during the first nine months of 2004. The increase was primarily attributable to an increased volume of
deposits that were invested in loans. The balance of available-for-sale investment securities was inflated on the balance sheet at September 30, 2004 and December 31, 2003. For tax purposes, the Bank purchased an overnight government security of
$15,000,000 on September 30, 2004 and $15,000,000 on December 31, 2003. The average balance of investment securities totaled $14,330,139 for the nine month period ended September 30, 2004 and $10,362,012 for the year ended December 31, 2003.



Loans



Loans, net of unearned income, increased $25,609,502, or 25.8%, from $99,114,122 at December
31, 2003 to $124,723,624 at September 30, 2004. The growth was funded by the increased volume of deposits during the first nine months of 2004.



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) SFAS 5, Accounting for Contingencies, that requires that losses be accrued when they are probable of occurring and estimable and (ii) SFAS 114, Accounting by Creditors for Impairment of a Loan as
amended by SFAS 118, Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosure, that requires that losses be accrued based on the differences between the value of the collateral, present value of future cash
flows or values that are observable in the secondary market and the loan balance.



A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Other factors considered by the Board of Directors and management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments
when due. The Board of Directors and management determine the significance of each factor and determine 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 the Board of Directors and 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.



At September 30, 2004 and December 31, 2003, the allowance for loan losses was $1,825,601 or 1.5% and $1,515,875 or 1.5%,
respectively, of total loans. Impaired loans, at September 30, 2004, totaled $178,499, of which, $6,242 was held by BVCI, a wholly-owned subsidiary and $172,257 was held by the Bank. This compares to a balance of $33,457 at December 31, 2003, of
which $7,128 was held by BVCI and $26,329 was held by the Bank. Of the impaired loans outstanding at September 30, 2004 and December 31, 2003, non-accrual loans totaled $178,499 and $33,457, respectively. There were no charge-offs and four
recoveries totaling $25,413 during the nine months ended September 30, 2004 in comparison to four charge-offs totaling $28,176 and one recovery totaling $11,793 during the same period of 2003.



11



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Premises and Equipment



Premises and equipment, net increased $126,563 or 9.8% during the nine
months since December 31, 2003. The increase was due to capital additions resulting from renovations to the Tysons headquarters and to the Vienna branch office.



Deferred Tax Asset



The deferred income tax asset primarily results from net operating loss carryforwards, and differences between bad debts deductible for income tax
purposes and those reflected in the financial statements. Using factors such as the Companys historical earnings performance, growth potential, the local and national economy and market competition, management determined that it was more
likely than not that the Company will utilize the amounts available at September 30, 2004.



Deposits



During
the first nine months of 2004, management continued to focus on maintaining a deposit mix prominently consisting of core deposits. Core deposits consist of demand, savings, NOW and money market accounts, and are generally less costly and more stable
than certificates of deposits. Core deposits increased $26,231,448, or 28.2%, from $93,015,247at December 31, 2003 to $119,246,692 at September 30, 2004. The changes since December 31, 2003 were as follows: demand deposits (noninterest-bearing) -
$16,951,116 or 49.1%, money market deposits - $11,736,499 or 70.8% and savings and NOW deposits - ($2,456,170) or (5.9)%.



Other Liabilities and Equity



Short-term borrowings and debt consists of $3,000,000 of outstanding advances from the Federal Home Loan Bank of Atlanta (FHLBA) and $769,594 from a
financial institution. The FHLBA advances have been used to fund certain lending programs. $1,000,000 of the FHLBA advances outstanding at December 31, 2003 matured and were paid during June 2004. The $769,594 was used to partially fund the purchase
of the Reston branch. Stockholders equity increased $655,026, or 5.3% during the nine months ended September 30, 2004 when compared to the year ended December 31, 2003. During the first nine months of 2004, earnings primarily accounted for the
variance 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 20.8% of total assets at September 30, 2004 compared to 28.5% at December 31, 2003 (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, U.S. Treasury Notes, mutual funds, 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.



12



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At September 30, 2004, the Banks investment portfolio consisted of the following:



|                           |  |                    |            |                  |   |          
|-------------------------- |  | ------------------ | ---------- | ---------------- | - | ---------
|                           |  | Available-for-Sale |            | Held-to-Maturity
|U.S. Government Agency     |  | $                  | 20,447,974 |                  | $ | 3,498,568
|U.S. Treasury              |  |                    | 4,443,934  |                  |   |         
|Mortgage-backed Securities |  |                    | 806,224    |                  |   | 4,798    
|Mutual Funds               |  |                    | 18,079     |                  |   |         
|Corporate Debt Securities  |  |                    | 565,451    |                  |   |         
|Equity                     |  |                    | 308,150    |                  |   |         
|                           |  |                    |            |                  |   |          
|Total                      |  | $                  | 26,589,812 |                  | $ | 3,503,366
|                           |  |                    |            |                  |   |          



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 Bank to maintain minimum amounts and ratios of Total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. The Federal Reserves capital guidelines apply to the Company at such
time as it has total assets equal to $150,000,000 or more, it has public debt, or it engages in certain highly leveraged activities. At September 30, 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, 2003, that management believes would result in the Bank not being well capitalized.



|                                         |  |            |  |       |                                       |  |            |                                 |       |   |  |            |  |       |  
|---------------------------------------- |  | ---------- |  | ----- | ------------------------------------- |  | ---------- | ------------------------------- | ----- | - |  | ---------- |  | ----- | -
|                                         |  | Actual     |  |       | Required for CapitalAdequacy Purposes |  |            | Required To Be Well Capitalized |      
|                                         |  | Amount     |  | Ratio |                                       |  | Amount     |                                 | Ratio |   |  | Amount     |  | Ratio |  
|As of September 30, 2004:                |  |            |  |       |                                       |  |            |                                 |       |   |  |            |  |       |  
|                                         |  |            |  |       |                                       | 
|Total capital (to risk-weighted assets)  |  |            |  |       |                                       |  |            |                                 |       |   |  |            |  |       |  
|Company                                  |  | 14,383,608 |  | 11.20 | %                                     |  | 10,270,408 |                                 | 8.00  | % |  | 12,838,010 |  | 10.00 | %
|The Business Bank                        |  | 12,963,331 |  | 10.27 | %                                     |  | 10,099,588 |                                 | 8.00  | % |  | 12,624,485 |  | 10.00 | %
|Tier 1 capital (to risk-weighted assets) |  |            |  |       |                                       |  |            |                                 |       |   |  |            |  |       |  
|Company                                  |  | 12,776,130 |  | 9.95  | %                                     |  | 5,135,204  |                                 | 4.00  | % |  | 7,702,806  |  | 6.00  | %
|The Business Bank                        |  | 11,382,253 |  | 9.02  | %                                     |  | 5,049,794  |                                 | 4.00  | % |  | 7,574,691  |  | 6.00  | %
|Tier 1 capital (to average assets)       |  |            |  |       |                                       |  |            |                                 |       |   |  |            |  |       |  
|Company                                  |  | 12,776,130 |  | 8.08  | %                                     |  | 6,326,770  |                                 | 4.00  | % |  | 7,908,462  |  | 5.00  | %
|The Business Bank                        |  | 11,382,253 |  | 7.42  | %                                     |  | 6,133,062  |                                 | 4.00  | % |  | 7,666,327  |  | 5.00  | %
|                                         |  |            |  |       |                                       | 
|As of September 30, 2003:                |  |            |  |       |                                       |  |            |                                 |       |   |  |            |  |       |  
|                                         |  |            |  |       |                                       | 
|Total capital (to risk-weighted assets)  |  |            |  |       |                                       |  |            |                                 |       |   |  |            |  |       |  
|Company                                  |  | 12,407,155 |  | 13.89 | %                                     |  | 7,144,169  |                                 | 8.00  | % |  | 8,930,211  |  | N/A   |  
|The Business Bank                        |  | 11,078,370 |  | 12.72 | %                                     |  | 6,968,160  |                                 | 8.00  | % |  | 8,710,201  |  | 10.00 | %
|Tier 1 capital (to risk-weighted assets) |  |            |  |       |                                       |  |            |                                 |       |   |  |            |  |       |  
|Company                                  |  | 11,285,951 |  | 12.64 | %                                     |  | 3,572,084  |                                 | 4.00  | % |  | 5,358,126  |  | N/A   |  
|The Business Bank                        |  | 9,984,366  |  | 11.46 | %                                     |  | 3,484,080  |                                 | 4.00  | % |  | 5,226,120  |  | 6.00  | %
|Tier 1 capital (to average assets)       |  |            |  |       |                                       |  |            |                                 |       |   |  |            |  |       |  
|Company                                  |  | 11,285,951 |  | 8.60  | %                                     |  | 5,250,758  |                                 | 4.00  | % |  | 6,563,447  |  | N/A   |  
|The Business Bank                        |  | 9,984,366  |  | 7.68  | %                                     |  | 5,200,570  |                                 | 4.00  | % |  | 6,500,713  |  | 5.00  | %



13



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ITEM 3: CONTROLS AND PROCEDURES



The Companys management, under the supervision and with the participation of the Companys Chief Executive
Officer and Chief Financial Officer, evaluated, as of the last day of the period covered by this report, the effectiveness of the design and operation of the Companys disclosure controls and procedures, as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures were adequate. There were no changes in the Companys
internal control over financial reporting (as defined in Rule 13a-15 under the Securities Act of 1934) during the nine months ended September 30, 2004 that has materially affected, or is reasonably likely to materially affect, the Companys
internal control over financial reporting.



PART II. OTHER
INFORMATION



ITEM 1 - LEGAL PROCEEDINGS



In the opinion of management, there were no legal matters pending as
of September 30, 2004 that would have a material adverse effect on the Companys financial statements.



ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



(a) Sales of Unregistered Securities. None.

(b) Use of Proceeds. Not Applicable.

(c) Small Business Issuer Purchases of Securities. None.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



None.



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



None.



ITEM 5. OTHER INFORMATION



(a) Information which Should have Been Reported on Form 8-K. None.

(b) Material Changes to Procedures for Director Nomination by Shareholders. None.



ITEM 6: EXHIBITS



| | (a) | Exhibits
| | --- | --------



31 (a)    Section 302 Certification of President and CEO

31 (b)    Section 302 Certification of Chief Financial Officer

32
(a)    Section 906 Certification of President and CEO

32 (b)    Section 906 Certification of Chief
Financial Officer



14



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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.
|                        |  |                                         
|Date: November 15, 2004 |  | By:                                      |  | / s / HAROLD C. RAUNER 
|                        |  |                                          |  | Harold C. Rauner       
|                        |  |                                          |  | President and CEO      
|                        |  |                                         
|Date: November 15, 2004 |  | By:                                      |  | / s / LISA M. PORTER   
|                        |  |                                          |  | Lisa M. Porter         
|                        |  |                                          |  | Chief Financial Officer



15