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United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-QSB



(Mark One)



| | þ |  | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
| | - |  | ----------------------------------------------------------------------------------------



For the quarterly period ended March 31, 2003.



Or



| |  ̈ |  | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
| | - |  | -----------------------------------------------------------------------------------------



For the transition period from to
 to



Commission File No. 0-13395



UNITED FINANCIAL BANKING COMPANIES, INC.



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





8399 Leesburg Pike, Vienna, Virginia 22182

Telephone: (703) 734-0070



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



Common Stock $1.00 Par Value

1,036,999 Shares
Outstanding

as of March 31, 2003



Transitional Small Business Disclosure Format:    Yes ̈Nox



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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 / Results of Operations

(Unaudited)



|                                                                  |  | Three Months EndedMarch 31, |          
|----------------------------------------------------------------- |  | --------------------------- | ---------
|                                                                  |  | 2003                        |          
|Interest income:                                                  |  |                             |          
|Interest and fees on loans                                        |  | $                           | 1,433,983
|Interest on investment securities                                 |  |                             | 43,597   
|Interest on federal funds sold                                    |  |                             | 61,307   
|Interest on interest-bearing deposits                             |  |                             | 3,400    
|                                                                  |  |                             |          
|Total interest income                                             |  |                             | 1,542,287
|                                                                  |  |                             |          
|Interest expense:                                                 |  |                             |          
|Interest on deposits                                              |  |                             | 408,215  
|Interest on short-term borrowings                                 |  |                             | 6,633    
|Interest on long-term debt                                        |  |                             | 52,194   
|                                                                  |  |                             |          
|Total interest expense                                            |  |                             | 467,042  
|                                                                  |  |                             |          
|Net interest income                                               |  |                             | 1,075,245
|Provision for loan losses                                         |  |                             | 168,000  
|                                                                  |  |                             |          
|Net interest income after provision for loan losses               |  |                             | 907,245  
|Noninterest income:                                               |  |                             |          
|Gain (loss) on sale of real estate owned and other earning assets |  |                             |         
|Loan servicing and other fees                                     |  |                             | 17,456   
|Other income                                                      |  |                             | 85,153   
|                                                                  |  |                             |          
|Total noninterest income                                          |  |                             | 102,609  
|                                                                  |  |                             |          
|Noninterest expense:                                              |  |                             |          
|Salaries                                                          |  |                             | 429,304  
|Employee benefits                                                 |  |                             | 80,803   
|Occupancy                                                         |  |                             | 109,104  
|Furniture and equipment                                           |  |                             | 43,372   
|Data processing                                                   |  |                             | 57,247   
|Other insurance                                                   |  |                             | 10,195   
|Real estate owned holding expense                                 |  |                             | 2,198    
|Legal                                                             |  |                             | 4,968    
|FDIC / FICO bond insurance                                        |  |                             | 3,312    
|Other expense                                                     |  |                             | 134,011  
|                                                                  |  |                             |          
|Total noninterest expense                                         |  |                             | 874,514  
|                                                                  |  |                             |          
|Income (loss) before income taxes                                 |  |                             | 135,340  
|Provision (credit) for income taxes                               |  |                             | 44,636   
|                                                                  |  |                             |          
|Net income (loss)                                                 |  | $                           | 90,704   
|                                                                  |  |                             |          
|                                                                 
|Net income (loss) per common share (Note 3)                       |  |                             |          
|Basic                                                             |  | $                           | 0.09     
|                                                                  |  |                             |          
|Diluted                                                           |  | $                           | 0.08     
|                                                                  |  |                             |          
|Comprehensive Income (Note 4)                                     |  |                             |          
|Net income                                                        |  | $                           | 90,704   
|Other comprehensive income, net of tax                            |  |                             |          
|Unrealized gains (losses) on available-for-sale
securities        |  |                             | (81      
|                                                                  |  |                             |          
|Comprehensive income                                              |  | $                           | 90,623   
|                                                                  |  |                             |          



2



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UNITED FINANCIAL BANKING
COMPANIES, INC., AND SUBSIDIARIES



Consolidated Balance
Sheets / Financial Condition



|                                                                                                                     |  | (Unaudited) March 31, 2003 |             |   | (Audited) December 31, 2002 |  
|-------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ----------- | - | --------------------------- | -
|Assets                                                                                                               |  |                            |             |   |                             |  
|Cash and due from banks                                                                                              |  | $                          | 3,417,379   |   |                             | $
|Interest-bearing deposits in other banks                                                                             |  |                            | 1,888,892   |   |                             |  
|Federal funds sold                                                                                                   |  |                            | 6,500,000   |   |                             |  
|Investment Securities:                                                                                               |  |                            |             |   |                             |  
|Available-for-sale (AFS)                                                                                             |  |                            | 20,462,926  |   |                             |  
|Held-to-maturity (HTM)                                                                                               |  |                            | 567,855     |   |                             |  
|Loans, net of unearned income of $225,055 and $219,870                                                               |  |                            | 80,856,283  |   |                             |  
|Less: Allowance for loan losses                                                                                      |  |                            | (1,419,764  | ) |                             |  
|                                                                                                                     |  |                            |             |   |                             |  
|Net loans                                                                                                            |  |                            | 79,436,519  |   |                             |  
|Real estate owned held for sale, net                                                                                 |  |                            | 222,621     |   |                             |  
|Premises and equipment, net                                                                                          |  |                            | 1,736,508   |   |                             |  
|Deferred income taxes                                                                                                |  |                            | 1,314,485   |   |                             |  
|Other assets                                                                                                         |  |                            | 851,895     |   |                             |  
|                                                                                                                     |  |                            |             |   |                             |  
|Total assets                                                                                                         |  | $                          | 116,399,080 |   |                             | $
|                                                                                                                     |  |                            |             |   |                             |  
|                                                                                                                    
|Liabilities and Stockholders' Equity                                                                                 |  |                            |             |   |                             |  
|Deposits:                                                                                                            |  |                            |             |   |                             |  
|Demand                                                                                                               |  | $                          | 25,638,199  |   |                             | $
|Savings and NOW                                                                                                      |  |                            | 23,707,110  |   |                             |  
|Money market                                                                                                         |  |                            | 12,784,590  |   |                             |  
|Time deposits:                                                                                                       |  |                            |             |   |                             |  
|Under $100,000                                                                                                       |  |                            | 20,013,975  |   |                             |  
|$100,000 and over                                                                                                    |  |                            | 16,328,883  |   |                             |  
|                                                                                                                     |  |                            |             |   |                             |  
|Total deposits                                                                                                       |  |                            | 98,472,757  |   |                             |  
|                                                                                                                     |  |                            |             |   |                             |  
|Escrow payable                                                                                                       |  |                            | 320         |   |                             |  
|Other liabilities                                                                                                    |  |                            | 462,322     |   |                             |  
|Short-term borrowings                                                                                                |  |                            | 1,010,025   |   |                             |  
|Long-term debt                                                                                                       |  |                            | 4,780,155   |   |                             |  
|                                                                                                                     |  |                            |             |   |                             |  
|Total liabilities                                                                                                    |  |                            | 104,725,579 |   |                             |  
|                                                                                                                     |  |                            |             |   |                             |  
|                                                                                                                    
|Stockholders' Equity:                                                                                                |  |                            |             |   |                             |  
|Preferred stock of no par value, authorized 5,000,000 shares, no shares
issued                                       |  |                            |            |   |                             |  
|Common Stock, par value $1; authorized 3,500,000 shares issued 1,036,999 shares at
3/31/03 and 1,036,999 at 12/31/02 |  |                            | 1,036,999   |   |                             |  
|Capital in excess of par value                                                                                       |  |                            | 16,208,535  |   |                             |  
|Accumulated deficit                                                                                                  |  |                            | (5,587,277  | ) |                             |  
|Accumulated other comprehensive income                                                                               |  |                            | 15,244      |   |                             |  
|                                                                                                                     |  |                            |             |   |                             |  
|Total stockholders' equity                                                                                           |  |                            | 11,673,501  |   |                             |  
|                                                                                                                     |  |                            |             |   |                             |  
|Total liabilities and stockholders' equity                                                                           |  | $                          | 116,399,080 |   |                             | $
|                                                                                                                     |  |                            |             |   |                             |  



3



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UNITED FINANCIAL BANKING
COMPANIES, INC. AND SUBSIDIARIES



Consolidated Statements
of Cash Flows



(Unaudited)



|                                                                                                             |  | Three Months Ended |            
|------------------------------------------------------------------------------------------------------------ |  | ------------------ | -----------
|                                                                                                             |  | March 31, 2003     |            
|Cash flows from operating activities:                                                                        |  |                    |            
|Net Income                                                                                                   |  | $                  | 90,704     
|Adjustment to reconcile net income (loss) to net cash provided by (used in) operating
activities:            |  |                    |            
|Depreciation & amortization                                                                                  |  |                    | 34,371     
|Provision for loan losses                                                                                    |  |                    | 168,000    
|Amortization of investment security discount                                                                 |  |                    | 3,433      
|Amortization of loan fees and discounts, net                                                                 |  |                    | (7,978     
|Net (gain) loss on sale of other real estate owned                                                           |  |                    |           
|(Increase) decrease in other assets                                                                          |  |                    | (238,121   
|Increase (decrease) in other liabilities                                                                     |  |                    | (21,906    
|                                                                                                             |  |                    |            
|Net cash provided by (used in) operating activities                                                          |  |                    | 28,503     
|                                                                                                             |  |                    |            
|                                                                                                            
|Cash flows from investing activities:                                                                        |  |                    |            
|Loans originatednon-bank subsidiaries                                                                       |  |                    |           
|Principal collectednon-bank subsidiaries                                                                    |  |                    | 1,390      
|Loan originations, net of collections                                                                        |  |                    | (4,632,090 
|Purchases of securities available-for-sale                                                                   |  |                    | (16,009,563
|Purchases of securities held-to-maturity                                                                     |  |                    |           
|Investment made in other real estate owned                                                                   |  |                    |           
|Proceeds received from maturity of securities available-for-sale                                             |  |                    | 10,647,733 
|Proceeds received from maturity of securities held to maturity                                               |  |                    | 743,308    
|Proceeds from real estate owned                                                                              |  |                    |           
|Purchases of premises and equipment                                                                          |  |                    | (1,601     
|                                                                                                             |  |                    |            
|Net cash provided by (used in) investing activities                                                          |  |                    | (9,250,823 
|                                                                                                             |  |                    |            
|                                                                                                            
|Cash flow from financing activities:                                                                         |  |                    |            
|Net increase (decrease) in demand deposits, savings accounts, NOW accounts and money market accounts         |  |                    | 3,199,874  
|Certificates of deposit sold (matured), net                                                                  |  |                    | 3,789,692  
|Net change in short-term borrowings                                                                          |  |                    | 10,025     
|Proceeds from sale of common stock                                                                           |  |                    | (13,495    
|                                                                                                             |  |                    |            
|Net cash provided by (used in) financing activities                                                          |  |                    | 6,986,096  
|                                                                                                             |  |                    |            
|                                                                                                            
|Net increase (decrease) in cash and cash equivalents                                                         |  |                    | (2,236,224 
|Cash and cash equivalents at beginning of the year                                                           |  |                    | 14,042,495 
|                                                                                                             |  |                    |            
|Cash and cash equivalents at end of the quarter                                                              |  | $                  | 11,806,271 
|                                                                                                             |  |                    |            
|                                                                                                            
|Supplemental disclosures of cash flow information:                                                           |  |                    |            
|Cash paid during the years for:                                                                              |  |                    |            
|Interest on deposits and other borrowings                                                                    |  | $                  | 458,307    
|Income taxes                                                                                                 |  |                    |           
|                                                                                                            
|Non-Cash Items:                                                                                              |  |                    |            
|Effect on stockholders equity of an unrealized gain (loss) on debt and equity securities
available-for-sale |  | $                  | (81        



4



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Notes to
Consolidated Financial Statements



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



|Note 2 - |  | The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
|-------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|Note 4 - |  | 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 - |  | 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 pro forma disclosures required by SFAS 123,
Accounting for Stock-Based Compensation, and as amended by SFAS 148, are presented within this report.
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



5



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UNITED FINANCIAL BANKING
COMPANIES, INC.



CONSOLIDATED AVERAGE BALANCES/NET
INTEREST ANALYSIS/YIELDS AND RATES



|                                           |  | For the Three Months Ended
|------------------------------------------ |  | --------------------------
|                                           |  | March 31, 2003            
|                                           |  | Average Balance           
|ASSETS                                     |  |                           
|Earning assets:                            |  |                           
|Loans:                                     |  |                           
|Commercial                                 |  | $                         
|Real estate construction                   |  |                           
|Real estate mortgage                       |  |                           
|Installment                                |  |                           
|                                           |  |                           
|Total loans                                |  |                           
|                                           |  |                           
|                                          
|Interest-bearing deposits                  |  |                           
|Federal funds sold                         |  |                           
|Investment securities (1)                  |  |                           
|                                           |  |                           
|Total earning assets                       |  |                           
|                                           |  |                           
|Noninterest-earning assets                 |  |                           
|Cash and due from banks                    |  |                           
|Other assets                               |  |                           
|Allowance for loan losses                  |  |                           
|                                           |  |                           
|Total assets                               |  | $                         
|                                           |  |                           
|                                          
|LIABILITIES AND STOCKHOLDERS' EQUITY       |  |                           
|Interest-bearing liabilities:              |  |                           
|Interest-bearing deposits:                 |  |                           
|Savings and NOW accounts                   |  | $                         
|Money market accounts                      |  |                           
|Time:                                      |  |                           
|Under $100,000                             |  |                           
|$100,000 and over                          |  |                           
|                                           |  |                           
|Total interest-bearing deposits            |  |                           
|Short-term borrowings                      |  |                           
|Long-term debt                             |  |                           
|                                           |  |                           
|Total interest-bearing liabilities         |  |                           
|                                           |  |                           
|Non interest-bearing liabilities:          |  |                           
|Demand deposits                            |  |                           
|Other liabilities                          |  |                           
|Stockholders' equity                       |  |                           
|                                           |  |                           
|Total liabilities and stockholders' equity |  | $                         
|                                           |  |                           
|Net interest income                        |  |                           
|                                           |  |                           
|Net interest margin (2)                    |  |                           
|                                           |  |                           
|Net interest spread (3)                    |  |                           
|                                           |  |                           
|Fees included in loan income               |  |                           
|                                           |  |                           
|Taxable equivalent adjustment              |  |                           
|                                           |  |                           



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



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



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



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



6



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|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 Three Months Ended March 31, 2003 as Compared to  the Three Months Ended March 31, 2002
|-- |  | ---------------------------------------------------------------------------------------------------------------------



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) which is presented on a consolidated basis. UFBC reported net income of $90,704 for the three-month period ended March 31, 2003. This compares with net income of $141,875 for the same period of 2002. Basic earnings per share
were $.09 for the first three months ended March 31, 2003 compared to $.14 for the first three months of 2002.



Net Interest Income



For the three-month period ended March 31, 2003, net interest income increased $201,700 or 23.1% from $873,545 at March 31, 2002 to $1,075,245 at March 31, 2003 (Consolidated Statements of Income
and Comprehensive Income table). The numerical change masks the impact of the current rate environment as shown in the decreased net interest margin. The net interest margin of 4.11% at March 31, 2003 was notably less than the March 31, 2002 net
interest margin of 4.51% (Consolidated Average Balancestable). The decreases in the prime interest rate during 2001 and 2002 significantly contributed to the decline in the net interest margin. However, an increased volume of earning assets
and repriced liabilities helped offset the decreased net interest margin and contributed to the increased net interest income at March 31, 2003.



As shown in the Rate Volume Variance Table, net interest income was impacted by both rate and volume. The compressed rate
environment suppressed interest income on earning assets by $183,600 during the first three months of 2003 when compared to 2002. The yield on total earning assets decreased 81 basis points from 6.70% at March 31, 2002 to 5.89% at March 31, 2003
(Consolidated Average Balancestable). However, earnings lost due to rate were offset by the favorable contribution from the increased volume of total earning assets (Rate Volume Variance table). At March 31, 2003, average total
earning assets increased $27,632,224 or 35.2% compared to the first three months of March 31, 2002 (Consolidated Average Balances table). The increased volume of earning assets contributed $428,412 to earnings when comparing the three month
periods ended March 31, 2003 and 2002 (Rate Volume Variance table). The combined effect of the rate and volume variances resulted in an increase of $244,812 in interest income (or earning assets) from $1,297,475 at March 31, 2002 to
$1,542,287 at March 31, 2003.





7



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Interest
expense increased $43,112 or 10.2% from $423,930 at March 31, 2002 to $467,042 at March 31, 2003 (Consolidated Statements of Income and Comprehensive Income table). The increase was attributable to an increased volume of interest-bearing
liabilities. The average volume of interest-bearing liabilities increased $21,795,790 or 40.1% during the past year (Consolidated Average Balances table). The volume increase added $190,955 of interest expense during the first three months of
2003 (Rate Volume Variance table) compared to 2002. The compressed rate environment favorably impacted interest expense and mitigated its increase due to volume by $147,843 (Rate Volume Variance table).



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



|                          |  | For the Three Months Ended March 31, 2003 Compared to 2002 |        
|------------------------- |  | ---------------------------------------------------------- | -------
|                          |  | Total Increase (Decrease)                                  |        
|                          |  |                                                            | Rate   
|Interest income:          |  |                                                            |        
|Loans:                    |  |                                                            |        
|Commercial                |  | $                                                          | 246,701
|Real estateconstruction  |  |                                                            | 1,046  
|Real estatemortgage      |  |                                                            | (32,297
|Installment               |  |                                                            | 47,611 
|                          |  |                                                            |        
|Total loans/leases        |  |                                                            | 263,061
|Interest-bearing deposits |  |                                                            | 3,222  
|Federal funds sold        |  |                                                            | 1,590  
|Investment securities     |  |                                                            | (23,061
|                          |  |                                                            |        
|Total interest income     |  |                                                            | 244,812
|                          |  |                                                            |        
|Interest expense:         |  |                                                            |        
|Savings and NOW accounts  |  |                                                            | 31,480 
|Money markets accounts    |  |                                                            | (31,297
|Time:                     |  |                                                            |        
|Under $100,000            |  |                                                            | 1,514  
|$100,000 and over         |  |                                                            | (4,496 
|Short-term borrowings     |  |                                                            | (6,283 
|Long-term debt            |  |                                                            | 52,194 
|                          |  |                                                            |        
|Total interest expense    |  |                                                            | 43,112 
|                          |  |                                                            |        
|Net interest income       |  | $                                                          | 201,700
|                          |  |                                                            |        



The cost
of interest-bearing liabilities decreased 67 basis points from 3.16% at March 31, 2002 to 2.49 at March 31, 2003 (Consolidated Average Balancestable). The drop was primarily attributable to the growth and repricing of deposits during the
lower rate environment. The growth of noninterest-bearing or demand deposits also contributed favorably to net interest income. As shown in the Consolidated Average Balances table, average demand deposits increased $6,879,311 or 38.4% from
$17,902,869 at March 31, 2002 to $24,782,180 at March 31, 2003.



8



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Provision for Loan Losses



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



Provision for loan
loss expense increased $133,200 or 382.8% from $34,800 at March 31, 2002 to $168,000 at March 31, 2003. There were no charge-offs or recoveries during the three months ended March 31, 2003 and 2002. Loan growth during 2003 accounts for the variance
between the 2003 and 2002 provision for loan loss expense. Average total loans increased $19,375,283 or 33.3% from $58,256,311 at March 31, 2002 to $77,631,594 at March 31, 2003.



Noninterest Income



Total noninterest income increased $22,679 or 28.4% during the past year since March 2002. The increase was primarily attributable to
income generated by the increased volume of deposits and also explains the $44,200 or 107.9% increase in other income when comparing March 31, 2002 and March 31, 2003.



Noninterest Expense



Total noninterest expense increased $168,191 or 23.8% during the past year since March 2002. The increase was primarily attributable to
additional staffing for business expansion, most notably the opening of the Reston, Virginia branch. Salaries and employee benefits increased $100,090 or 24.4% during the three months ended March 31, 2003 compared to the three months ended March 31,
2002. Expansion expenses such as occupancy, furniture and equipment depreciation and data processing also contributed to the increase. Occupancy, furniture and equipment depreciation and data processing increased $47,703 during 2003 compared to
2002.



Income Taxes



The provision for income taxes decreased $25,841 or 36.7%
from $70,477 at March 31, 2002 to $44,636 at March 31, 2003. The tax liability was accrued at the historic rate of 34.0%.



B. Financial Condition as of March 31, 2003



General



During the first quarter of 2003, the Bank entered into a lease for a branch location in Vienna, Virginia. Operations are expected to
commence in September 2003.



9



---



Assets



Total assets increased $7,054,813 or 6.5% during the first
three months of 2003. The increase was attributable to an increased volume of deposits which were invested in loans, federal funds sold, and investment securities. The balance of available-for-sale investment securities is inflated as shown on the
balance sheet. For tax purposes, the Bank purchased $15,000,000 of an overnight government security on March 31, 2003. The average balance of investment securities totaled $6,938,813 for the first quarter of 2003.



Loans



Loans net of unearned income increased $4,638,678 or 6.1%
from $76,217,605 at December 31, 2002 to $80,856,283 at March 31, 2003. The increase was funded by liquidity available in federal funds sold and an increased the volume of deposits.



Allowance for Loan Losses



The allowance for loan losses is an estimate of the losses that may be sustained in the Companys loan
portfolio. The allowance is based on two basic principles of accounting: (i) Statement of Financial Accounting Standards (ASFAS@) SFAS 5, Accounting for Contingencies, which requires that losses be accrued when they are probable of occurring and
estimable and (ii) SFAS 114, Accounting by Creditors for Impairment of a Loan, which requires that losses be accrued based on the differences between the value of the collateral, present value of future cash flows or values that are observable in
the secondary market and the loan balance.



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



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



10



---



At March 31,
2003 and December 31, 2002, the allowance for loan losses was $1,419,764 or 1.8% and $1,251,764 or 1.6%, respectively, of total loans. Impaired loans for the three-month period ended March 31, 2003 totaled $47,007, of which $8,236 was held by BVCI
and $38,771 was held by the Bank. This compares to a balance of $54,786 at December 31, 2002, of which $8,679 was held by BVCI and $46,107 was held by the Bank. During the three month periods ended March 31, 2003 and 2002, the Company had no
charge-offs or recoveries. Of the impaired loans outstanding at March 31, 2003 and December 31, 2002, non-accrual loans totaled $35,213 and $54,786, respectively.



Deferred Tax Asset



The deferred income tax credits primarily resulted from net operating loss carryforwards. 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 tax asset.



Liabilities and Equity



Total deposits increased $6,989,566 or 7.6% from $91,483,191
at December 31, 2002 to $98,472,757 at March 31, 2003. Stockholders equity increased $90,623 or .8% during the three months ended March 31, 2003 when compared to the year ended December 31, 2002. First quarter 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 29.3% of average total assets at March 31, 2003 compared to 20.7% at March 31, 2002
(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, 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.





11



---



At March 31,
2003, the Banks investment portfolio consisted of the following:



|                           |  | Available-for-Sale |            | Held-to-Maturity
|-------------------------- |  | ------------------ | ---------- | ----------------
|U.S. Government Agency     |  | $                  | 17,336,159 |                 
|Mortgage-backed Securities |  |                    | 814,017    |                 
|Mutual Funds               |  |                    | 2,000,000  |                 
|Equity                     |  |                    | 312,750    |                 
|                           |  |                    |            |                 
|Total                      |  | $                  | 20,462,926 |                 
|                           |  |                    |            |                 



Capital Requirements



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



Quantitative
measures established by regulation to ensure capital adequacy require the Company and the bank subsidiary to maintain minimum amounts and ratios of Total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. As of
March 31, 2003, the Company and the Bank met the criteria to be well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company and the bank subsidiary must maintain Total risk-based,
Tier 1 risk-based and Tier 1 average asset ratios as set forth in the table. There have been no conditions or events since December 31, 2002 that management believes would result in the institution not being adequately capitalized.



|                                         |  | Actual     |  | Required for Capital Adequacy Purposes |  | Required To Be Well Capitalized
|---------------------------------------- |  | ---------- |  | -------------------------------------- |  | -------------------------------
|                                         |  | Amount     |  | Ratio                                  |  | Amount                         
|As of March 31, 2003:                    |  |            |  |                                        |  |                                
|                                        
|Total capital (to risk-weighted assets)  |  |            |  |                                        |  |                                
|Company                                  |  | 11,774,688 |  | 13.54%                                 |  | 6,955,557                      
|The Business Bank                        |  | 10,626,313 |  | 12.56%                                 |  | 6,770,787                      
|Tier 1 capital (to risk-weighted assets) |  |            |  |                                        |  |                                
|Company                                  |  | 10,683,772 |  | 12.29%                                 |  | 3,477,778                      
|The Business Bank                        |  | 9,563,949  |  | 11.30%                                 |  | 3,385,393                      
|Tier 1 capital (to average assets)       |  |            |  |                                        |  |                                
|Company                                  |  | 10,683,772 |  | 9.53%                                  |  | 4,483,203                      
|The Business Bank                        |  | 9,563,949  |  | 8.75%                                  |  | 4,371,080                      
|                                        
|As of March 31, 2002:                    |  |            |  |                                        |  |                                
|                                        
|Total capital (to risk-weighted assets)  |  |            |  |                                        |  |                                
|Company                                  |  | 10,235,412 |  | 16.30%                                 |  | 5,022,250                      
|The Business Bank                        |  | 9,119,057  |  | 15.05%                                 |  | 4,847,231                      
|Tier 1 capital (to risk-weighted assets) |  |            |  |                                        |  |                                
|Company                                  |  | 9,446,890  |  | 15.05%                                 |  | 2,511,125                      
|The Business Bank                        |  | 8,357,570  |  | 13.79%                                 |  | 2,423,615                      
|Tier 1 capital (to average assets)       |  |            |  |                                        |  |                                
|Company                                  |  | 9,446,890  |  | 11.28%                                 |  | 3,349,363                      
|The Business Bank                        |  | 8,357,570  |  | 10.24%                                 |  | 3,264,386                      





12



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Earnings Per Share



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



|                                            |  | Income (Numerator) |         | Shares (Denominator) |           | Per Share Amount
|------------------------------------------- |  | ------------------ | ------- | -------------------- | --------- | ----------------
|Basic Earnings Per Share:                   |  |                    |         |                      |           |                 
|                                           
|For the three months ended March 31, 2003   |  |                    |         |                      |           |                 
|Net Income                                  |  | $                  | 90,704  |                      |           |                 
|                                           
|Income available to common stockholders     |  | $                  | 90,704  |                      | 1,036,999 |                 
|                                            |  |                    |         |                      |           |                 
|                                           
|For the three months ended March 31, 2002   |  |                    |         |                      |           |                 
|Net Income                                  |  | $                  | 141,875 |                      |           |                 
|                                           
|Income available to common stockholders     |  | $                  | 141,875 |                      | 1,035,349 |                 
|                                            |  |                    |         |                      |           |                 
|                                           
|Diluted Earnings Per Share:                 |  |                    |         |                      |           |                 
|                                           
|For the three months ended March 31, 2003   |  |                    |         |                      |           |                 
|Net Income available to common stockholders |  | $                  | 90,704  |                      | 1,036,999 |                 
|                                           
|Add:  Contracts to issue common stock       |  |                    |         |                      |           |                 
|Optionexpires 01/27/07                     |  |                    |         |                      | 1,091     |                 
|Optionsexpire 12/31/0501/26/13            |  |                    |         |                      | 64,452    |                 
|                                            |  |                    |         |                      |           |                 
|Weighted-average diluted shares             |  |                    |         |                      | 65,543    |                 
|                                           
|Diluted earnings per common share:          |  | $                  | 90,704  |                      | 1,102,542 |                 
|                                            |  |                    |         |                      |           |                 
|                                           
|For the three months ended March 31, 2002   |  |                    |         |                      |           |                 
|Net Income available to common stockholders |  | $                  | 141,875 |                      | 1,035,349 |                 
|                                           
|Add:  Contracts to issue common stock       |  |                    |         |                      |           |                 
|Optionexpires 01/27/07                     |  |                    |         |                      | 630       |                 
|Optionsexpire 12/31/056/30/08             |  |                    |         |                      | 27,843    |                 
|                                            |  |                    |         |                      |           |                 
|Weighted-average diluted shares             |  |                    |         |                      | 28,473    |                 
|                                           
|Diluted earnings per common share:          |  | $                  | 141,875 |                      | 1,063,822 |                 
|                                            |  |                    |         |                      |           |                 



13



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Stock-based Compensation



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



|March 31,                              |  | 2003 |        |   | 2002 |  
|-------------------------------------- |  | ---- | ------ | - | ---- | -
|                                      
|Assumptions                            |  |      |        |   |      |  
|Risk-free interest rate                |  |      | 3.34   | % |      |  
|Dividend yield                         |  |      |       |   |      |  
|Volatility factor                      |  |      | 10.00  | % |      |  
|Weighted average expected life (years) |  |      | 7.5    |   |      |  
|                                      
|Pro forma results                      |  |      |        |   |      |  
|Net income:                            |  |      |        |   |      |  
|As reported                            |  | $    | 90,704 |   |      | $
|Pro forma                              |  | $    | 57,727 |   |      | $
|Basic earnings per share:              |  |      |        |   |      |  
|As reported                            |  | $    | 0.09   |   |      | $
|Pro forma                              |  | $    | 0.05   |   |      | $
|Diluted earnings per share             |  |      |        |   |      |  
|As reported                            |  | $    | 0.08   |   |      | $
|Pro forma                              |  | $    | 0.05   |   |      | $
|                                      
|Fair value of options per share        |  | $    | 2.31   |   |      | $



Contingencies &
Commitments



In the opinion of management,
there were no legal matters pending as of March 31, 2003 which would have a material adverse effect on the Companys financial statements.



ITEM 3.    CONTROLS AND PROCEDURES



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





14



---



PART II.
OTHER INFORMATION



ITEM 1:    LEGAL
PROCEEDINGS



In the opinion of management, there were no legal matters pending as of March 31, 2003 which would have a material  adverse effect on the Companys financial statements.



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



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



ITEM 6:    EXHIBITS AND REPORTS ON FORM 8-K



Exhibits

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

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



Reports on Form 8-K

None.



SIGNATURES



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



UNITED FINANCIAL BANKING COMPANIES, INC.By:

/s/    HAROLD C. RAUNERHarold C. RaunerPresident and CEOBy:

/s/    LISA M. PORTERLisa M. PorterChief Financial Officer




Date: May 13,
2003





15



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SECTION 302
CERTIFICATION



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



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



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



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



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



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



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



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



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



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



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



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



|     
|-----
|Date:
|     
|     



16



---



SECTION 302
CERTIFICATION



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



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



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



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



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



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



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



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



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



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



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



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



|     
|-----
|Date:
|     
|     



17