<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549


                                  FORM 10-QSB


(Mark One)

[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
       EXCHANGE ACT OF 1934.


              FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997.

                                      OR

 [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
       EXCHANGE ACT OF 1934.

FOR THE TRANSITION PERIOD FROM                TO
                               --------------    ---------------


                          COMMISSION FILE NO. 0-13395


                   UNITED FINANCIAL BANKING COMPANIES, INC.

A VIRGINIA CORPORATION                             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 file such reports), and (2) has been subject to such filing
requirements for the past 90 days.   Yes   X    No 
                                         -----     ------

                         COMMON STOCK $1.00 PAR VALUE
                         2,808,201 SHARES OUTSTANDING
                           AS OF SEPTEMBER 30, 1997

   TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT:  YES       NO   X
                                                       -----    -----
<PAGE>
 
                  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
          generally accepted accounting principles 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 generally
          accepted accounting principles 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 -  Earnings per share are computed using the weighted average number of
          shares of common stock outstanding as adjusted retroactively to
          reflect shares issued in connection with stock dividends. The
          computation includes the effect of average common equivalent shares
          attributable to stock options and/or stock warrants only if such
          effect is dilutive. The computation includes the effect of the
          dividend accrued on the Company's redeemable preferred stock which
          totaled $87,250 for the first nine months ended September 30, 1997 and
          $-0- for the same period ended September 30, 1996.

Note 4 -  Forward looking statements. This discussion contains forward looking
          statements, including statements of goals, intentions and expectations
          as to future trends, plans, or results of Company operations and
          policies and 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 susceptible 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.

                                       2
<PAGE>
 
                         PART 1. FINANCIAL INFORMATION


ITEM 1:    FINANCIAL STATEMENTS
 
UNITED FINANCIAL BANKING COMPANIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME / RESULTS OF OPERATIONS
(UNAUDITED)
<TABLE> 
<CAPTION> 
                                                                Three Months Ended          Nine Months Ended
                                                                   September 30               September 30
                                                              ---------------------       -----------------------
                                                                1997         1996            1997         1996
                                                            ----------   ----------       ----------   ----------   
<S>                                                         <C>          <C>             <C>           <C>
INTEREST INCOME:
     Interest and fees on loans/leases                        $755,007    $ 645,664       $2,166,851   $1,802,284
     Interest on investment securities                          52,514       34,387          134,043       82,591
     Interest on federal funds sold                             75,431       45,829          214,938      195,564
     Interest on interest-bearing deposits                       1,435        5,954            7,478       18,281
                                                            ----------   ----------       ----------   ----------   
          Total interest income                                884,387      731,834        2,523,310    2,098,720
                                                            ----------   ----------       ----------   ----------   
 
INTEREST EXPENSE:
     Interest on deposits                                      379,138      369,894        1,126,340    1,124,418
     Interest on short-term borrowings                               -       44,725                -       64,726
     Interest on long-term debt                                      -            -                -            -
          Total interest expense                               379,138      414,619        1,126,340    1,189,144
                                                            ----------   ----------       ----------   ----------   
          Net interest income                                  505,249      317,215        1,396,970      909,576

PROVISION FOR LOAN/LEASE LOSSES                                 40,200       32,000          137,300      145,942
                                                            ----------   ----------       ----------   ----------   
         Net interest income after provision
         for loan/lease losses                                 465,049      285,215        1,259,670      763,634
NONINTEREST INCOME:
     Gain (loss) on sale of real estate
         owned and other earning assets                            477       28,222           29,287       46,241
     Loan servicing and other fees                              18,770       19,774           56,357       59,294
     Other income                                               28,092       52,010           84,050       84,989
          Total noninterest income                              47,339      100,006          169,694      190,524
                                                            ----------   ----------       ----------   ----------   
NONINTEREST EXPENSE:
     Salaries                                                  190,951      203,431          567,811      562,954
     Employee benefits                                          32,911       37,154           99,443      108,400
     Occupancy                                                  71,868       32,544          223,849      103,596
     Furniture and equipment                                    18,119       12,273           43,457       33,989
     Legal                                                       6,148       27,401           17,828       89,485
     FDIC Insurance                                              4,198       21,280           51,397       63,687
     Data processing                                            24,470       22,816           70,560       67,285
     Real estate owned holding expense                          10,570       45,343           60,857      136,537
     Provision for real estate owned losses                     49,400       12,257           73,900       12,257
     Other expense                                              56,733      113,627          192,266      310,602
          Total noninterest expense                            465,368      528,126        1,401,368    1,488,792
                                                            ----------   ----------       ----------   ----------   
          Income (loss) before income taxes                     47,020     (142,905)          27,996     (534,634)
Provision (credit) for income taxes                              4,938         (464)          14,988        4,439
                                                            ----------   ----------       ----------   ----------   
          NET INCOME (LOSS)                                   $ 42,082    $(142,441)      $   13,008   $ (539,073)
                                                            ==========   ==========       ==========   ==========  
Net income (loss) per share                                                                         
  of common stock                                             $      -    $   (0.05)      $    (0.03)  $    (0.19)
                                                            ==========   ==========       ==========   ==========  
Weighted average number of
  shares outstanding                                         2,808,201    2,808,201        2,808,201    2,808,201
                                                            ==========   ==========       ==========   ==========  
</TABLE>
                                       3

<PAGE>
 
UNITED FINANCIAL BANKING COMPANIES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS / FINANCIAL CONDITION

<TABLE>
<CAPTION> 
                                                                         (Unaudited)       (Audited)
                                                                         September 30     December 31
                                ASSETS                                       1997            1996
                                ------                                   ------------    ------------
<S>                                                                      <C>             <C> 
Cash and due from banks                                                  $  2,058,910    $  4,265,513
Interest-bearing deposits in other banks                                      100,000         300,000
Federal funds sold                                                          2,558,000         898,000
Investment Securities:                                                               
     Available-for-sale (AFS)                                               2,439,750       2,095,422
     Held-to-maturity (HTM)                                                 1,279,717         300,000
Loans and lease financing, net of unearned                                           
income of $42,493 and $57,635                                              34,532,648      30,618,335
     Less:  Allowance for loan/lease losses                                  (660,340        (584,106)

          Net loans and lease financing                                    33,872,308      30,034,229
Real estate owned held for sale, net                                        2,595,178       3,115,080
Premises and equipment, net                                                   176,984         132,712
Other assets                                                                  332,125         460,733

        Total assets                                                     $ 45,412,972    $ 41,601,689
                                                                         ============    ============
 
     LIABILITIES AND STOCKHOLDERS' EQUITY
     ------------------------------------
Deposits:
     Demand                                                              $  7,944,125    $  7,897,677
     Savings and NOW                                                        2,170,316       2,779,982
     Money market                                                           8,172,015       3,970,348
Time deposits:
    Under $100,000                                                         17,477,476      16,763,355
    $100,000 and over                                                       5,317,999       6,323,212

           Total deposits                                                  41,081,931      37,734,574

 
Other liabilities                                                             358,571         360,295
          Total liabilities                                                41,440,502      38,094,869

 
Redeemable Preferred Stock:
      Series A $-0- par value, authorized 900 shares, 800 shares
      issued in 1997 and 500 shares in 1996, 10% cumulative dividend        1,306,000         768,750
 
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 2,808,201 shares at 9/30/97 and 12/31/96      2,808,201       2,808,201
     Capital in excess of par value                                        10,427,061      10,514,311
     Retained earnings                                                    (10,570,924)    (10,583,932)
     Unrealized holding gain (loss) - AFS securities                            2,132            (510)

          Total stockholders' equity                                        2,666,470       2,738,070

        Total liabilities and stockholders' equity                        $45,412,972     $41,601,689
                                                                          ===========     ===========
</TABLE> 

                                       4

<PAGE>
 
    UNITED FINANCIAL BANKING COMPANIES, INC. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (UNAUDITED)

<TABLE> 
<CAPTION> 

                                                                                        Nine  Months Ended
                                                                             -------------------------------------
                                                                             September 30, 1997 September 30, 1996
                                                                             ------------------ ------------------  
<S>                                                                          <C>                <C> 
CASH FLOWS FROM OPERATING ACTIVITIES:                                        
Net Income                                                                           $   13,008        $  (539,073)
Adjustment to reconcile net income (loss) to                                                      
  net cash provided by (used in) operating activities:                                            
  Depreciation & amortization                                                            36,275             53,813
  Provision for loan/lease losses                                                       137,300            145,942
  Provision for losses on real estate owned                                              73,900             12,257
  Amortization of investment security discount                                           (4,946)           (10,551)
  Amortization of loan fees and discounts, net                                          (10,423)           (20,833)
  Net (gain) loss on sale of other real estate owned                                    (28,687)             5,431
  Amortization of capitalized interest                                                  (38,400)                 -
  (Increase) decrease in other assets                                                   128,610            133,987
  Increase (decrease) in other liabilities                                                2,777            (11,817)
                                                                             ------------------ ------------------  
    Net cash provided by (used in) operating activities                                 309,414           (230,844)
                                                                             ------------------ ------------------
                                                                                                    
CASH FLOWS FROM INVESTING ACTIVITIES:                                                             
  Principal collected - non-bank subsidiaries                                            46,343             36,803
  Loans and lease originations, net of collections                                   (4,213,300)        (5,958,329)
  Purchases of  investment securities                                                (2,036,582)        (1,086,223)
  Purchases of securities held-to-maturity (HTM)                                              -                  -
  Investment made in other real estate owned                                         (1,147,371)        (4,693,304)
  Proceeds received from sale of AFS securities                                               -                  -
  Proceeds received from maturity of investment securities                              720,125                  -
  Proceeds from real estate owned                                                     1,857,960          7,821,564
  Purchases of premises and equipment                                                   (80,547)           (18,518)
                                                                             ------------------ ------------------  
    Net cash provided by (used in) investing activities                              (4,853,372)        (3,898,007)
                                                                             ------------------ ------------------  
                                                                                                  
CASH FLOW FROM FINANCING ACTIVITIES:                                                              
  Net increase (decrease) in demand deposits, savings                                             
      accounts, NOW accounts and money market accounts                                3,652,122          1,050,736
  Certificates of deposit sold (matured), net                                          (304,767)         1,165,873
  Net change in short-term borrowings                                                         -           (888,544)
  Proceeds from issuance of redeemable preferred stock                                  450,000                  -
                                                                             ------------------ ------------------  
    Net cash provided by (used in) financing activities                               3,797,355          1,328,065
                                                                             ------------------ ------------------  
                                                                                                  
Net increase (decrease) in cash and cash equivalents                                   (746,603)        (2,800,786)
Cash and cash equivalents at beginning of the year                                    5,463,513          8,547,687
                                                                             ------------------ ------------------  
Cash and cash equivalents at end of the quarter                                      $4,716,910        $ 5,746,901
                                                                             ================== ==================  
                                                                                                  
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                                
Cash paid during the years for:                                                                   
    Interest on deposits and other borrowings                                        $1,174,729        $ 1,333,078
    Income taxes                                                                         14,786              7,852
                                                                                                  
NON-CASH ITEMS:                                                                                   
  Effect on stockholders' equity of an unrealized gain (loss)                                     
    on debt and equity securities available-for-sale                                 $    2,642        $   (16,422)
  Increase in foreclosed properties and decrease in loans                            $  202,000        $   513,740
   Accrued dividend on preferred stock - series A                                    $   87,250        $         -

</TABLE>

                                       5
<PAGE>
 
====================================================
UNITED FINANCIAL BANKING COMPANIES, INC.
CONSOLIDATED AVERAGE BALANCES/NET INTEREST ANALYSIS/
YIELDS AND RATES
====================================================

<TABLE>
<CAPTION> 
 
                                              For the Nine Month Period Ended                             For the Year Ended
                                   September 30, 1997                 September 30, 1996                    December 31, 1996
                             ------------------------------     -------------------------------    ------------------------------
                             Average                  Yield/    Average                  Yield/    Average                   Yield/
                             Balance      Interest    Rate      Balance      Interest    Rate      Balance       Interest    Rate
                             -----------  ----------  -----     -----------  ----------   -----    -----------  ----------  -----
<S>                          <C>          <C>         <C>       <C>          <C>         <C>       <C>           <C>         <C>  
        ASSETS                                                                                     
Earning assets:                                                                                    
 Loans/Leases:                                                                                     
  Commercial                 $23,247,823  $1,653,785   9.51%    $18,650,633  $1,381,201    9.87%   $19,112,191  $1,860,952   9.74%
  Real estate                                                                                                                
  construction                 1,404,585      99,550   9.48%      2,141,589     136,080    8.46%     2,031,003     175,921   8.66%
  Real estate                                                                                                                
  mortgage                     4,867,230     273,933   7.52%      2,295,079     134,394    7.80%     2,762,087     215,294   7.79%
  Installment                  2,039,896     139,584   9.15%      2,339,741     150,609    8.57%     2,497,572     210,729   8.44%
  Leases                         364,650           -      -         844,342           -       -        807,442           -      -
                             -----------  ----------            -----------  ----------            -----------  ----------  
  Total                                                                                                                      
  loans/leases                31,924,184   2,166,852   9.07%     26,271,384   1,802,284    9.14%    27,210,295   2,462,896   9.05%
                             -----------  ----------            -----------  ----------            -----------  ----------  
  Interest-bearing                                                                                                           
  deposits                       168,817       7,478   5.92%        400,382      18,281    6.08%       377,217      23,350   6.19%
  Federal funds sold           5,140,719     214,938   5.59%      4,832,694     195,564    5.39%     4,203,072     224,807   5.35%
  Investment                                                                                                                 
  securities                   3,041,805     134,043   5.89%      1,883,164      82,591    5.84%     1,999,656     117,225   5.86%
                             -----------  ----------            -----------  ----------            -----------  ----------  
  Total earning                                                                                                              
  assets                      40,275,525   2,523,311   8.38%     33,387,624   2,098,720    8.37%    33,790,240   2,828,278   8.37%
                                          ==========                         ==========                         ==========
  Noninterest-earning                                                                                                        
 assets                                                                                                                      
  Cash and due from                                                                                                          
  banks                        1,649,151                          1,699,775                          1,768,340               
  Other assets                 3,886,394                          9,556,828                          8,678,803               
  Allowance for loan                                                                                                         
  losses/lease                  (597,800)                          (480,614)                          (495,103)              
                             -----------                        -----------                        -----------                   
        Total assets         $45,213,270                        $44,163,613                        $43,742,280               
                             ===========                        ===========                        ===========                   
LIABILITIES AND                                                                                                              
 STOCKHOLDERS' EQUITY                                                                                                        
                                                                                                                             
  Interest-bearing                                                                                                           
 liabilities:                                                                                                                
  Interest-bearing                                                                                                           
 deposits:                                                                                                                   
  Savings and NOW                                                                                                            
  accounts                     2,679,163      46,838   2.34%      2,807,815      50,410    2.39%     2,717,904      66,738   2.46%
  Money market                                                                                                               
  accounts                     6,657,654     164,398   3.30%      5,316,349     126,427    3.17%     5,106,331     163,612   3.20%
  Time:                                                                                                                      
  Under $100,000              17,680,083     674,214   5.39%*    16,546,010     699,004    5.63%    16,569,137     929,006   5.61%
  $100,000 and                                                                                                               
  over                         6,052,609     240,891   5.32%      6,109,765     248,577    5.42%     6,237,825     338,733   5.43%
                             -----------  ----------            -----------  ----------            -----------  ----------  
  Total                                                                                                                      
  interest-bearing                                                                                                           
  deposits                    33,069,509   1,126,341   4.71%*    30,779,939   1,124,418    4.87%    30,631,197   1,498,089   4.89%
  Short-term                                                                                                                 
  borrowings                           -           -      -       2,111,339      64,726   13.17%*     1,624,107      64,762 12.82%*
                             -----------  ----------            -----------  ----------            -----------  ----------       
  Total                                                                                                                      
  interest-bearing                                                                                                           
  liabilities                 33,069,509   1,126,341   4.71%*    32,891,278   1,189,144   5.40%*    32,255,304  $1,562,851   5.29%*
                                          ==========                         ==========                         ========== 
  Non                                                                                                                        
  interest-bearing                                                                                                           
 liabilities:                                                                                                                
  Demand deposits              7,850,006                          7,369,765                          7,543,201  
  Other                                                                                                         
  liabilities                    360,691                            507,994                            470,137  
  Redeemable                                                                                                    
  preferred stock              1,266,000                                  -                            174,519  
  Stockholders'                                                                                                 
  equity                       2,667,064                          3,394,576                          3,299,119  
                             -----------                        -----------                        -----------  
  Total                                                                                                                      
  liabilities and                                                                                                            
  stockholders'                                                                                                              
  equity                     $45,213,270                        $44,163,613                        $43,742,280               
                             ===========                        ===========                        ===========  
  Net interest                               
  income                                  $1,396,970                           $909,576                          1,265,427
                                          ==========                         ==========                         ========== 
  Net interest                                                                                                               
  margin (1)                                           4.64%                               3.63%                             3.74%
                                                      =====                               =====                             =====
  Net interest                                                                                                               
  spread (2)                                           3.66%                               2.97%                             3.08%
                                                      =====                               =====                             =====
  Fees included                                                                                                 
  in loan income                          $    1,023                           $111,658                            119,781
                                          ==========                         ==========                         ========== 
  Taxable                                                                                                       
  equivalent                                                                                                    
  adjustment                              $        -                         $        -                         $        -
                                          ==========                         ==========                         ========== 

</TABLE>

    Average balances for the years presented are calculated on a monthly
    basis.  Nonaccruing loans are included in the average loan balance.
 
*   The yield on this component of interest-bearing liabilities is derived as a
    percentage of gross interest paid on the average balance. Interest shown is
    net of capitalized interest of $38,400 on CODs under $100,000 for the nine
    month period ended September 30, 1997, and $144,000 on short-term debt for
    the nine month period ended September 30, 1996, and $144,000 on short-term
    debt for the year ended December 31, 1996.
 
(1) Net interest income divided by total earning assets.
(2) Average rate earned on total earning assets less average rate paid for
    interest-bearing liabilities.
 
                                       6
<PAGE>
 
ITEM 2:   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

A.   RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997, AS
     ---------------------------------------------------------------------
     COMPARED TO THE SIX MONTHS ENDED SEPTEMBER 30, 1996
     ---------------------------------------------------

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, which is presented on a consolidated basis.  UFBC reported net
income of $13,008 for the nine-month period ended September 30, 1997.  This
compares with a net loss of $539,073 for the same period of 1996.  Earnings
(loss) per share were ($.03) for the first nine months ended September 30, 1997,
compared to ($.19) for the first nine months of 1996.

     During the nine-month period ended September 30, 1997, UFBC's primary
subsidiary, The Business Bank (the Bank), increased the Company's earning asset
base.  As of September 30, 1997, average total earning assets increased
$6,888,000 or 20.6% when compared to the comparable period of September 30, 1996
(Consolidated Average Balances table).  The increase has favorably contributed
to the Company's earnings.  The Company's real estate owned (REO) which are
nonearning assets, and related holding costs continue to hinder the Company's
profitability.  At September 30, 1997, REO was $2,595,000 or 5.7% of the
Company's total assets (Consolidated Balance Sheets).  However, the REO
hindrance has been diminished by the Company's liquidation or sale of several
large pieces of property over the past three years. In addition to focusing on
deposit and loan growth, management continues to prioritize the liquidation of
REO and as of September 30, 1997 had REO contracts (both firm and pending)
totaling approximately $790,000.  Although there can be no assurance of
settlement, management anticipates that these contracts will close and settle
during the fourth quarter of 1997 and the first quarter of 1998.

NET INTEREST INCOME
-------------------
     For the nine-month period ended September 30, 1997, net interest income
increased $487,000 or 53.6% from $910,000 at September 30, 1996 to $1,397,000 at
September 30, 1997.  The increase is primarily attributable to the increased
loan volume in the Bank.  As shown in the Consolidated Average Balances table,
the average total loan/lease volume increased $5,653,000 or 21.5% from
$26,271,000 at September 30, 1996 to $31,924,000 at September 30, 1997.  Due to
the increased loan volume, interest and fees on loans rose $365,000 or 20.2% as
of the nine-month period ended September 30, 1997 when compared to the
comparable period of 1996 which favorably impacted net interest income.

     For the same comparable nine-month period, interest income earned on
federal funds sold increased $19,000 or 9.9% (Consolidated Statements of
Income). The increase resulted from a change in the investment mix, such as
loans, securities or federal funds, chosen by management during the comparable
periods. Interest earned on investment securities increased $51,000 or 62.3%.
The investment mix and higher yielding securities (Consolidated Average Balances
table) contributed to the rise. The modified investment mix also explains the
variances of the three-month period ended September 30, 1997 when compared to
the same three-month period ended September 30, 1996.

     Interest expense on deposits increased $2,000 or .17% at September 30, 1997
when compared to the period ended September 30, 1996.  The modest increase
reflects management's continuing efforts to alter the Bank's deposit mix toward
more core deposits.  At September 30, 1997, capitalized interest totaling
$38,400 was netted against interest expense on deposits and also contributed to
the modest increase.  As the Bank becomes less dependent on volatile
certificates of deposits more than $100,000, management has had more freedom to
restructure or reduce the rates paid on interest-bearing deposits.

                                       7
<PAGE>
 
SHORT-TERM BORROWINGS
---------------------
     The Company had no expense for borrowings during the first nine months of
1997.  Borrowing expense during the three month and nine month periods ended
September 30, 1996, shown net of $144,000 of capitalized interest,  was incurred
as the result of financing for the Company's North Ocean City project. The North
Ocean City project concluded activities in April 1997.  All borrowings were
either repaid in full or converted to redeemable preferred stock - series A
during the year ended December 31, 1996.

PROVISION FOR LOAN/LEASE LOSSES
-------------------------------
      During the first nine months of 1997, the Bank funded its allowance by
charging $120,200 against earnings compared to $145,942 charged against earnings
during the first nine months of 1996.  The parent company, UFBC, replenished its
allowance $17,100 during in the first nine months of 1997.

NONINTEREST INCOME
------------------
     Total noninterest income decreased $21,000 or 10.9% for the nine months
ended September 30, 1997 compared to the comparable period of 1996.  The decline
is primarily attributable to the gain on the sale of REO from the North Ocean
City project which occurred during 1996.  The 1996 REO gain also contributed to
the variance between the comparable three month periods ended September 30, 1996
and 1997.  Income from a forfeited REO deposit of $22,000 in September 1996
explains the other income variance between the three month periods ended
September 30, 1996 and 1997.

NONINTEREST EXPENSE
-------------------
     Total noninterest expense decreased $87,000 or 5.9% during the first nine
months of 1997 when compared to the same period of 1996.  The decline is due
principally to the Company's restructuring and management's continuing efforts
to curtail expenses even as the Company continues to grow.

     For the nine-month period ended September 30, 1997 as compared to the
comparable period of 1996, occupancy expense increased $120,000 or 116.1% due to
the rental expense incurred for the space leased for the Bank.  The cessation of
depreciation expense associated with ownership of the Bank building serves to
partially offset the increased expense.  The cessation of a consulting
arrangement with the Company in January 1997 primarily explains the drop in
other expense for the first nine months ended September 30, 1997 when compared
to the first nine months ended September 30, 1996.  Consulting expense totaled
$7,900 for the first nine months ended September 30, 1997 compared to $95,000
for the comparable period of 1996.
 
     Legal expense declined $21,000 or 77.7% during the three-month period ended
September 30, 1997 and $72,000 or 80.1% during the first nine months of 1997
when compared to the comparable periods of 1996.  The decline is principally
attributable to significantly reduced litigation expense in the parent during
the first nine months of 1997.  During the first nine months of 1996, the
parent, as plaintiff, incurred substantial litigation expense associated with
the subsidiary, Omni Homes, Inc.

     Expense for the Bank's FDIC insurance decreased $17,000 or 80.2% during the
three month period ended September 30, 1997 when compared to the comparable
period ended September 30, 1996.  The decline is attributable to the improved
risk rating assessed by the FDIC.

     The provision for REO increased $62,000 or 502.9% for the first nine months
of 1997 compared to the comparable period of 1996.  The rise is due partially to
management's efforts to liquidate the Company's REO in an expeditious manner.
Though FASB 34 requires interest to be capitalized on REO that is being
developed, the Company chooses to write-down REO in an equivalent amount.  These
write-downs total $38,400 for 1997 and significantly contributed to the REO
provision increase when comparing the first nine month periods ended September
30, 1997 and 1996.  REO holding expense decreased 76,000 or 55.4% 

                                       8
<PAGE>
 
for the first nine months of 1997 when compared to the first nine months of
1996. The Company's liquidation of several large pieces of property during 1996
and 1997, which eliminated the related holding costs, explains the drop.


INCOME TAXES
------------
     In 1993, the rate that UFBC accrued its tax benefit differed from the
statutory tax rate based on the inability of UFBC to use its losses to reduce
deferred taxes or to record a tax benefit.   At the end of 1993, all of UFBC's
accrued tax benefits were eliminated due to UFBC's inability to demonstrate
capacity for their future use.  As a result, until such time that UFBC
demonstrates a capacity for their future use, UFBC will not be able to accrue
tax benefits.  UFBC has accrued no tax benefits for the six months ended
September 30, 1997.

B.   FINANCIAL CONDITION AS OF SEPTEMBER 30, 1997
     --------------------------------------------

ASSETS
------
     Total assets grew $3,811,000 or 9.2% during the first nine months of 1997
when compared to the period ended December 31, 1996.  The rise in assets is
primarily attributable to the Bank's increased volume of loans.  Net loans and
lease financing increased $3,914,000 or 12.8% to $34,533,000 at September 30,
1997 from $30,618,000 at December 31, 1996.

Allowance for Loan/Lease Losses
-------------------------------
     The allowance for loan/lease losses (allowance) represents an amount which
management believes will be adequate to absorb potential losses inherent in the
loan/lease portfolio.  The provision for loan losses represents the charge to
earnings during the year to cover potential future losses.  The amount charged
to expense during the year is dependent upon management's assessment of the
adequacy of the allowance. Principal factors in management's evaluation include
prior loss experience, changes in the composition and volume of the portfolio,
overall portfolio quality, the value of underlying collateral, reviews of
portfolio quality by state and federal supervisory authorities, specific problem
loans, and current and anticipated economic conditions that may affect a
borrower's ability to repay.

     At September 30, 1997 and December 31, 1996, the allowance was $660,000 and
$584,000, respectively, or 1.9% of total loans and leases.   Nonperforming loans
for the nine-month period ended September 30, 1997 totaled $315,000 of which
$244,000 resided in the Bank and $71,000 in the parent. This compares to a
balance of $328,000 at December 31, 1996, of which $308,000 resided in the Bank
and $20,000 resided in the parent.  The consolidated allowance for loan/lease
losses covers nonperforming loans 4.77 times at September 30, 1997, compared to
a coverage of 1.78 times at year end 1996.

Real Estate Owned, Premises and Equipment, Other Assets
-------------------------------------------------------
     REO decreased $520,000 or 16.7% during the nine-month period ended
September 30, 1997.  The decrease is primarily due to sales. During the first
nine months of 1997, the Bank installed an ATM and upgraded or changed several
pieces of equipment which primarily accounts for the $44,000 or 33.4% rise in
premises and equipment.  At September 30, 1997 and December 31, 1996, other
assets included proceeds in transit for REO sales and explains the elevated
balance at both dates.

LIABILITIES
-----------
     Total deposits increased $3,347,000 or 8.8% during the first nine months of
1997 when compared to the year ended 1996.  During the nine months ended
September 30, 1997, the deposit mix changed as money market accounts rose
$4,202,000 or 105.8% from $3,970,000 at December 31, 1996 to $8,172,000 at
September 30, 1997.  The change is part of management's continuing plan to
increase core deposits to provide an adequate base for the Bank's growth.

                                       9
<PAGE>
 
LIQUIDITY AND INVESTMENT
------------------------
     Since January 1994, operational expenses of UFBC have been provided
primarily by liquidation of assets.  UFBC's working capital is significantly
limited by the inability to receive dividends from the Bank subsidiary.
Accordingly, UFBC's ability to meet its short-term obligations continues to
depend on the liquidation of REO and loan payments of approximately $21,000 per
quarter.

     Consolidated average liquid assets were 22.1% of average total assets at
September 30, 1997 compared to 20.0% for the same period ended September 30,
1996 and 19.1% at December 31, 1996 (Consolidated Average Balances table).  The
Company's liquidity needs exist primarily in the Bank subsidiary.  To maintain
adequate liquidity, the Bank purchases certain traditional assets such as
government and other investment securities. The Bank's securities portfolio
comprises U.S. Treasury securities, U.S. Government agency securities and
interest-bearing deposits placed with financial institutions.  The Bank is
strategically growing its securities portfolio to ensure safe levels of
liquidity, to enhance the overall credit quality of its asset base and to
generate increased interest income.  The securities portfolio includes both
instruments available-for-sale and held-to-maturity.  Securities classified as
available-for-sale may be sold in response to changes in market interest rates,
changes in prepayment or extension risk, management of the federal tax position,
liquidity needs and other asset/liability management issues.  Securities
classified as held-to-maturity are intended for investment purposes.

     At September 30, 1997, the Bank's investment portfolio consisted of the
following:
<TABLE>
<CAPTION>
 
                                        Available-for-Sale  Held-to-Maturity
                                        ------------------  ----------------
<S>                                     <C>                 <C>
U.S. Treasury                                    2,439,750           249,500
U.S. Government Agency                                             1,030,217
Interest-bearing Deposits                                            100,000
(placed with financial institutions)
</TABLE>

REDEEMABLE PREFERRED STOCK
--------------------------
     The Company sold an additional 300 shares or $450,000 of Series A Preferred
Stock to a director and shareholder of beneficial ownership in excess of 5%
during the first nine months of 1997.  As of September 30, 1997, redemption
value of the Company's preferred stock series A at September 30, 2001 is
projected to be $1,786,000.

REGULATORY AGREEMENTS AND COMPLIANCE
------------------------------------
     On June 2, 1997, the State Corporation Commission Bureau of Financial
Institutions (SCC) terminated its participation in the Order to Cease and Desist
issued by the Federal Deposit Insurance Corporation (FDIC) against  the Business
Bank (Bank), the primary subsidiary of United Financial Banking Companies, Inc.,
on August 12, 1993.

     Effective June 3, 1997, the FDIC terminated the Order to Cease and Desist
issued against the Bank on August 12, 1993.

     Previously, on May 19, 1997, the Board of Directors of the Bank submitted a
resolution to the FDIC and to the SCC.  The resolution included the following:
 
     (1) The Bank will maintain a Tier 1 Leverage Capital ratio of 6.0 percent
         or more and a Total Risk Based Capital ratio of 8.0 percent or more. In
         the event that the Tier 1 and/or Total Risk Based Capital ratio falls
         below the prescribed percentages as calculated on a quarterly calendar
         period, the Bank agrees to notify the Supervisory Authorities and that
         within ninety days capital will be increased in an amount sufficient to
         meet the ratios agreed to herein.
     (2) The Bank Board of Directors and management will develop specific plans
         of action for each asset adversely classified as of December 31, 1996
         in the amount of $200,000 or more.

                                       10
<PAGE>
 
     (3) The Bank will prepare and submit to Supervisory Authorities a
         comprehensive budget and earnings forecast for each calendar year.
     (4) The Bank will not pay any cash dividends without written consent from
         Supervisory Authorities.
     (5) The Bank will not accept, renew or roll over brokered deposits without
         the prior consent of Supervisory Authorities.
     (6) Quarterly, the Bank will submit progress reports to Supervisory
         Authorities addressing each provision above.

      On December 31, 1993, UFBC entered into a written agreement (Agreement)
with the Federal Reserve Bank of Richmond and the Commissioner of Financial
Institutions, Bureau of Financial Institutions of the Commonwealth of Virginia.
The Agreement addressed various areas of operation in the Company, most
specifically the Bank, and required the Board of Directors and management to
complete and to perform several specific directives.  The Agreement also
includes provisions to monitor the Company's progress toward profitability.  As
of September 30, 1997, management believes that the Company is in compliance
with all terms and provisions of the Agreement.

CAPITAL REQUIREMENTS
--------------------
     The Federal Reserve Board issued risk-based capital guidelines for bank
holding companies.  The guidelines initially defined a two-tier capital
framework.  Tier I Capital consists of common and qualifying preferred
shareholders' equity less intangible assets.  Tier II Capital consists of
mandatory convertible, subordinated and other qualifying debt, preferred stock
not qualifying as Tier I Capital and the reserve for loan losses up to 1.25
percent of risk-weighted assets.  Under these guidelines, one of four risk
weights is applied to the different on-balance sheet assets.  Off-balance sheet
items such as loan commitments are also applied a risk weight after conversion
to balance sheet equivalent amounts.  Tier I and Tier II Capital require a
minimum ratio of 4.0% and 8.0%, respectively.  The Federal Reserve issued
another guideline, a minimum Leverage ratio, which measures the ratio of Tier I
Capital to quarterly average assets less intangible assets.  A Leverage ratio of
3.0% must be maintained for highly rated banks.  Otherwise, the minimum leverage
ratio, based upon the institution's overall financial condition, must be at
least 100 to 200 basis points above the minimum.  These guidelines were also
adopted by the Federal Deposit Insurance Corporation and therefore applies to
the Company's banking subsidiary.  Additionally, the Federal Reserve Board
requires bank holding companies to meet a minimum ratio of qualifying Total
(combined Tier I and Tier II) capital to risk-weighted assets of 8.0%, at least
half of which must be composed of core (Tier I) capital elements.  The following
table presents the Company and the Bank's capital position and related ratios as
of September 30, 1997 and 1996.
<TABLE>
<CAPTION>
 
                                                                         1997          1996
                                                                     ------------  ------------
<S>                                                                  <C>           <C>
Tier I Capital
       Company                                                       $ 2,664,338   $ 3,125,866
       The Business Bank                                               3,512,253     2,553,369
Total qualifying capital
       Company                                                       $ 4,104,706   $ 3,553,833
       The Business Bank                                               3,902,091     2,968,896
Risk-weighted assets                                       
       Company                                                       $31,380,675   $34,149,778
       The Business Bank                                              30,952,736    33,242,161
Quarterly average assets
       Company                                                       $46,677,186   $43,813,864
       The Business Bank                                              46,172,692    41,438,626
</TABLE> 

                                       11
<PAGE>
 
<TABLE> 
<CAPTION> 
 
                                                                                      Required
                                                             1997         1996         Minimum
                                                         -----------   -----------   -----------
 <S>                                                     <C>           <C>           <C> 
Risk-based capital ratios:  
Tier I Capital (Tier I capital/risk-weighted assets)
       Company                                                8.49%         9.15%         4.00%
       The Business Bank                                     11.35%         7.68%         4.00%
  Total Capital (Total capital/risk-weighted assets)
       Company                                               13.08%        10.41%         8.00%
       The Business Bank                                     12.61%         8.93%         8.00%
Leverage ratio (Tier I capital/adjusted average assets)
       Company                                                5.71%         7.13%         4.00%
       The Business Bank                                      7.61%         6.00%      ***6.00%
</TABLE>

***Minimum goal of  the Board Resolution


                          PART II.  OTHER INFORMATION

ITEM 6:  EXHIBITS AND REPORTS ON FORM 8-K


(6)    On June 2, 1997, United Financial Banking Companies, Inc. filed
       notification on Form 8-K that the FDIC terminated the Order to Cease and
       Desist issued against the Bank on August 12, 1993.  The content of the
       June 2, 1997 8-K is disclosed on pages 10 and 11 (Regulatory Agreements
       and Compliance) of this filing.


                                  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. RAUNER
                                 -----------------------------------------------
                                 Harold C. Rauner
                                 President and CEO
 


                                  /s/ LISA M. PORTER
                                 -----------------------------------------------
                                 Lisa M. Porter
                                 Chief Financial Officer



Date: November 11, 1997
     --------------------

                                       12