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: June 30, 2001
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[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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SEC File Number: 000-32437
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BUCS FINANCIAL CORP
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(Exact name of registrant as specified in its charter)
Maryland 52-2265986
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10455 Mill Run Circle, Owings Mills, Maryland 21117
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(Address of principal executive offices) (Zip Code)
(410) 998-5304
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(Registrant's telephone number, including area code)
Check whether the registrant: (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to 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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares outstanding of common stock as of August 14, 2001:
$0.10 Par Value Common Stock 405,085
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Class Shares Outstanding
Transitional Small Business Disclosure Format (check one)
Yes No X
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BUCS FINANCIAL CORP AND SUBSIDIARIES
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2001 (unaudited)
and December 31, 2000 (audited)....................................1
Consolidated Statements of Operations for the six and three month
periods ended June 30, 2001 and 2000 (unaudited)...................2
Consolidated Statements of Cash Flows for the six
month period ended June 30, 2001 and 2000 (unaudited)..............3
Notes to Consolidated Financial Statements.........................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................6
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings.................................................12
Item 2. Changes in Securities and Use of Proceeds.........................12
Item 3. Defaults Upon Senior Securities...................................12
Item 4. Submission of Matters to a Vote of Security-Holders...............12
Item 5. Other Information.................................................12
Item 6. Exhibits and Reports on Form 8-K..................................12
Signatures
BUCS FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2001 AND DECEMBER 31, 2000
(Unaudited)
June 30 December 31
2001 2000
------------ ------------
ASSETS
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Cash and cash equivalents $ 4,443,074 $ 5,354,010
Securities available for sale 17,359,072 14,350,772
Securities held to maturity 864,246 958,194
Loans receivable, net 52,685,416 49,057,095
Accrued interest receivable 294,533 418,267
Property and Equipment, net 982,198 1,040,923
Investment required by law - Federal Home Loan Bank Stock 930,800 930,800
Prepaid expenses and other assets 861,146 987,118
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Total Assets $ 78,420,485 $ 73,097,179
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LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Liabilities:
Deposits $ 58,282,143 $ 51,441,086
Accounts payable and other liabilities 644,315 657,786
Borrowed funds - Federal Home Loan Bank 10,000,000 15,000,000
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68,926,458 67,098,872
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Stockholder's Equity:
Preferred stock, par value $0.10 per share, 2,000,000 shares - -
authorized, 0 shares issued and outstanding
Common stock, par value $0.10 per share, 5,000,000 shares 40,508 -
authorized, 405,085 shares issued and outstanding 3,493,636 -
Additional paid-in capital
Retained Earnings 6,200,252 6,026,609
Unearned ESOP shares (324,100) -
Accumulated other comprenhensive income (loss) 83,731 (28,302)
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9,494,027 5,998,307
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Total liabilities and stockholder's equity $ 78,420,485 $ 73,097,179
============ ============
The accompanying notes are an intregal part of these consolidated statements
-1-
BUCS FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX AND THREE MONTH PERIODS ENDED JUNE 30, 2001 AND JUNE 30, 2000
(Unaudited)
Six month periods ended Three month periods ended
June 30 June 30
2001 2000 2001 2000
----------- ----------- ----------- -----------
Interest Income
Loans receivable $ 2,084,817 $ 1,880,295 $ 1,025,910 $ 960,062
Securities 678,380 651,224 328,576 335,590
----------- ----------- ----------- -----------
Total interest income 2,763,197 2,531,519 1,354,486 1,295,652
----------- ----------- ----------- -----------
Interest expense
Deposits 1,094,232 873,194 547,914 449,292
Borrowed funds 378,083 466,722 148,778 230,107
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1,472,315 1,339,916 696,692 679,399
----------- ----------- ----------- -----------
Net interest income 1,290,882 1,191,603 657,794 616,253
Provision for loan losses 90,000 80,000 45,000 60,000
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1,200,882 1,111,603 612,794 556,253
----------- ----------- ----------- -----------
Noninterest income
Fees and service charges 533,125 456,728 251,251 245,014
Investment securities gain 4,375 - - -
Fee to process and maintain cash facility 60,000 60,000 30,000 30,000
Other 94,949 16,839 55,422 12,628
----------- ----------- ----------- -----------
Total noninterest income 692,449 533,567 336,673 287,642
----------- ----------- ----------- -----------
1,893,331 1,644,720 949,467 843,895
----------- ----------- ----------- -----------
Noninterest expense
Compensation and benefits 736,972 643,020 386,246 317,576
Professional fees 88,445 57,569 38,411 27,228
Occupancy Expense 279,802 263,869 141,452 128,096
Office Operations 310,828 287,094 151,748 148,315
Other operating expense 203,044 240,432 94,597 127,017
----------- ----------- ----------- -----------
Total noninterest expense 1,619,091 1,491,984 812,454 748,232
----------- ----------- ----------- -----------
Income before income taxes 274,240 152,736 137,013 95,663
Income taxes 100,597 50,698 51,684 28,824
----------- ----------- ----------- -----------
Net income 173,643 102,038 85,329 66,839
Net change in unrealized gains/losses on securities
available for sale, net of deferred income tax benefit 112,033 (32,466) $ (1,682) $ (13,182)
----------- ----------- ----------- -----------
Comprehensve income $ 285,676 $ 69,572 $ 83,647 $ 53,657
=========== =========== =========== ===========
Earnings per share - basic and diluted 0.43 N/A 0.21 N/A
----------- ----------- ----------- -----------
Shares used in computing earnings per share 405,085 N/A 405,085 N/A
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated statements.
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BUCS FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2001 AND 2000
(Unaudited)
2001 2000
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Cash flows from operating activities
Cash inflows
Interest income $ 2,886,931 $ 2,540,761
Fees and service charges 533,125 456,278
Other income 129,324 16,839
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3,549,380 3,013,878
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Cash outflows
General and administrative expenses 1,425,427 987,147
Interest on deposits 1,094,232 873,194
Interest on borrowed funds 417,500 532,772
Income taxes 2,653 204,459
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2,939,812 2,597,572
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Net cash provided from operating activities 609,568 416,306
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Cash flows from investing activities
Cash inflows
Loan principal repayments and loan participations sold 13,925,481 9,120,917
Proceed from maturities and redemptions of securities
available for sale 9,139,285 1,236,967
Proceeds from repayments on securities held to maturity 93,948 6,991
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23,158,714 10,364,875
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Cash outflows
Purchase of securities available for sale 12,039,927 1,600,839
Loan disbursements 17,643,802 11,162,677
Purchase of property and equipment 46,590 395,642
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29,730,319 13,159,158
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Net cash used by investing activities (6,571,605) (2,794,283)
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Cash flows from financing activities
Cash inflows
Issuance of common stock 3,210,044 -
Net decreases in borrowed funds from the
Federal Home Loan Bank (5,000,000) (3,615,000)
Net increase in deposits 6,841,057 4,668,476
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Net cash provided by financing activities 5,051,101 1,053,476
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Net decrease in cash and cash equivalents (910,936) (1,324,501)
Cash and cash equivalents, beginning of period 5,354,010 4,870,193
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Cash and cash equivalents, end of period $ 4,443,074 $ 3,545,692
============ ============
Reconciliation of net income to net cash
provided by operating activities
Net income $ 173,643 $ 102,038
Investment securities gains 4,375 -
Adjustments for items not providing or not requiring cash
or cash equivalents
Provision for loan losses 90,000 80,000
Depreciation and amortization 105,315 116,128
Effects of changes in operating assets and liabilities
Accrued interest receivable 123,734 9,242
Prepaid expenses and other assets 125,972 344,446
Accounts payable and other liabilities (13,471) (235,548)
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Net cash provided by operating activities $ 609,568 $ 416,306
============ ============
The accompanying notes are an intregal part of these consolidated statements
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BUCS FINANCIAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - Organization
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BUCS Financial Corp (the "Company") was incorporated under the laws of the State
of Maryland in October 2000, primarily to hold all the outstanding shares of
capital stock of BUCS Federal Bank (the "Bank").
In March 2001, the Bank completed its mutual to stock conversion (the
"Conversion"). In connection with the Conversion, the Company sold 405,085
shares of its common stock in a subscription offering at $10.00 per share. Upon
completion of these transactions, the Bank became the wholly owned subsidiary of
the Company.
The Company's primary operations are conducted by the Bank, which operates two
offices, one in Owings Mills, Maryland and one in Columbia, Maryland. The Bank
is principally engaged in the business of providing retail banking services,
with an emphasis on residential mortgage loans and home equity, auto, and other
consumer loans.
NOTE 2 - Summary of Significant Accounting Policies
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Basis of Presentation
The accompanying consolidated financial statements include the activity of BUCS
Financial Corp and its wholly-owned subsidiary BUCS Federal Bank, and the
wholly-owned subsidiaries of BUCS Federal Bank, C.U. Benefits, Inc. and Armor
Insurance Group, LLC. All material intercompany transactions have been
eliminated in consolidation.
The accompanying consolidated financial statements for June 30, 2001 and the
three and six month periods ending June 30, 2001 have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations. However, the Company believes
that the disclosures are adequate to make the information presented not
misleading.
These consolidated financial statements should be read in conjunction with the
financial statements and notes thereto for the year ended December 31, 2000,
included in the Company's Annual Report on Form 10-KSB, filed with the
Securities and Exchange Commission. The balance sheet as of December 31, 2000
has been derived from the audited financial statements at that date.
The unaudited consolidated financial statements included herein reflect all
adjustments (which include only normal, recurring adjustments) which are, in the
opinion of management, necessary to state fairly the financial position of the
Company as of June 30, 2001, the results of its operations for the three month
and six month periods ended June 30, 2001, and cash flows for the six month
period ended June 30, 2001. The results of the interim periods are not
necessarily indicative of the results expected for the full fiscal year.
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Cash and Cash Equivalents
Cash and cash equivalents include interest-bearing deposits in other banks with
original maturities of less than three months, investments in overnight
investment funds with no stated maturity and Federal funds sold. Generally,
Federal funds are purchased and sold for one-day periods.
Federal Home Loan Bank Stock
Federal Home Loan Bank stock is carried at cost.
Use of Estimates
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities as of 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
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Earnings per common share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding during the period. Diluted
net income per common share is computed by dividing net income by the weighted
average number of common shares outstanding during the period, including any
potential dilutive common shares outstanding, such as options and warrants. At
June 30, 2001, the Company did not have any potentially dilutive common shares
outstanding.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company's results of operations are primarily dependent upon net
interest income, which is the difference between the interest income earned on
interest-earnings assets, primarily loans, mortgage-backed securities and
investments, and the interest expense on interest-bearing liabilities, primarily
deposits and borrowings. Net interest income may be affected significantly by
general economic and competitive conditions and policies of regulatory agencies,
particularly those with respect to market interest rates. The results of
operations are also significantly influenced by the level of noninterest
expenses such as employee salaries and benefits, noninterest income, such as
loan related fees and fees on deposit related services, and the provision for
loan losses.
Changes in Financial Condition
The Company's total assets of $78.4 million at June 30, 2001, reflects
an increase of $5.3 million as compared to $73.1 million at December 31, 2000.
The increase in total assets was due in part to the receipt of the proceeds from
the Company's sale of 405,085 shares of common stock at $10.00 per share in
connection with the Bank's mutual to stock conversion completed during the first
quarter of 2001. The increase in assets was comprised of increases in securities
available for sale, and loans receivable, net, of $3.0 million, and $3.7
million, respectively. The increase in investments available for sale and loans
receivable, net was partially offset by decreases in cash and equivalents, and
miscellaneous other assets of $910,000 and $300,000, respectively.
The increase in the Company's liabilities was due primarily to a $6.9
million increase in deposits. The increase in deposits was partially offset by a
$5.0 million decrease in Federal Home Loan Bank (FHLB) advances. Changes in the
components of major assets, liabilities and equity are discussed herein.
Cash and Cash Equivalents. Cash and cash equivalents, which include
interest-bearing deposits in other banks with original maturities of less than
three months and Liquid Cash Trust investments, totaled approximately $4.4
million at June 30, 2001, a decrease of nearly $1.0 million or 17.0% as compared
to the $5.4 million at December 31, 2000. The decrease was due to declines in
overnight interest-bearing deposits at the FHLB and Liquid Cash Trust
investments as the Company experienced improved demand for various Bank loan
products and increased its purchases of securities available for sale.
Securities Available for Sale. Securities available for sale increased
by $3.0 million or 21.0% to $17.4 million at June 30, 2001 as compared to $14.4
million at December 31, 2000. This is primarily the result of purchases of $12.0
million of mortgage backed securities offset by maturities of available for sale
investments and repayments on mortgage backed securities totaling $9.1 million.
Loans Receivable, Net. Net loans receivable at June 30, 2001 totaled
$52.7 million, an increase of $3.6 million or approximately 7.4%, as compared to
$49.1 million at December 31, 2000. The increase was primarily due to
originations of $17.6 million, which includes $12.2 million of consumer loans
including home equity loans, $4.1 million in first mortgage loans on
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one-to-four-family residences, and $1.3 million of commercial loans secured by
real estate in the Bank's prime lending area.
Deposits. Total deposits, after interest credited, increased by $6.8
million or 13.3% to $58.3 million at June 30, 2001, as compared to $51.4 million
at December 31, 2000. The increase was primarily due to growth of $2.4 million
in regular statement savings accounts, and strong demand for certificates of
deposit (CDs) and money market accounts, which increased by $2.3 million and
$2.2 million, respectively.
FHLB Advances. FHLB advances at June 30, 2001, totaled $10.0 million, a
decrease of $5.0 million or 33.3%, as compared to $15.0 million at December 31,
2000. The Company uses FHLB advances as a supplement to deposits to fund its
origination of loans and purchase of investments. Advances were paid down
because the large inflow of cash from the sale of common stock and deposit
growth during the quarter made excess cash available, which could not be
immediately invested in loans or favorable term investments.
Stockholders' Equity. Stockholders' equity totaled $9.5 million at June
30, 2001, as compared to $6.0 million at December 31 2000. The increase of $3.5
million or 58.3% was primarily due to the completion during the period ended
June 30, 2001 of the Bank's mutual to stock conversion and proceeds from the
sale of 405,085 shares of the Company's stock. In addition, earnings for the
period ended June 30, 2001 of approximately $174,000 and a net increase in the
unrealized gains (losses) on securities available for sale of approximately
$112,000 contributed to the increase in stockholders' equity.
Results of Operations for the Six Months Ended June 30, 2001 and 2000
Net Income. The company recorded net income of $174,000 for the
six-month period ended June 30, 2001, as compared to $102,000 for the same
period in 2000, representing a $72,000 or 70.2% increase. Net interest income
increased $99,000 and noninterest income increased by $159,000, while
noninterest expense increased by $127,000. The increases in interest income and
noninterest income were partially offset by a $10,000 increase in provision for
loan losses and by a $50,000 increase in the provision for income taxes. Changes
in the components of income and expense are discussed herein.
Net Interest Income. Net interest income increased $99,000 or 8.3% for
the six-month period ended June 30, 2001, as compared to the same period in
2000. The average balance of interest-earning assets increased $7.8 million or
12.0%, while the average yield thereon decreased 20 basis points. The average
balance of interest-bearing liabilities increased $5.5 million or 8.8% and the
average rate paid thereon increased 4 basis points. The increase in
interest-earning assets is attributed to the investment of the proceeds of the
sale of 405,085 shares of common stock in February and March 2001 and to the
increase in deposit volume at both of the Company's office locations. The
average yield on earning assets decreased primarily due to several interest rate
reductions by the Federal Reserve in the first half of 2001 as the general
economy slowed. The average cost of interest-bearing liabilities increased
slightly, in spite of the decline in general market rates, because more of the
increase in deposits came in higher yielding money market and certificate of
deposit accounts, especially in the first two months of 2001. The total of money
market and certificate of deposit accounts equaled 48.8% and 42.0% of total
deposits as of June 30, 2001 and 2000, respectively. The net interest rate
spread, which is the difference between the average yield on interest-earning
assets and the average cost of interest-bearing liabilities, decreased to 3.26%
for the six-month period ended June 30, 2001 from 3.49% for the same period in
2000. The decrease in the net interest rate spread is primarily due to the fact
that as
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general market interest rates have fallen interest earning assets have been
re-pricing faster than interest bearing liabilities.
Interest Income. Interest income increased $232,000 or 9.2% to $2.76
million for the six-month period ended June 30, 2001, as compared to $2.53
million for the same period in 2000.
Interest on loans receivable increased $205,000 or 10.9% for the
six-month period ended June 30, 2001, as compared to the same period in 2000.
The increase is mainly the result of a $5.9 million or 13.1% increase in the
average balance of loans receivable, partially offset by a 17 basis point
reduction in the average yield thereon.
Interest income on securities increased by $27,000 or 4.1% for the
six-month period ended June 30, 2001, as compared to the same period in 2000.
The increase is the result of a $1.9 million increase in the average balance of
securities partially offset by a 31 basis point decrease in the average yield on
investment securities.
The average yield on interest-earning assets was 7.58% and 7.78% for
the six-month period ended June 30, 2001 and 2000, respectively.
Interest Expense. Interest expense totaled $1.47 million for the
six-month period ended June 30, 2001, as compared to $1.34 million for the same
period in 2000, an increase of $132,000 or 9.9%. The average balance of
interest-bearing liabilities increased $5.5 million and the average rate paid
thereon increased by 4 basis points.
Interest expense on deposits increased $221,000 or 25.3% for the
six-month ended June 30, 2001, as compared to the same period in 2000. The
increase was due to an increase in total average deposits of $9.1 million and an
increase in the cost of average deposits of 18 basis points.
Interest on FHLB advances decreased by $89,000 or 19.1% for the
six-month period ended June 30, 2001, as compared to the same period in 2000.
The decrease was due to a decrease in the average balance of advances
outstanding of $3.6 million or 22.3%, partially offset by an increase in the
average cost of advances of 25 basis points. The Company uses FHLB advances as a
funding source and has in the past used borrowings to supplement deposits, which
are the Company's primary source of funds.
The average cost of interest-bearing liabilities was 4.33% and 4.29%
for the quarters ended June 30, 2001 and 2000, respectively.
Provision for Loan Losses. During the six-month period ended June 30,
2001 and 2000, the Company established provisions for loan losses of $90,000 and
$80,000, respectively. This reflected management's evaluation of the underlying
credit risk of the loan portfolio and the level of allowance for loan losses.
At June 30, 2001, the allowance for loan losses totaled $656,000 or
1.23% and 282.8% of total loans and total non-performing loans, respectively, as
compared to $574,000 or 1.16% and 466.7%, respectively at June 30, 2000. The
Company's non-performing loans (non-accrual loans and accruing loans 90 days or
more past due) totaled $232,000 and $123,000 at June 30, 2001 and June 30, 2000,
respectively, which represents .4% and .2% of the Company's total loans,
respectively. The Company's ratio of non-performing loans to total assets was
.3% and .2% at June 30, 2001 and June 30, 2000, respectively. The increase in
non-performing loans is primarily the result of one past due mortgage with a
balance of $116,000.
-8-
Noninterest Income. Total noninterest income, primarily fees and
service charges, increased $159,000 or 29.8% for the six-month period ended June
30, 2001, as compared to the same period in 2000. The increase reflects an
emphasis on charging appropriate fees for services, such as ATM fees,
insufficient funds fees, and interchange income generated by customers' use of
check cards. In addition, other noninterest income comprised mainly of
commissions on insurance sales by the Bank's wholly-owned subsidiary, Armor
Insurance Group, LLC, which commenced operations in 2000, increased to $61,000
for the six-month period ended June 30, 2001 from $10,000 for the same period in
2000.
Noninterest Expense. Total noninterest expense increased by $127,000 or
8.5% for the six-month period ended June 30, 2001, as compared to the same
period in 2000. This increase was attributable to increases of $94,000 or 14.6%
in compensation and benefits resulting from addition of employees to both the
Bank and Armor Insurance Group, LLC, increased cost for employee insurance
programs, and normal cost of living increases, $31,000 or 53.6% in professional
fees resulting from the hiring of an outside consulting firm to provide sales
and service training to employees and the professional assistance associated
with the conversion of the Bank from mutual to stock form, and $24,000 or 8.3%
in office operations costs resulting mainly from operating costs associated with
the Bank's wholly-owned subsidiary, Armor Insurance Group, LLC. These increases
were partially offset by declines in other noninterest expenses, mainly
marketing costs, of $37,000 or 15.6%. Marketing costs were high in the six-month
period ended June 30, 2000 due to promotions in connection with the Bank's new
Columbia branch, which held its grand opening in April 2000. These costs were
not repeated in the same period in 2001.
Income Tax Expense. The provision for income taxes totaled $101,000 for
the six-month period ended June 30, 2001, as compared to $51,000 for the same
period in 2000. The $50,000 or 98.4% increase is the result of increased net
taxable income.
Results of Operations for the Three Months Ended June 30, 2001 and 2000
Net Income. The company recorded net income of $85,000 for the quarter
ended June 30, 2001, as compared to $67,000 for the same quarter in 2000,
representing a $18,000 or 27.7% increase. Net interest income increased $42,000
and noninterest income increased by $49,000, while noninterest expense increased
by $64,000. The increases in interest income and noninterest income were
enhanced by a decrease in provision for loan losses during the quarter of
$15,000 and partially offset by a $23,000 increase in the provision for income
taxes. Changes in the components of income and expense are discussed herein.
Net Interest Income Net interest income increased $42,000 or 6.7% for
the quarter ended June 30, 2001, as compared to the same quarter in 2000. The
average balance of interest-earning assets increased $7.7 million or 11.6%,
while the average yield thereon decreased 50 basis points. The average balance
of interest-bearing liabilities increased $4.9 million or 7.9%, and the average
rate paid thereon decreased 21 basis points. The increase in interest-earning
assets is attributed to the investment of the proceeds of the sale of common
stock in February and March 2001 and to the increase in deposit volume at both
of the Bank's office locations. The average yield on interest-earning assets and
the average cost of interest-bearing liabilities both declined primarily due to
several rate reductions by the Federal Reserve in the first half of 2001 as the
general economy slowed. The interest earned declined somewhat faster than the
cost of interest-bearing liabilities because the Company's interest-earning
assets repriced more rapidly
-9-
than interest-bearing liabilities and because the greatest amount of the deposit
growth came in higher yielding money market and certificate of deposit accounts.
The total of money market and certificate of deposit accounts equaled 48.8% and
42.0% of total deposits as of June 30, 2001 and 2000, respectively. The net
interest rate spread, which is the difference between the yield on average
interest-earning assets and the cost of interest-bearing liabilities, decreased
to 3.21% for the quarter ended June 30, 2001 from 3.50% for the same quarter in
2000. The decrease in the net interest rate spread is primarily due to the fact
that as general market interest rates have fallen interest-earning assets have
been repricing faster than interest-bearing liabilities.
Interest Income. Interest income increased $59,000 or 4.5% to $1.35
million for the quarter ended June 30, 2001, as compared to $1.30 million for
the same quarter in 2000.
Interest on loans receivable increased $66,000 or 6.9% for the quarter
ended June 30, 2001, as compared to the same quarter in 2000. The increase is
mainly the result of a $6.3 million or 13.9% increase in the average balance of
loans receivable, partially offset by a 53 basis point reduction in the average
yield on loans receivable.
Interest income on securities decreased by $7,000 or 2.1%for the
quarter ended June 30, 2001, as compared to the same quarter in 2000. The
decrease is the result of a 53 basis point decrease in the average yield on
investment securities, partially offset by $1.3 million or 6.6% increase in the
average balance of investment securities.
The average yield on interest-earning assets was 7.34% and 7.84% for
the quarter ended June 30, 2001 and 2000, respectively.
Interest Expense. Interest expense totaled $697,000 for the quarter
ended June 30, 2001, as compared to $679,000 for the same quarter in 2000, an
increase of $18,000, or 2.7%. The average balance of interest-bearing
liabilities increased $4.9 million or 7.9%, however, the average rate paid
thereon decreased by 21 basis points.
Interest expense on deposits increased $99,000 or 22.0% for the quarter
ended June 30, 2001, as compared to the same quarter in 2000. The increase was
due to an increase in total average deposits of $9.9 million or 20.9% and an
increase in the cost of average deposits of 4 basis points.
Interest on FHLB advances decreased by $81,000 or 35.1% for the quarter
ended June 30, 2001, as compared to the same period in 2000. The decrease was
due to a decrease in the average balance of advances outstanding of $5 million
or 33.3% and a decline in the average cost of advances of 17 basis points. The
Company uses FHLB advances as a funding source and has in the past used
borrowings to supplement deposits, which are the Company's primary source of
funds.
The average cost of interest-bearing liabilities was 4.13% and 4.34%
for the quarters ended June 30, 2001 and 2000, respectively.
Provision for Loan Losses. During the quarter ended June 30, 2001 and
2000, the Company established provisions for loan losses of $45,000 and $60,000,
respectively. This reflected management's evaluation of the underlying credit
risk of the loan portfolio and the level of allowance for loan losses. The
decrease in the loan loss provision of $15,000 or 25% reflects management's
decision to lower funding from the prior period based on a favorable loss
history in the past several quarters.
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Noninterest Income. Total noninterest income, primarily fees and
service charges, increased $49,000 or 17.0% for the quarter ended June 30, 2001,
as compared to the same quarter in 2000. The increase reflects an emphasis on
charging appropriate fees for services, such as ATM fees, insufficient funds
fees, and interchange income generated by customers' use of check cards. In
addition, other noninterest income comprised mainly of commissions on insurance
sales by the Bank's wholly-owned subsidiary, Armor Insurance Group, LLC, which
commenced operations in 2000, increased to $55,000 for the quarter ended June
30, 2001 from $4,000 for the same quarter in 2000.
Noninterest Expense. Total noninterest expense increased by $64,000 or
8.6% for the quarter ended June 30, 2001, as compared to the same quarter in
2000. This increase was attributable to increases of $69,000 or 21.6% in
compensation and benefits resulting from addition of employees to both the Bank
and Armor Insurance Group, LLC, increased cost for employee insurance programs,
and normal cost of living increases, $11,000 or 41.1% in professional fees
resulting from the hiring of an outside consulting firm to provide sales and
service training to employees and the professional assistance associated with
the conversion of the Bank from mutual to stock form, and $13,000 or 10.4% in
office occupancy costs resulting primarily from increased maintenance costs at
the Bank's Columbia branch. These increases were partially offset by declines in
other noninterest expenses, mainly marketing costs of $32,000 or 25.5%.
Marketing costs were high in the quarter ended June 30, 2000 due to promotions
in connection with the Bank's new Columbia branch, which held its grand opening
in April 2000. These costs were not repeated in the same period in 2001.
Income Tax Expense. The provision for income taxes totaled $52,000 for
the quarter ended June 30, 2001, as compared to $29,000 for the same quarter in
2000. The $23,000 or 79.3% increase is the result of increased net taxable
income.
Capital Requirements
The Bank is subject to federal regulations that impose certain minimum
capital requirements. Quantitative measures, established by regulation to ensure
capital adequacy, require the Bank to maintain amounts and ratios of tangible
and core capital to adjusted total assets and of total risk-based capital to
risk-weighted assets. On June 30, 2001, the Bank was in compliance with all of
its regulatory capital requirements.
Management believes that under current regulations, the Bank will
continue to meet its minimum capital requirements in the foreseeable future.
Events beyond the control of the Bank, such as changes in market interest rates
or a downturn in the economy in areas in which the Bank operates could adversely
affect future earnings and, as a result, the ability of the Bank to meet its
future minimum capital requirements.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
The Registrant, from time to time, is a party to routine litigation,
which arises in the normal course of business, such as claims to enforce liens,
condemnation proceedings on properties in which the it holds security interests,
claims involving the making and servicing of real property loans, and other
issues incident to the business of the Registrant. There were no lawsuits
pending or known to be contemplated against the Registrant at June 30, 2001 that
would have a material effect on the Registrant's operations or income.
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
None.
Item 3. Defaults Upon Senior Securities.
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security-Holders.
---------------------------------------------------
None.
Item 5. Other Information.
-----------------
During the quarter ended June 30, 2001, the Registrant delivered to two
separate insurance agencies non-binding expressions of interest providing for
the acquisition of such entities. The Registrant has come to agreement with both
parties on the terms of such acquisitions and is currently in the process of
negotiating definitive agreements to merge such entities into the Registrant's
wholly-owned subsidiary, Armor Insurance Group, in exchange for cash
consideration to be paid to the stockholders of such entities in installments:
one-third upon consummation of the acquisition, one-third on the first
anniversary of such date and the one-third on the second anniversary of such
date. The total aggregate consideration to be paid in connection with the two
acquisitions is approximately $324,000. The consummation of these acquisitions
is expected to occur in the third quarter.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
a) Exhibits:
None
b) Reports on Form 8-K:
On April 27, 2001, the Registrant filed a Current Report on
Form 8-K to report the resignation of its independent auditors. On
August 1, 2001, the Registrant filed a Current Report on Form 8-K to
report the engagement of new auditors.
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SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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.
BUCS FINANCIAL CORP
Date: August 14, 2001 By: /s/Herbert J. Moltzan
-------------------------------------
Herbert J. Moltzan
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/Herbert J. Moltzan /s/Herbert J. Moltzan
- ------------------------------------- --------------------------------------------
Herbert J. Moltzan Herbert J. Moltzan
President and Chief Executive Officer Chief Financial Officer
(Principal Executive Officer) (Principal Financial and Accounting Officer)
Date: August 14, 2001 Date: August 14, 2001
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