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, 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 November 12, 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 September 30, 2001 (unaudited)
and December 31, 2000 (audited)..............................................1
Consolidated Statements of Operations for the three and nine months
ended September 30, 2001 and 2000 (unaudited))...............................2
Consolidated Statements of Cash Flows for the nine
months ended September 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.................................................................13
Item 2. Changes in Securities and Use of Proceeds.........................................13
Item 3. Defaults Upon Senior Securities...................................................13
Item 4. Submission of Matters to a Vote of Security-Holders...............................13
Item 5. Other Information.................................................................13
Item 6. Exhibits and Reports on Form 8-K..................................................13
Signatures
BUCS FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
(Unaudited)
September 30, December 31,
2001 2000
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ASSETS
------
Cash and cash equivalents $ 7,955,221 $ 5,354,010
Securities available for sale 17,357,987 14,350,772
Securities held to maturity 786,132 958,194
Loans receivable, net 55,244,835 49,057,095
Accrued interest receivable 298,070 418,267
Property and Equipment, net 999,072 1,040,923
Investment required by law - Federal Home Loan Bank Stock 930,800 930,800
Prepaid expenses and other assets 899,247 987,118
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Total Assets $ 84,471,364 $ 73,097,179
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LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits $ 61,588,722 $ 51,441,086
Accounts payable and other liabilities 766,869 657,786
Borrowed funds - Federal Home Loan Bank 12,500,000 15,000,000
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74,855,591 67,098,872
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Shareholders' 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
authorized, 405,085 shares issued and outstanding at September 30, 2001 40,508 -
Additional paid-in capital 3,493,636
Retained Earnings 6,306,660 6,026,609
Unearned ESOP shares (324,100) -
Accumulated other comprenhensive income (loss) 99,069 (28,302)
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9,615,773 5,998,307
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Total liabilities and shareholders' equity $ 84,471,364 $ 73,097,179
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The accompanying notes are an intregal part of these consolidated statements
1
BUCS FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
(Unaudited)
Nine month periods ended Three month periods ended
September 30 September 30
2001 2000 2001 2000
---------- ---------- ---------- ----------
Interest Income
Loans receivable $3,166,243 $2,900,177 $1,081,426 $1,019,882
Securities 989,188 952,351 310,808 301,127
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Total interest income 4,155,431 3,852,528 1,392,234 1,321,009
---------- ---------- ---------- ----------
Interest expense
Deposits 1,620,999 1,344,707 526,767 471,513
Borrowed funds 535,620 727,182 157,537 260,460
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2,156,619 2,071,889 684,304 731,973
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Net interest income 1,998,812 1,780,639 707,930 589,036
Provision for loan losses 135,000 140,000 45,000 60,000
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1,863,812 1,640,639 662,930 529,036
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Noninterest income
Fees and service charges 882,996 730,520 349,871 274,242
Investment securities gain 4,375 - - -
Fee to process and maintain cash facility 90,000 90,000 30,000 30,000
Other 124,422 20,429 29,473 3,590
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Total noninterest income 1,101,793 840,949 409,344 307,832
---------- ---------- ---------- ----------
2,965,605 2,481,588 1,072,274 836,868
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Noninterest expense
Compensation and benefits 1,142,777 963,311 405,805 320,291
Professional fees 159,774 87,228 71,329 29,659
Occupancy Expense 414,250 396,526 134,448 132,657
Office Operations 496,787 435,814 185,959 148,720
Other operating expense 308,874 347,930 105,830 107,498
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Total noninterest expense 2,522,462 2,230,809 903,371 738,825
---------- ---------- ---------- ----------
Income before income taxes 443,143 250,779 168,903 98,043
Income taxes 163,092 88,108 62,495 37,410
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Net income 280,051 162,671 106,408 60,633
Net change in unrealized gains/losses on securities
available for sale, net of deferred income tax benefit 127,371 83,833 $ 15,338 $ 117,584
---------- ---------- ---------- ----------
Comprehensve income $ 407,422 $ 246,504 $ 121,746 $ 178,217
========== ========== ========== ==========
Earnings per share - basic and diluted 0.69 N/A 0.26 N/A
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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.
2
BUCS FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2001 AND 2000
(Unaudited)
2001 2000
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Cash flows from operating activities
Cash inflows
Interest income $ 4,275,628 $ 3,866,449
Fees and service charges 882,996 730,520
Other income 124,422 20,429
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5,283,046 4,617,398
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Cash outflows
General and administrative expenses 2,173,572 1,414,781
Interest on deposits 1,620,999 1,344,707
Interest on borrowed funds 572,670 672,552
Income taxes 25,591 101,995
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4,392,832 3,534,035
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Net cash provided from operating activities 890,214 1,083,363
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Cash flows from investing activities
Cash inflows
Loan principal repayments and loan participations sold 21,585,980 13,894,214
Proceed from maturities and redemptions of securities
available for sale 9,320,848 2,049,694
Proceeds from repayments on securities held to maturity 93,948 10,121
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31,000,776 15,954,029
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Cash outflows
Purchase of securities available for sale 12,118,203 1,698,421
Loan disbursements 27,908,720 17,062,027
Purchase of property and equipment 120,536 63,278
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40,147,459 18,823,726
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Net cash used by investing activities (9,146,683) (2,869,697)
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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 (2,500,000) (3,115,000)
Net increase in deposits 10,147,636 4,483,943
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Net cash provided by financing activities 10,857,680 1,368,943
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Net increase (decrease) in cash and cash equivalents 2,601,211 (417,391)
Cash and cash equivalents, beginning of period 5,354,010 4,870,193
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Cash and cash equivalents, end of period $ 7,955,221 $ 4,452,802
============ ============
Reconciliation of net income to net cash
provided by operating activities
Net income $ 280,051 $ 162,671
Investment securities gains 4,375 -
Adjustments for items not providing or not requiring cash
or cash equivalents
Provision for loan losses 135,000 140,000
Depreciation and amortization 153,637 119,399
Effects of changes in operating assets and liabilities
Accrued interest receivable 120,197 13,921
Prepaid expenses and other assets 87,871 99,652
Accounts payable and other liabilities 109,083 547,720
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Net cash provided by operating activities $ 890,214 $ 1,083,363
============ ============
The accompanying notes are an intregal part of these consolidated statements
3
BUCS FINANCIAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - Organization
------------
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
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The accompanying consolidated financial statements include the activity of BUCS
Financial Corp and its wholly-owned subsidiaries 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 September 30, 2001 and
the three and nine month periods ending September 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 September 30, 2001, the results of its operations for the three
month and nine month periods ended September 30, 2001, and cash flows for the
nine month period ended September 30, 2001. The results of the interim periods
are not necessarily indicative of the results expected for the full fiscal year.
4
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
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Federal Home Loan Bank stock is carried at cost.
Use of Estimates
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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, less unearned ESOP shares,
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 September 30, 2001, the Company did not have any
potentially dilutive common shares outstanding.
Note 4 - Accounting Pronouncements
-------------------------
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 141 requires that the
purchase method of accounting be used for all business combinations initiated or
completed after June 30, 2001. SFAS No. 142 will require that goodwill and
intangible assets with indefinite lives no longer be amortized, but instead be
tested for impairment at least annually. The Company does not expect either of
these standards to have a material impact on their financial position or
statement of operations.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company may from time to time make written or oral forward-looking
statements, including statements contained in the Company's filings with the
Securities and Exchange Commission (including this Quarterly Report on Form
10-QSB), in its reports to stockholders and in other communications by the
Company, which are made in good faith by the Company pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economy in which the Company conducts operations;
the effects of, and changes in, trade, monetary and fiscal policies and laws,
including interest rate policies of the board of governors of the federal
reserve system, inflation, interest rate, market and monetary fluctuations; the
impact of changes in financial services' laws and regulations (including laws
concerning taxes, banking, securities and insurance); competition; and the
success of the Company at managing the risks involved in the foregoing.
The Company cautions that the foregoing list of important factors is
not exclusive. The Company does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of the Company.
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 $84.5 million at September 30, 2001,
reflects an increase of $11.4 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
cash and equivalents of $2.6 million, securities available for sale of $3.0
million, and loans receivable, net, of $6.2 million.
6
The increase in the Company's liabilities was due primarily to a $10.1
million increase in deposits. The increase in deposits was partially offset by a
$2.5 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 $8.0
million at September 30, 2001, an increase of $2.6 million or 48.6% as compared
to $5.4 million at December 31, 2000. The increase is due primarily to an inflow
of payroll deposits on the last business day of September, totaling $3.0 million
and the holding of funds for mortgage loan and mortgage backed securities
commitments totaling $3.2 million. The payroll deposit inflow results from the
Bank's past history as a credit union. As is common with credit unions, there is
a strong tie to several employer groups whose employees use the services of the
employer endorsed financial institution (credit union or bank). This results in
significant cash inflows to the Bank on company pay days. The majority of this
is transaction account funds and, as a result, a good portion of these deposits
will flow back out during the ensuing two-week pay cycle.
Securities Available for Sale. Securities available for sale increased
by $3.0 million or 21.0% to $17.4 million at September 30, 2001 as compared to
$14.4 million at December 31, 2000. This is primarily the result of purchases of
$14.2 million of mortgage backed securities offset by maturities of available
for sale investments and repayments on mortgage backed securities totaling $11.2
million.
Loans Receivable, Net. Net loans receivable at September 30, 2001
totaled $55.2 million, an increase of $6.2 million or approximately 12.6%, as
compared to $49.1 million at December 31, 2000. The increase was primarily due
to originations of $21.9 million, which includes $15.0 million of consumer loans
including home equity loans, $5.6 million in first mortgage loans on
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 $10.1
million or 19.7% to $61.6 million at September 30, 2001, as compared to $51.4
million at December 31, 2000. The increase was primarily due to strong demand
for certificates of deposit (CDs) and money market accounts, which increased by
$5.3 million and $1.7 million, respectively, as well as growth of statement
savings accounts and non-interest bearing checking accounts of $2.4 million and
$1.0 million, respectively. This strong demand is attributed to increased
advertising by the Bank and to the movement of funds from stocks and mutual
funds as the value of these declined.
FHLB Advances. FHLB advances at September 30, 2001, totaled $12.5
million, a decrease of $2.5 million or 16.7%, 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 first nine months of the year made excess cash available,
which could not be immediately invested in loans or favorable term investments.
Stockholders' Equity. Stockholders' equity totaled $9.6 million at
September 30, 2001, as compared to $6.0 million at December 31 2000. The
increase of $3.6 million or 60.3% was primarily due to the completion during the
nine-month period ended September 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 nine-month period ended September 30, 2001 of
7
approximately $280,000 and a net increase in the unrealized gains (losses) on
securities available for sale of approximately $127,000 contributed to the
increase in stockholders' equity.
Results of Operations for the Nine Months Ended September 30, 2001 and 2000
Net Income. The company recorded net income of $280,000 for the
nine-month period ended September 30, 2001, as compared to $163,000 for the same
period in 2000, representing a $117,000 or 72.2% increase. Net interest income
increased $218,000 and noninterest income increased by $260,000, while the
provision for loan losses decreased by $5,000. The increases in interest income
and noninterest income were partially offset by a $75,000 increase in the
provision for income taxes and a $292,000 increase in noninterest expense.
Changes in the components of income and expense are discussed herein.
Net Interest Income. Net interest income increased $218,000 or 12.3%
for the nine-month period ended September 30, 2001, as compared to the same
period in 2000. The average balance of interest-earning assets increased $9.9
million or 15.2%, while the average yield thereon decreased 51 basis points. The
average balance of interest-bearing liabilities increased $6.4 million or 10.3%
and the average rate paid thereon decreased 25 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 the
investment of the increase in deposit volume at both of the Bank's office
locations. The average yield on earning assets decreased primarily due to
several interest rate reductions by the Federal Reserve throughout 2001 as the
general economy slowed. The average cost of interest-bearing liabilities
decreased by less than the average yield of interest-bearing assets because more
of the increase in deposits came in higher costing money market and certificate
of deposit accounts, especially in the first two months of 2001 and again in
late summer of 2001 as general market rates continued to decline. The total of
money market and certificate of deposit accounts equaled 51.6% and 44.4% of
total deposits as of September 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 nine-month period ended September 30, 2001 from 3.52%
for the same period 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 re-pricing faster than interest-bearing
liabilities.
Interest Income. Interest income increased $303,000 or 7.9% to $4.16
million for the nine-month period ended September 30, 2001, as compared to $3.83
million for the same period in 2000.
Interest on loans receivable increased $266,000 or 9.2% for the
nine-month period ended September 30, 2001, as compared to the same period in
2000. The increase is mainly the result of a $6.6 million or 14.8% increase in
the average balance of loans receivable, partially offset by a 42 basis point
reduction in the average yield thereon.
Interest income on securities increased by $37,000 or 3.9% for the
nine-month period ended September 30, 2001, as compared to the same period in
2000. The increase is the result of a $3.2 million or 16.4% increase in the
average balance of securities partially offset by a 69 basis point decrease in
the average yield on investment securities.
The average yield on interest-earning assets was 7.43% and 7.94% for
the nine-month periods ended September 30, 2001 and 2000, respectively.
8
Interest Expense. Interest expense totaled $2.16 million for the
nine-month period ended September 30, 2001, as compared to $2.07 million for the
same period in 2000, an increase of $85,000 or 4.1%. The average balance of
interest-bearing liabilities increased $6.4 million and the average rate paid
thereon decreased by 25 basis points.
Interest expense on deposits increased $276,000 or 20.5% for the
nine-months ended September 30, 2001, as compared to the same period in 2000.
The increase was due to an increase in the total average balance of deposits of
$10.0 million, partially offset by a 3 basis point decline in the average cost
of interest-bearing deposits.
Interest on FHLB advances decreased by $191,000 or 26.3% for the
nine-month period ended September 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 22.9% and a decline in the average cost of
advances of 27 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 4.17% and 4.42%
for the nine-month period ended September 30, 2001 and 2000, respectively.
Provision for Loan Losses. During the nine-month period ended September
30, 2001 and 2000, the Company established provisions for loan losses of
$135,000 and $140,000, respectively. This reflected management's evaluation of
the underlying credit risk of the loan portfolio and the level of allowance for
loan losses.
At September 30, 2001, the allowance for loan losses totaled $669,000
or 1.19% and 213.7% of total loans and total non-performing loans, respectively,
as compared to $621,000 or 1.31% and 422.4%, respectively at September 30, 2000.
The Company's non-performing loans (non-accrual loans and accruing loans 90 days
or more past due) totaled $313,000 and $147,000 at September 30, 2001 and
September 30, 2000, respectively, which represents .6% and .3% of the Company's
total loans, respectively. The Company's ratio of non-performing loans to total
assets was .4% and .2% at September 30, 2001 and September 30, 2000,
respectively. The increase in non-performing loans is primarily the result of
one past due mortgage with a balance of $116,000.
Noninterest Income. Total noninterest income, primarily fees and
service charges, increased $261,000 or 31.0% for the nine-month period ended
September 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 Company's wholly-owned subsidiary, Armor
Insurance Group, LLC, which commenced operations in 2000, increased to $113,000
for the nine-month period ended September 30, 2001 from $20,000 for the same
period in 2000.
Noninterest Expense. Total noninterest expense increased by $292,000 or
13.1% for the nine-month period ended September 30, 2001, as compared to the
same period in 2000. This increase was attributable to increases of $179,000 or
18.6% in compensation and benefits resulting from addition of employees at both
the Bank and Armor Insurance Group, LLC, increased cost for employee insurance
programs, and normal cost of living increases, $73,000 or 83.2% 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
9
of the Bank from mutual to stock form, and $61,000 or 14.0% in office operations
costs resulting mainly from operating costs associated with the Company's
wholly-owned subsidiary, Armor Insurance Group, LLC. These increases were
partially offset by declines in other noninterest expenses, mainly marketing
costs, of $39,000 or 11.2%. Marketing costs were high in the nine-month period
ended September 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 $163,000 for
the nine-month period ended September 30, 2001, as compared to $88,000 for the
same period in 2000. The $75,000 or 85.1% increase is the result of increased
net taxable income.
Results of Operations for the Three Months Ended September 30, 2001 and 2000
Net Income. The company recorded net income of $106,000 for the quarter
ended September 30, 2001, as compared to $61,000 for the same quarter in 2000,
representing a $45,000 or 75.5% increase. Net interest income increased $119,000
and noninterest income increased by $102,000, while noninterest expense
increased by $165,000. 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 $25,000 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 $119,000 or 20.2% for
the quarter ended September 30, 2001, as compared to the same quarter in 2000.
The average balance of interest-earning assets increased $11.9 million or 18.3%,
while the average yield thereon decreased 89 basis points. The average balance
of interest-bearing liabilities increased $8.4 million or 13.5%, and the average
rate paid thereon decreased 83 basis points. The increase in interest-earning
assets is attributed 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 throughout 2001 as the general economy slowed.
The yield on interest-earning assets declined slightly faster than the cost of
interest-bearing liabilities because the Company's interest-earning assets
repriced more rapidly 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 51.6% and 44.4% of total deposits as of September 30,
2001 and 2000, respectively. The net interest rate spread, which is the
difference between average yield on interest-earning assets and the average cost
of interest-bearing liabilities, decreased to 3.34% for the quarter ended
September 30, 2001 from 3.40% 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 slightly
faster than interest-bearing liabilities.
Interest Income. Interest income increased $71,000 or 5.4% to $1.39
million for the quarter ended September 30, 2001, as compared to $1.32 million
for the same quarter in 2000.
Interest on loans receivable increased $61,000 or 6.0% for the quarter
ended September 30, 2001, as compared to the same quarter in 2000. The increase
is mainly the result of a $8.1 million or 17.5% increase in the average balance
of loans receivable, partially offset by an 86 basis point reduction in the
average yield on loans receivable.
10
Interest income on securities increased by $10,000 or 3.3% for the
quarter ended September 30, 2001, as compared to the same quarter in 2000. The
$10,000 increase is the result of a $3.8 million or 20.4% increase in the
average balance of investment securities, partially offset by 91 basis point
decline in the average yield on these securities.
The average yield on interest-earning assets was 7.23% and 8.12% for
the quarter ended September 30, 2001 and 2000, respectively.
Interest Expense. Interest expense totaled $685,000 for the quarter
ended September 30, 2001, as compared to $732,000 for the same quarter in 2000,
a decrease of $47,000, or 6.4%. The average balance of interest-bearing
liabilities increased $8.4 million or 13.5%, however, the average rate paid
thereon decreased by 83 basis points.
Interest expense on deposits increased $55,000 or 11.7% for the quarter
ended September 30, 2001, as compared to the same quarter in 2000. The increase
was due to an increase in the average balance of deposits of $12.3 million or
26.3% partially offset by a decline in the average cost of deposits of 47 basis
points.
Interest on FHLB advances decreased by $102,000 or 39.2% for the
quarter ended September 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
$3.9 million or 25.6% and a decline in the average cost of advances of 125 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 3.89% and 4.71%
for the quarters ended September 30, 2001 and 2000, respectively.
Provision for Loan Losses. During the quarter ended September 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.
Noninterest Income. Total noninterest income, primarily fees and
service charges, increased $102,000 or 33.0% for the quarter ended September 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 Company's wholly-owned subsidiary, Armor Insurance Group, LLC,
which commenced operations in 2000, increased to $52,000 for the quarter ended
September 30, 2001 from $9,000 for the same quarter in 2000.
Noninterest Expense. Total noninterest expense increased by $165,000 or
22.3% for the quarter ended September 30, 2001, as compared to the same quarter
in 2000. This increase was attributable to increases of $86,000 or 26.7% in
compensation and benefits resulting from addition of employees at both the Bank
and Armor Insurance Group, LLC, increased cost for employee insurance programs,
and normal cost of living increases, $42,000 or 140.5% in professional fees
resulting from the hiring of an outside consulting firm to provide sales and
11
service training to employees and the professional assistance associated with
the conversion of the Bank from mutual to stock form, and $37,000 or 25.0% in
office operations costs resulting primarily from costs associated with the
operation of the Company's wholly-owned subsidiary, Armor Insurance Group, LLC.
Income Tax Expense. The provision for income taxes totaled $62,000 for
the quarter ended September 30, 2001, as compared to $37,000 for the same
quarter in 2000. The $25,000 or 67.1% 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 September 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.
12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
The Bank, 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 Bank holds security
interests, claims involving the making and servicing of real property loans, and
other issues incident to the business of the Bank. There were no lawsuits
pending or known to be contemplated against the Bank at September 30, 2001 that
would have a material effect on the Bank'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.
-----------------
As reported in the Registrant's Form 10-QSB for the quarter ended June
30, 2001, the Registrant is in the process of acquiring two separate insurance
agencies which will be merged into the Registrant's wholly-owned subsidiary,
Armor Insurance Group. The consummation of these acquisitions is expected to
occur in the fourth quarter. Income generated by the entities to be acquired is
reflected in the Registrant's financial statements for the quarter ended
September 30, 2001 pursuant to revenue sharing arrangements with these entities
begun during the quarter.
During the quarter ended September 30, 2001, the Registrant entered
into an agreement to acquire property in Columbia, Maryland to be developed as a
new branch office located in a new shopping center to be anchored by a 100,000
square foot Home Depot Expo store. The purchase price of the property is
$975,000 and the construction expense and equipment expense for the branch
building is expected to be approximately $1.0 million. The anticipated opening
of this new branch location is currently late summer or early fall of 2002.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
a) Exhibits:
None.
b) Reports on Form 8-K:
On August 1, 2001, the Registrant filed a Current Report on Form 8-K to
report the engagement of new auditors.
13
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: November 13, 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: November 13, 2001 Date: November 13, 2001
14