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, 2002
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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 ________
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 No X
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares outstanding of common stock as of July 26, 2002:
$0.10 Par Value Common Stock 365,435
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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
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2002
(unaudited) and December 31, 2001 (audited).......................1
Consolidated Statements of Operations for the three
and six months ended June 30, 2002 and 2001 (unaudited))..........2
Consolidated Statements of Cash Flows for the six
months ended June 30, 2002 and 2001 (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
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 JUNE 30, 2002 AND DECEMBER 31, 2001
(Unaudited)
June 30 December 31
2002 2001
---------------- --------------
ASSETS
Cash and cash equivalents $ 4,697,052 $ 2,359,036
Investment securities available for sale 22,629,761 19,103,091
Investment securities held to maturity 586,104 722,765
Loans receivable, net 60,698,406 59,360,908
Accrued interest receivable 333,379 332,433
Property and equipment, net 1,890,368 977,991
Investment required by law - Federal Home Loan Bank Stock 930,800 930,800
Goodwill and other intangible assets 406,470 327,240
Prepaid expenses and other assets 364,773 445,472
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Total Assets $92,537,113 $84,559,736
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Deposits $69,710,124 $61,417,093
Accounts payable and other liabilities 1,038,319 925,116
Borrowed funds - Federal Home Loan Bank 12,500,000 12,500,000
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83,248,443 74,842,209
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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 -
authorized, 365,435 and 405,085 shares issued and -
outstanding at June 30, 2002 and December 31, 2001,
respectively 36,544 40,508
Additional paid-in capital 3,120,137 3,508,708
Retained Earnings 6,273,889 6,443,132
Unallocated common stock held by Employee Stock
Ownership Plan ("ESOP") (298,172) (298,172)
Accumulated other comprenhensive income (loss) 156,272 23,351
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9,288,670 9,717,527
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Total liabilities and stockholder's equity $92,537,113 $84,559,736
============= =============
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, 2002 AND 2001
(Unaudited)
Six month periods ended Three month periods ended
June 30 June 30
----------------------------- -------------------------------
2002 2001 2002 2001
------------- ------------ ------------- --------------
Interest Income
Loans receivable $ 2,113,594 $ 2,084,817 $ 1,056,507 $ 1,025,910
Investment securities 624,697 678,380 325,207 328,576
------------ ------------ ------------ -------------
Total interest income 2,738,291 2,763,197 1,381,714 1,354,486
------------ ------------ ------------ -------------
Interest expense
Deposits 966,216 1,094,232 486,860 547,914
Borrowed funds 313,082 378,083 156,976 148,778
------------ ------------ ------------ -------------
Total interest expense 1,279,298 1,472,315 643,836 696,692
------------ ------------ ------------ -------------
Net interest income 1,458,993 1,290,882 737,878 657,794
Provision for loan losses 108,000 90,000 54,000 45,000
------------ ------------ ------------ -------------
1,350,993 1,200,882 683,878 612,794
------------ ------------ ------------ -------------
Noninterest income
Fees and service charges 829,868 533,125 427,008 251,251
Gain (loss) on sale of
investment securities 19,205 (4,375) 19,205 -
Fee to process and maintain
cash facility 60,000 60,000 30,000 30,000
Other 177,831 103,699 97,500 55,422
------------ ------------ ------------ -------------
Total noninterest
income 1,086,904 692,449 573,713 336,673
------------ ------------ ------------ -------------
2,437,897 1,893,331 1,257,591 949,467
------------ ------------ ------------ -------------
Noninterest expense
Compensation and benefits 1,001,920 736,972 499,726 386,246
Professional fees 122,765 88,445 61,883 38,411
Occupancy expense 291,593 279,802 156,378 141,452
Office operations 416,161 310,828 213,136 151,748
Other operating expense 212,630 203,044 115,940 94,597
------------ ------------ ------------ -------------
Total noninterest
expense 2,045,069 1,619,091 1,047,063 812,454
------------ ------------ ------------ -------------
Income before income taxes 392,828 274,240 210,528 137,013
Income taxes 145,420 100,597 77,904 51,684
------------ ------------ ------------ -------------
Net income 247,408 173,643 132,624 85,329
Net change in unrealized
gains/losses on securities
available for sale, net of
deferred income tax benefit 132,921 112,033 $ 242,612 $(1,682)
------------ ------------ ------------ -------------
Comprehensve income $ 380,329 $ 285,676 $ 375,236 $83,647
============ ============ ============ =============
Earnings per share - basic
and diluted 0.68 0.47 0.38 0.23
------------ ------------ ------------ -------------
Shares used in computing
earnings per share 362,398 372,678 349,670 372,678
============ ============ ============ =============
The accompanying notes are an integral part of these consolidated statements.
2
BUCS FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2002 AND 2001
(Unaudited)
2002 2001
------------ ------------
Cash flows from operating activities
Cash inflows
Interest income $ 2,737,345 $ 2,886,931
Fees and service charges 829,868 533,125
Other income 177,831 129,324
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3,745,044 3,549,380
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Cash outflows
General and administrative expenses 1,491,787 1,425,427
Interest on deposits 966,216 1,094,232
Interest on borrowed funds 312,645 417,500
Income taxes 302,314 2,653
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3,072,962 2,939,812
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Net cash provided from operating activities 672,082 609,568
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Cash flows from investing activities
Cash inflows
Loan principal repayments and loan
participations sold 14,473,236 13,925,481
Proceed from maturities and redemptions
of securities available for sale 4,641,144 9,139,285
Proceeds from repayments on securities
held to maturity 136,661 93,948
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19,251,041 23,158,714
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Cash outflows
Purchase of securities available
for sale 8,015,688 12,039,927
Loan disbursements 15,918,734 17,643,802
Purchase of property and equipment 1,027,530 46,590
Acquisition of insurance subsidiary 90,000 -
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25,051,952 29,730,319
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Net cash used by investing activities (5,800,911) (6,571,605)
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Cash flows from financing activities
Cash inflows
Proceeds of sale of common stock - 3,210,044
Net decreases in borrowed funds from
the Federal Home Loan Bank - (5,000,000)
Net increase in deposits 8,293,031 6,841,057
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8,293,031 5,051,101
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Cash outflows
Payments on notes payable 17,000 -
Repurchase of common stock 809,186 -
------------ ------------
826,186 -
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Net cash provided by financing activities 7,466,845 5,051,101
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Net decrease in cash and cash equivalents 2,338,016 (910,936)
Cash and cash equivalents, beginning of
period 2,359,036 5,354,010
------------ ------------
Cash and cash equivalents, end of period $ 4,697,052 $ 4,443,074
============ ============
Reconciliation of net income to net cash
provided by operating activities
Net income $ 247,408 $ 173,643
Investment securities (gains) losses (19,205) 4,375
Adjustments for items not providing or
not requiring cash or cash equivalents
Provision for loan losses 108,000 90,000
Depreciation and amortization 125,923 105,315
Effects of changes in operating assets
and liabilities
Accrued interest receivable (946) 123,734
Prepaid expenses and other assets 80,699 125,972
Accounts payable and other
liabilities 130,203 (13,471)
------------ ------------
Net cash provided by operating activities $ 672,082 $ 609,568
============ ============
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
Basis of Presentation
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, Inc. All material intercompany
transactions have been eliminated in consolidation.
The accompanying consolidated financial statements for June 30, 2002 and the six
month periods ending June 30, 2002 and 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 of America 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, 2001,
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, 2001
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, 2002, the results of its operations for the six month
period ended June 30, 2002, and cash flows for the six month period ended June
30, 2002. 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
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 of America 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
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 June 30, 2002, the Company did not have any potentially
dilutive common shares outstanding.
Note 4 - Stock Repurchases
The company purchased 39,650 shares of its common stock in the second quarter of
2002 in conjunction with its stock repurchase plan to buy back 10% of its
outstanding common stock. Cost of the shares repurchased during the quarter
equaled $809,186. At June 30, 2002, there were 859 shares yet to be purchased
under the stock repurchase plan.
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 $92.5 million at June 30, 2002 reflect an
increase of $8.0 million as compared to $84.6 million at December 31, 2001. The
increase in assets was comprised mainly of increases in investment securities
available for sale, cash and equivalents, loans receivable, net, and property
and equipment of $3.5 million, $2.3 million, $1.3 million, and $900,000,
respectively.
The Company's total liabilities of $83.2 million at June 30, 2002 reflect
an increase of $8.4 million or 11.2% as compared to $74.8 million at December
31, 2002. The increase in the
6
Company's liabilities was due primarily to an $8.3 million increase in deposits
reflecting the cyclical nature Bank's deposit levels resulting from its status
as a former credit union.
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 $4.7
million at June 30, 2002, an increase of $2.3 million or 99.1% as compared to
$2.4 million at December 31, 2001. The increase is due to the need for the Bank
to hold money to fund in process loan requests for home equity, first mortgage,
and commercial loans totaling $4.1 million as of June 30, 2002.
Investment Securities Available for Sale. Investment securities available
for sale increased by $3.5 million or 18.5% to $22.6 million at June 30, 2002 as
compared to $19.1 million at December 31, 2001. This is primarily the result of
purchases of $8.0 million of mortgage backed and government agency securities
offset by sales and repayments on mortgage backed securities totaling $4.5
million. As deposit growth outpaced that of loans, excess funds were used to
purchase investment securities.
Loans Receivable, Net. Net loans receivable at June 30, 2002 totaled $60.7
million, an increase of $1.3 million or approximately 2.3%, as compared to $59.4
million at December 31, 2001. Originations and line of credit advances of $15.9
million, which includes $13.1 million of consumer loans including home equity
loans, $1.8 million in first mortgage loans on one-to-four-family residences,
and $1.0 million of commercial real estate and other commercial loans in the
Bank's prime lending area were offset by principal repayments and loan
participations sold totaling $14.6 million.
Deposits. Total deposits, after interest credited, increased by $8.3
million or 13.5% to $69.7 million at June 30, 2002, as compared to $61.4 million
at December 31, 2001. The increase was due to the cyclical trends resulting from
the Bank's former status as a credit union and from the deposit of income tax
refunds and bonuses early in the year. In additional, there has been an apparent
movement of funds from stocks and mutual funds into safer bank deposit accounts
as the equity markets fluctuated. These factors combined to produce increases in
regular savings, non-interest bearing checking, money market account, and
certificate of deposit balances of $3.6 million, $600,000, $2.6 million and $1.5
million, respectively.
FHLB Advances. FHLB advances totaled $12.5 million at June 30, 2002,
representing no change from the total at December 31, 2001. The Bank did borrow
an additional $1,000,000 during May 2002 but this was repaid from the proceeds
of sale of investments securities available for sale on May 31, 2002. No
additional borrowing was needed due to the large deposit inflow during the
period.
Stockholders' Equity. Stockholders' equity declined by $429,000 to $9.29
million at June 30, 2002, as compared to $9.71 million at December 31 2001. The
decrease in equity is due to the repurchase of 39,650 shares of the company
stock in conjunction with its repurchase plan to buy back 10% of its outstanding
stock. The cost of the shares repurchased was $809,000. This was partially
offset by net income during the six-month period of $247,000 and an increase in
accumulated other comprehensive income of $133,000 resulting from an increase in
the estimated fair value of investment securities available for sale.
7
Results of Operations for the Six Months Ended June 30, 2002 and 2001
Net Income. The Company recorded net income of $247,000 for the six-month
period ended June 30, 2002, as compared to $174,000 for the same period in 2001,
representing a $73,000 or 42.5% increase. Net interest income increased $168,000
and noninterest income increased by $394,000, while noninterest expense
increased by $426,000. The increases in interest income and noninterest income
were partially offset by an $18,000 increase in provision for loan losses and by
a $45,000 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 $168,000 or 13.0% for
the six-month period ended June 30, 2002, as compared to the same period in
2001. The average balance of interest-earning assets increased $10.2 million or
13.8%, while the average yield thereon decreased 96 basis points. The average
balance of interest-bearing liabilities increased $10.4 million or 15.3% and the
average rate paid thereon decreased 106 basis points. The increase in
interest-earning assets is attributed 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 during
2001 as the general economy slowed. The average cost of interest-bearing
liabilities decreased as the Bank reduced rates paid on deposits accounts and
the cost of Federal Home Loan Bank borrowing declined in conjunction with the
downward trend of market interest rates. 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, increased to 3.25% for the
six-month period ended June 30, 2002 from 3.15% for the same period in 2001. The
increase in the net interest rate spread is primarily due to the fact that as
general market interest rates have fallen interest-earning assets repriced
slower than interest bearing liabilities during the six-month period ended June
30, 2002, as compared to 2001.
Interest Income. Interest income decreased $25,000 or .9% to $2.738 million
for the six-month period ended June 30, 2002, as compared to $2.763 million for
the same period in 2001.
Interest on loans receivable increased $29,000 or 1.4% for the six-month
period ended June 30, 2002, as compared to the same period in 2001. The increase
is mainly the result of a $9.0 million or 17.6% increase in the average balance
of loans receivable, partially offset by a 113 basis point reduction in the
average yield thereon.
Interest income on securities decreased by $53,000 or 7.8% for the
six-month period ended June 30, 2002, as compared to the same period in 2001.
The decrease is the result of a 74 basis point decline in the average yield on
investment securities, partially offset by $1.2 million or 5.4% increase in the
average balance of investment securities.
The average yield on interest-earning assets was 6.51% and 7.47% for the
six-month period ended June 30, 2002 and 2001, respectively.
Interest Expense. Interest expense totaled $1.28 million for the six-month
period ended June 30, 2002, as compared to $1.47 million for the same period in
2001, a decrease of $193,000 or 13.1%. The average balance of interest-bearing
liabilities increased $10.4 million or 15.3% while the average rate paid thereon
decreased by 106 basis points.
Interest expense on deposits decreased $128,000 or 11.7% for the six-month
ended June 30, 2002, as compared to the same period in 2001. The decrease was
due to a decline in the cost
8
of average deposits of 98 basis points, partially offset by an increase in
average total deposits of $9.8 million or 17.6%.
Interest on FHLB advances decreased by $65,000 or 17.2% for the six-month
period ended June 30, 2002, as compared to the same period in 2001. The decrease
was due to a decline in the cost of advances of 127 basis points, partially
offset by an increase in the average balance of advances outstanding of $619,000
or 4.9%. 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 3.25% and 4.31% for
the six-month periods ended June 30, 2002 and 2001, respectively.
Provision for Loan Losses. During the six-month period ended June 30, 2002
and 2001, the Company established provisions for loan losses of $108,000 and
$90,000, 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, 2002, the allowance for loan losses totaled $668,000 or 1.09%
and 586.0% of total loans and total non-performing loans, respectively, as
compared to $656,000 or 1.23% and 282.8%, respectively at June 30, 2001. The
Company's non-performing loans (non-accrual loans and accruing loans 90 days or
more past due) totaled $114,000 and $232,000 at June 30, 2002 and June 30, 2001,
respectively, which represents .2% and .4% of the Company's total loans,
respectively. The Company's ratio of non-performing loans to total assets was
..1% and .3% at June 30, 2002 and June 30, 2001, respectively. The decrease in
non-performing loans is primarily the result of resolving problems with one past
due mortgage loan with a balance of $116,000.
Noninterest Income. Total noninterest income, primarily fees and service
charges, increased $394,000 or 57.0% for the six-month period ended June 30,
2002, as compared to the same period in 2001. 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 insurance subsidiary, Armor Insurance Group,
Inc. increased to $178,000 for the six-month period ended June 30, 2002 from
$61,000 for the same period in 2001.
Noninterest Expense. Total noninterest expense increased by $426,000 or
26.3% for the six-month period ended June 30, 2002, as compared to the same
period in 2001. This increase was attributable to increases of $265,000 or 36.0%
in compensation and benefits resulting from addition of employees to both the
Bank and Armor Insurance Group, Inc., increased cost for employee insurance
programs, and normal cost of living increases, $34,000 or 38.8% in professional
fees resulting from hiring of professional assistance to improve compliance and
employee recruiting programs, and $105,000 or 33.9% in office operations costs
resulting mainly from operating costs associated Armor Insurance Group, Inc.
Income Tax Expense. The provision for income taxes totaled $145,000 for the
six-month period ended June 30, 2002, as compared to $101,000 for the same
period in 2001. The $45,000 or 44.6% increase is the result of increased net
taxable income.
9
Results of Operations for the Three Months Ended June 30, 2002 and 2001
Net Income. The Company recorded net income of $133,000 for the quarter
ended June 30, 2002, as compared to $85,000 for the same quarter in 2001,
representing a $48,000 or 55.4% increase. Net interest income increased $80,000
and noninterest income increased by $237,000, while noninterest expense
increased by $235,000. The increases in interest income and noninterest income
were partially offset by increases of $9,000 and $26,000 in provision for loan
losses and provision for income taxes, respectively. Changes in the components
of income and expense are discussed herein.
Net Interest Income Net interest income increased $80,000 or 12.2% for the
quarter ended June 30, 2002, as compared to the same quarter in 2001. The
average balance of interest-earning assets increased $12.1 million or 16.2%,
while the average yield thereon decreased 89 basis points. The average balance
of interest-bearing liabilities increased $10.8 million or 15.4%, and the
average rate paid thereon decreased 79 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 during 2001 as the general
economy slowed. The interest earned declined to a greater degree 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 52.9% and 48.8% of total deposits as of June 30, 2002
and 2001, 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 3.18% for the quarter ended June 30,
2002 from 3.29% for the same quarter in 2001. The decrease in the net interest
rate spread is primarily due to the fact that as general market interest rates
declined interest-earning assets repriced faster than interest-bearing
liabilities during the three-month period ended June 30, 2002 as compared to the
same period in 2001.
Interest Income. Interest income increased $27,000 or 2.0% to $1.38 million
for the quarter ended June 30, 2002, as compared to $1.35 million for the same
quarter in 2001.
Interest on loans receivable increased $31,000 or 2.9% for the quarter
ended June 30, 2002, as compared to the same quarter in 2001. The increase is
mainly the result of an $8.6 million or 16.5% increase in the average balance of
loans receivable, partially offset by a 92 basis point reduction in the average
yield on loans receivable.
Interest income on securities decreased by $4,000 or 1.0%for the quarter
ended June 30, 2002, as compared to the same quarter in 2001. The decrease is
the result of an 83 basis point decrease in the average yield on investment
securities, partially offset by a $3.6 million or 15.6% increase in the average
balance of investment securities.
The average yield on interest-earning assets was 6.35% and 7.24% for the
quarter ended June 30, 2002 and 2001, respectively.
Interest Expense. Interest expense totaled $644,000 for the quarter ended
June 30, 2002, as compared to $697,000 for the same quarter in 2001, a decrease
of $53,000, or 7.6%. The average balance of interest-bearing liabilities
increased $10.8 million or 15.4%, however, the average rate paid thereon
decreased by 79 basis points.
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Interest expense on deposits decreased $61,000 or 11.1% for the quarter
ended June 30, 2002, as compared to the same quarter in 2001. The decrease was
due to a decrease in the average cost of deposits of 86 basis points, partially
offset by an increase in average deposits of $9.2 million or 15.6%.
Interest on FHLB advances increased by $8,000 or 5.4% for the quarter ended
June 30, 2002, as compared to the same period in 2001. The increase was due to
an increase in the average balance of advances outstanding of $1.6 million or
14.1%, partially offset by a decrease in the average cost of advances of 40
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 3.17% and 3.95% for
the quarters ended June 30, 2002 and 2001, respectively.
Provision for Loan Losses. During the quarter ended June 30, 2002 and 2001,
the Company established provisions for loan losses of $54,000 and $45,000,
respectively. This reflected management's evaluation of the underlying credit
risk of the loan portfolio and the level of allowance for loan losses. The
increase in the loan loss provision of $9,000 or 20% reflects management's
decision to increase funding from the prior period due to increased growth in
total loans outstanding, especially commercial loans.
Noninterest Income. Total noninterest income, primarily fees and service
charges, increased $237,000 or 70.4% for the quarter ended June 30, 2002, as
compared to the same quarter in 2001. 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 insurance subsidiary, Armor Insurance Group,
Inc. increased to $97,000 for the quarter ended June 30, 2002 from $22,000 for
the same quarter in 2001.
Noninterest Expense. Total noninterest expense increased by $235,000 or
28.9% for the quarter ended June 30, 2002, as compared to the same quarter in
2001. This increase was attributable to increases of $113,000 or 29.4% in
compensation and benefits resulting from addition of employees to both the Bank
and Armor Insurance Group, Inc., increased cost for employee insurance programs,
and normal cost of living increases, $23,000 or 61.1% in professional fees
resulting from the hiring of professional assistance to improve compliance and
employee recruiting programs, and $61,000 or 40.5% and $15,000 or 10.6% in
office operations and occupancy expenses, respectively, reflecting increased
costs associated with the growth of both the Bank and Armor Insurance Group,
Inc.
Income Tax Expense. The provision for income taxes totaled $78,000 for the
quarter ended June 30, 2002, as compared to $52,000 for the same quarter in
2001. The $26,000 or 50.7% 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
11
assets and of total risk-based capital to risk-weighted assets. On June 30,
2002, 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 Registrant and its subsidiaries, from time to time, may be 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 BUCS
Federal Bank, the wholly-owned subsidiary of the Registrant, holds security
interests, claims involving the making and servicing of real property loans, and
other issues incident to its business. There were no lawsuits pending or known
to be contemplated at June 30, 2002 that would have a material effect on
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, 2002, the Registrant completed
its acquisition of a local insurance agency for total cash consideration of
$90,000, payable in three installments over three years. The agency was merged
into the Registrant's wholly-owned subsidiary, Armor Insurance Group, Inc.
("Armor"). This acquisition was the third agency acquired by the Registrant and
merged into Armor, following the acquisition of two agencies in 2001 for total
cash consideration of approximately $324,000, payable in three installments over
three years.
In July 2002, the Registrant applied to the Office of Thrift Supervision
for permission to open a new branch office of its wholly-owned subsidiary, BUCS
Federal Bank (the "Bank"), in Owings Mills, Maryland. The Bank currently
operates its administrative offices and main branch inside the headquarters
building of CareFirst BlueCross BlueShield ("CareFirst"), the former main
sponsor of the bank as a credit union prior to its conversion to a thrift
charter. Such branch is occupied pursuant to a Financial Services Agreement with
CareFirst whereby the Bank provides normal banking services to CareFirst
employees and customers in return for rent-free office space. The new Owings
Mills branch will be located within a new office of CareFirst currently under
construction. The new office is located approximately one mile from the existing
branch, and the current Owings Mills branch will remain open. Costs associated
with the opening of the new Owings Mills, Maryland branch office are estimated
at approximately $500,000, including build out construction and equipment
expense. The space in the new CareFirst building will also be occupied pursuant
to the Financial Services Agreement, and no rent will be paid by the Bank for
the space. The Bank will pay annual rent of $18,000 on three drive thru lanes at
the new location. The new Owings Mills branch is projected to be opened in late
fall 2002.
As previously reported, the Bank is also in the process of building a new
branch office in Columbia, Maryland, the completion of construction and the
opening of which is now anticipated to occur in March or April of 2003.
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Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits:
99.1 Certification pursuant to 18 U.S.C.ss.1350, as adopted
pursuant to ss.906 of the Sarbanes-Oxley Act of 2002
b) Reports on Form 8-K:
None.
14
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 13, 2002 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 13, 2002 Date: August 13, 2002
15