SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MarkOne)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended: September 30, 2002
[ ] 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 November 6, 2002:
$0.10 Par Value Common Stock 364,585
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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 Page
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Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2002
(unaudited) and December 31, 2001 (audited)...........................1
Consolidated Statements of Operations for the three
and nine months ended September 30, 2002 and 2001 (unaudited))........2
Consolidated Statements of Cash Flows for the nine
months ended September 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
Item 3. Controls and Procedures..............................................12
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, 2002 AND DECEMBER 31, 2001
(Unaudited)
September 30 December 31
2002 2001
------------ ------------
ASSETS
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Cash and cash equivalents $ 1,142,150 $ 2,359,036
Investment securities available for sale 26,337,846 19,103,091
Investment securities held to maturity 1,524,082 722,765
Loans receivable, net 62,043,797 59,360,908
Accrued interest receivable 294,111 332,433
Property and equipment, net 2,343,921 977,991
Investment required by law - Federal Home Loan Bank Stock 930,800 930,800
Goodwill and other intangible assets 399,366 327,240
Prepaid expenses and other assets 447,974 445,472
------------ ------------
Total Assets $ 95,464,047 $ 84,559,736
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Liabilities:
Deposits $ 72,547,281 $ 61,417,093
Accounts payable and other liabilities 894,089 925,116
Borrowed funds - Federal Home Loan Bank 12,500,000 12,500,000
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85,941,370 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, 364,585 and 405,085 shares issued and outstanding
at Sept 30, 2002 and December 31, 2001, respectively 36,459 40,508
Additional paid-in capital 2,686,016 3,508,708
Retained Earnings 6,787,362 6,443,132
Unallocated common stock held by Employee Stock Ownership
Plan ("ESOP") (298,172) (298,172)
Accumulated other comprehensive income (loss) 311,012 23,351
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9,522,677 9,717,527
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Total liabilities and stockholder's equity $ 95,464,047 $ 84,559,736
============ ============
The accompanying notes are an integral part of these consolidated statements
1
BUCS FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2002 AND 2001
(Unaudited)
Nine month periods ended Three month periods ended
September 30 September 30
2002 2001 2002 2001
---------- ---------- ---------- ----------
Interest Income
Loans receivable $3,186,771 $3,166,243 $1,073,177 $1,081,426
Investment securities 918,683 989,188 293,986 310,808
---------- ---------- ---------- ----------
Total interest income 4,105,454 4,155,431 1,367,163 1,392,234
---------- ---------- ---------- ----------
Interest expense
Deposits 1,454,313 1,620,999 488,097 526,767
Borrowed funds 462,208 535,620 149,126 157,537
---------- ---------- ---------- ----------
Total interest expense 1,916,521 2,156,619 637,223 684,304
---------- ---------- ---------- ----------
Net interest income 2,188,933 1,998,812 729,940 707,930
Provision for loan losses 162,000 135,000 54,000 45,000
---------- ---------- ---------- ----------
2,026,933 1,863,812 675,940 662,930
---------- ---------- ---------- ----------
Noninterest income
Fees and service charges 1,285,707 882,996 455,839 349,871
Gain (loss) on sale of investment securities 43,880 4,375 24,675 -
Fee to process and maintain cash facility 90,000 90,000 30,000 30,000
Other 282,200 124,422 104,369 29,473
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Total noninterest income 1,701,787 1,101,793 614,883 409,344
---------- ---------- ---------- ----------
3,728,720 2,965,605 1,290,823 1,072,274
---------- ---------- ---------- ----------
Noninterest expense
Compensation and benefits 1,597,567 1,142,777 595,647 405,805
Professional fees 161,686 159,774 38,921 71,329
Occupancy expense 437,293 414,250 145,700 134,448
Office operations 638,717 496,787 222,556 185,959
Other operating expense 347,070 308,874 134,440 105,830
---------- ---------- ---------- ----------
Total noninterest expense 3,182,333 2,522,462 1,137,264 903,371
---------- ---------- ---------- ----------
Income before income taxes 546,387 443,143 153,559 168,903
Income taxes 202,157 163,092 56,737 62,495
---------- ---------- ---------- ----------
Net income 344,230 280,051 96,822 106,408
Net change in unrealized gains/losses on securities
available for sale, net of deferred income tax benefit 288,286 127,371 $ 155,365 $ 15,338
---------- ---------- ---------- ----------
Comprehensive income $ 632,516 $ 407,422 $ 252,187 $ 121,746
========== ========== ========== ==========
Earnings per share - basic and diluted 0.97 0.75 0.29 0.29
---------- ---------- ---------- ----------
Shares used in computing earnings per share 353,358 372,675 335,572 372,675
========== ========== ========== ==========
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, 2002 AND 2001
(Unaudited)
2002 2001
------------ ------------
Cash flows from operating activities
Cash inflows
Interest income $ 4,143,776 $ 4,275,628
Fees and service charges 1,285,707 882,996
Other income 282,200 124,422
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5,711,683 5,283,046
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Cash outflows
General and administrative expenses 2,769,536 2,173,572
Interest on deposits 1,454,313 1,620,999
Interest on borrowed funds 462,208 572,670
Income taxes 367,860 25,591
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5,053,917 4,392,832
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Net cash provided by operating activities 657,766 890,214
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Cash flows from investing activities
Cash inflows
Loan principal repayments and loan participations sold 21,222,360 21,585,980
Proceed from maturities and redemptions of securities
available for sale 4,523,378 9,320,848
Proceeds from repayments on securities held to maturity 177,354 93,948
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25,923,092 31,000,776
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Cash outflows
Purchase of securities available for sale 10,996,182 12,118,203
Purchase of securities held to maturity 1,005,000 -
Loan disbursements 24,690,028 27,908,720
Purchase of property and equipment 1,194,081 120,536
Acquisition of insurance subsidiary 90,900 -
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37,976,191 40,147,459
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Net cash used by investing activities (12,053,099) (9,146,683)
------------ ------------
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 - (2,500,000)
Net increase in deposits 11,130,188 10,147,636
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11,130,188 10,857,680
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Cash outflows
Payments on notes payable 125,000 -
Repurchase of common stock 826,741 -
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951,741 -
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Net cash provided by financing activities 10,178,447 10,857,680
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Net increase in cash and cash equivalents (1,216,886) 2,601,211
Cash and cash equivalents, beginning of period 2,359,036 5,354,010
------------ ------------
Cash and cash equivalents, end of period $ 1,142,150 $ 7,955,221
============ ============
Reconciliation of net income to net cash
provided by operating activities
Net income $ 344,230 $ 280,051
Investment securities (gains) losses (43,880) 4,375
Adjustments for items not providing or not requiring cash
or cash equivalents
Provision for loan losses 162,000 135,000
Depreciation and amortization 190,623 153,637
Effects of changes in operating assets and liabilities
Accrued interest receivable 38,322 120,197
Prepaid expenses and other assets (2,502) 87,871
Accounts payable and other liabilities (31,027) 109,083
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Net cash provided by operating activities $ 657,766 $ 890,214
============ ============
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 September 30, 2002 and
the nine month periods ending September 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 September 30, 2002, the results of its operations for the nine
month period ended September 30, 2002, and cash flows for the nine month period
ended September 30, 2002. The results of the interim periods are not necessarily
indicative of the results expected for the full fiscal year.
On October 1, 2002, The Financial Accounting Standards Board issued SFAS No.
147, "Acquisitions of Certain Financial Institutions," which amends certain
provisions of SFAS No. 72, SFAS No. 144, and FASB Interpretation No. 9. SFAS No.
147 removes acquisitions of financial institutions from the scope of SFAS No. 72
and requires that such acquisitions be accounted for in accordance with SFAS No.
141, "Business Combinations." If the acquisition meets the definition of a
business combination, it shall be accounted for by the purchase method in
accordance with the provisions of SFAS No. 141. Any goodwill that results will
4
be accounted for in accordance with SFAS No. 142. If the acquisition does not
meet the definition of a business combination, the cost of the assets acquired
shall be allocated to the individual assets acquired and liabilities assumed
based on their relative fair values and shall not give rise to goodwill.
In addition, this proposed statement would amend SFAS No. 144 to include in its
scope long-term customer-relationship intangible assets of financial
institutions such as depositor- and borrower-relationship intangible assets and
credit-cardholder intangible assets. Accordingly, those intangible assets would
be subject to the same undiscounted cash flow recoverability tests and
impairment loss recognition and measurement provisions that SFAS No. 144
requires for long-term tangible assets and other finite-lived intangible assets
that are held and used.
Management does not expect the impact of SFAS No. 147 to be material to the
company's consolidated financial statements.
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 securities outstanding, such as
options and warrants.
Note 4 - Stock Repurchases
-----------------
The Company purchased 40,500 shares of its common stock in the second and third
quarters 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
quarters equaled $826,619. At September 30, 2002, there were 9 shares yet to be
purchased under the stock repurchase plan.
Note 5 - Capital Commitments
-------------------
The Company had capital commitments of approximately $1,482,000, at September
30, 2002 related to the purchase and construction of two new branch office in
Owings Mills, Maryland and Columbia, Maryland.
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 $95.5 million at September 30, 2002 reflect
an increase of $10.9 million or 12.9% 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, investment securities held to maturity, loans
receivable, net, and property and equipment of $7.2 million, $801,000, $2.7
million, and $1.4 million, respectively, partially offset by a decline in cash
and cash equivalents of $1.2 million.
The Company's total liabilities of $85.9 million at September 30, 2002
reflect an increase of $11.1 million or 14.8% as compared to $74.8 million at
December 31, 2002. The increase in the Company's liabilities was due entirely to
an $11.1 million increase in total deposits.
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 $1.1
6
million at September 30, 2002, a decrease of $1.2 million or 51.6% as compared
to $2.4 million at December 31, 2001. The decrease is due to the Bank moving
funds to higher yielding investment securities.
Investment Securities Available for Sale. Investment securities available
for sale increased by $7.2 million or 37.9% to $26.3 million at September 30,
2002 as compared to $19.1 million at December 31, 2001. This is primarily the
result of purchases of $11.0 million of mortgage backed and government agency
securities offset by sales and repayments on mortgage backed securities totaling
$3.7 million. As deposit growth outpaced that of loans, excess funds were used
to purchase investment securities.
Investment Securities Held to Maturity. Investment securities held to
maturity increased by $801,000 or 110.9% to $1.5 million at September 30, 2002
as compared to $723,000 at December 31, 2001. This is the result of the purchase
of a $1.0 million investment in collateralized mortgage obligations offset by
repayments on collateralized mortgage obligations of $199,000.
Loans Receivable, Net. Net loans receivable at September 30, 2002 totaled
$62.0 million, an increase of $2.7 million or approximately 4.5%, as compared to
$59.4 million at December 31, 2001. Originations and line of credit advances of
$24.7 million, which includes $19.6 million of consumer loans including home
equity loans, $2.7 million in first mortgage loans on one-to-four-family
residences, and $2.4 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 $22.0 million.
Deposits. Total deposits, after interest credited, increased by $11.1
million or 18.1% to $72.5 million at September 30, 2002, as compared to $61.4
million at December 31, 2001. The increase was due in part to the cyclical
trends resulting from the Bank's former status as a credit union. 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 $2.6 million, $1.7
million, $2.7 million and $4.1 million, respectively.
FHLB Advances. FHLB advances totaled $12.5 million at September 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 $195,000 to $9.52
million at September 30, 2002, as compared to $9.72 million at December 31 2001.
The decrease in equity is due to the repurchase of 40,500 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 $827,000. This was partially
offset by net income during the nine-month period of $344,000 and an increase in
accumulated other comprehensive income of $288,000 resulting from an increase in
the estimated fair value of investment securities available for sale.
Results of Operations for the Nine Months Ended September 30, 2002 and 2001
Net Income. The Company recorded net income of $344,000 for the nine-month
period ended September 30, 2002, as compared to $280,000 for the same period in
2001, representing a $64,000 or 22.9% increase. Net interest income increased
$190,000 and noninterest income increased by $600,000, while noninterest expense
increased by $660,000. The increases in interest income and noninterest income
were partially offset by a $27,000 increase in provision for loan losses and by
a $39,000 increase in the provision for income taxes. Changes in the components
of income and expense are discussed herein.
7
Net Interest Income. Net interest income increased $190,000 or 9.5% for the
nine-month period ended September 30, 2002, as compared to the same period in
2001. The average balance of interest-earning assets increased $11.7 million or
15.6%, while the average yield thereon decreased 107 basis points. The average
balance of interest-bearing liabilities increased $12.6 million or 18.3% and the
average rate paid thereon decreased 104 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 earning assets decreased
primarily due to continued interest rate reductions by the Federal Reserve. The
average cost of interest-bearing liabilities decreased as the Bank reduced rates
paid on deposit 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,
decreased to 3.17% for the six-month period ended September 30, 2002 from 3.20%
for the same period in 2001. 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 repriced slightly faster than interest bearing
liabilities during the nine-month period ended September 30, 2002, as compared
to 2001.
Interest Income. Interest income decreased $50,000 or 1.2% to $4.105
million for the nine-month period ended September 30, 2002, as compared to
$4.155 million for the same period in 2001.
Interest on loans receivable increased $21,000 or .6% for the nine-month
period ended September 30, 2002, as compared to the same period in 2001. The
increase is mainly the result of a $8.5 million or 16.2% increase in the average
balance of loans receivable, partially offset by a 108 basis point reduction in
the average yield thereon.
Interest income on securities decreased by $71,000 or 7.2% for the
nine-month period ended September 30, 2002, as compared to the same period in
2001. The decrease is the result of a 107 basis point decline in the average
yield on investment securities, partially offset by $3.2 million or 14.0%
increase in the average balance of investment securities.
The average yield on interest-earning assets was 6.30% and 7.37% for the
nine-month period ended September 30, 2002 and 2001, respectively.
Interest Expense. Interest expense totaled $1.92 million for the nine-month
period ended September 30, 2002, as compared to $2.16 million for the same
period in 2001, a decrease of $240,000 or 11.1%. The average balance of
interest-bearing liabilities increased $12.6 million or 18.3% while the average
rate paid thereon decreased by 104 basis points.
Interest expense on deposits decreased $167,000 or 10.3% for the nine-month
period ended September 30, 2002, as compared to the same period in 2001. The
decrease was due to a decline in the cost of average deposits of 98 basis
points, partially offset by an increase in average total deposits of $11.9
million or 20.9%.
Interest on FHLB advances decreased by $74,000 or 13.8% for the nine-month
period ended September 30, 2002, as compared to the same period in 2001. The
decrease was due to a decline in the cost of advances of 110 basis points,
partially offset by an increase in the average balance of advances outstanding
of $745,000 or 6.1%. 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 3.13% and 4.17% for
the nine-month periods ended September 30, 2002 and 2001, respectively.
Provision for Loan Losses. During the nine-month period ended September 30,
2002 and 2001, the Company established provisions for loan losses of $162,000
and $135,000, respectively. This reflected management's evaluation of the
underlying credit risk of the loan portfolio and the level of allowance for loan
losses.
8
At September 30, 2002, the allowance for loan losses totaled $623,000 or
..99% and 700.0% of total loans and total non-performing loans, respectively, as
compared to $669,000 or 1.19% and 213.7%, respectively at September 30, 2001.
The Company's non-performing loans (non-accrual loans and accruing loans 90 days
or more past due) totaled $89,000 and $313,000 at September 30, 2002 and
September 30, 2001, respectively, which represents .14% and .56% of the
Company's total loans, respectively. The Company's ratio of non-performing loans
to total assets was .09% and .37% at September 30, 2002 and September 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
and charge off of older non-performing loans.
Noninterest Income. Total noninterest income, primarily fees, service
charges, and commissions from the Company's wholly-owned subsidiary, Armor
Insurance Group, Inc., increased $600,000 or 54.5% for the nine-month period
ended September 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
and insufficient funds fees, and interchange income generated by customers' use
of check cards. Commissions on insurance sales by Armor Insurance Group, Inc.
increased to $282,000 for the nine-month period ended September 30, 2002 from
$112,000 for the same period in 2001.
Noninterest Expense. Total noninterest expense increased by $660,000 or
26.2% for the nine-month period ended September 30, 2002, as compared to the
same period in 2001. This increase was attributable to increases of $455,000 or
39.8% in compensation and benefits resulting from addition of employees to both
the Bank and Armor Insurance Group, Inc. as both have continued to add new
business, increased cost for employee insurance programs, and normal
compensation increases, and $142,000 or 28.6% in office operations costs
resulting mainly from increased operating costs associated with growth of
business at both the Bank and Armor Insurance Group, Inc. In addition, office
occupancy and miscellaneous noninterest expenses increased by $23,000 and
$38,000 or 5.6% and 12.4%, respectively.
Income Tax Expense. The provision for income taxes totaled $202,000 for the
nine-month period ended September 30, 2002, as compared to $163,000 for the same
period in 2001. The $39,000 or 24.0% increase is the result of increased net
taxable income.
Results of Operations for the Three Months Ended September 30, 2002 and 2001
Net Income. The Company recorded net income of $97,000 for the quarter
ended September 30, 2002, as compared to $106,000 for the same quarter in 2001,
representing a $9,000 or 9.0% decrease. Net interest income increased $22,000
and noninterest income increased by $219,000, while noninterest expense
increased by $234,000. Changes in the components of income and expense are
discussed herein.
Net Interest Income. Net interest income increased $22,000 or 3.1% for the
quarter ended September 30, 2002, as compared to the same quarter in 2001. The
average balance of interest-earning assets increased $10.1 million or 13.7%,
while the average yield thereon decreased 98 basis points. The average balance
of interest-bearing liabilities increased $13.3 million or 18.8%, and the
average rate paid thereon decreased 84 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
continued rate reductions by the Federal Reserve. 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
cost money market and certificate of deposit accounts. The total of money market
and certificate of deposit accounts equaled 54.0% and 50.5% of total deposits as
of September 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 3.15% for the quarter
9
ended September 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 slightly faster
than interest-bearing liabilities during the three-month period ended September
30, 2002 as compared to the same period in 2001.
Interest Income. Interest income decreased $25,000 or 1.8% to $1.367
million for the quarter ended September 30, 2002, as compared to $1.392 million
for the same quarter in 2001.
Interest on loans receivable decreased $8,000 or .8% for the quarter ended
September 30, 2002, as compared to the same quarter in 2001. The decrease is
mainly the result of a 92 basis point reduction in the average yield on loans
receivable, partially offset by $6.9 million or 12.5% increase in the average
balance of loans receivable.
Interest income on securities decreased by $17,000 or 5.5%for the quarter
ended September 30, 2002, as compared to the same quarter in 2001. The decrease
is the result of a 105 basis point decrease in the average yield on investment
securities, partially offset by a $3.8 million or 16.8% increase in the average
balance of investment securities.
The average yield on interest-earning assets was 6.19% and 7.17% for the
quarter ended September 30, 2002 and 2001, respectively.
Interest Expense. Interest expense totaled $637,000 for the quarter ended
September 30, 2002, as compared to $684,000 for the same quarter in 2001, a
decrease of $47,000, or 6.9%. The average balance of interest-bearing
liabilities increased $13.2 million or 18.8%, however, the average rate paid
thereon decreased by 84 basis points.
Interest expense on deposits decreased $39,000 or 7.3% for the quarter
ended September 30, 2002, as compared to the same quarter in 2001. The decrease
was due to a decrease in the average cost of deposits of 81 basis points,
partially offset by an increase in average deposits of $11.9 million or 20.1%.
Interest on FHLB advances decreased by $8,000 or 5.3% for the quarter ended
September 30, 2002, as compared to the same period in 2001. The decrease was due
to a decrease in the average cost of advances of 89 basis points, partially
offset by and increase in the balance of FHLB advances of $1.4 million or 12.3%.
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 3.15% and 3.29% for
the quarters ended September 30, 2002 and 2001, respectively.
Provision for Loan Losses. During the quarter ended September 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, service
charges, and commissions from Armor Insurance Group, Inc. increased $206,000 or
50.2% for the quarter ended September 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. Commissions on insurance sales by
the Company's wholly-owned insurance subsidiary, Armor Insurance Group, Inc.
increased to $104,000 for the quarter ended September 30, 2002 from $52,000 for
the same quarter in 2001.
10
Noninterest Expense. Total noninterest expense increased by $234,000 or
25.9% for the quarter ended September 30, 2002, as compared to the same quarter
in 2001. This increase was attributable to increases of $190,000 or 46.8% in
compensation and benefits resulting from addition of employees, including two
vice-presidents positions, at both the Bank and Armor Insurance Group, Inc.,
increased cost for employee insurance programs, and normal compensation
increases, and $37,000 or 19.7% and $11,000 or 8.4% in office operations and
occupancy expenses, respectively, reflecting increased costs associated with the
growth of both the Bank and Armor Insurance Group, Inc. These increases were
partially offset by a decrease of $32,000 or 45.4% in professional fees as the
Bank used less consulting and legal services during the quarter ending September
30, 2002 than in the same period in 2001.
Income Tax Expense. The provision for income taxes totaled $57,000 for the
quarter ended September 30, 2002, as compared to $63,000 for the same quarter in
2001. The $6,000 or 9.2% decrease is the result of decreased 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, 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.
11
CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Based on their
evaluation as of a date within 90 days of the filing date of this Quarterly
Report on Form 10-QSB, the Registrant's principal executive officer and
principal financial officer have concluded that the Registrant's disclosure
controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934 (the "Exchange Act")) are effective to ensure
that information required to be disclosed by the Company in reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms.
(b) Changes in internal controls. There were no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
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 September 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.
As previously reported, the Registrant's wholly-owned subsidiary, BUCS
Federal Bank (the "Bank") is in the process of opening a new branch office in
Owings Mills, Maryland. The Bank's application to the Office of Thrift
Supervision for permission to open this branch office was approved during the
quarter, and opening of this branch is projected for late fall 2002.
In addition, as previously reported, the Bank is in the process of building
a new branch office in Columbia, Maryland. The completion of construction and
the opening of the Columbia branch is now anticipated to occur in May or June of
2003.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits:
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to "906 of the Sarbanes-Oxley Act of 2002
b) Reports on Form 8-K:
None.
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 8, 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/ Matthew J. Ford
- ------------------------------------- ---------------------------------
Herbert J. Moltzan Matthew J. Ford
President and Chief Executive Officer Chief Financial Officer
Date: November 8, 2002 Date: November 8, 2002
------------------------------- ---------------------------
BUCS FINANCIAL CORP
Owings Mills, Maryland
CERTIFICATION
Pursuant to Section 302
of the
Sarbanes-Oxley Act of 2002
I, Herbert J. Moltzan, President and Chief Executive Officer of BUCS
Financial Corp (the "Company"), hereby certify that:
1. I have reviewed the Quarterly Report on Form 10-QSB for the quarter ended
September 30, 2002 of the Company;
2. Based on my knowledge, the report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by the report;
3. Based on my knowledge, the financial statements, and other financial
information included in the report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in the report;
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rule 13a-14(c)) for the Company and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to me by others within the
Company, particularly during the period in which the report is being
prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of the
report (the "Evaluation Date"); and
(c) presented in the report my conclusions about the effectiveness of the
disclosure controls and procedures based on my evaluation as of the
Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee
of Company's board of directors:
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officer and I have indicated in the report
whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 6, 2002 /s/ Herbert J. Moltzan
--------------------- ---------------------------------
Herbert J. Moltzan, President and
Chief Executive Officer
BUCS FINANCIAL CORP
Owings Mills, Maryland
CERTIFICATION
Pursuant to Section 302
of the
Sarbanes-Oxley Act of 2002
I, Matthew Ford, Chief Financial Officer of BUCS Financial Corp (the
"Company"), hereby certify that:
1. I have reviewed the Quarterly Report on Form 10-QSB for the quarter ended
September 30, 2002, of the Company;
2. Based on my knowledge, the report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by the report;
3. Based on my knowledge, the financial statements, and other financial
information included in the report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in the report;
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rule 13a-14(c)) for the Company and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to me by others within the
Company, particularly during the period in which the report is being
prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of the
report (the "Evaluation Date"); and
(c) presented in the report my conclusions about the effectiveness of the
disclosure controls and procedures based on my evaluation as of the
Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee
of Company's board of directors:
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officer and I have indicated in the report
whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 6, 2002 /s/ Matthew Ford
------------------ -------------------------------------
Matthew Ford, Chief Financial Officer