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: March 31, 2003
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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
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
- --------------------------------------------- ----------
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 May 6, 2003:
$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 March 31, 2003 (unaudited)
and December 31, 2002 (audited)......................................1
Consolidated Statements of Operations for the three months
ended March 31, 2003 and 2002 (unaudited))...........................2
Consolidated Statements of Cash Flows for the three
months ended March 31, 2003 and 2002 (unaudited).....................3
Notes to Consolidated Financial Statements...........................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................7
Item 3. Controls and Procedures..............................................11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................12
Item 2. Changes in Securities and Use of Proceeds............................12
Item 3. Defaults Upon Senior Securities......................................12
Item 4. Submission of Matters to a Vote of Security-Holders..................12
Item 5. Other Information....................................................12
Item 6. Exhibits and Reports on Form 8-K.....................................12
Signatures
BUCS FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2003 AND DECEMBER 31, 2002
(Unaudited)
March 31 December
2003 2002
-------------- -------------
ASSETS
------
Cash and cash equivalents $ 15,730,005 $ 4,094,866
Investment securities available for sale 21,689,138 20,023,154
Investment securities held to maturity 7,442,232 1,430,628
Loans receivable 67,513,890 66,916,522
Allowance for loan losses (610,864) (579,627)
------------ -----------
Loans receivable, net 66,903,026 66,336,895
Accrued interest receivable 330,271 321,214
Property and equipment, net 3,421,765 2,920,855
Investment required by law - Federal Home Loan Bank Stock 1,075,000 875,000
Goodwill 165,667 165,667
Intangible assets 222,658 229,762
Prepaid expenses and other assets 471,690 387,696
------------ -----------
Total Assets $117,451,452 $96,785,737
============ ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Liabilities:
Deposits $ 82,470,949 $73,654,190
Accounts payable and other liabilities 573,813 794,475
Borrowed funds - Federal Home Loan Bank 21,500,000 12,500,000
Notes payable 168,000 168,000
Guaranteed preferred beneficial interest in Company's
subordinated debt 3,000,000 -
------------ -----------
Total Liabilities 107,712,762 87,116,665
------------ -----------
Stockholders' 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 March 31, 2003 and December 31, 2002, respectively 36,459 36,459
Additional paid-in capital 3,140,377 3,140,377
Retained earnings 6,605,047 6,486,967
Unallocated common stock held by Employee Stock Ownership -
Plan ("ESOP") (265,762) (265,762)
Accumulated other comprenhensive income 222,569 271,031
------------ -----------
Total Stockholders' Equity 9,738,690 9,669,072
------------ -----------
Total Liabilities and Stockholders' Equity $117,451,452 $96,785,737
============ ===========
The accompanying notes are an integral part of these consolidated statements
1
BUCS FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2003 AND 2002
(Unaudited)
Three month periods ended
March 31
--------------------------------
2003 2002
------------ ------------
Interest Income
Loans receivable $1,084,605 $1,057,087
Investment securities 257,343 299,490
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Total interest income 1,341,948 1,356,577
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Interest expense
Deposits 447,797 479,356
Borrowed funds 127,364 156,106
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Total interest expense 575,161 635,462
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Net interest income 766,787 721,115
Provision for loan losses 75,000 54,000
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Net interest income after provision for loan losses 691,787 667,115
---------- ----------
Noninterest income
Fees and service charges 582,296 402,860
Fee to process and maintain cash facility 30,000 30,000
Other 108,504 80,331
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Total noninterest income 720,800 513,191
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1,412,587 1,180,306
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Noninterest expense
Compensation and benefits 609,352 502,194
Professional fees 43,507 60,882
Occupancy expense 206,250 135,215
Office operations 243,160 203,025
Other operating expense 122,696 96,690
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Total noninterest expense 1,224,965 998,006
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Income before income taxes 187,622 182,300
Income taxes 69,492 67,516
---------- ----------
Net income 118,131 114,784
Net change in unrealized gains/losses on securities
available for sale, net of deferred income tax benefit (48,513) (109,691)
---------- ----------
Total comprehensve income $ 69,618 $ 5,093
========== ==========
Earnings per share - basic $ 0.34 $ 0.31
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Shares used in computing earnings per share 348,309 375,268
========== ==========
Earnings per share - diluted $ 0.34 $ 0.31
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Shares used in computing earnings per share 348,309 375,268
========== ==========
The accompanying notes are an integral part of these consolidated statements.
2
BUCS FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED MARCH 31, 2003 AND 2002
(Unaudited)
Three month periods ended
March 31,
-----------------------------
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 118,131 $ 114,784
Reconciliation of net income to net cash provided
by operating activities:
Provision for loan losses 75,000 54,000
Depreciation and amortization 109,323 84,367
Effects of changes in operating assets and liabilities:
Accrued interest receivable (9,057) 27,764
Prepaid expenses and other assets (83,994) (14,274)
Accounts payable and other liabilities (192,170) 45,193
----------- ------------
Net cash provided by operating activities 17,233 311,834
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in loans (641,131) 83,984
Proceeds from maturities, redemption and sales
of securities available-for-sale 2,323,117 1,726,732
Proceeds from repayments on securities held-to-maturity 75,896 70,422
Purchase of securities available-for-sale (4,075,875) (2,996,489)
Purchase of securities held-to-maturity (6,088,669) -
Purchase of FHLB stock (200,000) -
Purchase of property and equipment (592,190) (105,767)
----------- ------------
Net cash used in investing activities (9,198,852) (1,221,118)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in borrowed funds from the FHLB 9,000,000 -
Proceeds from issuance of Trust Preferred Debenture 3,000,000 -
Net increase in deposits 8,816,759 8,658,004
Repayments of notes payable - (77,000)
----------- ------------
Net cash provided by financing activities 20,816,759 8,581,004
----------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 11,635,139 7,671,720
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,094,866 2,359,036
----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $15,730,005 $ 10,030,756
=========== ============
The accompanying notes are an integral 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").
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 March 31, 2003 and the
three month periods ending March 31, 2003 and 2002 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, 2002,
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, 2002
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 March 31, 2003, the results of its operations for the three month
period ended March 31, 2003, and cash flows for the three month period ended
March 31, 2003. The results of the interim periods are not necessarily
indicative of the results expected for the full fiscal year or any other period.
Cash and Cash Equivalents
Cash and cash equivalents include interest-bearing deposits in other banks with
original maturities of less than three months, 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.
4
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 - Recent Accounting Pronouncements
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
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.
In December 2002, the Financial Accounting Standards Board issued SFAS No.148,
Accounting for Stock-Based Compensation - Transition and Disclosure, which
provides guidance on how to transition from the intrinsic value method of
accounting for stock-based employee compensation under APB 25 to SFAS No. 123's
fair value method of accounting, if a company so elects. The Company will not
adopt the fair value method of recording stock options under SFAS No. 123 and,
accordingly, this standard will not have a material impact on results of
operations, financial position or liquidity.
NOTE 4 - Earnings Per Share
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 potentially dilutive common shares outstanding, such
as options and warrants. At March 31, 2003, the Company had 10,300 options
outstanding, none of which had a dilutive effect at such date.
NOTE 5 - Capital Commitments
The company had capital commitments of approximately $695,912, at March 31, 2003
related to the purchase and construction of a new branch office in Columbia,
Maryland which is expected to be completed in the summer of 2003.
5
NOTE 6 - Guaranteed Preferred Beneficial Interest in Company's Subordinated Debt
In March 2003, the Company formed a wholly-owned subsidiary, BUCS Financial
Capital Trust I, a Delaware business trust (the "Trust"). On March 27, 2003, the
Trust sold $3.0 million of pooled capital securities (the "Capital Securities")
to Tropic CDO I, Ltd., an unaffiliated entity, with a stated value and
liquidation preference of $1,000 per share. The obligations of the Trust under
the Capital Securities are fully and unconditionally guaranteed by the Company
and the Trust has no independent operations. The entire proceeds from the sale
of the Capital Securities were used by the Trust to invest in junior
subordinated debt securities of the Company (the "Junior Subordinated Debt").
The Junior Subordinated Debt is unsecured and ranks subordinate and junior in
right of payment to all indebtedness, liabilities and obligations of the
Company. The Junior Subordinated Debt is the sole asset of the Trust. Interest
on the Capital Securities is cumulative and payable quarterly in arrears. The
Capital Securities mature on April 7, 2033. The Company has the right to
optionally redeem the Junior Subordinated Debt prior to the maturity date, but
no sooner than five years after the issuance, at 100% of the principal amount to
be redeemed, plus accrued and unpaid distributions, if any, on the redemption
date. Upon the occurrence of certain events, the Company has the right to redeem
the Junior Subordinated Debt before five years have elapsed in whole, but not in
part, at a special redemption price of 107.5% of the principal amount to be
redeemed, plus accrued and unpaid distributions, if any, on the redemption date.
Proceeds from any redemption of the Junior Subordinated Debt will cause a
mandatory redemption of Capital Securities having an aggregate liquidation
amount equal to the principal amount of the Junior Subordinated Debt redeemed.
Additionally, under the terms of the Junior Subordinated Debt, the Company will
have the right, with certain limitations, to defer the payment of interest on
the Junior Subordinated Debt at any time for a period not exceeding twenty
consecutive quarterly periods. Consequently, distributions on the Capital
Securities would be deferred and accumulate interest, compounded quarterly. The
Capital Securities were issued without registration under the Securities Act of
1933, as amended, in reliance upon an exemption from registration as provided by
Regulation S. The interest rate on the capital securities and junior
subordinated debt is fixed until April 7, 2008 at 6.65%. The interest rate
resets quarterly after April 7, 2008 to LIBOR plus 3.25%. The proceeds were used
for general corporate purposes, including in part to fund the purchase of
mortgage-backed securities in connection with a leverage strategy.
6
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 $117.5 million at March 31, 2003 reflect an
increase of $20.7 million as compared to $96.8 million at December 31, 2002. The
increase in assets was mainly comprised of increases in cash and equivalents,
investment securities, loans receivable, net, and property and equipment of
$11.6 million, $7.7 million, $566,000 and $501,000, respectively.
The increase in the Company's liabilities was due primarily to an increase
in advances from the Federal Home Loan Bank ("FHLB") of $9.0 million and an
increase of $8.8 million in deposits reflecting the cyclical nature of the
Bank's deposit levels resulting from its status as a former credit union. In
addition, the Company, through a newly formed subsidiary, BUCS Financial Capital
Trust I, sold $3.0 million of pooled capital securities, the proceeds of which
were used for general corporate purposes, including in part to fund the purchase
of mortgage-backed securities in connection with a leverage strategy. The
liability increases from borrowed funds, deposits, and the pooled capital
securities were partially offset by a $221,000 decrease in accounts payable and
other liabilities. Changes in the components of major assets, liabilities and
equity are discussed herein.
7
Cash and Cash Equivalents. Cash and cash equivalents, which include
interest-bearing deposits in other banks with original maturities of less than
three months, overnight investment funds with no stated maturity and Federal
funds sold, totaled approximately $15.7 million at March 31, 2003, an increase
of $11.6 million or 284.1% as compared to $4.1 million at December 31, 2002. The
increase is due primarily to an increase of $9.0 million in borrowing from the
Federal Home Loan Bank, the sale of $3.0 million in pooled capital securities,
and the effect of payroll deposits and other cyclical deposit growth trends
resulting from deposit of customer income tax returns and employment bonuses
during the last few days of March 2003. During early April 2003, cash and cash
equivalents were used for loan originations and to purchase mortgage-backed
securities totaling $10.6 million and to meet normal cyclical deposit outflows.
The cyclical deposit trends result 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 employer group paydays. The majority of this is
transaction account funds and, as a result, a good portion of these deposits
flow back out during the ensuing two-week pay cycle.
Investment Securities Available for Sale. Investment securities available
for sale increased by $1.7 million or 8.3% to $21.7 million at March 31, 2003 as
compared to $20.0 million at December 31, 2002. This is primarily the result of
purchases of $3.0 federal agency securities, offset by maturities of available
for sale investments and repayments on mortgage- backed securities totaling $1.3
million.
Investment Securities Held to Maturity. Investment securities held to
maturity increased by $6.0 million or 420.0% to $7.4 million primarily due to
the purchase of $6.1 million of mortgage-backed securities in connection with a
leverage strategy, offset by $100,000 of principal payments on mortgage-backed
securities.
Loans Receivable, Net. Net loans receivable at March 31, 2003 totaled $66.9
million, an increase of $566,000 or approximately 0.9%, as compared to $66.3
million at December 31, 2002. Originations of $7.4 million, which includes $4.8
million of consumer loans including home equity loans, $1.9 million in first
mortgage loans on one-to-four-family residences, and $714,000 of commercial real
estate loans in the Bank's prime lending area, were offset by principal
repayments and loan participations sold totaling $6.8 million.
Deposits. Total deposits, after interest credited, increased by $8.8
million or 12.0% to $82.5 million at March 31, 2003, as compared to $73.7
million at December 31, 2002. The increase was primarily 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. This resulted in increases in regular
savings, non-interest bearing checking, money market account, and certificate of
deposit balances of $4.5 million, $1.7 million, $1.5 million, and $1.0 million,
respectively.
FHLB Advances. FHLB advances totaled $21.5 million at March 31, 2003, an
increase of $9.0 million or 72.0% compared to $12.5 million at December 31,
2002. The borrowing increase was used to partially fund a leverage strategy
whereby the Bank, in early April 2003, purchased $10.6 million of
mortgage-backed securities in order to take advantage of interest spread
opportunities provided by the current interest rate environment.
Stockholders' Equity. Stockholders' equity totaled $9.74 million at March
31, 2003, an increase of $70,000 from $9.67 million at December 31 2002. The
increase to equity provided by net income of $118,000 during the period was
partially offset by a decrease in accumulated other comprehensive income of
$48,000 resulting from a decline in the estimated fair value of investment
securities available for sale.
8
Results of Operations for the Three Months Ended March 31, 2003 and 2002
Net Income. The Company recorded net income of $118,000 for the quarter
ended March 31, 2003, as compared to $115,000 for the same quarter in 2002,
representing a $3,000 or 2.9% increase. Net interest income increased $46,000
and noninterest income increased by $207,000, while noninterest expense
increased by $227,000. In addition, the provision for loan losses for the
quarter increased by $21,000 or 38.9%. Changes in the components of income and
expense are discussed herein.
Net Interest Income Net interest income increased $46,000 or 6.3% for the
quarter ended March 31, 2003, as compared to the same quarter in 2002. The
average balance of interest-earning assets increased $11.1 million or 13.2%,
while the average yield thereon decreased 81 basis points. The average balance
of interest-bearing liabilities increased $13.4 million or 17.4%, and the
average rate paid thereon decreased 75 basis points. The increase in average
interest-earning assets is attributed to the increase in deposit volume at all
of the Bank's office locations, the increase in FHLB advances, and the sale of
pooled capital securities. The average yield on interest-earning assets and the
average cost of interest-bearing liabilities both declined primarily due to the
continued low interest rate environment over the past two years. 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. 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 3.10% for the
quarter ended March 31, 2003 from 3.15% for the same quarter in 2002. The
decrease in the net interest rate spread is primarily due to the fact that
interest-earning assets repriced more rapidly then interest-bearing liabilities
Interest Income. Interest income decreased $14,000 or 1.0% to $1.34 million
for the quarter ended March 31, 2003, as compared to $1.36 million for the same
quarter in 2002.
Interest on loans receivable increased $28,000 or 2.6% for the quarter
ended March 31, 2003, as compared to the same quarter in 2002. The increase is
mainly the result of a $6.7 million increase in the average balance of loans
receivable, partially offset by a 54 basis point decline in the average yield on
loans.
Interest income on investment securities decreased by $42,000 or 14.0% for
the quarter ended March 31, 2003, as compared to the same quarter in 2002. The
decrease is the result of a 136 basis point decline in the average yield on
investment securities, partially offset by a $4.4 million or 18.3% increase in
the average balance of investment securities.
The average yield on interest-earning assets was 5.63% and 6.44% for the
quarter ended March 31, 2003 and 2002, respectively.
Interest Expense. Interest expense totaled $575,000 for the quarter ended
March 31, 2003, as compared to $635,000 for the same quarter in 2002, a decrease
of $60,000, or 9.4%. The average balance of interest-bearing liabilities
increased $13.4 million or 17.4%, however, the average rate paid thereon
decreased by 75 basis points.
Interest expense on deposits decreased $31,000 or 6.5% for the quarter
ended March 31, 2003, as compared to the same quarter in 2002. The decrease was
due to a decline in the average cost of deposits of 68 basis points, partially
offset an increase in the average balance of deposits of $13.5 million or 21.1%.
Interest on borrowed funds decreased by $29,000 or 18.6% for the quarter
ended March 31, 2003, as compared to the same quarter in 2002. The decrease was
due to a decrease in the average balance of advances outstanding of $103,000 or
0.8% and a decline in the average cost of advances of 86 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.
9
The average cost of interest-bearing liabilities was 2.53% and 3.28% for
the quarters ended March 31, 2003 and 2002, respectively.
Provision for Loan Losses. During the quarter ended March 31, 2003 and
2002, the Company established provisions for loan losses of $75,000 and $54,000,
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 $21,000 or 38.9% reflects management's
decision to increase funding from the prior period based on the overall growth
of the loan portfolio, especially commercial loans, and from an increase in
losses from a checking overdraft program begun in December 2001. This program,
by which the Bank honors insufficient funds checks up to a preset limit for
qualified customers, accounted for a moderate increase in loan losses resulting
from unpaid overdrawn accounts but this was far more than offset by the
resulting increase in noninterest income from the fees associated with the
service.
At March 31, 2003, the allowance for loan losses totaled $611,000 or 0.91%
and 1357.8% of total loans and total non-performing loans, respectively, as
compared to $659,000 or 1.11% or 210.5%, respectively, at March 31, 2002. The
Bank's non-performing loans (non-accrual loans and accruing loans 90 or more
days overdue) totaled $45,000 and $313,000 at March 31, 2003 and 2002,
respectively, which represents 0.07% and 0.53% of the Bank's total loans,
respectively. The Bank's ratio of non-performing loans to total assets was 0.04%
and 0.34% at March 31, 2003 and 2002, respectively.
Noninterest Income. Total noninterest income, primarily fees and service
charges, increased $208,000 or 40.5% for the quarter ended March 31, 2003, as
compared to the same quarter in 2002. The increase reflects an increased volume
of fees for services, such as ATM fees, insufficient funds fees, and overdraft
privilege fees, in addition to 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, Inc. increased to $119,000 for the quarter ended March 31, 2003
from $80,000 for the same quarter in 2002.
Noninterest Expense. Total noninterest expense increased by $227,000 or
22.7% for the quarter ended March 31, 2003, as compared to the same quarter in
2002. Compensation and benefits expense increased by $107,000 or 21.3% due to
the addition of employees, including two vice-president positions and staffing
for a new branch opened in January 2003, increased cost for employee insurance
programs, and normal cost of living increases. In addition, office occupancy
costs increased by $71,000 or 52.5% as a result of the costs associated with the
new Owings Mills branch opened in January 2003 and the Columbia branch currently
under construction with opening planned for summer 2003, and office operating
expenses increase by $40,000 or 19.8% due to costs associated with the operation
of Armor Insurance Group, Inc. and the opening of the new branch.
Income Tax Expense. The provision for income taxes totaled $69,500 for the
quarter ended March 31, 2003, as compared to $67,500 for the same quarter in
2002. The $2,000 or 2.9% 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 March 31, 2003, 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
10
affect future earnings and, as a result, the ability of the Bank to meet its
future minimum capital requirements.
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.
11
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 March 31, 2003 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.
------------------
The Registrant's wholly-owned subsidiary, BUCS Federal Bank (the
"Bank") opened a new full-service branch office and administrative center in
Owings Mills, Maryland during January 2003. In addition, as previously reported,
the Bank is in the process of building a full service branch in Columbia
Maryland. The completion of construction and the opening of the Columbia branch
is now anticipated to occur in summer 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 Section 906 of the Sarbanes-Oxley Act of 2002
b) Reports on Form 8-K:
None.
12
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: May 13, 2003 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: May 13, 2003 Date: May 13, 2003
13
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
March 31, 2003 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 officer 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: May 13, 2003 /s/ Herbert J. Moltzan
-----------------------------------
Herbert J. Moltzan, President and
Chief Executive Officer
14
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
March 31, 2003 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 officer 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: May 13, 2003 /s/ Matthew Ford
-------------------------------------
Matthew Ford
Chief Financial Officer
15