BUC$
FEDERAL
BANK
www.bucsfederal.com
July 18, 2005
Mr. John P. Nolan
Accounting Branch Chief
United States Securities and Exchange Commission
100 F Street, NE
Mail Stop 4561
Washington, D.C. 20549
Dear Mr. Nolan:
In response to the staff's letter of comment, dated July 1, 2005, regarding our
Annual Report on Form 10-KSB for the fiscal year ending December 31, 2004, we
submit the following information.
The agreement with Carefirst that is referenced in our Note #15 to the
consolidated financial statements at December 31, 2004 is the result of the
long-standing relationship between BUCS Financial Corp's principal subsidiary,
BUCS Federal Bank ("BUCS"), and Carefirst of Maryland, Inc. ("CFMI") and its
predecessors.
BUCS was originally chartered in 1970 as Maryland Blue Cross and Blue Shield
Employees Federal Credit Union primarily serving the employees of a predecessor
to CFMI. It is commonplace within the credit union industry for the credit union
to receive facility space from a "sponsoring" organization in order to provide
its services to employees of that sponsoring organization. A sponsoring
organization does not maintain any control over the credit union and the credit
union and sponsoring organization are separate and distinct entities. Consistent
with this common practice BUCS was provided space within CMFI's operation while
acting as a credit union. In 1998, BUCS converted its charter to that of a
federal mutual thrift in order to expand its service capabilities and open
additional branch offices outside of CFMI. In 2001, BUCS converted to a stock
form as a wholly owned subsidiary of BUCS Financial Corp. Throughout these
charter changes BUCS has continued to serve the employee population of CFMI and
still serves a high percentage of CFMI employees as their primary financial
institution.
In July 2002 BUCS and CFMI entered into a formal lease for space that BUCS
occupied at CFMI's headquarters building at 10455 Mill Run Circle, Owings Mills,
Maryland in order to provide continued financial services to CFMI employees.
This agreement for this space allocation expires in 2009. In consideration for
the space, BUCS provides several administrative services for CFMI and its
employees without imposing fees or
10802 Red Run Boulevard o Owings Mills, Maryland 21117 o PHONE: (443) 394-0047 o FAX: (443) 394-6684
10455 Mill Run Circle o Owings Mills, Maryand 21117 o PHONE: (410) 998-5304 o FAX: (410) 998-6674
8620 Snowden River Parkway o Columbia, Maryland 21045 o PHONE: (443) 285-0539 o FAX (443) 285-0156
8801 Columbia 100 Parkway o Columbia, Maryland 21045 o PHONE: (410) 720-3115 o FAX: (410) 884-0684
charges to CFMI for such services. Examples of the services provided in
consideration for the allocation of space include:
o To collect over-the-counter payments from individual CFMI subscribers by
credit, cash, or check
o To maintain depository accounts for CFMI treasury and redeem petty cash
vouchers
o To provide banking services for the cafeteria and other commercial services
located on-site.
o To Market CFMI services to CFMI subscribers as they make payments to BUCS
tellers
o To provide other services of benefit to employees and BUCS customers as
agreed upon between the parties from time to time
o To provide on-site cashier and various human resource related services such
as:
o Check cashing within BUCS predefined limits
o Postage stamp sales
o Discount amusement park ticket sales
o Motor vehicle purchase certification programs
o Assistance in coordinating certain special employee functions
such as tickets to entertainment events
o Work with HR to provide other financial services that may benefit
employees
o Armored courier services
CFMI estimates that these services provided by BUCS saves them approximately
$179,000 per year in administrative costs and has suggested that this savings
justifies the allocation of space to BUCS. A market study at the time the lease
was signed showed cost per square foot of the retail space occupied by BUCS was
approximately $41.00 per square foot with BUCS occupying approximately 2900
square feet of space. This market value assessment indicated an annual occupancy
expense of approximately $120,000 per year should BUCS have to lease the space
on the open market
All agreements with CFMI have been consummated in arms-length transactions and
whose terms are consistent with commercial market rental rates and terms in the
marketplace. Today, and at the time the formal lease agreement was signed, CMFI
and BUCS operated as independent organizations with neither having a controlling
interest over one or the other.
The accounting guidance used to recognize this lease agreement in APB 29 is
consistent with BUCS recognition of the exchange of nonmonetary assets at market
value. BUCS recognizes the monetary consideration of the leasehold expense
($120,000) and a related fee ($120,000) that would otherwise be charged CFMI for
the services provided per APB 29 paragraph 22.
The exchanges of nonmonetary assets that would otherwise be based on
recorded amounts (paragraph 21) may include an amount of monetary
consideration. The Board believes that the recipient of the monetary
consideration has realized gain on the exchange to the extent that the
amount of the monetary receipt exceeds a proportionate share of the
recorded amount of the asset surrendered. The portion of the cost
applicable to the realized amount should be based on the ratio of the
monetary consideration to the total consideration received (monetary
consideration plus the estimated fair value of the nonmonetary asset
received) or, if more clearly evident, the fair value of the
nonmonetary asset transferred. The Board further believes that the
entity paying the monetary consideration should not recognize any gain
on a transaction covered in paragraph 21 but should record the asset
received at the amount of the monetary consideration paid plus the
recorded amount of the nonmonetary asset surrendered. If a loss is
indicated by the terms of a transaction described in this paragraph or
in paragraph 21, the entire indicated loss on the exchange should be
recognized.
The company acknowledges that it is responsible for the adequacy and accuracy of
disclosure in public filings. It further acknowledges that SEC staff comments or
changes to disclosure in response to staff comments do not foreclose the
Commission from taking any action with respect to such filing and the company
may not assert staff comments as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the United States.
We trust that the foregoing is responsive to the staff's comments. Please do not
hesitate to call me or Matthew Ford, our Chief Financial Officer, at
410-998-5304 ext 5961 and 3821, respectively, if you should have any additional
questions or require additional information.
Sincerely,
/s/Herbert J. Moltzan
Herbert J. Moltzan
President and Chief Executive Officer
BUCS Financial Corp.