SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended: September 30, 2005
------------------
[ ] 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
-------------------
(Exact name of registrant as specified in its charter)
Maryland 52-2265986
- ------------------------------- ----------------
(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
--- ---
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares outstanding of common stock as of November 11, 2005:
$0.10 Par Value Common Stock 801,968
- ---------------------------- ------------------
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
- ------- --------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2005 (unaudited)
and December 31, 2004 (audited).................................................1
Consolidated Statements of Operations for the nine and three month periods
ended September 30, 2005 and 2004 (unaudited)...................................2
Consolidated Statements of Cash Flows for the nine
months period ended September 30, 2005 and 2004 (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..............................................................15
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings....................................................................16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..........................16
Item 3. Defaults Upon Senior Securities......................................................16
Item 4. Submission of Matters to a Vote of Security-Holders..................................16
Item 5. Other Information....................................................................16
Item 6. Exhibits ............................................................................16
Signatures
BUCS FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2005 AND DECEMBER 31, 2004
(Unaudited)
September 30 December 31
2005 2004
------------- -------------
ASSETS
------
Cash and cash equivalents $ 9,901,486 $ 7,296,507
Securities available for sale 4,630,775 5,928,920
Securities held to maturity 8,001,895 9,285,882
Loans receivable 103,251,569 91,897,564
Allowance for loan losses (705,026) (682,339)
------------- -------------
Loans receivable, net 102,546,543 91,215,225
Accrued interest receivable 432,468 377,285
Property and equipment, net 3,909,637 4,116,949
Investment required by law - Federal Home Loan Bank Stock 1,358,500 1,114,900
Assets held for sale - 362,915
Bank Owned Life Insurance 2,195,664 2,132,529
Prepaid expenses and other assets 1,064,205 935,039
------------- -------------
Total Assets $ 134,041,173 $ 122,766,151
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits $ 94,494,480 $ 88,620,555
Accounts payable and other liabilities 788,016 1,017,815
Borrowed funds - Federal Home Loan Bank 24,700,000 19,500,000
Guaranteed preferred beneficial interest in Company's
subordinated debt 3,000,000 3,000,000
------------- -------------
Total Liabilities 122,982,496 112,138,370
------------- -------------
Stockholders' Equity:
Preferred stock, par value $0.10 per share, 4,000,000 shares - -
authorized, 0 shares issued and outstanding
Common stock, par value $0.10 per share, 10,000,000 shares
authorized, 801,968 and 400,984 shares issued and outstanding
at September 30, 2005 and December 31, 2004, respectively 80,197 40,099
Additional paid-in capital 4,170,343 4,170,343
Retained earnings 7,013,931 6,609,556
Unallocated common stock held by Employee Stock Ownership
Plan ("ESOP") (200,942) (200,942)
Accumulated other comprehensive (loss)/income (4,852) 8,725
------------- -------------
Total Stockholders' Equity 11,058,677 10,627,781
------------- -------------
Total Liabilities and Stockholders' Equity $ 134,041,173 $ 122,766,151
============= =============
The accompanying notes are an intregal part of these
consolidated financial statements
1
BUCS FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE AND THREE MONTH PERIODS ENDED SEPTEMBER 30, 2005 AND 2004
(Unaudited)
Nine month periods ended Three month periods ended
September 30 September 30
-------------------------- --------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Interest Income
Loans receivable $ 4,369,508 $ 3,522,186 $ 1,560,149 $ 1,252,381
Investment securities 548,784 700,392 187,518 215,083
----------- ----------- ----------- -----------
Total interest income 4,918,292 4,222,578 1,747,667 1,467,464
----------- ----------- ----------- -----------
Interest expense
Deposits 1,156,936 1,077,653 438,416 362,326
Borrowed funds 755,724 558,612 294,760 187,454
----------- ----------- ----------- -----------
Total interest expense 1,912,660 1,636,265 733,176 549,780
----------- ----------- ----------- -----------
Net interest income 3,005,632 2,586,313 1,014,491 917,684
Provision for loan losses 241,752 243,822 70,000 86,538
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 2,763,880 2,342,491 944,491 831,146
----------- ----------- ----------- -----------
Noninterest income
Fees and service charges 1,862,507 2,011,133 679,544 734,410
Loss on sale of investment securities -- (179) -- --
Fee to process and maintain cash facility 90,000 90,000 30,000 30,000
Other 95,128 132,207 31,852 61,880
----------- ----------- ----------- -----------
Total noninterest income 2,047,635 2,233,161 741,396 826,290
----------- ----------- ----------- -----------
Noninterest expense
Compensation and benefits 2,244,019 2,028,120 771,051 728,832
Professional fees 188,385 182,682 59,935 61,018
Occupancy expense 820,960 821,069 268,176 281,106
Office operations 612,651 640,687 213,689 224,879
Advertising and marketing expense 226,913 208,804 68,203 70,063
Other operating expense 223,273 229,026 73,212 62,709
----------- ----------- ----------- -----------
Total noninterest expense 4,316,201 4,110,388 1,454,266 1,428,607
----------- ----------- ----------- -----------
Income before income taxes 495,314 465,264 231,621 228,829
Income tax expense 182,214 171,564 88,648 85,103
----------- ----------- ----------- -----------
Income from continuing operations 313,100 293,700 142,973 143,726
Discontinued operations
Gain from operations of discontinued component 214,339 51,814 4,298 3,917
Income tax expense (82,964) (20,065) (1,661) (1,513)
----------- ----------- ----------- -----------
Net gain on discontinued operation 131,375 31,749 2,637 2,404
----------- ----------- ----------- -----------
Net income 444,475 325,449 145,610 146,130
Net change in unrealized (losses)/gains on securities
available for sale, net of deferred income tax benefit (13,577) (21,111) (10,253) 96,070
----------- ----------- ----------- -----------
Total comprehensive income $ 430,898 $ 304,338 $ 135,357 $ 242,200
=========== =========== =========== ===========
Earnings per share - basic
From continuing operations $ 0.42 $ 0.40 $ 0.19 $ 0.19
From discontinued operations 0.18 0.04 0.00 0.00
----------- ----------- ----------- -----------
Net Income $ 0.60 $ 0.44 $ 0.19 $ 0.19
=========== =========== =========== ===========
Shares used in computing basic earnings per share 750,630 743,500 750,630 743,500
=========== =========== =========== ===========
Earnings per share - diluted
From continuing operations $ 0.41 $ 0.39 $ 0.18 $ 0.19
From discontinued operations 0.17 0.04 0.00 0.00
----------- ----------- ----------- -----------
Net Income $ 0.58 $ 0.43 $ 0.18 $ 0.19
=========== =========== =========== ===========
Shares used in computing diluted earnings per share 772,858 761,106 772,858 761,106
=========== =========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
2
BUCS FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2005 AND 2004
(Unaudited)
2005 2004
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 444,475 $ 325,449
Reconciliation of net income to net cash provided by
operating activities:
Loss on sale of investment securities - 179
Provision for loan losses 241,752 243,822
Increase in cash surrender value of life insurance (63,135) (71,513)
Depreciation and amortization 329,708 439,450
Loans originated for sale - (1,048,307)
Proceeds from sale of loans originated for sale - 1,052,172
Gain from sale of loans originated for sale - (3,865)
Proceeds from sale of loans 2,764,000 1,126,750
Gain on sale of loans - (24,415)
Effects of changes in operating assets and liabilities:
Accrued interest receivable (55,183) 39,858
Prepaid expenses and other assets (129,166) (64,885)
Accounts payable and other liabilities (221,255) 2,770
------------ -----------
Net cash provided by operating activities 3,311,196 2,017,465
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans (14,337,070) (14,124,260)
Proceeds from maturities, redemption and sales
of securities available-for-sale 1,269,094 6,941,793
Proceeds from repayments on securities held-to-maturity 1,260,725 1,433,661
(Purchase)/Redemption of FHLB stock (243,600) 90,000
Proceeds from sale of assets from discontinued component 362,915 -
Purchase of property and equipment (92,206) (220,380)
------------ -----------
Net cash used in investing activities (11,780,142) (5,879,186)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in borrowed funds from the FHLB 5,200,000 700,000
Net increase in deposits 5,873,925 2,860,597
Cash paid for dividends - (1,461)
Repayment of notes payable - (30,000)
------------ -----------
Net cash provided by financing activities 11,073,925 3,529,136
------------ -----------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 2,604,979 (332,585)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,296,507 3,486,463
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,901,486 $ 3,153,878
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 534,664 $ 198,100
============ ===========
Cash paid for interest $ 1,835,669 $ 1,489,674
============ ===========
The accompanying notes are an intregal part of these
consolidated financial statements
3
BUCS FINANCIAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the nine and three months ended September 30, 2005 and 2004
(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 four
offices, two in Owings Mills, Maryland and two in Columbia, Maryland. The Bank
is principally engaged in the business of providing retail banking services,
with an emphasis on residential mortgage loans, residential home equity loans,
commercial real estate, 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, BUCS
Financial Capital Trust I and Armor Insurance Group, Inc. All material
intercompany transactions have been eliminated in consolidation.
The accompanying consolidated financial statements for the nine and three month
periods ended September 30, 2005 and 2004 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, 2004,
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, 2004
has been derived from the audited financial statements at that date. Certain
reclassifications have been made to amounts previously reported to conform to
the classifications made in current periods.
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, 2005, the results of its operations for the nine and
three month periods ended September 30, 2005 and cash flows for the nine month
period ended September 30, 2005. The results of the interim periods are not
necessarily indicative of the results expected for the full fiscal year or any
other period.
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 - Discontinued Operations Held for Sale
-------------------------------------
The Company entered into a definitive agreement to sell the intangible assets
and goodwill of its wholly-owned subsidiary, Armor Insurance Group, Inc., on
September 30, 2004. As a result of this agreement the Company discontinued
operations of Armor Insurance Group, Inc. and proceeded to liquidate other fixed
assets owned by Armor Insurance Group, Inc.
The Company realized cash proceeds for the sale of its intangible assets and
goodwill of $709,944 on October 1, 2004. These proceeds resulted in a before tax
gain on sale of $274,095 and tax-adjusted gain on sale of approximately $168,240
that was recognized in the year ended December 31, 2004. The Company received
additional cash proceeds in the second and third quarters of 2005 that were
contingent upon performance of the intangible assets sold as determined through
year-end 2004. The additional proceeds received for the sale of these intangible
assets and goodwill in the second and third quarters of 2005 were $297,895 and
$9,305, respectively, resulting in a before tax gain on sale of $307,200 and
tax-adjusted gain on sale of approximately $188,559 for the year ending December
31, 2005. During the nine month period ending September 30, 2005, the Company
also received cash proceeds from the sale of miscellaneous fixed assets of the
discontinued component totaling $65,020. All proceeds from the sale of
intangible assets and tangible assets and intangible fixed assets have now been
recorded.
All other fixed assets of Armor Insurance Group, Inc. were sold during the first
quarter of 2005. The assets were comprised primarily of office condominium units
in Ellicott City, Maryland. The Company realized a pretax net gain on sale from
the sale of those assets of $31,227.
NOTE 4 - Earnings Per Share
------------------
Earnings per common share is computed by dividing net income 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 September 30, 2005, the Company had 86,900 options
outstanding. None of the outstanding options had any antidilutive effects on
earnings per share for the nine months ended September 30, 2005 or September 30,
2004. Earnings per share amounts have been given retroactive effect to the
two-for-one stock split declared on March 30, 2005 and paid on April 30, 2005.
5
NOTE 5 - Stock-Based Compensation
------------------------
The Company's stock-based compensation plan is accounted for
based on the intrinsic value method set forth in Accounting Principles Board
Opinion ("APB") No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Compensation expense for stock options is generally not
recognized if the exercise price of the option equals or exceeds the fair market
value of the stock on the date of grant.
The option strike price was equal to the market price of the
common stock at the date of the grant for all options granted; accordingly, no
compensation expense related to options was recognized. If the Company had
applied a fair value based method to recognize compensation cost for the options
granted, net income and earnings per share would have been changed to the
following pro forma amounts for the period ended September 30, 2005 and 2004:
Nine months ended Three months ended
------------------------ ------------------------
Sept 30 Sept 30 Sept 30 Sept 30
2005 2004 2005 2004
-------- -------- -------- --------
Net income - as reported $444,475 $325,449 $145,610 $146,130
Deduct: Total stock-based compensation determined
under fair value based method for all awards,
net of related income tax effects - (4,812) - -
-------- -------- -------- --------
Pro forma net income $444,475 $320,637 $145,610 $146,130
======== ======== ======== ========
Earnings (loss) per share:
Basic - as reported $ .59 $ .44 $ .19 $ .20
======== ======== ======== ========
Basic - pro forma $ .59 $ .43 $ .19 $ .20
======== ======== ======== ========
Diluted - as reported $ .58 $ .43 $ .18 $ .19
======== ======== ======== ========
Diluted - pro forma $ .58 $ .42 $ .18 $ .19
======== ======== ======== ========
For purposes of pro forma disclosures, the estimated minimum value of the
options is amortized to expense over the option's vesting period. Note that the
effects of applying Statement of Financial Accounting Standards No. 123 for pro
forma disclosures in the current year are not necessarily representative of the
effects on pro forma net income for future years. The following weighted average
assumptions were used in the Black-Scholes option pricing model:
Dividend yield 0.00%
Expected volatility 29.17%
Risk-free interest rate 4.58%
Expected lives (in years) 10
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE AND THREE MONTH PERIODS ENDED SEPTEMBER 30, 2005
-------------------------------------------------------------
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 $134.0 million at September 30, 2005
reflect an increase of $11.2 million as compared to $122.8 million at December
31, 2004. The increase in assets was comprised mainly of increases in loans
receivable, net, cash and cash equivalents, investment in Federal Home Loan Bank
stock and prepaid and other assets of $11.3 million, $2.6 million, $244,000 and
$129,000, respectively, partially offset by declines in securities available for
sale, securities held to maturity, property and equipment, and assets held for
sale of $1.3 million, $1.3 million, $207,000 and $363,000, respectively.
7
The increase in the Company's liabilities was due primarily to
increases in deposits and borrowed funds from the Federal Home Loan Bank of $5.9
million and $5.2 million, respectively, partially offset by a decline of
$230,000 in accounts payable and other liabilities. Changes in the components of
major assets, liabilities and equity are discussed herein.
Cash and Cash Equivalents. Cash and cash equivalents, which include
interest-bearing deposits in other banks with original maturities of less than
three months, overnight investment funds with no stated maturity and Federal
funds sold, totaled approximately $9.9 million at September 30, 2005, an
increase of $2.6 million or 35.7% as compared to $7.3 million at December 31,
2004. The increase is due primarily to the Bank holding short-term funds
available to meet current and expected future loan demand.
Investment Securities Available for Sale. Investment securities
available for sale decreased by $1.3 million or 21.9% to $4.6 million at
September 30, 2005 as compared to $5.9 million at December 31, 2004. This is the
result of normal principal payments on mortgage-backed securities. Cash flows
from the principal repayments on investment securities available for sale were
used to fund new loan originations during the period.
Securities Held to Maturity. Securities held to maturity decreased by
$1.3 million or 13.8% to $8.0 million at September 30, 2005 as compared to $9.3
million at December 31, 2004. The decrease is the result of normal principal
payments on mortgage-backed securities. Cash flows from the principal repayments
on investment securities held to maturity were used to fund new loan
originations during the period.
Loans Receivable, Net. Net loans receivable at September 30, 2005
totaled $102.5 million, an increase of $11.3 million or approximately 12.4%, as
compared to $91.2 million at December 31, 2004. Originations of $51.2 million,
which includes $28.9 million of consumer loans including home equity loans,
$862,000 in first mortgage loans on one to four family residences and $21.4
million of commercial loans in the Bank's prime lending area were offset by
principal repayments and loan participations sold totaling $39.9 million.
Assets Held for Sale. Assets held for sale totaled $0 at September 30,
2005 as compared to $363,000 as of December 31, 2004. The decrease is the result
of the sale of property and equipment previously owned by Armor Insurance Group,
Inc., a wholly owned subsidiary of the Company, that was sold during October,
2004.
Bank Owned Life Insurance. The cash value of Bank Owned Life Insurance
policies owned by the bank increased to $2.20 million at September 30, 2005 from
$2.13 at December 31, 2004, an increase of 3.0%.
During July 2003, the Company entered into an investment in Bank Owned
Life Insurance (BOLI) with an original cash value of $2,000,000. The investment
was made in the form of insurance policies on the life of the Company's
president in the amount of $1 million and on the lives of four senior executive
officers of the Bank in the amount of $250,000 each. The income derived from
this investment is used to fund benefits for employees and directors of the
Bank, including Endorsement Method Split Dollar Life Insurance Plans that
provide death benefits to the Bank and all insured employees, a contribution of
up to $50,000 per year to a Supplemental Employee Retirement Plan (SERP) for the
president, and other benefits as determined from time to time by the board of
directors.
8
Deposits. Total deposits, after interest credited, increased by $5.9
million or 6.6% to $94.5 million at September 30, 2005, as compared to $88.6
million at December 31, 2004. The increase was primarily due to increased new
deposit activity at the two newest bank branch locations, the addition of new
money market and CD deposit products, and normal cyclical trends in core deposit
volumes related primarily to customer payroll cycles. These factors resulted in
increases in non-interest bearing checking and money market account balances of
$2.9 million, $5.8 million, respectively, which were partially offset by
decreases in regular savings balances and certificates of deposit of $2.2
million and $558,000, respectively.
FHLB Advances. FHLB advances totaled $24.7 million at September 30, an
increase of $5.2 million or 26.7% compared to $19.5 million at December 31,
2004. The increase was the result of the Bank using FHLB advances to help fund
increased loan demand.
Stockholders' Equity. Stockholders' equity totaled $11.06 million at
September 30, 2005, an increase of $431,000 from $10.63 million at December 31
2004. The increase was due to net income from operations during the period of
$444,000 partially offset by a decrease in accumulated other comprehensive
income of $13,000 resulting from a decrease in the estimated fair value of
investment securities available for sale.
Liquidity. Liquidity is measured using an approach designed to examine
the Company's assets to ensure funding is available to meet the expected cash
flow needs for loan demand, liability maturities and withdrawals, while
minimizing non-earning cash balances such as branch cash, reserves and checks
held for collection. Additionally, the approach takes into account anticipated
investment security maturities, call provisions, and principal pay downs in
determining funding needs.
The Company also maintains external sources of funds, which can be
drawn upon when required to meet liquidity needs. The primary source of external
liquidity is a line of credit for $33,510,000 from the Federal Home Loan Bank of
Atlanta, of which approximately $8,810,000 was available to fund liquidity needs
at September 30, 2005. Based upon its liquidity analysis, including external
sources of available liquidity, management believes the liquidity position is
appropriate at September 30, 2005.
The following is a schedule of significant commitments at September 30,
2005:
(In thousands)
Commitments to extend credit:
Commitments to originate residential mortgages $ 140
Commitments to originate non-residential, commercial mortgages 2,609
Commitments to originate non-mortgage commercial loans 200
Unused home equity lines of credit 21,055
Unused commercial lines of credit 3,036
Commercial Letters of Credit 200
Other commitments to extend credit 4,886
-------
$32,126
=======
Results of Operations for the Nine Months Ended September 30, 2005 and 2004
Net Income. The Company recorded net income of $444,000 for the
nine-month period ended September 30, 2005, as compared to $325,000 for the same
period in 2004, representing a
9
$119,000 or 36.6% increase. Net interest income increased $419,000, noninterest
income decreased by $185,000, and the net gain from discontinued operations
(Armor Insurance Group, Inc.) increased by $100,000, while noninterest expense
increased by $206,000, the provision for loan losses decreased by $2,000, and
the provision for income taxes on continuing operations increased by $11,000.
Changes in the components of income and expense are discussed herein.
Net Interest Income Net interest income increased $419,000 or 16.2% for
the nine-month period ended September 30, 2005, as compared to the same period
in 2004. The average balance of interest-earning assets increased $5.9 million
or 5.3%, and the average yield thereon increased by 54 basis points. The average
balance of interest-bearing liabilities increased $4.7 million or 4.3%, and the
average rate paid thereon increased 24 basis points. The increases in
interest-earning assets and interest-bearing liabilities are attributed to
positive cash flow resulting from the increase in deposit volume at all of the
Bank's office locations and to an increase in short-term borrowings. The average
yield on interest-earning assets increased more than the average cost of
interest-bearing liabilities due to the improved loan growth at the Bank and the
fact that during this period the Bank's interest-earning assets repriced more
rapidly than interest-bearing liabilities as the Federal Reserve began raising
interest rates in mid-2004. The net interest rate spread, which is the
difference between the average yield on interest-earning assets and the average
cost of interest-bearing liabilities, increased to 3.38% for the nine-month
period ended September 30, 2005 from 3.08% for the same period in 2004. The
increase in the net interest rate spread is primarily due to the fact that
interest-earning assets repriced more rapidly than interest-bearing liabilities
during a rising rate environment.
Interest Income. Interest income increased $696,000 or 16.5% to $4.92
million for the nine-month period ended September 30, 2005, as compared to $4.22
million for the same period in 2004.
Interest on loans receivable increased $847,000 or 24.0% for the
nine-month period ended September 30, 2005, as compared to the same period in
2004. The increase is the result of a $14.4 million increase in the average
balance of loans receivable and a 33 basis point increase in the average yield
on loans.
Interest income on investment securities decreased by $152,000 or 21.6%
for the nine-month period ended September 30, 2005, as compared to the same
period in 2004. The decrease is the result of a $8.5 million or 31.4% decline in
the average balance of investment securities, partially offset by a 49 basis
point increase in the average yield thereon.
The average yield on interest-earning assets was 5.63% and 5.09% for
the nine-month periods ended September 30, 2005 and 2004, respectively.
Interest Expense. Interest expense totaled $1.91 million for the
nine-month period ended September 30, 2005, as compared to $1.64 million for the
same period in 2004, an increase of $276,000, or 16.9%. The average balance of
interest-bearing liabilities increased $4.7 million or 4.3% while the average
rate paid thereon increased by 24 basis points
Interest expense on deposits increased $79,000 or 7.3% for the
nine-month period ended September 30, 2005, as compared to the same period in
2004. The increase was due to an increase of $1.3 million in the average balance
of deposits and an increase in the cost of deposits of 9 basis points.
10
Interest on borrowed funds increased by $197,000 or 35.2% for the
nine-month period ended September 30, 2005, as compared to the same period in
2004. The increase was due to an increase in the average balance of advances
outstanding of $3.4 million or 18.7% and an increase in the cost of borrowed
funds of 56 basis points. The Company uses FHLB advances as a funding source to
supplement deposits, which are the Company's primary source of funds.
The average cost of interest-bearing liabilities was 2.25% and 2.01%
for the nine-month periods ended September 30, 2005 and 2004, respectively.
Provision for Loan Losses. During the nine-month period ended September
30, 2005 and 2004, the Company established provisions for loan losses of
$242,000 and $244,000, respectively. This reflected management's evaluation of
the underlying credit risk of the loan portfolio and the level of allowance for
loan losses. The bulk of loan growth between periods has come in lower risk
commercial real estate and residential real estate secured loans as compared to
consumer automobile loans and commercial loans secured by business assets other
than real estate.
At September 30, 2005, the allowance for loan losses totaled $705,000
or .68% and 269.1% of total loans and total non-performing loans, respectively,
as compared to $611,000 or .83% and 1971.0%, respectively, at September 30,
2004. The Bank's non-performing loans (non-accrual loans and accruing loans 90
or more days overdue) totaled $262,000 and $113,000 at September 30, 2005 and
2004, respectively, which represents .25% and .12% of the Bank's total loans,
respectively. The Bank's ratio of non-performing loans to total assets was .20%
and .09% at September 30, 2005 and 2004, respectively.
Noninterest Income. Total noninterest income, primarily fees and
service charges, decreased $186,000 or 8.3% for the nine-month period ended
September 30, 2005, as compared to the same period in 2004. This decrease is
primarily attributed to a lower number of overdraft items to customer checking
accounts offset partially by an 11% increase to the per item overdraft charge,
implemented during the period, as compared to the period ending September 30,
2004. The Bank places 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.
Noninterest Expense. Total noninterest expense increased by $206,000 or
5.0% for the nine-month period ended September 30, 2005, as compared to the same
period in 2004. This increase was attributable to an increase of $216,000 or
10.6% in compensation and benefits resulting from addition of employees at the
Bank, increased cost for employee insurance programs, and normal cost of living
increases. Additionally, there were increases of $18,000 or 8.7% in advertising
and marketing expense and $6,000 or 3.1% in professional fees, partially offset
by decreases of $28,000 and $6,000 in office operations and other operating
expenses, respectively.
Net Gain on Discontinued Operations - The net gain on discontinued
operations for the nine-month period ending September 30, 2005 reflects the
performance of the Company's wholly owned subsidiary Armor Insurance Group, Inc.
(Armor) which was sold on October 1, 2004. The net gain for the nine-month
period ended September 30, 2005 increased by $100,000 or 313.8% from the nine-
month period ending September 30, 2004. This increase resulted from gains on the
sale of property, equipment, and intangible assets previously owned by Armor.
Income Tax Expense. The provision for income taxes on continuing
operations totaled $182,000 for the nine-month period ended September 30, 2005,
as compared to $172,000 for the
11
same nine-month period in 2004. The $10,000 or 6.2% increase is the result of
increased net taxable income.
Results of Operations for the Three Months Ended September 30, 2005 and 2004
Net Income. The Company recorded net income of $146,000 for the
three-month period ended September 30, 2005, virtually the same as for the same
period in 2004. Net interest income increased $97,000 and noninterest income
decreased by $85,000, while noninterest expense increased by $26,000, the
provision for loan losses decreased by $17,000, and the provision for income
taxes on continuing operations increased by $4,000. Changes in the components of
income and expense are discussed herein.
Net Interest Income Net interest income increased $97,000 or 10.5% for
the three-month period ended September 30, 2005, as compared to the same period
in 2004. The average balance of interest-earning assets increased $7.2 million
or 6.4%, and the average yield thereon increased by 62 basis points. The average
balance of interest-bearing liabilities increased $6.2 million or 5.6%, and the
average rate paid thereon increased 53 basis points. The increases to
interest-earning assets and interest-bearing liabilities are attributed to
positive cash flows resulting from an increase in average deposits of $2.4
million or 2.7% and an increase in short-term borrowings of $3.8 million or
18.9%. The average yield on interest-earning assets increased more than the
average cost of interest-bearing liabilities due to the improved loan growth at
the Bank and the fact that the Bank's interest-earning assets repriced more
rapidly than interest-bearing liabilities during this period as the Federal
Reserve began raising interest rates in mid-2004. The net interest rate spread,
which is the difference between the average yield on interest-earning assets and
the average cost of interest-bearing liabilities, increased to 3.33% for the
three-month period ended September 30, 2005 from 3.23% for the same period in
2004. The increase in the net interest rate spread is primarily due to the fact
that interest-earning assets repriced more rapidly than interest-bearing
liabilities during a rising rate environment.
Interest Income. Interest income increased $280,000 or 19.1% to $1.75
million for the three-month period ended September 30, 2005, as compared to
$1.47 million for the same period in 2004.
Interest on loans receivable increased $308,000 or 24.6% for the
three-month period ended September 30, 2005, as compared to the same period in
2004. The increase is the result of a $12.8 million increase in the average
balance of loans receivable and a 50 basis point increase in the average yield
on loans.
Interest income on investment securities decreased by $27,000 or 12.6%
for the three-month period ended September 30, 2005, as compared to the same
period in 2004. The decrease is the result of a $5.5 million or 23.4% decline in
the average balance of investment securities, partially offset by a 51 basis
point increase in the average yield thereon.
The average yield on interest-earning assets was 5.85% and 5.23% for
the three-month periods ended September 30, 2005 and 2004, respectively.
Interest Expense. Interest expense totaled $733,000 for the three-month
period ended September 30, 2005, as compared to $550,000 for the same period in
2004, an increase of $183,000, or 33.4%. The average balance of interest-bearing
liabilities increased $6.2 million or 5.6% while the average rate paid thereon
increased by 53 basis points.
12
Interest expense on deposits increased $76,000 or 21.0% for the
three-month period ended September 30, 2005, as compared to the same period in
2004. The increase was due to an increase of $2.4 million or 2.7% in average
deposits and a 29 basis points increase in the average cost of deposits.
Interest on borrowed funds increased by $107,000 or 57.2% for the
three-month period ended September 30, 2005, as compared to the same period in
2004. The increase was due to an increase in the average balance of advances
outstanding of $3.8 million or 18.9% and an increase in the cost of borrowed
funds of 122 basis points. The Company uses FHLB advances as a funding source to
supplement deposits, which are the Company's primary source of funds.
The average cost of interest-bearing liabilities was 2.52% and 2.00%
for the three-month periods ended September 30, 2005 and 2004, respectively.
Provision for Loan Losses. During the three-month period ended
September 30, 2005 and 2004, the Company established provisions for loan losses
of $70,000 and $87,000, respectively. This reflected management's evaluation of
the underlying credit risk of the loan portfolio and the level of allowance for
loan losses.
Noninterest Income. Total noninterest income, primarily fees and
service charges, decreased $85,000 or 10.3% for the three-month period ended
September 30, 2005, as compared to the same period in 2004. This decrease is
primarily attributed to fewer insufficient funds charges on customer checking
account overdrafts offset partially by an 11% increase in the per item overdraft
charge as compared to the period ending September 30, 2004. The Bank places 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.
Noninterest Expense. Total noninterest expense increased by $26,000 or
1.8% for the three-month period ended September 30, 2005, as compared to the
same period in 2004. This increase was attributable to increases of $42,000 or
5.8% in compensation and benefits resulting from addition of employees at the
Bank, increased cost for employee insurance programs, and normal cost of living
increases, and $11,000 or 16.7% in other operating expenses. The increases were
partially offset by decreases in other expense categories primarily office
occupancy expenses which decreased by $13,000 or 4.6%.
Income Tax Expense. The provision for income taxes on continuing
operations totaled $89,000 for the three-month period ended September 30, 2005,
as compared to $85,000 for the same three-month period in 2004. The $4,000 or
4.2% increase is the result of increased net taxable income.
Capital Requirements
The Bank is subject to federal regulations that impose certain minimum
capital requirements. Quantitative measures, established by regulation to ensure
capital adequacy, require the Bank to maintain amounts and ratios of tangible
and core capital to adjusted total assets and of total risk-based capital to
risk-weighted assets. On September 30, 2005, 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,
13
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.
14
ITEM 3. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on their evaluation
of the Company's disclosure controls and procedures (as defined in Rule 13-15(e)
under the Securities Exchange Act of 1934 (the "Exchange Act")), the Company's
principal executive officer and principal financial officer have concluded that
as of the end of the period covered by this Quarterly Report on Form 10-QSB such
disclosure controls and procedures are effective.
(b) Changes in internal control over financial reporting. During the quarter
under report, there was no change in the Company's internal control over
financial reporting that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
15
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, 2005 that would have a material effect on
operations or income.
Item 2. Unregistered Sales of Equity 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.
-----------------
None.
Item 6. Exhibits.
--------
a) Exhibits:
31 Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
16
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 11, 2005 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 11, 2005 Date: November 11, 2005
17