As filed with the Securities and Exchange Commission on October 6, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
BUCS Financial Corp
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(Exact name of Small Business Issuer as specified in charter)
Maryland 6035 52-2269586
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(State or other jurisdiction (Primary SIC No.) (I.R.S. Employer
of incorporation or Identification No.)
organization)
10455 Mill Run Circle, Owings Mills, Maryland 21117
(410) 998-5304
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(Address and telephone number of principal executive offices
and principal place of business)
Mr. Herbert J. Moltzan, President and Chief Executive Officer
10455 Mill Run Circle, Owings Mills, Maryland 21117
(410) 998-5304
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(Name, address and telephone number of agent for service)
Please send copies of all communications to:
Samuel J. Malizia, Esq.
Tiffany A. Henricks, Esq.
MALIZIA SPIDI & FISCH, PC
1301 K Street, N.W., Suite 700 East, Washington, D.C. 20005
(202) 434-4660
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO
THE PUBLIC: As soon as practicable after this
registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier registration statement for the
same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier registration statement for the
same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
Title of Each Shares Proposed Maximum Proposed Maximum Amount of
Class of Securities to be Offering Price Aggregate Registration
To Be Registered Registered Per Unit Offering Price(1) Fee
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<S> <C> <C> <C> <C>
Common Stock,
$.10 Par Value 542,225 $10.00 $5,422,250 $1,431.47
Interests of participants
in the 401(k) Plan 45,729(2) $10.00 $ 457,290 --(3)
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(1) Estimated solely for purposes of calculating the registration fee.
(2) These shares are included in the 542,225 shares being registered.
(3) The $457,290 of participations to be registered are based upon the assets
of the 401(k) Plan. Pursuant to Rule 457(h)(2) under the Securities Act of
1933, no additional fee is required with respect to the interests of
participants of the 401(k) Plan.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
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PROSPECTUS SUPPLEMENT
Interests in
BUCS Federal
401(k) & Profit Sharing Plan
and
Offering of 45,729 Shares of
Common Stock, $.10 par value per share,
of
BUCS FINANCIAL CORP
This prospectus supplement relates to the offer and sale to
participants in the BUCS Federal 401(k) & Profit Sharing Plan of participation
interests and shares of BUCS Financial Corp.
In connection with the conversion of BUCS Federal from a federally
chartered mutual savings bank to a federally chartered stock savings bank, the
plan has been amended to permit the investment of plan assets in various
participant directed investment alternatives, including investment in the stock
of BUCS Financial Corp. You may direct the trustee of the plan to purchase the
stock with plan assets which are attributable to you as a participant. This
prospectus supplement relates to your decision to invest all or a portion of
your plan funds in BUCS Financial Corp common stock.
The prospectus of BUCS Financial Corp dated ____________, 2000 which is
attached to this prospectus supplement, includes detailed information regarding
the conversion, BUCS Financial Corp common stock, and the financial condition,
results of operation, and business of BUCS Federal. This prospectus supplement
provides information regarding the plan. You should read this prospectus
supplement together with the prospectus and keep both for future reference.
Please refer to Risk Factors beginning on page __ of the prospectus.
These securities have not been approved or disapproved by the
Securities and Exchange Commission, the Office of Thrift Supervision, or any
other federal agency or any state securities commission, nor has such
commission, office, or other agency or any state securities commission passed
upon the accuracy or adequacy of this prospectus supplement. Any representation
to the contrary is a criminal offense.
These securities are not deposits or savings accounts and are not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The date of this prospectus supplement is
_____________, 2000.
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TABLE OF CONTENTS
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<S> <C>
The Offering......................................................................................................1
Securities Offered.......................................................................................1
Election to Purchase Stock in the Initial Offering.......................................................1
Value of Participation Interests.........................................................................1
Method of Directing Investments..........................................................................1
Time for Directing Investment............................................................................1
Irrevocability of Investment Direction...................................................................2
Direction to Purchase the Stock After the Conversion.....................................................2
Purchase Price of BUCS Financial Corp Common Stock.......................................................2
Nature of Each Participant's Interest in BUCS Financial Corp Common Stock................................2
Voting and Tender Rights of the Stock....................................................................3
Minimum Investment.......................................................................................3
Description of the Plan...........................................................................................3
General..................................................................................................3
Eligibility and Participation............................................................................4
Contributions and Benefits Under the Plan................................................................4
Limitations on Contributions.............................................................................4
Investment of Plan Assets................................................................................5
Performance of Previous Funds............................................................................6
Performance of Employer Stock Fund.......................................................................6
Benefits Under the Plan................................................................................. 7
Withdrawals and Distributions From the Plan............................................................. 7
Administration of the Plan.............................................................................. 9
Reports to Plan Participants............................................................................ 9
Amendment and Termination............................................................................... 9
Merger, Consolidation, or Transfer..................................................................... 10
Federal Income Tax Consequences........................................................................ 10
Restrictions on Resale..................................................................................11
SEC Reporting and Short-Swing Profit Liability..........................................................11
Additional Information..................................................................................11
Legal Opinions...................................................................................................11
Investment Election Form.................................................................................Appendix A
Investment Allocation Form...............................................................................Appendix B
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THE OFFERING
Securities Offered
The securities offered in connection with this prospectus supplement
are participation interests in the plan and shares of BUCS Financial Corp common
stock. Only employees of BUCS Federal who meet the eligibility requirements
under the plan may participate. Information with regard to the plan is contained
in this prospectus supplement and information with regard to the conversion and
the financial condition, results of operation, and business of BUCS Federal is
contained in the attached prospectus.
Election to Purchase Stock in the Initial Offering
You may direct the trustee of the plan to invest all or part of the
funds in your account in the Employer Stock Fund. Based upon your election, the
trustees of the plan will subscribe for BUCS Financial Corp shares in the
initial offering. You also will be permitted to direct ongoing purchases of the
stock under the plan after the initial offering. See "Direction to Purchase
Stock After the Initial Offering." The plan's trustee will follow your
investment directions. Amounts not transferred to the Employer Stock Fund will
remain invested in the other investment funds of the plan as directed by you.
See "Investment of Plan Assets."
Value of Participation Interests
As of October 2, 2000, the market value of the assets of the plan
equaled $287,288. The plan administrator has informed each participant of the
value of his or her account in the plan as of October 1, 2000. The value of the
plan assets represents your past contributions to the plan, plus or minus
earnings or losses on contributions, less withdrawals and loans. You may direct
up to 100% of the value of your account assets to invest in the Employer Stock
Fund. However, in connection with the initial offering of the stock, if you
elect to purchase the stock, you will be required to invest a minimum amount of
your account assets in the Employer Stock Fund.
Method of Directing Investments
Appendix A of this prospectus supplement includes an investment form
for you to direct a transfer to the Employer Stock Fund of all or a portion of
your account under the plan. Appendix B of this prospectus supplement includes
the investment allocation form. If you wish to invest all or part of your
account in the Employer Stock Fund, you need to complete the form at Appendix A.
Additionally, you may indicate the directed investment of future contributions
under the plan for investment in the Employer Stock Fund. If you do not wish to
make an investment election, you do not need to take any action.
Time for Directing Investment
The deadline for submitting your direction to invest funds in the
Employer Stock Fund in order to purchase the stock issued in the initial
offering is noon on ____________, 2000. If you want to invest in the Employer
Stock Fund, you must return the attached form to Mr. Herbert J. Moltzan of BUCS
Federal by noon on ________________, 2000.
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After the initial offering, you will still be able to direct the
investment of your account under the plan in the Employer Stock Fund and in
other investment alternatives.
Irrevocability of Investment Direction
The direction to invest your plan funds in the Employer Stock Fund
cannot be changed after you have turned in your forms. However, you will be able
to direct your account to purchase the stock after the initial offering by
directing amounts in your account into the Employer Stock Fund.
Direction to Purchase the Stock After the Conversion
Following completion of the conversion, you will be permitted to direct
that a certain percentage of your interest in the Trust Fund be transferred to
the Employer Stock Fund and invested in BUCS Financial Corp common stock, or to
the other investment funds available under the plan. Alternatively, you may
direct that a certain percentage of your interest in the Employer Stock Fund be
transferred to the Trust Fund to be invested in the other investment funds
available in accordance with the terms of the plan. You can direct future
contributions made to the plan by you or on your behalf to be invested in the
Employer Stock Fund. Following your initial election, the allocation of your
interest in the Employer Stock Fund may be changed annually by filing a change
of investment allocation form with the plan administrator.
Purchase Price of BUCS Financial Corp Common Stock
The funds transferred to the Employer Stock Fund for the purchase of
the stock issued in with the initial offering will be used by the trustee to
purchase shares of BUCS Financial Corp common stock. The price paid for such
shares of the stock will be $10.00. This price is the price that will be paid by
all other persons who purchase shares of the stock in the initial offering.
Your account assets directed for investment in the Employer Stock Fund
after the initial offering shall be invested by the trustee to purchase shares
of BUCS Financial Corp common stock in open market transactions. The price paid
by the trustee for shares of the BUCS Financial Corp common stock in the initial
offering, or otherwise, will not exceed "adequate consideration" as defined in
Section 3(18) of the Employee Retirement Income Security Act.
Nature of Each Participant's Interest in BUCS Financial Corp Common Stock
The trustee will hold BUCS Financial Corp common stock in the name of
the plan. Each participant has an allocable interest in the investment funds of
the plan but not in any particular assets of the plan. Accordingly, a specific
number of shares of the stock will not be directly attributable to the account
of any individual participant. Dividend rights associated with the stock held by
the Employer Stock Fund will be allocated to the Employer Stock Fund. Any
increase (or decrease) in the value of the fund as a result of dividend rights
will be reflected in each participant's allocable interest in the Employer Stock
Fund.
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Voting and Tender Rights of the Stock
You will direct the trustee of the plan about how to vote your BUCS
Financial Corp shares. If you do not give voting instruction or tender
instruction to the trustee, the trustee will vote or tender those shares within
its discretion as a fiduciary under the plan or as directed by the plan
administrator.
Minimum Investment
The minimum investment of assets directed by a participant for the
purchase of the stock in the initial offering is $250.00, and investments must
be in increments of $10.00. Funds may be directed for the purchase of the stock
attributable to your account regardless of whether your account assets are 100%
vested at the time of your investment election. There is no minimum level of
investment after the initial offering for investment in the Employer Stock Fund.
DESCRIPTION OF THE PLAN
General
BUCS Federal adopted a 401(k) plan effective January 1, 1997. Effective
January 1, 2000, BUCS Federal amended its plan in order to permit the investment
of plan assets in BUCS Financial Corp common stock. The plan is a deferred
compensation arrangement established in accordance with the requirements under
Section 401(a) and Section 401(k) of the Internal Revenue Code. The plan will be
submitted to the IRS for a determination by the IRS that the plan is qualified
under Section 401(a) of the Internal Revenue Code and that its trust is
qualified under Section 501(a) of the code. BUCS Federal intends for the plan,
in operation, to comply with the requirements under Section 401(a) and Section
401(k) of the code. BUCS Federal will adopt any amendments to the plan that may
be necessary to ensure the continued qualified status of the plan under the
Internal Revenue Code and other federal regulations.
Employee Retirement Income Security Act. The plan is an "individual
account plan" other than a "money purchase pension plan" within the meaning of
the Employee Retirement Income Security Act. As such, the plan is subject to all
of the provisions of Title I (Protection of Employee Benefit Rights) and Title
II (Amendments to the Internal Revenue Code Relating to Retirement Plans) of the
act, except the funding requirements contained in Part 3 of Title I of the act,
which do not apply to an individual account plan (other than a money purchase
plan). The plan is not subject to Title IV (Plan Termination Insurance) of the
act. Neither the funding requirements contained in Part 3 of Title I of the act
nor the plan termination insurance provisions contained in Title IV of the act
will be extended to participants or beneficiaries under the plan.
Federal tax law imposes substantial restrictions on your right to
withdraw amounts held under the plan before your termination of employment with
BUCS Federal. Federal law may also impose a 10% excise tax on withdrawals you
make for the plan before you reach the age of 59 1/2, regardless of whether the
withdrawal occurs during or after your employment with BUCS Federal.
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Full Text of Plan. The following portions of this prospectus supplement
are summaries of provisions in the plan. They are not complete and are qualified
in their entirety by the full text of the plan. You may obtain copies of the
full plan by sending a request to Mr. Herbert J. Moltzan at BUCS Federal. You
should carefully read the full text of the plan document to understand your
rights and obligations under the plan.
Eligibility and Participation
If you are age 21 or older, you may participate in the plan on the
January 1 or July 1 after you work for us after completing 1,000 hours of
service during a 12-month period with BUCS Federal. As of October 1, 2000, there
were 21 employees eligible to participate in the plan and 21 employees had
elected to participate. The plan year is January 1 to December 31.
Contributions and Benefits Under the Plan
Plan Participant Contributions. You are permitted amounts of not less
than 1% and not more than 15% of your annual pay, including salary, 401(k)
deferrals, cafeteria plan deferrals, or commissions to the plan. You may change
the amount of your contributions at any time and your changes will be effective
on the first day of the following pay period.
BUCS Federal Matching Contributions. BUCS Federal may match your
contribution to the plan, but we are not obligated to match your contributions.
BUCS Federal contributions are subject to revision by us and are subject to a
vesting schedule. BUCS Federal currently does not match your contributions.
BUCS Federal Profit Sharing Contributions. BUCS Federal may make a
profit sharing contribution on your behalf. Currently, BUCS Federal makes a 7.5%
contribution of your compensation. This contribution may be increased, decreased
or discontinued by BUCS Federal at any time. The profit sharing contributions
are subject to a vesting schedule.
Employer's Non-Elective Contributions. In addition to any other
contributions, BUCS Federal may, in its discretion, make non-elective
contributions for a plan year, to the account of any employee of BUCS Federal
who is eligible to participate in the plan. Such non-elective contributions may
be limited to the amount necessary to insure that the plan complies with the
requirements of the Section 401(k) of the Internal Revenue Code.
Limitation on Contributions
Limitation on Employee Salary Deferral. Although you may contribute up
to 15% of your pay to the plan, federal tax law limits the dollar amount of your
annual contribution to $10,500 in 2000. The Internal Revenue Service
periodically adjusts this limit for inflation. Contributions in excess of this
limit and earnings on those contributions generally will be returned to you by
April 15 of the year following your contribution, and they will be subject to
regular federal income taxes.
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Limitation on Annual Additions and Benefits. Under federal tax law,
your contributions and our contributions to the plan may not be greater than 25%
of your annual pay or, if less, $30,000. Contributions that we make to any other
retirement program that we sponsor may also count against these limits. For
example, shares awarded under our employee stock ownership plan will be included
in these limits.
Special Rules About Highly-Paid Employees. Special provisions of the
Internal Revenue Code limit contributions by employees who receive annual pay
greater than $85,000. If you are in this category, some of your contribution may
be returned if your contribution, when measured as a percentage of your pay, is
substantially higher than the contributions made by other employees.
If your annual pay is less than $67,500, we may be required to make a
minimum contribution to the plan of 3% of your annual pay if the plan is
considered to be a "top heavy" plan under federal tax law. The plan is
considered "top heavy" if, in any year, the value of the plan accounts of
employees making more than $67,500 represent more than 60 percent of the value
of all accounts.
Investment of Plan Assets
All amounts credited to your plan account is held in trust. A trustee
appointed by BUCS Federal's Board of Directors administers the trust and invests
the plan assets. The plan offers the following investment choices:
Alliance Money Market Fund: The Fund's objective is to obtain a high
level of current income, preserve its assets and maintain liquidity.
Alliance Equity Index Fund: The Fund's objective is to seek a total
return before expenses that approximates the total return performance of the S&P
500 Index including reinvestment of dividends, at a risk level consistent with
that of the Index.
EQ INVESCO Telecommunications Fund: The Fund seeks to achieve a high
total return on investment through capital appreciation and current income.
EQ Janus Worldwide Fund: The Fund is a diversified Fund that seeks
long-term growth of capital.
EQ Alliance Technology Fund: The Fund's objective is to emphasize
growth of capital and invests for capital appreciation, and only incidentally
for current income.
EQ Janus Mercury Fund: The Fund is a diversified Fund that seeks
long-term growth of capital.
EQ Warburg Pincus Emerging Growth Fund: The Fund seeks maximum capital
appreciation.
EQ Federated Managed Moderate Growth Portfolio: The investment
objective of the Fund is to seek capital appreciation.
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EQ Franklin Custodian Funds - Income Series: The investment objective
of this Fund is to maximize income while maintaining prospects for capital
appreciation.
Employer Stock Fund. The plan now offers you the Employer Stock Fund as
an additional investment choice. The Employer Stock Fund invests primarily in
the common stock of BUCS Financial Corp.
Performance of Previous Funds
Before we added the Employer Stock Fund as an investment choice, your
contributions under the plan were invested in the funds identified below. The
annual percentage return on these funds for periods indicated were
approximately:
1/1 - 8/31 1/1 - 12/31 1/1 - 12/31
Fund 2000 1999 1998
---- ---------- ----------- -----------
Alliance Money Market Fund 3.29 % 3.81 % 4.16 %
Alliance Equity Index Fund 2.65 % 19.04 % 26.64 %
EQ Alliance Technology Fund 19.89 % 69.89 % 60.20 %
EQ Federated Managed Moderate Growth 1.08 % 11.59 % 12.50 %
Portfolio
EQ Franklin Custodian Funds - Income Series 13.23 % (1.83) % (0.16)%
EQ INVESCO Telecommunications Fund 17.47 % 141.59 % 39.44 %
EQ Janus Mercury Fund 1.40 % 94.07 % 56.67 %
EQ Janus Worldwide Fund 4.01 % 62.56 % 24.49 %
EQ Warburg Pincus Emerging Growth Fund 11.46 % 40.25 % 4.66 %
Employer Stock Fund N/A N/A N/A
Performance of the Employer Stock Fund
The Employer Stock Fund is invested in the common stock of BUCS
Financial Corp. As of the date of this prospectus supplement, none of the shares
of common stock have been issued or are outstanding and there is no established
market for the BUCS Financial Corp common stock. Accordingly, there is no record
of the investment performance of the Employer Stock Fund. Performance of the
Employer Stock Fund depends on a number of factors, including the financial
condition and profitability of BUCS Financial Corp and BUCS Federal and market
conditions for BUCS Financial Corp common stock generally.
Please note that investment in the Employer Stock Fund is not an
investment in a savings account or certificate of deposit, and such investment
in BUCS Financial Corp common stock
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through the Employer Stock Fund is not insured by the FDIC or any other
regulatory agency. Further, no assurances can be given with respect to the price
at which the stock may be sold in the future.
Investments in the Employer Stock Fund may involve certain special
risks in investments in the common stock of BUCS Financial Corp. For a
discussion of these risk factors, see "Risk Factors" beginning on page ___ of
the prospectus.
Benefits Under the Plan
Vesting. The contributions that you make in the plan are fully vested
and cannot be forfeited. You vest in our matching contributions and profit
sharing contributions according to the following schedule.
Number of Full Years of Service Vested Percentage
------------------------------- -----------------
1 20%
2 40%
3 60%
4 80%
5 100%
You will become fully vested in matching contributions and profit
sharing contributions, regardless of your years of employment, upon attainment
of age 65, death, or approved disability.
Withdrawals and Distributions From the Plan
Withdrawals Before Termination of Employment. Your plan account
provides you with a source of retirement income. But, while you are employed by
BUCS Federal, if you need funds from your account before retirement, you may be
eligible to receive either an in-service withdrawal if you are age 59 1/2 or
(from your pre-tax contributions) a hardship distribution or a loan. You can
apply for a hardship distribution or a loan from the plan by contacting Mr.
Herbert J. Moltzan at BUCS Federal. In order to qualify for a hardship
withdrawal, you must have an immediate and substantial need to meet certain
expenses, like a mortgage payment or medical bill, and have no other reasonably
available resources to meet your financial need. If you qualify for a hardship
distribution, the trustee will make the distribution proportionately from the
investment funds in which you have invested your account balance. Hardship
withdrawals (except for medical expenses exceeding 7.5% of your adjusted gross
income) are subject to the 10% early distribution penalty. Loans are not subject
to the 10% early distribution penalty.
Distributions Upon Termination for Any Other Reason. If you terminate
employment with BUCS Federal for any reason other than retirement, disability or
death and your account balance exceeds $5,000, the trustee will distribute your
benefits to you the later of the April 1 of the calendar year after you turn age
70 1/2 or when you retire, unless you request otherwise. You may elect to
maintain your account balance in the plan for as long as BUCS Federal maintains
the plan or you may elect one or more of the forms of distribution available
under the plan. If your account balance does not exceed $5,000, the
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trustee will generally distribute your benefits to you as soon as
administratively practicable following termination of employment.
Distributions Upon Disability. If you can no longer work because of a
disability, as defined in the plan, you may withdraw your total account balance
under the plan and have that amount paid to you in accordance with the terms of
the plan. If you later become reemployed after you have withdrawn some or all of
your account balance, you may not repay to the plan any withdrawn amounts.
Distributions Upon Death. If you die prior before your benefits are
paid from the plan, your benefits will be paid to your surviving spouse or
designated beneficiary.
Distributions of the Stock of BUCS Financial Corp. If you receive a
distribution from the plan and assets under the plan have been directed by you
to be invested in the Employer Stock Fund, you may have those assets distributed
in kind in the form of stock of BUCS Financial Corp.
Form of Benefits. Payment of your benefits upon your retirement,
disability, or other termination of employment will be made in a lump sum
payment, in monthly, quarterly, semi-annual or annual installments up to 10
years, or in various forms of life annuities. This period for life annuities
cannot exceed your life expectancy.
If you die before receiving benefits pursuant to your retirement,
disability, or termination of employment, your beneficiary will receive a lump
sum payment, unless the payment would exceed $500 and an election is made for
annual installments up to 5 years. Your spouse can receive payments for up to 10
years. If you die after receiving benefits, your beneficiary will have benefits
distributed in the same manner as you had before you died.
Nonalienation of Benefits. Except with respect to federal income tax
withholding and as provided with respect to a qualified domestic relations
order, as defined in the Internal Revenue Code, benefits payable under the plan
shall not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any
kind, either voluntary or involuntary, and any attempt to anticipate, alienate,
sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any
rights to benefits payable under the plan shall be void.
Plan Loans. You may borrow money from the vested portion of your
account. The minimum amount you may borrow is $1,000. The maximum amount is 50%
of your vested account balance. You may never borrow more than $50,000 minus the
highest outstanding balance on any individual loan during the last 12 months.
You may take up to five years to repay a general purpose loan. If you
are using the loan to purchase your primary residence, a repayment period of 15
years is permissible. You must repay the loan through payroll deductions.
If you fail to make any loan repayment when due, your loan will be in
default. If such default occurs after the first 12 monthly payments of the loan
have been satisfied, the full amount of the loan will be due and payable within
60 days of the due date of the last monthly installment payment. If the
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outstanding balance of the loan is in default and is not repaid in the
aforementioned time period, you will be considered to have received a
distribution of said amount.
Administration of the Plan
BUCS Federal, effective November 15, 2000, will administer the plan.
The following individuals serve as trustees with respect to the plan:
Herbert J. Moltzan (collectively referred to herein as "trustee"). The current
address of the trustee is 10455 Mill Run Circle, Owings Mills, Maryland 21117.
The plan administrator is responsible for the administration of the plan,
interpretation of the provisions of the plan, prescribing procedure for filing
applications for benefits, preparation and distribution of information
explaining the plan, maintenance of plan records, books of account and all other
data necessary for the proper administration of the plan, and preparation and
filing of all returns and reports relating to the plan which are required to be
filed with the U.S. Department of Labor and the IRS, and for all disclosures
required to be made to participants, beneficiaries and others under the Employee
Retirement Income Security Act.
The trustee receives and holds the contributions to the plan in trust
and distributes them to participants and beneficiaries in accordance with the
terms of the plan and the directions of the plan administrator. The trustee is
responsible for investment of the assets of the trust.
Reports to Plan Participants
The plan administrator will furnish to each participant a statement at
least quarterly showing:
o the balance in your account as of the end of that period;
o the amount of contributions allocated to your account for that period;
and
o the adjustments to your account to reflect earnings or losses (if any).
If you invest in the Employer Stock Fund, you will also receive a copy
of BUCS Financial Corp's Annual Report to Stockholders and a proxy statement
related to stockholder meetings.
Amendment and Termination
It is the intention of BUCS Federal to continue the plan indefinitely.
Nevertheless, BUCS Federal, within its sole discretion may terminate the plan at
any time. If the plan is terminated in whole or in part, then regardless of
other provisions in the plan, you will have a fully vested interest in your
accounts. BUCS Federal reserves the right to make, from time to time, any
amendment or amendments to the plan that do not cause any part of the trust to
be used for, or diverted to, any purpose other than the exclusive benefit of
participants or their beneficiaries; provided, however, that BUCS Federal may
make any amendment it determines necessary or desirable, with or without
retroactive effect, to comply with Employee Retirement Income Security Act.
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Merger, Consolidation, or Transfer
In the event of the merger or consolidation of the plan with another
plan, or the transfer of the trust assets to another plan, the plan requires
that each participant would (if either the plan or the other plan then
terminated) receive a benefit immediately after the merger, consolidation, or
transfer that is equal to or greater than the benefit he or she would have been
entitled to receive immediately before the merger, consolidation, or transfer
(if the plan had then terminated).
Federal Income Tax Consequences
The following discussion is only a brief summary of certain federal
income tax aspects of the plan. You should not rely on this summary as a
complete or definitive description of the material federal income tax
consequences relating to the plan. The tax rules that affect your benefits under
the plan change frequently and may vary based on your individual situation. This
summary also does not discuss how state or local tax laws affect your plan
benefits. We urge you to consult your tax advisor with respect to any
distribution from the plan and transactions involving the plan.
Federal tax law provides the plan with a number of special benefits:
(1) we may deduct amounts contributed to the plan on your behalf;
(2) you pay no current income tax on your contributions or BUCS
Federal contributions; and
(3) the earnings on your plan accounts are not taxable until you
receive a distribution.
These benefits are conditioned on the plan's compliance with special
requirements of federal tax law. We intend to satisfy all of the rules that
apply to the plan. However, if the rules are not satisfied, the special tax
benefits available to the plan may be lost.
Special Distribution Rules. If you turned 50 before 1986, you may be
eligible to spread the taxes on the distribution over as much as 10 years. You
should consult with your tax advisor to determine if you are eligible for this
special tax benefit and whether it is appropriate to your financial needs.
BUCS Financial Corp Common Stock Included in Lump Sum Distribution. If
a distribution of all of your benefits includes shares of BUCS Financial Corp
common stock, you will generally not be taxed on the increase in the value of
the stock since its purchase until you sell the stock. You will be taxed on the
amount of the distribution equal to your original cost for the stock when you
receive your distribution.
Distributions: Rollovers and Direct Transfers to Another Qualified Plan
or to an IRA. You may roll over virtually all distributions from the plan to
retirement programs sponsored by other employers or to an individual retirement
account. We will provide you with detailed information on how to roll over a
distribution when you are eligible to receive benefits under the plan.
10
<PAGE>
Restrictions on Resale
If you are an "affiliate" of BUCS Financial Corp or BUCS Federal, you
may be subject to special rules under federal securities laws that affect your
ability to sell shares you hold in the Employer Stock Fund. Directors, officers
and substantial shareholders of BUCS Financial Corp are generally considered
"affiliates." Any person who may be an "affiliate" of BUCS Federal may wish to
consult with counsel before transferring any common stock they own. If you are
not considered an "affiliate" of BUCS Federal you may freely sell any shares of
BUCS Financial Corp common stock distributed to you under the plan, either
publicly or privately.
SEC Reporting and Short-Swing Profit Liability
If you are an officer, director or more than 10% owner of BUCS
Financial Corp, you may be required to report purchases and sales of BUCS
Financial Corp common stock through the plan to the Securities and Exchange
Commission. In addition, you may be subject to special rules that provide for
the recovery by BUCS Financial Corp of profits realized by an officer, director
or a more than 10% owner from the purchase and sale or sale and purchase of the
common stock within any six-month period. However, the rules except many
transactions involving the plan from the reporting and profit recovery rules.
You should consult with us regarding the impact of these rules on your
transactions involving BUCS Financial Corp common stock.
Additional Information
This prospectus supplement dated _________________, 2000, is part of
the prospectus of BUCS Financial Corp, dated _________________, 2000. This
prospectus supplement shall be delivered to plan participants together with the
prospectus and is not complete unless it is accompanied by the prospectus.
LEGAL OPINIONS
The validity of the issuance of the common stock will be passed upon by
Malizia Spidi & Fisch, PC, Washington, D.C., which acted as special counsel for
BUCS Financial Corp and BUCS Federal in connection with the conversion of BUCS
Federal and the offering by BUCS Financial Corp.
11
<PAGE>
Appendix-A: Investment Election Form
<PAGE>
Appendix-A
----------
BUCS FEDERAL
401(K) & PROFIT SHARING PLAN
----------------------------
Participant Voluntary Investment Election Form
----------------------------
Name of Plan Participant:
------------------------------------------
Social Security Number:
------------------------------------------
1. Instructions.
------------
In connection with the proposed conversion of the BUCS Federal from a
federally chartered mutual savings bank to a federally chartered stock savings
bank, BUCS Federal has amended the BUCS Federal 401(k) & Profit Sharing Plan to
permit plan participants to direct all, or a portion, of the assets attributable
to their participant accounts into a new fund: the Employer Stock Fund. The
assets attributable to a participant's account that are transferred at the
direction of the participant into the Employer Stock Fund will be used to
purchase shares of common stock of BUCS Financial Corp to be issued in the
initial stock offering of BUCS Financial Corp.
To direct a transfer of all or a part of the funds credited to your
account to the Employer Stock Fund, you should complete this form and return it
to Herbert J. Moltzan, at 10455 Mill Run Circle, Owings Mills, Maryland, 21117,
who will retain this form and return a copy to you. If you need any assistance
in completing this form, please contact Herbert J. Moltzan at (410) 998-5304. If
you do not complete and return this form by ______________, 2000, at noon, the
funds credited to your account under the plan will continue to be invested in
accordance with your prior investment direction, or in accordance with the terms
of the plan if no investment direction has been provided.
2. Investment Directions.
---------------------
As a participant in the plan, I hereby voluntarily elect to direct the
trustee of the plan to invest the below indicated dollar sum of my participant
account balance under the plan as indicated below.
I hereby voluntarily elect and request to direct investment of the
below indicated dollar amount of my participant account funds for the purchase
of the common stock to be issued in BUCS Financial Corp's initial offering
(minimum investment of $250.00; rounded to the nearest $10.00 increment; maximum
investment permissible is 12,500 shares of common stock being offered or
$125,000): $___________.
<PAGE>
Please indicate the Investment Fund(s) that money will be transferred
from in order to purchase the BUCS Financial Corp common stock in the
conversion:
From Amount
---- ------
Alliance Money Market Fund.................................... $___________
Alliance Equity Index Fund.................................... $___________
EQ Alliance Technology Fund................................... $___________
EQ Federated Managed Moderate Growth Portfolio................ $___________
EQ Franklin Custodian Funds - Income Series................... $___________
EQ INVESCO Telecommunications Fund............................ $___________
EQ Janus Mercury Fund......................................... $___________
EQ Warburg Pincus Emerging Growth Fund........................ $___________
EQ Janus Worldwide Fund....................................... $___________
Total......................................................... $
===========
Enter your $ level of requested purchase through the plan. Such amount may not
exceed the vested portion of assets held under the plan for you. Please note
that the actual number of shares of common stock purchased on your behalf under
the plan may be limited or reduced in accordance with the plan of conversion of
BUCS Federal based upon the total number of shares of common stock subscribed
for by other parties.
All other funds in my participant account will remain invested as
previously requested. All future contributions under the plan will continue to
be invested as previously requested.
In the future I may complete a new enrollment form to include BUCS
Financial Corp common stock as an Investment Fund for future plan contributions.
3. Acknowledgment.
--------------
I fully understand that this self-directed portion of my participant
account does not share in the overall net earnings, gains, losses, and
appreciation or depreciation in the value of assets held by the plan's other
investment funds, but only in my account's allocable portion of such items from
the directed investment account invested in the common stock. I understand that
the plan's trustee, in complying with this election and in following my
directions for the investment of my account, is not responsible or liable in any
way for the expenses or losses that may be incurred by my account assets
invested in common stock under the Employer Stock Fund.
I further understand that this one time election shall become
irrevocable by me upon execution and submission of this Investment Form. Only
----
properly signed forms delivered to the plan trustee on or before , 2000, at
--------------------------------------------------------------------------------
noon, will be honored.
----------------------
2
<PAGE>
The undersigned participant acknowledges that he or she has received
and read the prospectus of BUCS Financial Corp, dated _______________, 2000, the
prospectus supplement dated ___________, 2000, regarding the BUCS Federal 401(k)
& Profit Sharing Plan as adopted by BUCS Federal and this Investment Form. The
undersigned hereby acknowledges that the shares of common stock to be purchased
with the funds noted above are not savings accounts or deposits and are not
insured by the Federal Deposit Insurance Corporation, Bank Insurance Fund, the
Savings Association Insurance Fund, or any other governmental agency. Investment
in the common stock will expose the undersigned to the investment risks and
potential fluctuations in the market price of the common stock. Investment in
the common stock does not offer any guarantees regarding maintenance of the
principal value of such investment or any projections or guarantees associated
with future value or dividend payments with respect to the common stock. The
undersigned has read and understands the above listed documents and hereby
voluntarily makes and consents to this investment election and voluntarily
signed his (her) name as of the date listed below. If you so elect, you may
choose not to make any investment decision at this time.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
------------------------ ------------- ---------------------------- -------------
Witness Date Participant Date
------------------------ ------------- ---------------------------- -------------
Witness Date Participant's Spouse Date
For the Trustee For the Plan Administrator
------------------------ ------------- ---------------------------- -------------
Date Date
</TABLE>
3
<PAGE>
Appendix-B: Investment Allocation Form
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
EQUITABLE Momentum Series
ENROLLMENT FORM
Full Service Level
------------------------------------------------------------------------------------------------------------------------------------
PART I
------------------------------------------------------------------------------------------------------------------------------------
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
PARTICIPANT'S FIRST NAME & MIDDLE INITIAL LAST NAME
STREET ADDRESS
-
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
CITY STATE ZIP CODE
- - - -
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
PARTICIPANT'S SOCIAL SECURITY NUMBER MALE FEMALE DATE OF BIRTH
EMPLOYER'S NAME
BUCS FEDERAL
EMPLOYER'S TAX IDENTIFICATION NUMBER CONTRACT ID NUMBER (if known) PLAN NUMBER (001,002, etc.)
5 2 - 2 0 7 5 0 0 0 9 1 6 6 4 3 1 0 0 0 2
--------------------------------------------------------- ------------------------------------------ ------------------------------
PART II TO BE COMPLETED BY EMPLOYER
--------------------------------------------------------- ------------------------------------------ ------------------------------
Under the terms of the Plan, there are two Eligibility Dates or Entry Dates per
year, unless otherwise specified on the Participation Agreement. They occur on
the first day of the Plan Year and the first day of the seventh month of the
Plan Year. For example, in calendar year plans, the Eligibility (Entry) Dates
are January 1 and July 1. The correct Eligibility Date is the first Entry Date
after the Participant satisfies the age and service eligibility requirements for
participation under the Plan. These requirements are indicated in Section II of
the Participation Agreement.
- - - -
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
PARTICIPANT'S DATE OF HIRE PARTICIPANT'S ELIGIBILITY DATE
If this Participant had a prior period of employment, please list the dates here: FROM _______________ TO _________________
------------------------------------------------------------------------------------------------------------------------------------
PART III TO BE COMPLETED BY PARTICIPANT
------------------------------------------------------------------------------------------------------------------------------------
o All future contributions, including rollover amounts, will be invested
according to the investment percentages you choose on the reverse side of
this form. These elections may be changed by using our Telephone Operated
Program Support (T.O.P.S.) At 1-800-821-777.
o The allocations that you choose for Employer Sources (column A) will apply
to all Employer Contributions, including Employer 401(k) and Matching
contributions. You may choose to allocate your Employee Contributions
differently by entering investment allocations under Employee Sources
(column B). The allocations in column B will apply to Salary Deferral,
Prior Plan and Post Tax contributions.
o If you only enter percentages in one of the columns, all contributions
received (both Employer and Employee) will be invested according to these
elections.
o If your percentages for either column total to more than 100%, any
contributions received for that source will be invested 100% to the
"default" option under your Employer's plan. If your percentages for either
column total to less than 100%, then the contributions received for that
source will be invested according to your instructions, with the remaining
amount invested in the "default" option. Use whole percentages only.
o If your Employer's plan permits investments in both the Guaranteed Interest
Account and the Money Market Fund, certain limitations will apply to funds
transferred out of the Guaranteed Interest Account into any other
investment option. Refer to your prospectus or disclosure document before
allocating any amounts to the Guaranteed Interest Account if your plan also
permits use of the Money Market Fund.
BENEFICIARY STATEMENT - check the appropriate box below. If you check B but have
not filed a Beneficiary Form, or if the Beneficiary Form is not valid, the Plan
Beneficiary Statement below will apply in the event of death.
A. |_| I hereby agree to the Plan Beneficiary Statement B. |_| I have attached a Designation or Change of
below. (Numbers A1 through A5 below are not options.) Beneficiary Form.
PLAN BENEFICIARY STATEMENT
--------------------------
Unless a beneficiary designation by me is in effect at the time an
amount becomes payable, any amount which becomes payable to my
Beneficiary under the Plan shall be payable to the first surviving
class of the following:
(A1) Widow or Widower (A2) Surviving Children (A3) Surviving Parents (A4) Surviving Brothers and Sisters
(A5) The Executors or Administrators of the person upon whose death the payment becomes due
FOR 401(K) PLANS ONLY:
|_| I do wish to participate in the Plan. I hereby authorize my
Employer to withhold from each pay period (i) _______% of my
gross pay for that period or (ii) $________________ of each pay.
[Complete either (i) or (ii).]
|_| I do not wish to participate in the Plan.
EQNJ0823.PO2.1.P.1.10.0000019
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT ALLOCATIONS
------------------------------------------------------------------------------------------------------------------------------------
SOURCES
------------------------------------
A B
EMPLOYER EMPLOYEE
Fixed Income
Alliance Money Market Fund.................................... _____________ _____________
Equity
Alliance Equity Index Fund.................................... _____________ _____________
EQ INVESCO Telecommunications Fund ............................ _____________ _____________
International / Global Equity
EQ Janus Worldwide Fund....................................... _____________ _____________
Aggressive Equity
EQ Alliance Technology Fund................................... _____________ _____________
EQ Janus Mercury Fund......................................... _____________ _____________
EQ Warburg Pincus Emerging Growth Fund........................ _____________ _____________
Asset Allocation
EQ Federated Managed Moderate Growth Portfolio................ _____________ _____________
EQ Franklin Custodian Funds - Income Series................... _____________ _____________
TOTAL 100% 100%
Note: If you only enter percentages in one column above, these allocations will be used for all contributions received for your
account. ---
IV. SIGNATURES (Please sign and date this form)
------------------------------------------------------------------------------------------------------------------------------------
This Form must be signed by the Participant and forwarded to the address on the
Form. Elections on this Form become effective immediately upon receipt of this
Notice, provided all information is completed correctly. This Form may not be
accepted upon failure to complete the Form correctly.
I, the Participant, have received and reviewed the prospectus dated ___/___/___
and any supplement dated ___/___/___ or disclosure document that describes the
appropriate Momentum Series Program, and the Stable Value Fund Disclosure
Brochure if applicable.
Signature of Participant ______________________________ SSN# ___ ___ ___ - ___ ___ - ___ ___ ___ ___ Date __________________________
Signature of Authorized Individual ________________________________________________ Date ___________________________________________
------------------------------------------------------------------------------------------------------------------------------------
FOR AGENT USE ONLY | RECEIPT DATE ONLY
------------------------------------------------------------------------------------------------------------------------------------
|_| Use standard agent(s) for this plan |_| Agent Information Form attached |
|_| Campaign credit |
| --------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Momentum Administrative Services
</TABLE>
<PAGE>
PROSPECTUS
Up to 471,500 Shares
of
Common Stock
of
BUC$ Financial Corp
Holding Company for BUC$ Federal Bank
10455 Mill Run Circle
Owings Mills, Maryland, 21117
(410) 998-5304
--------------------------------------------------------------------------------
BUCS Financial Corp is offering for sale up to 471,500 shares of common
stock at $10.00 per share in accordance with the conversion of BUCS Federal from
a federal mutual savings bank to a federal stock savings bank, to be called
"BUCS Federal Bank". As part of the conversion, BUCS Federal will become a
wholly owned subsidiary of BUCS Financial Corp. The deadline for ordering stock
is 12:00 noon on ___________, 2000, and may be extended to _________, 2000. All
funds submitted shall be placed in a deposit account at BUCS Federal until the
shares are issued or the funds are returned. No stock will be sold if BUCS
Financial Corp does not receive orders for at least the minimum number of
shares.
There is currently no public market for the stock. The stock is
expected to be quoted on the OTC Bulletin Board.
Trident Securities, Inc. is not required to sell any specific number or
dollar amount of stock but will use their best efforts to sell the stock
offered.
--------------------------------------------------------------------------------
MINIMUM MAXIMUM
------- -------
Number of Shares 348,500 471,500
--------------------------------------------------------------------------------
Total Underwriting Commissions and Expenses $400,000 $400,000
--------------------------------------------------------------------------------
Net Proceeds $3,085,000 $4,315,000
--------------------------------------------------------------------------------
Net Proceeds Per Share $8.85 $9.15
--------------------------------------------------------------------------------
Based upon market conditions and the approval of the Office of Thrift
Supervision, BUCS Financial Corp may increase the offering by up to 15% of the
471,500 shares to be sold, which would bring the number of shares to be sold to
542,225 shares.
Please refer to Risk Factors beginning on page __ of this document.
These securities are not deposits or savings accounts and are not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, nor any state securities regulator has approved or disapproved
these securities or determined if this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
Trident Securities, Inc.
The Date of this Prospectus is __________, 2000
<PAGE>
--------------------------------------------------------------------------------
SUMMARY
To understand the stock offering fully, you should read this entire
document carefully, including the consolidated financial statements and the
notes to the consolidated financial statements.
BUCS Financial Corp
BUCS Financial Corp is not an operating company and has not engaged in
any significant business to date. Its primary activity will be owning all the
stock of BUCS Federal. See page __.
BUCS Federal
BUCS Federal is a federally chartered mutual savings institution. It is
converting from the mutual to the stock form of ownership as part of the
conversion. The converted federal stock savings bank will be called "BUCS
Federal Bank."
BUCS Federal was originally founded in 1970 as "Maryland Blue Cross and
Blue Shield Employees Federal Credit Union." In the early 1980s, it changed its
name to BUCS Federal Credit Union. As a credit union, it initially served the
employees of Blue Cross and Blue Shield of Maryland, Inc., which now does
business under the name CareFirst BlueCross BlueShield, and its subsidiaries.
Over time, membership grew to include other employee groups. However, as a
credit union, it was legally restricted to serving only customers who shared a
"common bond" such as a common employer. On March 1, 1998, the Bank converted
its charter and became BUCS Federal, a federally chartered mutual savings
institution, permitting it to serve the general public. See page __.
Our use of the proceeds raised from the sale of stock.
BUCS Financial Corp will use at least 50% of the cash received in the
offering to purchase all of BUCS Federal's stock. BUCS Financial Corp will also
lend the BUCS Federal's employee stock ownership plan cash to enable the plan to
buy 8% of the shares sold in the offering. The balance will be retained as BUCS
Financial Corp's initial capitalization.
The proceeds from the offering will help BUCS Federal fund its
transition from a credit union to a full service community bank, possibly
including the expansion of its presence in its existing market area through the
addition of new branch locations. The funds received by BUCS Federal will
increase its total capital to expand investment and lending, enhance its
technological capabilities and develop its commercial lending program. BUCS
Federal may also use part of the proceeds to repay borrowings from the Federal
Home Loan Bank. See page __ .
How we determined the price per share and the number of shares we are offering.
The number of shares offered is based on an independent appraisal by
FinPro, Inc. of the pro forma estimated market value of the stock based on
information as of October 5, 2000, divided by the purchase price of $10.00. The
$10.00 per share was determined by the Board of Directors in consultation with
Trident Securities.
Based on various assumptions about the offering and the reinvestment of
the amount of cash raised in the offering, BUCS Financial Corp's ratio of
offering price to pro forma earnings per share based on earnings for the twelve
months ended June 30, 2000 measured:
--------------------------------------------------------------------------------
2
<PAGE>
--------------------------------------------------------------------------------
o 10.0 x at the minimum; and
o 12.2 x at the maximum
of the estimated valuation range.
BUCS Financial Corp's ratio of offering price to pro forma book value
per share at June 30, 2000 measured:
o 42.5% at the minimum; and
o 50.8% at the maximum
of the estimated valuation range.
The amount of stock you may purchase.
Minimum purchase = 25 shares
Maximum purchase = 12,500 shares for any person or persons
acting together
How we will prioritize orders if we receive orders for more shares than are
available.
You might not receive any or all of the stock you request. BUCS Federal
has granted subscription rights in the following order of priority:
o Priority 1 - Depositors of BUCS Federal at the close of
business on February 28, 1998 with deposits of at least
$50.00.
o Priority 2 - The tax qualified employee stock benefit plans of
BUCS Federal.
o Priority 3 - Depositors of BUCS Federal at the close of
business on September 30, 2000 with deposits of at least
$50.00.
o Priority 4 - Other depositors as of ________, 2000 who are
entitled to vote on the conversion.
If shares remain available and depending on market conditions at or
near the completion of the subscription offering, we may conduct a community
offering. In a community offering, preference will be given to persons who
reside in Baltimore and Howard Counties, Maryland. BUCS Financial Corp and BUCS
Federal have the right to reject any stock order received in the community
offering.
Our corporate documents may make it difficult for anyone to acquire BUCS
Financial Corp.
Our articles of incorporation and bylaws contain provisions that make
it difficult for someone to acquire control of BUCS Financial Corp. These
provisions may discourage takeover attempts and prevent you from receiving a
premium over the market price of your shares as part of a takeover. See "Risk
Factors" and "Restrictions on Acquisitions of BUCS Financial Corp"
--------------------------------------------------------------------------------
3
<PAGE>
--------------------------------------------------------------------------------
Our officers, directors and employees may receive benefits from the offering or
within one year of the offering.
In order to tie our employees' and directors' interests closer to our
stockholders' interests, we intend to establish certain benefit plans that use
our stock as compensation. Officers, directors, and employees will not be
required to pay cash in exchange for ESOP or restricted shares but will be
required to pay the exercise price to exercise options.
The following table presents information regarding the participants in
each plan, total amount, the percentage, and the dollar value of the stock that
we intend to set aside for our employee stock ownership plan and stock-based
incentive plans. The stock-based incentive plans may not be adopted for at least
six months after the offering and must be approved by a majority vote of the
public stockholders. The table below assumes the sale of 410,000 shares in the
offering. It is assumed that the value of the stock in the table is $10 per
share. Options are given no value because their exercise price will be equal to
the fair market value of the stock on the day the options are granted. As a
result, anyone who receives an option will only benefit from the option if the
price of the stock rises above the exercise price. See pages ___ to ___ for more
information, including regulatory restrictions on the maximum amount of benefits
participants may receive and the rate at which benefits may be earned under the
incentive plans.
<TABLE>
<CAPTION>
Percentage of
Estimated Total Shares Sold
Participants Value of Shares in the Offering
------------ --------------- ---------------
<S> <C> <C> <C>
Employee Stock Ownership Plan... Employees $328,000 8.0%
Stock-Based Incentive Plans:
Stock Awards........... Officers and
Directors 164,000 4.0
Stock Options.......... Officers,
Directors and
Employees -- 10.0
-------- ----
Total............. $492,000 22.0%
======== ====
</TABLE>
As a public company, it is important for us to reassure our management
of our commitment to their employment with BUCS Federal. With this in mind, some
of our employees will receive employment agreements. The agreements provide that
if BUCS Financial Corp or BUCS Federal is acquired and the payment. Participants
in our stock-based benefit plans may also receive benefits if BUCS Financial
Corp or BUCS Federal is acquired.
Dividends
We anticipate paying cash dividends after the conversion, although the
timing, amount and frequency have not been determined. There are restrictions on
our ability to pay dividends. See page ___ and __.
--------------------------------------------------------------------------------
4
<PAGE>
--------------------------------------------------------------------------------
Deadlines for purchasing stock.
The subscription offering will terminate at 12:00 noon, Eastern time,
on ___________, 2000. The community offering, if one is conducted, may terminate
at any time without notice but no later than ___________, 2000.
Subscription rights are not transferrable.
Selling or transferring your right to buy stock in the subscription
offering is illegal. If you exercise this right you must state that you are
purchasing stock for your own account. If we believe your order violates this
restriction, your order will not be filled. You also may be subject to penalties
imposed by the Office of Thrift Supervision (the "OTS").
There are conditions that must be satisfied before we can complete the offering
and issue the stock.
The following must occur before we can complete the offering and issue
our stock:
o We must receive all the required approvals from the government agencies
that regulate us;
o BUCS Federal's members must approve the conversion; and
o We must sell at least the minimum number of shares offered.
Market for the stock.
We expect the stock to be traded on the over-the-counter market with
quotations available on the OTC Electronic Bulletin Board. The stock is not
expected to meet the listing requirements for the NASDAQ system and it is not
expected that an application to the NASDAQ system will be made. Prior to this
offering, there has not been a public market for the stock, and it is unlikely
that an active and liquid trading market for the stock will develop. The lack of
an active and liquid trading market may adversely affect the liquidity and price
of the stock. See "Market for the Stock."
--------------------------------------------------------------------------------
5
<PAGE>
RISK FACTORS
In addition to the other information in this document, you should
consider carefully the following risk factors in evaluating an investment in our
common stock.
Future changes in interest rates may reduce our profits.
Our ability to make a profit largely depends on our net interest
income, which could be negatively affected by changes in interest rates. Net
interest income is the difference between:
o the interest income we earn on our interest-earning assets, such as
mortgage loans and investment securities; and
o the interest expense we pay on our interest-bearing liabilities, such as
deposits and amounts we borrow.
The rates we earn on our assets and the rates we pay on our liabilities
are generally fixed for a contractual period of time. We, like many savings
institutions, have liabilities that generally have shorter contractual
maturities than our assets. This imbalance can create significant earnings
volatility, because market interest rates change over time. In a period of
rising interest rates, the interest income earned on our assets may not increase
as rapidly as the interest paid on our liabilities. In a period of declining
interest rates, the interest income earned on our assets may decrease more
rapidly than the interest paid on our liabilities. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Management of
Interest Rate Risk and Market Risk."
In addition, changes in interest rates can also affect the average life
of loans and mortgage-backed and related securities. A reduction in interest
rates results in increased prepayments of loans and mortgage-backed and related
securities, as borrowers refinance their debt in order to reduce their borrowing
cost. This causes reinvestment risk. This means that we may not be able to
reinvest prepayments at rates that are comparable to the rates we earned on the
prepaid loans or securities.
We engage in a greater percentage of consumer lending than a typical thrift, and
we intend to originate commercial loans after the offering. The risk related to
these types of loans is greater than the risk related to residential loans.
Because of our credit union history, consumer loans comprise a greater
percentage of our lending than a typical thrift institution. In addition, we
intend to begin offering commercial business loans after the offering. The risk
that consumer loans and commercial loans will not be repaid or will be late in
paying is generally greater than the same risks associated with residential
loans. Any failure to pay or late payments would hurt our earnings. See
"Business of BUCS Federal - Lending Activities - Consumer Loans" and " -
Commercial Real Estate and Other Loans."
If our return on equity after the offering is low, this may negatively affect
the price of our stock.
The net proceeds from the offering will substantially increase our
equity capital. It will take some time to prudently invest this capital in
assets that produce higher rates of return. As a result, our return on equity,
which is the ratio of our earnings divided by our equity capital, may decrease
as compared to previous years and may be lower than that of similar companies.
Because the stock market values a
6
<PAGE>
company based in part on its return on equity, a decline in our return on equity
could cause the trading price of our stock to decline.
We intend to adopt an employee stock ownership plan as part of the
conversion. We also intend to adopt other stock-based benefit plans. The money
that we use to buy stock to fund our stock-based benefit plans will not be
available for investment and will increase our future expenses. In addition, the
public company costs of preparing reports for stockholders and the SEC will also
cause our expenses to be higher than they would be if we remained in mutual form
and did not expand our lending products. See "Pro Forma Data" and "Management -
Executive Compensation - Employee Stock Ownership Plan."
We intend to remain independent and the steps we have taken to discourage
takeover attempts may prevent you from receiving a premium over market price for
your shares as part of a takeover and may make it difficult to remove our
current management.
BUCS Federal has operated as an independent financial organization
since its establishment as a credit union in 1970. It is our intent to continue
that tradition, and you are urged not to invest in our stock if you are
anticipating a quick sale of BUCS Financial Corp. Provisions in our articles of
incorporation and bylaws may make it difficult for another company to acquire us
if such acquisition is opposed by our Board of Directors. These provisions
include:
o restrictions on the acquisition of our stock;
o limitations on voting rights;
o the election of only 1/3 of our Board of Directors each year;
o restrictions on the ability of stockholders to call meetings,
make stockholder proposals or nominate persons as directors;
o the denial of cumulative voting in the election of directors,
which ensures that the holders of a majority of shares will be
able to elect all of the directors;
o the right of the Board of Directors to issue shares of preferred
or common stock without stockholder approval; and
o the requirement of an 80% vote for the approval of business
combinations not approved by 2/3 of the Board of Directors.
The overall effect of these provisions could:
o limit the trading price potential of our stock;
o result in BUCS Financial Corp being less attractive to a
potential acquiror;
o prevent an acquisition of BUCS Financial Corp even if the
acquisition would result in our stockholders receiving a
substantial premium over the market price of our stock; and/or
o make it difficult to remove our current Board of Directors or
management.
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See "Restrictions on Acquisition of BUCS Financial Corp"
The amount of stock held by our executive officers and directors and stock
benefit plans could make it difficult for stockholders to adopt proposals or
approve takeover attempts not supported by management.
The amount of ownership and control of our stock by directors and
executive officers could make it difficult for stockholders to make successful
stockholder proposals if they are opposed by management and the Board of
Directors. In addition, directors and executive officers could use their voting
power to block the approval of transactions, such as business combinations and
amendments to BUCS Financial Corp's articles of incorporation or bylaws, which
are required by the articles of incorporation to be approved by at least 80% of
the stockholders. Our directors and executive officers are expected to purchase
approximately 60,000 shares of stock in the offering, 14.6% if 410,000 shares
are sold. In addition, approximately 8% of the shares of common stock issued in
the offering are expected to be purchased by our employee stock ownership plan.
Shares owned by the BUCS Federal's employee stock ownership plan but not yet
allocated to the accounts of employees will be voted by a committee of non-
employee directors. If we implement stock benefit plans, the ownership and
control by executive officers and directors would increase. See "Management -
Executive Compensation - Employee Stock Ownership Plan" and "- Potential Stock
Benefit Plans."
Whether or not we make a profit after the offering is influenced by the health
of our local economy.
Our business of attracting deposits and making loans is primarily
conducted within our market area. A downturn in the local economy could reduce
the amount of funds available for deposit and the ability of borrowers to repay
their loans. As a result, our profitability could be hurt. See "Business of BUCS
Federal - Market Area and Competition."
If we do not compete successfully against other financial institutions in our
market area, our profitability will be hurt.
We face substantial competition for deposits and loans, and many of our
competitors have greater resources. Our ability to compete successfully will
affect our profitability. See "Business of BUCS Federal - Market Area and
Competition."
The small amount of stock being issued to the public may make it difficult to
buy or sell our stock in the future.
Due to the relatively small size of the offering to the public, you
have no assurance that an active market for the stock will exist after the
offering. This might make it difficult to buy or sell the stock. See "Market for
the Stock."
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Future laws or regulations could hurt our profitability and the trading price of
our stock.
We operate in a highly regulated industry. The U.S. government could
adopt regulations or enact laws which restrict our operations or impose
burdensome requirements upon us. This could reduce our profitability and the
value of our franchise which could hurt the trading price of our stock.
There is no guarantee that the price of our stock will increase to a level
comparable to other publicly traded financial institution holding companies.
There is no guarantee that the price of our stock will increase to the
relative levels of other publicly traded financial institution holding
companies. In making a decision whether to buy our stock you should consider,
among other things, the unique characteristics of each publicly traded financial
institution holding company. For more information see "Pro Forma Data."
THE OFFERING
General
Concurrently with the conversion, we, BUCS Financial Corp, are offering
between a minimum of 348,500 shares and an anticipated maximum of 471,500 shares
of common stock in the offering (subject to adjustment to up to 542,225 shares
if our estimated pro forma market value has increased at the conclusion of the
offering), which will expire at 12:00 noon, Eastern time, on ___________, 2000
unless extended. The minimum purchase is 25 shares of common stock (minimum
investment of $250). Our common stock is being offered at a fixed price of
$10.00 per share in the offering.
Subscription funds may be held by BUCS Federal for up to 45 days after
the last day of the subscription offering in order to consummate the conversion
and offering and thus, unless waived by BUCS Federal, all orders will be
irrevocable until ___________, 2000. In addition, the conversion and offering
may not be consummated until BUCS Federal receives approval from the OTS.
Approval by the OTS is not a recommendation of the conversion or offering.
Consummation of the conversion and offering will be delayed, and resolicitation
will be required, if the OTS does not issue a letter of approval within 45 days
after the last day of the subscription offering, or in the event the OTS
requires a material change to the offering prior to the issuance of its
approval. If the conversion and offering are not completed by ___________, 2000,
12:00 noon, Eastern time, subscribers will have the right to modify or rescind
their subscriptions and to have their subscription funds returned with interest
at BUCS Federal's regular savings account rate and all withdrawal authorizations
will be canceled.
We may cancel the offering at any time, and orders for common stock
already submitted would be canceled if the offering were canceled.
Conduct of the Offering
Subject to the limitations of the plan, shares of common stock are
being offered in descending order of priority in the subscription offering to:
o Eligible Account Holders (Depositors at the close of business on February
28, 1998 with deposits of at least $50.00);
o the employee stock ownership plan;
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o Supplemental Eligible Account Holders (Depositors at the close of business
on September 30, 2000 with deposits of at least $50.00); and
o Other Members (Depositors at the close of business on __________, 2000 with
deposits of at least $50.00).
If shares remain available after the subscription offering, and
depending on market conditions at or near the completion of the subscription
offering, we may conduct a community offering.
We have the right, in our sole discretion, to determine whether
prospective purchasers are "associates" or "acting in concert." These
determinations are in our sole discretion and may be based on whatever evidence
we believe to be relevant, including joint account relationships or shared
addresses.
Subscription Offering
Subscription Rights. Non-transferable subscription rights to subscribe
for the purchase of common stock have been granted under the plan of conversion
to the following persons:
Priority 1: Eligible Account Holders. Each Eligible Account Holder
shall be given the opportunity to purchase up to 12,500 shares, or $125,000, of
common stock offered in the subscription offering; subject to the overall
limitations described under " - Limitations on Purchases of Common Stock." If
there are insufficient shares available to satisfy all subscriptions of Eligible
Account Holders, shares will be allocated to Eligible Account Holders so as to
permit each subscribing Eligible Account Holder to purchase a number of shares
sufficient to make his total allocation equal to the lesser of 100 shares or the
number of shares ordered. Thereafter, unallocated shares will be allocated to
remaining subscribing Eligible Account Holders whose subscriptions remain
unfilled in the same proportion that each subscriber's qualifying deposit bears
to the total amount of qualifying deposits of all subscribing Eligible Account
Holders, in each case on February 28, 1998, whose subscriptions remain unfilled.
Subscription rights received by executive officers and directors, based on their
increased deposits in BUCS Federal in the one year preceding the eligibility
record date will be subordinated to the subscription rights of other eligible
account holders. To ensure proper allocation of stock, each Eligible Account
Holder must list on his order form all accounts in which he had an ownership
interest as of the Eligibility Record Date.
Priority 2: The Employee Plans. The tax qualified employee plans may be
given the opportunity to purchase in the aggregate up to 10% of the common stock
issued in the subscription offering. It is expected that the employee stock
ownership plan will purchase up to 8% of the common stock issued in the
offering. If an oversubscription occurs in the offering by Eligible Account
Holders, the employee stock ownership plan may, in whole or in part, fill its
order through open market purchases subsequent to the closing of the offering.
See also "Risk Factors - The expenses related to our stock-based benefit plans
and other business expenses will reduce our earnings."
Priority 3: Supplemental Eligible Account Holders. If there are
sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders and the employee stock ownership plan and other tax-qualified
employee stock benefit plans, each Supplemental Eligible Account Holder shall
have the opportunity to purchase up to 12,500 shares, or $125,000, of common
stock offered in the subscription offering, subject to the overall limitations
described under "- Limitations on Purchases of Common Stock." If Supplemental
Eligible Account Holders subscribe for a number of shares which, when added to
the shares subscribed for by Eligible Account Holders and the employee stock
ownership plan and other tax- qualified employee stock benefit plans, if any, is
in excess of the total number of shares offered in the offering, the shares of
common stock will be allocated among subscribing Supplemental Eligible Account
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Holders first so as to permit each subscribing Supplemental Eligible Account
Holder to purchase a number of shares sufficient to make his total allocation
equal to the lesser of 100 shares or the number of shares ordered. Thereafter,
unallocated shares will be allocated to each subscribing Supplemental Eligible
account Holder whose subscription remains unfilled in the same proportion that
each subscriber's qualifying deposits bear to the total amount of qualifying
deposits of all subscribing Supplemental Eligible Account Holders, in each case
on September 30, 2000, whose subscriptions remain unfilled. To ensure proper
allocation of stock each Supplemental Eligible Account Holder must list on his
order form all accounts in which he had an ownership interest as of the
Supplemental Eligibility Record Date.
Priority 4: Other Members. If there are sufficient shares remaining
after satisfaction of all subscriptions by the Eligible Account Holders, the
tax-qualified employee stock benefit plans, and Supplemental Eligible Account
Holders, each Other Member who is not an Eligible or Supplemental Eligible
Account Holder shall have the opportunity to purchase up to 12,500 shares, or
$125,000, of common stock offered in the subscription offering, subject to the
overall limitations described under "- Limitations on Purchases of Common
Stock." If Other Members subscribe for a number of shares which, when added to
the shares subscribed for by Eligible Account Holders, the tax-qualified
employee stock benefit plans and Supplemental Eligible Account Holder, is in
excess of the total number of shares offered in the offering, the subscriptions
of Other Members will be allocated among subscribing Other Members to permit
each subscribing Other Member to purchase a number of shares sufficient to make
his total allocation of common stock equal to the lesser of 100 shares or the
number of shares subscribed for by Other Members. Any shares remaining will be
allocated among the subscribing Other Members whose subscriptions remain
unsatisfied on a 100 shares (or whatever lesser amount is available) per order
basis until all orders have been filled or the remaining shares have been
allocated.
State Securities Laws. We, in our sole discretion, may make reasonable
efforts to comply with the securities laws of any state in the United States in
which BUCS Federal members reside, and will only offer and sell the common stock
in states in which the offers and sales comply with state securities laws.
However, no person will be offered or allowed to purchase any common stock under
the plan if he resides in a foreign country or in a state of the United States
with respect to which:
o a small number of persons otherwise eligible to purchase shares under the
plan reside in that state or foreign country; or
o the offer or sale of shares of common stock to these persons would require
us or BUCS Federal or our employees to register, under the securities laws
of that state or foreign country, as a broker or dealer or to register or
otherwise qualify its securities for sale in that state or foreign country;
or
o registration or qualification would be impracticable for reasons of cost or
otherwise.
Restrictions on Transfer of Subscription Rights and Shares. The plan
prohibits any person with subscription rights, including Eligible Account
Holders, Supplemental Eligible Account Holders, and Other Members, from
transferring or entering into any agreement or understanding to transfer the
legal or beneficial ownership of the subscription rights issued under the plan
or the shares of common stock to be issued when they are exercised. Subscription
rights may be exercised only by the person to whom they are granted and only for
his or her account. Each person subscribing for shares will be required to
certify that he or she is purchasing shares solely for his or her own account
and that he or she has no agreement or understanding regarding the sale or
transfer of the shares. The regulations also prohibit any person
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from offering or making an announcement of an offer or intent to make an offer
to purchase subscription rights or shares of common stock before the completion
of the offering.
BUCS Financial Corp and BUCS Federal will pursue any and all legal and
equitable remedies in the event we become aware of the transfer of subscription
rights and will not honor orders which we determine involve the transfer of
subscription rights.
Expiration Date. The subscription offering will expire at 12:00 noon,
Eastern time, on ___________, 2000, unless it is extended, up to an additional
45 days with the approval of the OTS, if necessary, but without additional
notice to subscribers (the "expiration date"). Subscription rights will become
void if not exercised prior to the expiration date.
Community Offering
If less than the total number of shares of common stock to be
subscribed for in the offering are sold in the subscription offering, shares
remaining unsubscribed may be made available for purchase in the community
offering to certain members of the general public. The maximum amount of common
stock that any person may purchase in the community offering is 12,500 shares,
or $125,000. In the community offering, if any, shares will be available for
purchase by the general public with preference given first to natural persons
residing in Baltimore and Howard Counties in Maryland. We will attempt to issue
common stock in a manner that would promote a wide distribution of common stock.
If purchasers in the community offering, whose orders would otherwise
be accepted, subscribe for more shares than are available for purchase, the
shares available to them will be allocated among persons submitting orders in
the community offering in an equitable manner we determine.
The community offering, if any, may commence simultaneously with,
during or subsequent to the completion of the subscription offering and if
commenced simultaneously with or during the subscription offering the community
offering may be limited to residents of Baltimore and Howard Counties in
Maryland. The community offering, if any, must be completed within 45 days after
the completion of the subscription offering unless otherwise extended by the
OTS.
We, in our absolute discretion, reserve the right to reject any or all
orders in whole or in part which are received in the community offering, at the
time of receipt or as soon as practicable following the completion of the
community offering.
Limitations on Purchases of Stock
The following additional limitations have been imposed on purchases of
shares of common stock:
1. The maximum number of shares of common stock which may be
purchased in the subscription offering by any person in the first
priority, third priority and fourth priority shall not exceed
12,500 shares, or $125,000.
2. The maximum number of shares of common stock which may be
subscribed for or purchased in all categories in the offering by
any person together with any associate or group of persons acting
in concert shall not exceed 15,000 shares, or $150,000, except
for our employee plans, which in the aggregate may subscribe for
up to 10% of the common stock issued in the offering.
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3. The maximum number of shares of common stock which may be
purchased in all categories in the offering by officers and
directors of BUCS Federal and their associates in the aggregate
shall not exceed 34% of the total number of shares of common
stock issued in the offering.
4. The minimum order is 25 shares of common stock.
5. If the number of shares of common stock otherwise allocable to
any person or that person's associates would be in excess of the
maximum number of shares permitted as set forth above, the number
of shares of common stock allocated to that person shall be
reduced to the lowest limitation applicable to that person, and
then the number of shares allocated to each group consisting of a
person and that person's associates shall be reduced so that the
aggregate allocation to that person and his associates complies
with the above maximums, and the maximum number of shares shall
be reallocated among that person and his associates in proportion
to the shares subscribed by each (after first applying the
maximums applicable to each person, separately).
6. Depending on market or financial conditions, the Board of
Directors of BUCS Federal, without further approval of the
depositors, may decrease or increase the purchase limitations in
the plan, provided that the maximum purchase limitations may not
be increased to a percentage in excess of 5% of the offering. If
BUCS Financial Corp increases the maximum purchase limitations,
BUCS Financial Corp is only required to resolicit persons who
subscribed for the maximum purchase amount and may, in the sole
discretion of BUCS Financial Corp, resolicit certain other large
subscribers.
7. If the total number of shares offered increases in the offering
due to an increase in the maximum of the estimated valuation
range of up to 15% (the adjusted maximum) the additional shares
will be used in the following order of priority: (a) to fill the
Employee Plan's subscription up to 10% of the adjusted maximum;
(b) if there is an oversubscription at the Eligible Account
Holder level, to fill unfilled subscriptions of Eligible Account
Holders exclusive of the adjusted maximum; (c) if there is an
oversubscription at the Supplemental Eligible Account Holder
level, to fill unfilled subscriptions of Supplemental Eligible
Account Holders exclusive of the adjusted maximum; (d) if there
is an oversubscription at the other member level, to fill
unfilled subscriptions of other members exclusive of the adjusted
maximum; and (e) to fill unfilled subscriptions in the community
offering exclusive of the adjusted maximum, with preference given
to persons who live in the local community.
8. No person will be allowed to purchase any stock if that purchase
would be illegal under any federal law or state law or regulation
or would violate regulations or policies of the NASD,
particularly those regarding free riding and withholding. BUCS
Financial Corp or BUCS Federal and/or its agents may ask for an
acceptable legal opinion from any purchaser regarding the
legality of the purchase and may refuse to honor any purchase
order if that opinion is not timely furnished.
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9. The Board of Directors has the right to reject any order
submitted by a person whose representations it believes are
untrue or who it believes is violating, circumventing, or intends
to violate, evade, or circumvent the terms and conditions of the
plan, either alone or acting in concert with others.
10. The above restrictions also apply to purchases by persons acting
in concert under applicable regulations of the OTS. Under
regulations of the OTS, directors of BUCS Federal are not
considered to be affiliates or a group acting in concert with
other directors solely as a result of membership on our Board of
Directors.
The term "associate" of a person is defined in the plan to mean (1) any
corporation or organization other than BUCS Federal or a majority-owned
subsidiary of BUCS Federal of which a person is an officer or partner or is,
directly or indirectly, the beneficial owner of 10% or more of any class of
equity securities, (2) any trust or other estate in which a person has a
substantial beneficial interest or as to which a person serves as trustee or in
a similar fiduciary capacity, excluding tax-qualified employee stock benefit
plans or tax-qualified employee stock benefit plans in which a person has a
substantial beneficial interest or serves as a trustee or in a similar fiduciary
capacity and except that, for purposes of aggregating total shares that may be
held by officers and directors, the term "Associate" does not include any
tax-qualified employee stock benefit plan, and (3) any relative or spouse of a
person or any relative of a spouse, who has the same home as that person or who
is a trustee or officer of BUCS Federal, or any of its parents or subsidiaries.
For example, a corporation for which a person serves as an officer would be an
associate of that person and all shares purchased by that corporation would be
included with the number of shares which that person individually could purchase
under the above limitations.
Each person purchasing shares of the common stock in the offering will
be considered to have confirmed that his or her purchase does not conflict with
the maximum purchase limitation. If the purchase limitation is violated by any
person or any associate or group of persons affiliated or otherwise acting in
concert with that person, we will have the right to purchase from that person at
the $10 purchase price per share all shares acquired by that person in excess of
that purchase limitation or, if the excess shares have been sold by that person,
to receive the difference between the purchase price per share paid for the
excess shares and the price at which the excess shares were sold by that person.
Our right to purchase the excess shares will be assignable.
Common stock purchased pursuant to the offering will be freely
transferable, except for shares purchased by directors and officers of BUCS
Federal. For certain restrictions on the common stock purchased by directors and
officers, see "- Restrictions on Transferability by Directors and Officers." In
addition, under guidelines of the NASD, members of the NASD and their associates
are subject to certain restrictions on the transfer of securities purchased in
accordance with subscription rights and to certain reporting requirements after
the purchase.
Ordering and Receiving Common Stock
Use of Order Forms. Rights to subscribe may only be exercised by
completion of an order form. Any person receiving an order form who desires to
subscribe for shares of common stock must do so prior to the applicable
expiration date by delivering by mail or in person to BUCS Federal a properly
executed and completed order form, together with full payment of the purchase
price for all shares for which subscription is made; provided, however, that if
the employee plans subscribe for shares during the subscription offering, the
employee plans will not be required to pay for the shares at the time they
subscribe but rather may pay for the shares after the conversion. Except for
institutional investors, all
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subscription rights under the plan will expire on the expiration date, whether
or not BUCS Federal has been able to locate each person entitled to subscription
rights. Once tendered, subscription orders cannot be revoked without the consent
of BUCS Federal unless the conversion is not completed within 45 days of the
expiration date.
If a stock order form:
o is not delivered and is returned to BUCS Federal by the United States
Postal Service or BUCS Federal is unable to locate the addressee;
o is not received or is received after the applicable expiration date;
o is not completed correctly or executed;
o is not accompanied by the full required payment for the shares subscribed
for including instances where a savings account or certificate balance from
which withdrawal is authorized is insufficient to fund the required
payment, but excluding subscriptions by the Employee Plans; or
o is not mailed pursuant to a "no mail" order placed in effect by the account
holder, the subscription rights for that person will lapse as though that
person failed to return the completed order form within the time period
specified.
However, we may, but will not be required to, waive any irregularity on
any order form or require the submission of corrected order forms or the
remittance of full payment for subscribed shares by a date that we may specify.
The waiver of an irregularity on an order form in no way obligates us to waive
any other irregularity on any other order form. Waivers will be considered on a
case by case basis. We will not accept orders received on photocopies or
facsimile order forms, or for which payment is to be made by wire transfer or
payment from private third parties. Our interpretation of the terms and
conditions of the plan and of the acceptability of the order forms will be
final, subject to the authority of the OTS.
To ensure that each purchaser receives a prospectus at least 48 hours
before the applicable expiration date, in accordance with Rule 15c2-8 of the
Securities Exchange Act of 1934, no prospectus will be mailed any later than
five days prior to the expiration date or hand delivered any later than two days
prior to the expiration date. Execution of the order form will confirm receipt
or delivery in accordance with Rule 15c2-8. Order forms will only be distributed
with a prospectus.
Payment for Shares. For subscriptions to be valid, payment for all
subscribed shares will be required to accompany all properly completed order
forms, on or prior to the expiration date specified on the order form unless we
extend the date. Employee Plans subscribing for shares during the subscription
offering may pay for those shares after the offering. Payment for shares of
common stock may be made
o in cash, if delivered in person,
o by check or money order, or
o for shares of common stock subscribed for in the subscription offering, by
authorization of withdrawal from savings accounts maintained with BUCS
Federal.
Payment for subscriptions of $25,000 or more must be paid by account withdrawal,
certified or cashier's check, or money order.
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Appropriate means by which account withdrawals may be authorized are
provided in the order form. Once a withdrawal has been authorized, none of the
designated withdrawal amount may be used by a subscriber for any purpose other
than to purchase the common stock for which a subscription has been made until
the offering has been completed or terminated. In the case of payments
authorized to be made through withdrawal from savings accounts, all sums
authorized for withdrawal will continue to earn interest at the contract rate
until the offering has been completed or terminated. Interest penalties for
early withdrawal applicable to certificate accounts will not apply to
withdrawals authorized for the purchase of shares, however, if a partial
withdrawal results in a certificate account with a balance less than the
applicable minimum balance requirement, the certificate shall be canceled at the
time of withdrawal, without penalty, and the remaining balance will earn
interest at the regular savings account rate subsequent to the withdrawal. In
the case of payments made in cash or by check or money order, funds will be
placed in a segregated account and interest will be paid by BUCS Federal at the
regular savings account rate from the date payment is received until the
offering is completed or terminated. An executed order form, once we receive it,
may not be modified, amended, or rescinded without our consent, unless the
offering is not completed within 45 days after the conclusion of the
subscription offering, in which event subscribers may be given the opportunity
to increase, decrease, or rescind their subscription for a specified period of
time. If the offering is not completed for any reason, all funds submitted
pursuant to the offerings will be promptly refunded with interest as described
above.
Owners of self-directed IRAs may use the assets of their IRAs to
purchase shares of common stock in the offerings, provided that their IRAs are
not maintained on deposit at BUCS Federal. Persons with IRAs maintained at BUCS
Federal must have their accounts transferred to an unaffiliated institution or
broker to purchase shares of common stock in the offerings. There is no early
withdrawal or IRS interest penalties for these transfers. Instructions on how to
transfer self-directed IRAs maintained at BUCS Federal can be obtained from the
stock information center. Depositors interested in using funds in a BUCS Federal
IRA to purchase common stock should contact the stock information center as soon
as possible so that the necessary forms may be forwarded, executed and returned
prior to the expiration date.
Federal regulations prohibit BUCS Federal from lending funds or
extending credit to any person to purchase the common stock in the conversion.
Stock Center. The stock center is located at 10455 Mill Run Circle,
Owings Mills, Maryland 21117. Its phone number is (410) ___-____.
Delivery of Stock Certificates. Certificates representing common stock
issued in the offering will be mailed to the persons entitled thereto at the
address noted on the order form, as soon as practicable following consummation
of the offering. Any certificates returned as undeliverable will be held until
claimed by persons legally entitled thereto or otherwise disposed of in
accordance with applicable law. Until certificates for the common stock are
available and delivered to subscribers, subscribers may not be able to sell the
shares of stock for which they subscribed.
Restriction on Sales Activities
Our directors and executive officers may participate in the
solicitation of offers to purchase common stock in jurisdictions where their
participation is not prohibited. Other employees of BUCS Federal may participate
in the offering in ministerial capacities and have been instructed not to
solicit offers to purchase common stock or provide advice regarding the purchase
of common stock. Questions of prospective purchasers will be directed to
executive officers of BUCS Federal or registered representatives of Trident
Securities. No officer, director or employee of BUCS Federal will be compensated
in
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connection with his or her solicitations or other participation in the offering
by the payment of commissions or other remuneration based either directly or
indirectly on transactions in the common stock.
Restrictions on Repurchase of Shares
Generally, during the first year following the conversion, BUCS
Financial Corp may not repurchase its shares unless it can show extraordinary
circumstances. If extraordinary circumstances exist and if BUCS Financial Corp
can show a compelling and valid business purpose for the repurchase, the OTS may
approve repurchases of up to 5% of the outstanding stock during the first year
after conversion. After the first year following the conversion, we can
repurchase any amount of stock so long as the repurchase would not cause us to
become undercapitalized.
In addition, SEC rules also govern the method, time, price, and number
of shares of common stock that may be repurchased by BUCS Financial Corp and
affiliated purchasers. If, in the future, the rules and regulations regarding
the repurchase of stock are liberalized, BUCS Financial Corp may utilize the
rules and regulations then in effect.
Stock Pricing and the Number of Shares to be Offered
FinPro, which is experienced in the valuation and appraisal of business
entities, including savings institutions, has been retained to prepare an
appraisal of the estimated pro forma market value of the common stock (the
"Independent Valuation"). This independent valuation will express our pro forma
market value in terms of an aggregate dollar amount. FinPro will receive fees of
$39,500 for its appraisal services, including the independent valuation and any
subsequent update, and assistance in preparation of our business plan, plus up
to $3,000 for reasonable out-of-pocket expenses incurred in connection with the
independent valuation and business plan. BUCS Federal has agreed to indemnify
FinPro under certain circumstances against liabilities and expenses arising out
of or based on any misstatement or untrue statement of a material fact contained
in the information supplied by BUCS Federal to FinPro, except where FinPro is
determined to have been negligent or failed to exercise due diligence in the
preparation of the independent valuation.
Pursuant to the plan, the number of shares of common stock to be
offered in the offering will be based on the estimated pro forma market value of
the common stock and the purchase price of $10.00 per share. FinPro has
determined that as of October 5, 2000, our estimated aggregate pro forma market
value was $4,100,000. Pursuant to regulations, this estimate must be included
within a range with a minimum of $3,485,000 and a maximum of $4,715,000. We have
determined to offer shares of common stock in the offering at a price of $10.00
per share. We are offering a maximum of 471,500 shares in the offering, subject
to adjustment. In determining the offering range, the Board of Directors
reviewed FinPro's appraisal. The appraisal contains an analysis of a number of
factors, including but not limited to our financial condition and results of
operations as of June 30, 2000, our operating trends, the competitive
environment in which we operate, operating trends of certain savings
institutions and savings and loan holding companies, relevant economic
conditions both nationally and in the State of Maryland which affect the
operations of savings institutions, stock market values of certain institutions,
and stock market conditions for publicly traded savings institutions and savings
and loan holding companies. In addition, FinPro has advised us that it has
considered and will consider the effect of the additional capital raised by the
sale of the common stock on the estimated pro forma market value. The Board also
reviewed the methodology and the assumptions used by FinPro in preparing its
appraisal. The number of shares is subject to change if the independent
valuation changes at the conclusion of the offering.
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The number of shares and price per share of common stock was determined
by the Board of Directors based on the independent valuation. The actual number
of shares to be sold in the offering may be increased or decreased before
completion of the offering, subject to approval and conditions that may be
imposed by the OTS, to reflect any change in our estimated pro forma market
value.
Depending on market and financial conditions at the time of the
completion of the offering, BUCS Federal may increase or decrease the number of
shares to be issued in the conversion and offering. No resolicitation of
purchasers will be made and purchasers will not be permitted to modify or cancel
their purchase orders unless the change in the number of shares to be issued in
the offering results in fewer than 348,500 shares or more than 542,225 shares
being sold in the offering at the purchase price of $10.00, in which event BUCS
Federal may also elect to terminate the offering. If BUCS Federal terminates the
offering, purchasers will receive a prompt refund of their purchase orders,
together with interest earned thereon from the date of receipt to the date of
termination of the offering. Furthermore, any account withdrawal authorizations
will be terminated. If we receive orders for less than 348,500 shares, at the
discretion of the Board of Directors and subject to approval of the OTS, we may
establish a new offering range and resolicit purchasers. If we resolicit,
purchasers will be allowed to modify or cancel their purchase orders. Any
adjustments in our pro forma market value as a result of market and financial
conditions or a resolicitation of prospective purchasers must be approved by the
OTS.
The independent valuation will be updated at the time of the completion
of the offering, and the number of shares to be issued may increase or decrease
to reflect the changes in market conditions, the results of the offering, or the
estimated pro forma market value of BUCS Federal. If the updated estimate of the
pro forma market value of BUCS Federal immediately after the offering changes,
there will be a corresponding change to the shares sold to subscribers in the
offering. For example, if the independent valuation at the conclusion of the
offering increases to $4,715,000 or decreases to $3,485,000, then the total
number of shares outstanding after the conversion and offering will be 471,500
or 348,500, respectively. If the updated independent valuation increases, BUCS
Financial Corp may increase the number of shares sold in the offering to up to
542,225 shares. Subscribers will not be given the opportunity to change or
withdraw their orders unless more than 542,225 shares or fewer than 348,500
shares are sold in the offering. Any adjustment of shares of common stock sold
will have a corresponding effect on the estimated net proceeds of the offering
and the pro forma capitalization and per share data of BUCS Federal. An increase
in the total number of shares to be issued in the conversion would decrease a
subscriber's percentage ownership interest and pro forma net worth (book value)
per share and increase the pro forma net income and net worth (book value) on an
aggregate basis. In the event of a reduction in the valuation, BUCS Financial
Corp may decrease the number of shares to be issued to reflect the reduced
valuation. A decrease in the number of shares to be issued in the conversion
would increase a subscriber's percentage ownership interest and the pro forma
net worth (book value) per share and decrease the pro forma net income and net
worth on an aggregate basis. For a presentation of the possible effects of an
increase or decrease in the number of shares to be issued, see "Pro Forma Data."
The independent valuation is not intended, and must not be construed,
as a recommendation of any kind as to the advisability of purchasing the common
stock. In preparing the independent valuation, FinPro has relied on and assumed
the accuracy and completeness of financial and statistical information provided
by BUCS Federal. FinPro did not independently verify the consolidated financial
statements and other information provided by BUCS Federal, nor did FinPro value
independently the assets and liabilities of BUCS Federal. The independent
valuation considers BUCS Federal only as a going concern and should not be
considered as a indication of the liquidation value of BUCS Federal. Moreover,
because the independent valuation is based on estimates and projections on a
number of matters, all of which are subject to change from time to time, no
18
<PAGE>
assurance can be given that persons purchasing the common stock will be able to
sell their shares at a price equal to or greater than the purchase price.
A copy of the appraisal report is available for your review at our main
office. In addition, the Board of Directors of BUCS Financial Corp does not make
any recommendation as to whether or not the stock will be a good investment for
you.
No sale of shares of common stock may be consummated unless FinPro
confirms that, to the best of its knowledge, nothing of a material nature has
occurred that, taking into account all relevant factors, would cause FinPro to
conclude that the independent valuation is incompatible with its estimate of our
pro forma market value at the conclusion of the offering. Any change that would
result in an aggregate value that is below $3,485,000 or above $5,422,250 would
be subject to OTS approval. If confirmation from FinPro is not received, BUCS
Federal may extend the offering, reopen or commence a new offering, request a
new Independent Valuation, establish a new offering range and commence a
resolicitation of all purchasers with the approval of the OTS, or take other
action as permitted by the OTS in order to complete the offering.
Plan of Distribution/Marketing Arrangements
The common stock will be offered in the offering principally by the
distribution of this prospectus and through activities conducted at the stock
information center. It is expected that a registered representative employed by
Trident Securities will be working at, and supervising the operation of, the
stock center. Trident Securities will be responsible for overseeing the mailing
of material relating to the offering, responding to questions regarding the
conversion and the offering and processing order forms.
BUCS Federal and BUCS Financial Corp have entered into an agency
agreement with Trident Securities under which Trident Securities will provide
advisory assistance and assist, on a best efforts basis, in the solicitation of
subscriptions and purchase orders for the common stock in the offering. Trident
Securities is a broker-dealer registered with the National Association of
Securities Dealers, Inc. Specifically, Trident Securities will assist in the
offering in the following manner:
o assisting in the collection of proxies from depositors for use at the
Special Meeting;
o keeping records of subscriptions and orders for common stock;
o training and educating BUCS Federal's employees regarding the mechanics and
regulatory requirements of the stock conversion process;
o assisting in the design and implementation of a marketing strategy for the
offering;
o assisting BUCS Federal's management in scheduling and preparing for
meetings, if any, with potential investors and broker-dealers; and
o providing other general advice and assistance as may be requested to
promote the successful completion of the offering.
Trident Securities will receive, as compensation, a management fee of
$20,000, which was paid when Trident Securities was retained. Trident Securities
will also receive a commission equal to $100,000
19
<PAGE>
for stock sold in the subscription and any community offering, payable at
closing. Trident Securities will also be reimbursed up to $35,000 for its
out-of-pocket expenses, including the fees and expenses of its legal counsel. An
advance payment of $10,000 toward the out-or-pocket expenses was paid when
Trident Securities was retained and will be credited toward the final payment to
Trident Securities. BUCS Federal has agreed to indemnify Trident Securities, to
the extent allowed by law, for reasonable costs and expenses in connection with
certain claims or liabilities, including certain liabilities under the
Securities Act of 1933, as amended. See "Pro Forma Data" for further information
regarding expenses of the offering.
Restrictions on Transferability by Directors and Officers
Shares of the common stock purchased by directors or officers of BUCS
Federal cannot be sold for a period of one year following completion of the
conversion, except for a disposition of shares after the death of a stockholder.
To ensure this restriction is upheld, shares of the common stock issued to
directors and officers will bear a legend restricting their sale. Any shares
issued to directors and officers as a stock dividend, stock split, or otherwise
with respect to restricted stock will be subject to the same restriction.
For a period of three years following the conversion, no director or
officer of BUCS Federal or their associates may, without the prior approval of
the OTS, purchase our common stock except from a broker or dealer registered
with the SEC. This prohibition does not apply to negotiated transactions
including more than 1% of our common stock or purchases made for tax qualified
or non-tax qualified employee stock benefit plans which may be attributable to
individual officers or directors.
Restrictions on Agreements or Understandings Regarding Transfer of Common Stock
to be Purchased in the Offering
Before the completion of the conversion and offering, no depositor may
transfer or enter into an agreement or understanding to transfer any
subscription rights or the legal or beneficial ownership of the shares of common
stock to be purchased in the offering. Depositors who submit an order form will
be required to certify that their purchase of common stock is solely for their
own account and there is no agreement or understanding regarding the sale or
transfer of their shares. We intend to pursue any and all legal and equitable
remedies after we become aware of any agreement or understanding, and will not
honor orders we reasonably believe to involve an agreement or understanding
regarding the sale or transfer of shares.
Conditions to the Offering
Completion of the offering is subject to:
1. completion of the conversion, which requires approvals from certain
government agencies, the ratification of BUCS Federal's voting depositor
members, and the receipt of rulings and/or opinions of counsel as to the
tax consequences of the conversion;
2. the receipt of all the required approvals for the issuance of common stock
in the offering, including the approval of the OTS; and
3. the sale of a minimum of 348,500 shares of common stock.
20
<PAGE>
If conditions 1 and 2 are not met before we complete the offering, all
funds received will be promptly returned with interest at BUCS Federal's regular
savings account rate and all withdrawal authorizations will be canceled. The
stock purchases of the officers and directors of BUCS Financial Corp and BUCS
Federal will be counted for purposes of meeting the minimum number of shares
required by condition 3.
BUCS FEDERAL
BUCS Federal was originally founded in 1970 as "Maryland Blue Cross and
Blue Shield Employees Federal Credit Union." In the early 1980s, it changed its
name to BUCS Federal Credit Union. The Bank, as a credit union, initially served
the employees of CareFirst BlueCross BlueShield and its subsidiaries. Over time,
membership grew to include other employee groups. However, as a credit union, it
was legally restricted to serving only customers who shared a "common bond" such
as a common employer. On March 1, 1998, the Bank converted its charter and
became BUCS Federal, a federally chartered mutual savings institution,
permitting it to serve the general public in addition to continuing to serve
employee groups. See page __.
The Bank's deposits were federally insured from 1970 to 1998 by the
National Credit Union Share Insurance Fund. Since 1998, the Bank's deposits have
been insured by the Savings Association Insurance Fund as administered by the
Federal Deposit Insurance Corporation (the "FDIC'). The Bank is regulated by the
OTS and the FDIC.
The Bank is a community-oriented savings organization, providing
traditional retail banking services, one- to four-family residential mortgage
loans, and consumer loan products, including home equity, auto, and personal
loans. Originally, the Bank operated as a typical credit union, with an emphasis
on consumer lending. Since 1986, however, the Bank has also originated a
substantial amount of one- to four-family residential mortgage loans. The Bank
began in June 2000 to seek to originate small business loans to complement the
array of commercial checking and deposit services offered by the Bank. The Bank
may in the future seek certification to make Small Business Administration
guaranteed loans. The Bank conducts its operations through its main office
located in Owings Mills, Maryland and a full service branch office in Columbia,
Maryland. The Bank also maintains five remote ATM locations.
At June 30, 2000, the Bank had total assets, deposits, and equity of
$69.6 million, $48.0 million, and $5.5 million, respectively. The Bank attracts
deposits from the general public and uses these deposits primarily to originate
loans and to purchase investment, mortgage-backed and other securities. The
principal sources of funds for the Bank's lending and investing activities are
deposits, FHLB advances, the repayment and maturity of loans and sale, maturity,
and call of securities. The principal source of income is interest on loans and
investment and mortgage-backed securities. The principal expense is interest
paid on deposits and FHLB advances.
At June 30, 2000, net loans receivable amounted to approximately $45.9
million or 65.8% of total assets, consisting principally of $33.3 million in
consumer loans, including home equity loans and auto loans, and $13.2 million in
first mortgage loans. The Bank invests excess liquidity in mortgage-backed and
investment securities, primarily in U.S. government agency securities. The Bank
has recently sought to leverage its balance sheet, utilizing its first FHLB
advance in December 1998 to purchase GNMA adjustable rate mortgage-backed
securities. Additional FHLB borrowings since then have been used to partially
replace approximately $13.1 million that had been deposited in a money market
account at the Bank by the administrator of the internal 401(k) plan of
CareFirst BlueCross BlueShield. The Bank chose
21
<PAGE>
to eliminate this account and seek a less volatile source of funding. FHLB
advances and other borrowings totaled $15.0 million at June 30, 2000. Investment
and mortgage-backed securities amounted to $16.5 million or 23.6% of total
assets at June 30, 2000. See "Business of BUCS Federal."
BUCS FINANCIAL CORP
BUCS Financial Corp is a Maryland chartered corporation that was
organized in October 2000 for the purpose of acquiring all of the capital stock
that BUCS Federal will issue upon its conversion from the mutual to stock form
of ownership. BUCS Financial Corp has not engaged in any significant business to
date but will serve as a holding company of the Bank following the conversion.
BUCS Financial Corp has applied for approval to acquire control of the Bank. The
proceeds from the offering will help the Bank fund its transition from a credit
union to a full service thrift institution, including funding the development of
new products and potentially the expansion of the Bank's presence in the
community through the addition of new branch locations. BUCS Financial Corp will
use approximately 50% of the net proceeds of the offering to purchase all of the
stock to be issued by BUCS Federal Bank. BUCS Financial Corp will also lend the
BUCS Federal's employee stock ownership plan cash to enable the plan to buy 8%
of the shares sold in the offering. The balance will be retained as BUCS
Financial Corp's initial capitalization. Upon consummation of the conversion,
BUCS Financial Corp will have no significant assets other than that portion of
the net proceeds of the offering, the promissory note representing the amount of
its loan to the employee stock ownership plan, and the shares of the Bank's
capital stock acquired in the conversion, and it will have no significant
liabilities. BUCS Financial Corp's cash flow will be dependent upon earnings
from the investment of the portion of net proceeds it retains in the conversion
and any dividends received from the Bank. See "Use of Proceeds."
Management believes that the holding company structure will provide
flexibility for possible diversification of business activities through existing
or newly-formed subsidiaries, or through acquisitions of or mergers with both
savings institutions and commercial banks, as well as other financial services
related companies. Although there are no current arrangements, understandings,
or agreements regarding any acquisition, merger or expansion opportunities, BUCS
Financial Corp will be in a position after the conversion, subject to regulatory
limitations and its financial condition, to take advantage of any acquisition,
merger and expansion opportunities that may arise. However, some of these
activities could be considered to entail a greater risk than the activities
permissible for federally chartered savings institutions such as the Bank. The
initial activities of BUCS Financial Corp are anticipated to be funded by the
portion of the net proceeds retained by it and earnings thereon.
PROPOSED STOCK PURCHASES BY MANAGEMENT
The following table sets forth for each of the directors of the Bank
and for all of the directors and officers of the Bank as a group (including in
each case all "associates" of the directors and officers) the number of shares
of common stock which each director and officer intends to purchase, assuming
the sale of 410,000 shares of common stock at $10.00 per share. The table does
not include purchases by the employee stock ownership plan (8% of the common
stock sold in the offering), and does not take into account any stock benefit
plans to be adopted within one year following the conversion. See "Management -
Potential Stock Benefit Plans."
22
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Total Number Total Dollar 410,000 Total
of Shares Amount of Shares Shares Sold in
Name to be Purchased to be Purchased the Offering(1)
------------------------------ --------------- --------------- ------------
<S> <C> <C> <C>
Allen Maier 2,500 $25,000 -*
Joseph Prescrille 6,000 60,000 1.5%
Brian Bowers 11,000 110,000 2.7%
M. Robin Copeland 500 5,000 -*
Herbert J. Moltzan 10,000 100,000 2.4%
Thomas Markel 10,000 100,000 2.4%
A. Virginia Wampler 3,000 30,000 -*
Harry Fox 3,000 30,000 -*
Peg Ohrt 1,000 10,000 -*
Dale Summers 3,000 30,000 -*
Non-director officers of
the Bank 10,000 100,000 2.4%
------ ------- ----
Total 60,000 $600,000 14.6%
====== ======= ====
</TABLE>
----------------------
* Less than 1%.
(1) In the event the stockholders of BUCS Financial Corp approve the stock
benefit plans as discussed in this prospectus (stock programs (4% of
the common stock sold in the offering) and the stock option plans (10%
of the common stock sold in the offering)), and all of the common stock
is awarded pursuant to the stock benefit plans and all options are
exercised (increasing the number of outstanding shares), directors and
executive officers would own 117,400 or 28.6% of the shares of common
stock outstanding. If fewer than 410,000 shares were publicly sold,
these percentage ownership estimates would increase. See "- Potential
Stock Benefit Plans."
USE OF PROCEEDS
The net proceeds will depend on the expenses incurred by us in
connection with the offering and the total number of shares of stock issued in
the offering, which will depend on the independent valuation and marketing
considerations. Although the actual net proceeds from the sale of the common
stock cannot be determined until the offering is completed, we estimate that we
will receive net proceeds from the sale of common stock of between $3,085,000 at
the minimum and $5,022,250 at the maximum, as adjusted.
Assuming net proceeds of $3.7 million at the midpoint of the offering
range and the purchase of 8% of the shares by the employee stock ownership plan,
the following table shows the manner in which we will use the net proceeds:
Loan to employee stock ownership plan $ 328,000
Investment in BUCS Federal 1,850,000
Working capital 1,522,000
-----------
$ 3,700,000
===========
These funds initially may be invested in U.S. government agency
obligations and/or marketable securities. We may also use the net proceeds to
repurchase our stock.
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<PAGE>
The funds received by the Bank from us in return for the purchase of
all its stock to be issued will be used for general corporate purposes including
to repay FHLB borrowings, and will help the Bank fund its transition from a
credit union to a full service community bank, possibly including the expansion
of the Bank's presence in its existing market area through the addition of new
branch locations. However, there are no current agreements or arrangements
regarding expansion of the Bank's branch network.
The funds will increase the Bank's total capital to expand investment
and lending, enhance its technological capabilities and develop its commercial
lending program. Net proceeds may also be used by the Bank to make contributions
to the employee stock ownership plan which in turn would be used to repay the
loan from us.
If the employee stock ownership plan does not purchase common stock in
the offering, it may purchase shares of common stock in the market after the
reorganization. If the purchase price of the common stock is higher than $10 per
share, the amount of proceeds required for the purchase by the employee stock
ownership plan will increase and the resulting stockholders' equity will
decrease.
The net proceeds may vary because total expenses of the conversion may
be more or less than those estimated. The net proceeds will also vary if the
number of shares to be issued in the conversion are adjusted to reflect a change
in the estimated pro forma market value of BUCS Financial Corp and BUCS Federal.
Payments for shares made through withdrawals from existing deposit accounts at
the Bank will not result in the receipt of new funds for investment but will
result in a reduction of the Bank's deposits and interest expense as funds are
transferred from interest-bearing certificates or other deposit accounts.
DIVIDEND POLICY
BUCS Financial Corp anticipates the establishment of a policy to pay
cash dividends. The timing, frequency and initial annual amount of the dividends
have not yet been determined. Dividends will be subject to determination and
declaration by the Board of Directors of BUCS Financial Corp. In making its
decision, the Board of Directors will consider several factors, including:
o financial condition;
o results of operations;
o tax considerations;
o industry standards; and
o general economic conditions;
There can be no assurance that dividends will in fact be paid on the
stock or that, if paid, dividends will not be reduced or eliminated in future
periods.
BUCS Financial Corp's ability to pay dividends also depends on the
receipt of dividends from BUCS Federal which is subject to a variety of
regulatory limitations on the payment of dividends. See Regulation - Regulation
of the Bank - Dividend and Other Capital Distribution Limitations." Furthermore,
as a condition to OTS approval of the conversion, BUCS Financial Corp has agreed
that it will not initiate any action within one year of completion of the
conversion in the furtherance of payment of a special distribution or return of
capital to stockholders of the Company. Because BUCS Federal was previously a
credit union, it does not have an accumulated bad debt reserve like most thrift
institutions. As such, stock repurchases would not result in a tax liability
from the recapture of an accumulated tax bad debt reserve.
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<PAGE>
MARKET FOR THE STOCK
BUCS Financial Corp has never issued capital stock. Consequently, there
is not, at this time, any market for the stock. Following the completion of the
offering, BUCS Financial Corp anticipates that its stock will be traded on the
over-the-counter market with quotations available through the OTC Electronic
Bulletin Board. BUCS Financial Corp expects that Trident Securities will make a
market in the stock. Making a market may include the solicitation of potential
buyers and sellers in order to match buy and sell orders. However, Trident
Securities will not be obligated with respect to these efforts.
The development of an active trading market depends on the existence of
willing buyers and sellers. Due to the small size of the offering, it is highly
unlikely that an active trading market will develop and be maintained. You could
have difficulty disposing of your shares and you should not view the shares as a
short term investment. You may not be able to sell your shares at a price equal
to or above the price you paid.
25
<PAGE>
CAPITALIZATION
Set forth below is the historical capitalization of the Bank as of June
30, 2000, and the pro forma capitalization of BUCS Financial Corp after giving
effect to the offering. The table also gives affect to the assumptions set forth
under "Pro Forma Data." A change in the number of shares sold in the offering
may affect materially the pro forma capitalization.
<TABLE>
<CAPTION>
Pro Forma Capitalization at June 30, 2000
----------------------------------------------------------------
Maximum,
Minimum Midpoint Maximum as adjusted
348,500 410,000 471,500 542,225
Shares at Shares at Shares at Shares at
Actual, at $10.00 per $10.00 per $10.00 per $10.00 per
June 30, 2000 share share share share(1)
------------- --------------- ----------------- ---------------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits(2)................................... $48,001 $48,001 $48,001 $48,001 $48,000
Borrowed funds................................ 15,000 15,000 15,000 15,000 15,000
------ ------ ------ ------ ------
Total deposits and borrowed funds............. $63,001 $63,001 $63,001 $63,001 $63,001
====== ====== ====== ====== ======
Stockholders' equity:
Preferred stock, $0.10 par value, 2,000,000
shares authorized; none to be issued........ $ -- $ -- $ -- $ -- $ --
Common stock, $0.10 par value, 5,000,000
shares authorized, assuming shares
outstanding as shown(3)................... -- 35 41 47 54
Additional paid-in capital(3)................. -- 3,050 3,659 4,268 4,968
Retained earnings............................. 5,896 5,896 5,896 5,896 5,896
Unrealized gain (loss) on securities available
for sale, net............................... (365) (365) (365) (365) (365)
Less:
Common stock acquired by ESOP(4)............ -- (279) (328) (377) (434)
Common stock acquired by
stock programs(5)......................... -- (139) (164) (189) (217)
------- ------ ------ ------ ------
Total equity/stockholders' equity............. $ 5,531 $ 8,198 $ 8,739 $ 9,280 $ 9,902
======= ======= ======= ======= =======
</TABLE>
------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the independent valuation and a
commensurate increase in the offering range of up to 15% to reflect changes
in market and financial conditions.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
stock in the offering. Any withdrawals would reduce pro forma deposits by
an amount equal to the withdrawals.
(3) No effect has been given to the issuance of additional shares of stock
pursuant to any stock option plans that may be adopted by BUCS Financial
Corp and the Bank and presented for approval by the stockholders after the
offering. An amount equal to 10% of the shares of stock sold in the
offering would be reserved for issuance upon the exercise of options to be
granted under the stock option plans within one year following the
conversion. See "Risk Factors - The expenses related to our stock-based
benefit plans and other business expenses will reduce our earnings" and
"Management - Potential Stock Benefit Plans - Stock Options Plans."
(4) Assumes that 8.0% of the shares sold in the offering will be purchased by
the employee stock ownership plan, and that the funds used to acquire the
ESOP shares will be borrowed from BUCS Financial Corp. For an estimate of
the impact of the loan on earnings, see "Pro Forma Data." The Bank intends
to make scheduled discretionary contributions to the employee stock
ownership plan sufficient to enable the plan to service and repay its debt
over a ten year period. The amount of shares to be acquired by the ESOP is
reflected as a reduction of stockholders' equity. See "Management -
Executive Compensation - Employee Stock Ownership Plan." If the employee
stock ownership plan is unable to purchase stock in the conversion due to
an oversubscription in the offering by Eligible Account Holders, and the
purchase price in the open market is greater than the original $10.00 price
per share, there will be a corresponding reduction in stockholders' equity.
(5) Assumes that an amount equal to 4% of the shares of stock sold in the
offering is purchased by stock programs within one year following the
conversion. The stock purchased by the stock programs is reflected as a
reduction of stockholders' equity. See footnote (2) to the table under "Pro
Forma Data." See "Risk Factors - The expenses related to our stock-based
benefit plans and other business expenses will reduce our earnings" and
"Management - Potential Stock Benefit Plans - Stock Programs."
26
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the stock cannot be determined
until the offering is completed. However, net proceeds to BUCS Financial Corp
are currently estimated to be between $3.1 million and $4.3 million (or $5.0
million if the independent valuation is increased by 15%) based on the following
assumptions:
o an amount equal to 8% of the shares issued will be loaned to the ESOP to
fund its purchase of 8% of the shares issued;
o an amount equal to 4% of the shares issued will be awarded pursuant to the
stock programs adopted no sooner than six months following the offering,
funded through open market purchases; and
o expenses of the offering are estimated to be $400,000.
We have prepared the following table, which sets forth our historical
net earnings and net worth prior to the conversion and our pro forma
consolidated net income and stockholders' equity following the conversion. In
preparing this table and in calculating pro forma data, we have made the
following assumptions:
o Pro forma earnings have been calculated assuming the stock had been sold at
the beginning of the period and the net proceeds had been invested at an
average yield of 6.13% for the six months ended June 30, 2000, which
approximates the yield on a one-year U.S. Treasury bill on June 30, 2000.
The yield on a one-year U.S. Treasury bill, rather than an arithmetic
average of the average yield on interest-earning assets and average rate
paid on deposits, has been used to estimate income on net proceeds because
it is believed that the one-year U.S. Treasury bill rate is a more accurate
estimate of the rate that would be obtained on an investment of net
proceeds from the offering.
o The pro forma after-tax yield on the net proceeds is assumed to be 3.86%
for the six months ended June 30, 2000, based on an effective tax rate of
37%.
o We did not include any withdrawals from deposit accounts to purchase shares
in the offering.
o Historical and pro forma per share amounts have been calculated by dividing
historical and pro forma amounts by the indicated number of shares of
stock, as adjusted in the pro forma net earnings per share to give effect
to the purchase of shares by the employee stock ownership plan.
o Pro forma stockholders' equity amounts have been calculated as if the stock
had been sold on June 30, 2000, and no effect has been given to the assumed
earnings effect of the transactions.
The following pro forma data relies on the assumptions we outlined
above, and this data does not represent the fair market value of the common
stock, the current value of assets or liabilities, or the amount of money that
would be distributed to stockholders if we liquidated BUCS Financial Corp. The
pro forma data does not predict how much we will earn in the future.
The following tables summarize historical data of BUCS Federal and pro
forma data of BUCS Financial Corp at or for the six months ended June 30, 2000
and at or for the year ended December 31, 1999, respectively, based on the
assumptions set forth above and in the tables and should not be used as a basis
for
27
<PAGE>
projections of market value of the stock following the conversion. No effect has
been given in the tables to the possible issuance of additional stock reserved
for future issuance pursuant to a stock option plan that may be adopted by the
Board of Directors of BUCS Financial Corp within one year following the
conversion, nor does book value give any effect to the liquidation account to be
established for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders or the bad debt reserve in liquidation. See "The
Conversion - Effects of Conversion - Liquidation Rights" and "Management -
Potential Stock Benefit Plans - Stock Option Plans."
<TABLE>
<CAPTION>
At or For the Six Months ended June 30, 2000
--------------------------------------------------------
$3,485,000 $4,100,000 $4,715,000 $5,422,250
Independent Independent Independent Independent
Valuation Valuation Valuation Valuation
-------------- -------------- -------------- -----------
348,500 410,000 471,500 542,225
Shares Shares Shares Shares
-------------- -------------- -------------- -----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds ...................................... $ 3,485 $ 4,100 $ 4,715 $ 5,422
Less expenses ....................................... (400) (400) (400) (400)
--------- --------- --------- ---------
Estimated net proceeds ........................... 3,085 3,700 4,315 5,022
Less ESOP funded by BUCS Financial Corp. ............ (279) (328) (377) (434)
Less stock programs adjustment ...................... (139) (164) (189) (217)
--------- --------- --------- ---------
Estimated investable net proceeds ................ $ 2,667 $ 3,208 $ 3,749 $ 4,371
========= ========= ========= =========
Net Income:
Historical ....................................... $ 102 $ 102 $ 102 $ 102
Pro forma income on net proceeds ................. 51 62 72 84
Pro forma ESOP adjustments(1) .................... (9) (10) (12) (14)
Pro forma stock programs adjustment(2) ........... (9) (10) (12) (14)
--------- --------- --------- ---------
Pro forma net income(1)(3)(4) .................... $ 135 $ 144 $ 150 $ 158
========= ========= ========= =========
Per share net income
Historical ....................................... $ 0.32 $ 0.27 $ 0.23 $ 0.20
Pro forma income on net proceeds ................. 0.16 0.16 0.17 0.17
Pro forma ESOP adjustments(1) .................... (0.03) (0.03) (0.03) (0.03)
Pro forma stock programs adjustment(2) ........... (0.03) (0.03) (0.03) (0.03)
--------- --------- --------- ---------
Pro forma net income per share(1)(3)(4) .......... $ 0.42 $ 0.37 $ 0.34 $ 0.31
========= ========= ========= =========
Shares used in calculation of income per share(1) ... 322,014 378,840 435,666 501,016
Stockholders' equity:
Historical ....................................... $ 5,531 $ 5,531 $ 5,531 $ 5,531
Estimated net proceeds ........................... 3,085 3,700 4,315 5,022
Less: Common Stock acquired ESOP(1) .............. (279) (328) (377) (434)
Less: Common Stock acquired by stock
programs(2) ................................ (139) (164) (189) (217)
--------- --------- --------- ---------
Pro forma stockholders' equity(1)(3)(4) .......... $ 8,198 $ 8,739 $ 9,280 $ 9,902
========= ========= ========= =========
Stockholders' equity per share:
Historical ....................................... $ 15.87 $ 13.49 $ 11.73 $ 10.20
Estimated net proceeds ........................... 8.85 9.02 9.15 9.26
Less: Common Stock acquired by the ESOP(1) ....... (0.80) (0.80) (0.80) (0.80)
Less: Common stock acquired by stock
programs(2) ................................ (0.40) (0.40) (0.40) (0.40)
--------- --------- --------- ---------
Pro forma stockholders' equity per share(4) ...... $ 23.52 $ 21.31 $ 19.68 $ 18.26
========= ========= ========= =========
Offering price as a percentage of pro forma
stockholders' equity per share .................... 42.52% 46.93% 50.81% 54.76%
========= ========= ========= =========
Offering price to pro forma
net income per share .............................. 11.90X 13.51X 14.71X 16.13X
========= ========= ========= =========
Shares used in calculation of book value per share .. 348,500 410,000 471,500 542,225
</TABLE>
(Footnotes on following page)
28
<PAGE>
<TABLE>
<CAPTION>
At or For the Year ended December 31, 1999
----------------------------------------------------
$3,485,000 $4,100,000 $4,715,000 $5,422,250
Independent Independent Independent Independent
Valuation Valuation Valuation Valuation
------------- ------------- ------------ -----------
348,500 410,000 471,500 542,225
Shares Shares Shares Shares
------------- ------------- ------------ -----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds ...................................... $ 3,485 $ 4,100 $ 4,715 $ 5,422
Less expenses ....................................... (400) (400) (400) (400)
--------- --------- --------- ---------
Estimated net proceeds ........................... 3,085 3,700 4,315 5,022
Less ESOP funded by BUCS Financial Corp. ............ (279) (328) (377) (434)
Less stock programs adjustment ...................... (139) (164) (189) (217)
--------- --------- --------- ---------
Estimated investable net proceeds ................ $ 2,667 $ 3,208 $ 3,749 $ 4,371
========= ========= ========= =========
Net Income:
Historical ....................................... $ 433 $ 433 $ 433 $ 433
Pro forma income on net proceeds ................. 103 124 145 169
Pro forma ESOP adjustments(1) .................... (18) (21) (24) (27)
Pro forma stock programs adjustment(2) ........... (18) (21) (24) (27)
--------- --------- --------- ---------
Pro forma net income(1)(3)(4) .................... $ 500 $ 515 $ 530 $ 548
========= ========= ========= =========
Per share net income
Historical ....................................... $ 1.34 $ 1.14 $ 0.99 $ 0.86
Pro forma income on net proceeds ................. 0.32 0.33 0.33 0.34
Pro forma ESOP adjustments(1) .................... (0.06) (0.06) (0.05) (0.05)
Pro forma stock programs adjustment(2) ........... (0.06) (0.06) (0.05) (0.05)
--------- --------- --------- ---------
Pro forma net income per share(1)(3)(4) .......... $ 1.54 $ 1.35 $ 1.22 $ 1.10
========= ========= ========= =========
Shares used in calculation of income per share(1) ... 323,408 380,480 437,552 503,185
Stockholders' equity:
Historical ....................................... $ 5,481 $ 5,481 $ 5,481 $ 5,481
Estimated net proceeds ........................... 3,085 3,700 4,315 5,022
Less: Common Stock acquired ESOP(1) .............. (279) (328) (377) (434)
Less: Common Stock acquired by stock
programs(2) ................................ (139) (164) (189) (217)
--------- --------- --------- ---------
Pro forma stockholders' equity(1)(3)(4) .......... $ 8,148 $ 8,689 $ 9,230 $ 9,852
========= ========= ========= =========
Stockholders' equity per share:
Historical ....................................... $ 15.73 $ 13.37 $ 11.62 $ 10.11
Estimated net proceeds ........................... 8.85 9.02 9.15 9.26
Less: Common Stock acquired by the ESOP(1) ....... (0.80) (0.80) (0.80) (0.80)
Less: Common stock acquired by stock
programs(2) ................................ (0.40) (0.40) (0.40) (0.40)
--------- --------- --------- ---------
Pro forma stockholders' equity per share(4) ...... $ 23.38 $ 21.19 $ 19.57 $ 18.17
========= ========= ========= =========
Offering price as a percentage of pro forma
stockholders' equity per share .................... 42.77% 47.19% 51.10% 55.04%
========= ========= ========= =========
Offering price to pro forma
net income per share .............................. 6.49X 7.41X 8.20X 9.09X
========= ========= ========= =========
Shares used in calculation of book value per share .. 348,500 410,000 471,500 542,225
</TABLE>
(Footnotes on following page)
29
<PAGE>
------------------
(1) Assumes that 8% of the shares of stock sold in the offering will be
purchased by the employee stock ownership plan and that the plan will
borrow funds from BUCS Financial Corp. The stock acquired by the
employee stock ownership plan is reflected as a reduction of
stockholder's equity. The Bank intends to make annual contributions to
the plan in an amount at least equal to the principal and interest
requirement of the loan. This table assumes a 10 year amortization
period. See "Management - Executive Compensation - Employee Stock
Ownership Plan." The pro forma net earnings assumes: (i) that the
Bank's contribution to the employee stock ownership plan for the
principal portion of the debt service requirement for the year ended
December 31, 1999 and for six months ended June 30, 2000 were made at
the end of the period; (ii) that 1,394, 1,640, 1,886, and 2,169 shares
at the minimum, midpoint, maximum, and 15% above the maximum of the
range, respectively, were committed to be released during the year
ended December 31, 1999 and that 2,788, 3,280, 3,772, and 4,338 shares
at the minimum, midpoint, maximum, and 15% above the maximum of the
range, respectively, were committed to be released during the six
months ended June 30, 2000, at an average fair value of $10.00 per
share and were accounted for as a charge to expense in accordance with
Statement of Position ("SOP") No. 93-6; and (iii) only the employee
stock ownership plan shares committed to be released were considered
outstanding for purposes of the net earnings per share calculations.
All employee stock ownership plan shares were considered outstanding
for purposes of the stockholders' equity per share calculations. See
also "Risk Factors - The expenses related to our stock-based benefit
plans and other business expenses will reduce our earnings" for a
discussion of possible added costs for the employee stock ownership
plan.
(2) Gives effect to the stock programs that may be adopted by the Bank
following the conversion and presented for approval at a meeting of
stockholders to be held within one year after completion of the
conversion. If the stock programs are approved by the stockholders, the
stock programs would be expected to acquire an amount of stock equal to
4% of the shares of stock sold in the offering, or 13,940, 16,400,
18,860, and 21,689 shares of stock respectively at the minimum,
midpoint, maximum and 15% above the maximum of the range through open
market purchases. Funds used by the stock programs to purchase the
shares will be contributed to the stock programs by the Bank. In
calculating the pro forma effect of the stock programs, it is assumed
that the required stockholder approval has been received, that the
shares were acquired by the stock programs at the beginning of the year
ended December 31, 1999 and the beginning of the six months ended June
30, 2000 through open market purchases, at $10.00 per share, and that
20% of the amount contributed was amortized to expense during the year
ended December 31, 1999 and during the six months ended June 30, 2000.
The issuance of authorized but unissued shares of stock to the stock
plans instead of open market purchases would dilute the voting
interests of existing shareholders by approximately 3.85% and pro forma
net income per share for the year ended December 31, 1999 would be
$1.50, $1.31, $1.18, and $1.06, at the minimum, midpoint, maximum and
15% above the maximum of the range, respectively, and pro forma
stockholders' equity per share would be $22.48, $20.38, $18.82, and
$17.47 at the minimum, midpoint, maximum and 15% above the maximum of
the range, respectively. Pro forma net income per share for the six
months ended June to, 2000 would be $.41, $.37, $.34, and $.31, at the
minimum, midpoint, maximum and 15% above the maximum of the range,
respectively, and pro forma stockholders' equity per share at June 30,
2000 would be $22.62, $20.49, $18.92, and $17.56 at the minimum,
midpoint, maximum and 15% above the maximum of the range, respectively.
There can be no assurance that stockholder approval of the stock
programs will be obtained, or the actual purchase price of the shares
will be equal to $10.00 per share. See "Management - Potential Stock
Benefit Plans - Stock Programs."
(3) The retained earnings of BUCS Financial Corp and the Bank will continue
to be substantially restricted after the conversion. See "Dividend
Policy," "The Conversion - Effects of Conversion - Liquidation Rights"
and "Regulation - Regulation of the Bank - Dividends and Other Capital
Distribution Limitations."
(4) No effect has been given to the issuance of additional shares of stock
pursuant to the stock option plans that may be adopted by the Bank
following the conversion which, in turn, would be presented for
approval at a meeting of stockholders to be held within one year after
the completion of the conversion. If the stock option plans are
presented and approved by stockholders, an amount equal to 10% of the
stock sold in the
30
<PAGE>
offering, or 34,850, 41,000, 47,150, and 54,222 shares at the minimum,
midpoint, maximum and 15% above the maximum of the range, respectively,
will be reserved for future issuance upon the exercise of options to be
granted under the stock option plans. The issuance of stock pursuant to
the exercise of options under the stock option plans will result in the
dilution of existing stockholders' interests. Assuming stockholder
approval of the stock option plans and the exercise of all options at
the end of the period at an exercise price of $10.00 per share, the pro
forma net earnings per share would be $1.40, $1.22, $1.09, and $.98,
respectively at the minimum, midpoint, maximum and 15% above the
maximum of the range for the year ended December 31, 1999; pro forma
stockholders' equity per share would be $22.16, 20.18, 18.71, and
17.43, respectively at the minimum, midpoint, maximum and 15% above the
maximum of the range at December 31, 1999. The pro forma net earnings
per share would be $.38, $.34, $.31, and $.28, respectively at the
minimum, midpoint, maximum and 15% above the maximum of the range for
the six months ended June 30, 2000; pro forma stockholders' equity per
share would be $22.29, $20.29, $18.80, and $17.51, respectively at the
minimum, midpoint, maximum and 15% above the maximum of the range at
June 30, 2000. See "Management - Potential Stock Benefit Plans - Stock
Option Plans."
31
<PAGE>
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
The following table presents the BUCS Federal's historical and pro
forma capital position relative to its capital requirements as of June 30, 2000.
Pro forma capital levels assume receipt by BUCS Federal of the net proceeds of
the offering and retention by BUCS Financial Corp of 50% of the net proceeds,
and that the ESOP purchases 8% of the stock sold in the offering, and that 4% of
the shares of stock sold in the offering is purchased by the stock programs at
the purchase price subsequent to the offering. For a discussion of the
assumptions underlying the pro forma capital calculations presented below, see
"Use of Proceeds," "Capitalization" and "Pro Forma Data." The definitions of the
terms used in the table are those provided in the capital regulations issued by
the OTS. For a discussion of the capital standards applicable to the Bank, see
"Regulation - Regulation of the Bank - Regulatory Capital Requirements."
<TABLE>
<CAPTION>
Pro Forma at June 30, 2000
------------------------------------------------------------------------------------
Actual, at $3,485,000 $4,100,000 $4,715,000 $5,422,250
June 30, 2000 Offering Offering Offering Offering(1)
-------------------- -------------------- -------------------- -------------------- --------------------
Percentage Percentage Percentage Percentage Percentage
Amount of Assets(2) Amount of Assets(2) Amount of Assets(2) Amount of Assets(2) Amount of Assets(2)
------ ------------ ------ ------------ ------ ------------ ------ ------------ ------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital(3)............$5,531 7.94% $6,656 9.41% $6,889 9.70% $7,123 10.00% $7,391 10.34%
Core Capital:
Actual or Pro Forma......$5,896 8.42% $7,021 9.87% $7,254 10.17% $7,488 10.46% $7,756 10.79%
Required................. 1,050 1.50 1,067 1.50 1,070 1.50 1,074 1.50 1,078 1.50
----- ---- ----- ---- ----- ---- ----- ---- ----- ----
Excess...................$4,846 6.92% $5,954 8.37% $6,184 8.67% $6,414 8.96% $6,678 9.29%
===== ==== ===== ==== ===== ==== ===== ==== ===== ====
Tier 1 Capital:
Actual or Pro Forma......$5,896 8.42% $7,021 9.87% $7,254 10.17% $7,488 10.46% $7,756 10.79%
Required(4).............. 2,080 4.00 2,845 4.00 2,854 4.00 2,864 4.00 2,874 4.00
----- ---- ----- ---- ----- ---- ----- ---- ----- ----
Excess...................$3,096 4.42% $4,176 5.87% $4,400 6.17% $4,624 6.46% $4,882 6.79%
===== ==== ===== ==== ===== ==== ===== ==== ===== ====
Risk-Based Capital:
Actual or Pro Forma(5)(6)$6,409 13.89% $7,534 16.14% $7,767 16.59% $8,001 17.05% $8,269 17.57%
Required................. 3,690 8.00 3,735 8.00 3,745 8.00 3,754 8.00 3,765 8.00
----- ---- ----- ---- ----- ---- ----- ---- ----- ----
Excess...................$2,719 5.89% $3,799 8.14% $4,022 8.59% $4,247 9.05% $4,504 9.57%
===== ==== ===== ==== ===== ==== ===== ==== ===== ====
</TABLE>
-----------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the offering range of up to 15% as a
result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
offerings.
(2) Core capital levels are shown as a percentage of total adjusted assets.
Tier 1 and Risk-based capital levels are shown as a percentage of
risk-weighted assets.
(3) GAAP Capital includes unrealized gain on available-for-sale securities,
net, which is not included as regulatory capital.
(4) The current OTS core capital requirement for savings associations is 3% of
total adjusted assets for thrifts that receive the highest supervisory
rating for safety and soundness and a 4% to 5% core capital ratio
requirement for all other thrifts. See "Regulation - Regulation of the
Bank-Regulatory Capital Requirements.
(5) Assumes net proceeds are invested in assets that carry a 50% risk-weighing.
(6) The difference between equity under GAAP and regulatory risk-based capital
is attributable to the addition of the general valuation allowance of
$513,000 at June 30, 2000 and the subtraction of the unrealized loss of
$365,000 on available-for- sale securities, net.
32
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
Selected Financial Highlights
(Dollars in thousands)
<TABLE>
<CAPTION>
At or for the At or for the
Six Months Ended Year Ended
June 30, At December 31,
---------------- -------------------------------
2000 1999 1998 1997
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Assets ............................ $ 69,632 $ 68,155 $ 66,196 $ 57,272
Loans receivable, net ............. 45,896 43,935 45,636 41,311
Investment securities ............. 16,349 16,043 15,169 7,428
Cash and cash equivalents ......... 4,173 4,870 3,592 3,839
Deposits .......................... 48,001 43,333 55,416 52,037
FHLB advances ..................... 15,000 18,615 5,000 --
Total equity ...................... 5,531 5,481 5,383 4,995
Summary of Operations:
Interest income ................... 2,532 4,851 4,629 4,463
Interest expense .................. 1,340 2,470 2,234 2,160
-------- ------- -------- --------
Net interest income ............... 1,192 2,381 2,395 2,303
Provision for loan losses ......... 80 220 300 700
-------- ------- -------- --------
Net interest income after provision
for loan losses ................. 1,112 2,161 2,095 1,603
Other income ...................... 473 848 523 (28)
Other expenses .................... 1,432 2,344 2,282 1,450
-------- ------- -------- --------
Income before income taxes ........ 153 665 336 125
Income taxes ...................... 51 232 -- --
-------- ------- -------- --------
Net income ........................ $ 102 $ 433 $ 336 $ 125
======== ======= ======== ========
Actual number (not in thousands):
Loans outstanding ................. 5,836 5,767 5,625 7,315
Deposit accounts .................. 25,720 24,110 23,754 22,653
Full service offices .............. 2 1 1 1
</TABLE>
33
<PAGE>
Selected Financial Ratios
<TABLE>
<CAPTION>
At or For
the Six At or For
Months Ended the Year Ended
June 30, December 31,
--------------------- -----------------------------------
2000 1999 1999 1998 1997
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets (net income
divided by average total assets)........ 0.15% 0.40% 0.63% 0.57% 0.22%
Return on average equity (net
income divided by average equity)....... 1.86% 5.00% 7.86% 6.79% 2.48%
Net interest rate spread................... 3.55% 3.44% 3.52% 3.95% 4.24%
Net interest margin on average
interest-earnings assets................. 3.69% 3.63% 3.68% 4.20% 4.36%
Average interest-earning assets to
average interest-bearing liabilities.... 103.17% 105.02% 104.03% 106.40% 103.01%
Efficiency ratio (noninterest expense
divided by the sum of net interest
income and noninterest income)......... 86.01% 67.79% 72.59% 78.20% 63.74%
Asset Quality Ratios:
Non-performing loans to
total loans, net....................... 0.07% 0.24% 0.10% 0.51% 1.38%
Non-performing assets to total assets...... 0.04% 0.14% 0.09% 0.40% 0.99%
Net charge-offs (recoveries)to average
loans outstanding........................ 0.15% 0.43% 0.57% 1.57% -0.16%
Allowance for loan losses to total loans... 1.24% 1.21% 1.26% 1.26% 2.26%
Capital Ratios:
Average equity to average assets
ratios (average equity divided by
average total assets)................... 7.97% 8.02% 8.06% 8.35% 8.99%
Equity to assets at period end............. 8.12% 7.86% 8.20% 8.13% 8.72%
</TABLE>
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Management's discussion and analysis of the Bank's financial condition
and results of operations is intended to provide assistance and understanding of
the Bank's financial condition and results of operations. The information in
this section should be read with the consolidated financial statements and the
notes to consolidated financial statements beginning at page F-2.
The Bank's results of operations are primarily dependent on its net
interest income. Net interest income is a function of the balances of loans and
investments outstanding in any one period, the yields earned on those loans and
investments and the interest paid on deposits and borrowed funds that were
outstanding in that same period. The Bank's noninterest income consists
primarily of fees and service charges. The results of operations are
significantly impacted by the amount of provisions for loan losses which, in
turn, are dependent upon, among other things, the size and makeup of the loan
portfolio, loan quality and loan trends. The noninterest expenses consist
primarily of employee compensation and benefits, occupancy and equipment
expenses, data processing costs, marketing costs, professional fees and federal
deposit insurance premiums. The Bank's results of operations are affected by
general economic and competitive conditions, including changes in prevailing
interest rates and the policies of regulatory agencies.
Forward - Looking Statements
This document contains statements that project the future operations of
BUCS Financial Corp which involve risks and uncertainties. BUCS Financial Corp's
actual results may differ significantly from the results discussed in these
forward-looking statements. Factors that might cause a difference in results
include, but are not limited to, those discussed in "Risk Factors" beginning on
page ___ of this document.
Statements concerning future performance, developments, or events,
concerning expectations for growth and market forecasts, and any other guidance
on future periods, constitute forward-looking statements which are subject to a
number of risks and uncertainties, including interest rate fluctuations and
government and regulatory actions which might cause actual results to differ
materially from stated expectations or estimates.
Business Strategy
The Bank's business strategy has been to operate as a well-capitalized
independent community savings institution dedicated to providing quality service
at competitive prices. Generally, the Bank has sought to implement this strategy
by maintaining a substantial part of its assets in consumer loans, including
home equity, auto, credit card, and personal loans, loans secured by one- to
four- family residential real estate located in the Bank's market area,
mortgage-backed securities, and U.S. government agency obligations.
Management believes that the Bank benefits from its ability to quickly
and effectively provide personal service tailored to customer needs and
inquiries, in comparison to many of its local competitors. In December 1999, the
Bank enhanced its capabilities as a full service community bank with the opening
35
<PAGE>
of its first full service branch in Columbia, Maryland. The facility was a
branch of another bank and has been completely renovated. The facility offers
the benefits of walk-in and drive-up ATMs, multiple drive- through service
lanes, and evening and weekend hours.
To the extent that new deposits have exceeded loan originations, the
Bank has invested these deposits primarily in mortgage-backed securities,
particularly adjustable rate mortgage-backed securities.
While management intends to maintain its community orientation by
continuing to emphasize traditional deposit and loan products, primarily
single-family residential mortgages, the additional capital provided by the
offering will allow the Bank to take the following steps to achieve greater
growth and profitability. Specifically, the Bank intends to:
o invest in appropriate technology that will enhance the Bank's existing
telephone, PC and internet banking services and enable the Bank to serve
its customers more effectively;
o seek originations of commercial real estate and business loans, while
continuing to expand its consumer lending and residential mortgage lending;
and
o expand the Bank's branch network and community presence.
Analysis of Net Interest Income
The Bank's earnings have historically depended primarily upon the
Bank's net interest income, which is the difference between interest income
earned on its loans and investments ("interest-earning assets") and interest
paid on its deposits and any borrowed funds ("interest-bearing liabilities").
Net interest income is affected by (a) the difference between rates of interest
earned on the Bank's interest- earning assets and rates paid on its
interest-bearing liabilities ("interest rate spread") and (b) the relative
amounts of its interest-earnings assets and interest-bearing liabilities.
36
<PAGE>
Average Balance Sheet. The following tables set forth certain information
relating to the Bank at and for the periods indicated. The average yields and
costs are derived by dividing income or expense by the average balance of assets
or liabilities, respectively, for the periods presented. Similar information is
provided as of June 30, 2000. Average balances are derived from month-end
balances. Management does not believe that the use of month-end balances instead
of daily average balances has caused any material differences in the information
presented.
<TABLE>
<CAPTION>
Six Months Ended June 30,
At June 30, ------------------------------------------------------------------
2000 2000 1999
--------------------- -------------------------------- ---------------------------------
Average Average Average Average Average
Balance Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
-------- ----------- ---------- ---------- ---------- ----------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable........................... $45,896 8.55% $44,387 $1,880 8.47% $42,567 $1,767 8.30%
Investment securities(1)................... 19,663 6.57% 20,286 652 6.43% 23,334 633 5.43%
------- ------- ------ ------- ------
Total interest-earning assets........... 65,559 7.95% 64,673 2,532 7.83% 65,901 2,400 7.28%
------ ------
Non-interest-earning assets................. 4,073 4,263 2,988
------- ------- -------
Total assets.............................. $69,632 $68,936 $68,889
======= ======= =======
Interest-bearing liabilities:
Savings accounts........................... $21,399 3.10% $21,010 325 3.09% $21,595 332 3.07%
Money market accounts...................... 8,217 5.70% 7,750 208 5.37% 18,440 393 4.26%
Certificates of deposit.................... 11,939 5.97% 11,758 340 5.78% 12,060 353 5.85%
Checking accounts.......................... 6,446 0.00% 6,190 0 -- 5,653 0 --
------- ------- ------ ------- ------
Total Deposits........................... 48,001 3.84% 46,708 873 3.74% 57,748 1,078 3.73%
Borrowed Funds............................. 15,000 6.70% 15,978 467 5.85% 5,000 127 5.08%
------- ------- ------- ------
Total interest-bearing liabilities....... 63,001 4.52% 62,686 1,340 4.28% 62,748 1,205 3.84%
------ ------
Non-interest-bearing liabilities............ 1,100 755 616
------- ------- -------
Total liabilities.......................... 64,101 63,305 63,355
Retained earnings........................... 5,531 5,495 5,525
------- ------- -------
Total liabilities and retained earnings.... $69,632 $68,936 $68,889
======= ======= =======
Net interest income......................... $1,192 $1,195
====== ======
Interest rate spread(2)..................... 3.43% 3.55% 3.44%
==== ==== ====
Net yield on interest-earning assets(3)..... 3.69% 3.63%
==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities.... 104.27% 103.17% 105.02%
====== ====== =======
</TABLE>
--------------------------------
(1) Includes government securities, mortgage-backed securities, overnight
deposits and FHLB stock.
(2) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
37
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1999 1998
------------------------------- ------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
-------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable.......................... $42,985 $3,621 8.42% $42,822 $3,853 9.00%
Investment securities(1).................. 21,741 1,230 5.66% 14,171 776 5.48%
------- ------ ------- ------
Total interest-earning assets.......... 64,726 4,851 7.49% 56,993 4,629 8.12%
------ ------
Non-interest-earning assets................ 3,669 2,309
------- -------
Total assets............................. $68,395 $59,302
======= =======
Interest-bearing liabilities:
Savings accounts.......................... $21,299 664 3.12% $19,819 688 3.47%
Money market accounts..................... 12,867 538 4.18% 17,371 853 4.91%
Certificates of deposit................... 11,915 691 5.80% 11,287 688 6.10%
Checking accounts......................... 5,506 0 -- 4,968 0 --
------- ------ ------- ------
Total Deposits........................... 51,587 1,893 3.67% 53,445 2,229 4.17%
Borrowed Funds............................ 10,631 577 5.43% 120 6 5.00%
------- ------ ------- ------
Total interest-bearing liabilities....... 62,218 2,470 3.97% 53,565 2,235 4.17%
------ ------
Non-interest-bearing liabilities........... 665 788
------- -------
Total liabilities......................... 62,883 54,353
-------
Retained Earnings.......................... 5,512 4,949
------- -------
Total liabilities and retained earnings... $68,395 $59,302
======= =======
Net interest income........................ $2,381 $2,394
====== ======
Interest rate spread(2).................... 3.52% 3.95%
====== ======
Net yield on interest-earning assets(3).... 3.68% 4.20%
====== ======
Ratio of average interest-earning assets
to average interest-bearing liabilities... 104.03% 106.40%
====== ======
</TABLE>
--------------------------------
(1) Includes government securities, mortgage-backed securities, overnight
deposits and FHLB stock.
(2) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
38
<PAGE>
Rate/Volume Analysis. The relationship between the volume and rates of
the Bank's interest-bearing assets and interest-bearing liabilities influence
the Bank's net interest income. The following table reflects the sensitivity of
the Bank's interest income and interest expense to changes in volume and in
prevailing interest rates during the periods indicated. Each category reflects
the: (1) changes in volume (changes in volume multiplied by old rate); (2)
changes in rate (changes in rate multiplied by old volume); (3) changes in
rate/volume (change in rate multiplied by the change in volume); and (4) net
change. The net change attributable to the combined impact of volume and rate
has been allocated proportionally to the absolute dollar amounts of change in
each.
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
-------------------------------- -----------------------------------
2000 vs. 1999 1999 vs. 1998
-------------------------------- ----------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
-------------------------------- ----------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
------ ---- ------ ---- ------ ----- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable ................... $ 151 $ 72 $(110) $ 113 $ 15 $(248) $ 1 $(232)
Investment securities and other .... (166) 233 (48) 19 415 26 13 454
----- ----- ----- ----- ----- ----- ----- -----
Total interest-earning assets ..... $ (15) $ 305 $(158) $ 132 $ 430 $(222) $ 14 $ 222
===== ===== ===== ===== ===== ===== ===== =====
Interest expense:
Savings accounts .................... (18) 4 7 (7) 51 (69) (6) (24)
Money market accounts ............... (455) 205 65 (185) (221) (127) 33 (315)
Certificates of deposit ............. (18) (8) 13 (13) 38 (34) (1) 3
Checking accounts ................... 0 0 0 0 0 0 0 0
Borrowed Funds ...................... 558 39 (257) 340 526 1 44 571
----- ----- ----- ----- ----- ----- ----- -----
Total interest-bearing liabilities $ 67 $ 240 $(172) $ 135 $ 394 $(229) $ 70 $ 235
===== ===== ===== ===== ===== ===== ===== =====
Change in net interest income ....... $ (82) $ 65 $ 14 $ (3) $ 36 $ 7 $ (56) $ (13)
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
39
<PAGE>
Management of Interest Rate Risk and Market Risk
Qualitative Analysis. Because the majority of the Bank's assets and
liabilities are sensitive to changes in interest rates, the Bank's most
significant form of market risk is interest rate risk, or changes in interest
rates. The Bank may be vulnerable to an increase or decrease in interest rates
to the extent that interest-bearing liabilities mature or reprice more rapidly
or more slowly than interest-earning assets.
The Board of Directors has established an asset liability management
committee which consists of the Bank's president and chief executive officer,
its senior officers, including two vice presidents, and a member of the Board of
Directors, who also holds the office of treasurer. The committee meets at least
quarterly to review loan and deposit pricing and production volumes, interest
rate risk analysis, liquidity and borrowing needs, and a variety of other asset
and liability management topics.
To reduce the effect of interest rate changes on net interest income
the Bank has adopted various strategies to enable it to improve matching of
interest-earning asset maturities to interest-bearing liability maturities. The
principal elements of these strategies include seeking to:
o originate loans with adjustable rate features or fixed rate loans with
short maturities;
o lengthen the maturities of its liabilities when it would be cost effective
through the pricing and promotion of certificates of deposit and
utilization of FHLB advances;
o attract low cost checking and transaction accounts which tend to be less
interest rate sensitive when interest rates rise;
o when market conditions permit, to originate and hold in its portfolio
adjustable rate loans which have quarterly or annual interest rate
adjustments; and
o maintain an investment portfolio that provides a stable cash flow, thereby
providing investable funds in varying interest rate cycles.
The Bank has also made a significant effort to maintain its level of
lower cost deposits as a method of enhancing profitability. At June 30, 2000,
the Bank had approximately 58% of its deposits in relatively low cost savings
and non-interest checking accounts. These deposits have traditionally remained
relatively stable and are expected to be only moderately affected in a period of
rising interest rates. This stability has enabled the Bank to offset the impact
of rising rates in other deposit accounts.
Quantitative Analysis. Exposure to interest rate risk is actively
monitored by management. The Bank's objective is to maintain a consistent level
of profitability within acceptable risk tolerances across a broad range of
potential interest rate environments. The Bank uses the OTS Net Portfolio Value
("NPV") Model to monitor its exposure to interest rate risk, which calculates
changes in net portfolio value. Reports generated from assumptions provided and
modified by management are reviewed by the Asset/Liability Management Committee
and reported to the Board of Directors quarterly. The Interest Rate Sensitivity
of Net Portfolio Value Report shows the degree to which balance sheet line items
and net portfolio value are potentially affected by a 100 to 400 basis point
(1/100th of a percentage point) upward and downward parallel shift (shock) in
the Treasury yield curve.
The following table presents the Bank's NPV as of June 30, 2000. The
NPV was calculated by the OTS, based on information provided by the Bank.
40
<PAGE>
NPV as % of
Net Portfolio Value ("NPV") Present Value of Assets
--------------------------- ---------------------------
Change Basis Point
in Rates $ Amount $ Change % Change NPV Ratio Change
-------- -------- -------- -------- --------- ------
(Dollars in thousands)
+400 bp -- 0 0% 0.00% 0bp
+300 bp 7,131 -387 -5% 10.17% -36bp
+200 bp 7,270 -249 -3% 10.30% -24bp
+100 bp 7,415 -103 -1% 10.44% -10bp
0 bp 7,519 10.54%
-100 bp 7,484 - 34 0% 10.46% - 7bp
-200 bp 7,273 -245 -3% 10.18% -36bp
-300 bp 7,580 62 +1% 10.54% + 1bp
-400 bp -- 0 0% 0.00% 0bp
Future interest rates or their effects on NPV or net interest income
are not predictable. Nevertheless, the Bank's management does not expect the
present interest rate environment to have a material adverse effect on the
Bank's NPV or net interest income in the near future. The Bank believes that its
interest rate risk exposure is significantly less than the industry average due
to the high percentage of short-term and adjustable-rate assets in its loan and
investment portfolios. Computations of prospective effects of hypothetical
interest rate changes are based on numerous assumptions, including relative
levels of market interest rates, prepayments, and deposit run-offs, and should
not be relied upon as indicative of actual results. Certain shortcomings are
inherent in this type of computation. Although certain assets and liabilities
may have similar maturity or periods of repricing, they may react at different
times and in different degrees to changes in the market interest rates. The
interest rate on certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates, while rates on other types of
assets and liabilities may lag behind changes in market interest rates. Certain
assets such as adjustable rate mortgages, generally have features which restrict
changes in interest rates on a short-term basis and over the life of the asset.
In the event of a change in interest rates, prepayments and early withdrawal
levels could deviate significantly from those assumed in making calculations set
forth above. Additionally, an increased credit risk may result as the ability of
many borrowers to service their debt may decrease in the event of an interest
rate increase.
Comparison of Financial Condition at June 30, 2000 and December 31, 1999
Assets. Total assets increased $1.4 million, or 2.0%, to $69.7 million
at June 30, 2000 from $68.3 million at December 31, 1999. The increase in total
assets resulted primarily from: a $325,000 increase in investment securities and
a $2.0 million increase in net loans outstanding, partially offset by a
reduction of $697,000 in cash and cash equivalents.
Liabilities. Total liabilities increased $1.4 million, or 2.2%, to
$64.1 million at June 30, 2000 from $62.7 million at December 31, 1999. The
increase in total liabilities resulted primarily from a $4.7 million increase in
deposits, partially offset by a decrease in FHLB advances of $3.6 million. The
increase in deposits is primarily attributable to the opening of the Columbia
branch office in December 1999.
Equity. Total equity increased $50,000 from $5,481,000 at December 31,
1999 to $5,531,000 at June 30, 2000. The increase in the Bank's equity reflects
the $102,000 in net income for the six months ended June 30, 2000 offset
somewhat by an increase of $52,000 in unrealized losses on investments available
for sale, net of tax.
41
<PAGE>
Comparison of Financial Condition at December 31, 1999 and 1998
Assets. Total assets increased $2.0 million or 3.2%, to $68.2 million
at December 31, 1999 from $66.2 million at December 31, 1998. The increase in
total assets resulted primarily from: a $900,000 increase in investment
securities, a $1.3 million increase in cash and cash equivalents, partially
offset by a reduction of $1.7 million in net loans outstanding.
Liabilities. Total liabilities increased $1.9 million, or 3.1%, to
$62.7 million at December 31, 1999 from $60.8 million at December 31, 1998. The
increase in total liabilities resulted primarily from a $13.6 million increase
in FHLB advances, partially offset by a decrease in deposits of $12.1 million,
primarily money market deposits. This substantial change in deposits and
borrowings was the result of the Bank's action to eliminate a money market
account that had been established at the Bank by the administrator of the
CareFirst BlueCross BlueShield internal 401(k) Plan. The Bank chose to eliminate
this account and seek a less volatile source of funding.
Equity. The $98,000 increase in the Bank's equity reflects the $433,000
in net income for the year ended December 31, 1999. Net income for the year was
offset significantly by an increase of $335,000 in unrealized losses on
investments available for sale, net of tax.
Liquidity and Capital Resources
The liquidity of a savings institution reflects its ability to provide
funds to meet loan requests, to accommodate possible outflows in deposits, and
to take advantage of interest rate market opportunities. Funding of loan
requests, providing for liability outflows, and management of interest rate
fluctuations require continuous analysis in order to match the maturities of
specific categories of short-term loans and investments with specific types of
deposits and borrowings. Savings institution liquidity is normally considered in
terms of the nature and mix of the savings institution's sources and uses of
funds.
Asset liquidity is provided through loan repayments and the management
of maturity distributions for loans and securities. An important aspect of
liquidity lies in maintaining sufficient levels of loans and mortgage-backed
securities that generate monthly cash flows.
Significant cash flows were as follows for the six months ended June
30, 2000:
42
<PAGE>
(In thousands)
---------------
Cash provided by operations.................................... $ 710
Loan principal repayments and sales and redemptions of
investment securities...................................... 10,462
Purchases of investment securities............................. (1,698)
Loan disbursements............................................. (11,163)
Net decrease in FHLB advances and other borrowings............. (3,615)
Net increase in deposits....................................... 4,668
Other - net.................................................... (60)
-------
Net (decrease) in cash and cash equivalents $ (696)
========
The Bank is subject to federal regulations that impose minimum capital
requirements. For a discussion on these capital levels, see "Historical and Pro
Forma Capital Compliance" and "Regulation - Regulation of the Bank - Regulatory
Capital Requirements."
Management is not aware of any known trends, events or uncertainties
that will have or are reasonably likely to have a material effect on the Bank's
liquidity, capital or operations nor is management aware of any current
recommendation by regulatory authorities, which if implemented, would have a
material effect on liquidity, capital or operations.
Comparison of Operating Results for the Six Months Ended June 30, 2000 and 1999
Net Income. Net income for the six months ended June 30, 2000 decreased
$174,000 from $276,000 for the six months ended June 30, 1999 to $102,000 for
the same period in 2000. This decrease was primarily the result of a one-time
gain from the sale of the Bank's Visa portfolio in 1999 and an increase in
expenses from the opening of the new Columbia branch office.
Net Interest Income. Net interest income decreased slightly by $3,000
for the six months ended June 30, 2000 compared to the same period in 1999.
Interest Income. Total interest income increased $132,000, or 5.5%, for
the six months ended June 30, 2000 compared to the same period in 1999, as a
result of a 55 basis point increase in the average interest rate earned,
partially offset by a decrease of $1.2 million in the average balance of
interest-earning assets.
Interest income on loans increased by $113,000 for the six months ended
June 30, 2000 compared to the same period in 1999 due primarily to a $1.8
million increase in the average balance of loans and an increase in the average
yield on loans of 17 basis points. Interest income on investment securities
increased by $19,000 primarily due to a 100 basis point increase in the average
yield on investment securities, offset by a $3.0 million decrease in the average
balance of investment securities.
Interest Expense. Total interest expense increased by $135,000 for the
six months ended June 30, 2000, as a result of a 44 basis point increase in the
average cost of interest-bearing liabilities, partially
43
<PAGE>
offset by a decrease of $62,000 in the average balance of interest-bearing
liabilities. The increase in rates paid on interest-bearing liabilities reflects
market rates.
Provision for Loan Losses. The Bank maintains an allowance for loan
losses through a provision for loan losses based on management's periodic
evaluation of the general level of loan delinquency, the level of risk by type
of loan, and general economic conditions. The provision reflects an amount that,
in management's opinion, is adequate to absorb losses in the current portfolio.
The provision for loan losses was $80,000 for the six months ended June 30, 2000
compared to $120,000 for the same period in 1999. The decrease in the provision
for loan losses relates primarily to management's assessment of the mix of its
loan portfolio, historical performance and an improvement in the quality of the
loan portfolio. The Bank had net charge-offs of $65,000 for the six months ended
June 30, 2000 compared to net charge-offs of $185,000 for the same period in
1999. See "Business of the BUCS Federal - Non-Performing Loans and Problem
Assets." The Bank monitors its loan portfolio on a continuing basis and intends
to continue to provide for loan losses based on its ongoing review of the loan
portfolio and general market conditions.
Other Income. Other income, primarily fees and service charges
increased $13,000 from $460,000 for the six months ended June 30, 1999 to
$473,000 for the same period in 2000. Other income increased for the six months
ended June 30, 2000 even though the same period in 1999 included a one-time gain
of approximately $160,000 from the sale of the Bank's Visa loan portfolio. The
increase reflects the Bank's emphasis on charging appropriate fees for its
services, such as ATM fees, insufficient funds fees, and interchange income
generated by customers' use of check cards. The Bank continues to review its
products with a goal to increase sources of non-interest income, including fees
and service charges.
Other Expense. Other expense increased by $310,000 to $1.4 million for
the six months ended June 30, 2000 from $1.1 million for the same period in 1999
primarily due to an increase in compensation and employee benefits, and expenses
associated with the Bank's new Columbia branch office, which opened in December
1999.
The Board of Directors and management analyzed the potential effect of
each of these expenditures prior to approval and believe that these expenditures
will have an overall positive effect on BUCS Financial Corp's franchise and
shareholder value, but also realize that the expenditures will depress
profitability ratios in the short term. The Board of Directors and management
also expect that both interest income and fee income will increase as a result
of the new branch office and new employees. However, it is not possible to
precisely estimate revenue increases, if any, at this time.
BUCS Financial Corp expects increased expenses in the future as a
result of the establishment of the employee stock ownership plan, potential
stock benefit plans, and the adoption of the directors and executive retirement
plans, as well as increased costs associated with being a public company such as
periodic reporting, annual meeting materials, transfer agent, and professional
fees.
Provision for Income Taxes. Provision for income taxes decreased by
$87,000 for the six months ended June 30, 2000 as compared to the same period in
1999. The decrease reflects lower net income for the period.
44
<PAGE>
Comparison of Operating Results for the Years Ended December 31, 1999 and 1998
Net Income. Net income increased $97,000 from $336,000 for the year
ended December 31, 1998 to $433,000 for 1999.
Net Interest Income. Net interest income decreased slightly from
$2,395,000 for the year ended December 31, 1998 compared to $2,381,000 for 1999.
Interest Income. Total interest income increased $222,000 or 4.8%, for
the year ended December 31, 1999 compared to 1998, as a result of a $7.7 million
increase in the average balance of interest-earning assets, partially offset by
a 63 basis point decrease in the average interest rate earned.
Interest income on loans decreased by $233,000 for the year ended
December 31, 1999 compared to 1998 due primarily to a decrease in the average
yield on loans of 58 basis points. Interest income on investment securities
increased by $454,000 due to an 18 basis point increase in the average yield on
investment securities and a $7.6 million increase in the average balance of
investment securities.
Interest Expense. Total interest expense increased by $235,000 for the
year ended December 31, 1999, as a result of an increase of $8.7 million in the
average balance of interest-bearing liabilities, offset by a 20 basis point
decrease in the average cost of interest-bearing liabilities. The increase in
the average amount of interest-bearing liabilities reflects a $10.5 million
increase in the average balance of borrowed funds, partially offset by a $1.9
million decrease in the average balance of deposits.
Provision for Loan Losses. The Bank maintains an allowance for loan
losses through a provision for loan losses based on management's periodic
evaluation of the general level of loan delinquency, the level of risk by type
of loan, and general economic conditions. The provision reflects an amount that,
in management's opinion, is adequate to absorb losses in the current portfolio.
The provision for loan losses was $220,000 for the year ended December 31, 1999
compared to $300,000 for 1998. The decrease in the provision for loan losses
reflects management's assessment of the mix of the loan portfolio, historical
performance and an improvement in the quality of the loan portfolio.
The Bank had net charge-offs of $244,000 for the year ended December
31, 1999 compared to net charge-offs of $673,000 for 1998. See "Business of the
BUCS Federal - Non-Performing Loans and Problem Assets." The Bank monitors its
loan portfolio on a continuing basis and intends to continue to provide for loan
losses based on its ongoing review of the loan portfolio and general market
conditions.
Other Income. Other income, primarily loan fees and service charges
increased $325,000 from $523,000 for the year ended December 31, 1998 to
$848,000 for 1999. Other income for 1999 included a one-time gain of
approximately $160,000 from the sale of the Bank's Visa loan portfolio. The
increase also reflects the Bank's emphasis on charging appropriate fees for its
services, such as ATM fees, insufficient funds fees, and interchange income
generated by check cards. During August and September 1999, the Bank issued
check cards to all of its checking account customers. The Bank continues to
review its products with a goal to increase sources of non-interest income,
including fees and service charges.
Other Expense. Other expense increased to $2,344,000 for the year ended
December 31, 1999 from $2,282,000 for 1998 due in part to an increase in
compensation and employee benefits, and expenses associated with the opening of
Bank's new Columbia branch office, which opened in December 1999. BUCS Financial
Corp expects increased expenses in the future as a result of the establishment
of potential stock benefit plans, public company expenses, and expenses
associated with the new Columbia branch
45
<PAGE>
office which opened in December 1999. See "Comparison of Operating Results for
the Six Months Ended June 30, 2000 and 1999."
Provision for Income Taxes. Provision for income taxes increased by
$232,000 for the year ended December 31, 1999 as compared to $0 for 1998. The
increase reflects higher net income for 1999 and the Bank's tax exempt status as
a credit union through February 1998.
Impact of Inflation and Changing Prices
The consolidated financial statements and accompanying notes presented
elsewhere in this Prospectus have been prepared in accordance with GAAP which
generally requires the measurement of financial position and operating results
in terms of historical dollars without considering the change in the relative
purchasing power of money over time and due to inflation. The impact of
inflation is reflected in the increased cost of the Bank's operations. As a
result, interest rates have a greater impact on the Bank's performance than do
the effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or, to the same extent, as prices of goods and
services.
BUSINESS OF BUCS FINANCIAL CORP
Upon consummation of the conversion we will own all of the stock of the
Bank. We have not engaged in any significant business to date. Prior to the
Conversion, we will not transact any material business. We will invest our
initial capitalization as discussed in the "Use of Proceeds" section. In the
future, we may pursue other business activities, including mergers and
acquisitions, investment alternatives and diversification of operations. There
are, however, no current plans for these activities. Initially, we will not
maintain offices separate from those of the Bank or employ any persons other
than the Bank's officers. Officers of BUCS Financial Corp will not be separately
compensated for their service.
BUSINESS OF BUCS FEDERAL
General
BUCS Federal was originally founded in 1970 as "Maryland Blue Cross and
Blue Shield Employees Federal Credit Union." In the early 1980s, it changed its
name to BUCS Federal Credit Union. As a credit union, it initially served the
employees of CareFirst BlueCross BlueShield and its subsidiaries. Over time,
membership grew to include other employee groups. However, as a credit union, it
was legally restricted to serving only customers who shared a "common bond" such
as a common employer. On March 1, 1998, the Bank converted its charter and
became BUCS Federal, a federally chartered mutual savings institution,
permitting it to serve the general public.
The Bank is a community-oriented savings organization, providing
traditional retail banking services, one- to four-family residential mortgage
loans, and consumer loan products, including home equity, auto, and personal
loans. Originally, the Bank operated as a typical credit union, with an emphasis
on consumer lending. Since 1986, however, the Bank has also originated a
substantial amount of one- to four-family residential mortgage loans. The Bank
began in June 2000 to seek to originate small business loans to complement the
array of commercial checking and deposit services offered by the Bank. The Bank
may in the future seek certification to make Small Business Administration
guaranteed loans.
At June 30, 2000, the Bank had total assets, deposits, and equity of
$69.6 million, $48.0 million, and $5.5 million, respectively. The Bank attracts
deposits from the general public and uses these deposits
46
<PAGE>
primarily to originate loans and to purchase investment, mortgage-backed and
other securities. The principal sources of funds for the Bank's lending and
investing activities are deposits, FHLB advances, the repayment and maturity of
loans and sale, maturity, and call of securities. The principal source of income
is interest on loans and investment and mortgage-backed securities. The
principal expense is interest paid on deposits and FHLB advances.
Market Area and Competition
The Bank operates from its main office in Owings Mills, Maryland and a
full-service branch office in Columbia, Maryland. Drive-up facilities are
available at the Columbia branch office. The Bank also maintains five remote ATM
locations, four of which offer 24-hour access. The Bank's primary market area is
Baltimore and Howard Counties, Maryland. There are approximately _________
residents and _________ households within the Bank's primary market area. The
Bank's market area can be characterized as a market with moderate incomes and
increasing wealth, representing an attractive market that can be served by a
community financial institution such as the Bank. As of ___________, 2000, there
were approximately _______ businesses located within the Bank's primary market
area, consisting small service and retail businesses with ___ or fewer
employees.
The Bank faces strong competition in its attraction of deposits, which
are its primary source of funds for lending, and in the origination of consumer,
real estate, and commercial loans. The Bank's competition for deposits and loans
historically has come from local and regional commercial banks, thrift
institutions, and credit unions located in the Bank's primary market area. The
Bank also competes with mortgage banking companies for real estate loans, and
commercial banks and savings institutions for consumer loans; and faces
competition for investor funds from mutual fund accounts, short-term money funds
and corporate and government securities.
The Bank competes for loans by charging competitive interest rates and
loan fees, and emphasizing outstanding service for its customers. Lending
products include consumer and mortgage loans. The Bank offers consumer banking
services such as checking and savings accounts, a check card program, club
accounts, money market accounts, retirement accounts, and certificates of
deposit, including a new variable maturity instrument that gives the account
holder the flexibility to choose any term within a range of options. The
emphasis on outstanding services differentiates the Bank in its competition for
deposits. The Bank offers market rates on deposits.
Commercial products include checking, money market and savings
accounts. The Bank offers PC banking through the CU@HOME and BUCSlink programs,
as well as a bill payment service. The Bank's online banking service, BUCSlink,
has been in operation for over a year and registers more than 10,000 hits and
100,000 pages viewed each month.
47
<PAGE>
Lending Activities
General. The Bank has historically emphasized the origination of
consumer loans, including home equity and auto loans and lines of credit, and
one- to four-family residential real estate loans. The Bank's lending activity,
however, currently emphasizes consumer loan products. The Bank also intends to
begin to market small commercial business loans, and the Bank may seek to become
a provider of Small Business Administration loans.
Loan Portfolio Composition. The following table analyzes the
composition of the Bank's loan portfolio by loan category at the dates
indicated.
<TABLE>
<CAPTION>
At June 30, At December 31,
------------------------ -------------------------------------------------------
2000 1999 1998
------------------------ --------------------------- -------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Type of Loans:
-------------
Mortgage loans:
Residential:
Permanent...................... $13,180 28.36% $13,109 29.46% $13,845 29.95%
Land............................. 7 0.02 12 0.03 33 0.07
Consumer Loans:
Home equity loans.............. 15,625 33.62 14,573 32.75 14,227 30.78
Auto loans..................... 16,266 35.00 15,339 34.47 13,624 29.48
Other.......................... 1,393 3.00 1,462 3.29 4,491 9.72
------- ------ ------- ------ ------- ------
Total loans...................... 46,471 100.00% 44,495 100.00% 46,220 100.00%
====== ====== ======
Less:
Allowance for loan losses...... (575) (560) (584)
------- ------- -------
Total loans, net................. $45,896 $43,935 $45,636
====== ====== ======
</TABLE>
Loan Maturity Schedule. The following table sets forth the maturity or
repricing of Bank's loan portfolio at June 30, 2000. Demand loans, loans having
no stated maturity and overdrafts are shown as due in one year or less.
<TABLE>
<CAPTION>
Home Auto and
Equity Other
Residential Land Loans Consumer Total
----------- --------- -------- -------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Amounts Due:
Within 1 Year................... $ 5,323 $ 7 $ 8,145 $ 821 $14,296
------- --------- ------- ------- -------
After 1 year:
1 to 3 years.................. 0 0 17 5,931 5,948
3 to 5 years.................. 0 0 902 12,912 13,814
5 to 10 years................. 144 0 1,667 1,511 3,322
10 to 15 years................ 2,748 0 1,226 38 4,012
Over 15 years................. 4,965 0 0 114 5,079
------- --------- ------- ------- -------
Total due after one year........ 7,857 0 3,812 20,506 32,175
------- --------- ------- ------- -------
Total amount due................ $13,180 $ 7 $11,957 $21,327 $46,471
======= ========= ======= ======= =======
</TABLE>
48
<PAGE>
The following table sets forth the dollar amount of all loans at June
30, 2000 due after June 30, 2001, which have pre-determined interest rates and
which have floating or adjustable interest rates.
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In thousands)
Residential................ $ 7,857 $ 5,195 $13,052
Land....................... - - -
Home equity loans.......... 3,813 8,139 11,952
Auto and other consumer.... 16,943 3,563 20,506
------- ------- -------
Total.................... $28,613 $16,897 $45,510
======= ======= =======
Consumer Loans. As of June 30, 2000, consumer loans amounted to $33.3
million or 71.6% of the Bank's total loan portfolio and consisted primarily of
home equity loans and auto loans. To a lesser extent, the Bank originates
personal loans (secured and unsecured), savings secured loans (share loans), and
personal lines of credit. Consumer loans are originated in the Bank's market
area and generally have maturities of up to 5 years for consumer loans and 15
years for home equity loans. For share loans, the Bank will generally lend up to
100% of the account balance.
Consumer loans generally have shorter terms and higher interest rates
than residential loans. The consumer loan market can be helpful in improving the
spread between average loan yield and costs of funds and at the same time
improve the matching of the rate sensitive assets and liabilities.
Consumer loans entail greater risks than one- to four-family
residential mortgage loans, particularly consumer loans secured by rapidly
depreciable assets such as automobiles or loans that are unsecured. In these
cases, any repossessed collateral for a defaulted loan may not provide an
adequate source of repayment of the outstanding loan balance, since there is a
greater likelihood of damage, loss or depreciation of the underlying collateral.
Further, consumer loan collections are dependent on the borrower's continuing
financial stability and are more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy. Even for consumer loans secured by real
estate the risk to the Bank is greater than that inherent in the single family
loan portfolio in that the security for consumer loans is generally not the
first lien on the property and ultimate collection of amounts due may be
dependent on whether any value remains after collection by a holder with a
higher priority than the Bank. Finally, the application of various federal laws,
including federal and state bankruptcy and insolvency laws, may limit the amount
which can be recovered on consumer loans in the event of a default.
The underwriting standards employed by the Bank for consumer loans
include a determination of the applicant's credit history and an assessment of
the applicant's ability to meet existing obligations and payments on the
proposed loan. The stability of the applicant's monthly income may be determined
by verification of gross monthly income from primary employment, and
additionally from any verifiable secondary income. Creditworthiness of the
applicant is of primary consideration; however, the underwriting process also
includes a comparison of the value of the collateral in relation to the proposed
loan amount. Applications are taken by member service representatives via
telephone, facsimile, e-mail, and through the Bank's website. The
representatives are authorized to approve consumer loan applications within
individual levels of authority and a recommendation to a manager is made for
loans over the authorized discretion of the representative. Every effort is made
to complete the consumer loan application process within one hour of receipt.
Home equity loans and lines of credit are processed by the Bank's mortgage loan
specialist in the same manner as other consumer loans. Outside professionals are
employed
49
<PAGE>
to conduct appraisals for loans over $25,000 and a tax assessment or realtors'
market analysis is utilized for loans under that amount.
Residential Lending. The Bank's primary residential lending activity
consists of the origination of one- to four-family mortgage loans secured by
property located in the Bank's market area. The Bank generally originates
single-family residential mortgage loans in amounts up to 80% of the lesser of
the appraised value or selling price of the mortgaged property without requiring
private mortgage insurance. The Bank will originate a mortgage loan in an amount
up to 95% of the lesser of the appraised value or selling price of a mortgaged
property, however, private mortgage insurance for the borrower is required on
the amount financed in excess of 80%.
The Bank originates both fixed rate and adjustable rate mortgage loans.
The fixed rate mortgage loans have terms of 15 to 30 years. Adjustable rate
mortgage loans are tied to the 1-year U.S. Treasury Security Index or the 3-year
Treasury Security Index.
The Bank generally makes its fixed rate mortgage loans to meet the
secondary mortgage market standards of the Federal Home Loan Mortgage
Corporation ("FHLMC") but also makes non-conforming loans. While the Bank is an
approved FHLMC seller/servicer, it has sold only two mortgage loans in the
secondary mortgage market. However, the Bank may in the future sell fixed rate
mortgage loans in the secondary market, as market conditions and the Bank's own
portfolio needs dictate.
Substantially all of the Bank's residential mortgages include "due on
sale" clauses, which are provisions giving the Bank the right to declare a loan
immediately payable if the borrower sells or otherwise transfers an interest in
the property to a third party.
Property appraisals on real estate securing the Bank's single-family
residential loans are made by state certified or licensed independent appraisers
approved by the Board of Directors. Appraisals are performed in accordance with
applicable regulations and policies. The Bank obtains title insurance policies
on all first mortgage real estate loans originated. All property secured loans
require fire and casualty insurance. Loans made on property located in
designated flood zones require minimum flood insurance coverage based on the
amount of the loan.
Loans to One Borrower. Under federal law, savings institutions have,
subject to certain exemptions, lending limits to one borrower in an amount equal
to the greater of $500,000 or 15% of the institution's unimpaired capital and
surplus. As of June 30, 2000, the Bank's largest aggregation of loans to one
borrower was $584,771, consisting of four loans secured by residential real
estate and two automobiles, which was within the Bank's legal lending limit to
one borrower at that date. At June 30, 2000, the loans were current. The
increase in the capital of the Bank from this offering will increase its lending
limit.
Loan Solicitation and Processing. The Bank's customary sources of loan
applications include repeat customers, walk-ins, calls to the Bank's 24-hour
loan processing center, advertising and the Bank's relationship with employee
groups as a former credit union.
Loan Commitments. The Bank gives written commitments to prospective
borrowers on all approved real estate loans. Generally, the commitment requires
acceptance within 60 days of the date of the issuance. The total amount of the
Bank's commitments to extend credit as of June 30, 2000, was $1.3 million.
50
<PAGE>
Loan Origination and Other Loan Fees. In addition to interest earned on
loans, the Bank receives loan origination and commitment fees for originating or
purchasing certain loans. The Bank generally does not charge points on mortgage
loans originated for the Bank's portfolio.
Non-performing Loans and Problem Assets
Collection Procedures. The Bank's collection procedures provide that
personal contact will be made via telephone within two weeks of the date that
the first payment is missed. The maximum time for the receipt of the first
payment is two weeks from the date of contact. If the borrower cannot be reached
by telephone, the borrower is notified by mail with a collection notice sent
before the end of the first month. If applicable, a notice is sent to the
cosigner as well. If the delinquency continues, subsequent efforts are made to
contact the delinquent borrower and a second collection notice is sent. A third
and final collection notice is sent and if a positive response is not received
within 14 days of such notice, action such as repossession, foreclosure or
referral to attorney, is taken. From the time that the first payment is missed
until legal action and/or repossession of the collateral is initiated, the Bank
generally does not permit more than 90 days to pass, if the borrower and the
Bank have not reached agreement or if the delinquency has not been cured. All
reasonable attempts are made to collect from cosigners and convert collateral
prior to referral to an attorney for collection. In certain instances, the Bank
may modify the loan or grant a limited moratorium on loan payments to enable the
borrower to reorganize his financial affairs and the Bank attempts to work with
the borrower to establish a repayment schedule to cure the delinquency.
As to mortgage loans, if a foreclosure action is taken and the loan is
not reinstated, paid in full or refinanced, the property is sold at judicial
sale at which the Bank may be the buyer if there are no adequate offers to
satisfy the debt. Any property acquired as the result of foreclosure or by deed
in lieu of foreclosure is classified as real estate owned ("REO") until it is
sold or otherwise disposed of by the Bank. When REO is acquired, it is recorded
at the lower of the unpaid principal balance of the related loan or its fair
market value less estimated selling costs. The initial writedown of the property
is charged to the allowance for loan losses.
Loans are reviewed on a regular basis and are placed on a non-accrual
status when they are more than 90 days delinquent. Loans may be placed on a
non-accrual status at any time if, in the opinion of management, the collection
of additional interest is doubtful. Interest accrued and unpaid at the time a
loan is placed on non-accrual status is charged against interest income.
Subsequent payments are either applied to the outstanding principal balance or
recorded as interest income, depending on the assessment of the ultimate
collectibility of the loan. At June 30, 2000, the Bank had $30,000 of loans that
were held on a non-accrual basis.
Non-Performing Assets. The following table provides information
regarding the Bank's non- performing loans and other non-performing assets, net
of specific loan loss allowance, at the dates indicated. As of each of the dates
indicated, the Bank did not have any troubled debt restructurings within the
meaning of Statement of Financial Accounting Standards No. 114.
51
<PAGE>
<TABLE>
<CAPTION>
At At
June 30, December 31,
---------- ------------------------
2000 1999 1998
---------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
Residential........................................ $ 15 $ - $ -
All other mortgage loans........................... - - -
Consumer loans:
Home equity loans.................................. - - 9
Other consumer..................................... 15 44 224
----- ----- -----
Total................................................ $ 30 $ 44 $ 233
===== ===== =====
Accruing loans which are contractually past
due 90 days or more:
Mortgage loans:
Residential ....................................... $ - $ - $ -
All other mortgage loans........................... - - -
Consumer loans:
Home equity and second mortgages................... - - -
Other consumer..................................... - - -
----- ----- -----
Total................................................ $ - $ - $ -
===== ===== =====
Total non-performing loans........................... $ 30 $ 44 $ 233
===== ===== =====
Other non-performing assets.......................... $ - $ 18 $ 30
===== ===== =====
Total non-performing assets.......................... $ 30 $ 62 $ 263
===== ===== =====
Total non-performing loans to net loans.............. 0.07% 0.10% 0.51%
==== ==== ====
Total non-performing loans to total assets........... 0.04% 0.06% 0.35%
==== ==== ====
Total non-performing assets to total assets.......... 0.04% 0.09% 0.40%
==== ==== ====
</TABLE>
For the six months ended June 30, 2000 and for the year ended December
31, 1999, the amount of interest that would have been recorded on loans
accounted for on a non-accrual basis if those loans had been current according
to the original loan agreements for the entire period was $3,000 and $6,200,
respectively. These amounts were not included in the Bank's interest income for
the respective periods. The amount of interest income on loans accounted for on
a non-accrual basis that was included in income during the same periods was
insignificant at June 30, 2000.
Classified Assets. Management, in compliance with OTS guidelines, has
instituted an internal loan review program, whereby loans are classified as
special mention, substandard, doubtful or loss. When a loan is classified as
substandard or doubtful, management is required to establish a valuation reserve
for loan losses in an amount considered prudent by management. When management
classifies a loan as a loss asset, a reserve equal to 100% of the loan balance
is required to be established or the loan is to be charged- off. This allowance
for loan losses is composed of an allowance for both inherent risk associated
with lending activities and particular problem assets.
An asset is considered "substandard" if it is inadequately protected by
the paying capacity and net worth of the obligor or the collateral pledged, if
any. Substandard assets include those characterized by the distinct possibility
that the insured institution will sustain some loss if the deficiencies are not
corrected. Assets classified as doubtful have all of the weaknesses inherent in
those classified substandard, with the
52
<PAGE>
added characteristic that the weaknesses present make collection or liquidation
in full, highly questionable and improbable, on the basis of currently existing
facts, conditions, and values. Assets classified as loss are those considered
uncollectible and of so little value that their continuance as assets without
the establishment of a specific loss reserve is not warranted. Assets which do
not currently expose the insured institution to a sufficient degree of risk to
warrant classification in one of the aforementioned categories but possess
credit deficiencies or potential weaknesses are required to be designated
special mention by management.
Management's evaluation of the classification of assets and the
adequacy of the allowance for loan losses is reviewed by the Board on a regular
basis and by the regulatory agencies as part of their examination process. The
following table discloses the Bank's classification of its assets as of June 30,
2000.
At
June 30, 2000
-------------
(In thousands)
Substandard................... 25
Doubtful...................... 34
Loss.......................... 61
-----
Total................... $ 120
=====
Allowance for Loan Losses. The Bank segregates the loan portfolio for
loan losses into the following broad categories: residential real estate,
commercial real estate, and consumer loans. The Bank provides for a general
allowance for losses inherent in the portfolio by the above categories, which
consists of two components. General loss percentages are calculated based upon
historical analyses and other factors. A supplemental portion of the allowance
is calculated for inherent losses which probably exist as of the evaluation date
even though they might not have been identified by the more objective processes
used. This is due to the risk of error and/or inherent imprecision in the
process. This portion of the allowance is particularly subjective and requires
judgments based on qualitative factors which do not lend themselves to exact
mathematical calculations such as:
o trends in delinquencies and nonaccruals;
o trends in volume, terms and portfolio mix;
o new credit products;
o changes in lending policies and procedures;
o changes in the outlook for the local, regional and national economy; and
o peer group comparisons.
It is the Bank's policy to review its loan portfolio, in accordance
with regulatory classification procedures, on at least a quarterly basis.
Additionally, the Bank maintains a program of reviewing loan applications prior
to making the loan and immediately after loans are made in an effort to maintain
loan quality.
The Bank's management evaluates the need to establish reserves against
losses on loans and other assets based on estimated losses on specific loans and
on any real estate held for sale or investment when a finding is made that a
loss is estimable and probable. This evaluation includes a review of all loans
for which full collectibility may not be reasonably assured and considers, among
other matters: (1) the
53
<PAGE>
estimated market value of the underlying collateral of problem loans, (2) prior
loss experience, (3) economic conditions and (4) overall portfolio quality.
Provisions for losses are charged against earnings in the period they
are established. The Bank had $575,000 in allowances for loan losses at June 30,
2000.
While the Bank believes it has established its existing allowance for
loan losses in accordance with GAAP, there can be no assurance that regulators,
in reviewing the Bank's loan portfolio, will not request the Bank to
significantly increase its allowance for loan losses, or that general economic
conditions, a deteriorating real estate market, or other factors will not cause
the Bank to significantly increase its allowance for loans losses, which would
negatively affect the Bank's financial condition and earnings.
In making loans, the Bank recognizes that credit losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan and, in the case of a secured loan, the quality of the security for the
loan.
The following table sets forth information with respect to the Bank's
allowance for loan losses at the dates indicated:
<TABLE>
<CAPTION>
At At
June 30, December 31,
------------ -----------------------
2000 1999 1998
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Allowance balance (at beginning of period) .... $ 560 $ 584 $ 957
-------- -------- --------
Provision for loan losses ..................... 80 220 300
-------- -------- --------
Charge-offs:
Residential ................................. - - -
Consumer .................................... (105) (309) (724)
-------- -------- --------
Total (charge-offs) ........................... (105) (309) (724)
Recoveries .................................... 40 65 51
-------- -------- --------
Net (charge-offs) recoveries .................. (65) (244) (673)
-------- -------- --------
Allowance balance (at end of period) .......... $ 575 $ 560 $ 584
======== ======== ========
Total loans outstanding ....................... $ 46,471 $ 44,495 $ 46,220
======== ======== ========
Average loans outstanding ..................... $ 44,387 $ 42,985 $ 42,822
======== ======== ========
Allowance for loan losses as a percent of total
loans outstanding .......................... 1.24% 1.26% 1.26%
======== ======== ========
Net loans charged off as a percent of average
loans outstanding .......................... 0.15% 0.57% 1.57%
======== ======== ========
</TABLE>
Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of the Bank's allowance for loan losses by collateral and the
percent of loans in each category to total loans receivable, net, at the dates
indicated. The portion of the loan loss allowance allocated to each loan
category does not represent the total available for losses which may occur
within the loan category since the total loan loss allowance is a valuation
reserve applicable to the entire loan portfolio.
54
<PAGE>
<TABLE>
<CAPTION>
At June 30, At December 31,
------------- ----------------------------------------
2000 1999 1998
--------------------- -------------------- ------------------
Percent of Percent of Percent of
Loans to Loans to Loans to
Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
At end of period allocated to:
Residential real estate
and home equity ............. $ 262 62.00% $ 221 62.24% $130 60.80%
Consumer.......................... 313 38.00 339 37.76 454 39.20
----- ------ ----- ------ ---- ------
Total allowance................... $ 575 100.00% $ 560 100.00% $584 100.00%
==== ====== ==== ====== ==== ======
</TABLE>
Investment Activities
General. Federally chartered savings associations have the authority to
invest in various types of liquid assets, including United States Treasury
obligations, securities of various government agencies and government-sponsored
entities (including securities collateralized by mortgages), certain
certificates of deposits of insured banks and savings institutions, municipal
securities, corporate debt securities and loans to other banking institutions.
The Bank maintains liquid assets which may be invested in specified
short-term securities and certain other investments. See "Regulation -
Regulation of the Bank - Federal Home Loan Bank System" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources". Liquidity levels may be increased or decreased
depending upon the yields on investment alternatives and upon management's
judgment as to the attractiveness of the yields then available in relation to
other opportunities and its expectation of future yield levels, as well as
management's projections as to the short-term demand for funds to be used in the
Bank's loan origination and other activities. At June 30, 2000, the Bank had an
investment securities portfolio consisting of U.S. government agency and
government-sponsored entity securities of $6.3 million (9.0% of total assets)
and a mortgage-backed securities portfolio of $10.0 million (14.3% of total
assets). At June 30, 2000, the market value of the investment securities
portfolio was $6.3 million and the market value of the mortgage- backed
securities portfolio was $10.0 million. See Note 1 of the consolidated financial
statements.
Investment Policies. The investment policy of the Bank, which is
established by the Board of Directors, is designed to foster earnings and
liquidity within prudent interest rate risk guidelines, while complementing the
Bank's lending activities. The policy provides for available for sale and held
to maturity classifications. The policy permits investments in high credit
quality instruments with diversified cash flows while permitting the Bank to
maximize total return within the guidelines set forth in the Bank's interest
rate risk and liquidity management policy. Permitted investments include but are
not limited to U. S. government obligations, government agency or
government-sponsored entity obligations, state, county and municipal
obligations, mortgage-backed securities and collateralized mortgage obligations
guaranteed by government agencies or government-sponsored entities, investment
grade corporate debt securities, and commercial paper. The Bank also invests in
FHLB overnight deposits and federal funds, but these instruments are not
considered part of the investment portfolio.
The policy also includes several specific guidelines and restrictions
to insure adherence with safe and sound activities. The policy prohibits
investments in high risk mortgage derivative products, as defined within its
policy. The policy of the Bank is to purchase only mortgage derivative products
that are
55
<PAGE>
non-high-risk, have a variable rate of interest tied to a commonly accepted
index, and in total do not exceed 5% of the Bank's assets. In addition, the
policy requires individual purchases in excess of $1,000,000 to be approved by
the asset liability management committee. The Bank does not participate in
hedging programs, interest rate swaps, or other activities involving the use of
off-balance sheet derivative financial instruments. Further, the Bank does not
invest in securities which are not rated investment grade.
All transactions are reported to the Board of Directors monthly, with
the entire portfolio reported quarterly, including market values and unrealized
gains (losses).
Investment Securities. The Bank maintains a portfolio of investment
securities, classified as either available for sale or held to maturity, to
enhance total return on investments. At June 30, 2000, all of the Bank's
investment securities consisted of U.S. government agency and
government-sponsored entity obligations with varying characteristics as to rate,
maturity and call provisions. Callable securities, representing 96% of the
Bank's U.S. government agency and government-sponsored entity obligations,
totalling approximately $6.0 million at June 30, 2000, could reduce the Bank's
investment yield if these securities are called prior to maturity. At June 30,
2000, the Bank did not have any investments in the obligations of state or local
governments.
Mortgage-backed Securities. The Bank invests in mortgage-backed
securities to provide earnings, liquidity, cash flows, and diversification to
the Banks' overall balance sheet. These mortgage-backed securities are
classified as either available for sale or held to maturity. The securities are
participation certificates that are secured by interest in pools of mortgages.
At June 30, 2000, the Bank held mortgage- backed securities totalling $9.1
million that were issued and guaranteed by the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"). Mortgage-backed securities
typically represent a participation interest in a pool of single-family or
multi-family mortgages, although the Bank focuses its investments on
mortgage-backed securities secured by single-family mortgages.
Expected maturities will differ from contractual maturities due to
scheduled repayments and because borrowers may have the right to call or prepay
obligations with or without prepayment penalties.
Mortgage-backed securities typically are issued with stated principal
amounts. The securities are backed by pools of mortgages that have loans with
interest rates that are within a set range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate or adjustable
rate mortgage loans. Mortgage-backed securities are generally referred to as
mortgage participation certificates or pass-through certificates. The interest
rate risk characteristics of the underlying pool of mortgages, including
fixed-rate or adjustable-rate, and the prepayment risk, are passed on to the
certificate holder. The life of a mortgage-backed pass-through security is equal
to the life of the underlying mortgages.
Collateralized Mortgage Obligations ("CMOs"). The Bank also invests in
CMOs, issued or sponsored by FNMA and FHLMC which totalled $964,000 at June 30,
2000. The Bank's investment policy classifies CMO's as mortgage derivative
products, with the investment restrictions applicable to such category as
described above. CMOs are a type of debt security that aggregates pools of
mortgages and mortgage-backed securities and creates different classes of CMO
securities with varying maturities and amortization schedules as well as a
residual interest with each class having different risk characteristics. The
cash flows from the underlying collateral are usually divided into "tranches" or
classes whereby tranches have descending priorities with respect to the
distribution of principal and interest repayment of
56
<PAGE>
the underlying mortgages and mortgage-backed securities as opposed to pass
through mortgage-backed securities where cash flows are distributed pro rata to
all security holders. Unlike mortgage-backed securities from which cash flow is
received and prepayment risk is shared pro rata by all securities holders, cash
flows from the mortgages and mortgage-backed securities underlying CMOs are paid
in accordance with a predetermined priority to investors holding various
tranches of the securities or obligations. A particular tranche or class may
carry prepayment risk which may be different from that of the underlying
collateral and other tranches. Investing in CMOs allows the Bank to moderate
reinvestment risk resulting from unexpected prepayment activity associated with
conventional mortgage-backed securities. Management believes these securities
represent attractive alternatives relative to other investments due to the wide
variety of maturity, repayment and interest rate options available.
Other Securities. Other securities used by the Bank, but not
necessarily included in the investment portfolio, consist of equity securities,
interest-bearing deposits and federal funds sold. Equity securities owned
consist of a $931,000 investment in FHLB of Atlanta common stock (this amount is
not shown in the securities portfolio). As a member of the FHLB of Atlanta,
ownership of FHLB of Atlanta common shares is required. The remaining securities
provide diversification and complement the Bank's overall investment strategy.
The following table sets forth the carrying value of the Bank's
investment securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
At At
June 30, December 31,
---------- ------------------------
2000 1999 1998
---------- -------- --------
(In thousands)
<S> <C> <C> <C>
Securities Held to Maturity:
---------------------------
Collateralized mortgage obligations.............. $ 964 $ 971 $ 1,174
-------- -------- --------
Total securities held to maturity................ 964 971 1,174
-------- -------- --------
Securities available for sale (at fair value):
----------------------------------------------
U.S. government agency and government-
sponsored entity securities .................... 6,272 6,274 3,448
Mortgage-backed securities....................... 9,113 8,798 10,547
-------- -------- --------
Total securities available for sale.............. 15,385 15,072 13,995
-------- -------- --------
Total............................................ $ 16,349 $ 16,043 $ 15,169
======== ======== ========
</TABLE>
57
<PAGE>
The following table sets forth certain information regarding the
carrying values, weighted average yields and maturities of the Bank's investment
and mortgage-backed securities portfolio at June 30, 2000.
<TABLE>
<CAPTION>
At June 30, 2000
-----------------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investment Securities
----------------- ----------------- ----------------- ------------------- ---------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
-------- ------- -------- ------ -------- ------- ------- ------- ------- ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government agency and
government-sponsored
entity securities......... $497 5.55% $3,863 5.95% $ 944 6.75% $ 968 7.55% $ 6,272 6.29% $ 6,272
Collateralized mortgage
obligations............... - - - - 964 6.21 - - 964 6.21 911
Mortgage-backed securities... - - 1,612 6.83 900 6.00 6,601 6.61 9,113 6.58 9,113
---- ----- ------ ------ ------- -------
Total...................... $497 5.55% $5,475 6.18% $2,808 6.75% $7,569 6.73% $16,349 6.45% $16,296
==== ==== ===== ==== ====== ==== ====== ==== ======= ==== =======
</TABLE>
58
<PAGE>
Sources of Funds
General. Deposits are the major source of the Bank's funds for lending
and other investment purposes. Borrowings (principally from the FHLB) are used
to supplement the amount of funds for lending and investment. In addition to
deposits and borrowings, the Bank derives funds from loan and mortgage-backed
securities principal repayments, and proceeds from the maturity, call and sale
of mortgage-backed securities and investment securities. Loan and
mortgage-backed securities payments are a relatively stable source of funds,
while deposit inflows are significantly influenced by general interest rates and
money market conditions.
Deposits. The Bank offers a variety of deposit accounts. During the six
months ended June 30, 2000, deposits increased by $4.7 million primarily as a
result of the opening of the new Columbia branch office. The Bank's high level
of non-interest bearing checking accounts is attributed to the fact that the
Bank does not require a minimum balance on this type of account. A majority of
deposits are in core money market, savings and checking account deposits.
Deposit account terms vary, primarily as to the required minimum balance amount,
the amount of time that the funds must remain on deposit and the applicable
interest rate.
The Bank's current deposit products include certificates of deposit
accounts ranging in terms from six months to five years as well as checking,
savings, money market and club accounts. Individual retirement accounts (IRAs)
are offered, including Roth, educational and traditional IRAs, and deposits into
IRA's may be made into regular savings accounts, money market accounts or
certificates of deposit, depending on the customer's investment preference.
Deposits are obtained primarily from residents of Baltimore and Howard
Counties. The Bank attracts deposit accounts by offering outstanding service,
competitive interest rates, and convenient locations and service hours. The Bank
uses traditional methods of advertising to attract new customers and deposits,
including print media advertising, billboards, radio and direct mail. The Bank
does not utilize the services of deposit brokers. The Bank generally does not
offer premiums or incentives for opening accounts.
The Bank pays interest on its deposits which are competitive in its
market. The determination of interest rates is based upon a number of factors,
including: (1) the Bank's need for funds based on loan demand, current
maturities of deposits and other cash flow needs; (2) a current survey of a
selected group of competitors' rates for similar products; (3) the Bank's
current cost of funds and its yield on assets; and (4) the alternate cost of
funds on a wholesale basis, in particular the cost of advances from the FHLB of
Atlanta. Interest rates on main savings accounts and IRAs are set by the Board
of Directors. The rate on money market accounts is determined by the CEO of the
Bank based on the Bank's current funding needs and asset/liability management
position.
The Bank has a moderate percentage of certificates of deposit in its
deposit portfolio (24.9% at June 30, 2000), however, the Bank's liquidity could
be reduced if a significant amount of certificates of deposit, maturing within a
short period of time, were not renewed. A significant portion of the
certificates of deposit remain with the Bank after they mature and the Bank
believes that this will continue. However, the need to retain these time
deposits could result in an increase in the Bank's cost of funds.
Deposits in the Bank as of June 30, 2000, were represented by various
types of savings programs described below.
59
<PAGE>
<TABLE>
<CAPTION>
Balance at Percentage of
Category Term Interest Rate(1) June 30, 2000 Total Deposits
-------- ---- ---------------- ------------- --------------
(In thousands)
<S> <C> <C> <C> <C>
Checking Accounts None 0.00% $ 6,446 13.43%
Savings Accounts None 3.00% 21,399 44.58%
Money Market Accounts None 5.70% 8,217 17.12%
Certificates of Deposit(2):
Fixed Term, Fixed Rate 6 Months 6.73% 1,507 3.14%
Fixed Term, Fixed Rate 7 - 12 Months 5.66% 2,975 6.20%
Fixed Term, Fixed Rate 13 - 24 Months 5.59% 1,407 2.93%
Fixed Term, Fixed Rate 25 - 36 Months 5.80% 2,573 5.36%
Fixed Term, Fixed Rate 37 - 48 Months 6.06% 59 0.12%
Fixed Term, Fixed Rate 49 - 60 Months 6.20% 3,418 7.12%
------- ------
Total $48,001 100.00%
======= ======
</TABLE>
---------------
(1) Weighted average rate as of June 30, 2000.
(2) Includes jumbo certificates of deposit of $8.6 million. See table of
maturities of certificates of deposit of $100,000 or more.
As a result of the Bank's former credit union status, deposit balance
fluctuates significantly on CareFirst BlueCross BlueShield payroll dates.
Accordingly, changes in balances at month end may be primarily the result of the
relation of the date of the month end to the date of payroll. Thus, average
balances are more indicative of the level of deposits.
The following table sets forth the time deposits in the Bank classified
by interest rate as of the dates indicated.
At June 30, At December 31,
----------- ---------------------------
2000 1999 1998
---- ---- ----
(In thousands)
Interest Rate
4.00-4.99% $ 441 $ 1,729 $ 678
5.00-5.99% 5,763 5,029 6,400
6.00-6.99% 4,380 3,512 3,842
7.00-7.99% 1,355 982 1,623
------- ------- -------
Total $11,939 $11,252 $12,543
======= ======= =======
The following table sets forth the amount and maturities of time
deposits at June 30, 2000.
Amount Due
----------------------------------------------------------
After
June 30, June 30, June 30, June 30,
Interest Rate 2001 2002 2003 2003 Total
------------- ---- ---- ---- ---- ------
(In thousands)
4.00% - 4.99%..... $ 429 $ 12 $ 0 $ 0 $ 441
5.00% - 5.99%..... 3,584 691 921 567 5,763
6.00% - 6.99%..... 2,452 1,201 426 301 4,380
7.00% - 7.99%..... 1,047 13 61 234 1,355
-------
Total $11,939
=======
60
<PAGE>
The following table shows the amount of the Bank's certificates of
deposit of $100,000 or more by time remaining until maturity as of June 30,
2000.
Certificates
Maturity Period of Deposit
--------------- ------------
(In thousands)
Within three months................................ $ 155
Three through six months........................... 1,155
Six through twelve months.......................... 450
Over twelve months................................. 530
-------------
$ 2,290
==============
Fee Income. During August and September 1999, the Bank issued check
cards to nearly all of its checking account customers. The mass issuance and the
resulting increase in use of the cards by the customers at merchant locations
has significantly increased the bank's non-interest fee income. In addition, the
Bank receives fee income from insufficient fund charges and ATM fees.
Borrowings. Deposits are the primary source of funds of the Bank's
lending and investment activities and for its general business purposes. The
Bank, as the need arises or in order to take advantage of funding opportunities,
borrows funds in the form of advances from the FHLB to supplement its supply of
lendable funds and to meet deposit withdrawal requirements. Advances from the
FHLB are typically secured by the Bank's stock in the FHLB and a portion of the
Bank's residential mortgage loans and may be secured by other assets, mainly
securities which are obligations of or guaranteed by the U.S. Government. At
June 30, 2000, loans aggregating $13.2 million had been pledged to the FHLB as
collateral for short-term borrowings. The Bank typically has funded loan demand
and investment opportunities out of current loan and mortgage-backed securities
repayments, investment maturities and new deposits. However, the Bank recently
has utilized FHLB advances to supplement these sources and to leverage the
balance sheet with investment into adjustable-rate mortgage-backed securities.
Short-term advances at June 30, 2000 totaled $5.0 million. See Note 4 to Notes
to Consolidated Financial Statements.
Subsidiary Activity
The Bank is permitted to invest its assets in the capital stock of, or
originate secured or unsecured loans to, subsidiary corporations. The Bank has
two subsidiaries.
Armor Insurance Group, LLC is a service corporation organized in early
2000 as a limited liability company under Maryland law for the purpose of
engaging in insurance and related activities. Armor offers a full range of
individual and commercial property and casualty products primarily to depositor
members of the Bank but also to the general public. Armor currently operates at
a loss, with profitability currently projected for mid-2001.
C.U. Benefits, Incorporated is a service corporation incorporated in
1988 under Maryland law for the purpose of performing financial planning and
related services to the members of the Bank through third party providers. For
most of the past five years, the corporation was inactive. In 1999, the Bank
aligned with a new provider, AXA Advisors, and since then the Bank has begun
promoting this activity again, with a net income from this service of $1,500 in
1999 and an expected net income of $4000 to $5000 for 2000.
61
<PAGE>
The Bank will continue strong promotional efforts in the future but may abandon
this activity if it is deemed insufficiently profitable.
Personnel
As of June 30, 2000, the Bank had 24 full-time employees and one
part-time employee and Armor Insurance Group had one full-time and one part-time
employee. The employees are not represented by a collective bargaining unit. The
Bank believes its relationship with its employees to be satisfactory.
Properties and Equipment
The Bank's main office is located at 10455 Mill Run Circle in Owings
Mills, Maryland. The Bank also conducts its business through a full-service
branch office located at 8801 Columbia 100 Parkway in Columbia, Maryland and
through five remote ATM locations in Columbia, Timonium and Baltimore, four of
which offer 24-hour access. The Bank's main office is located inside the
CareFirst BlueCross BlueShield ("CareFirst") headquarters building and is
accessible to the general public. The Bank occupies 2500 square feet in the
building under a Financial Services Agreement with CareFirst whereby the Bank
provides various financial services to CareFirst employees and customers in
return for office space. There are no rent payments under such agreement. The
agreement has a term ending in March 2002, at which time the Bank expects to
renew such agreement. The agreement is subject to early termination, with three
months notice required, in the event that CareFirst ceases to occupy at least
half of the building.
The following table sets forth the location of the Bank's main office
and branch office, the year the offices were opened and the net book value of
each office and its related equipment.
Net Book
Year Leased Value at
Facility or June 30,
Office Location Opened Owned 2000
--------------- ------ ----- ----
Main Office - Owings Mills 1991 Leased $651,971
Branch Office - Columbia 1999 Leased(1) $767,388
--------
(1) The building is owned by the Bank and the land is under a ground lease
agreement, with 9 years remaining in the term. The lease is renewable
for three five-year extensions at the Bank's option.
Legal Proceedings
The Bank, from time to time, is 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 the Bank holds security
interests, claims involving the making and servicing of real property loans, and
other issues incident to the business of the Bank. There were no lawsuits
pending or known to be contemplated against the Bank at June 30, 2000 that would
have a material effect on our operations or income.
REGULATION
Set forth below is a brief description of certain laws that relate to
the regulation of the Bank and BUCS Financial Corp after the Conversion. The
description does not purport to be complete and is qualified in its entirety by
reference to applicable laws and regulations.
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<PAGE>
Financial Modernization Legislation
On November 12, 1999, the President signed into law the
Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (the "GLB Act"),
which repealed the prohibitions against bank affiliations with securities and
insurance firms. The GLB Act authorizes qualifying bank holding companies to
become financial holding companies and thereby affiliate with securities firms
and insurance companies and engage in other activities that are financial in
nature. The GLB Act defines financial in nature to include securities
underwriting, dealing and market making; sponsoring mutual funds and investment
companies; insurance underwriting and agency; merchant banking activities, and
activities that the Federal Reserve Board has determined to be closely related
to banking. A qualifying national bank also may engage, subject to limitations
on investment, in activities that are financial in nature, other than insurance
underwriting, insurance company portfolio investment, real estate development,
and real estate investment, through a financial subsidiary of the bank.
The GLB Act repeals the "unitary savings and loan holding company
exemption" from the restrictions imposed by the Home Owners' Loan Act on the
business activities of savings and loan holding companies. As a result, any
savings and loan holding company formed after May 4, 1999, such as BUCS
Financial Corp, will be subject to statutory and regulatory restrictions on its
business activities. See "-- Regulation of BUCS Financial Corp -- Activities
Restrictions."
In addition, the GLB Act imposes significant new financial privacy
obligations and reporting requirements on all financial institutions, including
federal savings associations. Specifically, the statute, among other things,
will require financial institutions (a) to establish privacy policies and
disclose them to customers both at the commencement of a customer relationship
and on an annual basis and (b) to permit customers to opt out of a financial
institution's disclosure of financial information to nonaffiliated third
parties. The federal financial regulators have promulgated final regulations
implementing these provisions, which will become effective July 1, 2001.
Furthermore, the GLB Act also enacts significant changes to the Federal
Home Loan Bank System. The GLB Act expands the permissible uses of Federal Home
Loan Bank advances by community financial institutions (under $500 million in
assets) to include funding loans to small businesses, small farms and small
agri- businesses. The GLB Act also makes membership in a regional Federal Home
Loan Bank voluntary for federal savings associations.
Regulation of BUCS Financial Corp
General. Upon completion of the Conversion, BUCS Financial Corp will
become a savings and loan holding company within the meaning of Section 10(o) of
the Home Owners' Loan Act. BUCS Financial Corp will be required to register as a
saving and loan holding company and file reports with the OTS and will be
subject to regulation and examination by the OTS. In addition, the OTS will have
enforcement authority over BUCS Financial Corp and any non-savings institution
subsidiaries. This will permit the OTS to restrict or prohibit activities that
it determines to be a serious risk to us. This regulation is intended primarily
for the protection of the depositors and not for the benefit of you, as
stockholders of BUCS Financial Corp.
Activities Restrictions. As a savings and loan holding company formed
after May 4, 1999, BUCS Financial Corp will not be a grandfathered unitary
savings and loan holding company under the GLB Act following the Conversion. As
a result, BUCS Financial Corp and its non-savings institution subsidiaries,
63
<PAGE>
if any exist in the future, will be subject to statutory and regulatory
restrictions on their business activities. Under the Home Owners' Loan Act, as
amended by the GLB Act, the nonbanking activities of BUCS Financial Corp will be
restricted to certain activities specified by OTS regulation, which include
performing services and holding properties used by a savings institution
subsidiary, activities authorized for savings and loan holding companies as of
March 5, 1987, and nonbanking activities permissible for bank holding companies
pursuant to the Bank Holding Company Act of 1956 (the "BHC Act") or authorized
for financial holding companies pursuant to the GLB Act. Furthermore, no company
may acquire control of us unless the acquiring company was a unitary savings and
loan holding company on May 4, 1999 (or became a unitary savings and loan
holding company pursuant to an application pending as of that date) or the
company is only engaged in activities that are permitted for multiple savings
and loan holding companies or for financial holding companies under the BHC Act
as amended by the GLB Act.
Mergers and Acquisitions. BUCS Financial Corp must obtain approval from
the OTS before acquiring more than 5% of the voting stock of another savings
institution or savings and loan holding company or acquiring such an institution
or holding company by merger, consolidation or purchase of its assets. In
evaluating an application for BUCS Financial Corp to acquire control of a
savings institution, the OTS would consider the financial and managerial
resources and future prospects of BUCS Financial Corp and the target
institution, the effect of the acquisition on the risk to the insurance funds,
the convenience and the needs of the community and competitive factors.
Regulation of BUCS Federal
General. As a federally chartered, SAIF-insured savings association,
BUCS Federal is subject to extensive regulation by the OTS and the FDIC. Lending
activities and other investments must comply with federal statutory and
regulatory requirements. BUCS Federal is also subject to reserve requirements of
the Federal Reserve System. Federal regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the SAIF and depositors. This
regulatory structure gives the regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and examination
policies, including policies regarding the classification of assets and the
establishment of adequate allowance for loan losses.
The OTS regularly examines BUCS Federal and prepares reports to BUCS
Federal's board of directors on deficiencies, if any, found in its operations.
BUCS Federal's relationship with its depositors and borrowers is also regulated
by federal law, especially in such matters as the ownership of savings accounts
and the form and content of BUCS Federal's mortgage documents.
BUCS Federal must file reports with the OTS and the FDIC concerning its
activities and financial condition, and must obtain regulatory approvals prior
to entering into certain transactions such as mergers with or acquisitions of
other financial institutions. Any change in applicable statutory and regulatory
requirements, whether by the OTS, the FDIC or the United States Congress, could
have a material adverse impact on BUCS Financial Corp and BUCS Federal, and
their operations.
Insurance of Deposit Accounts. The FDIC administers two separate
deposit insurance funds. Generally, the Bank Insurance Fund (the "BIF") insures
the deposits of commercial banks and the SAIF ("SAIF") insures the deposits of
savings institutions. The FDIC is authorized to increase deposit insurance
premiums if it determines such increases are appropriate to maintain the
reserves of either the SAIF or BIF or to fund the administration of the FDIC. In
addition, the FDIC is authorized to levy emergency special assessments on BIF
and SAIF members. The FDIC has set the annual deposit insurance assessment rates
for SAIF-member institutions for the first six months of 2000 at 0% of insured
deposits for well-capitalized
64
<PAGE>
institutions with the highest supervisory ratings to .027% of insured deposits
for institutions in the worst risk assessment classification. The assessment
rate for most savings institutions is currently 0%.
In addition, all FDIC-insured institutions are required to pay
assessments to the FDIC at an annual rate of approximately .0212% of insured
deposits to fund interest payments on bonds issued by the Financing Corporation
("FICO"), an agency of the Federal government established to recapitalize the
predecessor to the SAIF. These assessments will continue until the FICO bonds
mature in 2017.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) "Tier 1" or "core" capital equal to at
least 4% (3% if the institution has received the highest rating, "composite 1
CAMELS," on its most recent examination) of total adjusted assets, and (3)
risk-based capital equal to 8% of total risk-weighted assets. For BUCS Federal's
compliance with these regulatory capital standards, see "Historical and Pro
Forma Capital Compliance."
In addition, the OTS may require that a savings institution that has a
risk-based capital ratio of less than 8%, a ratio of Tier 1 capital to
risk-weighted assets of less than 4% or a ratio of Tier 1 capital to total
adjusted assets of less than 4% (3% if the institution has received a composite
1 CAMELS rating on its most recent examination) take certain action to increase
its capital ratios. If the savings institution's capital is significantly below
the minimum required levels of capital or if it is unsuccessful in increasing
its capital ratios, the OTS may restrict its activities.
For purposes of the OTS capital regulations, tangible capital is
defined as core capital less all intangible assets except for certain mortgage
servicing rights. Tier 1 or core capital is defined as common stockholders'
equity, noncumulative perpetual preferred stock and related surplus, minority
interests in the equity accounts of consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits of mutual savings associations and
qualifying supervisory goodwill. Tier 1 and core capital are reduced by an
institution's intangible assets, with limited exceptions for certain mortgage
and nonmortgage servicing rights and purchased credit card relationships. Both
core and tangible capital are further reduced by an amount equal to the savings
institution's debt and equity investments in "nonincludable" subsidiaries
engaged in activities not permissible to national banks other than subsidiaries
engaged in activities undertaken as agent for customers or in mortgage banking
activities and subsidiary depository institutions or their holding companies.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital of 8% of risk-weighted assets.
Risk-based capital equals the sum of core and supplementary capital. The
components of supplementary capital include, among other items, cumulative
perpetual preferred stock, perpetual subordinated debt, mandatory convertible
subordinated debt, intermediate-term preferred stock, the portion of the
allowance for loan losses not designated for specific loan losses and up to 45%
of unrealized gains on equity securities. The portion of the allowance for loan
and lease losses includable in supplementary capital is limited to a maximum of
1.25% of risk-weighted assets. Overall, supplementary capital is limited to 100%
of core capital. A savings institution's risk-based capital is reduced by the
amount of capital instruments held by other depository institutions pursuant to
reciprocal arrangements and by the amount of the institution's equity
investments (other than those deducted from core and tangible capital) and its
high loan-to-value ratio land loans and non-residential construction loans.
A savings institution's risk-based capital requirement is measured
against risk-weighted assets, which equal the sum of each on-balance-
65
<PAGE>
sheet assets and the credit-equivalent amount of each off-balance- sheet item
after being multiplied by an assigned risk weight. These risk weights range from
0% for cash to 100% for delinquent loans, property acquired through foreclosure,
commercial loans, and other assets.
OTS rules require a deduction from capital for savings institutions
with certain levels of interest rate risk. The OTS calculates the sensitivity of
an institution's net portfolio value based on data submitted by the institution
in a schedule to its quarterly Thrift Financial Report and using the interest
rate risk measurement model adopted by the OTS. The amount of the interest rate
risk component, if any, deducted from an institution's total capital is based on
the institution's Thrift Financial Report filed two quarters earlier. The OTS
has indefinitely postponed implementation of the interest rate risk component,
and BUCS Federal has not been required to determine whether it will be required
to deduct an interest rate risk component from capital.
Dividend and Other Capital Distribution Limitations. The OTS imposes
various restrictions or requirements on the ability of savings institutions to
make capital distributions, including cash dividends.
A savings institution that is a subsidiary of a savings and loan
holding company, such as BUCS Federal, must file an application or a notice with
the OTS at least 30 days before making a capital distribution. A savings
institution must file an application for prior approval of a capital
distribution if: (i) it is not eligible for expedited treatment under the
applications processing rules of the OTS; (ii) the total amount of all capital
distributions, including the proposed capital distribution, for the applicable
calendar year would exceed an amount equal to the savings bank's net income for
that year to date plus the institution's retained net income for the preceding
two years; (iii) it would not adequately be capitalized after the capital
distribution; or (iv) the distribution would violate an agreement with the OTS
or applicable regulation.
BUCS Federal will be required to file a capital distribution notice or
application with the OTS before paying any dividend to BUCS Financial Corp.
However, capital distributions by BUCS Financial Corp, as a savings and loan
holding company, will not be subject to the OTS capital distribution rules.
The OTS may disapprove a notice or deny an application for a capital
distribution if: (i) the savings institution would be undercapitalized following
the capital distribution; (ii) the proposed capital distribution raises safety
and soundness concerns; or (iii) the capital distribution would violate a
prohibition contained in any statute, regulation or agreement. In addition, a
federal savings institution cannot distribute regulatory capital that is
required for its liquidation account.
Qualified Thrift Lender Test. Federal savings institutions must meet a
qualified thrift lender ("QTL") test or they become subject to the business
activity restrictions and branching rules applicable to national banks. To
qualify as a QTL, a savings institution must either (i) be deemed a "domestic
building and loan association" under the Internal Revenue Code by maintaining at
least 60% of its total assets in specified types of assets, including cash,
certain government securities, loans secured by and other assets related to
residential real property, educational loans and investments in premises of the
institution or (ii) satisfy the statutory QTL test set forth in the Home Owners'
Loan Act by maintaining at least 65% of its "portfolio assets" in certain
"Qualified Thrift Investments" (defined to include residential mortgages and
related equity investments, certain mortgage-related securities, small business
loans, student loans and credit card loans, and 50% of certain community
development loans). For purposes of the statutory QTL test, portfolio assets are
defined as total assets minus intangible assets, property used by the
institution in conducting its business, and liquid assets equal to 10% of total
assets. A savings institution must maintain its status as a QTL on a monthly
basis in at least nine out of every 12 months. BUCS Federal met the QTL test as
of June 30, 2000 and in each of the last 12 months and, therefore, qualifies as
a QTL.
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<PAGE>
Transactions with Affiliates. Generally, federal banking law requires
that transactions between a savings institution or its subsidiaries and its
affiliates must be on terms as favorable to the savings institution as
comparable transactions with non-affiliates. In addition, certain types of these
transactions are restricted to an aggregate percentage of the savings
institution's capital. Collateral in specified amounts must usually be provided
by affiliates in order to receive loans from the savings institution. In
addition, a savings institution may not extend credit to any affiliate engaged
in activities not permissible for a bank holding company or acquire the
securities of any affiliate that is not a subsidiary. The OTS has the discretion
to treat subsidiaries of savings institutions as affiliates on a case-by-case
basis.
Community Reinvestment Act. Under the Community Reinvestment Act
("CRA"), every insured depository institution, including BUCS Federal, has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community. The CRA requires the OTS
to assess the depository institution's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain
applications by such institution, such as a merger or the establishment of a
branch by BUCS Federal. An unsatisfactory CRA examination rating may be used as
the basis for the denial of an application by the OTS. BUCS Federal received a
"satisfactory" overall rating in its most recent CRA examination.
Liquidity Requirements. All federal savings institutions are required
to maintain an average daily balance of liquid assets equal to a certain
percentage of the sum of its average daily balance of net withdrawable deposit
accounts and borrowings payable in one year or less. Depending on economic
conditions and savings flows of all savings institutions, the OTS can vary the
liquidity requirement from time to time between 4% and 10%. Monetary penalties
may be imposed on institutions for liquidity requirement violations.
Federal Home Loan Bank System. BUCS Federal is a member of the FHLB of
Atlanta, which is one of 12 regional FHLBs. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from funds deposited by financial institutions and proceeds derived from the
sale of consolidated obligations of the FHLB System. It makes loans to members
pursuant to policies and procedures established by the board of directors of the
FHLB.
As a member, BUCS Federal is required to purchase and maintain stock in
the FHLB of Atlanta in an amount equal to the greater of 1% of our aggregate
unpaid residential mortgage loans, home purchase contracts or similar
obligations at the beginning of each year or 5% of FHLB advances. We are in
compliance with this requirement. The FHLB imposes various limitations on
advances such as limiting the amount of certain types of real estate related
collateral to 30% of a member's capital and limiting total advances to a member.
The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future.
Federal Reserve System. The Federal Reserve System requires all
depository institutions to maintain non-interest-bearing reserves at specified
levels against their checking accounts and non- personal
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<PAGE>
certificate accounts. The balances maintained to meet the reserve requirements
imposed by the Federal Reserve System may be used to satisfy the OTS liquidity
requirements.
Savings institutions have authority to borrow from the Federal Reserve
System "discount window," but Federal Reserve System policy generally requires
savings institutions to exhaust all other sources before borrowing from the
Federal Reserve System.
TAXATION
Federal Taxation
Savings institutions are subject to the Internal Revenue Code of 1986,
as amended (the "Code"), in the same general manner as other corporations.
All thrift institutions are now subject to the same provisions as banks
with respect to deductions for bad debts. Thrift institutions that are treated
as "small banks" (the average adjusted bases for all assets of such institution
equals $500 million or less) under the Code may account for bad debts by using
the experience method for determining additions to their bad debt reserve.
Thrift institutions that are not treated as small banks must now use the
specific charge-off method.
BUCS Financial Corp may exclude from its income 100% of dividends
received from BUCS Federal as a member of the same affiliated group of
corporations. A 70% dividends received deduction generally applies with respect
to dividends received from corporations that are not members of such affiliated
group.
BUCS Federal's federal income tax returns have not been audited by the
IRS since its conversion from a credit union in 1998.
State Taxation
The State of Maryland imposes an income tax of approximately 7% on
income which is measured substantially the same as federally taxable income.
BUCS Federal's state income tax returns have not been audited since its
conversion from a credit union in 1998. For additional information, see Note 6
of the Financial Statements.
MANAGEMENT
Directors and Executive Officers
The Bank's Board of Directors is composed of ten members each of whom
serves for a term of three years, with approximately one-third of the directors
elected each year. BUCS Financial Corp's proposed articles of incorporation and
bylaws also require that directors be divided into three classes, as nearly
equal in number as possible, with approximately one-third of the directors
elected each year. BUCS Financial Corp will have the same directors as the Bank.
The Bank's officers are elected annually by the Bank's Board and serve at the
Board's discretion.
The following table sets forth information with respect to the
directors and officers, all of whom will continue to serve in the same
capacities after the conversion.
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<TABLE>
<CAPTION>
Age at Current
June 30, Director Term
Name 2000 Position Since Expires (1)
------------------------------- ---- ------------------------------------- -------------- -----------
<S> <C> <C> <C> <C>
Allen Maier 52 Chairman 1983 2002
Joseph Prescrille 63 Vice Chairman 1995 2001
Brian Bowers 37 Treasurer and Director 1995 2003
M. Robin Copeland 45 Secretary and Director 1992 2002
Herbert J. Moltzan 54 President, CEO, Director and 1998 2002
CFO
Thomas Markel 46 Director 1994 2002
A. Virginia Wampler 53 Director 1983 2001
Harry Fox 52 Director 1987 2003
Peg Ohrt 52 Director 1998 2003
Dale Summers 42 Director 1991 2001
Debra J. Vinson (2) 41 Vice President N/A N/A
- Member Service
James Shinsky (2) 37 Vice President N/A N/A
- Systems and Support
</TABLE>
-------------------
(1) The terms for directors of BUCS Financial Corp will be the same as those of
the Bank.
(2) Such individual will continue as an officer of the Bank but will not be an
officer of BUCS Financial Corp.
The business experience for the past five years of each of the
directors and officers is as follows:
Allen Maier has been a Director of the Bank since 1983 and has served
as Chairman since 1996. Mr. Maier is a Sales Representative with CareFirst
BlueCross BlueShield, a position he has held since 1972. Mr. Maier also serves
on the Board of Directors for the Leukemia Society of Maryland.
Joseph Pescrille has been a Director of the Bank since 1996. Mr.
Pescrille retired during 1999. He was self-employed as an actuary/financial
consultant from 1996 to 1999. From 1994 to 1996, Mr. Prescrille served as the
Chief Financial Officer of United Health Care of Mid Atlantic. Prior to that, he
was a Senior Vice President and the Chief Actuary for Blue Cross and Blue Shield
of Maryland, Inc. He is active in volunteering for the Baltimore County
Department of Aging and is a member of the Board of Advisors for Play Centers
Inc., a non-profit child care organization.
Brian Bowers has served as a Director and Treasurer of the Bank since
1995. Mr. Bowers is licensed as a broker-dealer and has been employed as a
consultant/analyst with BB&T Capital Markets since early 2000. He currently
heads the fixed income research and analytics division, providing investment
management assistance to banks and publishing research on the fixed income
markets. For ten years prior to that, he was a Portfolio Manager for CareFirst
BlueCross BlueShield.
M. Robin Copeland has been a Director of the Bank since 1992 and has
served as Secretary since 1994. Ms. Copeland has been the Assistant Treasurer
and Vice President of Treasury for Magellan Behavioral Health, a managed care
organization, since 19___. Her duties include management of relationships with
banks.
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Herbert J. Moltzan been a Director of the Bank since 1998. He has
served as President and Chief Executive Officer of the Bank since 1985. Mr.
Moltzan also serves as the senior loan officer of the Bank and as the chief
financial officer. Mr. Moltzan is active in the Red Cross and volunteers for the
Edreco Little League and the Edreco Recreation Council. He also serves as
Committee Chairman for a local Boy Scout troop.
Thomas Markel has been a Director of the Bank since 1994. Mr. Markel is
a certified public accountant and since 1985 has served as the Controller and
the Assistant Vice President in Finance for Med Star Physician Partners, a
physician practice management firm.
A. Virginia Wampler has been a Director of the Bank since 1983. Ms.
Wampler has served as a Systems Manager for CareFirst BlueCross BlueShield since
1966 and is responsible for business design and support of core software systems
for health insurance products and claim processing administration.
Harry Fox has been a Director of the Bank since 1987. Mr. Fox has been
an Account Manager in large group renewal and upgrade sales for CareFirst
BlueCross BlueShield since 1972. He also serves on the Board of Directors for
the Pikesville Chamber of Commerce.
Peg Ohrt has been a Director of the Bank since 1998. Since 1998, Ms.
Ohrt has served as a Vice President of Human Resources for Corporate Office
Properties Trust, a business engaged in real estate investment trusts. From 1996
to 1997, Ms. Ohrt was employed by Aether Technologies Inc., a software
development company, and served as its Vice President of Human Resources and
Customer Service.
Dale Summers has served as a Director of the Bank since 1991. Mr.
Summers has been employed as a marketing manager by Advance Paradigm, a health
benefits management company, since 1998. From 1995 to 1998, he was employed as
the Director of Management Services for Ascendia Healthcare Management. Mr.
Summers is also active in fund-raising for educational institutions in the local
community.
Executive Officers Who Are Not Directors
Debra J. Vinson has served as the Vice President of Member Services and
Operations for the Bank since 1997, and has been employed by the Bank since
1987. Ms. Vinson functions as the Chief Operations Officer with control of all
front line activity. Her responsibilities include oversight for lending,
customer service, and branch offices. In addition, she manages Automated Teller
Machine administration and all plastic card programs at the Bank.
James Shinksy has served as Vice President of Systems and Support for
the Bank since 1997, and has been employed by the Bank since 1994. Mr. Shinsky
is responsible for all support activity, which includes the in-house data
processing and information systems. Following the conversion, it is expected
that Mr. Shinksy will assume more of the chief financial officer
responsibilities currently handled by the Bank's President, Mr. Moltzan.
Meetings and Committees of the Board of Directors
The Board of Directors conducts its business through meetings of the
board and through activities of its committees. During the year ended December
31, 1999, the Board of Directors held twelve regular meetings. No Director
attended fewer than 75% of the total meetings of the Board of Directors and
committees on which he served during the year ended December 31, 1999. The Bank
has a standing audit
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committee, as well an asset liability management committee and a compensation
committee. The entire Board of Directors serves as a nominating committee.
The audit committee of the Bank consists of Directors Markel, Wampler
and Fox. The audit committee generally meets quarterly and assures that internal
control policies are being followed. The audit committee also employs an outside
audit firm to conduct an annual financial statement audit and periodic internal
control reviews. The audit committee does not operate under a written charter,
and the committee met four times during the year end December 31, 1999.
The asset liability management committee meets at least quarterly and,
in addition to internal and external market analysis, the committee reviews the
need to revise product offerings or rates to maintain control on interest rate
sensitivity, and analyzes the overall structure of the balance sheet. Reports,
including recommendations, are made to the entire Board of Directors after each
meeting. The asset liability management committee met four times during the year
end December 31, 1999.
The compensation committee meets periodically, as needed, and reviews
the overall pay and benefit structure of the Bank to ensure that the Bank
remains competitive and is able to attract and retain competent staff. A major
function of the compensation committee is to develop the position description
and annual performance plan for the Chief Executive Officer. In addition, the
committee has engaged outside consultants to develop and review the Chief
Executive Officer's total compensation package and to make appropriate
recommendations to the Board of Directors. The compensation committee met four
times during the year end December 31, 1999.
Director Compensation
Board Fees. No directors fees were paid prior to March of 2000, at
which time fees for non- employee directors of $100 per meeting were set.
Directors who also serve as employees of the Bank do not receive compensation as
board members. Directors do not receive compensation for attending committee
meetings.
Director Retirement Program ("DRP"). We expect to implement a DRP to
provide retirement benefits to our directors based upon the number of years of
service to our board. If a director agrees to become a consulting director to
our board upon retirement, he would receive a monthly payment for a period of
time or until death. Benefits under our DRP would begin upon a director's
retirement. In the event there is a change in control, all directors would be
entitled to receive a lump sum payment based upon future benefits. We have not
determined the specific benefit to be provided to any director and have not yet
determined the full cost to us of this program because the specific benefits
have yet to be determined.
Executive Compensation
Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to or earned by our chief executive officer for
the year ended December 31, 1999. No other executive officer received a total
annual salary and bonus in excess of $100,000 during the reporting period.
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Annual Compensation
-------------------------------------
Fiscal Other Annual
Name and Principal Position Year Salary Bonus Compensation (1)
--------------------------- ---- ------ ----- ----------------
Herbert J. Moltzan, President 1999 $101,312 $14,532 $9,526
and Chief Executive Officer
--------------------
(1) Consists of Bank's contribution under 401(k) Plan.
Supplemental Executive Retirement Plan. We expect to implement a
supplemental executive retirement plan ("SERP") for the benefit of our
President, Mr. Moltzan. The SERP would provide Mr. Moltzan with a supplemental
retirement benefit in addition to benefits under the 401(k) Plan and the
proposed ESOP. Payments under the SERP would be accrued for financial reporting
purposes during the period of employment. The SERP would be unfunded. All
benefits payable under the SERP would be paid from our current assets. There are
no tax consequences to either participant or us related to the SERP prior to
payment of benefits. Upon receipt of payment of benefits, the participant will
recognize taxable ordinary income in the amount of such payments received and we
will be entitled to recognize a tax- deductible compensation expense at that
time.
Employment Agreements. The Bank has entered into an employment
agreement with its President and CEO, Herbert J. Moltzan. Mr. Moltzan's current
base salary under the employment agreement is $107,000. The employment agreement
has a term of three years. The agreement is terminable by us for "just cause" as
defined in the agreement. If we terminate Mr. Moltzan without just cause, he
will be entitled to a continuation of his salary from the date of termination
through the remaining term of the agreement, but in no event for a period of
less than 1 year. The employment agreement contains a provision stating that in
the event of the termination of employment in connection with any change in
control of us, Mr. Moltzan will be paid a lump sum amount equal to 2.99 times
his five-year average annual taxable compensation. If a payment had been made
under the agreement as of December 31, 1999, the payment would have equaled
approximately $277,000. The aggregate payment that would have been made to Mr.
Moltzan would be an expense to us and would have resulted in reductions to our
net income and capital. The agreement may be renewed annually by our Board of
Directors upon a determination of satisfactory performance within the board's
sole discretion. If Mr. Moltzan shall become disabled during the term of the
agreement, he shall continue to receive payment of 100% of his base salary for a
period of 12 months and 65% of his base salary for the remaining term of the
agreement. The payments shall be reduced by any other benefit payments made
under other disability programs in effect for our employees.
The Bank has also entered into severance/change in control agreements
with two other officers of the Bank under which each officer would be paid a
lump sum amount equal to two times his or her most recent calendar year taxable
cash compensation in the event of termination of employment in connection with
any change in control of the Bank. If a payment had been made under these two
agreements as of December 31, 1999, the aggregate payment would have equaled
approximately $223,000.
Employee Stock Ownership Plan. We have established an employee stock
ownership plan for the exclusive benefit of participating employees of ours, to
be implemented after the completion of the reorganization. Participating
employees are employees who have completed one year of service with us or our
subsidiary and have attained the age of 21. An application for a letter of
determination as to the tax-qualified status of the employee stock ownership
plan will be submitted to the IRS. Although no assurances can be given, we
expect that the employee stock ownership plan will receive a favorable letter of
determination from the IRS.
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The employee stock ownership plan is to be funded by contributions made
by us in cash or common stock. Benefits may be paid either in shares of the
common stock or in cash. The plan will borrow funds with which to acquire up to
8% of the common stock to be issued in the offering. The employee stock
ownership plan intends to borrow funds from BUCS Financial Corp. The loan is
expected to be for a term of ten years at an annual interest rate equal to the
prime rate as published in The Wall Street Journal. Presently it is anticipated
that the employee stock ownership plan will purchase up to 8% of the common
stock to be issued in the offering. The loan will be secured by the shares
purchased and earnings of employee stock ownership plan assets. Shares purchased
with loan proceeds will be held in a suspense account for allocation among
participants as the loan is repaid. It is anticipated that all contributions
will be tax-deductible. This loan is expected to be fully repaid in
approximately 10 years.
Shares sold above the maximum of the offering range may be sold to the
employee stock ownership plan before satisfying remaining unfilled orders of
Eligible Account Holders to fill the plan's subscription, or the plan may
purchase some or all of the shares covered by its subscription after the
offering in the open market.
Contributions to the employee stock ownership plan and shares released
from the suspense account will be allocated among participants on the basis of
total compensation. All participants must be employed at least 1,000 hours in a
plan year, or have terminated employment following death, disability or
retirement, in order to receive an allocation. Participant benefits become fully
vested in plan allocations following five years of service. Employment before
the adoption of the employee stock ownership plan shall be credited for the
purposes of vesting. Our contributions to the employee stock ownership plan are
discretionary and may cause a reduction in other forms of compensation,
including our 401(k) Savings Plan. As a result, benefits payable under this plan
cannot be estimated.
The board of directors has appointed the non-employee directors to a
committee that will administer the plan and to serve as the plan's trustees. The
trustees must vote all allocated shares held in the plan as directed by plan
participants. Unallocated shares and allocated shares for which no timely
direction is received will be voted as directed by the board of directors or the
plan's committee, subject to the trustees' fiduciary duties.
401(k) Savings Plan. The Bank sponsors a tax-qualified defined
contribution savings plan ("401(k) Plan") for the benefit of its employees.
Employees become eligible to participate under the 401(k) Plan on January 1 or
July 1 of each year after reaching age 21 and completing twelve months of
service. Under the 401(k) Plan, employees may voluntarily elect to defer between
0% and 15% of compensation, not to exceed applicable limits under the Code. In
1999, employees could defer up to $10,000. In addition, the Bank may contribute
an annual discretionary contribution to all participants under the 401(k) Plan.
In 1999, such Bank contribution was equal to 7.5% of base pay. Employee and
matching contributions vest at 20% per year over five years. The 401(k) Plan
will permit voluntary investments of plan assets by participants in this
offering of BUCS Financial Corp common stock.
Benefits are payable upon termination of employment, retirement, death,
disability, or plan termination. Normal retirement age under the 401(k) Plan is
65. Additionally, funds under the 401(k) Plan may be distributed upon
application to the plan administrator upon severe financial hardship in
accordance with uniform guidelines which comply with those specified by the
Code. It is intended that the 401(k) Plan operate in compliance with the
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the requirements of Section 401(a) of the Code. Contributions to
the 401(k) Plan by the Bank for employees may be reduced in the future or
eliminated as a result of contributions made to the Employee Stock Ownership
Plan. See "- Employee Stock Ownership Plan."
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Potential Stock Benefit Plans
Stock Option Plans. Following the offering, we intend to adopt a stock
option plan for directors and key employees within one year after the
conversion. Any plan adopted will be subject to stockholder approval and
applicable laws. Any plan adopted within one year of the conversion will require
the approval of a majority of our stockholders and will also be subject to
various other regulatory limitations. Up to 10% of the shares of common stock
sold in the offering will be reserved for issuance under the stock option plan.
No determinations have been made as to the specific terms of, or awards under,
the stock option plan.
The purpose of the stock option plan will be to attract and retain
qualified personnel in key positions, provide officers, key employees and
directors with a proprietary interest in BUCS Financial Corp as an incentive to
contribute to our success and reward officers and key employees for outstanding
performance. Although the terms of the stock option plan have not yet been
determined, it is expected that the stock option plan will provide for the grant
of: (2) options to purchase the common stock intended to qualify as incentive
stock options under the Code (incentive stock options); and (2) options that do
not so qualify (non-statutory stock options). Any stock option plans would be in
effect for up to ten years from the earlier of adoption by the Board of
Directors or approval by the stockholders.
Under the OTS conversion regulations, a stock option plan adopted
within a year of the conversion, would provide for a term of 10 years, after
which no awards could be made, unless earlier terminated by the Board of
Directors pursuant to the option plan and the options would vest over a five
year period at 20% per year, beginning one year after the date of grant of the
option. Options would expire no later than 10 years from the date granted and
would expire earlier if the option committee so determines or in the event of
termination of employment. Options would be granted based upon several factors,
including seniority, job duties and responsibilities, job performance, our
financial performance and a comparison of awards given by other savings
institutions converting from mutual to stock form.
Stock Programs. Following the offering, we also intend to establish
stock programs to provide our officers and outside directors with a proprietary
interest in BUCS Financial Corp. The stock programs are expected to provide for
the award of common stock, subject to vesting restrictions, to eligible
officers, employees and directors. Any plan adopted within one year of the
conversion would require the approval of a majority of our stockholders and will
also be subject to various other regulatory limitations.
We expect to contribute funds to stock programs to acquire, in the
aggregate, up to 4% of the shares of common stock sold in the offering. Shares
used to fund the stock programs may be acquired through open market purchases or
from authorized but unissued shares. No determinations have been made as to the
specific terms of stock programs.
Restrictions on Stock Benefit Plans. OTS regulations provide that if we
implement stock option or management and/or employee stock benefit plans within
one year from the date of conversion, the plans must comply with the following
restrictions:
o for stock option plans, the total number of shares for which options may be
granted may not exceed 10% of the shares issued in the conversion;
o for restricted stock plans such as the MRP, the shares may not exceed 3% of
the shares issued in the conversion (4% for institutions with 10% or
greater tangible capital);
o the aggregate amount of stock purchased by the ESOP in the conversion may
not exceed 10% (12% for well-capitalized institutions utilizing a 4%
management recognition plan);
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o no individual employee may receive more than 25% of the available awards
under the option plan or a restricted stock plan;
o directors who are not employees may not receive more than 5% individually
or 30% in the aggregate of the awards under any plan;
o all plans must be approved by a majority of the total votes eligible to be
cast at any duly called meeting of BUCS Financial Corp's stockholders held
no earlier than six months following the conversion;
o for stock option plans, the exercise price must be at least equal to the
market price of the stock at the time of grant;
o for restricted stock plans, no stock issued in a mutual-to-stock conversion
may by used to fund the plan; and
o neither stock option awards nor restricted stock awards may vest earlier
than 20% as of one year after the date of stockholder approval and 20% per
year thereafter, and vesting may be accelerated only in the case of
disability of death, or if not inconsistent with applicable OTS regulations
in effect at the time, in the event of a change in control.
Transactions with Management and Others
No directors, executive officers or their immediate family members were
engaged in transactions with the Bank or any subsidiary involving more than
$60,000 (other than through a loan) during the six months ended June 30, 2000 or
the year ended December 31, 1999. Furthermore, the Bank had no "interlocking"
relationships in which (2) any executive officer is a member of the Board of
Directors or of another entity, one of whose executive officers are a member of
the Bank's Board of Directors, or where (2) any executive officer is a member of
the compensation committee of another entity, one of whose executive officers is
a member of the Bank's Board of Directors.
The Bank has followed the policy of offering residential mortgage loans
for the financing of personal residences and consumer loans to its officers,
directors and employees. Loans are made in the ordinary course of business and
also made on substantially the same terms and conditions, including interest
rate and collateral, as those of comparable transactions prevailing at the time
with other persons, and do not include more than the normal risk of
collectibility or present other unfavorable features. As of June 30, 2000, the
aggregate principal balance of loans outstanding to all directors, executive
officers and their immediate family members was approximately $265,000.
THE CONVERSION
The Board of Directors of BUCS Federal has adopted the plan authorizing
the conversion and the offering, subject to the approval of the OTS and of the
members of the Bank and the satisfaction of certain other conditions. OTS
approval does not constitute a recommendation or endorsement of the plan by the
OTS.
General
On September 25, 2000, the Board of Directors of BUCS Federal adopted
the plan of conversion and stock issuance which was subsequently amended,
pursuant to which the Bank proposes to reorganize from a federally chartered
mutual savings institution to a federally chartered stock savings institution.
The Bank will become a wholly owned subsidiary of BUCS Financial Corp.
Concurrently with the conversion, BUCS Financial Corp will sell its common stock
in the offering to the Bank's members and, if necessary,
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the general public. The Board of Directors unanimously adopted the Plan after
consideration of the advantages and the disadvantages of the conversion and
offering. After we receive all the required approvals from the government
agencies that regulate us, the approval of the plan by the Bank's members and
the satisfaction of all other conditions precedent to the conversion, the Bank
will effect the conversion by exchanging its federal mutual savings institution
charter for a federal stock savings institution charter and becoming a wholly
owned subsidiary of BUCS Financial Corp, and having the depositors of the Bank
receive liquidation interests in the newly formed stock savings institution as
they have in the Bank before the conversion. See "- Description of the
Conversion." On the effective date, BUCS Financial Corp will commence business
as BUCS Financial Corp, a savings and loan holding company, and the Bank will
commence business as a federally chartered stock savings bank. The conversion
will be accomplished in accordance with the procedures set forth in the plan,
the requirements of applicable laws and regulations, and the policies of the
OTS.
For additional information concerning the offering, see "The Offering."
Purposes of the Conversion
The Board of Directors of BUCS Federal has determined that the
conversion is in the best interest of the Bank and has several business purposes
for the conversion.
The conversion will structure the Bank in the stock form, which is used
by commercial banks, most major business corporations and an increasing number
of savings institutions. Formation of the Bank as a capital stock savings
institution subsidiary of BUCS Financial Corp will permit BUCS Financial Corp to
issue stock, which is a source of capital not available to mutual savings
institutions. The holding company form of organization is expected to provide
additional flexibility to diversify the Bank's business activities through
existing or newly formed subsidiaries, or through acquisitions of or mergers
with other financial institutions, as well as other companies. Although the Bank
has no current arrangements, understandings or agreements regarding any
opportunities, BUCS Financial Corp will be in a position after the conversion
and offering, subject to regulatory limitations and BUCS Financial Corp's
financial position, to take advantage of any acquisition, merger or
diversification opportunities that may arise.
BUCS Financial Corp is offering for sale its common stock in the
offering at an aggregate price based on an independent appraisal. The proceeds
from the sale of common stock of BUCS Financial Corp will provide the Bank with
new equity capital, which will support future deposit growth and expanded
operations. The ability of BUCS Financial Corp to sell stock also will enable
BUCS Financial Corp and the Bank to increase capital in response to the changing
capital requirements of the OTS. While the Bank currently meets or exceeds all
regulatory capital requirements, the sale of stock in connection with the
conversion, coupled with the accumulation of earnings, less dividends or other
reductions in capital, from year to year, represents a means for the orderly
preservation and expansion of the Bank's capital base, and allows flexibility to
respond to sudden and unanticipated capital needs. After the conversion and
offering, BUCS Financial Corp may repurchase shares of its common stock. The
investment of the net proceeds of the offering also will provide additional
income to enhance further the Bank's future capital position.
The ability of BUCS Financial Corp to issue stock also will enable it
in the future to establish stock benefit plans for management and employees of
BUCS Financial Corp and the Bank, including incentive stock option plans, stock
award plans, and employee stock ownership plans.
BUCS Financial Corp will also be able to borrow funds, on a secured and
unsecured basis, and to issue debt to the public or in a private placement. The
proceeds of any borrowings or debt issuance may
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be contributed to the Bank as core capital for regulatory capital purposes. BUCS
Financial Corp has not made a determination to borrow funds or issue debt at the
present time.
Description of the Conversion
After receiving all of the required approvals from the government
agencies that regulate us and the ratification of the plan of conversion by the
Bank's members, the conversion will be completed. After the conversion, the
legal existence of the Bank will not terminate, the converted stock bank will be
a continuation of the Bank and all property of the Bank, including its right,
title, and interest in and to all property of any kind and nature, interest and
asset of every conceivable value or benefit then existing or pertaining to the
Bank, or which would inure to the Bank immediately by operation of law and
without the necessity of any conveyance or transfer and without any further act
or deed, will continue to be owned by the Bank. The Bank will possess, hold and
enjoy the same in its right and fully and to the same extent as the same was
possessed, held and enjoyed by the Bank. The Bank will continue to have, succeed
to, and be responsible for all the rights, liabilities, and obligations of the
Bank and will maintain its headquarters operations at the Bank's present
location.
The foregoing description of the conversion is qualified in its
entirety by reference to the plan and the charter and bylaws of the Bank and
BUCS Financial Corp to be effective after the conversion.
Effects of the Conversion
General. The conversion will not have any effect on the Bank's present
business of accepting deposits and investing its funds in loans and other
investments permitted by law. The conversion will not result in any change in
the existing services provided to depositors and borrowers, or in existing
offices, management, and staff. After the conversion, the Bank will continue to
be subject to regulation, supervision, and examination by the OTS and the FDIC.
Deposits and Loans. Each holder of a deposit account in the Bank at the
time of the conversion will continue as an account holder in the Bank after the
conversion, and the conversion will not affect the deposit balance, interest
rate, or other terms. Each deposit account will be insured by the FDIC to the
same extent as before the conversion. Depositors will continue to hold their
existing certificates, savings records, checkbooks, and other evidence of their
accounts. The conversion will not affect the loans of any borrower from the
Bank. The amount, interest rate, maturity, security for, and obligations under
each loan will remain contractually fixed as they existed prior to the
conversion. See "- Voting Rights" and "- Liquidation Rights" below for a
discussion of the effects of the conversion on the voting and liquidation rights
of the depositors of the Bank.
Voting Rights. As a federally chartered mutual savings institution, the
Bank has no authority to issue capital stock and thus, no stockholders. Control
of the Bank in its mutual form is vested in the Board of Directors of the Bank.
The Directors are elected by the Bank's members. Holders of qualifying deposits
in the Bank are members of the Bank. In the consideration of all questions
requiring action by members of the Bank, each holder of a qualifying deposit is
permitted to cast one vote for each $100, or fraction thereof, of the withdrawal
value of the voting depositor's account. No member may cast more than 1,000
votes.
After the conversion, all voting rights will be held solely by
stockholders. A stockholder will be entitled to one vote for each share of
common stock owned.
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Tax Effects. We have received an opinion from our counsel, Malizia
Spidi & Fisch, PC on the federal tax consequences of the conversion. The opinion
has been filed as an exhibit to the registration statement of which this
prospectus is a part and covers those federal tax matters that are material to
the transaction. The opinion provides that:
o the conversion will qualify as a reorganization under Section
368(a)(1)(F) of the Code, and no gain or loss will be recognized
by us by reason of the proposed conversion;
o no gain or loss will be recognized by us upon the receipt of
money from BUCS Financial Corp for our stock, and no gain or loss
will be recognized by BUCS Financial Corp upon the receipt of
money for the shares;
o no gain or loss will be recognized by the Eligible Account
Holders, Supplemental Eligible Account Holders, and Other Members
upon the issuance to them of withdrawable savings accounts in us
in the stock form in the same dollar amount as their savings
accounts in us in the mutual form plus an interest in the
liquidation account of us in the stock form in exchange for their
savings accounts in us in the mutual form; and
o provided that the amount to be paid for the shares pursuant to
the subscription rights is equal to the fair market value of the
shares, no gain or loss will be recognized by Eligible Account
Holders, Supplemental Eligible Account Holders, and Other Members
under the Plan upon the distribution to them of nontransferable
subscription rights.
We have received an opinion from FinPro which concludes that the
subscription rights will not have any economic value at the time the rights are
distributed or at the time the shares are purchased. FinPro's opinion is based
on the fact that the subscription rights:
o are given to the recipients without payment;
o may not be sold or transferred;
o are good only for a short time; and
o give the recipients only the right to purchase shares at a price
equal to the estimated fair market value, which will be the same
price at which shares would be sold in a community offering, if
such an offering occurs.
If the subscription rights were determined to have an economic value,
receipt of the subscription rights would be taxable in an amount equal to that
value. The opinion of Malizia Spidi & Fisch, PC relies in part on the FinPro
opinion.
We are also subject to Maryland income taxes and have received an
opinion from Malizia Spidi & Fisch, PC that the conversion will be treated for
Maryland state tax purposes similar to the conversion's treatment for federal
tax purposes.
Unlike a private letter ruling from the IRS, the opinions of Malizia
Spidi & Fisch, PC and FinPro have no binding effect or official status, and no
assurance can be given that the conclusions reached in any of those opinions
would be sustained by a court if contested by the IRS or the Maryland tax
authorities. Eligible Account Holders, Supplemental Eligible Account Holders,
and Other Members are encouraged to consult with their own tax advisers as to
the tax consequences in the event the subscription rights are determined to have
an economic value. If the subscription rights are determined to have an economic
value, eligible account holders, supplemental eligible account holders, and
other members may be determined to have taxable income based upon that value.
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Liquidation Account. In the unlikely event of our complete liquidation
in our present mutual form, each depositor is entitled to share in a
distribution of our assets, remaining after payment of claims of all creditors
(including the claims of all depositors to the withdrawal value of their
accounts). Each depositor's pro rata share of the remaining assets would be in
the same proportion as the value of his deposit accounts was to the total value
of all deposit accounts in us at the time of liquidation.
Upon a complete liquidation after the conversion, each depositor would
have a claim, as a creditor, of the same general priority as the claims of all
other general creditors of ours. Except as described below, a depositor's claim
would be solely in the amount of the balance in his deposit account plus accrued
interest. A depositor would not have an interest in the residual value of our
assets above that amount, if any.
The Plan provides for the establishment, upon the completion of the
conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders. Each Eligible Account
Holder and Supplemental Eligible Account Holder, if he continues to maintain his
deposit account with us, would be entitled on a complete liquidation of us after
conversion, to an interest in the liquidation account prior to any payment to
stockholders. Each Eligible Account Holder would have an initial interest in the
liquidation account for each deposit account held in us on the qualifying date,
February 28, 1998. Each Supplemental Eligible Account Holder would have a
similar interest as of the qualifying date, September 30, 2000. The interest as
to each deposit account would be in the same proportion of the total liquidation
account as the balance of the deposit account on the qualifying dates was to the
aggregate balance in all the deposit accounts of Eligible Account Holders and
Supplemental Eligible Account Holders on the qualifying dates. However, if the
amount in the deposit account on any annual closing date of ours (December 31)
is less than the amount in the liquidation account on the respective qualifying
dates, then the interest in this special liquidation account would be reduced
from time to time by an amount proportionate to any reduction, and the interest
would cease to exist if the deposit account were closed. The interest in the
special liquidation account will never be increased despite any increase in the
related deposit account after the respective qualifying dates.
No merger, consolidation, purchase of bulk assets with assumptions of
savings accounts and other liabilities, or similar transactions with another
insured institution in which we, in our converted form, are not the surviving
institution, shall be considered a complete liquidation. In these transactions,
the liquidation account shall be assumed by the surviving institution.
Accounting Consequences
The conversion will be accounted for in a manner similar to a
pooling-of-interests under GAAP. This means that the carrying value of the
Bank's assets, liabilities, and capital will be unaffected by the conversion and
will be reflected in BUCS Financial Corp's and the Bank's consolidated financial
statements based on their historical amounts.
Conditions to the Conversion
Before we can complete the conversion, BUCS Financial Corp and the Bank
must receive all the required approvals from the government agencies that
regulate us, including various approvals or non- objections from the OTS. The
receipt of these approvals or non-objections from the OTS does not constitute a
recommendation or endorsement of the plan or conversion by the OTS. Consummation
of the conversion also is subject to ratification of the plan by a majority of
the total votes of depositors at a special
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<PAGE>
meeting called for the purpose of approving the plan. The Board of Directors may
decide to consummate the conversion without forming a holding company.
Amendment or Termination of the Plan of Conversion
If determined to be necessary or desirable by the Board of Directors of
the Bank, the plan may be amended by a two-thirds vote of the Bank's Board of
Directors, with the concurrence of the OTS, at any time prior to or after
submission of the plan to members of the Bank for ratification. The plan may be
terminated by the Board of Directors of the Bank at any time prior to or after
ratification by the members, by a two-thirds vote with the concurrence of the
OTS.
RESTRICTIONS ON ACQUISITION OF BUCS FINANCIAL CORP
General
The following discussion is a summary of statutory and regulatory
restrictions on the acquisition of our common stock. In addition, the following
discussion summarizes provisions of our articles of incorporation and bylaws and
regulatory provisions that have an anti-takeover effect.
Statutory and Regulatory Restrictions on Acquisition
Regulatory Restrictions Applicable for Three Years. For three years
following a savings association's conversion to stock form, OTS regulations
prohibit any person, without the prior approval of the OTS, from acquiring or
making an offer to acquire more than 10% of the stock of the converted
institution or of its holding company if such person is, or after consummation
of such acquisition would be, the beneficial owner of more than 10% of such
stock. In the event that any person, directly or indirectly, violates this
regulation, the shares beneficially owned by such person in excess of 10% shall
not be counted as shares entitled to vote and shall not be voted by any person
or counted as voting shares in connection with any matter submitted to a vote of
stockholders.
In the recent past, it has been the OTS's general policy to routinely
approve acquisitions in excess of 10% of the stock of converted savings
associations or their holding companies after the passage of one year from the
conversion, especially when such acquisitions are negotiated with the target
company. However, the OTS has recently proposed a regulation that would impose
more stringent restrictions on the OTS's ability to approve acquisitions of
greater than 10% in the three years after a conversion and has stated that it
intends to approve only those acquisitions of control within three years that
comply strictly with the regulatory criteria. If this rule is adopted in its
proposed form, it may prevent any acquisition of control of us, whether
"friendly" or hostile, for at least three years after the completion of the
conversion.
Statutory and Regulatory Change in Control Restrictions. Federal law
provides that no person, acting directly or indirectly or through or in concert
with one or more other persons, may acquire control of a savings association
unless the OTS has been given 60 days prior written notice. Federal law provides
that no company may acquire control of a savings association or a savings and
loan holding company without the prior approval of the OTS. Any company that
acquires control becomes a "savings and loan holding company" subject to
registration, examination and regulation by the OTS. Pursuant to federal
regulations, control is considered to have been acquired when an entity, among
other things, has acquired more than 25 percent of any class of voting stock of
the institution or the ability to control the election of a majority of the
directors of an institution. Moreover, control is presumed to have occurred,
subject to rebuttal, upon the acquisition of more than 10 percent of any class
of voting stock, or of more than 25
80
<PAGE>
percent of any class of stock, of a savings institution, where certain
enumerated control factors are also present in the acquisition. The OTS may
prohibit an acquisition of control if: (1) it would result in a monopoly or
substantially lessen competition; (2) the financial condition of the acquiring
person might jeopardize the financial stability of the institution; or (3) the
competence, experience or integrity of the acquiring person indicates that it
would not be in the interest of the depositors or of the public to permit the
acquisition of control by that person. The foregoing restrictions do not apply
to the acquisition of stock by one or more tax-qualified employee stock benefit
plans, provided that the plan or plans do not have beneficial ownership in the
aggregate of more than 25 percent of any class of our equity securities.
BUCS Financial Corp's Articles of Incorporation and Bylaws
General. Our articles of incorporation and bylaws are available at our
administrative office or by writing or calling us, 10455 Mill Run Circle, Owings
Mills, Maryland 21117. Our telephone number is (410) 998-5304.
Classified Board of Directors and Related Provisions. Our Board of
Directors is divided into three classes which are as nearly equal in number as
possible. Directors serve for terms of three years. As a result, each year, only
one-third of the directors are to be elected and it would take at least two
years to elect a majority of our directors. A director may be removed only by a
vote of the holders of a majority of the shares.
Restrictions on Voting of Securities. Our articles of incorporation
provides that any shares of common stock beneficially owned directly or
indirectly in excess of 10% by any person will not be counted as shares entitled
to vote, shall not be voted by any person or counted as voting shares, and will
not be counted as outstanding for purposes of determining a quorum or the
affirmative vote necessary to approve any matter submitted to the stockholders
for a vote. The purpose of this provision is to reduce the chance that large
stockholders could challenge our management.
Prohibition Against Cumulative Voting. Our articles of incorporation
prohibit cumulative voting by stockholders in the election of directors. The
absence of cumulative voting means that the holders of a majority of the shares
voted may, if they so choose, elect all of the directors elected at the meeting,
thus preventing a minority stockholder from obtaining representation on our
Board of Directors unless the minority stockholder is able to obtain the support
of a majority.
Procedures for Certain Business Combinations. The Maryland General
Corporation Law (the "MGCL") contains a statute designed to provide Maryland
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Subtitle 6, Section 3-601 through 3-604 of the
MGCL ("Subtitle 6"), among other things, prohibits a company with 100 or more
beneficial owners of stock from engaging in certain business combinations
(including a merger) with a person who is the beneficial owner of 10% or more of
the company's outstanding voting stock, or with an affiliate or associate of the
company who any time within the two year period immediately prior to the date in
question was the beneficial owner of 10% or more of the voting power of the then
outstanding voting stock (an "Interested Stockholder"), during the five year
period following the date such person became an Interested Stockholder. This
restriction does not apply if (1) the Board of Directors has approved or
exempted from Subtitle 6, a business combination prior to the Interested
Stockholder becoming an Interested Stockholder; (2) a charter amendment is
adopted by a vote of at least 80% of the votes entitled to be cast by
outstanding shares of voting stock of the company and two-thirds of the votes
entitled to be cast by persons (if any) who are not Interested Stockholders of
the company or affiliates or associates of Interested Stockholders, expressly
electing not to be governed by the provisions of Subtitle 6; or (3) the company
elects in its
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<PAGE>
original articles not to be governed by the statute. BUCS Financial Corp has
elected to be governed by Subtitle 6, thus the requirements described above with
respect to combinations with Interested Stockholders will apply to us.
Furthermore, in addition to any vote otherwise required by Maryland law
or the charter of BUCS Financial Corp, a business combination that is not
prohibited by Subtitle 6 must be recommended by the Board of Directors and
approved by the affirmative vote of at least (i) 80% of the votes entitled to be
cast by outstanding shares of voting stock of BUCS Financial Corp; and (ii)
two-thirds of the votes entitled to be cast by holders of voting stock other
than voting stock held by the Interested Stockholder, unless certain fair price
provisions, as provided for in the statute, are met.
In addition to the Interested Stockholder restrictions, our articles of
incorporation also require the affirmative vote of at least 80% of the shares in
order for us to enter into any merger, consolidation, sale, liquidation, or
dissolution of BUCS Financial Corp, unless the transaction is approved by
two-thirds of our Board of Directors.
Amendment to our Articles of Incorporation and Bylaws. Amendments to
our articles of incorporation must be approved by our Board of Directors and
also by the holders of a majority of the shares. Approval by at least 80% of the
shares is required to amend provisions relating to restrictions on the
acquisition and voting of more than 10% of the common stock; number, election
and removal of directors; amendment of bylaws; call of special stockholder
meetings; director liability; certain business combinations; and power of
indemnification.
Our bylaws may be amended by a majority vote of our Board of Directors
or by the holders of at least 80% of the shares.
Additional Anti-Takeover Provisions. The provisions described above are
not the only provisions of our articles of incorporation and bylaws which have
an anti-takeover effect. For example, our articles of incorporation authorize
the issuance of up to two million shares of preferred stock, which conceivably
would represent an additional class of stock required to approve any proposed
acquisition. This preferred stock, none of which has been issued, together with
authorized but unissued shares of the common stock (our articles of
incorporation authorize the issuance of up to eight million shares of common
stock), also could represent additional capital required to be purchased by the
acquiror.
Furthermore, for a period of five years after the conversion, the stock
charter of the Bank provides that no person can directly or indirectly offer to
acquire or acquire the beneficial ownership of more than 10 percent of any class
of securities of the Bank. In the event shares are acquired in violation of this
prohibition, all shares beneficially owned by any person in excess of 10% shall
be considered "excess shares" and shall not be counted as shares entitled to
vote and shall not be voted by any person or counted as voting shares in
connection with any matters submitted to the stockholders for a vote.
In addition to discouraging a takeover attempt which a majority of our
stockholders might determine to be in their best interest or in which our
stockholders might receive a premium over the current market prices for their
shares, the effect of these provisions may render the removal of our management
more difficult.
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DESCRIPTION OF CAPITAL STOCK
BUCS Financial Corp is authorized to issue 5,000,000 shares of common
stock, par value $0.10 per share and 2,000,000 shares of serial preferred stock,
par value $0.10 per share. We currently expect to issue between 348,500 and
471,500 shares of common stock in the conversion, subject to an increase to
542,225 shares. See "Capitalization." Upon payment of the purchase price shares
of common stock issued in the offering will be fully paid and non-assessable.
The common stock will represent nonwithdrawable capital, will not be an account
of insurable type and will not be insured by the FDIC or any other governmental
agency. See also "Dividend Policy."
Voting Rights
The holders of common stock will possess exclusive voting rights in
BUCS Financial Corp. The holder of shares of common stock will be entitled to
one vote for each share held on all matters subject to stockholder vote. See
also "The Conversion - Effects of the Conversion - Voting Rights"
Liquidation Rights
In the event of any liquidation, dissolution, or winding-up of BUCS
Financial Corp, the holders of the common stock generally would be entitled to
receive, after payment of all debts and liabilities of BUCS Financial Corp
(including all debts and liabilities of the Bank), all assets of BUCS Financial
Corp available for distribution. See also "The Conversion - Effects of the
Conversion - Liquidation Rights."
Preemptive Rights; Redemption
Because the holders of the common stock do not have any preemptive
rights with respect to any shares we may issue, the Board of Directors may sell
shares of capital stock of BUCS Financial Corp without first offering such
shares to existing stockholders of BUCS Financial Corp. The common stock will
not be subject to any redemption provisions.
Preferred Stock
We are authorized to issue up to 2,000,000 shares of serial preferred
stock and to fix and state voting powers, designations, preferences, or other
special rights of preferred stock and the qualifications, limitations and
restrictions of those shares as the Board of Directors may determine in its
discretion. Preferred stock may be issued in distinctly designated series, may
be convertible into common stock and may rank prior to the common stock as to
dividends rights, liquidation preferences, or both, and may have full or limited
voting rights. The issuance of preferred stock could adversely affect the voting
and other rights of holders of common stock.
The authorized but unissued shares of preferred stock and the
authorized but unissued and unreserved shares of common stock will be available
for issuance in future mergers or acquisitions, in future public offerings or
private placements. Except as otherwise required to approve the transaction in
which the additional authorized shares of preferred stock would be issued, no
stockholder approval generally would be required for the issuance of these
shares.
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<PAGE>
LEGAL AND TAX OPINIONS
The legality of the issuance of the common stock being offered and
certain matters relating to the conversion and federal and state taxation will
be passed upon for us by Malizia Spidi & Fisch, PC, Washington, D.C. Certain
legal matters will be passed upon for Trident Securities, Inc. by Muldoon,
Murphy & Faucette LLP.
EXPERTS
The consolidated financial statements of BUCS Federal as of December
31, 1999 and 1998 and for each of the years in the two year period ended
December 31, 1999 have been included in this prospectus in reliance upon the
report of Jameson & Associates, P.A., certified public accountants, Baltimore,
Maryland, appearing elsewhere in this prospectus, and upon the authority of said
firm as experts in accounting and auditing.
FinPro, Inc. has consented to the publication in this document of a
summary of its letter to BUCS Federal setting forth its opinion as to the
estimated pro forma market value of the common stock upon the conversion and
stock offering and its opinion setting forth the value of subscription rights
and to the use of its name and statements with respect to it appearing in this
document.
REGISTRATION REQUIREMENTS
Our common stock will be registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). We will be
subject to the information, proxy solicitation, insider trading restrictions,
tender offer rules, periodic reporting and other requirements of the SEC under
the Exchange Act. We may not deregister the common stock under the Exchange Act
for a period of at least three years following the conversion.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the informational requirements of the Exchange Act
and must file reports and other information with the SEC.
We have filed with the SEC a registration statement on Form SB-2 under
the Securities Act of 1933, as amended, with respect to the common stock offered
in this document. As permitted by the rules and regulations of the SEC, this
document does not contain all the information set forth in the registration
statement. This information can be examined without charge at the public
reference facilities of the SEC located at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of the registration materials can be obtained from the
SEC at prescribed rates. You may obtain information on the operation of the
Public Reference Room by calling 1-800-SEC-0330. The SEC also maintains an
internet address ("Web site") that contains reports, proxy and information
statements and other information regarding registrants, including BUCS Financial
Corp, that file electronically with the SEC. The address for this Web site is
"http://www.sec.gov." The statements contained in this document as to the
contents of any contract or other document filed as an exhibit to the Form SB-2
are, of necessity, brief descriptions and are not necessarily complete; each
statement is qualified by reference to the complete contract or document.
A copy of our articles of incorporation and bylaws, as well as those of
the Bank, are available without charge from BUCS Federal. Copies of the plan of
conversion are also available without charge.
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<PAGE>
The Bank has filed an application for conversion with the OTS. This
prospectus omits certain information contained in that application. That
information can be examined without charge at the public reference facilities of
the OTS located at 1700 G Street, N.W., Washington, D.C. 20552.
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<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
BUCS Federal and Subsidiaries
Independent Auditor's Report F-1
Consolidated Balance Sheets as of December 31, 1999
and December 31, 1998 F-2
Consolidated Statements of Operations for each of the years in the
two-year period ended December 31, 1999 F-3
Consolidated Statements of Equity for each of the years in the
two-year period ended December 31, 1999 F-4
Consolidated Statements of Cash Flows for each of the years in the
two-year period ended December 31, 1999 F-5
Notes to Consolidated Financial Statements F-7
Other schedules are omitted as they are not required or are not
applicable or the required information is shown in the consolidated financial
statements or related notes.
Financial statements of BUCS Financial Corp have not been provided
because it has conducted no operations.
86
<PAGE>
================================================================================
JAMESON
============
& ASSOCIATES, P.A.
-------------
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
The Board of Directors
BUCS Federal
Owings Mills, Maryland
We have audited the accompanying consolidated balance sheets of BUCS Federal and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements (restated) of operations, equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 14, BUCS Federal restated its financial statements for the
year ended December 31, 1998.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of BUCS Federal and
subsidiaries as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for the years then ended (restated for 1998) in
conformity with generally accepted accounting principles.
/s/Jameson & Associates, P.A.
Baltimore, Maryland
January 12, 2000
September 18, 2000 (1998 restated)
--------------------------------------------------------------------------------
515 E. Joppa Road - Baltimore, Maryland 21286
Telephone 410-825-5580 - Telecopier 410-321-0922
================================================================================
<PAGE>
BUCS FEDERAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998 AND JUNE 30, 2000
ASSETS
<TABLE>
<CAPTION>
June 30, 2000 December 31, December 31,
(Unaudited) 1999 1998
------------- ----------- -----------
<S> <C> <C> <C>
Cash and cash equivalents $ 4,173,275 $ 4,870,193 $ 3,592,283
Securities available for sale 15,384,980 15,072,643 13,994,874
Securities held to maturity 963,609 970,600 1,174,000
Loans receivable, net 45,896,473 43,934,713 45,636,375
Accrued interest receivable 343,422 352,664 295,875
Property and equipment, net 1,423,208 1,457,162 755,091
Investment required by law -
Federal Home Loan Bank stock, 930,800 930,800 250,000
Prepaid expenses and other
assets 516,456 566,384 497,943
----------- ----------- -----------
Total assets $69,632,223 $68,155,159 $66,196,441
=========== =========== ===========
LIABILITIES AND EQUITY
Liabilities
Deposits $48,001,109 $43,332,634 $55,416,437
Accounts payable and
other liabilities 1,099,933 726,848 397,312
Borrowed funds - Federal
Home Loan Bank 15,000,000 18,615,000 5,000,000
----------- ----------- -----------
64,101,042 62,674,482 60,813,749
----------- ----------- -----------
Equity
Retained earnings 5,895,815 5,793,777 5,360,968
Accumulated other com-
prehensive income (loss) (364,634) (313,100) 21,724
----------- ----------- -----------
5,531,181 5,480,677 5,382,692
----------- ----------- -----------
Total liabilities
and equity $69,632,223 $68,155,159 $66,196,441
=========== =========== ===========
</TABLE>
These consolidated financial statements should be read only
in accordance with the accompanying summary of significant
accounting policies and notes to consolidated statements.
F-2
<PAGE>
BUCS FEDERAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 (RESTATED)
AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
For the six months ended June 30, December 31,
2000 1999 December 31, 1999
(Unaudited) (Unaudited) 1998 (Restated)
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income
Loans receivable $1,880,295 $1,767,556 $3,620,604 $3,853,196
Securities 651,224 632,679 1,230,226 776,275
---------- ---------- ---------- ----------
Total interest income 2,531,519 2,400,235 4,850,830 4,629,471
---------- ---------- ---------- ----------
Interest expense
Deposits 873,142 1,078,448 1,892,754 2,228,906
Borrowed funds 466,721 126,642 576,825 5,566
---------- ---------- ---------- ----------
1,339,863 1,205,090 2,469,579 2,234,472
---------- ---------- ---------- ----------
Net interest income 1,191,656 1,195,145 2,381,251 2,394,999
Provision for loan losses 80,000 120,000 220,000 300,000
---------- ---------- ---------- ----------
1,111,656 1,075,145 2,161,251 2,094,999
---------- ---------- ---------- ----------
Noninterest income
Fees and service charges 328,383 289,712 694,284 489,592
Gain on disposition of VISA loan
portfolio - 160,500 160,500 -
Other 144,841 10,117 (7,134) 33,520
---------- ---------- ---------- ----------
Total noninterest income 473,224 460,329 847,650 523,112
---------- ---------- ---------- ----------
1,584,880 1,535,474 3,008,901 2,618,111
---------- ---------- ---------- ----------
Noninterest expense
Compensation and benefits 643,020 527,864 1,069,141 1,015,603
Professional fees 57,569 38,338 82,306 100,930
Occupancy expense 203,870 133,141 292,921 238,911
Office operations 271,811 253,875 519,695 639,534
Other operating expense 255,874 169,106 380,304 287,342
---------- ---------- ---------- ----------
Total noninterest expense 1,432,144 1,122,324 2,344,367 2,282,320
---------- ---------- ---------- ----------
Income before income taxes 152,736 413,150 664,534 335,791
Income taxes 50,698 137,369 231,725 -
---------- ---------- ---------- ----------
Net income $ 102,038 $ 275,781 $ 432,809 $ 335,791
========== ========== ========== ==========
</TABLE>
These consolidated financial statements should be read only
in accordance with the accompanying summary of significant
accounting policies and notes to consolidated statements.
F-3
<PAGE>
BUCS FEDERAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 (RESTATED)
AND FOR THE SIX MONTH PERIOD JANUARY 1, 2000 TO JUNE 30, 2000
Accumulated
other
comprehensive
Earnings income (loss) Total
-------- ------------- ---------
Balance, December 31, 1997
of BUCS Federal Credit
Union and subsidiary before
restatement $ 5,275,177 $ (30,522) $ 5,244,655
Increase in allowance for
loan losses (250,000) - (250,000)
----------- ----------- -----------
Balance, December 31, 1997
restated 5,025,177 (30,522) 4,994,655
Net income for the year
ended December 31, 1998
as restated 335,791 - 335,791
Net change in unrealized
appreciation on invest-
ments available for sale - 52,246 52,246
-----------
Comprehensive income 388,037
----------- ----------- -----------
Balance, December 31, 1998 5,360,968 21,724 5,382,692
Net income for the year
ended December 31, 1999 432,809 - 432,809
Net change in unrealized
appreciation (loss) on invest-
ments available for sale - (334,824) (334,824)
-----------
Comprehensive income 97,985
----------- ----------- -----------
Balance, December 31, 1999 5,793,777 (313,100) 5,480,677
Net income for the six month
period ended June 30, 2000 102,038 - 102,038
Net change in unrealized
appreciation (loss) on invest-
ments available for sale - (51,534) (51,534)
-----------
Comprehensive income 50,504
----------- ----------- -----------
Balance, June 30, 2000
(unaudited) $ 5,895,815 $ (364,634) $ 5,531,181
=========== =========== ===========
These consolidated financial statements should be read only
in accordance with the accompanying summary of significant
accounting policies and notes to consolidated statements.
F-4
<PAGE>
BUCS FEDERAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 (RESTATED)
AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
For the six months ended June 30, December 31,
2000 1999 December 31, 1998
(Unaudited) (Unaudited) 1999 (Restated)
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Cash inflows
Interest income $ 2,540,761 $ 2,477,634 $ 4,794,041 $ 4,594,068
Fees and service charges 328,383 289,712 694,284 489,592
Other income 144,841 170,617 153,366 33,520
------------ ------------ ----------- -----------
3,013,985 2,937,963 5,641,691 5,117,180
------------ ------------ ----------- -----------
Cash outflows
General and administrative expenses 898,066 536,406 2,209,619 2,166,671
Interest on deposits 873,142 1,092,958 1,912,831 1,968,660
Interest on borrowed funds 532,771 451,412 460,625 5,566
Income taxes -- -- 42,000 -
------------ ------------ ----------- -----------
2,303,979 2,080,776 4,625,075 4,140,897
------------ ------------ ----------- -----------
Net cash provided by operating
activities 710,006 857,187 1,016,616 976,283
------------ ------------ ----------- -----------
Cash flows from investing activities
Cash inflows
Loan principal repayments 9,200,917 14,249,258 26,269,078 13,945,495
Proceeds from sales and redemptions
of securities 1,261,540 4,073,440 5,520,781 5,359,536
------------ ------------ ----------- -----------
10,462,457 18,322,698 31,789,859 19,305,031
------------ ------------ ----------- -----------
Cash outflows
Purchase of securities 1,698,421 9,047,441 7,413,770 10,427,811
Loan disbursements 11,162,677 10,832,431 24,787,416 18,271,347
Purchase of property and equipment 61,758 74,217 858,576 207,608
------------ ------------ ----------- -----------
12,922,856 19,954,089 33,059,762 28,906,766
------------ ------------ ----------- -----------
Net cash used in investing
activities (2,460,399) (1,631,391) (1,269,903) (9,601,735)
------------ ------------ ----------- -----------
Cash flows from financing activities
Cash inflows
Net increases (decreases) in
advances from borrowers (3,615,000) -- 13,615,000 5,000,000
Net increase (decrease) in deposits 4,668,475 4,279,524 (12,083,803) 3,379,124
------------ ------------ ----------- -----------
Net cash provided by financing
activities 1,053,475 4,279,524 1,531,197 8,379,124
------------ ------------ ----------- -----------
Net increase (decrease) in cash and cash
equivalents (696,918) 3,505,320 1,277,910 (246,328)
Cash and cash equivalents, beginning
of period 4,870,193 3,592,283 3,592,283 3,838,611
------------ ------------ ----------- -----------
Cash and cash equivalents, end of period $ 4,173,275 $ 7,097,603 $ 4,870,193 $ 3,592,283
============ ============ =========== ===========
</TABLE>
These consolidated financial statements should be read only
in accordance with the accompanying summary of significant
accounting policies and notes to consolidated statements.
F-5
<PAGE>
BUCS FEDERAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 (RESTATED)
AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
For the six months ended June 30, December 31
2000 1999 December 31, 1998
(Unaudited) (Unaudited) 1999 (Restated)
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Reconciliation of net income to net cash
provided by operating activities
Net income $ 102,038 $ 275,781 $ 432,809 $ 335,791
Adjustments for items not providing or
not requiring cash or cash equivalents
Provision for loan losses 80,000 120,000 220,000 300,000
Depreciation and amortization 95,712 75,303 156,502 143,781
Effects of changes in operating assets
and liabilities
Accrued interest receivable 9,242 (53,885) (56,789) (35,403)
Prepaid expenses and other assets 49,928 (69,170) (68,441) 74,972
Accounts payable and other
liabilities 373,086 509,158 332,535 157,142
--------- --------- ----------- -----------
Net cash provided by operating
activities $ 710,006 $ 857,187 $ 1,016,616 $ 976,283
========= ========= =========== ===========
Supplementary information
Income taxes paid $ 65,695 $ - $ 42,000 $ -
</TABLE>
These consolidated financial statements should be read
only in accordance with the accompanying summary of significant
accounting policies and notes to consolidated statements.
F-6
<PAGE>
BUCS FEDERAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000
ORGANIZATION
------------
BUCS Federal was incorporated in 1998 through a Federal charter for the purposes
of providing loans funded by customer savings. BUCS Federal assumed the existing
assets and liabilities of BUCS Federal Credit Union and subsidiary as of
February 28, 1998. Significant accounting policies followed by BUCS Federal are
presented below. BUCS operates bank offices at two locations, Owings Mills,
Maryland and Columbia, Maryland.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of BUCS Federal and
C.U. Benefits, Inc. and ARMOR Insurance Group, LLC its wholly-owned
subsidiaries, which have no significant assets or liabilities. All significant
intercompany transactions and balances are eliminated in consolidation. The
accompanying consolidated financial statements have been prepared in accordance
with generally accepted accounting principles and conform to general practices
within the thrift industry.
The consolidated statements of operations, equity and cash flows for the year
ended December 31, 1998 includes the income and expenses of January and February
1998 of the BUCS Federal Credit Union and subsidiary.
INTERIM FINANCIAL STATEMENTS
The financial statements for the six months ended June 30, 2000 and 1999, are
unaudited, but in the opinion of management such financial statements have been
presented on the same basis as the audited financial statements for the year
ended December 31, 1999. These financial statements include all adjustments,
consisting of normal recurring adjustments necessary for a fair presentation of
the financial position and results of operations and cash flows for these
periods. The results of operations presented in the accompanying financial
statements are not necessarily representative of operations for an entire year.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
F-7
<PAGE>
BUCS FEDERAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS (CONTINUED)
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans.
A majority of BUCS Federal's loan portfolio consist of single- family
residential loans in the central Maryland area. The ultimate collectibility of
the loan portfolio is susceptible to changes in local market conditions.
While management uses available information to recognize losses on loans,
further reductions in the carrying amounts of loans may be necessary based on
changes in local economic conditions. In addition, regulatory agencies, as an
integral part of their examination process, periodically review the estimated
losses on loans. Such agencies may require BUCS Federal to recognize additional
losses based on their judgments about information available to them at the time
of their examination. Because of these factors, it is possible that the
estimated losses on loans may change in the near term. However, the amount of
the change that is reasonably possible cannot be estimated.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statement of cash flows, BUCS Federal considers
all highly liquid debt instruments with original maturities of three months or
less when purchased to be cash equivalents.
FEDERAL HOME LOAN BANK STOCK
Federal Home Loan Bank stock is carried at cost which approximates fair value.
INVESTMENT SECURITIES
BUCS Federal's investments in securities are classified in two categories and
accounted for as follows:
Securities to be held to maturity. Bonds, notes and debentures for
which BUCS Federal has the positive intent and ability to hold to maturity are
reported at cost, adjusted for amortization of premiums and accretion of
discounts which are recognized in interest income using the interest method over
the period to maturity.
Declines in the fair value of individual held-to-maturity securities
below their cost that are other than temporary would result in write-downs of
the individual securities to their fair value. The related write-downs would be
included in earnings as realized losses.
F-8
<PAGE>
BUCS FEDERAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000
INVESTMENT SECURITIES (CONTINUED)
Securities available for sale. Securities available for sale consist of
bonds, notes, debentures, and certain equity securities not classified as
securities to be held to maturity.
Securities classified as available for sale are reported at fair value,
with unrealized gains and losses excluded from earnings and are reported as a
net amount in a separate component of equity until realized, net of tax effects.
LOANS RECEIVABLE
Loans receivable are stated at unpaid principal balances, less the allowance for
loan losses.
The allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on BUCS Federal's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, estimated value of any underlying collateral
and current economic conditions.
Uncollectible interest on loans that are contractually past due is charged off
or an allowance is established based on management's periodic evaluation. The
allowance is established by a charge to interest income equal to all interest
previously accrued, and income is subsequently recognized only to the extent
cash payments are received until, in management's judgment, the borrower's
ability to make periodic interest and principal payments is back to normal, in
which case the loan is returned to accrual status.
LOAN ORIGINATION COSTS
The direct costs of underwriting and closing loans are recognized over the life
of the related loan as an adjustment to yield. Estimated future principal
repayments on loans that can be reasonably estimated are considered in the
calculation of the constant effective yield. Any differences that arise in the
actual prepayments will result in a recalculation of the effective yield.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed for
financial statement purposes using the straight-line method based on estimated
useful lives of the various classes of assets. For tax purposes, depreciation is
computed using accelerated methods.
F-9
<PAGE>
BUCS FEDERAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000
INCOME TAXES
Deferred income taxes are provided on temporary differences between financial
statement and income tax reporting. Temporary differences are differences
between the amounts of assets and liabilities reported for financial statement
purposes and their tax basis. Deferred tax assets are recognized for temporary
differences that will be deductible in future years' tax returns and for
operating loss and tax credit carryforwards. Deferred tax assets are reduced by
a valuation allowance if it is deemed more likely than not that some or all of
the deferred tax assets will not be realized. Deferred tax liabilities are
recognized for temporary differences that will be taxable in future years' tax
returns.
COMPREHENSIVE INCOME
The provisions of Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income, established standards for disclosing comprehensive income
in financial statements. Comprehensive income is the net income of operations
plus the effect of unrealized gains (losses) on securities available-for- sale.
NOTE 1. INVESTMENT IN SECURITIES
The carrying amount and estimated fair market value of investment securities at
December 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gain Losses Value
----------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Securities available
for sale
Treasury and agency
securities $ 6,502,291 $ - $ (227,590) $ 6,274,701
Government National
Mortgage Association
Mortgage pools
(GNMA's) 8,883,452 1,484 (86,994) 8,797,942
------------ ---------- ------------ ------------
15,385,743 1,484 (314,584) 15,072,643
Securities held to
maturity
Mortgage derivative
securities 970,600 - (26,800) 943,800
------------ ---------- ------------ ------------
$16,356,343 $ 1,484 $ (341,384) $16,016,443
============ ========== ============ ============
</TABLE>
F-10
<PAGE>
BUCS FEDERAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000
NOTE 1. INVESTMENT IN SECURITIES (CONTINUED)
The carrying amount and estimated fair market value of investment securities at
December 31, 1998 are summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gain Losses Value
----------- ----------- ----------- -----------
Securities available
for sale
Treasury and agency
securities $ 3,417,882 $ 29,718 $ - $ 3,447,600
Government National
Mortgage Association
Mortgage pools
(GNMA's) 10,555,268 10,728 (18,722) 10,547,274
----------- ----------- ----------- ----------
13,973,150 40,446 (18,722) 13,994,874
Securities held to
maturity
Mortgage derivative
securities 1,174,000 - (33,600) 1,140,400
----------- ----------- ----------- -----------
$15,147,150 $ 40,446 $ (52,322) $15,135,274
=========== =========== =========== ===========
The carrying amount and estimated fair market value of investment securities at
June 30, 2000 (unaudited) are summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gain Losses Value
----------- ----------- ----------- ---------
Securities available
for sale
Treasury and agency
securities $ 9,751,409 $ - $ (291,959) $ 9,459,450
Government National
Mortgage Association
Mortgage pools
(GNMA's) 5,998,205 78 (72,753) 5,925,530
----------- ----------- ----------- -----------
15,749,614 78 (364,712) 15,384,980
Securities held to
maturity
Mortgage derivative
securities 963,609 - (52,941) 910,668
----------- ----------- ----------- -----------
$16,713,223 $ 78 $ (417,653) $16,295,648
=========== =========== =========== ===========
The scheduled maturities of securities to be held to maturity and available for
sale at December 31, 1999 were as follows:
Estimated
Amortized Market
Cost Value
----------- -----------
Due in one year or less $ - $ -
Due after one year up to ten years 6,471,256 6,261,001
Due after ten years 9,885,087 9,755,442
----------- -----------
$16,356,343 $16,016,443
=========== ===========
F-11
<PAGE>
BUCS FEDERAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000
NOTE 1. INVESTMENT IN SECURITIES (CONTINUED)
The scheduled maturities of securities to be held to maturity and available for
sale at June 30, 2000 (unaudited) were as follows:
Estimated
Amortized Market
Cost Value
----------- -----------
Due in one year or less $ 500,328 $ 496,699
Due after one year up to ten years 8,517,170 8,230,149
Due after ten years 7,695,725 7,568,800
----------- -----------
$16,713,223 $16,295,648
=========== ===========
Investments in securities held to maturity consist of mortgage derivatives.
Investments available for sale consist of Government National Mortgage
Association and Treasury and Agency securities. Cost for these investments is
calculated using specific identification. As of December 31, 1999 and June 30,
2000 investments available for sale reflected an unrealized loss of $313,100 and
$364,634 Investments in government and agency securities aggregating $12,702,000
and $12,982,000 have been pledged as collateral for credit extended by the
Federal Home Loan Bank at December 31, 1999 and June 30, 2000.
NOTE 2. LOANS RECEIVABLE
Loans receivable consist of the following:
June 30,
December 31, 2000
1999 1998 (Unaudited)
----------- ----------- -----------
First mortgage loans $13,120,800 $13,878,489 $13,186,985
Consumer and other loans
Automobile and other
consumer loans 16,791,677 14,870,505 17,656,035
Lines of credit 3,945,264 4,349,236 3,671,060
Home equity 10,636,747 9,890,372 11,957,120
VISA - 3,231,857 -
----------- ----------- -----------
Total consumer and other loans 44,494,488 46,220,459 46,471,200
Less allowance for loan losses 559,775 584,084 574,727
----------- ----------- -----------
Loans receivable, net $43,934,713 $45,636,375 $45,896,473
=========== =========== ===========
Officers' and directors' loans amounted to $267,416, $300,408 and $265,381 at
December 31, 1999, 1998 and June 30, 2000, respectively.
F-12
<PAGE>
BUCS FEDERAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000
NOTE 2. LOANS RECEIVABLE (CONTINUED)
Loans aggregating $13,120,800 and $13,186,985 have been pledged to the Federal
Home Loan Bank (FHLB) as collateral for credit extended by the FHLB for
short-term borrowings at December 31, 1999 and June 30, 2000, respectively.
Nonperforming loans amounted to approximately $113,000 and $91,500 as of
December 31, 1999 and June 30, 2000. These loans were not considered impaired.
The amount of interest income that would have been recorded on loans in
nonaccrual status at period-end, had such loans performed in accordance with
their terms, was immaterial.
The allowance for loan losses activity is as follows:
December 31, June 30,
December 31, 1998 2000
1999 (Restated) (Unaudited)
---------- ---------- -----------
Balance, beginning of period $ 584,084 $ 956,736 $ 559,775
Provision for loan losses 220,000 300,000 80,000
Recoveries 64,909 51,185 39,482
Loan loss write-offs (309,218) (723,837) (104,530)
---------- ---------- ----------
Balance, end of period $ 559,775 $ 584,084 $ 574,727
---------- ========== ==========
NOTE 3. PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment are summarized by major classifications as follows:
June 30,
December 31, 2000
1999 1998 (Unaudited)
---------- ---------- -----------
Leasehold improvements $ 884,875 $ 246,821 $ 892,960
Furniture, fixtures and equipment 872,573 652,051 926,246
---------- ---------- ----------
1,757,448 898,872 1,819,206
Less allowance for depreciation 300,286 143,781 395,998
---------- ---------- ----------
$1,457,162 $ 755,091 $1,423,208
========== ========== ==========
NOTE 4. BORROWINGS
Borrowed funds from the Federal Home Loan Bank consist of the following at
December 31, 1999:
Type Rate Maturity Amount
---- ---- -------- -----------
Overnight borrowing 4.84% Current $ 6,615,000
Term borrowing 5.98% January 2000 2,000,000
Convertible borrowing 5.32% October 2009 10,000,000
-----------
$18,615,000
===========
F-13
<PAGE>
BUCS FEDERAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000
NOTE 4. BORROWINGS (CONTINUED)
Borrowed funds from the Federal Home Loan Bank consist of the following at
December 31, 1998:
Type Rate Maturity Amount
---- ---- -------- -----------
Term borrowing 5.00% December 1999 $ 5,000,000
===========
Borrowed funds from the Federal Home Loan Bank consist of the following at June
30, 2000 (unaudited):
Type Rate Maturity Amount
---- ---- -------- -----------
Overnight borrowing 7.40% Current $ 5,000,000
Adjustable rate credit 6.32% May 2003 5,000,000
Adjustable rate credit 6.37% February 2002 5,000,000
-----------
$15,000,000
===========
NOTE 5. DEPOSITS
Deposits at December 31, 1999 are as follows:
Type of Account and Interest Rate Amount Percent
--------------------------------- ----------- -------
Checking deposits $ 5,278,048 13%
Regular savings - 3.00%-3.50% 17,520,128 40%
Certificates, money markets and
IRA accounts - 4.16%-5.44% 20,534,458 47%
----------- -----
Total $43,332,634 100%
=========== =====
Deposits at December 31, 1998 are as follows:
Type of Account and Interest Rate Amount Percent
--------------------------------- ----------- -------
Checking deposits $ 5,467,831 10%
Regular savings - 3.00%-3.50% 17,582,217 31%
Certificates, money markets and
IRA accounts - 4.16%-5.44% 20,974,831 38%
Starfunds - 4.54% 11,391,558 21%
----------- -----
Total $55,416,437 100%
=========== =====
Deposits at June 30, 2000 (unaudited) are as follows:
Type of Account and Interest Rate Amount Percent
--------------------------------- ----------- -------
Checking deposits $ 6,442,297 14%
Regular savings - 3.00% 18,509,016 39%
Certificates, money markets and
IRA accounts - 4.00%-7.25% 23,049,796 47%
----------- -----
Total $48,001,109 100%
=========== =====
F-14
<PAGE>
BUCS FEDERAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000
NOTE 5. DEPOSITS (CONTINUED)
Scheduled maturities of deposits are as follows:
June 30,
December 31, 2000
1999 (Unaudited)
----------- -----------
2000 $38,718,959 $40,977,170
2001 2,318,497 3,996,200
2002 1,164,618 1,834,149
2003 660,796 713,262
2004 469,764 480,328
----------- -----------
$43,332,634 $48,001,109
=========== ===========
Officers' and directors' savings accounts amounted to approximately $523,200,
$579,300 and $790,500 at December 31, 1999, 1998 and June 30, 2000,
respectively.
Deposits over $100,000 approximated $3,081,000, $7,826,000 and $8,614,000 at
December 31, 1999, 1998 and June 30, 2000, respectively.
NOTE 6. INCOME TAXES
The sources of deferred tax assets and liabilities and the tax effect of each
are as follows:
June 30,
December 31, 2000
1999 1998 (Unaudited)
---------- ---------- -----------
Deferred tax assets
Allowance for loan losses $ 250,000 $ 250,000 $ 250,000
Deprecation - 12,500 -
Unamortized cost of
organization 92,600 121,800 77,500
Net operating loss - 60,500 -
Unrealized loss on invest-
ment securities 313,100 (21,724) 364,634
---------- ---------- ----------
Total deferred tax
assets 655,700 423,076 692,134
---------- ---------- ----------
June 30,
December 31, 2000
1999 1998 (Unaudited)
---------- ---------- -----------
Deferred tax liabilities
Depreciation 105,600 - 185,000
Deferred loan expense 88,000 58,800 115,000
---------- ---------- ----------
Total deferred tax
liabilities 193,600 58,800 300,000
---------- ---------- ----------
Net deferred tax assets $ 462,100 $ 364,276 $ 392,134
========== ========== ==========
Net deferred tax assets
at effective tax rate $ 170,900 $ 134,800 $ 145,100
========== ========== ==========
F-15
<PAGE>
BUCS FEDERAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000
NOTE 6. INCOME TAXES (CONTINUED)
As of December 31, 1999, BUCS Federal has accumulated a net deferred tax asset
that can be used in future years to reduce taxable income. The net operating
loss expires in the year 2013. In applying Financial Accounting Standard 109,
"Accounting For Income Taxes", BUCS Federal considered these net deferred tax
assets income for accounting purposes but not yet utilized for income tax
purposes. The effect of this temporary difference is a deferred tax of
approximately $170,900. While the accounting standard allows companies to
recognize such assets BUCS Federal has decided to provide a valuation allowance
of $170,900 because of the uncertainty of realizing the benefits.
The provision for income taxes is comprised of the following:
June 30,
December 31, 2000
1999 1998 (Unaudited)
-------- ---------- -----------
Current tax
Federal $144,100 $ - $ 30,000
State 32,000 - 9,000
Deferred tax expense 55,625 - 11,698
-------- -------- --------
$231,725 $ - $ 50,698
======== ======== ========
A reconciliation of the provision for income taxes at the statutory federal tax
rates to the actual provision for income taxes is as follows:
June 30,
December 31, 2000
1999 1998 (Unaudited)
---------- ---------- -----------
Depreciation, amortization
and loan loss tax deduction
based on actual write-offs $(14,175) $(94,800) $ (5,802)
Computed at federal statutory
rates 199,400 76,900 45,800
State income taxes 46,500 17,900 10,700
-------- -------- --------
$231,725 $ - $ 50,698
======== ======== ========
The Credit Union operations of January and February 1998 were not subject to
federal or state income taxes. BUCS Federal utilized the direct write-off method
of loan losses in 1998 and no taxes were accrued or recognized because loan loss
write-offs approximated the assumed allowance for loan loss balance from BUCS
Federal Credit Union.
NOTE 7. PENSION PLAN
BUCS Federal has a 401(k) plan for all eligible employees. The contribution to
the plan is a fixed percentage of the participants' compensation. The cost of
the plan for the periods ended December 31, 1999, 1998 and June 30, 2000
approximated $46,800, $35,900 and $25,200, respectively.
F-16
<PAGE>
BUCS FEDERAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000
NOTE 8. REGULATORY CAPITAL
BUCS Federal is required by the Office of Thrift Supervision regulations to meet
certain minimum capital requirements. These capital requirements include a
tangible capital requirement in an amount not less than 1.5% of adjusted total
assets, a core capital requirement of not less than 3% of adjusted total assets,
a core capital requirement of not less than 4% of risk-based assets, and a
risk-based capital requirement in an amount not less than 8% of risk-based
assets. Risk-based capital includes an interest rate component.
Due to BUCS Federal's recent formation as of March 1, 1998, the Thrift has not
been categorized by the Office of Thrift Supervision under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain minimum total risk-based, Tier 1 Risk-based and Tier 1
leverage ratios. There are no conditions or events that management believes
would prevent the Thrift from being categorized as well capitalized.
The following is a reconciliation of generally accepted accounting principles
(GAAP) capital to regulatory capital at December 31, 1999:
<TABLE>
<CAPTION>
GAAP Tangible Core Risk-based
Capital Capital Capital Capital
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
GAAP capital $5,480,677 $5,480,677 $5,480,677 $5,480,677
==========
Accumulated losses
(gains) on certain
available for sale
securities 313,000 313,000 313,000
Additional capital items
General valuation
allowance - - 487,000
---------- ---------- ----------
Regulatory capital-
computed 5,793,677 5,793,677 6,280,677
Minimum capital
requirement (1,022,000) (2,726,000) (3,508,000)
---------- ---------- ----------
Regulatory capital-
excess $4,771,677 $3,067,677 $2,772,677
========== ========== ==========
</TABLE>
F-17
<PAGE>
BUCS FEDERAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000
NOTE 8. REGULATORY CAPITAL (CONTINUED)
The following is a reconciliation of generally accepted accounting principles
(GAAP) capital to regulatory capital at December 31, 1998:
<TABLE>
<CAPTION>
GAAP Tangible Core Risk-based
Capital Capital Capital Capital
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
GAAP capital $5,382,692 $5,382,692 $5,382,692 $5,382,692
==========
Accumulated losses
(gains) on certain
available for sale
securities (5,221) (5,221) (5,221)
Additional capital items
General valuation
allowance - - -
---------- ---------- ----------
Regulatory capital-
computed 5,377,471 5,377,471 5,377,471
Minimum capital
requirement (992,950) (1,985,900) (2,444,045)
---------- ---------- ----------
Regulatory capital-
excess $4,384,521 $3,391,571 $2,933,426
========== ========== ==========
</TABLE>
The following is a reconciliation of generally accepted accounting principles
(GAAP) capital to regulatory capital at June 30, 2000 (unaudited):
<TABLE>
<CAPTION>
GAAP Tangible Core Risk-based
Capital Capital Capital Capital
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
GAAP capital $5,531,181 $5,531,181 $5,531,181 $5,531,181
==========
Accumulated losses
(gains) on certain
available for sale
securities 365,000 365,000 365,000
Additional capital items
General valuation
allowance - - 513,000
---------- ---------- ----------
Regulatory capital-
computed 5,896,181 5,896,181 6,409,181
Minimum capital
requirement (1,044,000) (2,785,000) (3,689,000)
---------- ---------- ----------
Regulatory capital-
excess $4,852,181 $3,111,181 $2,720,181
========== ========== ==========
</TABLE>
F-18
<PAGE>
BUCS FEDERAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000
NOTE 9. SIGNIFICANT ESTIMATES
Generally accepted accounting principles require disclosure of information about
certain significant estimates which include the following:
Interest rate risk
The profitability of BUCS Federal is subject to interest rate risk.
This risk is based on the gap between interest earned on mortgage loans and the
rate of interest paid on deposits. A significant decrease in this gap could
result in a decrease in earnings.
NOTE 10. COMMITMENTS
BUCS Federal had outstanding loan commitments as follows:
June 30,
December 31, 2000
1999 (Unaudited)
----------- -----------
Lines of credit $ 4,773,580 $ 5,802,312
Home equity lines 4,863,256 4,432,187
----------- -----------
$ 9,636,836 $10,234,499
=========== ===========
NOTE 11. RENT/RELATED PARTY TRANSACTIONS
BUCS Federal occupies administrative and banking facilities in Owings, Mills,
Maryland. BUCS Federal does not make rental payments on these premises. However,
BUCS Federal has an agreement with Care First (Blue Cross/Blue Shield of
Maryland) through March 2002 to process and maintain a cash facility on
premises. The estimated value of these service fees for rent expense
approximates $120,000 per annum.
BUCS Federal occupies a branch banking facility in Columbia, Maryland. BUCS
Federal prepaid ten (10) years of rent totaling $327,218 for the period July 1,
2000 to June 30, 2009. BUCS Federal has the option to extend the lease for three
(3) five (5) year periods at a rent to be determined.
NOTE 12. ADVERTISING
It is the policy of BUCS Federal to direct expense all advertising and marketing
costs. Advertising costs for the periods ended December 31, 1999 and 1998 and
June 30, 2000 approximated $126,700, $63,600 and $117,200, respectively.
F-19
<PAGE>
BUCS FEDERAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000
NOTE 13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of cash and cash equivalents is the carrying amount, which is a
reasonable estimate of fair value. For investment securities, fair value is
determined using quoted market prices.
Fair value of loans receivable is estimated by discounting future cash flows,
taking into consideration future loan losses, using current rates at which
similar loans would be made to borrowers with similar credit ratings for the
same remaining maturities. For commitments to extend credit, the carrying amount
is a reasonable estimate of fair value. Management estimates that the fair value
of loans receivable is approximately the carrying amount as of December 31, 1999
and June 30, 2000.
With respect to deposits, fair value of checking and savings deposits, money
market accounts, certificates and IRA accounts is the amount payable on demand
at the reporting date. Fair value of fixed maturity term accounts and individual
retirement accounts is estimated using rates currently offered for accounts of
similar remaining maturities. Management estimates that the fair value of
deposits approximates the carrying amount as of December 31, 1999 and June 30,
2000.
14. RESTATEMENT OF FINANCIAL STATEMENTS
The December 31, 1998 financial statements of BUCS Federal (thrift) were
restated to reflect the January and February 1998 BUCS Federal Credit Union
interest, income, interest expenses, provision for loan losses and noninterest
income and expense as summarized below:
As
originally
reported
March 1 to January
December 31, and February
1998 1998 Combined
---------- ---------- -----------
Interest income $3,890,263 $ 739,208 $4,629,471
Interest expense 1,874,805 359,667 2,234,472
---------- ---------- ----------
Net interest income 2,015,458 379,541 2,394,999
Provision for loan losses 250,000 50,000 300,000
---------- ---------- ----------
1,765,458 329,541 2,094,999
Noninterest income 424,365 98,747 523,112
---------- ---------- ----------
2,189,823 428,288 2,618,111
Noninterest expense 1,933,341 348,979 2,282,320
---------- ---------- ----------
Income before income
taxes $ 256,482 $ 79,309 $ 335,791
========== ========== ==========
F-20
<PAGE>
BUCS FEDERAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000
NOTE 15. PLAN OF CONVERSION
On September 25, 2000, the Board of Directors adopted a plan of conversion which
provides for (1) the conversion of BUCS Federal from a federally chartered
mutual savings and loan association to a federally chartered stock savings and
loan association, the "Converted BUCS Federal" and (2) the concurrent formation
of a holding company for the Converted BUS Federal, the "Holding Company".
BUCS Federal's plan of conversion provides for an initial issuance of shares of
capital stock to be offered to eligible members, employees and officers of BUCS
Federal at a price based on an appraisal by an independent firm. Any shares not
purchased by eligible members may be sold at the discretion of BUCS Federal to
the public.
Costs, including underwriting discounts, if any, to complete the conversion are
expected to be deferred and deducted from the proceeds from the sale of capital
stock. If the conversion does not take place all costs incurred will be charged
to expense.
For the purpose of granting eligible members of BUCS Federal a priority in the
event of future liquidation, BUCS Federal will, at the time of conversion,
establish a liquidation account equal to its retained income as of the date of
the latest consolidated statement of financial condition used in the final
conversion offering circular. In the event of future liquidation of BUCS Federal
(and only in such an event) an eligible deposit account holder who continues to
maintain his deposit account shall be entitled to receive a prorata distribution
from the liquidation account, based on such holder's proportionate amount of the
total current adjusted balances for deposit accounts then held by all eligible
account holders, before any liquidation distribution may be made with respect to
capital stock. After the conversion, no dividends may be paid to stockholders if
such dividends reduce retained income of BUCS Federal below the amount required
for the liquidation account.
F-21
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
================================================================================ ===============================================
You should rely only on the information contained in this document. We have not
authorized anyone to provide you with information that is different. This
document does not constitute an offer to sell, or the solicitation of an offer
to buy, any of the securities offered hereby to any person in any jurisdiction
in which the offer or solicitation would be unlawful. The affairs of BUCS
Federal or BUCS Financial Corp may change after the date of this prospectus.
Delivery of this document and the sales of shares made hereunder does not mean Up to 471,500 Shares
otherwise.
TABLE OF CONTENTS
Page
----
Summary......................................................................
Risk Factors................................................................. BUC$ Financial Corp
The Offering.................................................................
BUCS Federal ................................................................ Holding Company for BUC$ Federal Bank
BUCS Financial Corp..........................................................
Proposed Stock Purchases by Management.......................................
Use of Proceeds..............................................................
Dividend Policy..............................................................
Market for the Stock.........................................................
Capitalization...............................................................
Pro Forma Data...............................................................
Historical and Pro Forma Capital Compliance.................................. -----------------
Selected Financial and Other Data............................................
Management's Discussion and Analysis of PROSPECTUS
Financial Condition and Results of Operations...............................
Business of BUCS Financial Corp.............................................. -----------------
Business of BUCS Federal ....................................................
Regulation...................................................................
Taxation.....................................................................
Management...................................................................
The Conversion............................................................... Trident Securities, Inc.
Restrictions on Acquisition of BUCS Financial Corp...........................
Description of Capital Stock.................................................
Legal and Tax Opinions.......................................................
Experts......................................................................
Registration Requirements....................................................
Where You Can Find Additional Information.................................... ____________, 2000
Index to Consolidated Financial Statements...................................
Until the later of ____________, 2000 or 90 days after commencement of the THESE SECURITIES ARE NOT DEPOSITS OR
offering, all dealers effecting transactions in these securities, whether or not SAVINGS ACCOUNTS AND ARE NOT FEDERALLY
participating in this offering, may be required to deliver a prospectus. This is INSURED OR GUARANTEED.
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
================================================================================ ===============================================
</TABLE>
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers and Directors.
Section 2-418 of the Maryland General Corporation Law sets forth
circumstances under which directors, officers, employees and agents may be
insured or indemnified against liability which they may incur in their
capacities as such.
The Articles of Incorporation of the registrant (the "Articles"),
attached as Exhibit 3(i) hereto, require indemnification of directors, officers
and employees to the fullest extent permitted by Maryland law.
The registrant may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, or agent of the registrant
or is or was serving at the request of the registrant as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity or arising out of his status as such, whether or not the
registrant would have the power to indemnify him against such liability under
the provisions of the Articles.
The registrant believes that these provisions assist the registrant in,
among other things, attracting and retaining qualified persons to serve the
registrant and its subsidiary. However, a result of such provisions could be to
increase the expenses of the registrant and effectively reduce the ability of
stockholders to sue on behalf of the registrant since certain suits could be
barred or amounts that might otherwise be obtained on behalf of the registrant
could be required to be repaid by the registrant to an indemnified party.
Item 25. Other Expenses of Issuance and Conversion
* Special counsel and local counsel legal fees........... $60,000
* Printing and postage................................... 40,000
* Appraisal(original and updated)/Business Plan.......... 39,500
* Accounting fees........................................ 40,000
* Data processing/Conversion agent....................... 10,000
* SEC Registration Fee................................... 2,000
* OTS Filing Fees........................................ 8,400
* SEC EDGAR Filings...................................... 8,000
* Blue Sky legal and filing fees......................... 15,000
* Underwriting fees, including expenses and legal fees... 155,000
* Stock Certificates..................................... 1,000
* Transfer Agent......................................... 5,000
* Reimbursable and other expenses........................ 16,100
-------
* TOTAL.................................................. $400,000
=======
-----------------
* Estimated.
Item 26. Recent Sales of Unregistered Securities.
Not Applicable
II-1
<PAGE>
Item 27. Exhibits:
The exhibits filed as part of this Registration Statement are
as follows:
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1 Form of Sales Agency Agreement with Trident Securities, Inc. *
2 Plan of Conversion of BUCS Federal
3(i) Articles of Incorporation of BUCS Financial Corp
3(ii) Bylaws of BUCS Financial Corp
4 Specimen Stock Certificate BUCS Financial Corp
5.1 Opinion of Malizia Spidi & Fisch, PC regarding legality of securities registered
5.2 Opinion of FinPro, Inc. as to the value of subscription rights
8.1 Federal Tax Opinion of Malizia Spidi & Fisch, PC
8.2 State Tax Opinion of Malizia Spidi & Fisch, PC
10.1 Form of Employment Agreement between the Bank and Herbert J. Moltzan*
23.1 Consent of Malizia Spidi & Fisch, PC (contained in its opinions filed as Exhibits
5.1, 8.1 and 8.2)
23.2 Consent of Jameson & Associates, P.A.
23.3 Consent of FinPro, Inc.
24 Power of Attorney (reference is made to the signature page)
27 Financial Data Schedule**
</TABLE>
---------------------------------------------
* To be filed by amendment
** Electronic filing only
Item 28. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933 ("Securities Act");
(ii) Reflect in the prospectus any facts or events which
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, the undersigned
registrant shall treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the securities at that
time to be the initial bona fide offering.
II-2
<PAGE>
(3) The undersigned registrant shall file a post-effective amendment to
remove from registration any of the securities that remain unsold at the end of
the offering.
(4) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement, certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the small business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
small business issuer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in Owings Mills,
Maryland on October 6, 2000.
BUCS FINANCIAL CORP
By: /s/Herbert J. Moltzan
-------------------------------------
Herbert J. Moltzan
President and Chief Executive Officer
(Duly Authorized Representative)
We the undersigned directors and officers of BUCS Financial Corp do
hereby severally constitute and appoint Herbert J. Moltzan our true and lawful
attorney and agent, to do any and all things and acts in our names in the
capacities indicated below and to execute all instruments for us and in our
names in the capacities indicated below which said Herbert J. Moltzan may deem
necessary or advisable to enable BUCS Financial Corp to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission, in connection with the registration
statement on Form SB-2 relating to the offering of BUCS Financial Corp common
stock, including specifically but not limited to, power and authority to sign
for us or any of us, in our names in the capacities indicated below, the
registration statement and any and all amendments (including post-effective
amendments) thereto; and we hereby ratify and confirm all that Herbert J.
Moltzan shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated as of October 6, 2000.
<TABLE>
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<S> <C>
/s/Allen Maier /s/Joseph Pescrille
--------------------------------------------- ---------------------------------------------------
Allen Maier Joseph Pescrille
Chairman and Director Vice Chairman and Director
/s/Brian Bowers /s/M. Robin Copeland
--------------------------------------------- ---------------------------------------------------
Brian Bowers M. Robin Copeland
Treasurer and Director Secretary and Director
(Principal Accounting and Financial Officer)
/s/Thomas Markel
--------------------------------------------- ---------------------------------------------------
Thomas Markel A. Virginia Wampler
Director Director
/s/Harry Fox /s/Peg Ohrt
--------------------------------------------- ---------------------------------------------------
Harry Fox Peg Ohrt
Director Director
/s/Dale Summers /s/Herbert J. Moltzan
--------------------------------------------- ---------------------------------------------------
Dale Summers Herbert J. Moltzan
Director President, Chief Executive Officer and Director
(Principal Executive Officer)
</TABLE>
<PAGE>
As filed with the Securities and Exchange Commission on October 6, 2000
Registration No. 333-
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
EXHIBITS TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------
BUCS Financial Corp
--------------------------------------------------------------------------------
(Exact name of Small Business Issuer as specified in charter)
Maryland 6035 Requested
------------------------------- ----------------- -----------------
(State or other jurisdiction (Primary SIC No.) (I.R.S. Employer
of incorporation or Identification No.)
organization)
10455 Mill Run Circle, Owings Mills, Maryland 21117
(410) 998-5304
--------------------------------------------------------------------------------
(Address and telephone number including area code of principal executive
offices and principal place of business)
Mr. Herbert J.Moltzan
President and Chief Executive Officer
BUCS Financial Corp
10455 Mill Run Circle, Owings Mills, Maryland 21117
(410) 998-5304
--------------------------------------------------------------------------------
(Name, address and telephone number of agent for service)
Please send copies of all communications to:
Samuel J. Malizia, Esq.
Tiffany A. Henricks, Esq.
MALIZIA SPIDI & FISCH, PC
1301 K Street, N.W., Suite 700 East, Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO
THE PUBLIC: As soon as practicable after this registration
statement becomes effective.
<PAGE>
INDEX TO EXHIBITS TO FORM SB-2
Exhibit
<TABLE>
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<S> <C>
1 Form of Sales Agency Agreement with Trident Securities, Inc. *
2 Plan of Conversion of BUCS Federal
3(i) Articles of Incorporation of BUCS Financial Corp
3(ii) Bylaws of BUCS Financial Corp
4 Specimen Stock Certificate BUCS Financial Corp
5.1 Opinion of Malizia Spidi & Fisch, PC regarding legality of securities registered
5.2 Opinion of FinPro, Inc. as to the value of subscription rights
8.1 Federal Tax Opinion of Malizia Spidi & Fisch, PC
8.2 State Tax Opinion of Malizia Spidi & Fisch, PC
10.1 Form of Employment Agreement between the Bank and Herbert J. Moltzan*
23.1 Consent of Malizia Spidi & Fisch, PC (contained in its opinions filed as Exhibits
5.1, 8.1 and 8.2)
23.2 Consent of Jameson & Associates, P.A.
23.3 Consent of FinPro, Inc.
24 Power of Attorney (reference is made to the signature page)
27 Financial Data Schedule**
</TABLE>
------------------------------------------
* To be filed by amendment
** Electronic filing only
