BUCS FINANCIAL CORP

                               2001 ANNUAL REPORT

<PAGE>










                               Table of Contents



Letter to Stockholders ....................................................    3

Corporate Profile..........................................................    4

Stock Price Information ...................................................    4

Selected Financial Ratios and Other Data ..................................    5

Management's Discussion and Analysis ......................................    6

Report of Independent Auditors ............................................   12

Consolidated Financial Statements .........................................   13

Notes to Consolidated Financial Statements ................................   19

Corporate Information .....................................................   36


<PAGE>

Dear Fellow Stockholders:

On behalf of our Board of Directors and employees, we are pleased to present the
first Annual Report to the Stockholders of BUCS Financial Corp (the "Company").

Our  acquisition of BUCS Federal Bank ("the Bank") in connection with the Bank's
mutual-to-stock  conversion  was  completed  in March 2001.  Our first year as a
public company proved to be very successful. In spite of a weakening economy and
numerous rate reductions by the Federal Reserve throughout 2001, the Company had
consolidated earnings of approximately  $417,000 ($1.12 per share on a pro forma
basis) as compared to 2000 net income of approximately  $233,000, an increase of
78.9%.

Growth  trends were  excellent  with total assets at December 31, 2001  reaching
$84.6 million, as compared to $73.1 million at December 31, 2000.  Stockholders'
equity was $9.7  million  resulting  in total book value per share and  tangible
book  value per share of $23.99  and  $23.18,  respectively.  The  increases  in
income,  assets and equity for 2001 as  compared  to 2000 are due in part to the
proceeds from the sale of the Company's  stock in March 2001 in connection  with
the Bank's mutual-to-stock conversion.

During the fourth quarter of 2001,  the Bank announced that the planned  opening
of a second full service branch office in Columbia,  Maryland. We anticipate the
new branch will open for business in the fourth quarter of 2002.

As part of our  ongoing  efforts  to develop  and  expand the Bank's  commercial
business,  in December 2001, the Bank hired a second commercial account officer.
In addition, we continue to focus on improving  non-interest income. Toward this
end, in 2001 Armor Insurance Group, Inc., our wholly-owned subsidiary ("Armor"),
completed the acquisition of two smaller insurance agencies.  We anticipate that
these acquisitions will improve Armor's sales volume and profitability.

With the  strong  performance  of 2001 as a  starting  point  and the  excellent
management team and  professional  staff we have  assembled,  we are all looking
forward to further  improvement in growth,  earnings and market share.  We thank
you for your support,  and we look forward to enhancing  your  investment in the
Company.

                                           Sincerely,

                                           /s/ Herbert J. Moltzan
                                           -------------------------------------
                                           Herbert J. Moltzan
                                           President and Chief Executive Officer



                                       -3-
<PAGE>



CORPORATE PROFILE

BUCS  Financial  Corp (the  "Company")  was formed as a Maryland  corporation in
October 2000 at the direction of the Bank in connection  with Bank's  conversion
from mutual to stock form of ownership.  The Company acquired all of the capital
stock  issued  by the Bank upon its  conversion.  On March  14,  2001,  the Bank
completed  its  conversion in connection  with a $4.05  million  initial  public
offering of the Company's common stock.  The Company is a financial  institution
holding  company  which,   under  existing  laws,  is  permitted  to  engage  in
financially related activities, beyond those business activities permissible for
the Bank. At the present time, the Company  conducts no significant  business or
operations  of its own other than  holding all of the  outstanding  stock of the
Bank,  Armor,  and CU Benefits and investing  the  Company's  portion of the net
proceeds obtained in the mutual to stock conversion.

The Bank 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 Blue Cross and Blue Shield 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 Credit Union converted its charter to
federal mutual savings  association and became BUCS Federal.  Upon completion of
the mutual-to-stock  conversion in March 2001, the Bank changed its name to BUCS
Federal Bank.

The Bank is a federally  chartered  stock  savings bank,  providing  traditional
retail banking services, one-to-four family residential mortgage loans, consumer
loan products,  including home equity,  auto, and personal loans, and commercial
loans to small businesses in its market area. The Bank in an approved lender for
Small  Business  Administration   guaranteed  loans.  The  Bank  is  subject  to
examination  and  comprehensive  regulation by the Office of Thrift  Supervision
(the  "OTS") and its  deposits  are  federally  insured by the  Federal  Deposit
Insurance  Corporation (the "FDIC") under the Savings Association Insurance Fund
(the  "SAIF").  The Bank is a member of, and owns  capital  stock in the Federal
Home Loan Bank (the  "FHLB") of  Atlanta,  which is one of the  twelve  regional
banks in the FHLB system.

Armor  Insurance  Group,  Inc.  ("Armor")  was  formed in late 1999 as a limited
liability  company and  wholly-owned  subsidiary of the Bank.  Subsequent to the
Bank's mutual-to-stock conversion, Armor was restructured as a subsidiary of the
Company and in December  2001  converted  to a Maryland  corporation.  In August
2001,   Armor  acquired  in  a  cash  deal  two  smaller   insurance   agencies,
Comprehensive  Insurance  Associates,  Inc. and the Carolyn  Brooks  Agency Inc.
Armor is a traditional  multi-line  property and casualty insurance company with
offices located in Reisterstown and Ellicott City,  Maryland.  Armor underwrites
automobile,  homeowners,  life, health, and small business property and casualty
insurance to individuals and small business  throughout central Maryland.

Stock Price  Information

The Company's common stock has traded on the OTC-Electronic Bulletin Board under
the trading  symbol  "BUCS"  since it commenced  trading on March 15, 2001.  The
following  table  reflects  high and low sale  closing  prices for the  calendar
quarters indicated.  The quotations reflect inter-dealer prices,  without retail
mark-up, markdown or commission and may not represent actual transactions.


          2001                                         High           Low
          ----                                         ----           ---

         First Quarter (beginning March 13, 2001)    $14.00         $10.00
         Second Quarter                              $15.35         $13.69
         Third Quarter                               $17.00         $15.35
         Fourth Quarter                              $16.80         $15.25


                                       -4-

<PAGE>

The number of shareholders  of record as of February 25, 2002 was  approximately
292.  This does not reflect the number of persons or entities  who held stock in
nominee or "street" name through various  brokerage firms. At February 25, 2002,
there were 405,085 shares of the Company's common stock outstanding.

As yet, the Company has not paid dividends to stockholders. If and when it does,
the ability to pay  dividends  will be largely  dependent  upon the dividends it
receives  from the Bank.  The Bank may not declare or pay a cash dividend on any
of its stock if the effect thereof would cause the Bank's regulatory  capital to
be reduced below (1) the amount required for the liquidation account established
in  connection  with  its  mutual-to-stock  conversion,  or (2)  the  regulatory
requirements imposed by the OTS.

Selected Financial Ratios and Other Data

                                                For the Years Ended
                                                    December 31,
                                                 2001           2000
                                               --------       -------
Performance Ratios
Return on average assets                          0.51%         0.33%
Return on average equity                          4.42%         3.91%
Net interest rate spread                          3.19%         3.41%
Net interest margin on average
  interest-earning assets                         3.55%         3.61%
Average interest-earning assets to
  average interest-bearing liabilities          109.87%       104.68%
Efficiency Ratio  (non-interest expens
  divided by the sum of net interest
  income and noninterest income)                 80.58%        84.66%

Asset Quality Ratios
Non-performing loans to total loans, net          0.42%         0.20%
Non-performing loans to assets                    0.30%         0.13%
Net charge offs to average
  loans outstanding                               0.22%         0.30%
Allowance for loan losses to total loans          1.11%         1.21%

Capital Ratios
Average equity to average assets                 11.58%         8.46%
Equity to assets at period end                   11.49%         8.21%




                                       -5-

<PAGE>



MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The  Company  may  from  time  to time  make  written  or  oral  forward-looking
statements,  including  statements  contained in the Company's  filings with the
Securities and Exchange Commission,  in its reports to stockholders and in other
communications  by the  Company,  which  are made in good  faith by the  Company
pursuant to the safe harbor  provisions  of the  Private  Securities  Litigation
Reform Act of 1995.

These  forward-looking  statements  involve  risks  and  uncertainties,  such as
statements  of the  Company's  plans,  objectives,  expectations,  estimates and
intentions,  that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's  financial  performance to differ  materially from the
plans,  objectives,  expectations,  estimates and  intentions  expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economy in which the Company conducts  operations;
the effects of, and changes in, monetary and fiscal policies and laws, including
interest rate policies of the board of governors of the federal  reserve system,
inflation,  interest  rate,  market  and  monetary  fluctuations;  the impact of
changes in financial  services' laws and regulations  (including laws concerning
taxes, banking, securities and insurance);  competition;  and the success of the
Company at managing the risks involved in the foregoing.

The  Company  cautions  that the  foregoing  list of  important  factors  is not
exclusive.  The  Company  does  not  undertake  to  update  any  forward-looking
statement,  whether written or oral, that may be made from time to time by or on
behalf of the  Company.  The  Company's  results  of  operations  are  primarily
dependent upon net interest income, which is the difference between the interest
income earned on  interest-earnings  assets,  primarily  loans,  mortgage-backed
securities  and  investments,  and  the  interest  expense  on  interest-bearing
liabilities,  primarily  deposits and  borrowings.  Net  interest  income may be
affected  significantly  by general  economic  and  competitive  conditions  and
policies  of  regulatory  agencies,  particularly  those with  respect to market
interest rates. The results of operations are also  significantly  influenced by
the level of  noninterest  expenses  such as  employee  salaries  and  benefits,
noninterest  income,  such as loan  related  fees  and fees on  deposit  related
services, and the provision for loan losses.

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/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 senior vice  presidents,  and a member of the Board of
Directors,  who also serves as treasurer.  The committee  meets  periodically 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;


                                       -6-

<PAGE>



     o    lengthen  the  maturities  of its  liabilities  when it  would be cost
          effective  through  the  pricing  and  promotion  of  certificates  of
          deposits 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 costs
deposits as a method of enhancing profitability.  At December 31, 2001, the Bank
had  approximately  47% of its  deposits  in  relatively  low cost  savings  and
non-interest  bearing  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  enables the Bank to offset the
impact of rising rates in other deposit accounts.

Changes in Financial Condition

The Company's  total assets of $84.6  million at December 31, 2001,  reflects an
increase of $11.5  million or 15.7% as compared to $73.1 million at December 31,
2000.  The  increase  in  total  assets  was due in part to the  receipt  of the
proceeds from the Company's sale of 405,085 shares of common stock at $10.00 per
share in connection with the Bank's mutual-to-stock  conversion completed during
the first quarter of 2001.  The increase in assets was comprised of increases in
securities  available  for sale of $4.7  million and loans  receivable,  net, of
$10.3  million,  partially  offset by decreases in cash and cash  equivalents of
$3.0 million and securities held to maturity of $235,000.  The increase in loans
receivable was mainly the result of strong demand for mortgage loans, especially
refinances, and home equity loans.

The increase in the Company's  liabilities  was due primarily to a $10.0 million
increase in deposits.  The increase in deposits was  partially  offset by a $2.5
million  decrease in FHLB  advances.  The strong deposit growth is attributed to
continued good demand at the Columbia Maryland branch which opened in the Winter
of 1999, increased advertising by the Bank and the movement of funds from stocks
and mutual funds as the value of these declined.

Stockholders'  equity  totaled $9.7 million at December 31, 2001, as compared to
$6.0  million  at  December  31 2000.  The $3.7  million  increase  or 62.0% was
primarily  due to the  completion  during  year ended  December  31, 2001 of the
Bank's  mutual-to-stock  conversion and proceeds from the sale of 405,085 shares
of the Company's  stock.  In addition,  earnings for the year ended December 31,
2001 of  approximately  $417,000 and a net increase in the  unrealized  gains on
securities  available  for  sale of  approximately  $52,000  contributed  to the
increase in stockholders' equity.


                                       -7-

<PAGE>



Average Balance Sheet

The  following  table sets forth a summary  of  average  balances  of assets and
liabilities  as well as average yield and rate  information.  The average yields
and costs are derived by dividing income and expense by the average  balances of
assets or liabilities, respectively, for the periods presented. 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
difference in the information presented.

<TABLE>
<CAPTION>

                                                                 Year Ended December 31
                                   --------------------------------------------------------------------------------
                                                     2001                                     2000
                                   --------------------------------------    --------------------------------------
                                     Average                                   Average
                                   Outstanding    Interest                   Outstanding     Interest
                                     Balance     Earned/Paid   Yield/Rate       Balance    Earned/Paid   Yield/Rate
                                   -----------   -----------   ----------    -----------   -----------   ----------
<S>                               <C>           <C>           <C>            <C>          <C>            <C>

Interest-earning assets:
Loans receivable (1)                 $53,114      $ 4,274         8.05%         $45,866     $ 3,954          8.62%
Investment securities (2)             24,143        1,281         5.31%          20,280       1,268          6.25%
                                     -------      -------                       -------     -------
     Total interest-earning assets    77,257        5,555         7.19%          66,146       5,222          7.89%
                                                  -------                                   -------
Noninterest-earning assets:            4,205                                      4,198
                                     -------                                    -------
     Total assets                    $81,462                                    $70,344
                                     =======                                    =======
Interest-bearing liabilities:
 Savings accounts                    $21,458          559         2.61%          20,493     $   643          3.14%
 Money market accounts                10,701          395         3.69%           8,277         450          5.44%
 Certificates of Deposit              18,671        1,160         6.21%          12,649         762          6.02%
 Checking                              7,499           --         0.00%           6,315          --          0.00%
                                     -------      -------                       -------     -------
  Total deposits                      58,329        2,114         3.62%          47,734       1,855          3.89%
 Borrowed Funds                       11,989          699         5.83%          15,452         981          6.35%
                                     -------      -------                       -------     -------
     Total interest-bearing
       liabilities                    70,318        2,813         4.00%          63,186       2,836          4.49%
                                                  -------                                   -------
Noninterest-bearing liabilities        1,714                                      1,195
                                     -------                                    -------
     Total liabilities                72,032                                     64,381
Equity                                 9,430                                      5,963
                                     -------                                    -------
     Total liabilities and equity    $81,462                                    $70,344
                                     =======                                    =======
Net Interest income                               $ 2,742                                   $ 2,386
                                                  =======                                   =======
Interest rate spread (3)                                          3.19%                                      3.41%
                                                                ======                                     ======
Net yield on
  interest- earning assets (4)                                    3.55%                                      3.61%
                                                                ======                                     ======
Ratio of average
  interest-earning assets to
  average interest-bearing
  liabilities                                                   109.87%                                    104.68%
                                                                ======                                     ======
</TABLE>


(1)  Non-accruing  loans have been included in loans receivable,  and the effect
     of such inclusion was not material.
(2)  Includes  government  securities,   mortgage-backed  securities,  overnight
     deposits and FHLB stock.
(3)  Interest rate spread represents the difference between the average yield on
     interest-earnings   assets  and  the  average   cost  of   interest-bearing
     liabilities.
(4)  Net yield on  interest-earning  assets  represents net interest income as a
     percentage of average interest-earning assets.


                                       -8-

<PAGE>

Rate/Volume Analysis

The  relationship  between  the volume and rates of the bank's  interest-earning
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  (changes in rate
multiplied by changes in volume); (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.

                                          Year Ended December 31
                                               2001 vs. 2000
                                       --------------------------------
                                            Increase (Decrease)
                                                Due to
                                       --------------------------------
                                                          Rate/
                                       Volume    Rate    Volume   Net
                                       ------    ----    ------  ------

Interest income:
 Loans receivable                      $ 625    $(263)   $ (42)   $ 320
 Investment securities and other         242     (192)     (37)      13
                                       -----    -----    -----    -----
  Total interest-earning assets        $ 867    $(455)   $ (79)   $ 333
                                       =====    =====    =====    =====
Interest expense:
 Savings accounts                      $  30    $(109)   $  (5)   $ (84)
 Money market accounts                   132     (144)     (43)     (55)
 Certificates of deposit                 363       24       11      398
 Checking accounts                        --       --       --       --
 Borrowed funds                         (220)     (80)      18     (282)
                                       -----    -----    -----    -----
  Total interest-bearing liabilities   $ 305    $(309)   $ (19)   $ (23)
                                       =====    =====    =====    =====
Change in net interest income          $ 562    $(146)   $ (60)   $ 356
                                       =====    =====    =====    =====

Results of Operations

Net Income.  The  Company  recorded  net income of  $417,000  for the year ended
December  31,  2001,  as  compared  to  $233,000  for the same  period  in 2000,
representing  a  $184,000  or  79.0%   increase.   The  increase  was  primarily
attributable  to a  $356,000  increase  in net  interest  income  and a $414,000
increase  in  noninterest  income,  partially  offset by a $475,000  increase in
noninterest expense.

Net Interest Income.  Net interest income is the most  significant  component of
our income  from  operations.  Net  interest  income is the  difference  between
interest the Bank receives on interest-earning assets, mainly loans, investments
and   mortgage-backed   securities   and  interest   paid  on   interest-bearing
liabilities,  primarily deposits and borrowings.  Net interest income depends on
the volume of and rates earned on interest-earning  assets and the volume of and
rates paid on interest-bearing liabilities.

The Bank's net interest income increased $356,000 or 14.9% to $2,742,000 for the
year ended  December 31, 2001, as compared to $2,386,000  for the same period in
2000. The average balance of interest-earning  assets increased $11.1 million or
16.8%,  while the average yield thereon  decreased 70 basis points.  The average
balance of interest-bearing  liabilities increased $7.1 million or 11.3% and the
average  rate  paid  thereon   decreased  49  basis  points.   The  increase  in
interest-earning  assets is attributed to the  investment of the proceeds of the
sale of 405,085 shares of common stock in March 2001 and the invest-


                                       -9-


<PAGE>


ment of the increase in deposit  volume at both of the Bank's office  locations.
The average yield on interest-earning  assets decreased primarily due to several
interest rate reductions by the Federal  Reserve  throughout 2001 as the general
economy slowed. The average cost of  interest-bearing  liabilities  decreased by
less than the  average  yield of  interest-bearing  assets  because  more of the
increase in deposits  came in higher  costing  money market and  certificate  of
deposit  accounts,  especially in the first two months of 2001 and again in late
summer of 2001 as general market rates continued to decline.  The total of money
market and  certificate  of deposit  accounts  equaled  52.8% and 48.5% of total
deposits as of December 31, 2001 and 2000, respectively.

The net interest rate spread,  which is the difference between the average yield
on interest-earning assets and the average cost of interest-bearing liabilities,
decreased to 3.19% for the year ended  December 31, 2001 from 3.41% for the same
period in 2000. The decrease in the net interest rate spread is primarily due to
the fact that as general  market  interest  rates have  fallen  interest-earning
assets have been re-pricing faster than interest-bearing liabilities.

Provision  for Loan Losses.  During the years ended  December 31, 2001 and 2000,
the Company established provisions for loan losses of $180,000. The provision is
established  to adjust the balance of the  allowance  for loan losses to a level
management  feels is sufficient  based on the risk  characteristics  of the loan
portfolio.

Management believes the allowance for loan losses is at a level that is adequate
to provide for estimated losses. However, there can be no assurance that further
additions will not be made to the allowance and that such losses will not exceed
the estimated amount.

Noninterest  Income.  Total  noninterest  income,  primarily  fees  and  service
charges,  increased  $414,000 or 35.5% for the year ended  December 31, 2001, as
compared  to the same  period in 2000.  The  increase  reflects  an  emphasis on
charging  appropriate fees for services,  such as ATM fees,  insufficient  funds
fees, and  interchange  income  generated by customers'  use of check cards.  In
addition,  other noninterest income comprised mainly of commissions on insurance
sales  by  the  Company's  wholly-owned   subsidiary,   Armor,  which  commenced
operations in 2000,  increased to $182,000 for the year ended  December 31, 2001
from $31,000 for the same period in 2000.

Noninterest  Expense.  Total noninterest  expense increased by $475,000 or 15.8%
for the year ended  December 31,  2001,  as compared to the same period in 2000.
This increase was attributable to increases of $265,000 or 20.5% in compensation
and benefits  resulting  from  addition of employees at both the Bank and Armor,
increased  cost for  employee  insurance  programs,  and  normal  cost of living
increases,  $117,000 or 116.2% in professional fees resulting from the hiring of
an outside  consulting  firm to provide sales and service  training to employees
and the professional  assistance associated with the conversion of the Bank from
mutual to stock form, $27,000 or 5.2% in office occupancy costs resulting mainly
from the inclusion of the Columbia  branch,  which opened in December  1999, for
the  entire  year of  2001,and  $101,000  or 16.0% in  office  operations  costs
resulting mainly from operating costs associated with the Company's wholly-owned
subsidiary,  Armor.  These increases were partially  offset by declines in other
noninterest  expenses,  mainly  marketing  costs, of $36,000 or 8.1%.  Marketing
costs  were  high in the year  ended  December  31,  2000 due to  promotions  in
connection with the Bank's new Columbia branch,  which held its grand opening in
April 2000. These costs were not repeated in the same period in 2001.

Income Tax Expense. The provision for income taxes totaled $243,000 for the year
ended  December 31,  2001,  as compared to $132,000 for the same period in 2000.
The $111,000 or 84.6% increase is the result of increased net taxable income.


                                      -10-

<PAGE>


Liquidity and Capital Resources

The  Bank's  primary  sources  of funds  are  deposits,  repayment  of loans and
mortgage-backed securities,  maturities of investment securities,  advances from
the FHLB of  Atlanta,  and  funds  provided  from  operations.  While  scheduled
repayments of loans and mortgage-backed  securities and maturities of investment
securities  are  predictable  sources  of  funds,  deposit  flows  and  loan and
mortgage-backed  securities prepayments are greatly influenced by general levels
of  interest  rates,  economic  conditions  and  competition.  The Bank uses its
liquidity  resources  principally to fund existing and future loan  commitments,
maturing  certificates of deposit and demand deposit  withdrawals,  to invest in
other  interest-earning  assets,  to  maintain  liquidity,  and  meet  operating
expenses.

Net cash  provided  by the  Bank's  operating  activities  (the cash  effects of
transactions  that  enter  into the  Bank's  determination  of net  income  e.g.
non-cash items,  amortization and  depreciation,  provision for loan losses) for
the year ended  December 31, 2001 totaled  $1.02 million an increase of $683,000
as compared to 2000.

Net cash  used by the  Bank's  investing  activities  (i.e.  cash  disbursement,
primarily   for  the   purchase  of  the  Bank's   investment   securities   and
mortgage-backed  securities and funding the Bank's loan  portfolio) for the year
ended  December 31, 2001 totaled  $14.7 million and increase of $10.4 million as
compared  to 2000.  The  increase  in cash used was  primarily  attributable  to
funding net loan growth of $10.0  million in 2001 as compared to $5.3 million in
2000 as well as an increase in securities  available for sale of $4.7 million in
2001 as compared to a decline of $723,000 in 2000. The increase in net cash uses
was partially offset by pay downs on investments held to maturity of $235,000 in
2001 as compared to $12,000 in 2000.

Net cash  provided  by the  Bank's  financing  activities  (i.e.  cash  receipts
primarily  from net  proceeds of stock sales and from net  increases in deposits
and FHLB  borrowing) for the year ended December 31, 2001 totaled $10.7 million,
an increase  of $6.2  million as compared  to 2000.  The  increase is  primarily
attributable  to  increased  deposits  of $10 million and the net proceed of the
initial public stock offering in March 2001 of $3.5 million  partially offset by
the repayment of FHLB advances of $2,500,000.

Approximately  $11.5 million of the Bank's time deposits  mature within the next
12 months.  The Bank expects  such  deposits to be renewed at market  rates.  In
addition to this source of continuing funding, the Bank has additional borrowing
capacity of $5.0 million through the FHLB of Atlanta.


                                      -11-

<PAGE>



                          INDEPENDENT AUDITORS' REPORT




The Board of Directors and Stockholders
BUCS Financial Corp
Owings Mills, Maryland

We have audited the  accompanying  consolidated  balance sheet of BUCS Financial
Corp and  subsidiaries  as of December  31, 2001,  and the related  consolidated
statements of operations,  changes in stockholders'  equity,  and cash flows for
the  year  then  ended.   These  consolidated   financial   statements  are  the
responsibility  of the management of BUCS Financial Corp. Our  responsibility is
to express an opinion on these  consolidated  financial  statements based on our
audit.  The  consolidated   financial   statements  of  BUCS  Federal  Bank  and
subsidiaries  as of December 31, 2000 and for the year then ended,  were audited
by other  auditors  whose report dated January 24, 2001 expressed an unqualified
opinion on those statements.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  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  audit  provides  a
reasonable basis for our opinion.

In our opinion the  accompanying  consolidated  balance sheet as of December 31,
2001  and  the  related  consolidated   statement  of  operations,   changes  in
stockholders'  equity and cash flows for the year then ended present fairly,  in
all material  respects,  the  financial  position of BUCS  Financial  Corp as of
December 31, 2001 and the results of its  operations and cash flows for the year
then ended in conformity with accounting  principles  generally  accepted in the
United States of America.


                                                /s/ Stegman & Company


Baltimore, Maryland
January 19, 2002


                                      -12-


<PAGE>



                      BUCS FINANCIAL CORP AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2001 AND 2000
                                     ASSETS

<TABLE>
<CAPTION>

                                                                         2001            2000
                                                                     ------------   ------------
<S>                                                               <C>            <C>

Cash and cash equivalents                                            $  2,359,036   $  5,354,010
Investment securities:
 Available-for-sale - at fair value                                    19,103,091     14,350,772
 Held-to-maturity - at amortized cost - fair value
   of $730,160 (2001) and $946,550 (2000)                                 722,765        958,194
Loans receivable, net of allowance for loan losses
  of $662,885 (2001) and $599,739 (2000)                               59,360,908     49,365,030
Accrued interest receivable                                               332,433        418,267
Property and equipment, net                                               977,991      1,040,923
Investment in Federal Home Loan Bank
  of Atlanta stock - at cost                                              930,800        930,800
Goodwill and other intangible assets                                      327,240             --
Prepaid expenses and other assets                                         445,472        679,183
                                                                     ------------   ------------
          TOTAL ASSETS                                               $ 84,559,736   $ 73,097,179
                                                                     ============   ============
                      LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
 Deposits                                                            $ 61,417,093   $ 51,441,086
 Accounts payable and other liabilities                                   632,116        657,786
 Borrowed funds - Federal Home Loan Bank of Atlanta                    12,500,000     15,000,000
 Notes payable                                                            293,000             --
                                                                     ------------   ------------
          Total liabilities                                            74,842,209     67,098,872
                                                                     ------------   ------------
STOCKHOLDERS' EQUITY:
 Preferred stock, par value $0.10 per share,
   2,000,000 shares authorized, 0 shares issued and outstanding                --             --
Common stock, par value $0.10 per share, 5,000,000 shares
  authorized, 405,085 shares issued and outstanding at
  December 31, 2001                                                        40,508             --
 Additional paid-in capital                                             3,508,708             --
 Retained earnings                                                      6,443,132      6,026,609
 Unallocated common stock held by employee stock
   ownership plan ("ESOP")                                               (298,172)            --
Accumulated other comprehensive income (loss)                              23,351        (28,302)
                                                                     ------------   ------------
          Total stockholders' equity                                    9,717,527      5,998,307
                                                                     ------------   ------------
          TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                 $ 84,559,736   $ 73,097,179
                                                                     ============   ============
</TABLE>



The notes to the consolidated financial statements are an integral part of these
statements



                                      -13-

<PAGE>








                      BUCS FINANCIAL CORP AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000


                                                2001           2000
                                             ----------     ----------
INTEREST INCOME:
 Loans receivable                            $4,273,998     $3,954,036
 Investment securities                        1,281,287      1,267,951
                                             ----------     ----------
     Total interest income                    5,555,285      5,221,987
                                             ----------     ----------

INTEREST EXPENSE:
 Deposits                                     2,113,862      1,854,932
 Borrowed funds                                 699,184        981,184
                                             ----------     ----------
     Total interest expense                   2,813,046      2,836,116
                                             ----------     ----------
NET INTEREST INCOME                           2,742,239      2,385,871

PROVISION FOR LOAN LOSSES                       180,000        180,000
                                             ----------     ----------
                                              2,562,239      2,205,871
                                             ----------     ----------

NONINTEREST INCOME:
 Fees and service charges                     1,225,310        993,749
 Gain on sale of investment securities            4,375             --
 Gain on sale of loans                           35,138             --
 Fee to process and maintain cash facility      120,000        120,000
 Other                                          194,490         51,794
     Total noninterest income                 1,579,313      1,165,543
                                             ----------     ----------
                                              4,141,552      3,371,414
                                             ----------     ----------

NONINTEREST EXPENSE:
 Compensation and benefits                    1,561,818      1,296,489
 Occupancy expense                              554,531        527,354
 Office expense                                 734,998        633,617
 Professional fees                              218,332        100,991
 Other operating expense                        411,972        448,321
                                             ----------     ----------
     Total noninterest expense                3,481,651      3,006,772
                                             ----------     ----------

INCOME BEFORE INCOME TAXES                      659,901        364,642

INCOME TAX EXPENSE                              243,378        131,810
                                             ----------     ----------

NET INCOME                                   $  416,523     $  232,832
                                             ==========     ==========



                                      -14-


<PAGE>



                      BUCS Financial Corp and Subsidiaries

               Consolidated Statements of Operations (Continued)
                 For the Years Ended December 31, 2001 and 2000


<TABLE>
<CAPTION>

                                              For the Period
                                              March 14, 2001      For the Year Ended
                                                  Through         December 31, 2001
                                             December 31, 2001       Pro Forma *
                                             -----------------    ------------------
<S>                                            <C>                  <C>

NET INCOME                                        $352,933             $416,523
                                                  ========             ========

EARNINGS PER SHARE -BASIC AND DILUTED             $   0.95             $   1.12
                                                  ========             ========

SHARES USED IN COMPUTING
BASIC AND DILUTED EARNINGS PER SHARES              372,672              372,672
                                                  ========             ========

</TABLE>


* Pro forma information gives effect to the transaction referred to in Note. 1.


The notes to the consolidated financial statements are an integral part of these
statements.



                                      -15-


<PAGE>



                      BUCS FINANCIAL CORP AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000


<TABLE>
<CAPTION>


                                                                                              Accumulated
                                                                                Unallocated     Other
                                                                                   Common       Compre-      Total
                                                    Additional                     Stock        hensive      Stock-
                                          Common     Paid-in       Retained       Held by       (Loss)      holders'
                                          Stock      Capital       Earnings        ESOP         Income       Equity
                                         -------    ---------     ----------    -----------   -----------  -----------
<S>                                   <C>       <C>           <C>           <C>           <C>          <C>

Balance at January 1, 2000               $    --    $       --    $5,793,777    $      --     $(313,100)   $5,480,677
 Net income                                   --            --       232,832           --            --       232,832
 Other comprehensive income,
   net of tax -  unrealized gains on
   available-for-sale securities              --            --            --           --       284,798       284,798
                                                                                                           ----------
 Total comprehensive income                   --            --            --           --            --       517,630
                                         -------    ----------    ----------    ---------      --------   -----------

Balance at December 31, 2000                  --            --     6,026,609           --       (28,302)    5,998,307
 Net income                                   --            --       416,523           --            --       416,523
 Other comprehensive income,
   net of tax - unrealized gains on
   available-for-sale securities              --            --           --            --        51,653        51,653
                                                                                                           ----------
 Total comprehensive income                   --            --           --            --            --       468,176
 Proceeds from sale of BUCS
   Financial Corp common stock            40,508     3,493,636           --      (324,100)           --     3,210,044
 Fair value of ESOP shares allocated          --        15,072           --        25,928            --        41,000
                                         -------    ----------    ----------    ---------      --------    ----------

Balance at December 31, 2001             $40,508    $3,508,708   $6,443,132     $(298,172)     $ 23,351    $9,717,527
                                         =======    ==========   ==========     =========      ========    ==========

</TABLE>


The notes to the consolidated financial statements are an integral part of these
statements.



                                      -16-


<PAGE>



                      BUCS FINANCIAL CORP AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



<TABLE>
<CAPTION>

                                                                                     2001             2000
                                                                                 ------------     ------------
<S>                                                                            <C>            <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
 Cash inflows:
  Interest income                                                                 $ 5,641,119    $  5,156,384
  Fees and service charges                                                          1,260,448         993,749
  Other income                                                                        198,865          51,794
                                                                                 ------------     -----------
                                                                                    7,100,432       6,201,927
                                                                                 ------------     -----------
 Cash outflows:
  General and administrative expenses                                               3,140,986       2,686,543
  Interest on deposits                                                              2,113,862       1,854,932
  Interest on borrowed funds                                                          751,434       1,043,834
  Income taxes                                                                         74,720         279,154
                                                                                 ------------     -----------
                                                                                    6,081,002       5,864,463
                                                                                 ------------     -----------
     Net cash provided by operating activities                                      1,019,430         337,464
                                                                                 ------------     -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Cash inflows:
  Loan principal repayments and loan participations sold                           28,838,019      17,891,618
  Proceeds from maturities and redemption of securities
    available-for-sale                                                              9,965,516       2,705,090
  Proceeds from repayments on securities held-to-maturity                             234,429          12,406
  Proceeds from sale of loans                                                         398,888               -
                                                                                 ------------     -----------
                                                                                   39,436,852      20,609,114
                                                                                 ------------     -----------
 Cash outflows:
  Purchase of securities available-for-sale                                        14,660,807       1,698,421
  Loan disbursements                                                               39,329,174      23,194,000
  Purchase of property and equipment                                                  157,326          63,792
  Acquisition of insurance subsidiaries                                                31,000               -
                                                                                 ------------     -----------
                                                                                   54,178,307      24,956,213
                                                                                 ------------     -----------
     Net cash used in investing activities                                        (14,741,455)     (4,347,099)
                                                                                 ------------     -----------

CASH FLOWS
FROM FINANCING ACTIVITIES:
 Cash inflows (outflows):
  Proceeds from sale of common stock                                                3,210,044               -
  Allocated fair value of ESOP shares                                                  41,000               -
  Net decreases in borrowed funds from the
    Federal Home Loan Bank                                                         (2,500,000)     (3,615,000)
  Net increase in deposits                                                          9,976,007       8,108,452
                                                                                 ------------    ------------
     Net cash provided by financing activities                                     10,727,051       4,493,452
                                                                                 ------------    ------------

NET (DECREASE) INCREASE IN CASH
  AND CASH EQUIVALENTS                                                             (2,994,974)        483,817

CASH AND CASH EQUIVALENTS
  AT BEGINNING OF YEAR                                                              5,354,010       4,870,193
                                                                                 ------------     -----------
CASH AND CASH EQUIVALENTS
  AT END OF YEAR                                                                 $  2,359,036     $ 5,354,010
                                                                                 ============     ===========


</TABLE>

                                      -17-

<PAGE>



                      BUCS Financial Corp and Subsidiaries

               Consolidated Statements of Cash Flows (Continued)
                 For the Years Ended December 31, 2001 and 2000

<TABLE>
<CAPTION>



                                                                               2001         2000
                                                                            ----------    ---------
<S>                                                                       <C>          <C>

Reconciliation of net income to net cash provided
  by operating activities:
   Net income                                                                $ 416,523    $ 232,832
   Gain on sale of investment securities                                        (4,375)          --
   Adjustments for items not providing or not
     requiring cash or cash equivalents:
     Provision for loan losses                                                 180,000      180,000
     Deferred income taxes                                                       8,745       37,730
     Depreciation and amortization                                             220,258      166,562
   Effects of changes in operating assets and liabilities:
     Accrued interest receivable                                                85,834      (65,603)
     Prepaid expenses and other assets                                         150,100     (107,265)
     Accounts payable and other liabilities                                    (37,655)    (106,792)
                                                                            ----------    ---------
          Net cash provided by operating activities                         $1,019,430    $ 337,464
                                                                            ==========    =========
</TABLE>



The notes to the consolidated financial statements are an integral part of these
statements.



                                      -18-

<PAGE>

                      BUCS FINANCIAL CORP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Nature of Operations
         --------------------

BUCS Financial Corp (the "Company") is a one-bank  holding company that provides
its  customers  with  banking and  non-banking  financial  services  through its
wholly-owned  subsidiary  BUCS Federal Bank (the  "Bank").  Effective  March 14,
2001, the Bank converted from a federal mutual thrift to a Federal stock savings
bank  exercising  the powers of a savings bank.  The Bank offers  various loans,
deposit  and other  financial  service  products  to its  customers.  The Bank's
customers  include  individuals and commercial  enterprises  throughout  central
Maryland; emphasizing the areas surrounding its main office and branch locations
in Owings Mills and Columbia, Maryland, respectively.

         Formation of Holding Company
         ----------------------------

The Company, a one-bank holding company, commenced operations on October 2, 2000
pursuant to a Plan of Reorganization proposed by management. Under the Plan, the
Company sold shares of common stock in  accordance  with the  conversion  of the
Bank. As part of the  conversion,  the Bank became a wholly-owned  subsidiary of
the Company.  The Company used approximately 50% of the net proceeds raised from
the sale of stock to purchase  100% of the Bank stock.  The Bank  continues  its
banking  business  as a wholly  owned  subsidiary  of the  holding  company.  In
addition  to the Bank,  the Company has two  subsidiaries  which sell  financial
products,  C.U.  Benefits and ARMOR Insurance Group, LLC ("ARMOR").  Comparative
financial  statements  for the year ended December 31, 2000 include the accounts
of the Bank and its subsidiaries.

Comparative data in the accompanying  consolidated financial statements for 2000
are those of the Bank, C.U. Benefits, Inc. and ARMOR.

         Principles of Consolidation
         ---------------------------

The consolidated  financial  statements  include the accounts of the Company and
its wholly-owned  subsidiaries.  All significant  intercompany  transactions and
balances  are  eliminated  in  consolidation.   The  accompanying   consolidated
financial statements have been prepared in accordance with accounting principles
generally  accepted  in the  United  States of  America  and  conform to general
practices within the banking industry.  Certain reclassifications have been made
to amounts previously reported to conform to the classifications made in 2001.

         Use of Estimates in Preparing Financial Statements
         --------------------------------------------------

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America 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.



                                      -19-

<PAGE>








Material  estimates that are  particularly  susceptible  to  significant  change
relate to the determination of the allowance for losses on loans.

A majority of the Bank's loan portfolio  consist of real estate secured loans in
the central Maryland area. The ultimate  collectibility of the loan portfolio is
susceptible to changes in local market conditions.

         Cash and Cash Equivalents
         -------------------------

For purposes of the consolidated  statement of cash flows, the Company considers
all highly liquid debt instruments  with original  maturities of three months or
less when purchased to be cash equivalents.

         Investment Securities
         ---------------------

The Company's  investments  in securities  are  classified in two categories and
accounted for as follows:

Investment  securities  available-for-sale  are stated at  estimated  fair value
based on quoted market prices.  They represent those securities which management
may  sell  as part  of its  asset/liability  strategy  or  which  may be sold in
response to changing interest rates, changes in prepayment risk or other similar
factors.   The  cost  of   securities   sold  is   determined  by  the  specific
identification  method.  Net  unrealized  holding  gains  and  losses  on  these
securities are reported as accumulated  other  comprehensive  income, a separate
component of stockholders' equity, net of related income taxes.

Investment   securities   held-to-maturity  are  stated  at  cost  adjusted  for
amortization of premiums and accretion of discounts. The Company intends and has
the  ability  to hold  such  securities  until  maturity.  When  securities  are
transferred into the held-to-maturity category from available-for-sale, they are
accounted for at estimated fair value with any  unrealized  holding gain or loss
at the date of the transfer reported as accumulated other comprehensive  income,
net of income taxes, and amortized over the remaining life of the security as an
adjustment of yield.

         Loans Receivable
         ----------------

Loans receivable are stated at unpaid principal balances, less the allowance for
loan losses.

Interest  income is accrued at the  contractual  rate  applied to the  principal
amount  outstanding.  A loan is placed  on  nonaccrual  when it is  specifically
determined  to be impaired or when  principal or interest is  delinquent  for 90
days or more. Any unpaid interest  previously accrued on those loans is reversed
from income.  Interest income  generally is not recognized on specific  impaired
loans  unless the  likelihood  of  further  loss is  remote.  Interest  payments
received on such loans are applied as a reduction of the loan principal balance.
Interest  income on other  nonaccrual  loans is recognized only to the extent of
interest payments received.

Certain  direct  origination  costs  are  deferred  and  amortized  as  a  yield
adjustment  over the lives of the related  loans.  The Bank  generally  does not
charge loan origination fees to customers.

The Company identifies impaired loans and measures impairment (i) at the present
value of expected cash flows discounted at the loan's  effective  interest rate;
(ii)  at the  observable  market  price,  or  (iii)  at the  fair  value  of the
collateral if the loan is collateral  dependent.  If the measure of the impaired
loan is less  than  the  recorded  investment  in the  loan,  an  impairment  is
recognized through a valuation  allowance and corresponding  charge to provision
for loan losses. The Company does not apply these provisions to larger groups of
smaller-balance  homogeneous  loans such as  consumer  installment,  residential
first  and  second  mortgage  loans  and  credit  card  loans.  These  loans are
collectively evaluated for impairment.

A loan is  determined  to be impaired  when,  based on current  information  and
events,  it is probable  that the Company  will be unable to collect all amounts
due according to the contractual terms of the loan



                                      -20-

<PAGE>


agreement. A loan is not considered impaired during a period of delay in payment
if the Company expects to collect all amounts due,  including interest past-due.
The  Company  generally  considers  a  period  of delay in  payment  to  include
delinquency up to 90 days.

The Company  identifies  loans subject to impairment by  individually  reviewing
every loan 60 days or more delinquent,  selected  non-delinquent loans and other
loans if there is an indication of a problem.


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 the Bank 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.

         Allowance for Loan Losses
         -------------------------

The  allowance  for loan losses  represents  an amount  which,  in  management's
judgment, will be adequate to absorb probable losses on existing loans and other
extensions  of credit  that may become  uncollectible.  The  allowance  for loan
losses  consists of an allocated  component and an  unallocated  component.  The
components  of the  allowance  for loan  losses  represent  an  estimation  done
pursuant to either Statement of Financial  Accounting  Standards ("SFAS") No. 5,
Accounting  for  Contingencies  or SFAS No. 114,  Accounting  by  Creditors  for
Impairment  of a  Loan.  The  adequacy  of the  allowance  for  loan  losses  is
determined  through review and evaluation of the loan portfolio and involves the
balancing  of a number of factors to  establish  a prudent  level.  Management's
assessment  includes  the  systematic  evaluation  of several  factors:  current
economic  conditions  and  their  impact  on  specific  borrowers;  the level of
classified and  non-performing  loans;  the historical  loss  experience by loan
type;  the results of  regulatory  examinations;  and, in  specific  cases,  the
estimated value of underlying collateral.

The  unallocated  portion of the allowance is determined  based on  management's
assessment of general economic conditions,  as well as specific economic factors
in the  individual  market in which the  Company  operates.  This  determination
inherently  involves a higher risk of  uncertainty  and  considers  current risk
factors that may not have yet manifested  themselves in the Company's historical
loss factors used to determine the  allocated  component of the allowance and it
recognizes  knowledge  of the  portfolio  may be  incomplete.  The  allowance is
increased by the loan loss provision  charged to operating  expenses and reduced
by loan charge-offs, net of recoveries.

         Property and Equipment
         ----------------------

Property and  equipment  are stated at cost less  accumulated  depreciation  and
amortization.  Depreciation and amortization are accumulated using straight-line
method over the estimated useful lives of the assets.  Additions and betterments
are  capitalized  and  charges for repairs and  maintenance  are  expensed  when
incurred.  The cost and accumulated  depreciation or amortization are eliminated
from the  accounts  when an asset is sold or retired and the  resultant  gain or
loss is credited or charged to income. Leasehold improvements are amortized over
a period of 12 to 25 years.  Furniture,  fixtures and equipment are  depreciated
over periods of 3 to 12 years. For tax purposes,  depreciation is computed using
accelerated methods.

         Investment in Federal Home Loan Bank Stock
         ------------------------------------------

As a member  of the  Federal  Home Loan Bank of  Atlanta  ("FHLB"),  the Bank is
required to hold a certain amount of FHLB stock.  This stock is considered to be
a  non-marketable  equity  security  under  SFAS No.  115 and,  accordingly,  is
reported at cost.


                                      -21-

<PAGE>



         Goodwill and Other Intangible Assets
         ------------------------------------

Goodwill  and other  intangible  assets  (consisting  of  contracts  and related
customer  relationships)  were created with the acquisition of certain insurance
companies by ARMOR in December 2001.

Goodwill  represents  the  excess of the cost of  assets  acquired  in  purchase
business  combinations  over  the  fair  value  of  the  net  assets  and  other
identifiable intangible assets at the dates of acquisition.

Amortization  is calculated  using the  straight-line  method over the following
periods:

     Contracts and related customer relationships       10 years
     Goodwill                                           No amortization

There was no  amortization  expense on  intangible  assets  for the years  ended
December 31, 2001 and 2000.

Goodwill and intangible assets are evaluated regularly for  other-than-temporary
impairment.  If  circumstances  suggest that their value may be impaired and the
write-down would be material, an assessment of recoverability is performed prior
to any write-down of the asset.

         Income Taxes
         ------------

Income tax expense is based on the results of operations, adjusted for permanent
differences  between  items of  income  or  expense  reported  in the  financial
statements  and those  reported  for tax  purposes.  Deferred  income  taxes are
recognized for the tax consequences of temporary  differences  between financial
statement carrying amounts and the tax bases of assets and liabilities. Deferred
income taxes are provided on income and expense items when they are reported for
financial  statement  purposes  in periods  different  from the periods in which
these items are  recognized  in the income tax returns.  Deferred tax assets are
recognized  only to the extent that it is more likely than not that such amounts
will be realized based upon consideration of available  evidence,  including tax
planning strategies and other factors.

         Comprehensive Income
         --------------------

Comprehensive  income  includes  all changes in  stockholders'  equity  during a
period,   except  those  relating  to  investments  by  and   distributions   to
stockholders.  The Company's  comprehensive  income consists of net earnings and
unrealized gains and losses on securities available-for-sale.  Accumulated other
comprehensive  income is  displayed  as a separate  component  of  stockholders'
equity.

         Earnings Per Share
         ------------------

Under accounting  principles  generally accepted in the United States,  earnings
per  share is  presented  only  for  periods  since  the  effective  date of the
transaction  (March 14, 2001). In addition,  on a pro forma basis,  earnings per
share is  presented  as if the  transaction  had occurred as of January 1, 2001.
Basic earnings per share for the period from March 14, 2001 through December 31,
2001 is based on the weighted average number of shares  outstanding  during such
period.  The  unaudited  basic pro forma  earnings  per share for the year ended
December 31, 2001 is based on the weighted  average  number of shares that would
have been outstanding during the year had the transaction occurred as of January
1, 2001.  Diluted  earnings per share is computed based on the weighted  average
number of shares outstanding,  increased by the number of common shares that are
assumed to have been  purchased  with the  proceeds  from the  exercise of stock
options  (treasury  stock method).  During the years ended December 31, 2001 and
2000, no stock options were outstanding.

         Advertising Costs
         -----------------

It is the policy of the Company to direct expense all  advertising and marketing
costs.  Advertising  costs  for the  years  ended  December  31,  2001  and 2000
approximated $163,900 and $190,600, respectively.



                                      -22-

<PAGE>


2. RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
133, Accounting for Derivative  Instruments and Hedging Activity.  SFAS No. 133,
as amended by SFAS No. 137 and No. 138,  establishes  accounting  and  reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other  contracts,  and for hedging  activities.  It requires that an
entity  recognizes  all  derivatives  as  either  assets or  liabilities  in the
statement of financial  position and measure  those  instruments  at fair value.
SFAS No. 133 was  effective  for all fiscal  quarters of fiscal years  beginning
after June 15, 2000. The adoption of SFAS No. 133, as amended,  had no impact on
the Company's  consolidated financial statements as the Company does not utilize
derivatives.

In June 2001,  the FASB issued two new  pronouncements:  SFAS No. 141,  Business
Combinations,  and SFAS No. 142, Goodwill and Other Intangible Assets.  SFAS 141
is effective as follows: a) use of the pooling-of-interest  method is prohibited
for business  combinations  initiated after June 30, 2001; and b) the provisions
of SFAS No. 141 also apply to all  business  combinations  accounted  for by the
purchase method that are completed after June 30, 2001 (that is, the date of the
acquisition is July 2001 or later).  There are also  transition  provisions that
apply  to  business  combinations  completed  before  July 1,  2001,  that  were
accounted  for the purchase  method.  SFAS No. 142 is effective for fiscal years
beginning  after December 15, 2001 to all goodwill and other  intangible  assets
recognized  in an  entity's  statement  of  financial  position  at  that  date,
regardless of when those assets were initially recognized. The adoption of these
standards  will  not  have  a  material  impact  on the  Company's  consolidated
financial statements.

In June 2001,  the FASB  issued SFAS No. 143,  Accounting  for Asset  Retirement
Obligations.  SFAS No. 143  addresses  financial  accounting  and  reporting for
obligations  associated with the retirement of intangible  long-lived assets and
the  associated  asset  retirement  costs and is effective  for the fiscal years
beginning after June 15, 2002. Management does not expect the impact of SFAS No.
143 to be material to the Company's consolidated financial statements.

In August 2001,  the FASB issued SFAS No. 144,  Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 addresses  financial  accounting and
reporting for the  impairment or disposal of long-lived  assets.  This Statement
supersedes SFAS No. 121,  Accounting for the Impairment of Long-Lived Assets and
for  Long-Lived  Assets to be  Disposed  of, and the  accounting  and  reporting
provisions  of APB  Opinion  No.  30,  Reporting  the  Results of  Operations  -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions,  for the disposal of
a segment of business (as previously  defined in that  Opinion).  This statement
also amends ARB No. 51,  Consolidated  Financial  Statements,  to eliminate  the
exception to  consolidation  for a subsidiary  for which control is likely to be
temporary.  SFAS No. 144 is effective for fiscal years  beginning after December
15, 2001.  Management  does not expect the impact of SFAS No. 144 to be material
to the Company's consolidated financial statements.



                                      -23-


<PAGE>



3. BUSINESS COMBINATIONS

During the year ended  December  31,  2001,  one of the  Company's  subsidiaries
acquired two insurance companies. Both transactions were accounted for using the
purchase method of accounting.  Total  acquisition cost of the two companies was
$327,240,  including  brokers'  commissions  of $3,240.  The purchase  price was
allocated as follows:

         Contracts and related customer relationships         $223,240
         Goodwill                                              104,000
                                                              --------
                                                              $327,240
                                                              ========

The amount due to the acquired  entities is payable  over a  three-year  period.
During 2001 a $31,000 payment has been made related to one of the agreements.  A
schedule of future  amounts  payable  under the note  payable  agreements  is as
follows:


                  2002                       $108,000
                  2003                        108,000
                  2004                         77,000
                                             --------
                                             $293,000
                                             ========

The notes do not include an interest factor.

4. INVESTMENT SECURITIES

The  amortized  cost and  estimated  fair  value of  investment  securities  are
summarized as follows:

<TABLE>
<CAPTION>

                                                            Gross         Gross      Estimated
                                              Amortized   Unrealized    Unrealized      Fair
                                                Cost         Gain         Losses        Value
                                            ------------  ----------    ----------   -----------
<S>                                         <C>           <C>           <C>          <C>

December 31, 2001:
Investment securities available-for-sale:
 Obligations of U.S. Government agencies    $ 1,000,000   $       -       $ 10,000    $   990,000
 Mortgage-backed securities                  18,066,025     144,677         97,611     18,113,091
                                            -----------    --------       --------    -----------
                                             19,066,025     144,677        107,611     19,103,091
Investment securities held-to-maturity -
 Mortgage-backed securities                     722,765       7,395             --        730,160
                                            -----------    --------       --------    -----------
                                            $19,788,790    $152,072       $107,611    $19,833,251
                                            ===========    ========       ========    ===========
</TABLE>



<TABLE>
<CAPTION>

                                                            Gross         Gross     Estimated
                                              Amortized   Unrealized    Unrealized     Fair
                                                Cost         Gain         Losses       Value
                                            ------------  ----------    ----------  ----------
<S>                                         <C>           <C>           <C>        <C>

December 31, 2000:
 Investment securities available-for-sale:
  Treasury and agency securities             $ 6,500,000      $      -    $ 25,389    $ 6,474,611
  Mortgage-backed securities                   7,879,074        17,138      20,051      7,876,161
                                             -----------      --------    --------    -----------
                                              14,379,074        17,138      45,440     14,350,772
Investment securities held-to-maturity -
  Mortgage-backed securities                     958,194             -      11,644        946,550
                                             -----------      --------    --------    -----------
                                             $15,337,268      $ 17,138    $ 57,084    $15,297,322
                                             ===========      ========    ========    ===========

</TABLE>



                                      -24-

<PAGE>



The  amortized  cost and  estimated  fair  values of  investment  securities  by
contractual maturity date at December 31, 2001 are as follows:

                                             Estimated
                                             Amortized           Fair
                                               Cost             Value
                                           -----------       -----------

Investment securities available-for-sale:
  Within one year                         $          -       $         -
  1 - 5 years                                7,674,510         7,781,852
  6 - 10 years                               4,362,652         4,350,447
  After 10 years                             7,028,863         6,970,792
                                           -----------       -----------
                                            19,066,025        19,103,091
                                           -----------       -----------

Investment securities held-to-maturity:
  Within one year                                    -                 -
  1 - 5 years                                  346,628           351,307
  6 - 10 years                                 376,137           378,853
                                           -----------       -----------
                                               722,765           730,160
                                           -----------       -----------
          Totals                           $19,788,790       $19,833,251
                                           ===========       ===========

Expected  maturities will differ from contractual  maturities  because borrowers
may have  the  right  to call or  prepay  obligations  with or  without  call or
prepayment penalties.

Investments in  mortgage-backed  securities with an amortized cost of $4,334,973
and an estimated  fair value of $4,300,476  have been pledged as collateral  for
credit  extended by the Federal  Home Loan Bank of Atlanta  ("FHLB") at December
31, 2001.

The gross  realized  gains and  losses on debt  securities  for the years  ended
December 31, 2001 and 2000 are as follows:


                                           2001                2000
                                    -----------------   -----------------
                                      Gross    Gross      Gross    Gross
                                    Realized Realized   Realized Realized
                                      Gains    Losses     Gains    Losses
                                    -------- --------   -------  --------

Securities available-for-sale        $4,375   $   -      $  -      $  -
                                     ======   =====      ====      ====


Proceeds  from sales of securities  available-for-sale  amounted to $995,625 and
$-0- for the years ended December 31, 2001 and 2000, respectively.

Net unrealized  holding gain (loss) on  available-for-sale  securities  that has
been included in accumulated other comprehensive  income amounted to $51,653 and
$284,798  for the years  ended  December  31, 2001 and 2000,  respectively.  The
amount of gains (losses)  reclassified  out of accumulated  other  comprehensive
income  amounted  to $4,375 and $-0- for the years ended  December  31, 2001 and
2000, respectively.



                                      -25-

<PAGE>


4. LOANS RECEIVABLE

Loans receivable consist of the following at December 31:

                                                     2001          2000
                                                  -----------   -----------
Categories:
  Mortgage loans:
    Residential:
      Permanent 1 - 4 single family               $17,242,756   $13,608,672
  Consumer loans:
    Home equity loans                              18,652,923    13,132,655
    Secured loans                                  17,562,957    18,220,839
    Other                                           4,577,288     3,744,878
  Commercial                                        1,596,323       949,790
                                                  -----------   -----------
          Total loans                              59,632,247    49,656,834
  Net deferred loan costs                             391,546       307,935
                                                  -----------   -----------
                                                   60,023,793    49,964,769
  Less allowance for loan losses                      662,885       599,739
                                                  -----------   -----------
          Loans receivable, net                   $59,360,908   $49,365,030
                                                  ===========   ===========


Loans  aggregating  $16,808,318 and $13,314,522 have been pledged to the FHLB as
collateral for credit extended by the FHLB for short-term borrowings at December
31, 2001 and 2000, respectively.

Nonperforming  loans  amounted  to  approximately  $250,000  and  $98,000  as of
December  31, 2001 and 2000,  respectively.  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 at December 31, is as follows:


                                         2001            2000
                                     -----------     -----------

Balance at beginning of year          $ 599,739        $ 559,775
Provision for loan losses               180,000          180,000
Recoveries                               48,850           80,808
Loan loss write-offs                   (165,704)        (220,844)
                                      ---------        ---------
Balance at end of year                $ 662,885        $ 599,739
                                      =========        =========


Impairment of loans having recorded  investments of  approximately  $359,000 and
$233,000 at December 31, 2001 and 2000,  respectively,  has been  recognized  in
conformity  with SFAS No. 114 as amended by SFAS  Statement No. 118. The average
recorded investments in impaired loans during 2001 and 2000 approximate $296,000
and $177,500,  respectively.  Interest income on impaired loans of approximately
$17,800 and $10,300 was recognized for cash payments received in the years ended
December  31, 2001 and 2000,  respectively.  The Bank is not  committed  to lend
additional funds to debtors whose loans have been modified.



                                      -26-

<PAGE>





In the  normal  course  of  banking  business,  loans are made to  officers  and
directors and their affiliated interests.  These loans are made on substantially
the same terms and  conditions as those  prevailing  at the time for  comparable
transactions  with  outsiders  and are not  considered  to involve more than the
normal  risk of  collectibility.  As of  December  31,  activity  in such  loans
outstanding,  both direct and indirect  (including  guarantees),  to  directors,
their associates and policy-making officers were as follows:


                                        2001            2000
                                      ---------      ---------

Balance at beginning of year          $ 254,000      $ 267,000
Additional borrowings                   128,000         92,000
Repayments                             (146,000)      (105,000)
                                      ---------      ---------
Balance at end of year                $ 236,000      $ 254,000
                                      =========      =========

5. PROPERTY AND EQUIPMENT

Property and equipment at December 31 are summarized by major classifications as
follows:


                                           2001            2000
                                       -----------      -----------

Leasehold improvements                 $   627,109      $   606,314
Furniture, fixtures and equipment        1,038,255          901,723
                                       -----------      -----------
                                         1,665,364        1,508,037
Less allowance for depreciation            687,373          467,114
                                       -----------      -----------
                                       $   977,991      $ 1,040,923
                                       ===========      ===========

Depreciation expense totaled $213,759 and $196,288 for the years ended December
31, 2001 and 2000, respectively.

6. DEPOSITS

Deposits at December 31, 2001 and 2000 are as follows:

                                                2001             2000
                                            -----------      -----------

Checking                                    $ 6,968,415      $ 6,834,409
Regular savings                              19,332,984       16,903,748
Money markets                                10,809,203        9,340,232
IRA's floating rate                           2,653,334        2,734,527
Certificate of deposits (including IRA CDs)  21,653,157       15,628,170
                                            -----------      -----------
                                            $61,417,093      $51,441,086
                                            ===========      ===========


Scheduled maturities of certificate of deposits are as follows:


                               December 31,
                                   2001
                               -----------
                   2002        $11,452,921
                   2003          5,067,924
                   2004          2,064,887
                   2005          1,735,463
                   2006          1,331,962
                               -----------
                               $21,653,157
                               ===========



                                      -27-

<PAGE>


Officers' and directors' savings accounts amounted to approximately $877,000 and
$728,000 at December 31, 2001 and 2000, respectively.

Deposits over $100,000 approximated  $13,587,000 and $10,332,000 at December 31,
2001 and 2000, respectively.

7. BORROWINGS

Borrowings  consist  of FHLB  advances  at  December  31,  2001 and 2000 and are
summarized as follows:

                                     2001                2000
                           ---------------------  ---------------------
                                        Weighted               Weighted
                                         Average                Average
                                        Interest                Interest
                              Amount      Rate       Amount      Rate
                           -----------  --------  -----------  --------


Less than one year         $        -      .00%   $ 5,000,000    6.70%
One to two years            11,000,000    5.28     10,000,000    6.54
Thereafter                   1,500,000    4.78              -     .00
                           -----------            -----------
                           $12,500,000    5.22    $15,000,000    6.59
                           ===========            ===========


The Company has  $10,000,000 in adjustable rate advances and $2,500,000 in fixed
rate advances from the FHLB at December 31, 2001.

At December 31, 2001, the Company had line of credit  commitments  with the FHLB
totaling  $17,500,000  of which  $12,500,000  was  advanced and  $5,000,000  was
available at December  2001. As of December 31, 2001,  the Company's  fixed rate
FHLB advances include  $1,500,000 of advances with a scheduled maturity of 2011.
The FHLB,  under certain  circumstances,  has a one-time call  provision in 2006
related to this advance.

The  Bank  has  pledged  various   mortgage-backed   investment  securities  and
residential real estate mortgage loans as collateral for FHLB advances.

8. INCOME TAXES

Income tax expense for the years ended December 31 consists of the following:

                                       2001           2000
                                    --------        --------
Current income taxes:
 Federal                            $192,399        $ 76,150
 State                                42,234          17,930
                                    --------        --------
                                     234,633          94,080
                                    --------        --------
Deferred income taxes:
 Federal                               7,171          30,901
 State                                 1,574           6,829
                                    --------        --------
                                       8,745          37,730
                                    --------        --------
     Total income tax expense       $243,378        $131,810
                                    ========        ========



                                      -28-

<PAGE>



Temporary  differences between the amounts reported in the financial  statements
and the tax bases of assets and liabilities  result in deferred taxes.  Deferred
tax assets and  liabilities,  shown as the sum of the appropriate tax effect for
each significant type of temporary difference, are presented below for the years
ended December 31:

                                                            2001       2000
                                                          ---------  ---------
Deferred tax assets:
 Organization expenses                                    $  13,173  $  24,463
 Unrealized losses on available-for-sale securities               -     15,427
                                                           --------   --------
                                                             13,173     39,890
                                                           --------   --------
Deferred tax liabilities:
 Allowance for loan losses                                   10,111     34,498
 Deferred loan costs                                         86,713     54,423
 Depreciation                                                63,717     74,165
 Unrealized gains on available-for-sale securities           17,171          -
                                                           --------   --------
     Gross deferred tax liabilities                         177,712    163,086
                                                           --------   --------
     Net deferred tax liability                            $164,539   $123,196
                                                           ========   ========


A two-year reconciliation of the difference between the statutory federal income
tax rate and the effective tax rate for the Company is as follows:


                                                         2001     2000
                                                         ----     ----

Federal income tax rate                                  34.0%    34.0%
Increase (decrease) resulting from:
State income taxes, net of federal income tax benefit     4.6      4.6
Other                                                    (1.7)    (2.5)
                                                         ----     ----
Effective tax rate                                       36.9%    36.1%
                                                         ====     ====



                                      -29-

<PAGE>

9. RETIREMENT PLANS

         401(k) Plan
         -----------

The Bank 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 years ended  December  31, 2001 and 2000  approximated  $44,200 and
$48,800, respectively.

         Employee Stock Ownership Plan
         -----------------------------

The  Company  sponsors a leveraged  employee  stock  ownership  plan (ESOP) that
covers all employees  who work twenty or more hours per week.  The Company makes
annual  contributions to the ESOP equal to the ESOP's debt service.  ESOP shares
are  pledged  as  collateral  for its debt.  As the debt is  repaid,  shares are
released  from  collateral  and  allocated  to  active  employees  based  on the
proportion of debt service paid in the year.  The Company  accounts for its ESOP
in accordance with Statement of Position 93-6. Accordingly, the debt of the ESOP
is  recorded  as debt and the  shares  pledged as  collateral  are  reported  as
unearned  ESOP shares in the  statement  of  financial  position.  As shares are
released from collateral,  the Company reports compensation expense equal to the
current  market  price of the  shares  and the  shares  become  outstanding  for
earnings-per-share (EPS) computations. ESOP compensation expense was $41,000 for
the year ended  December 31, 2001.  The ESOP shares for the year ended  December
31, 2001 were as follows:


         Allocated shares                       -
         Shares released for allocation     2,593
         Unreleased shares                 29,817
                                           ------
         Total ESOP shares                 32,410
                                           ======

Fair value of unreleased shares at December 31, 2001 was $468,127.

10. REGULATORY CAPITAL

The Bank is subject to various regulatory capital  requirements  administered by
the Office of Thrift Supervision.  Failure to meet minimum capital  requirements
can initiate certain mandatory and possibly additional  discretionary actions by
regulators  that,  if  undertaken,  could have a direct  material  effect on the
Company's  financial  statements.  Under  capital  adequacy  guidelines  and the
regulatory  framework for prompt corrective  action, the Bank must meet specific
capital  guidelines  that  involve  quantitative  measures  of the Bank  assets,
liabilities and certain  off-balance  sheet items as calculated under regulatory
accounting  practices.  The Bank's capital accounts and  classification are also
subject to  qualitative  judgments  by the  regulators  about  components,  risk
weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to maintain  amounts and ratios (set forth in the table  below)
of total and Tier 1 capital (as  defined in the  regulations)  to  risk-weighted
assets (as  defined),  and of Tier 1 capital (as defined) to average  assets (as
defined).  Management  believes as of December 31, 2001, that the Bank meets all
capital adequacy requirements to which they are subject.

As of December 31, 2001, the most recent  notification from the Office of Thrift
Supervision  categorized  the  Bank as well  capitalized  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 as set forth in the table.  There are no  conditions  or events
since  that  notification  that  management  believes  have  changed  the Bank's
category.



                                      -30-

<PAGE>



Actual capital amounts and ratios for the Bank are presented in the table below:

<TABLE>
<CAPTION>

                                                                                          To be
                                                                                     Well Capitalized
                                                                                        Under Prompt
                                                                      For Capital    Corrective Action
                                                    Actual        Adequacy Purposes      Provision
                                              -----------------   -----------------  -----------------
                                                Amount    Ratio     Amount    Ratio    Amount    Ratio
                                              ----------  -----   ----------  -----  ----------  -----
<S>                                        <C>          <C>    <C>          <C>   <C>          <C>

As of December 31, 2001:
 Total capital (to risk-weighted assets)      $8,624,473   14.8%  $4,667,000   8.0%  $5,833,800   10.0%
 Tier 1 capital (to risk-weighted assets)      8,034,866   13.8    2,334,000   4.0    3,500,000    6.0
 Tier 1 capital (to average assets)            8,034,866   10.1    3,191,000   4.0    3,989,000    5.0

As of December 31, 2000:
 Total capital (to risk-weighted assets)       6,579,607   13.6    3,857,000   8.0    4,822,000   10.0
 Tier 1 capital (to risk-weighted assets)      6,026,607   12.5    1,553,000   4.0    2,330,000    6.0
 Tier 1 capital (to average assets)            6,026,607    8.1    2,979,000   4.0    3,724,000    5.0

</TABLE>



The  following  is  a  reconciliation   of  capital  computed  under  accounting
principles  generally  accepted in the United  States to  regulatory  capital at
December 31, 2001:

<TABLE>
<CAPTION>


                                              GAAP      Tangible       Core        Total
                                             Capital     Capital      Capital     Capital
                                           ----------  ----------   ----------   ----------
<S>                                      <C>         <C>          <C>          <C>

GAAP capital                               $8,058,237  $8,058,237   $8,058,237   $8,058,237
                                           ==========
Accumulated losses (gains) on certain
  available-for-sale securities                           (23,351)     (23,351)     (23,351)
Additional capital items -
  General valuation allowance                                   -            -      589,587
                                                       ----------   ----------   ----------
Regulatory capital - computed                          $8,034,866   $8,034,866   $8,624,473
                                                       ==========   ==========   ==========
</TABLE>


The  following  is  a  reconciliation   of  capital  computed  under  accounting
principles  generally  accepted in the United  States to  regulatory  capital at
December 31, 2000:

<TABLE>
<CAPTION>
                                              GAAP      Tangible       Core        Total
                                             Capital     Capital      Capital     Capital
                                           ----------  ----------   ----------   ----------
<S>                                      <C>         <C>          <C>          <C>

GAAP                                       $5,998,307   $5,998,307  $5,998,307   $5,998,307
                                           ==========
Accumulated losses (gains) on certain
available-for-sale securities                               28,302      28,302       28,302
Additional capital items -
General valuation allowance                                      -           -      553,000
                                                        ----------  -----------  ----------
Regulatory capital - computed                           $6,026,609  $6,026,609   $6,579,609
                                                        ==========  ===========  ==========
</TABLE>


The  conversion  to  stock  ownership   provides  for  the  establishment  of  a
liquidation  account  for the benefit of eligible  deposit  account  holders (as
defined). The liquidation account will be maintained for the


                                      -31-


<PAGE>


benefit of eligible account holders who continue to maintain their accounts with
the Bank after the conversion.  The liquidation account will be reduced annually
to the extent eligible account holders have reduced their  qualifying  deposits.
Subsequent  increases will not restore an eligible  account holders  interest in
the liquidation account. In the event of a complete  liquidation,  each eligible
account holder will be entitled to receive a distribution  from the  liquidation
account in an amount  proportionate to the current adjusted  qualifying balances
for accounts then held.

The Bank may not declare or pay cash dividends if the effect thereof would cause
stockholders'   equity  to  be  reduced  below  applicable   regulatory  capital
maintenance  requirements  or if such  declaration  and  payment  would  violate
regulatory requirements.

11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.

         Cash and Cash Equivalents
         -------------------------

For those short-term  instruments,  the carrying amount is a reasonable estimate
of fair value.

         Investment Securities
         ---------------------

For all investments in debt  securities,  fair values are based on quoted market
prices. If a quoted market price is not available, fair value is estimated using
quoted market prices for similar securities.

         Loan Receivables
         ----------------

The fair value of  categories  of fixed rate loans,  such as  commercial  loans,
residential  mortgage,  and other consumer loans is estimated by discounting the
future cash flows using the current  rates at which  similar loans would be made
to borrowers with similar credit ratings and for the same remaining  maturities.
Other loans,  including  variable rates loans,  are adjusted for  differences in
loan characteristics.

         Investment in Federal Home Loan Bank of Atlanta Stock
         -----------------------------------------------------

The  carrying  amount of  Federal  Home Loan Bank of Atlanta  (FHLB)  Stock is a
reasonable  estimate  of fair  value  as FHLB  stock  does  not  have a  readily
available  market and can only be sold back to the FHLB at its par value of $100
per share.

         Deposits
         --------

The fair value of demand deposits,  savings  accounts,  and certain money market
deposits is the amount  payable on demand at the reporting  date. The fair value
of fixed-maturity certificates of deposit is estimated using the rates currently
offered for deposits of similar remaining maturities.

         Borrowed Funds
         --------------

The fair value of  borrowed  funds were  determined  using a cash flow  approach
based on market rates.

         Commitments to Extend Credit
         ----------------------------

The  Company's  adjustable  rate  commitments  to extend credit move with market
rates and are not  subject to  interest  rate  risk.  The rates and terms of the
Company's fixed rate commitments to extend credit are competitive with others in
the various markets in which the Company  operates.  It is impractical to assign
fair values to these instruments.


                                      -32-

<PAGE>


The  estimated  fair  values  of the  Bank's  financial  instruments,  excluding
goodwill, as of December 31 are as follows:

<TABLE>
<CAPTION>

                                              2001                      2000
                                    ------------------------   -----------------------
                                                  Estimated                 Estimated
                                      Carrying      Fair        Carrying       Fair
                                       Amount       Value        Amount        Value
                                    -----------  -----------   -----------  -----------
<S>                               <C>          <C>           <C>          <C>

Financial assets:
 Cash and cash equivalents          $ 2,359,036  $ 2,359,036   $ 5,354,010  $ 5,354,010
 Investment securities               19,825,847   19,833,251    15,308,966   15,297,322
 Loans                               60,023,793   60,005,521    49,924,769   49,935,239
 Investment in FHLB stock               930,800      930,800       930,800      930,800

Financial liabilities:
 Deposits                            61,417,093   60,880,095    51,441,086   51,442,631
 Borrowed funds                      12,500,000   12,248,750    15,000,000   15,033,000

</TABLE>


Off-Balance Sheet Financial Assets:

                                          2001                   2000
                                -----------------------  ----------------------
                                 Estimated   Estimated   Estimated   Estimated
                                   Amount    Fair Value    Amount    Fair Value
                                -----------  ----------  ----------  ----------

Commitments to extend credit    $15,092,000    $    -    $9,996,000     $   -


12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

In the normal  course of business,  the Company has various  outstanding  credit
commitments which are properly not reflected in the financial statements.  These
commitments  are made to satisfy the financing  needs of the Company's  clients.
The associated credit risk is controlled by subjecting such activity to the same
credit and quality  controls as exist for the  Company's  lending and  investing
activities.  The commitments involve diverse business and consumer customers and
are generally well  collateralized.  Management does not anticipate that losses,
if any, which may occur as a result of these commitments would materially affect
the stockholders' equity of the Company. Since a portion of the commitments have
some likelihood of not being exercised, the amounts do not necessarily represent
future cash requirements.

Loan and credit line commitments,  totaled  $15,092,000 at December 31, 2001 and
$9,996,000  at  December  31,  2000.  These   commitments  are  contingent  upon
continuing customer compliance with the terms of the agreement.

Variable rate loan  commitments  were at current market rates ranging from 4.75%
to 8.75% for December 31, 2001 and 2000, respectively.

13. RENT/RELATED PARTY TRANSACTIONS

The Bank  occupies  administrative  and  banking  facilities  in  Owings  Mills,
Maryland.  The Bank 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.  Non-interest  income and  occupancy  expense
include recognition of this agreement.

The Bank occupies a branch banking facility in Columbia,  Maryland. BUCS Federal
prepaid ten (10) years of rent totaling  $327,218 for the period July 1, 1999 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.  Occupancy  expense is charged
$2,750 per month for rent and amortization of the $327,218.



                                      -33-

<PAGE>


14. PARENT COMPANY FINANCIAL STATEMENTS

Condensed financial information for BUCS Financial Corp (parent company only) is
as follows:

                            CONDENSED BALANCE SHEET
                               DECEMBER 31, 2001


                                     ASSETS
Cash                                                            $ 1,169,192
Investment in subsidiaries                                        8,506,786
Notes receivable                                                    324,100
Other                                                                18,155
                                                                -----------
          Total assets                                          $10,018,233
                                                                ===========
                      LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Other                                                         $     2,534
                                                                -----------
  Stockholders' equity:
    Common stock                                                     40,508
    Additional paid-in capital                                    3,508,708
    Retained earnings                                             6,443,132
    Accumulated other comprehensive income                           23,351
                                                                -----------
          Total stockholders' equity                             10,015,699
                                                                -----------
          Total liabilities and stockholders' equity            $10,018,233
                                                                ===========

                          CONDENSED STATEMENT OF INCOME
                      FOR THE YEAR ENDED DECEMBER 31, 2001

Interest income                                                 $    18,155

Operating expenses                                                   11,307
                                                                -----------
Income before income tax expense and equity
  in undistributed income of subsidiaries                             6,848

Income tax expense                                                    2,534
                                                                -----------
Income before income in undistributed income of subsidiaries          4,314

Equity in undistributed income of subsidiaries                      412,210
                                                                -----------
Net income                                                      $   416,524
                                                                ===========


                                      -34-

<PAGE>


                       CONDENSED STATEMENT OF CASH FLOWS
                      FOR THE YEAR ENDED DECEMBER 31, 2001


Cash flows from operating activities:
 Net income                                                     $   416,524
 Adjustments to reconcile net income to cash
   provided by operating activities:
   Equity in undistributed income of subsidiaries                  (412,210)
   Net increase in other assets                                     (18,155)
   Net increase in other liabilities                                  2,534
                                                                 ----------
          Net cash used in operating activities                     (11,307)
                                                                 ----------
Cash flows from investing activities:
 Loan to subsidiary                                                (324,100)
 Initial investment in subsidiaries                              (2,029,545)
                                                                 ----------
          Net cash used in investing activities                  (2,353,645)

Cash flows from financing activities:
 Proceeds from issuance of common stock                           3,534,144
                                                                 ----------
NET INCREASE IN CASH                                              1,169,192

CASH AT BEGINNING OF YEAR                                                 -
                                                                 ----------
CASH AT END OF YEAR                                              $1,169,192
                                                                 ==========



                                      -35-

<PAGE>

                             Corporate Information

                              BUCS Financial Corp
                      10455 Mill Run Circle, P.O. Box 625
                             Owings Mills, MD 21117
                                 (410) 998-5304

                               BUCS Federal Bank
         10455 Mill Run Circle                  8801 Columbia 100 Parkway
         Owings Mills, MD 21117                 Columbia, MD 21045

                          Armor Insurance Group, Inc.
                           100 Owings Court, Suite 3
                             Reisterstown, MD 21136

                               BOARD OF DIRECTORS

                            Allen S. Maier, Chairman
                       Joseph D. Pescrille, Vice Chairman
                           Brian J. Bowers, Treasurer
                          M. Robin Copeland, Secretary
                      Herbert J. Moltzan, President & CEO
                                Thomas K. Markel
                              A. Virginia Wampler
                                   Harry Fox
                                    Peg Ohrt
                                  Dale Summers

                               EXECUTIVE OFFICERS

  Herbert J. Moltzan         James E. Shinsky           Debi J. Vinson
  President & CEO          Senior Vice President     Senior Vice President


Local Counsel                                 Independent Auditor
Gordon, Feinblatt, Rothman,                   Stegman & Company
   Hoffberger, & Hollander, LLC               405 E. Joppa Rd., Ste. 200
233 E. Redwood St.                            Baltimore, MD  21286
Baltimore, MD  21202


Special Counsel                               Transfer Agent and Registrar
Malizia Spidi & Fisch, PC                     Registrar and Transfer Company
1100 New York Ave., N.W., Ste. 340 W.         10 Commerce Dr.
Washington, DC  20005                         Cranford, NJ  07016

The Company's  Annual  Report on Form 10-KSB for the fiscal year ended  December
31, 2001 is available  without  charge upon written  request.  For a copy of the
Form 10-KSB,  please write or call Herbert J.  Moltzan,  President & CEO, at the
Company's Owings Mills Office.  The Annual Meeting of Stockholders  will be held
on April 29, 2002 at 5:30 PM at the Hilton  Pikesville,  1726  Reisterstown Rd.,
Pikesville, MD.



                                      -36-