BUCS Financial Corp
                                  Annual Report


                                Table of Contents


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

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

Stock Price Information.....................................................   5

Selected Financial Ratios and Other Data....................................   6

Management's Discussion and Analysis........................................   7

Report of Independent Registered Public Accounting Firm.....................  14

Consolidated Financial Statements...........................................  15

Notes to Consolidated Financial Statements..................................  21

Corporate Information.......................................................  42

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Dear Fellow Stockholders:

On behalf of our Board of Directors and employees, we are pleased to present the
2005 Annual Report to the Stockholders of BUCS Financial Corp (the "Company").

Earnings for the year ended December 31, 2005 were $611,000, or $.71 per diluted
share,  compared to $590,000,  or $.70 per diluted  share for 2004.  The Company
paid  stock  dividends  of 100% and 10% on April 30,  2005 and  January 1, 2006,
respectively.

Asset growth  continued a positive  trend with total assets at December 31, 2005
reaching  $138.6  million,  as compared to $122.8  million at December 31, 2004.
Total  deposits  increased  during 2005 by $6.9  million or 7.8%  compared  with
growth of $4.4 million or 5.3% for the twelve  months  ended  December 31, 2004.
The deposit  growth during 2005 was made up of an $8.5 million or 13.3% increase
in core checking, savings, and money market deposits, partially offset by a $1.5
million or 6.1% decline in certificate of deposit accounts.

The $6.9 million or 7.8% growth in deposits, a $3.4 million or 22.1% decrease in
available for sale and held to maturity investments and an $8.2 million or 42.0%
increase in FHLB borrowings helped fund a $17.4 million or 19.0% growth in loans
receivable,  net. Loans  receivable,  net totaled $108.6 million at December 31,
2005 compared to $91.2 million at December 31, 2004.  Total loan growth included
a $15.1 million or 165.8%  increase in  commercial  real estate loans and a $6.1
million or 19.0% increase in home equity loans,  partially  offset by a $724,000
or 3.6% decrease in one-to-four family residential loans, a $1.9 million or 8.0%
decrease in secured and  unsecured  consumer  loans and a $1.2  million or 21.2%
decrease in commercial loans.

At year-end,  stockholders'  equity was $11.3  million,  resulting in total book
value per share and tangible book value per share of $12.82.

We thank you for your support;  we are committed to enhancing your investment in
the Company.


Sincerely,

[PICTURE OMITTED]

/s/Herbert J. Moltzan

Herbert J. Moltzan
President and Chief Executive Officer

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CORPORATE PROFILE

         BUCS  Financial   Corp  (the   "Company")  was  formed  as  a  Maryland
corporation  in October 2000 at the  direction of BUCS Federal Bank (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 savings and loan 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  and  managing  its  portfolio  of  investments
purchased with 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, it 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, personal loans, and
commercial loans to small businesses in its market area. The Bank is 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.  Armor was
a traditional  multi-line  property and casualty insurance agency with an office
located in Ellicott City,  Maryland.  Armor sold automobile,  homeowners,  life,
health,   and  small  business  property  and  casualty  insurance  policies  to
individuals and small businesses  throughout central Maryland.  In separate cash
deals Armor acquired four smaller insurance  agencies,  Comprehensive  Insurance
Associates,  Inc. and the Carolyn  Brooks  Agency Inc. in August  2001,  Scott &
Geiger,  Inc. in June 2002,  and First  Choice  Insurance  Solutions in December
2003.  In October  2004,  the Company sold most of the business  assets of Armor
Insurance Group to the Russell Insurance Group,  Inc. of Taylorville,  Maryland.
The sale price was based on total 2004 actual  commission  income from the Armor
book of business. The final settlement of this sale occurred during April 2005.

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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.  The following information has been adjusted for a stock dividends
paid by the Company.

2005                                               High               Low
----                                               ----               ---
First Quarter                                  $   12.05          $   10.23
Second Quarter                                 $   12.73          $   10.56
Third Quarter                                  $   12.73          $   12.09
Fourth Quarter                                 $   13.50          $   11.59

2004                                               High               Low
----                                               ----               ---
First Quarter                                  $   12.17          $   10.45
Second Quarter                                 $   12.09          $   11.82
Third Quarter                                  $   11.82          $   11.14
Fourth Quarter                                 $   11.25          $   11.02

         The  number  of  shareholders  of  record  as of  March  13,  2006  was
approximately  267.  This does not reflect the number of persons or entities who
held stock in nominee or "street" name through various brokerage firms. At March
13, 2006, there were 882,108 shares of the Company's common stock outstanding.

         As yet, the Company has not paid cash 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.

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SELECTED FINANCIAL RATIOS AND OTHER DATA

                                                         For the Years Ended
                                                            December 31,
Selected Financial Ratios and Other Data                2005            2004
                                                        ----            ----
Performance Ratios
Return on average assets                               0.47%           0.49%
Return on average equity                               5.59%           5.79%
Net interest rate spread                               3.60%           3.32%
Net interest margin on average interest-
  earning assets                                       3.55%           3.28%
Average interest-earning assets to
  average interest-bearing liabilities                98.03%          98.03%
Efficiency Ratio  (non-interest expense
  divided by the sum of net interest
  income and noninterest income)                      83.69%          85.57%

Asset Quality Ratios
Non-performing loans to total loans, net               0.11%           0.11%
Non-performing loans to total assets                   0.08%           0.08%
Net charge offs to average loans
  outstanding                                          0.30%           0.28%
Allowance for loan losses to total loans               0.67%           0.75%

Capital Ratios
Average equity to average assets                       8.41%           8.38%
Equity to assets at period end                         8.16%           8.66%


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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

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-earning  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 faster or slower than
interest-earning assets.

         The Board of Directors has  established an asset  liability  management
committee which consists of the Bank's  president and chief  executive  officer,
its senior officers, including two vice-presidents, and two members of the Board
of  Directors,  one of whom  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:

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o    originate  loans with  adjustable  rate  features  or fixed rate loans with
     short maturities;

o    lengthen the maturities of its liabilities  when it would be cost effective
     through  the  pricing  and  promotion  of   certificates  of  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,  originate  and  hold  in  its  portfolio
     adjustable rate loans which have monthly, 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, 2005, the Bank
had  approximately  42% 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.

         Quantitative  Analysis. The Bank uses the Interest Rate Exposure Report
prepared by the Office of Thrift  Supervision  based on information  provided by
the Bank to monitor its  exposure to interest  rate risk.  The  following  table
presents  the effect on the Banks net  portfolio  value (NPV) as of December 31,
2005 of upward and downward shifts (shock) in the Treasury yield curve.

          Net Portfolio Value (NPV)        NPV as % of Present Value of Assets
          -------------------------        -----------------------------------
 Change in                                                           Basis Point
 Rates(1)     $ Amount      $ Change       % Change    NPV Ratio       Change
 --------     --------      --------       --------    ---------       ------
              (Dollars in thousands)

 +300 bp       14,310         -2,959          -17%       10.37%      -178 bp
 +200 bp       15,186         -2,083          -12%       10.91%      -124 bp
 +100 bp       16,174         -1,095           -6%       11.51%       -65 bp
    0 bp       17,269                                    12.16%
 -100 bp       18,146            877           +5%       12.65%       +50 bp
 -200 bp       18,538          1,270           +7%       12.85%       +69 bp

         ----------------------
         (1)  Interest  rate  change  of -300bp  is not  reflected  in the table
because market rates are at low enough levels to make the resulting data derived
from such modeling immaterial to estimated changes in Net Portfolio Value.

         Future interest rates or their effect on NPV or net interest income are
not predictable.  Computations of prospective  effects of hypothetical  interest
rate changes are based on numerous  assumptions,  including  relative  levels of
market  interest rates,  prepayments,  and deposit  run-offs,  and should not be
relied upon as indicative of actual results.  Certain  shortcomings are inherent
in this type of  computation.  Although  certain assets and liabilities may have
similar maturity or periods of repricing,  they may react at different times and
in different  degrees to changes in the market interest rates. The interest rate
on certain types of assets and  liabilities  may fluctuate in advance of changes
in market interest  rates,  while rates on other types of assets and liabilities
may lag  behind  changes  in  market  interest  rates.  Certain  assets  such as
adjustable  rate  mortgages  generally  have features  that restrict  changes in
interest  rates on a  short-term  basis and over the life of the  asset.  In the
event of a change in interest  rates,  prepayments and early  withdrawal  levels
could deviate  significantly  from those assumed in making the  calculations set
forth above. Additionally, an increased credit risk may result as the ability of
many  borrowers  to service  their debt may decrease in the event of an interest
rate increase.

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Changes in Financial Condition

         The  Company's  total  assets of $138.6  million at  December  31, 2005
reflect an increase of $15.9  million or 12.9% as compared to $122.8  million at
December 31, 2004. The increase in assets was comprised of increases in cash and
cash equivalents,  and interest-bearing deposits in other banks of $1.7 million,
loans  receivable,  net, of $17.4  million  and  miscellaneous  other  assets of
$807,000, partially offset by a decreases in investment securities available for
sale and held to maturity totaling $3.4 million,  property and equipment, net of
$279,000 and assets held for sale,  in  conjunction  with the sale of Armor,  of
$363,000.  The  increase  in loans  receivable  was  mainly the result of strong
demand for commercial mortgage loans, home equity loans and home equity lines of
credit. The decrease in investment  securities was mainly the result of pay down
of principal on  mortgage-backed  securities and the  reinvestment of these cash
flows into loans rather than securities.

         The increase in the Company's  liabilities  was due primarily to a $6.9
million or 7.8%  increase  in  deposits  and an $8.2  million  increase  in FHLB
borrowings.  The increase in deposits is  attributed  primarily to the growth of
money  market  accounts at all four of the Bank's  branches  as  interest  rates
increased steadily during the year.

         Stockholders'  equity  totaled  $11.3  million at December 31, 2005, an
increase  of  $679,000 or 6.4%.  The  increase is the result of net  earnings of
$611,000 for the year ended  December 31, 2005 and the effect of the  allocation
of shares  from the Bank's  Employee  Stock  Ownership  Plan  ("ESOP")  totaling
$98,137, partially offset by a $30,000 decrease in the unrealized gain (loss) on
securities available for sale.

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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. ($ in thousands)

<TABLE>
<CAPTION>
                                                                           Year Ended December 31
                                                 --------------------------------------------------------------------------------
                                                                   2005                                  2004
                                                 -------------------------------------    ---------------------------------------
                                                    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)                             $ 100,981      $ 6,055     6.00%        $  85,848     $ 4,852         5.65%
  Securities (2)                                      14,698          753     5.12%           22,529         892         3.96%
                                                   ---------      -------                   --------     -------
           Total interest-earning assets             115,679        6,808     5.89%          108,377      5,744          5.30%
                                                                  -------                                -------
Noninterest-earning assets:                           14,178                                  13,241
                                                   ---------                               ---------
           Total assets                            $ 129,857                               $ 121,618
                                                   =========                               =========

Interest-bearing liabilities :
  Savings accounts                                  $ 27,573        $ 148     0.54%         $ 28,536       $ 152         0.53%
  Money market accounts                               24,070          515     2.14%           20,653         256         1.24%
  Certificates of Deposit                             25,429          962     3.78%           28,425       1,017         3.58%
  Checking                                            14,940            -     0.00%           11,073           -         0.00%
                                                   ---------      -------                   --------     -------
  Total deposits                                      92,012        1,625     1.77%           88,687       1,425         1.61%
  Borrowed Funds                                      25,997        1,081     4.16%           21,879         763         3.49%
                                                   ---------      -------                   --------     -------
           Total interest-bearing liabilities        118,009        2,706     2.29%          110,566       2,188         1.98%
Noninterest-bearing liabilities                          927                                     865
                                                   ---------                               ---------
           Total liabilities                         118,936                                 111,431
Equity                                                10,921                                  10,187
                                                   ---------                               ---------
           Total liabilities and equity            $ 129,857                               $ 121,618
                                                   =========                               =========

Net Interest income                                               $ 4,102                                $ 3,556
                                                                  =======                                =======
Interest rate spread (3)                                                      3.60%                                      3.32%
                                                                             =====                                      =====
Net yield on interest- earning assets (4)                                     3.55%                                      3.28%
                                                                             =====                                      =====
Ratio of average interest-earning assets
 to average interest-bearing liabilities                                     98.03%                                     98.02%
                                                                             =====                                      =====
</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.

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<PAGE>

Rate/Volume Analysis

The  relationship  between  the volume and rates of the Bank's  interest-earning
assets and  interest-bearing  liabilities  influences  the  Bank's net  interest
income.  The following  table reflects the  sensitivity  of the Bank's  interest
income and interest expense to change 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.
($ in thousands)

<TABLE>
<CAPTION>
                                                 Year Ended December 31
                                                      2005 vs. 2004
                                         ---------------------------------------
                                                   Increase (Decrease)
                                                        Due to
                                         ---------------------------------------
                                                               Rate/
                                          Volume      Rate     Volume      Net
                                          ------      ----     ------      ---
                                                     (In thousands)
<S>                                     <C>        <C>       <C>        <C>
Interest income:
 Loans receivable                        $   855    $   296   $    52    $ 1,203
 Investment securities and other            (310)       262       (91)      (139)
                                         -------    -------   -------    -------
    Total interest-earning assets        $   545    $   558   $   (39)   $ 1,064
                                         =======    =======   =======    =======
Interest expense:
 Savings accounts                        $    (5)   $     1   $     -    $    (4)
 Money market accounts                        42        186        31        259
 Certificates of deposit                    (107)        58        (6)       (55)
 Borrowed funds                              143        147        28        318
                                         -------    -------   -------    -------
    Total interest-bearing liabilities   $    73    $   392   $    53    $   518
                                         =======    =======   =======    =======

Change in net interest income            $   472    $   166   $   (92)   $   546
                                         =======    =======   =======    =======
</TABLE>

Results of Operations

         Net Income.  The Company  recorded  net income of $611,000 for the year
ended  December  31,  2005,  as compared to $590,000  for 2004,  representing  a
$21,000 increase. The increase was primarily attributable a $546,000 increase in
net interest  income,  partially  offset by a $115,000  decrease in non-interest
income,  a $239,000  increase in non-interest  expenses,  a $61,000  increase in
provision  for loan  losses,  a  $45,000  decrease  in the gain on  discontinued
operations as a result of the sale of Armor Insurance Group,  Inc. and a $65,000
increase in provision for income taxes.

         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 and
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 Company's net interest income  increased  $546,000 or 15.4% to $4.1
million for the year ended  December 31,  2005,  as compared to $3.6 million for
2004. The average balance of  interest-earning

                                       11

<PAGE>

assets increased $7.3 million or 6.7%, while the average yield thereon increased
59 basis points. The average balance of interest-bearing  liabilities  increased
$7.4  million  or 6.7% and the  average  rate paid  thereon  increased  31 basis
points. The increase in interest-earning  assets is attributed to the investment
of the  increases in deposits and FHLB  borrowings  into new loans.  The average
yield  on  interest-earning  assets  increased  due to the  steady  increase  in
short-term  market  interest  rates that began in mid-2004.  The average cost of
interest-bearing   liabilities  increased  slower  than  the  average  yield  of
interest-earning  assets mainly  because the  interest-earning  assets  repriced
faster than the  interest-bearing  liabilities as market interest rates began to
rise.  The balance of higher  costing  money market and  certificate  of deposit
accounts  equaled 51.8% and 50.2% of total  deposits as of December 31, 2005 and
2004, 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,  increased to 3.60% for 2005 from 3.32% for 2004.
The increase in the net interest  rate spread is primarily  due to the fact that
as general market interest rates began to increase, interest-earning assets have
been repricing faster than  interest-bearing  liabilities.  The Company does not
know  whether  this trend  will  continue  because  recent  trends  have seen an
increase in deposits  in the higher  earning  money  market and  certificate  of
deposit accounts.

         Provision for Loan Losses. During the years ended December 31, 2005 and
2004,  the  Company  established  provisions  for loan  losses of  $355,000  and
$294,000,  respectively.  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.  The increase during the period
ended  December  31,  2005 of  $61,000  or 20.8% is the  result of  management's
decision to increase the allowance due to growth in total loans receivable, net,
and to provide for probable  losses from a checking  deposit  overdraft  program
begun during December 2002.

         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,  decreased  $115,000 or 3.9% for the year ended  December  31,
2005,  as compared to 2004.  The  $114,000 or 4.3%  decrease in fees and service
charges  reflects a shift in customer  habits and Bank  oversight  resulting  in
fewer  overdrawn  account  fees in 2005  compared  to  2004.  Also  included  in
noninterest income is the value the Bank derives for maintaining a cash facility
at two  Carefirst  Blue  Cross Blue  Shield  ("Carefirst")  buildings.  Under an
agreement with Carefirst, the Bank performs cash related services for Carefirst,
its  customers and  associates  in return for office space.  The rental value of
this office space,  approximately $120,000 in both 2005 and 2004, is reported in
noninterest income.

         Noninterest Expense. Total noninterest expense increased by $239,000 or
4.3% for the year ended  December 31, 2005,  as compared to 2004.  This increase
was  attributable to increases of $209,000 or 7.5% in compensation  and benefits
resulting from the addition of employees,  increased cost for employee insurance
programs and normal cost of living  increases;  $72,000 or 29.4% in  advertising
and  marketing  as the Bank  attempted  to improve  deposit and loan growth with
increased  advertising  throughout  its  market  area;  and  $13,000 or 12.5% in
training expenses. These increases were partially offset by decreases of $22,000
or 2.6% in office  operations  as the Bank  implemented  several cost  reduction
measures late in 2005,  $17,000 in professional fees resulting from reduction in
consulting  costs  as the Bank  completed  an  overhaul  of its  human  resource
function and $16,000 in other miscellaneous non-interest expenses.

         Income Tax Expense.  The  provision  for income  taxes from  continuing
operations totaled $290,000 for the year ended December 31, 2005, as compared to
$225,000 for 2004.  The $65,000 or 28.9% increase is the result of increased net
taxable income from  continuing  operations.  The provision for income taxes was
further  impacted  for the years  ending  December  31, 2005 and 2004 by changes
resulting   from   discontinued   operations   that  resulted  in  increases  of
approximately $83,000 and $114,000, respectively. The net impact

                                       12

<PAGE>

of such changes on provision for income taxes from  continuing and  discontinued
operations  was a $34,000 or 10.0% increase for the year ended December 31, 2005
compared to the year ended December 31, 2004.

         Discontinued  Operations.  Upon the sale of the Armor Insurance  Group,
Inc.  ("Armor")  subsidiary  assets  in  October  2004,  the  results  of  Armor
operations for 2005 and 2004 were reclassified in the statement of operations as
results  from  discontinued  operations.  The after  tax gain from  discontinued
operations  totaled $131,000 for the year ended December 31, 2005 as compared to
$176,000 for 2004  representing a $45,000 or 25.5%  decrease.  The $131,000 gain
for 2005 is comprised of the gain of $112,000  realized  from the final  payment
for the sale of the book of business,  which was received in April 2005, and the
$19,000 gain on final disposition of the remaining tangible assets of Armor. The
$176,000 gain for 2004  represents  $11,000 of normal 2004  operating net income
from insurance business prior to the sale and the gain of $165,000 realized from
the initial payment on the sale of Armor's book of business.

         Assets held for sale from discontinued operations,  comprised mostly of
fixed assets and real estate owned by Armor Insurance Group,  Inc., were zero at
December 31, 2005 as compared to $363,000 at December 31, 2004.  All assets were
disposed of during 2005.

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) for the
year ended  December 31, 2005 totaled $3.9 million,  an increase of $1.3 million
as compared to 2004.

         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 2005
totaled $17.8  million,  an increase of $15.3  million as compared to 2004.  The
increase in cash used was primarily attributable to increases of $5.0 million to
fund  loans  receivable,  net and  $494,000  for  purchase  of FHLB  stock,  and
decreases of $9.5 million in proceeds from  maturities,  redemption and sales of
securities  available for sale and held to maturity and $73,000 in proceeds from
sales of  intangible  assets,  partially  offset by a decrease  in cash used for
purchase of property and  equipment of $113,000 and an increase in cash invested
short-term in interest-bearing deposit accounts of other banks of $4.3 million.

         Net  cash  provided  by the  Bank's  financing  activities  (i.e.  cash
receipts  primarily from net increases in deposits and FHLB  borrowings) for the
year ended December 31, 2005 totaled $15.2 million, an increase of $11.5 million
as compared  to 2004.  The  increase  is  primarily  attributable  to  increased
advances from the FHLB of $9.0 million, increases in cash from deposit growth of
$2.5  million,  and increases  from the allocated  fair value of ESOP shares and
repayment of notes payable of $13,000 and $30,000, respectively.

         At December  31, 2005  approximately  $13.2  million of the Bank's time
deposits were  scheduled to mature  within the next 12 months.  The Bank expects
the majority of such deposits to be renewed at market rates. In addition to this
source of continuing  funding,  the Bank has  additional  borrowing  capacity of
approximately $6.9 million through the Federal Home Loan Bank of Atlanta.

                                       13

<PAGE>

--------------------------------------------------------------------------------

                              REPORT OF INDEPENDENT
                        REGISTERED PUBLIC ACCOUNTING FIRM


       STEGMAN & COMPANY
--------------------------------
CERTIFIED PUBLIC ACCOUNTANTS AND
MANAGMENT CONSULTANTS SINCE 1915



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


         We have audited the  accompanying  consolidated  balance sheets of BUCS
Financial  Corp and  subsidiaries  as of  December  31,  2005 and 2004,  and the
related consolidated statements of operations,  changes in stockholders' equity,
and cash flows for the years 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 audits.

         We conducted our audits in accordance  with the standards of The Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present  fairly,  in all  material  respects,  the  financial  position  of BUCS
Financial Corp and subsidiaries as of December 31, 2005 and 2004 and the results
of its  operations  and cash flows for the years then ended in  conformity  with
accounting principles generally accepted in the United States of America.



/s/   Stegman & Company


Baltimore, Maryland
March 14, 2006

--------------------------------------------------------------------------------

                                       14

<PAGE>

                      BUCS FINANCIAL CORP AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2005 AND 2004

                                     ASSETS
<TABLE>
<CAPTION>

                                                                                          2005                   2004
                                                                                      ------------          ------------
<S>                                                                                <C>                   <C>
Cash and cash equivalents                                                             $  2,246,408          $    886,787
Interest-bearing deposits in other banks                                                 6,773,975             6,409,720
Investment securities:
   Available-for-sale - at fair value                                                    4,221,024             5,928,920
   Held-to-maturity - at amortized cost - fair value
     of $7,308,493 (2005) and $9,174,946 (2004)                                          7,623,787             9,285,882
Loans receivable, net of allowance for loan losses
   of $732,315 (2005) and $682,339 (2004)                                              108,579,247            91,215,225
Property and equipment, net                                                              3,837,801             4,116,949
Investment in Federal Home Loan Bank of Atlanta stock - at cost                          1,583,500             1,114,900
Accrued interest receivable                                                                505,900               377,285
Bank-owned life insurance                                                                2,213,018             2,132,529
Assets held for sale                                                                             -               362,915
Prepaid expenses and other assets                                                        1,064,424               935,039
                                                                                      ------------          ------------

         TOTAL ASSETS                                                                 $138,649,084          $122,766,151
                                                                                      ============          ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
   Deposits                                                                          $  95,554,243          $ 88,620,555
   Accounts payable and other liabilities                                                1,087,785             1,017,815
   Borrowed funds - Federal Home Loan Bank of Atlanta                                   27,700,000            19,500,000
   Guaranteed preferred beneficial interest in
     Company's subordinated debt                                                         3,000,000             3,000,000
                                                                                      ------------          ------------

         Total liabilities                                                             127,342,028           112,138,370
                                                                                      ------------          ------------

STOCKHOLDERS' EQUITY:
   Common stock, par value $0.10 per share, 5,000,000 shares authorized, 801,968
     and 400,984 shares issued and outstanding
     at December 31, 2005 and 2004, respectively                                            80,197                40,099
   Stock dividend distributable                                                              8,724                     -
   Additional paid-in capital                                                            5,229,806             4,170,343
   Retained earnings                                                                     6,177,720             6,609,556
   Unallocated common stock held by employee stock
     ownership plan ("ESOP")                                                              (168,532)             (200,942)
   Accumulated other comprehensive (loss) income                                           (20,859)                8,725
                                                                                      ------------          ------------

         Total stockholders' equity                                                     11,307,056            10,627,781
                                                                                      ------------          ------------

         TOTAL LIABILITIES AND STOCKHOLDERS'
            EQUITY                                                                    $138,649,084           $122,766,151
                                                                                      ============           ============
</TABLE>

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

                                       15
<PAGE>

                      BUCS FINANCIAL CORP AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

<TABLE>
<CAPTION>
                                                                                 2005                         2004
                                                                              ----------                   ----------
<S>                                                                         <C>                          <C>
INTEREST INCOME:
   Loans receivable                                                           $6,054,987                   $4,851,442
   Investment securities                                                         752,798                      892,413
                                                                              ----------                   ----------

         Total interest income                                                 6,807,785                    5,743,855
                                                                              ----------                   ----------

INTEREST EXPENSE:
   Deposits                                                                    1,625,213                    1,425,146
   Borrowed funds                                                              1,080,596                      762,783
                                                                              ----------                   ----------

         Total interest expense                                                2,705,809                    2,187,929
                                                                              ----------                   ----------

NET INTEREST INCOME                                                            4,101,976                    3,555,926

PROVISION FOR LOAN LOSSES                                                        354,859                      293,705

NET INTEREST INCOME AFTER PROVISION
   FOR LOAN LOSSES                                                             3,747,117                    3,262,221
                                                                              ----------                   ----------

NONINTEREST INCOME:
   Fees and service charges                                                    2,525,961                    2,640,201
   Loss on sale of investment securities                                               -                       (5,422)
   Gain on sale of loans                                                           6,826                       28,280
   Fee to process and maintain cash facility                                     120,000                      120,000
   Other                                                                         143,035                      127,608
                                                                              ----------                   ----------

         Total noninterest income                                              2,795,822                    2,910,667
                                                                              ----------                   ----------

NONINTEREST EXPENSE:
   Compensation and benefits                                                   3,000,571                    2,792,026
   Occupancy expense of premises                                               1,096,875                    1,100,680
   Office expense                                                                821,753                      843,433
   Professional fees                                                             252,644                      269,590
   Advertising and marketing expense                                             317,966                      245,700
   Training and continuing education expense                                     117,538                      104,468
   Loan servicing                                                                 71,270                       74,531
   Other operating expenses                                                       94,491                      103,548
                                                                              ----------                   ----------

         Total noninterest expense                                             5,773,108                    5,533,976
                                                                              ----------                   ----------

INCOME BEFORE INCOME TAXES                                                       769,831                      638,912

INCOME TAX EXPENSE                                                               290,486                      225,296
                                                                              ----------                   ----------

INCOME FROM CONTINUING OPERATIONS                                                479,345                      413,616
DISCONTINUED OPERATIONS:
   Gain from operations of discontinued component                                214,339                      290,302
   Income tax expense                                                            (82,964)                    (113,922)
                                                                              ----------                   ----------
   Net gain on discontinued operation                                            131,375                      176,380
                                                                              ----------                   ----------

NET INCOME                                                                    $  610,720                   $  589,996
                                                                              ==========                   ==========
</TABLE>

                                       16

<PAGE>

BUCS Financial Corp and Subsidiaries

Consolidated Statements of Operations (Continued)
For the Years Ended December 31, 2005 and 2004

<TABLE>
<CAPTION>
                                                                             December 31,                 December 31,
                                                                                2005                         2004
                                                                             ------------                 ------------
<S>                                                                          <C>                          <C>
EARNINGS PER SHARE - BASIC
         From continuing operations                                           $      .58                   $      .50
         From discontinued operations                                                .16                          .21
                                                                              ----------                   ----------
         Net Income                                                           $      .74                          .71
                                                                              ==========                   ==========
         Shares used in computing basic earnings per share                       833,480                      825,693
                                                                              ==========                   ==========

EARNINGS PER SHARE - DILUTED
         From continuing operations                                           $      .56                   $      .49
         From discontinued operations                                                .15                          .21
                                                                              ----------                   ----------
         Net Income                                                           $      .71                          .70
                                                                              ==========                   ==========
         Shares used in computing diluted earnings per share                     865,244                      841,665
                                                                              ==========                   ==========
</TABLE>

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

                                       17
<PAGE>

<TABLE>
<CAPTION>
                                                 BUCS FINANCIAL CORP AND SUBSIDIARIES

                                      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                            FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

                                                                                                        Accumulated
                                                                                          Unallocated      Other
                                                                                            Common        Compre-       Total
                                                  Stock        Additional                   Stock         hensive       Stock-
                                     Common     Dividends       Paid-in      Retained       Held by       (Loss)       holders'
                                      Stock   Distributable     Capital      Earnings        ESOP         Income        Equity
                                    -------   --------------  -----------   ----------   -----------    ----------   -----------
<S>                               <C>        <C>             <C>          <C>            <C>            <C>        <C>
Balance at January 1, 2004          $36,459      $ 3,640       $4,117,839   $6,021,020     $(233,352)    $  52,462   $ 9,998,068

Comprehensive income:

   Net income                             -            -                -      589,996             -             -       589,996

   Other comprehensive (loss),
     net of tax - unrealized gains on
     available-for-sale securities        -            -                -            -             -       (43,737)      (43,737)
                                                                                                                     -----------

       Total comprehensive income         -            -                -            -             -             -       546,259
                                                                                                                     -----------

   Stock dividend paid                3,640       (3,640)               -            -             -             -             -

   Cash paid for
       fractional shares                  -            -                -       (1,460)            -             -        (1,460)

   Fair value of ESOP shares
     allocated                            -            -           52,504           -         32,410        -             84,914
                                    -------      -------       ----------   ----------     ---------     ---------   -----------

Balance at December 31, 2004         40,099            -        4,170,343    6,609,556      (200,942)        8,725    10,627,781

   Net income                             -            -                -      610,720             -             -       610,720

   Other comprehensive (loss), net
     of tax - unrealized losses on
     available-for-sale securities        -            -                -            -             -       (29,584)      (29,584)
                                                                                                                     -----------

         Total comprehensive income       -            -                -            -             -             -       581,136
                                                                                                                     -----------

   Stock dividend  paid              40,098            -          993,736   (1,042,556)            -             -        (8,722)

   Stock dividend payable                 -        8,724                -            -             -             -         8,724

   Fair value of ESOP shares
     allocated                            -            -           65,727            -        32,410             -        98,137
                                    -------      -------       ----------   ----------     ---------     ---------   -----------

Balance at December 31, 2005        $80,197      $ 8,724       $5,229,806   $6,177,720     $(168,532)    $ (20,859)  $11,307,056
                                    =======      =======       ==========   ==========     =========     =========   ===========
</TABLE>

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

                                       18
<PAGE>

                      BUCS FINANCIAL CORP AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

<TABLE>
<CAPTION>
                                                                  2005            2004
                                                             ------------    ------------
<S>                                                         <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                $    610,720    $    589,996
   Reconciliation of net income to net cash provided
     by operating activities:
     Gain on sale of investment securities                              -           5,422
     Gain on sale of loans                                         (6,826)        (28,280)
     Provision for loan losses                                    354,859         293,705
     Non-cash ESOP expense                                         98,137          84,914
     Deferred income taxes                                        (91,541)        (23,638)
     Increase in cash surrender value of life insurance           (80,489)        (87,119)
     Proceeds from sale of loans                                3,522,564       2,267,979
     Origination of loans held for sale                          (758,564)     (1,130,441)
     Gain on discontinued operations                             (131,375)       (176,380)
     Depreciation and amortization                                449,217         562,743
   Effects of changes in operating assets and liabilities:
     Accrued interest receivable                                 (128,615)         32,264
     Prepaid expenses and other assets                           (103,723)        (75,837)
     Accounts payable and other liabilities                       187,700         262,950
                                                             ------------    ------------

         Net cash provided by operating activities              3,922,064       2,578,277
                                                             ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Net increase in loans                                      (20,476,054)    (15,489,821)
   Net increase to interest-bearing deposits
      of other financial institutions                            (364,255)     (4,629,395)
   Proceeds from maturities, redemption and sales
     of securities available-for-sale                           1,651,590      10,936,876
   Proceeds from repayments on securities held-to-maturity      1,631,993       1,882,437
   (Purchases) redemptions of FHLB stock                         (468,600)         25,100
   Proceeds from sale of discontinued operations                  362,915         435,422
   Purchase of property and equipment                            (131,857)       (244,933)
                                                             ------------    ------------

         Net cash used in investing activities                (17,794,268)     (7,084,314)
                                                             ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Allocated fair value of ESOP shares                             98,137          84,914
   Increase/(decrease) in Federal Home Loan Bank of
     Atlanta borrowings                                         8,200,000        (800,000)
   Net increase in deposits                                     6,933,688       4,433,232
   Cash paid for fractional shares of stock dividend                    -          (1,460)
   Repayments of notes payable                                          -         (30,000)
                                                             ------------    ------------

         Net cash provided by financing activities             15,231,825       3,686,686
                                                             ------------    ------------
</TABLE>

                                       19

<PAGE>

BUCS Financial Corp and Subsidiaries

Consolidated Statements of Cash Flows (Continued)
For the Years Ended December 31, 2005 and 2004

<TABLE>
<CAPTION>
                                                         2005          2004
                                                    -----------   -----------
<S>                                                <C>           <C>

NET INCREASE IN CASH
   AND CASH EQUIVALENTS                             $ 1,359,621   $  (819,351)

CASH AND CASH EQUIVALENTS
   AT BEGINNING OF YEAR                                 886,787     1,706,138
                                                    -----------   -----------

CASH AND CASH EQUIVALENTS
   AT END OF YEAR                                   $ 2,246,408   $   886,787
                                                    ===========   ===========


Supplemental disclosure of cash flow information:
   Cash paid for income taxes                       $   631,405   $   198,400
                                                    ===========   ===========

   Cash paid for interest                           $ 2,604,901   $ 2,174,219
                                                    ===========   ===========
</TABLE>


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

                                       20

<PAGE>

                      BUCS FINANCIAL CORP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004




1.      NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

         BUCS Financial Corp (the "Company" or  "Corporation")  is a savings and
loan holding company that provides its customers with banking  services  through
its  wholly-owned  subsidiary  BUCS Federal Bank (the  "Bank").  The Bank offers
various  loans,   deposit  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.

         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 2005.

         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.

         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 to be cash equivalents. For reporting purposes, assets grouped in
the Consolidated  Balance Sheets under the captions "Cash and cash  equivalents"
are  considered  cash  and cash  equivalents.  Cash  and  cash  equivalents  and
interest-bearing  deposits in other banks have  balances  that are  generally in
excess of amounts that would be recoverable  under Federal  Deposit  Corporation
("FDIC") Insurance.

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

         The  Company's  investments  in  securities  are  classified  into  two
categories and are 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

                                       21

<PAGE>

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.  The  amortization
of premiums and accretion of discounts are  recognized in interest  income using
methods approximating the interest method over the period to maturity.

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

         Loans  receivable  are stated at unpaid  principal  balances net of any
deferred fees and costs, 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 on retail,  consumer  loans but will  frequently
charge origination fees on commercial real estate and other commercial loans.

         The Company  identifies  impaired loans and measures  impairment (i) at
the  present  value of expected  cash flows  discounted  at the loan's  original
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 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.

         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.

                                       22

<PAGE>

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. Loans deemed uncollectible are charged
against, while recoveries are credited to, the allowance. Management adjusts the
level of the allowance through the provision for loan losses,  which is recorded
as a current period operating expense.  The Company's  methodology for assessing
the  appropriateness  of the allowance  consists of several key elements,  which
include  the  formula  allowance,   specific   allowances  and  the  unallocated
allowance.

         The  formula  allowance  is  calculated  by  applying  loss  factors to
corresponding  categories of  outstanding  loans.  Loss factors are based on the
Company's historical loss experience.  The use of these loss factors is intended
to reduce the difference  between estimated losses inherent in the portfolio and
observed losses.

         Specific  allowances  are  established  in cases where  management  has
identified  significant  conditions  or  circumstances  related  to a loan  that
management  believes  indicate the probability that a loss may be incurred in an
amount  different  from the amount  determined  by  application  of the  formula
allowance.  For  other  problem  graded  credits,   allowances  are  established
according to the  application  of credit risk factors.  These factors are set by
management to reflect its  assessment of the relative  level of risk inherent in
each grade.

         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.

         Management  believes  that the  allowance  for loan losses is adequate.
However, the determination of the allowance requires significant  judgment,  and
estimates  of  probable   losses   inherent  in  the  loan  portfolio  can  vary
significantly  from  the  amounts  actually  observed.   While  management  uses
available  information to recognize  probable  losses,  future  additions to the
allowance  may be necessary  based on changes in the loans  comprising  the loan
portfolio  and changes in the  financial  condition  of  borrowers,  such as may
result from  changes in economic  conditions.  In addition,  various  regulatory
agencies, as an integral part of their examination process,  periodically review
the Bank's loan portfolio and allowance for loan losses.  Such review may result
in  recognition  of  additions  to the  allowance  based on their  judgments  of
information available to them at the time of their examination.

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

         Property and equipment are stated at cost less accumulated depreciation
and  amortization.  Depreciation  and  amortization  are  accumulated  using the
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 the  remaining  life of the lease.  Furniture,  fixtures and
equipment  are  depreciated  over  periods of 3 to 12 years.  For tax  purposes,
depreciation is computed using accelerated methods.

                                       23

<PAGE>

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

         As a member of the Federal Home Loan Bank of Atlanta ("FHLB"), the Bank
is required to maintain an  investment  in capital  stock of the FHLB in varying
amounts based on balances of outstanding  loans and on amounts borrowed from the
FHLB. This stock is considered to be a non-marketable equity security under SFAS
No. 115 and, accordingly, is reported at cost.

         Bank-Owned Life Insurance
         -------------------------

         The Bank is the  beneficiary  of  insurance  policies  on the  lives of
officers and some  employees of the Bank. The Bank has recognized the cash value
amount that could be realized  under the  insurance  policies as an asset in the
consolidated balance sheets.

         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 income 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
         ------------------

         Basic net  earnings  per  common  share is  computed  by  dividing  net
earnings  applicable to common  stockholders by the  weighted-average  number of
common  shares  outstanding  during the period.  Diluted  earnings  per share is
determined using the weighted-average number of common shares outstanding during
the  period,  adjusted  for the  dilutive  effect of common  stock  equivalents,
consisting  of shares that might be issued upon exercise of common stock options
(Treasury  Stock  Method).  At  December  31,  2005  there were  95,586  options
outstanding  that  are  considered  in  the  money.  Accordingly,  such  options
outstanding  had a  dilutive  effect on  earnings  per share for the year  ended
December  31, 2005 of $.03.  Earnings per share  amounts have given  retroactive
effect to stock dividends and/or stock splits declared during the year.

         Stock-Based Compensation
         ------------------------

         The Corporation's  stock-based compensation plan is accounted for based
on the intrinsic value method set forth in Accounting  Principles  Board Opinion
("APB")  No.  25,  Accounting  for  Stock  Issued  to  Employees,   and  related
interpretations.  Compensation  expense  for  stock  options  is  generally  not
recognized if the exercise price of the option equals or exceeds the fair market
value of the stock on the date of grant.

         No  options  were  granted or vested in 2005 or 2004.  Accordingly,  no
compensation  expense  has been  recognized  and pro  forma  net  income,  basic
earnings per share,  and diluted  earnings per share as determined under APB No.
25 are  unchanged  from the  respective  values  disclosed  in the  consolidated
financials for 2005 and 2004.

                                       24

<PAGE>


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

         Advertising  and  marketing  costs are expensed as incurred and for the
years  ended  December  31,  2005  and  2004  totaled   $317,966  and  $245,700,
respectively.

         Discontinued Operations and Assets Held for Sale
         ------------------------------------------------

         The Company entered into a definitive  agreement to sell the intangible
assets and goodwill of its wholly-owned subsidiary, Armor Insurance Group, Inc.,
on September 30, 2004.

         The Company realized cash proceeds for this sale of $709,944 on October
1, 2004.  These  proceeds  resulted in a before tax gain on sale of $274,095 and
tax-adjusted  gain on sale  of  approximately  $168,240.  In  2005  the  Company
realized  additional  cash  proceeds on the sale of such  intangible  assets and
goodwill of  $307,201  resulting  in a before tax gain on sale of  $307,201  and
tax-adjusted  gain on sale of  approximately  $188,565 in 2005. The Company also
liquidated all tangible  assets,  furniture,  equipment,  and buildings,  of the
discontinued  operation that carried a book value of  approximately  $327,000 at
December 31, 2004. A before tax gain on sale was realized in 2005 on the sale of
these  tangible  assets  in  the  amount  of  $31,227.   The  2005   approximate
tax-adjusted gain on sale of the tangible assets was $19,167.  Overhead expenses
net of income tax expense of $ 124,088 was  incurred in 2005  resulting  in 2005
before tax net income  from the  discontinued  component  of  $214,339  and 2005
tax-adjusted net income from the discontinued component of $ 131,375.

2. RECENT ACCOUNTING PRONOUNCEMENTS

         SFAS No. 154, "Accounting Changes and Error Corrections,  a Replacement
of APB Opinion No. 20 and FASB  Statement No. 3." SFAS 154  establishes,  unless
impractical,  retrospective  application as the required  method for reporting a
change  in   accounting   principle  in  the  absence  of  explicit   transition
requirements specific to a newly adopted accounting principle.  Previously, most
changes in accounting  principle  were  recognized  by including the  cumulative
effect of changing to the new  accounting  principle in net income of the period
of the  change.  Under  SFAS 154,  retrospective  application  requires  (i) the
cumulative effect of the change to the new accounting principle on periods prior
to those  presented  to be  reflected  in the  carrying  amounts  of assets  and
liabilities  as of  the  beginning  of  the  first  period  presented,  (ii)  an
offsetting  adjustment,  if any, to be made to the  opening  balance of retained
earnings (or other appropriate  components of equity) for that period, and (iii)
financial  statements for each individual  prior period presented to be adjusted
to reflect the direct  period-specific  effects of applying  the new  accounting
principle. Special retroactive application rules apply in situations where it is
impractical to determine  either the  period-specific  effects or the cumulative
effect of the change.  Indirect effects of a change in accounting  principle are
required to be reported  in the period in which the  accounting  change is made.
SFAS 154 carries  forward the guidance in APB Opinion 20  "Accounting  Changes,"
requiring  justification  of a change in  accounting  principle  on the basis of
preferability.  SFAS  154 also  carries  forward  without  change  the  guidance
contained  in APB  Opinion  20,  for  reporting  the  correction  of an error in
previously  issued  financial  statements  and  for a  change  in an  accounting
estimate. SFAS 154 is effective for accounting changes and corrections of errors
made in fiscal years  beginning  after  December 15, 2005.  The Company does not
expect SFAS 154 will  significantly  impact its  financial  statements  upon its
adoption on January 1, 2006.

         SFAS  No.  123,   "Share-Based   Payment  (Revised  2004)."  SFAS  123R
establishes standards for the accounting for transactions in which an entity (i)
exchanges  its  equity  instruments  for  goods  or  services,  or  (ii)  incurs
liabilities  in exchange for goods or services  that are based on the fair value
of the entity's equity instruments or that may be settled by the issuance of the
equity instruments.  SFAS 123R eliminates the ability to account for stock-based
compensation using APB 25 and requires that such transactions be

                                       25

<PAGE>

recognized  as  compensation  cost in the income  statement  based on their fair
values on the measurement  date, which is generally the date of the grant.  SFAS
123R was to be effective for the Company on July 1, 2005; however,  the required
implementation  date was delayed  until  January 1, 2006.  The Company  does not
expect SFAS 123R will  significantly  impact its financial  statements  upon its
adoption on January 1, 2006.

         SFAS 153,  "Exchanges  of  Nonmonetary  Assets",  an  amendment  of APB
Opinion No. 29, "Accounting for Nonmonetary Transactions". In December 2004, the
FASB issued SFAS 153.  This  statement  amends the principle  that  exchanges of
nonmonetary  assets  should be  measured  based on the fair  value of the assets
exchanged  and more  broadly  provides  for  exceptions  regarding  exchanges of
nonmonetary  assets that do not have  commercial  substance.  This  Statement is
effective for nonmonetary asset exchanges  occurring in fiscal periods beginning
after June 15,  2005.  The  adoption of this  standard is not expected to have a
material impact on financial condition, results of operation, or liquidity.

Financial Accounting Standards Board Staff Positions

         FASB   Staff    Position    (FSP)   No.   115-1,    "The   Meaning   of
Other-Than-Temporary Impairment and Its Application to Certain Investments." FSP
115-1  provides  guidance  for  determining  when an  investment  is  considered
impaired,  whether  impairment is  other-than-temporary,  and  measurement of an
impairment  loss. An investment is considered  impaired if the fair value of the
investment  is less than its cost.  If,  after  consideration  of all  available
evidence to evaluate  the  realizable  value of its  investment,  impairment  is
determined  to be  other-than-temporary,  then  an  impairment  loss  should  be
recognized equal to the difference  between the  investment's  cost and its fair
value.  FSP 115-1  nullifies  certain  provisions of Emerging  Issues Task Force
(EITF) Issue No. 03-1, "The Meaning of  Other-Than-Temporary  Impairment and Its
Application to Certain Investments," while retaining the disclosure requirements
of EITF 03-1 which were adopted in 2003.  FSP 115-1 is effective  for  reporting
periods beginning after December 15, 2005. The Company does not expect FSP 115-1
will significantly  impact its financial statements upon its adoption on January
1, 2006.

American Institute of Certified Public Accountants Statements of Position
         SOP No. 03-3, "Accounting for Certain Loans or Debt Securities Acquired
in a  Transfer."  SOP 03-3  addresses  accounting  for  differences  between the
contractual  cash flows of certain loans and debt  securities and the cash flows
expected  to be  collected  when  loans or debt  securities  are  acquired  in a
transfer and those cash flow differences are attributable,  at least in part, to
credit quality.  As such, SOP 03-3 applies to loans and debt securities acquired
individually,  in pools or as part of a business  combination and does not apply
to originated  loans.  The  application of SOP 03-3 limits the interest  income,
including  accretion of purchase  price  discounts,  that may be recognized  for
certain  loans and debt  securities.  Additionally,  SOP 03-3 does not allow the
excess of contractual  cash flows over cash flows expected to be collected to be
recognized as an adjustment of yield, loss accrual or valuation allowance,  such
as the allowance for possible loan losses.  SOP 03-3 requires that  increases in
expected  cash  flows  subsequent  to  the  initial   investment  be  recognized
prospectively  through adjustment of the yield on the loan or debt security over
its  remaining  life.  Decreases in expected  cash flows should be recognized as
impairment.  In the case of loans acquired in a business  combination  where the
loans show signs of credit  deterioration,  SOP 03-3  represents  a  significant
change  from  current  purchase   accounting  practice  whereby  the  acquiree's
allowance  for loan losses is typically  added to the  acquirer's  allowance for
loan losses. The adoption of SOP 03-3 on January 1, 2005 did not have a material
impact on the Company's financial statements.

                                       26

<PAGE>

3. 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, 2005:
   Investment securities available-for-sale:
     Obligations of U.S. Government agencies   $ 1,000,000   $         -   $    19,974   $   980,026
     Mortgage-backed securities                  3,255,007        11,406        25,415     3,240,998
                                               -----------   -----------   -----------   -----------
                                                 4,255,007        11,406        45,389     4,221,024
                                               -----------   -----------   -----------   -----------
   Investment securities held-to-maturity:
     Collateralized mortgage obligations            90,558            27           326        90,259
     Mortgage-backed securities                  7,533,229             -       314,996     7,218,234
                                               -----------   -----------   -----------   -----------
                                                 7,623,787            27       315,322     7,308,493
                                               -----------   -----------   -----------   -----------

                                               $11,878,794   $    11,433   $   360,711   $11,529,517
                                               ===========   ===========   ===========   ===========

December 31, 2004:
   Investment securities available-for-sale:
     Obligations of U.S. Government agencies   $ 1,000,000   $         -   $     9,626   $   990,374
     Mortgage-backed securities                  4,914,705        29,868         6,027     4,938,546
                                               -----------   -----------   -----------   -----------
                                                 5,914,705        29,868        15,653     5,928,920
                                               -----------   -----------   -----------   -----------
   Investment securities held-to-maturity:
     Collateralized mortgage obligations           203,170         1,078             -       204,248
     Mortgage-backed securities                  9,082,712             -       112,014     8,970,698
                                               -----------   -----------   -----------   -----------
                                                 9,285,882         1,078       112,014     9,174,946
                                               -----------   -----------   -----------   -----------

                                               $15,200,587   $    30,946   $   127,667   $15,103,866
                                               ===========   ===========   ===========   ===========
</TABLE>

         The amortized cost and estimated  fair values of investment  securities
by contractual maturity date at December 31, 2005 are as follows:

                                                                 Estimated
                                                   Amortized       Fair
                                                     Cost          Value
                                                  -----------   -----------
Investment securities available-for-sale:
   Within one year                                $         -   $         -
   1 -  5 years                                     1,123,008     1,103,451
   6 - 10 years                                       435,894       422,418
   After 10 years                                   2,696,105     2,695,155

Investment securities held-to-maturity:
   Within one year                                     11,872        11,899
   1 -  5 years                                        78,686        78,360
   6 - 10 years                                             -             -
   After 10 years                                   7,533,229     7,218,234
                                                  -----------   -----------

         Totals                                   $11,878,794   $11,529,517
                                                  ===========   ===========

                                       27
<PAGE>

         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.

         Investment  securities  with an  amortized  cost of  $8,476,412  and an
estimated  fair value of $8,204,780  have been pledged as collateral  for credit
extended by the FHLB at December 31, 2005.

         The gross  realized  gains and losses on available for sale  securities
for the years ended December 31, 2005 and 2004 are as follows:

<TABLE>
<CAPTION>
                                                       2005                           2004
                                             ------------------------        -----------------------

                                               Gross         Gross             Gross        Gross
                                             Realized       Realized         Realized      Realized
                                               Gains         Losses            Gains         Losses
                                             --------       --------         ---------     ---------

<S>                                         <C>            <C>               <C>           <C>
         Securities available-for-sale       $      -       $      -          $69,513       $74,935
                                             ========       ========          =======       =======
</TABLE>

         Proceeds from sales of securities available-for-sale amounted to $0 and
$6,647,681 for the years ended December 31, 2005 and 2004, respectively.

         Net unrealized  holding losses on  available-for-sale  securities  that
have been included in accumulated other comprehensive income amounted to $33,983
and $43,737 for the years ended  December 31, 2005 and 2004,  respectively.  The
amount of losses  reclassified  out of accumulated  other  comprehensive  income
amounted  to $0 and  $(5,422)  for the years ended  December  31, 2005 and 2004,
respectively.

         Gross  unrealized  losses  and fair  value by  length  of time that the
individual  securities  have been in a continuous  unrealized  loss  position at
December 31, 2005 are as follows:

<TABLE>
<CAPTION>
                                                                   Continuous Unrealized
                                                                    Losses Existing for
                                                               -----------------------------             Total
                                                                Less than         More than           Unrealized
               Available-for-Sale            Fair Value         12 Months         12 Months              Losses
               ------------------           ----------          ---------         ---------           ----------
<S>                                       <C>                    <C>              <C>                  <C>
     U. S. Agency                          $   980,026            $     -          $ 19,974             $ 19,975
     Mortgage-backed securities              3,240,999             20,985             4,429               25,414
                                           -----------            -------          --------             --------

                                           $ 4,221,025            $20,985          $ 24,403             $ 45,389
                                           ===========            =======          ========             ========
</TABLE>

<TABLE>
<CAPTION>
                                                                   Continuous Unrealized
                                                                    Losses Existing for
                                                               -----------------------------              Total
                                                                Less than          More than           Unrealized
               Held-to-Maturity             Fair Value          12 Months          12 Months             Losses
               ----------------             ----------          ---------          ---------           ------------
<S>                                       <C>                <C>                 <C>                   <C>
     Collateralized mortgage obligations   $    90,259        $       326         $        -            $    326
     Mortgage-backed securities              7,218,234                  -            314,996             314,996
                                           -----------        -----------         ----------            --------

                                           $ 7,308,493        $       326         $  314,996            $315,322
                                           ===========        ===========         ==========            ========
</TABLE>

                                       28

<PAGE>

         Management evaluates securities for other-than-temporary  impairment at
least on a quarterly basis, and more frequently when economic or market concerns
warrant such  evaluation.  Consideration  is given to (1) the length of time and
the extent to which the fair value has been less than  cost,  (2) the  financial
condition and near-term  prospects of the issuer, and (3) the intent and ability
of the  Company  to retain  its  investment  in the  issuer for a period of time
sufficient to allow for any anticipated recovery in fair value.

         At December 31, 2005,  eleven debt securities  have  unrealized  losses
with aggregate  depreciation  of 3.69% from the Company's  amortized cost basis.
These losses relate  principally  to market  changes in interest rates since the
original purchase.  These factors coupled with the fact the Company has both the
intent and ability to hold these  investments for a period of time sufficient to
allow  for  any  anticipated  recovery  in fair  value  substantiates  that  the
unrealized losses in the available-for-sale  and held-to-maturity  portfolio are
temporary.

4. LOANS RECEIVABLE

         Loans receivable consist of the following at December 31:

<TABLE>
<CAPTION>
                                                         2005           2004
                                                    ------------   ------------
<S>                                               <C>            <C>
       Categories:
         Mortgage loans:
           Residential:
             Permanent 1 - 4 single family          $ 19,628,425   $ 20,351,675
             Land                                          2,082          2,978
             Commercial                               24,234,811      9,116,932
         Consumer loans:
           Home equity loans                          38,239,422     32,141,332
           Secured loans                              18,900,252     20,414,641
           Other                                       3,383,821      3,804,507
         Commercial                                    4,358,025      5,528,692
                                                    ------------   ------------
                 Total loans                         108,746,838     91,360,757
         Net deferred loan costs                         564,724        536,807
                                                    ------------   ------------
                                                     109,311,562     91,897,564
         Less allowance for loan losses                  732,315        682,339
                                                    ------------   ------------

                 Loans receivable, net              $108,579,247   $ 91,215,225
                                                    ============   ============
</TABLE>

         Loans aggregating  $56,108,340 and $52,076,306 have been pledged to the
FHLB as collateral for credit extended by the FHLB for short-term  borrowings at
December 31, 2005 and 2004, respectively.

         Nonperforming loans amounted to $114,894 and $97,609 as of December 31,
2005 and 2004, respectively.  The amount of interest income that would have been
recorded on loans in  nonaccrual  status as of December  31, 2005 and 2004,  had
such loans  performed in  accordance  with their  terms,  was $5,121 and $4,263,
respectively.

                                       29

<PAGE>

         The  allowance for loan losses  activity for the years ending  December
31, is as follows:

<TABLE>
<CAPTION>
                                                2005                2004
                                               --------           --------

<S>                                           <C>               <C>
         Balance at beginning of year          $682,339          $ 630,702
         Provision for loan losses              354,859            293,705
         Recoveries                              64,301             58,399
         Loan loss write-offs                  (369,184)          (300,467)
                                               --------           --------

         Balance at end of year                $732,315           $682,339
                                               ========           ========
</TABLE>

     Impairment of loans having recorded  investments of $114,894 and $97,609 at
December 31, 2005 and 2004, respectively, has been recognized in conformity with
SFAS No. 114 as amended by SFAS No. 118.  The average  recorded  investments  in
impaired  loans  during  2005  and  2004  approximate   $292,000  and  $102,000,
respectively.  Interest  income on impaired  loans of  approximately  $1,675 and
$2,400 was recognized for cash payments received in the years ended December 31,
2005 and 2004, respectively.  The Bank is not committed to lend additional funds
to debtors whose loans have been modified.  The valuation allowance for impaired
loans was $58,536 and $97,609 at December 31, 2005 and 2004, respectively.

         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:

<TABLE>
<CAPTION>
                                                          2005            2004
                                                       ----------        --------
<S>                                                    <C>              <C>
         Balance at beginning of year                   $ 941,021        $817,744
         Balance of newly installed board members         373,933         -
         Additional borrowings                            235,659         250,771
         Repayments                                      (214,714)       (127,494)
                                                       ----------        --------

         Balance at end of year                        $1,335,899        $941,021
                                                       ==========        ========
</TABLE>

5. PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                        2005             2004
                                                     ----------       ----------

<S>                                                 <C>              <C>
         Building                                    $1,873,462       $1,873,462
         Leasehold improvements                         767,539          747,961
         Furniture, fixtures and equipment            2,290,096        2,179,135
                                                     ----------       ----------
                                                      4,931,097        4,800,558
           Less accumulated depreciation              2,136,290        1,726,603
                                                     ----------       ----------
                                                      2,794,807        3,073,955
         Land                                         1,042,994        1,042,994
                                                     ----------       ----------

                                                     $3,837,801       $4,116,949
                                                     ==========       ==========
</TABLE>

                                       30

<PAGE>

         Depreciation  expense totaled $411,005 and $447,220 for the years ended
December 31, 2005 and 2004, respectively.

         The Bank occupies a branch banking  facility in Columbia,  Maryland and
has prepaid ten 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 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 of the prepaid amount.

6.   DEPOSITS

         Deposits at December 31, 2005 and 2004 were as follows:

<TABLE>
<CAPTION>
                                                                   2005               2004
                                                               --------------     -------------
<S>                                                             <C>                <C>
         Checking                                                $14,969,815        $14,191,039
         Regular savings                                          24,845,654         27,551,990
         Money markets                                            29,307,778         19,388,381
         IRA's floating rate                                       2,863,004          2,383,238
         Certificate of deposits (including IRA CDs)              23,567,992         25,105,907
                                                                 -----------        -----------

                                                                 $95,554,243        $88,620,555
                                                                 ===========        ===========
</TABLE>


         Scheduled maturities of certificate of deposits are as follows:

<TABLE>
<CAPTION>
                                                                    December 31,
                                                                        2005
                                                                    -----------
<S>                        <C>                                      <C>
                            2006                                     $9,098,803
                            2007                                      9,145,966
                            2008                                      3,549,728
                            2009                                        867,964
                            2010                                        905,531
                                                                    -----------
                                                                    $23,567,992
                                                                    ===========
</TABLE>

         Officers' and directors'  savings  accounts  amounted to  approximately
$1,556,000 and $1,498,000 at December 31, 2005 and 2004, respectively.

         The Bank offers an indexed  certificate of deposit product in which the
returns to investors  are based upon an equity  index.  In order to  effectively
limit the loss exposure  associated  with this product the Bank has entered into
hedging  transactions  which  limit the  Bank's  exposure.  As a result of these
hedges  the Bank  will not pay more than the  market  rate of  interest  paid on
similar term,  fixed rate  certificate of deposit  products.  As of December 31,
2005 these indexed products totaled $1,387,346.

         Deposits over $100,000  approximated  $19,249,144  and  $25,232,440  at
December 31, 2005 and 2004, respectively.

                                       31

<PAGE>

7. BORROWED FUNDS

         Borrowings  consist of FHLB  advances at December 31, 2005 and 2004 and
are summarized as follows:

<TABLE>
<CAPTION>
                                          2005                              2004
                               -----------------------------   ------------------------------
                                                  Weighted                          Weighted
                                                  Average                           Average
                                                  Interest                          Interest
                                 Amount             Rate            Amount            Rate
                               ----------       ------------   ------------       -----------

<S>                          <C>                 <C>             <C>               <C>
         Less than one year    $18,800,000         4.31%           $8,800,000        2.20%
         One to two years        2,400,000         3.18             1,800,000        2.66
         Two to three years      5,000,000         3.91             2,400,000        3.18
         Three to four years             -            -             5,000,000        3.91
         Four to five years              -            -                     -           -
         Thereafter              1,500,000         4.79             1,500,000        4.79
                               -----------                      -------------

                               $27,700,000         4.17%          $19,500,000        3.00%
                               ===========                        ===========
</TABLE>

         The Company has $17,000,000 in adjustable rate advances and $10,700,000
in fixed rate  advances  from the FHLB at December 31, 2005.  As of December 31,
2005, the Company's adjustable rate FHLB advances include $1,500,000 of advances
with a scheduled maturity in 2011. The FHLB under certain  circumstances,  has a
one time call provision in 2006 related to these advances.

         At December 31, 2005, the Company had line of credit  commitments  with
the FHLB totaling  $34,500,000 of which  $27,700,000 was advanced and $6,800,000
was available.

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

8. GUARANTEED PREFERRED BENEFICIAL INTEREST IN COMPANY'S SUBORDINATED DEBT

         In March  2003,  the Company  formed a  wholly-owned  subsidiary,  BUCS
Financial Capital Trust I, a Delaware business trust (the "Trust"). On March 27,
2003,  the Trust sold $3.0 million of pooled  capital  securities  (the "Capital
Securities") to Tropic CDO I, Ltd., an unaffiliated  entity, with a stated value
and  liquidation  preference of $1,000 per share.  The Capital  Securities  were
issued without  registration  under the  Securities Act of 1933, as amended,  in
reliance upon an exemption from registration as provided by Regulation S.

      The  obligations  of the Trust under the Capital  Securities are fully and
unconditionally  guaranteed  by the  Company  and the Trust  has no  independent
operations.  The entire  proceeds from the sale of the Capital  Securities  were
used by the  Trust to  invest  in Junior  Subordinated  Debt  securities  of the
Company  (the  "Junior  Subordinated  Debt").  The Junior  Subordinated  Debt is
unsecured  and  ranks  subordinate  and  junior  in  right  of  payment  to  all
indebtedness,   liabilities   and   obligations  of  the  Company.   The  Junior
Subordinated Debt is the sole asset of the Trust.

      Interest on the Capital  Securities is cumulative and payable quarterly in
arrears.  The Capital  Securities  mature on April 7, 2033.  The Company has the
right to optionally  redeem the Junior  Subordinated  Debt prior to the maturity
date, but no sooner than five years after the issuance, at 100% of the principal
amount to be  redeemed,  plus accrued and unpaid  distributions,  if any, on the
redemption  date.  Upon the  occurrence of certain  events,  the Company has the
right to redeem the Junior  Subordinated  Debt before five years have elapsed in
whole, but not in part, at a special redemption price of 107.5% of the principal
amount to be  redeemed,  plus accrued and unpaid  distributions,  if any, on the
redemption date.  Proceeds from any redemption of the Junior  Subordinated  Debt
will cause a mandatory  redemption  of

                                       32

<PAGE>

Capital Securities having an aggregate liquidation amount equal to the principal
amount of the Junior Subordinated Debt redeemed.  Additionally,  under the terms
of the Junior  Subordinated  Debt, the Company will have the right, with certain
limitations, to defer the payment of interest on the Junior Subordinated Debt at
any  time for a period  not  exceeding  twenty  consecutive  quarterly  periods.
Consequently,  distributions  on the Capital  Securities  would be deferred  and
accumulate interest, compounded quarterly.

      The interest rate on the Capital  Securities and Junior  Subordinated Debt
is fixed at 6.65% until April 7, 2008. The interest rate resets  quarterly after
April 7, 2008 to LIBOR plus 3.25%.  The  interest  rate at December 31, 2005 was
6.65%. The proceeds were used for general corporate purposes,  including in part
to fund the purchase of mortgage-backed securities in connection with a leverage
strategy.

9. INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                                   2005                  2004
                                                                                 --------              --------
<S>                                                                            <C>                   <C>
         Current income taxes:
           Federal                                                               $380,710              $277,047
           State                                                                   84,281                80,027
                                                                                 --------              --------
                                                                                  464,991               357,074
                                                                                 --------              --------

         Deferred income taxes:
           Federal                                                                (74,949)              (19,354)
           State                                                                  (16,592)               (4,284)
                                                                                 --------              --------
                                                                                  (91,541)              (23,638)
                                                                                 --------              --------

               Total income tax expense                                          $373,450              $333,436
                                                                                 ========              ========
</TABLE>

         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:

<TABLE>
<CAPTION>
                                                                                   2005                   2004
                                                                                 --------               -------
<S>                                                                             <C>                   <C>
         Deferred tax assets:
           Deferred compensation                                                 $ 47,196              $ 34,217
           Allowance for loan losses                                              153,800               134,499
                                                                                 --------               -------

               Gross deferred tax assets                                          200,996               168,716
                                                                                 --------               -------

         Deferred tax liabilities:
           Deferred loan costs                                                    159,033               149,720
           Depreciation                                                            30,140                98,714
           Other                                                                    4,623                 4,623
                                                                                 --------               -------

               Gross deferred tax liabilities                                     193,796               253,057
                                                                                 --------               -------

         Net deferred taxes from operations                                        (7,200)               84,341
         Unrealized (losses) gains on available-for-sale securities               (13,124)                5,490
                                                                                 --------               -------

               Net deferred tax (asset) liability                                $(20,325)              $89,831
                                                                                 ========               =======
</TABLE>

                                       33

<PAGE>

         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:

<TABLE>
<CAPTION>
                                                                                   2005                  2004
                                                                                   ----                  ----

<S>                                                                              <C>                   <C>
         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                                                                    (.9)                 (2.7)
                                                                                   ----                  ----

               Effective tax rate                                                  37.7%                 35.9%
                                                                                   ====                  ====
</TABLE>

10. EMPLOYEE BENEFIT 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, 2005 and 2004 approximated $78,746 and
$74,000, respectively.

         Deferred Compensation Plan
         --------------------------

         The Company has entered into a deferred compensation agreement with its
Chief Executive  Officer.  The estimated  present value of future benefits to be
paid is being accrued over the period from the  effective  date of the agreement
until the full  eligibility  date of the  participant.  The expense incurred for
this  plan for the  years  ended  December  31,  2005 and 2004 was  $47,197  and
$34,217,  respectively. The Company is a beneficiary of life insurance policies,
with an aggregate cash surrender  value of $2,213,018 at December 31, 2005, that
was purchased as a method of partially financing benefits under this plan.

         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  balance  sheets.  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 $98,137 and $84,914 for the
years ended  December 31, 2005 and 2004,  respectively.  The ESOP shares for the
year ended December 31, 2005 were as follows:

               Allocated shares                            27,094
               Shares released for allocation               7,130
               Unreleased shares                           37,076
                                                           ------
                   Total ESOP shares                       71,300
                                                           ======

         Fair value of unreleased shares at December 31, 2005 was $509,795.

         Stock Options
         -------------

         The Company has stock option award arrangements,  which provide for the
granting of options to acquire  common stock,  with directors and key employees.
Option  prices  are equal to or  greater  than the  estimated  fair value of the
common stock at the date of the grant. The majority of options granted under the
2002 Stock Option Plan (the "Plan") vested upon issuance,  certain other options
granted  have a  three-year  vesting  schedule  with the first year  vested upon
issuance.  Options do not become  exercisable until six months after the date of
grant. All options expire ten years after the date of grant.

                                       34

<PAGE>

         Information  with  respect to stock  options is as follows for the year
ended December 31, 2005 and 2004:

<TABLE>
<CAPTION>
                                                            2005                        2004
                                                   ------------------------     -----------------------
                                                                 Weighted                     Weighted
                                                                 Average                      Average
                                                      Number     Exercise        Number       Exercise
                                                     of Shares    Price         of Shares       Price
                                                     ---------   ----------     ---------    ----------
<S>                                                  <C>          <C>            <C>          <C>
         Outstanding at beginning of year              95,586       $ 9.18         95,586       $ 9.18
         Granted                                            -          .00              -          .00
         Exercised                                          -          .00              -          .00
         Forfeited/cancelled                                -          .00              -          .00
                                                       ------       ------         ------       ------

         Outstanding at end of year                    95,586       $ 9.18         95,586       $ 9.18
                                                       ======       ======         ======       ======
</TABLE>

         Options outstanding are summarized as follows at December 31, 2005:

                      Options Outstanding and Exercisable
               --------------------------------------------------
                                                      Weighted
                                                       Average
                                                      Remaining
                                                     Contractual
                Exercise                                (Years)
                  Price             Shares                 Life
                -----------         ------           ------------

                 $ 8.73               24,926               6.3
                 $ 9.34               70,660               7.7
                                      ------
                                      95,586

11. 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, 2005, that the Bank
meets all capital adequacy requirements to which they are subject.

         As of December 31, 2005, 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.

                                       35

<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, 2005:
Total capital (to risk-weighted assets)   $11,527,000      10.5%       $8,819,840       8.0%     $11,024,800      10.0%
  Tier 1 capital (to risk-weighted assets) 11,548,000      10.5         4,409,920       4.0        6,614,880       6.0
  Tier 1 capital (to average assets)       11,548,000       8.9         5,172,400       4.0        6,465,500       5.0
</TABLE>

<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, 2004:
Total capital (to risk-weighted assets)   $10,962,000      11.9%       $7,339,760       8.0%      $9,174,700      10.0%
  Tier 1 capital (to risk-weighted assets) 10,954,000      11.9         3,669,880       4.0        5,504,820       6.0
  Tier 1 capital (to average assets)       10,954,000       9.0         4,891,720       4.0        6,114,650       5.0
</TABLE>


         The following is a reconciliation  of capital computed under accounting
principles  generally  accepted  in the United  States of America to  regulatory
capital at December 31, 2005:

<TABLE>
<CAPTION>
                                                        GAAP            Tangible           Core             Total
                                                       Capital           Capital          Capital          Capital
                                                     -----------       -----------      -----------      -----------
<S>                                                 <C>               <C>              <C>              <C>
GAAP capital                                         $11,546,608       $11,546,608      $11,546,608      $11,546,608
                                                     ===========

Additional capital items - general
  valuation allowance                                                            -                -          659,210
                                                                       -----------      -----------      -----------

Regulatory capital - computed                                          $11,546,608      $11,546,608      $12,205,818
                                                                       ===========      ===========      ===========
</TABLE>

           The  following  is  a   reconciliation   of  capital  computed  under
accounting  principles  generally  accepted in the United  States to  regulatory
capital at December 31, 2004:

<TABLE>
<CAPTION>
                                                      GAAP              Tangible            Core            Total
                                                     Capital             Capital           Capital         Capital
                                                   -----------         -----------       -----------     -----------
<S>                                               <C>                 <C>               <C>             <C>
GAAP capital                                       $10,961,918         $10,961,918       $10,961,918     $10,961,918
                                                   ===========

Accumulated gains on certain
   available-for-sale securities                                            (8,725)          (8,725)          (8,725)
Additional capital items -
   General valuation allowance                                                   -                -          624,129
                                                                       -----------      -----------      -----------

Regulatory capital - computed                                          $10,953,193      $10,953,193      $11,577,322
                                                                       ===========      ===========      ===========
</TABLE>

                                       36

<PAGE>

12. 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.

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

         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.

         Bank-owned Life Insurance
         -------------------------

         The carrying amount of bank-owned life insurance policies is equivalent
to the actual cash surrender  value of the insurance  policies  purchased by the
Company.

         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  was  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. For the Company's  fixed
rate commitments to extend credit,  fair value considers the difference  between
current levels of interest rates and the committed rates.

                                       37

<PAGE>

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

<TABLE>
<CAPTION>
                                                              2005                                  2004
                                                   -------------------------------        ----------------------------
                                                                      Estimated                             Estimated
                                                    Carrying            Fair               Carrying            Fair
                                                     Amount             Value                Amount            Value
                                                   ------------       ------------        -----------      -----------
<S>                                              <C>                <C>                 <C>              <C>
       Financial assets:
         Cash and cash equivalents                 $  9,020,383       $  9,020,383        $ 7,296,507      $ 7,296,507
         Investment securities                       11,844,811         11,529,517         15,214,802       15,103,866
         Loans   receivable                         108,579,247        107,228,000         91,215,225       90,118,000
         Investment in FHLB stock                     1,583,500          1,583,500          1,114,900        1,114,900
         Bank-owned life insurance                    2,213,018          2,213,018          2,132,529        2,132,529

       Financial liabilities:
         Deposits                                    95,554,243         95,830,000         88,620,555       88,664,865
         Borrowed funds                              27,700,000         27,573,000         19,500,000       19,565,000
</TABLE>

       Off-Balance Sheet Financial Assets:

<TABLE>
<CAPTION>
                                                             2005                                  2004
                                                  -----------------------------       -----------------------------
                                                                                        Estimated
                                                  Estimated         Estimated           Contract        Estimated
                                                   Amount           Fair Value           Amount         Fair Value
                                                 -----------        -----------        -----------      -----------
<S>                                             <C>                <C>                <C>              <C>
       Commitments to extend credit              $30,952,435        $30,952,435        $23,323,000      $23,323,000
       Commercial Letters of Credit                  200,000            200,000          -               -
</TABLE>

                                       38

<PAGE>

13. 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 $30,952,435 at December 31,
2005 and $23,323,000 at December 31, 2004. 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 6.25% to 8.25% for December 31, 2005.


14. 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 CareFirst (Blue Cross/Blue Shield of
Maryland)  through  March  2009 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.

           In November  2002 the Company  entered  into an agreement to sublease
additional  administrative  and  banking  facility  space in Owings  Mills  from
CareFirst  with an initial term through  November 30, 2009. The Bank is required
to pay $19,669 per annum under the sublease during the term of the agreement.

                                       39

<PAGE>

15. PARENT COMPANY FINANCIAL STATEMENTS

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

                            CONDENSED BALANCE SHEETS
                           DECEMBER 31, 2005 AND 2004

<TABLE>
<CAPTION>
                                     ASSETS
                                                                                  2005                    2004
                                                                               -----------             -----------
<S>                                                                         <C>                   <C>
Cash                                                                           $ 2,165,090             $ 1,325,666
Investment in subsidiaries                                                      11,546,608              11,953,393
Notes receivable                                                                   200,942                 233,352
Other                                                                              643,778                 363,924
                                                                               -----------             -----------

         Total assets                                                          $14,556,418             $13,876,335
                                                                               ===========             ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
   Other                                                                       $    47,612             $    47,612
   Long-term notes payable                                                       3,000,000               3,000,000
                                                                               -----------             -----------

         Total liabilities                                                       3,047,612               3,047,612
                                                                               -----------             -----------

Stockholders' equity:
   Common stock                                                                     80,197                  40,099
   Stock dividend distributable                                                      8,724                       -
   Additional paid-in capital                                                    5,229,806               4,170,343
   Retained earnings                                                             6,210,938               6,609,556
   Accumulated other comprehensive (loss) income                                   (20,859)                  8,725
                                                                               -----------             -----------

           Total stockholders' equity                                           11,508,806              10,828,723
                                                                               -----------             -----------

           Total liabilities and stockholders' equity                          $14,556,418             $13,876,335
                                                                               ===========             ===========
</TABLE>


                       CONDENSED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

<TABLE>
<CAPTION>
                                                                                    2005                    2004
                                                                                  --------                --------

<S>                                                                           <C>                      <C>
Interest income                                                                 $   61,679               $  22,519
Management Fee income                                                              132,500                       -
Operating expenses                                                                 251,295                 270,897
                                                                                  --------                --------
Loss before income tax benefit and equity
   in undistributed income of subsidiaries                                         (57,116)               (248,378)
Income tax benefit                                                                 (21,821)               (105,134)
                                                                                  --------                --------

Loss before income in undistributed income of subsidiaries                         (35,295)               (143,244)
Equity in undistributed income of subsidiaries                                     646,015                 733,240
                                                                                  --------                --------

Net income                                                                        $610,720                $589,996
                                                                                  ========                ========
</TABLE>

                                       40
<PAGE>

                       CONDENSED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004


<TABLE>
<CAPTION>
                                                                     2005           2004
                                                                 -----------    -----------
<S>                                                             <C>            <C>
Cash flows from operating activities:
   Net income                                                    $   610,720    $   589,996
   Adjustments to reconcile net income to net cash
     provided by operating activities:
   Equity in undistributed income of subsidiaries                   (646,015)      (733,240)
   Net decrease (incresae) in other assets                               410        (12,829)
   Net increase in other liabilities                                       -              -
                                                                 -----------    -----------

           Net cash used in operating activities                     (34,885)      (156,073)
                                                                 -----------    -----------

Cash flows from investing activities:
   Investment in subsidiaries                                              -              -
   Proceeds from notes receivable                                     32,410         32,410
                                                                 -----------    -----------

           Net cash provided by investing activities                  32,410         32,410
                                                                 -----------    -----------

Cash flows from financing activities:
   Net proceeds from sale of subsidiary                              841,899              -
   Cash paid for fractional shares of stock dividend                       -         (1,461)
                                                                 -----------    -----------


           Net cash provided by (used in) financing activities       841,899         (1,461)
                                                                 -----------    -----------

NET INCREASE (DECREASE) IN CASH                                      839,424       (125,134)
CASH AT BEGINNING OF YEAR                                          1,325,666      1,450,800
                                                                 -----------    -----------

CASH AT END OF YEAR                                              $ 2,165,090    $ 1,325,666
                                                                 ===========    ===========
</TABLE>

                                       41

<PAGE>

<TABLE>
<CAPTION>
<S>                           <C>                                   <C>
                                        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                    10802 Red Run Blvd              8801 Columbia 100 Parkway
Owings Mills, MD 21117                 Owings Mills, MD 21117            Columbia, MD  21045

                                        8820 Snowden River Pkwy
                                          Columbia, MD 21045


                                           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
                                            Joseph Mezzanotte
                                            Gregory A. Devou

                                        BANK EXECUTIVE OFFICERS

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

             William H. Howard                                  Matthew Ford
             Senior Vice President                      Senior Vice President & CFO

                                                                       Independent Registered Public
Local Counsel                                                          Accounting Firm
Gordon, Feinblatt, Rothman, Hoffberger, & Hollander, LLC               Stegman & Company
233 E. Redwood St.                                                     405 E. Joppa Rd., Ste. 100
Baltimore, MD  21202                                                   Baltimore, MD  21286

Special Counsel                                                        Transfer Agent and Registrar
Malizia Spidi & Fisch, PC                                              Registrar & Transfer
901 New York Ave., N.W., Ste. 210 E.                                   10 Commerce Dr.
Washington, DC  20001                                                  Cranford, NJ  07016

</TABLE>

The Company's  Annual  Report on Form 10-KSB for the fiscal year ended  December
31, 2005 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 Red Run Blvd.  Office. The Annual Meeting of Stockholders will be held
on April 26, 2006 at 5:00 PM at the BUCS  Federal  Bank  Offices,  10802 Red Run
Blvd., Owings Mills, MD 21117.

                                       42