SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
(Mark One)
[X]  Annual report  pursuant to section 13 or 15 (d) of the Securities  Exchange
     Act of 1934
     For the fiscal year ended              December 31, 2006
                               -------------------------------------------------
                                      -OR-

[ ]  Transition  report  pursuant  to  section  13 or  15(d)  of the  Securities
     Exchange Act of 1934
     For the transition period from ___________ to _____________.

                         Commission File Number:         0-32437
                                                 -------------------------------

                               BUCS Financial Corp
                 ----------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

             Maryland                                            52-2269586
-------------------------------                               ----------------
(State or Other Jurisdiction of                               (I.R.S. Employer
 Incorporation or Organization)                              Identification No.)

10455 Mill Run Circle, Owings Mills, Maryland                      21117
---------------------------------------------                      -----
(Address of Principal Executive Offices)                         (Zip Code)

Issuer's Telephone Number, Including Area Code:      (443) 394-0047
                                                     --------------

Securities registered under Section 12(b) of the Exchange Act:     None
                                                               -----------------

Securities registered under Section 12(g) of the Exchange Act:
                     Common Stock, par value $0.10 per share
                     ---------------------------------------
                                (Title of Class)

         Check  whether the issuer is not required to file  reports  pursuant to
Section 13 or 15(d) of the Exchange Act. [ ]

         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing  requirements for the past 90 days.
                                                                  YES [X] NO [ ]

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

         Indicate by check mark whether the  registrant  is a shell  company (as
defined in Rule 12d-2 of the Exchange Act). YES [ ] NO [X]

         State issuer's revenues for its most recent fiscal year: $11.6 million.

         The aggregate  market value of the voting stock held by  non-affiliates
of the registrant,  based on the average bid and asked price of the registrant's
Common Stock on March 27, 2007, was $21.1 million.

         As of March 27,  2007,  there were  882,108  outstanding  shares of the
registrant's Common Stock.

         Transitional  Small Business  Disclosure Format (check one):
                                                                  YES [ ] NO [X]

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None.

<PAGE>

                                     PART I

Forward-Looking Statements

         BUCS Financial Corp (the  "Company") may from time to time make written
or oral "forward  looking  statements",  including  statements  contained in the
Company's  filings with the Securities and Exchange  Commission  (including this
Annual  Report on Form  10-KSB  and the  exhibits  thereto),  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  economies  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 rates, market and monetary fluctuations; the
timely development of and acceptance of new products and services of the Company
and the  perceived  overall  value of these  products  and  services  by  users,
including the features, pricing and quality as compared to competitors' products
and services;  the impact of changes in financial services' laws and regulations
(including  laws   concerning   taxes,   banking,   securities  and  insurance);
technological  changes;  acquisitions;  changes in consumer  spending and saving
habits;  and the  success of the Company at managing  the risks  resulting  from
these factors.

         The Company  cautions that the listed  factors are 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.

Item 1.  Description of Business.
---------------------------------

General

         The Company is a Maryland corporation  organized in October 2000 at the
direction of BUCS Federal Bank (the "Bank") to acquire all of the capital  stock
that  the  Bank  issued  in its  conversion  from the  mutual  to stock  form of
ownership  (the  "Conversion").  On  March  14,  2001,  the Bank  completed  the
Conversion and became a wholly owned subsidiary of the Company. The Company is a
unitary savings and loan holding company and conducts no significant business or
operations  of its own other than  holding all of the  outstanding  stock of the
Bank and  investing the  Company's  portion of the net proceeds  obtained in the
Conversion.

         References  to the Company or  Registrant in this Annual Report on Form
10-KSB generally refer to the Company and the Bank, unless the context otherwise
indicates.

         The Bank is a federally  chartered stock savings bank  headquartered in
Owings  Mills,  Maryland,  with branch  offices  located in Columbia  and Owings
Mills,  Maryland.  As of December 31, 2006, the Bank had 45 full-time  employees
and 1 part-time  employee.  The Bank is subject to examination and comprehensive
regulation  by the Office of Thrift  Supervision  ("OTS") and its  deposits  are
federally insured by the Deposit

                                       2

<PAGE>

Insurance  Fund  ("DIF").  The Bank is a member of and owns capital stock in the
FHLB of Atlanta, which is one of the 12 regional banks in the FHLB System.

         The Bank was originally  founded in 1970 as a federal credit union.  In
1998, the Bank converted its charter to a federal mutual savings association. As
a result,  the Bank was able to begin serving the general  public in addition to
continuing to serve employee groups.  The Bank is a  community-oriented  savings
organization, providing traditional retail banking services, one- to four-family
residential  mortgage loans, and consumer loan products,  including home equity,
auto,  and personal  loans.  Originally,  the Bank operated as a typical  credit
union, with an emphasis on consumer lending.  Since 1986, however,  the Bank has
also originated a substantial amount of one- to four-family residential mortgage
loans. The Bank began originating commercial real estate loans in 2000. In 2001,
the  Bank  began  originating  commercial  loans  to  complement  the  array  of
commercial checking and deposit services offered by the Bank.

         The Bank  attracts  deposits  from the  general  public  and uses these
deposits   primarily   to   originate   loans   and  to   purchase   investment,
mortgage-backed  and other  securities.  The principal  sources of funds for the
Bank's  lending and  investing  activities  are  deposits,  FHLB  advances,  the
repayment and maturity of loans and sale, maturity, and call of securities.  The
principal   source  of  income  is   interest  on  loans  and   investment   and
mortgage-backed  securities.  The principal expense is interest paid on deposits
and FHLB advances.

Pending Merger

         On September 6, 2006, the Company announced that it had entered into an
agreement  to merge with  Community  Banks,  Inc.,  which will be the  surviving
company.

         The merger was approved by the stockholders of the Company at a meeting
held March 21, 2007, and the merger is expected to close on April 1, 2007.

Market Area and Competition

         The Bank  operates from its main office in Owings  Mills,  Maryland,  a
full-service  branch office also in Owings Mills,  and two  full-service  branch
offices in Columbia, Maryland. Drive-up facilities are available at the Columbia
and the Owings Mills offices. The Bank also maintains five remote ATM locations,
four of which offer 24-hour access.

         The Bank's  primary  market  area is  Baltimore  and  Howard  Counties,
Maryland. The Bank faces substantial  competition in its attraction of deposits,
which are its primary  source of funds for lending,  and in the  origination  of
consumer, real estate, and commercial loans. The Bank's competition for deposits
and loans historically has come from local and regional commercial banks, thrift
institutions,  and credit unions  located in the Bank's primary market area. The
Bank also competes with mortgage  banking  companies for real estate loans,  and
commercial  banks  and  savings  institutions  for  consumer  loans;  and  faces
competition for investor funds from mutual fund accounts, short-term money funds
and corporate and government securities.

                                       3

<PAGE>

Lending Activities

         Loan   Portfolio   Composition.   The  following   table  analyzes  the
composition  of the  Bank's  loan  portfolio  by  loan  category  at  the  dates
indicated.

<TABLE>
<CAPTION>
                                                                 At December 31,
                                                   ----------------------------------------------
                                                           2006                     2005
                                                   --------------------      --------------------
                                                   Amount       Percent      Amount       Percent
                                                   ------       -------      ------       -------
                                                               (Dollars in thousands)
<S>                                            <C>             <C>       <C>             <C>
           Type of Loans:
           --------------
           Mortgage loans:
             Residential....................     $   22,611      18.27%    $   19,632      17.96%
             Land...........................              1       0.00              2       0.01
             Commercial real estate.........         30,266      24.45         24,115      22.16

           Commercial loans.................         13,538      10.94          4,358       3.88

           Consumer loans:
             Home equity loans..............         37,124      29.99         38,920      35.60
             Secured loans..................         16,772      13.55         18,900      17.29
             Other..........................          3,482       2.80          3,384       3.10
                                                 ----------      -----     ----------      -----
           Total loans......................        123,794     100.00%       109,311     100.00%
                                                                ======                    ======
           Less:
             Allowance for loan losses......           (859)                     (732)
                                                 ----------                ----------
           Total loans, net.................     $  122,935                $  108,579
                                                 ==========                ==========
</TABLE>

         Loan Maturity Schedule.  The following table sets forth the maturity or
repricing of the Bank's loan portfolio at December 31, 2006. Demand loans, loans
having no stated maturity and overdrafts are shown as due in one year or less.

<TABLE>
<CAPTION>
                                                                        Secured and
                                       Commercial                Home      Other
                  Residential    Land  Real Estate  Commercial  Equity    Consumer    Total
                  -----------    ----  -----------  ----------  ------    --------    -----
                                                  (In thousands)
<S>               <C>        <C>        <C>        <C>        <C>        <C>        <C>
Amounts Due:
Within 1 Year ..   $      -   $      -   $ 11,307   $  4,538   $    504   $  1,191   $ 17,540
                   --------   --------   --------   --------   --------   --------   --------
After 1 year:
  1 to 3 years .        781          1          -      1,266        196      5,608      7,852
  3 to 5 years .      1,746          -          -      2,567      1,376     11,816     17,505
  5 to 10 years       2,492          -      1,132      3,311     27,150      1,159     35,244
  10 to 15 years      9,549          -      2,258        271      7,514         31     19,623
  Over 15 years       8,043          -     15,569      1,585        384        449     26,030
                   --------   --------   --------   --------   --------   --------   --------
Total due after
   one year ....     22,611          1     18,959      9,000     36,620     19,063    106,254
                   --------   --------   --------   --------   --------   --------   --------
Total amount due   $ 22,611   $      1   $ 30,266   $ 15,538   $ 37,124   $ 20,254   $123,794
                   ========   ========   ========   ========   ========   ========   ========
</TABLE>

                                       4

<PAGE>

         The  following  table  sets  forth  the  dollar  amount of all loans at
December  31,  2006  which  have  pre-determined  interest  rates and which have
floating or adjustable interest rates.

                                                     Floating or
                                     Fixed Rates   Adjustable Rates       Total
                                     -----------   ----------------       -----
                                                    (In thousands)
         Residential ...........       $ 20,705        $  1,906        $ 22,611
         Land ..................              1               -               1
         Commercial real estate          20,749           9,517          30,266
         Commercial ............          9,071           4,467          13,538
         Home equity loans .....         16,444          20,680          37,124
         Auto and other consumer         20,254               -          20,254
                                       --------        --------        --------
           Total ...............       $ 87,224        $ 36,570        $123,794
                                       ========        ========        ========

         Consumer Loans. The Bank's consumer loan portfolio includes home equity
loans, auto loans, personal loans (secured and unsecured), savings secured loans
(deposit loans), and personal lines of credit.  Consumer loans are originated in
the Bank's market area and generally have  maturities of up to 15 years for home
equity loans and up to 5 years for other  consumer  loans.  For savings  secured
loans, the Bank will generally lend up to 100% of the account balance.

         Consumer loans  generally have shorter terms and higher  interest rates
than residential loans. The consumer loan market can be helpful in improving the
spread between the average loan yield and the cost of funds and at the same time
improve the matching of rate sensitive assets and liabilities.

         Consumer loans entail greater risks than  residential  mortgage  loans,
particularly  consumer  loans  secured by  rapidly  depreciable  assets  such as
automobiles  or  loans  that are  unsecured.  In these  cases,  any  repossessed
collateral for a defaulted loan may not provide an adequate  source of repayment
of the outstanding loan balance,  since there is a greater likelihood of damage,
loss or  depreciation  of the  underlying  collateral.  Further,  consumer  loan
repayment is dependent on the borrower's  continuing financial stability and are
more likely to be adversely affected by job loss,  divorce,  illness or personal
bankruptcy.  Any late  payments  or  failure  to  repay  would  hurt the  Bank's
earnings.  Finally,  the application of various federal laws,  including federal
and state  bankruptcy  and  insolvency  laws,  may limit the amount which can be
recovered on consumer loans in the event of a default.

         The  underwriting  standards  employed by the Bank for  consumer  loans
include a determination  of the applicant's  credit history and an assessment of
the  applicant's  ability  to meet  existing  obligations  and  payments  on the
proposed loan. The stability of the applicant's monthly income may be determined
by   verification  of  gross  monthly  income  from  primary   employment,   and
additionally  from any  verifiable  secondary  income.  Creditworthiness  of the
applicant is of primary  consideration;  however,  the underwriting process also
includes a comparison of the value of the collateral in relation to the proposed
loan amount.  Applications  are taken by customer  service  representatives  via
telephone,   facsimile,   e-mail,   and   through   the  Bank's   website.   The
representatives  are  authorized to approve  consumer loan  applications  within
individual  levels of authority  and a  recommendation  to a manager is made for
loans over the authorized discretion of the representative. Every effort is made
to complete the consumer loan  application  process  within one hour of receipt.
Home equity loans and lines of credit are processed by the Bank's  mortgage loan
specialist in the same manner as other consumer loans. Outside professionals are
employed to conduct  appraisals  for loans over $25,000 and a tax  assessment or
realtors' market analysis is utilized for loans under that amount.

                                       5

<PAGE>

         Residential  Loans.  The Bank's primary  residential  lending  activity
consists of the  origination  of one- to  four-family  mortgage loans secured by
property  located in the  Bank's  market  area.  The Bank  generally  originates
single-family  residential  mortgage loans in amounts up to 80% of the lesser of
the appraised value or selling price of the mortgaged property without requiring
private mortgage insurance.  The Bank will originate mortgage loans in an amount
up to 95% of the lesser of the  appraised  value or selling price of a mortgaged
property,  however,  private  mortgage  insurance is  generally  required on the
amount financed in excess of 80%.

         The Bank originates both fixed rate and adjustable rate mortgage loans.
The fixed rate  mortgage  loans have  terms of 15 to 30 years.  Adjustable  rate
mortgage loans are tied to the 1-year U.S. Treasury Security Index or the 3-year
Treasury Security Index.

         The Bank  generally  makes its fixed  rate  mortgage  loans to meet the
secondary mortgage market standards of FreddieMac but also makes  non-conforming
loans. While the Bank is an approved  FreddieMac  seller/servicer,  generally it
has not sold mortgage loans in the secondary mortgage market.  However, the Bank
may in the future sell fixed rate  mortgage  loans in the secondary  market,  as
market conditions and the Bank's own portfolio needs dictate.

         Substantially all of the Bank's  residential  mortgages include "due on
sale" clauses,  which are provisions giving the Bank the right to declare a loan
immediately  payable if the borrower sells or otherwise transfers an interest in
the property to a third party.

         Property  appraisals on real estate  securing the Bank's  single-family
residential loans are made by state certified or licensed independent appraisers
approved by the Board of Directors.  Appraisals are performed in accordance with
applicable  regulations and policies.  The Bank obtains title insurance policies
on all first mortgage real estate loans  originated.  All property secured loans
require  fire  and  casualty  insurance.  Loans  made  on  property  located  in
designated  flood zones require  minimum flood  insurance  coverage based on the
amount of the loan.

         Commercial  Real  Estate  Loans.  Starting  in 2000,  the Bank began to
originate commercial real estate mortgage loans, including loans on multi-family
dwellings, retail/service space, and other income-producing properties. The Bank
generally  requires  no less  than a 25% down  payment  or equity  position  for
commercial real estate loans.  Typically these loans are made with terms of 5 to
25 years.  Essentially  all of the Bank's  commercial  real estate  loans are on
properties located within its market area and all are within Maryland.  The Bank
occasionally  sells  participation  interests  in  commercial  real estate loans
originated by it that would otherwise exceed its loans-to-one-borrower limit.

         The likelihood  that commercial real estate loans will not be repaid or
will be late in  paying is  generally  greater  than  with  one- to  four-family
residential  loans.  Any failure to pay or late  payments  would hurt the Bank's
earnings.  The repayment of these loans typically is dependent on the successful
operations  and income stream of the real estate and the  borrower.  These risks
can be significantly  affected by economic conditions.  In addition,  commercial
real estate lending  generally  requires  substantially  greater  evaluation and
oversight efforts compared to one- to four-family residential lending.

         Commercial  Loans.   Commercial  loans  are  generally  made  to  small
businesses in the Bank's market area. The Bank's  commercial loans are generally
secured by real estate.  Secured  commercial loans are generally made in amounts
of up to 75% of the value of the collateral securing the loan. The Bank does not
make  unsecured  commercial  loans.  The Bank  generally  requires  the personal
guarantee of the business

                                       6

<PAGE>

owner.  Commercial  lending  products  include  installment  loans  and lines of
credit.  The Bank's  commercial term loans generally have terms of up to fifteen
years and are generally adjustable rate loans.

         Unlike  single-family  residential  mortgage loans, which generally are
made on the basis of the  borrower's  ability to make  repayment from his or her
employment  and other income and which are secured by real property  whose value
tends to be more easily  ascertainable,  commercial business loans typically are
made on the basis of the borrower's ability to make repayment from the cash flow
of the  borrower's  business.  As a result,  the  availability  of funds for the
repayment of commercial  business  loans may be  substantially  dependent on the
success of the business itself and the general economic environment.  Commercial
business loans,  therefore,  have greater credit risk than residential  mortgage
loans. In addition,  commercial  loans generally carry larger balances to single
borrowers or related  groups of borrowers  than one- to  four-family  loans.  In
addition, commercial lending generally requires substantially greater evaluation
and oversight  efforts  compared to residential or  non-residential  real estate
lending.

         Loans to One  Borrower.  Under  federal law  the Bank has,  subject  to
certain  exemptions,  lending  limits to one  borrower in an amount equal to the
greater of $500,000 or 15% of the Bank's unimpaired  capital and surplus.  As of
December 31, 2006, the Bank's  largest  aggregation of loans to one borrower was
$1,878,800, consisting primarily of mortgages against two commercial real estate
properties.

         Loan  Commitments.  The Bank gives written  commitments  to prospective
borrowers on all  approved  real estate and  commercial  loans.  Generally,  the
commitment requires  acceptance within 60 days of the date of the issuance.  The
total  amount of the Bank's  commitments  to extend  credit for real  estate and
commercial  loans  as  of  December  31,  2006,  was  $37.0  million   including
commitments on lines of credit of $25.1 million.


Non-performing Loans and Problem Assets

         Loans are reviewed on a regular  basis and are placed on a  non-accrual
status  when  they are more  than 90 days  delinquent.  Loans may be placed on a
non-accrual status at any time if, in the opinion of management,  the collection
of additional  interest is doubtful.  Interest  accrued and unpaid at the time a
loan is placed  on  non-accrual  status  is  charged  against  interest  income.
Subsequent  payments are either applied to the outstanding  principal balance or
recorded  as  interest  income,  depending  on the  assessment  of the  ultimate
collectibility of the loan. At December 31, 2006, the Bank had $257,477 of loans
that were held on a non-accrual basis.

                                       7

<PAGE>

         Non-Performing   Assets.  The  following  table  provides   information
regarding the Bank's non-performing loans and other non-performing assets at the
dates indicated.

<TABLE>
<CAPTION>
                                                                             At December 31,
                                                                          ---------------------
                                                                           2006            2005
                                                                          ------         ------
                                                                              (In thousands)
<S>                                                                     <C>            <C>
Loans accounted for on a non-accrual basis:
Mortgage loans....................................................        $    -         $    -
Consumer loans:
  Home equity loans................................................            -             34
  Other consumer...................................................          112             81
  Commercial.......................................................          145              -
                                                                          ------         ------
Total..............................................................       $  257         $  115
                                                                          ======         ======
Accruing loans which are contractually past due 90 days or more:
Mortgage loans....................................................        $    -         $    -
Consumer loans....................................................             -              -
                                                                          ------         ------
Total..............................................................       $    -         $    -
                                                                          ======         ======
Total non-performing loans.........................................       $  257         $  115
                                                                          ======         ======
Other non-performing assets........................................       $    -         $    -
                                                                          ======         ======
Total non-performing assets........................................       $  257         $  115
                                                                          ======         ======
Total non-performing loans to net loans............................         0.21%          0.11%
                                                                          ======         ======
Total non-performing loans to total assets.........................         0.17%          0.08%
                                                                          ======         ======
Total non-performing assets to total assets........................         0.17%          0.08%
                                                                          ======         ======
</TABLE>

         For the year ended December 31, 2006, the amount of interest that would
have been recorded on loans accounted for on a non-accrual  basis if those loans
had been current  according to the original loan  agreements for the entire year
was $8,861.  This amount was not included in the Bank's  interest income for the
year.

         Classified Assets.  Management, in compliance with OTS guidelines,  has
instituted an internal  loan review  program,  whereby  loans are  classified as
special  mention,  substandard,  doubtful or loss.  When a loan is classified as
substandard or doubtful, management is required to establish a valuation reserve
for loan losses in an amount considered  prudent by management.  When management
classifies a loan as a loss asset,  a reserve  equal to 100% of the loan balance
is required to be established or the loan is to be  charged-off.  This allowance
for loan losses is composed of an allowance for both  inherent  risk  associated
with lending activities and particular problem assets.

         An asset is considered "substandard" if it is inadequately protected by
the paying capacity and net worth of the obligor or the collateral  pledged,  if
any.  Substandard assets include those characterized by the distinct possibility
that the insured  institution will sustain some loss if the deficiencies are not
corrected.  Assets classified as "doubtful" have all of the weaknesses  inherent
in  those  classified  substandard,  with  the  added  characteristic  that  the
weaknesses  present make collection or liquidation in full, highly  questionable
and  improbable,  on the basis of  currently  existing  facts,  conditions,  and
values. Assets classified as "loss" are those considered uncollectible and of so
little value that their  continuance  as assets without the  establishment  of a
specific loss reserve is not warranted. Assets which do not currently expose the
insured institution to a sufficient degree of risk to warrant  classification in
one  of  the  aforementioned  categories  but  possess  credit  deficiencies  or
potential  weaknesses  are  required to be  designated  as "special  mention" by
management.

                                       8

<PAGE>

         Management's  evaluation  of  the  classification  of  assets  and  the
adequacy of the  allowance for loan losses is reviewed by the Board on a regular
basis and by the regulatory agencies as part of their examination  process.  The
following table discloses the Bank's classification of its assets as of December
31, 2006. At December 31, 2006, all of the classified assets were loans.

                                               At December 31,
                                                    2006
                                             --------------------
                                               (In thousands)

             Substandard.................            $   974
             Doubtful....................                 92
             Loss........................                 69
                                                     -------
               Total.....................            $ 1,135
                                                     =======

         Allowance for Loan Losses.  The Bank  segregates the loan portfolio for
loan  losses into the  following  broad  categories:  residential  real  estate,
commercial  real  estate,  commercial  loans and consumer  loans.  The Bank also
separately  evaluates all non-performing  loans individually.  The Bank provides
for a general  allowance  for  losses  inherent  in the  portfolio  by the above
categories,  which  consists of two  components.  General loss  percentages  are
calculated  based upon  historical  analyses and other  factors.  A supplemental
portion of the allowance is calculated for inherent  losses which probably exist
as of the evaluation date even though they might not have been identified by the
more objective  processes used. This is due to the risk of error and/or inherent
imprecision  in the  process.  This  portion of the  allowance  is  particularly
subjective and requires judgments based on qualitative factors which do not lend
themselves to exact mathematical calculations such as:

   o    trends in delinquencies and nonaccruals;
   o    trends in volume, terms and portfolio mix;
   o    new credit products;
   o    changes in lending policies and procedures;
   o    changes in the outlook for the local, regional and national economy; and
   o    peer group comparisons.

         It is the Bank's  policy to review its loan  portfolio,  in  accordance
with  regulatory  classification  procedures,  on at  least a  quarterly  basis.
Additionally,  the Bank maintains a program of reviewing loan applications prior
to making the loan and immediately after loans are made in an effort to maintain
loan quality.

         The Bank's management  evaluates the need to establish reserves against
losses on loans and other assets based on estimated losses on specific loans and
on any real  estate  held for sale or  investment  when a finding is made that a
loss is estimable and probable.  This evaluation  includes a review of all loans
for which full collectibility may not be reasonably assured and considers, among
other matters:  (1) the estimated  market value of the underlying  collateral of
problem  loans,  (2) prior loss  experience,  (3)  economic  conditions  and (4)
overall portfolio quality.

         Provisions for losses are charged  against  earnings in the period they
are  established.  The Bank made $475,604 in provisions  for loan losses for the
year ended December 31, 2006.

         While the Bank believes it has established  its existing  allowance for
loan losses in accordance with accounting  principles  generally accepted in the
United  States,  there can be no assurance  that  regulators,  in

                                       9

<PAGE>

reviewing the Bank's loan portfolio,  will not request the Bank to significantly
increase its allowance for loan losses, or that general economic  conditions,  a
deteriorating  real estate  market,  or other factors will not cause the Bank to
significantly  increase its allowance for loans losses,  which would  negatively
affect the Bank's financial condition and earnings.

         In  making  loans,  the Bank  recognizes  that  credit  losses  will be
experienced  and that the risk of loss will vary with,  among other things,  the
type of loan being made, the  creditworthiness  of the borrower over the term of
the loan and, in the case of a secured loan, the quality of the security for the
loan.

         The following table sets forth  information  with respect to the Bank's
allowance for loan losses at the dates indicated:

                                                          At December 31,
                                                   -----------------------------
                                                       2006           2005
                                                   -------------- --------------
                                                         {In thousands)

Allowance balance (at beginning of period)......   $       732    $       682
                                                   -----------    -----------
Provision for loan losses.......................           476            355
                                                   -----------    -----------
Charge-offs:
  Commercial ...................................           (27)           (68)
  Consumer......................................          (383)          (301)
Recoveries......................................            61             64
                                                   -----------    -----------
Net charge-offs.................................          (349)          (305)
                                                   -----------    -----------
Allowance balance (at end of period)............   $       859    $       732
                                                   ===========    ===========

Total loans outstanding.........................   $   123,794    $   109,312
                                                   ===========    ===========
Average loans outstanding.......................   $   115,729    $   100,981
                                                   ===========    ===========
Allowance for loan losses as
    a percent of total loans outstanding........          0.69%          0.67%
                                                   ===========    ===========
Net loans charged off as a percent of
    average loans outstanding...................          0.30%          0.30%
                                                   ===========    ===========

         Allocation of Allowance for Loan Losses. The following table sets forth
the  allocation  of the  Bank's  allowance  for loan  losses by loan  type.  The
percentage  of loans  in each  category  to  total  loans  receivable,  net,  is
presented  at the  dates  indicated.  The  portion  of the loan  loss  allowance
allocated to each loan  category  does not  represent  the total  available  for
losses  which may  occur  within  the loan  category  since the total  loan loss
allowance is a valuation reserve applicable to the entire loan portfolio.

                                       10

<PAGE>

                                                  At December 31,
                                   -------------------------------------------
                                         2006                   2005
                                   ---------------------  --------------------
                                             Percent of            Percent of
                                              Loans to              Loans to
                                   Amount    Total Loans  Amount   Total Loans
                                   ------    -----------  ------   -----------
                                               (Dollars in thousands)
At end of period allocated to:
Mortgage loans:
Residential:
  Permanent ..................      $ 30       18.26%      $ 28       17.97%
  Commercial real estate .....       279       24.44        214       22.16
  Commercial loans ...........       136       10.94         38        3.88

Consumer Loans:
  Home equity loans ..........        29       29.99         25       35.60
  Auto loans .................       247       13.56        315       17.29
  Other ......................       138        2.81        112        3.10
                                    ----      ------       ----      ------
Total allowance ..............      $859      100.00%      $732      100.00%
                                    ====      ======       ====      ======

Investment Activities

         General. Federally chartered savings associations have the authority to
invest in various  types of liquid  assets,  including  United  States  Treasury
obligations,  securities of various government agencies and government-sponsored
entities   (including   securities   collateralized   by   mortgages),   certain
certificates  of deposits of insured banks and savings  institutions,  municipal
securities, corporate debt securities and loans to other banking institutions.

         Investment  Securities.  The Bank  maintains a portfolio of  investment
securities,  classified  as either  available  for sale or held to maturity  and
consisting  generally of U.S.  government  agency,  government-sponsored  entity
obligations, mortgage-backed securities, and collateralized mortgage obligations
with varying characteristics as to rate, maturity and call provisions.  Callable
securities,  representing 100% of the Bank's U.S.  government agency securities,
totaled  approximately  $1.0  million at December  31, 2006 and could reduce the
Bank's investment yield if called prior to maturity.

         The  mortgage-backed  securities in the Bank's portfolio are classified
as  either  available  for  sale  or  held  to  maturity.   The  securities  are
participation  certificates  that are secured by interest in pools of mortgages.
At December 31, 2006, the Bank held mortgage-backed  securities that were issued
and  guaranteed  by  the  Government  National  Mortgage  Association  ("GNMA"),
FannieMae and FreddieMac.

         Mortgage-backed  securities  typically are issued with stated principal
amounts.  The  securities  are backed by pools of mortgages that have loans with
interest  rates that are  within a set range and have  varying  maturities.  The
underlying pool of mortgages can be composed of either  fixed-rate or adjustable
rate mortgage loans.  The interest rate risk  characteristics  of the underlying
pool of mortgages,  including fixed-rate or adjustable-rate,  and the prepayment
risk, are passed on to the  certificate  holder.  The life of a  mortgage-backed
pass-through security is equal to the life of the underlying mortgages. Expected
maturities will differ from contractual  maturities due to scheduled  repayments
and because  borrowers may have the right to call or prepay  obligations with or
without prepayment penalties.

                                       11

<PAGE>

         The Bank also invests in collateralized  mortgage  obligations  (CMOs),
issued or sponsored by FannieMae and FreddieMac.  The Bank's  investment  policy
classifies  CMO's  as  mortgage   derivative   products,   with  the  investment
restrictions  applicable to such category as described above. CMOs are a type of
debt security that aggregates pools of mortgages and mortgage-backed  securities
and creates  different  classes of CMO  securities  with varying  maturities and
amortization  schedules  as well as a residual  interest  with each class having
different risk  characteristics.  The cash flows from the underlying  collateral
are usually divided into "tranches" or classes whereby  tranches have descending
priorities with respect to the distribution of principal and interest  repayment
of the underlying  mortgages and  mortgage-backed  securities as opposed to pass
through mortgage-backed  securities where cash flows are distributed pro rata to
all security holders. Unlike mortgage-backed  securities from which cash flow is
received and prepayment risk is shared pro rata by all securities holders,  cash
flows from the mortgages and mortgage-backed securities underlying CMOs are paid
in  accordance  with a  predetermined  priority  to  investors  holding  various
tranches of the  securities or  obligations.  A particular  tranche or class may
carry  prepayment  risk  which  may be  different  from  that of the  underlying
collateral and other tranches.

         Other securities used by the Bank, but not necessarily  included in the
investment portfolio,  consist of equity securities,  interest-bearing  deposits
and federal funds sold.  Equity  securities owned at December 31, 2006 consisted
of a  $1,192,200  investment  in FHLB of  Atlanta  common  stock and a  $175,000
investment in Maryland Financial Bank (these amounts are shown in other assets).
As a member of the FHLB of Atlanta,  and Maryland  Financial Bank,  ownership of
common shares is required. The remaining securities provide  diversification and
complement the Bank's overall investment strategy.

         The  following  table  sets  forth  the  carrying  value of the  Bank's
investment securities portfolio at the dates indicated.

<TABLE>
<CAPTION>
                                                                               At December 31,
                                                                           -----------------------
                                                                               2006         2005
                                                                           ----------   ----------
                                                                               (In thousands)
<S>                                                                       <C>          <C>
Securities Held to Maturity:
----------------------------
 Mortgage-backed securities.............................................   $    6,445   $    7,533
 Collateralized mortgage obligations....................................           26           91
                                                                           ----------   ----------
 Total securities held to maturity......................................        6,471        7,624
                                                                           ----------   ----------

Securities Available for Sale (at fair value):
----------------------------------------------
 U.S. government agency and government-sponsored entity securities .....          990          980
 Mortgage-backed securities.............................................        2,111        3,241
                                                                           ----------   ----------
 Total securities available for sale....................................        3,101        4,221
                                                                           ----------   ----------

 Total..................................................................   $    9,572   $   11,845
                                                                           ==========   ==========
</TABLE>

                                       12

<PAGE>

         The  following  table  sets forth  certain  information  regarding  the
carrying values, weighted average yields and maturities of the Bank's investment
and mortgage-backed securities portfolio at December 31, 2006.

<TABLE>
<CAPTION>
                                                                          At December 31, 2006
                             -------------------------------------------------------------------------------------------------------
                              One Year or Less   One to Five Years Five to Ten Years More than Ten Years   Total Investment
                             ------------------  ----------------- ----------------- ------------------- ---------------------------
                             Amortized  Average  Amortized Average Amortized Average Amortized Average Amortized Average  Estimated
                               Cost      Yield     Cost     Yield    Cost     Yield    Cost     Yield    Cost     Yield   Fair Value
                               ----      -----     ----     -----    ----     -----    ----     -----    ----     -----   ----------
                                                                    (Dollars in thousands)
<S>                         <C>          <C>    <C>         <C>    <C>       <C>     <C>      <C>     <C>        <C>    <C>
U.S. government agency and
  government-sponsored
  entity securities........  $     -          %  $ 1,000     4.62%  $     -      -%   $             -% $ 1,000     4.62% $   990

Collateralized mortgage
   Obligations.............        26     8.43         -        -          -                                26     8.43       26

Mortgage-backed
  securities(1)..                   -                  42    5.51        333  3.94      8,180    4.46    8,555     4.45    8,296
                             --------            --------           --------          -------          -------           -------
  Total....................  $     26            $  1,042           $    333          $ 8,180          $ 9,581           $ 9,312
                             ========            ========           ========          =======          =======           =======
</TABLE>

________________________________
(1)  The totals include approximately $1.7 million of adjustable rate securities
     that reprice annually.

                                       13

<PAGE>

Sources of Funds

         General.  Deposits are the major source of the Bank's funds for lending
and other investment purposes.  Borrowings  (principally from the FHLB) are used
to  supplement  the amount of funds for lending and  investment.  In addition to
deposits and  borrowings,  the Bank derives funds from loan and  mortgage-backed
securities principal repayments,  and proceeds from the maturity,  call and sale
of   mortgage-backed   securities   and   investment   securities.    Loan   and
mortgage-backed  securities  payments are a relatively  stable  source of funds,
while deposit inflows are significantly influenced by general interest rates and
money market conditions.

         Deposits.  The following  table sets forth for the years ended December
31, 2006 and 2005 the average amount of and average rate paid on deposits.

<TABLE>
<CAPTION>
                                                  Average                       Average
                                              Balance for the                Balance for the
                                                year ended        Weighted      year ended      Weighted
                                               December 31,       Average      December 31,     Average
   Category                                        2006        Interest Rate       2005       Interest Rate
   --------                                        ----        -------------       ----       -------------
                                                                     (Dollars in thousands)
<S>                                            <C>                <C>        <C>                 <C>
   Checking accounts.....................        $   15,330         0.00 %     $   14,940          0.00%
   Money Market and floating rate
      IRA accounts.......................            36,884         4.01           24,070          2.14
   Savings accounts......................            23,304         0.54           27,573          0.54
   Certificates of deposit...............            28,325         4.40           25,429          3.78
                                                 ----------                    ----------
                Total....................        $  103,843                    $   92,012
                                                 ==========                    ==========
</TABLE>

         The  following  table  shows the amount of the Bank's  certificates  of
deposit of $100,000 or more by time remaining  until maturity as of December 31,
2006.

                                                                 Certificates
                      Maturity Period                             of Deposit
                      ---------------                             ----------
                                                                (In thousands)
                      Within three months..................        $   1,560
                      Three through six months.............            2,180
                      Six through twelve months............            2,412
                      Over twelve months...................            5,297
                                                                   ---------
                                                                   $  11,449
                                                                   =========

         Borrowings.  The Bank, as the need arises or in order to take advantage
of funding opportunities, borrows funds in the form of advances from the FHLB to
supplement  its  supply of funds and to meet  deposit  withdrawal  requirements.
Advances from the FHLB are typically secured by the Bank's stock in the FHLB and
a portion of the Bank's  residential  mortgage loans and may be secured by other
assets,  mainly  securities  which are  obligations of or guaranteed by the U.S.
Government.  Advances at December 31, 2006 totaled $20.4 million.  See Note 7 to
the Consolidated Financial Statements.

                                       14

<PAGE>

         The following  table sets forth certain  information  regarding  Bank's
borrowed funds.

                                                         Year Ended December 31,
                                                         -----------------------
                                                            2006        2005
                                                          -------    -------
                                                            (In thousands)
      FHLB Advances:
      Average balance outstanding.....................    $23,884    $22,928
      Maximum amount outstanding
        at any month-end during the year..............     31,700     27,700
      Balance outstanding at end of year..............     20,400     27,700
      Weighted average interest rate during the year..       4.73%      3.84%
      Weighted average interest rate at end of year...       4.89%      3.97%

Contractual Obligations

         Payments due by period for the Company's contractual obligations (other
than  deposit  accounts  with no  stated  maturity)  at  December  31,  2006 are
presented below:

<TABLE>
<CAPTION>
                                                                  After 1        After 3
                                                  Within        but Within     but Within        After
                                                  1 Year         3 Years        5 Years        5 Years          Total
                                                  ------         -------        -------        -------          -----
                                                                             (In thousands)
<S>                                             <C>              <C>             <C>            <C>
Time deposits............................        $22,718          $ 9,132         $3,381         $    -       $35,231
Junior subordinated debentures...........              -            3,000              -              -         3,000
Federal Home Loan Bank advances..........         15,400            5,000              -              -        20,400
Operating lease obligations..............             88              160             31              -           279
Purchase obligations.....................              -                -              -              -             -
                                                 -------          -------        -------         ------       -------
    Total contractual obligations........        $38,206          $17,292        $ 3,412         $    -       $58,910
                                                 =======          =======        =======         ======       =======
</TABLE>

Subsidiary Activity

         The Bank is permitted to invest its assets in the capital  stock of, or
originate secured or unsecured loans to, subsidiary corporations. In addition to
the Bank, the Company has one other subsidiary,  BUCS Financial Capital Trust I,
which was formed to sell trust preferred securities.

Regulation

         Set forth below is a brief  description  of certain laws that relate to
the regulation of the Bank and the Company.  The description does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.  The Bank and the Company operate in a highly  regulated  industry.
The U.S.  government  could adopt  regulations  or enact laws which restrict the
operations of the Bank and/or the Company or impose burdensome requirements upon
one or both of them.

Regulation of the Company

         General.  The Company is a savings and loan holding  company within the
meaning of Section  10(o) of the Home  Owners'  Loan Act and is required to file
reports with the OTS and is subject to regulation and examination by the OTS. In
addition, the OTS has enforcement authority over the Company and any

                                       15

<PAGE>

non-savings  institution  subsidiaries.  This  permits  the OTS to  restrict  or
prohibit  activities that it determines to be a serious risk. This regulation is
intended  primarily  for the  protection  of the  depositors  and is not for the
benefit of the stockholders of the Company.

         Activities  Restrictions.  As a savings and loan holding company formed
after May 4, 1999, the Company is not a  grandfathered  unitary savings and loan
holding company under the  Gramm-Leach-Bliley  Financial Services  Modernization
Act of 1999 (the  "GLB  Act").  As a result,  the  Company  and its  non-savings
institution  subsidiaries,  if any exist in the future,  is subject to statutory
and regulatory restrictions on their business activities. Under the Home Owners'
Loan Act, as amended by the GLB Act, the  nonbanking  activities  of the Company
are restricted to certain activities specified by OTS regulation,  which include
performing  services  and  holding  properties  used  by a  savings  institution
subsidiary,  activities  authorized for savings and loan holding companies as of
March 5, 1987, and nonbanking activities  permissible for bank holding companies
pursuant to the Bank Holding  Company Act of 1956 (the "BHC Act") or  authorized
for financial holding companies pursuant to the GLB Act. Furthermore, no company
may acquire  control of the Company  unless the acquiring  company was a unitary
savings and loan holding company on May 4, 1999 (or became a unitary savings and
loan holding company pursuant to an application  pending as of that date) or the
company is only engaged in activities  that are  permitted for multiple  savings
and loan holding  companies or for financial holding companies under the BHC Act
as amended by the GLB Act.

         Sarbanes-Oxley  Act of 2002. The Sarbanes-Oxley Act of 2002 (the "Act")
implemented  legislative  reforms  intended to address  corporate and accounting
fraud  and  improve  public  company  reporting.  The  Securities  and  Exchange
Commission (the "SEC") has  promulgated new regulations  pursuant to the Act and
may continue to propose  additional  implementing  or clarifying  regulations as
necessary in  furtherance of the Act. The passage of the Act by Congress and the
implementation of new regulations by the SEC subject  publicly-traded  companies
to  additional  and  more  cumbersome  reporting   regulations  and  disclosure.
Compliance with the Act and corresponding regulations may increase the Company's
expenses.

Regulation of the Bank

         General. As a federally chartered savings bank with deposits insured by
the FDIC,  the Bank is  subject  to  extensive  regulation  by the OTS and FDIC.
Lending  activities  and other  investments  must comply with  federal and state
statutory  and  regulatory  requirements.  The Bank is also  subject  to reserve
requirements of the Federal Reserve System.  Federal  regulation and supervision
establishes a comprehensive  framework of activities in which an institution can
engage and is intended  primarily for the  protection  of the Deposit  Insurance
Fund  and  depositors.  The  regulatory  structure  also  gives  the  regulatory
authorities  extensive  discretion  in  connection  with their  supervisory  and
enforcement activities and examination policies, including policies with respect
to the  classification  of assets and the  establishment  of adequate  loan loss
reserves for regulatory purposes.

         The  OTS  regularly   examines  the  Bank  and  prepares   reports  for
consideration by the Bank's Board of Directors on deficiencies, if any, found in
the Bank's operations. The Bank's relationship with its depositors and borrowers
is also  regulated by federal and state law,  especially  in such matters as the
ownership of savings  accounts  and the form and content of the Bank's  mortgage
documents.

         The Bank must file reports with the OTS  concerning  its activities and
financial condition, and must obtain regulatory approvals prior to entering into
certain  transactions  such as mergers with or  acquisitions  of other financial
institutions.  Any change in such  regulations,  whether by the OTS, the FDIC or
the United States  Congress,  could have a material  adverse impact on the Bank,
the Company, and their operations.

                                       16

<PAGE>

         Deposit Insurance. The Bank's deposits are insured to applicable limits
by the Federal Deposit Insurance Corporation. Although the FDIC is authorized to
assess  premiums  under a  risk-based  system for such deposit  insurance,  most
insured  depository  institutions have not been required to pay premiums for the
last ten years.  The Federal  Deposit  Insurance  Reform Act of 2005,  which was
signed into law on February 15, 2006, has resulted in significant changes to the
federal  deposit  insurance  program:  (i)  effective  March 31, 2006,  the Bank
Insurance Fund and the Savings Association Insurance Fund were merged into a new
combined fund,  called the Deposit  Insurance  Fund;  (ii) the current  $100,000
deposit insurance coverage will be indexed for inflation (with adjustments every
five years,  commencing  January 1, 2011); and (iii) deposit insurance  coverage
for retirement  accounts has been increased to $250,000 per participant  subject
to adjustment for inflation. The FDIC has been given greater latitude in setting
the assessment rates for insured depository institutions, which could be used to
impose minimum assessments.

         The  FDIC  is  authorized  to set the  reserve  ratio  for the  Deposit
Insurance Fund annually at between 1.15% and 1.5% of estimated insured deposits.
If the Deposit  Insurance  Fund's reserves exceed the designated  reserve ratio,
the FDIC is required to pay out all or, if the reserve  ratio is less than 1.5%,
a portion of the excess as a dividend to insured  depository  institutions based
on the  percentage  of insured  deposits  held on December 31, 1996 adjusted for
subsequently  paid  premiums.  Insured  depository  institutions  that  were  in
existence on December 31, 1996 and paid assessments prior to that date (or their
successors) are entitled to a one-time credit against future  assessments  based
on the amount of their assessable deposits on that date.

         In  addition,  all  FDIC-insured   institutions  are  required  to  pay
assessments  to the  FDIC to fund  interest  payments  on  bonds  issued  by the
Financing Corporation ("FICO"), an agency of the Federal government  established
to recapitalize  the predecessor to the SAIF. The FICO assessment  rates,  which
are determined  quarterly,  averaged 0.0128% of insured deposits in fiscal 2006.
These assessments will continue until the FICO bonds mature in 2017.

         Regulatory  Capital  Requirements.   OTS  capital  regulations  require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of adjusted  total  assets,  (2) Tier 1, or "core,"  capital equal to at
least 4% (3% if the institution  has received the highest  rating,  "composite 1
CAMELS,"  on its most recent  examination)  of adjusted  total  assets,  and (3)
risk-based capital equal to 8% of total risk-weighted assets.

         Tangible capital is defined as core capital less all intangible  assets
(including  supervisory  goodwill),  less certain mortgage  servicing rights and
less certain investments. Core capital is defined as common stockholders' equity
(including  retained  earnings),  noncumulative  perpetual  preferred  stock and
minority interests in the equity accounts of consolidated subsidiaries,  certain
nonwithdrawable accounts and pledged deposits of mutual savings associations and
qualifying supervisory goodwill,  less nonqualifying  intangible assets, certain
mortgage servicing rights,  certain  investments and unrealized gains and losses
on certain available-for-sale securities.

         The risk-based capital standard for savings  institutions  requires the
maintenance of total  risk-based  capital (which is defined as core capital plus
supplementary  capital)  of  8%  of  risk-weighted  assets.  The  components  of
supplementary capital include, among other items, cumulative perpetual preferred
stock,  perpetual  subordinated debt, mandatory  convertible  subordinated debt,
intermediate-term  preferred  stock,  and the portion of the  allowance for loan
losses not  designated  for  specific  loan  losses (up to a maximum of 1.25% of
risk-weighted  assets) and up to 45% of unrealized  gains on equity  securities.
Overall,  supplementary  capital is limited to 100% of core  capital.  A savings
association  must calculate its  risk-weighted  assets by multiplying each asset
and  off-balance  sheet item by various risk factors as  determined  by

                                       17

<PAGE>

the OTS,  which range from 0% for cash to 100% for  delinquent  loans,  property
acquired through foreclosure, commercial loans, and other assets.

         Dividend and Other Capital  Distribution  Limitations.  The OTS imposes
various  restrictions or requirements on the ability of savings  institutions to
make capital distributions including cash dividends.

         A  savings  association  that is a  subsidiary  of a  savings  and loan
holding company, such as the Bank, must file an application or a notice with the
OTS at least 30 days before making a capital distribution. A savings association
is not  required  to file  an  application  for  permission  to  make a  capital
distribution  and need only file a notice if the following  conditions  are met:
(1) it is eligible for expedited  treatment under OTS regulations,  (2) it would
remain adequately  capitalized after the distribution,  (3) the annual amount of
its capital distributions does not exceed net income for that year to date added
to  retained  net  income  for  the two  preceding  years,  and (4) the  capital
distribution  would not violate any  agreements  between the OTS and the savings
association  or any OTS  regulations.  Any  other  situation  would  require  an
application to the OTS.

         In addition, the OTS could prohibit a proposed capital distribution if,
after  making the  distribution,  which  would  otherwise  be  permitted  by the
regulation,  the OTS determines that the distribution would constitute an unsafe
or unsound practice.

         A federal  savings  institution  is  prohibited  from  making a capital
distribution if, after making the distribution,  the institution would be unable
to meet any one of its  minimum  regulatory  capital  requirements.  Further,  a
federal savings institution cannot distribute  regulatory capital that is needed
for its liquidation account.

         Qualified Thrift Lender Test. Federal savings  institutions must meet a
qualified  thrift  lender  ("QTL")  test or they become  subject to the business
activity  restrictions  and branching  rules  applicable to national  banks.  To
qualify as a QTL, a savings  institution  must  either (i) be deemed a "domestic
building and loan association" under the Internal Revenue Code by maintaining at
least 60% of its total  assets in  specified  types of assets,  including  cash,
certain  government  securities,  loans  secured by and other assets  related to
residential real property,  educational loans and investments in premises of the
institution or (ii) satisfy the statutory QTL test set forth in the Home Owners'
Loan Act by  maintaining  at least  65% of its  "portfolio  assets"  in  certain
"Qualified Thrift  Investments"  (defined to include  residential  mortgages and
related equity investments,  certain mortgage-related securities, small business
loans,  student  loans and  credit  card  loans,  and 50% of  certain  community
development loans). For purposes of the statutory QTL test, portfolio assets are
defined  as  total  assets  minus  intangible  assets,   property  used  by  the
institution in conducting its business,  and liquid assets equal to 10% of total
assets.  A savings  institution  must  maintain its status as a QTL on a monthly
basis in at least nine out of every 12  months.  The Bank met the QTL test as of
December 31, 2006 and in each of the last 12 months and, therefore, qualifies as
a QTL.

         Federal  Home  Loan  Bank  System.  The Bank is a member of the FHLB of
Atlanta,  which is one of 12 regional  FHLBs that  administer the home financing
credit  function  of  savings  associations.  Each FHLB  serves as a reserve  or
central bank for its members within its assigned region.  It is funded primarily
from  proceeds  derived from the sale of  consolidated  obligations  of the FHLB
System.  It makes loans to members (i.e.,  advances) in accordance with policies
and procedures established by the Board of Directors of the FHLB.

         As a member, the Bank is required to purchase and maintain stock in the
FHLB of Atlanta in an amount equal to the greater of 1% of its aggregate  unpaid
residential  mortgage loans, home purchase

                                       18

<PAGE>

contracts or similar  obligations  at the  beginning of each year,  or 5% of its
outstanding advances.

         Transactions with Affiliates.  Generally,  federal banking law requires
that  transactions  between a savings  institution or its  subsidiaries  and its
affiliates  must  be on  terms  as  favorable  to  the  savings  institution  as
comparable transactions with non-affiliates. In addition, certain types of these
transactions   are  restricted  to  an  aggregate   percentage  of  the  savings
institution's capital.  Collateral in specified amounts must usually be provided
by  affiliates  in order to  receive  loans  from the  savings  institution.  In
addition,  a savings  institution may not extend credit to any affiliate engaged
in  activities  not  permissible  for a bank  holding  company  or  acquire  the
securities of any affiliate that is not a subsidiary. The OTS has the discretion
to treat  subsidiaries  of savings  institutions as affiliates on a case-by-case
basis.

         Federal  Reserve  System.  The  Federal  Reserve  System  requires  all
depository institutions to maintain  non-interest-bearing  reserves at specified
levels against their checking accounts and non- personal  certificate  accounts.
The balances maintained to meet the reserve  requirements imposed by the Federal
Reserve System may be used to satisfy the OTS liquidity requirements.

         Savings  institutions have authority to borrow from the Federal Reserve
System "discount  window," but Federal Reserve System policy generally  requires
savings  institutions  to exhaust all other sources  before  borrowing  from the
Federal Reserve System.

Item 2.  Description of Property.
---------------------------------

(a)      Properties.

         The Bank maintains  three office  locations in Owings Mills,  Maryland.
One  is  a  branch  facility  located  in  the  CareFirst  BlueCross  BlueShield
("CareFirst")  headquarters  building and the second is an administrative center
and full-service  branch office in a newly built office building leased entirely
by  CareFirst.  The third office is a computer and telephone  operations  center
with a seven year lease  terminating  November 30, 2010.  The Bank also conducts
its business through two full-service branch offices in Columbia,  Maryland, and
through six remote ATM locations in Columbia,  Timonium and  Baltimore,  four of
which offer 24-hour  access.  All branches and remote ATMs are accessible to the
general public.  The branch in the CareFirst  headquarters  building is occupied
under a Financial  Services  Agreement with CareFirst  whereby the Bank provides
various  financial  services to CareFirst  employees and customers in return for
office  space.  There are no rent  payments  under such  agreement.  The current
agreement  runs  through  March 31, 2009 and is subject to earlier  termination,
with three months notice required,  in the event that CareFirst ceases to occupy
at least half of the building.  The space occupied by the administrative  center
and full-service  Owings Mills branch is under a sublease with CareFirst with an
initial term through November 30, 2009.

                                       19

<PAGE>

         The  following  table sets forth the location of the Bank's main office
and branch  offices,  the year the offices were opened and the net book value of
each office and its related equipment.

<TABLE>
<CAPTION>
                                     Year Facility    Lease       Net Book Value at
Office Location                         Opened        or Own      December 31, 2006
---------------                         ------        ------      -----------------

<S>                                    <C>          <C>            <C>
Main Office - Owings Mills               1991         Leased           $256,671
Branch Office - Columbia                 1999         Leased(1)        $262,321
Branch Office - Owings Mills             2003         Leased           $388,959
Branch Office - Columbia                 2003         Owned          $2,471,890
Operations Center - Owings Mills         2003         Leased           $203,590
</TABLE>
________________
(1)      The  building  is owned  by the  Bank and the land is under an  assumed
         ground  lease  agreement,  expiring  on  July 1,  2009.  The  lease  is
         renewable for three five-year extensions at the Bank's option.

(b)      Investment Policies.

         See "Item 1.  Description of Business" above for a general  description
of the Bank's  investment  policies and any  regulatory  or Board of  Directors'
percentage  of assets  limitations  regarding  certain  investments.  The Bank's
investments are primarily  acquired to produce  income,  and to a lesser extent,
possible capital gain.

         (1)  Investments in Real Estate or Interests in Real Estate.  See "Item
1.  Description  of Business - Lending  Activities and - Bank  Regulation,"  and
"Item 2. Description of Property."

         (2) Investments in Real Estate  Mortgages.  See "Item 1. Description of
Business - Lending Activities and - Bank Regulation."

         (3)  Investments  in  Securities  of or Interests in Persons  Primarily
Engaged  in Real  Estate  Activities.  See "Item 1.  Description  of  Business -
Lending Activities and -Bank Regulation."

(c)      Description of Real Estate and Operating Data.

         Not Applicable.

Item 3.  Legal Proceedings.
--------------------------

         There are various  claims and lawsuits in which the Company or the Bank
are  periodically  involved,  such as  claims  to  enforce  liens,  condemnation
proceedings  on properties in which the Bank holds  security  interests,  claims
involving  the making and  servicing of real  property  loans,  and other issues
incident to the Bank's business. In the opinion of management,  no material loss
is expected from any of such pending claims or lawsuits as of December 31, 2006.

                                       20

<PAGE>

Item  4.  Submission of Matters to a Vote of Security Holders.
--------------------------------------------------------------

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of the fiscal year ended December 31, 2006.

                                     PART II

Item 5. Market for Common Equity, Related Stockholder Matters and Small Business
--------------------------------------------------------------------------------
        Issuer Purchases of Equity Securities.
        -------------------------------------

         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 stock dividends
paid by the Company.


                  2006                          High              Low
                  ----                          ----              ---
                  First Quarter                 $13.50            $11.35
                  Second Quarter                 11.85             10.90
                  Third Quarter                  22.63             10.90
                  Fourth Quarter                 23.55             22.50

                  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


         The  number  of  shareholders  of  record  as of  March  27,  2007  was
approximately  255.  This does not reflect the number of persons or entities who
held stock in nominee or "street" name through various brokerage firms. At March
27, 2007, there were 882,108 shares of the Company's common stock outstanding.

         As yet, the Company has not paid cash  dividends to  stockholders.  The
Company's  ability to pay dividends is 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.

                                       21

<PAGE>

Item  6.  Management's Discussion and Analysis or Plan of Operation.
-------------------------------------------------------------------

Selected Financial Ratios and Other Data

                                                             For the Years Ended
                                                                 December 31,
                                                               -----------------
                                                               2006        2005
                                                               ----        ----

Performance Ratios
Return on average assets..................................     0.49%       0.47%
Return on average equity..................................     6.01%       5.59%
Net interest rate spread..................................     3.39%       3.60%
Net interest margin on average interest-earning assets....     3.41%       3.55%
Average interest-earning assets to average interest-
   bearing liabilities....................................   100.65%      98.03%
Efficiency Ratio (non-interest expense divided by the
   sum of net interest income and noninterest income).....    78.30%      83.69%

Asset Quality Ratios
Non-performing loans to total loans, net..................     0.21%       0.11%
Non-performing loans to total assets......................     0.17%       0.08%
Net charge offs to average loans outstanding..............     0.30%       0.30%
Allowance for loan losses to total loans..................     0.69%       0.67%
Capital Ratios
Average equity to average assets..........................     8.09%       8.41%
Equity to assets at period end............................     8.12%       8.16%


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

General

         The Company may from time to time make written or oral  forward-looking
statements,  including  statements  contained in the Company's  filings with the
Securities and Exchange Commission,  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.

                                       22

<PAGE>

         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:

     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 makes an effort to maintain its level of lower costs  deposits
as a method of  enhancing  profitability.  At December  31,  2006,  the Bank had
approximately  29.8%  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.

                                       23

<PAGE>

         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,
2006 of upward and downward shifts (shock) in the Treasury yield curve.

                                                  Net Portfolio Value
            Net Portfolio Value              as % of Present Value of Assets
            -------------------           --------------------------------------
Changes in                                           Net Portfolio   Basis Point
 Rates(1)    $ Amount  $ Change           % Change    Value Ratio       Change
 --------    --------  --------           --------    -----------       ------
           (Dollars in thousands)
+300 bp      $14,440   $(4,073)             (22)%         9.63%        (234) bp
+200 bp       15,603    (2,911)             (16)         10.31         (166) bp
+100 bp       16,981    (1,532)              (8)         11.10          (86) bp
   0 bp       18,513         -                -          11.96            -
-100 bp       19,884     1,371                7          12.71           75  bp
-200 bp       21,029     2,516               14          13.33          136  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.

Changes in Financial Condition

         The  Company's  total  assets of $149.6  million at  December  31, 2006
reflect an  increase of $11.0  million or 7.9% as compared to $138.6  million at
December  31, 2005.  The increase in assets was  comprised of increases in loans
receivable,  net, of $14.4 million and  miscellaneous  other assets of $650,000,
partially  offset by decreases in cash and cash equivalents and interest bearing
deposits in other financial institutions of $1.1 million,  investment securities
available  for sale and held to maturity  totaling  $2.3  million,  property and
equipment,  net of $254,000 , and  miscellaneous  other assets of $454,000.  The
increase  in loans  receivable  was  mainly  the  result  of strong  demand  for
commercial  real estate loans and commercial  loans.  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.

                                       24

<PAGE>

         The Company's total  liabilities of $137.4 million at December 31, 2006
reflect an  increase of $10.1  million or 7.9% as compared to $127.3  million at
December 31, 2005. The increase in the Company's  liabilities  were comprised of
increases  in  deposits  of $16.9  million  and a $489,000  increase in accounts
payable and other  liabilities,  partially offset by decreases in borrowed funds
of $7.3 million.  The increase in deposits is attributed primarily to the growth
of money market accounts and  certificates of deposits at all four of the Bank's
branches as interest rates increased steadily during the year.

         Stockholders'  equity  totaled  $12.1  million at December 31, 2006, an
increase  of  $830,000 or 7.3%.  The  increase is the result of net  earnings of
$696,000 for the year ended  December 31, 2006,  the effect of the allocation of
shares from the Bank's Employee Stock Ownership Plan ("ESOP") totaling $120,000,
and $15,000 in net unrealized gains on securities available for sale.

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.

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                              --------------------------------------------------------------------
                                                               2006                                2005
                                              ----------------------------------   -------------------------------
                                              Average         Interest             Average        Interest
                                              Outstanding     Earned/     Yield/   Outstanding    Earned/    Yield/
                                              Balance         Paid         Rate    Balance        Paid        Rate
                                              -------         ----         ----    -------        ----        ----
                                                                      (Dollars in thousands)
<S>                                         <C>              <C>         <C>     <C>            <C>        <C>
Interest-earning assets:
 Loans receivable(1).......................   $ 115,729        $7,892      6.82%   $ 100,981      $6,055     6.00%
 Investment securities(2)..................      15,800           782      4.95       14,698         753     5.12
                                              ---------        ------              ---------      ------
    Total interest-earning assets..........     131,529         8,674      6.59      115,679       6,808     5.89
Noninterest-earning assets.................      11,686        ------                 14,178      ------
                                              ---------                            ---------
    Total assets...........................   $ 143,215                            $ 129,857
                                              =========                            =========
Interest-bearing liabilities:
 Savings accounts..........................   $  23,304           126      0.54    $  27,573         148     0.54
 Money market accounts.....................      36,884         1,478      4.01       24,070         515     2.14
 Certificates of Deposit...................      28,325         1,247      4.40       25,429         962     3.78
 Checking..................................      15,330             -      0.00       14,940           -     0.00
                                              ---------        ------              ---------      ------
   Total deposits..........................     103,843         2,851      2.74       92,012       1,625     1.77
 Borrowed funds............................      26,842         1,336      4.98       25,997       1,081     4.16
                                              ---------        ------              ---------      ------
    Total interest-bearing liabilities.....     130,685         4,187      3.20      118,009       2,706     2.29
Non-interest-bearing liabilities...........         950                                  927
                                              ---------                            ---------
    Total liabilities......................     131,635                              118,936
Equity.....................................      11,580                               10,921
                                              ---------                            ---------
    Total liabilities and equity...........   $ 143,215                            $ 129,857
                                              =========                            =========
Net interest income........................                   $4,487                              $4,102
                                                              ======                              ======
Interest rate spread(3)....................                                3.39%                             3.60%
                                                                         ======                             =====
Net yield on interest-earning assets(4)....                                3.41%                             3.55%
                                                                         ======                             =====
Ratio of average interest-earning assets to
   Average interest-bearing liabilities....                              100.65%                            98.03%
                                                                         ======                             =====
</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.

                                       25

<PAGE>

(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.

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 June 30,
                                                               2006 vs. 2005
                                             --------------------------------------------------
                                                          Increase (Decrease)
                                                                  Due to
                                             --------------------------------------------------
                                                                           Rate
                                             Volume         Rate          Volume         Net
                                             ------         ----          ------         ---
<S>                                        <C>           <C>            <C>           <C>
Interest income:
   Loans receivable.......................   $  884        $  832         $  121        $ 1,837
   Investment securities and other........       56           (25)            (2)            29
                                             ------        ------         ------        -------
      Total interest-earning assets.......   $  940        $  807         $  119        $ 1,866
                                             ======        ======         ======        =======
Interest expense:
   Savings accounts.......................   $  (23)       $    1         $    -        $   (22)
   Money market accounts..................      274           450            239            963
   Certificates of deposit................      110           157             18            285
   Checking accounts......................        -             -              -              -
   Borrowed funds.........................        -           248              7            255
                                             ------        ------         ------        -------
      Total interest-bearing
        liabilities.......................   $  407        $  856         $  264        $ 1,481
                                             ======        ======         ======        =======

Change in net interest income.............   $  436        $  454         $ (138)       $   385
                                             ======        ======         ======        =======
</TABLE>

Results of Operations

         Net Income.  The Company  recorded  net income of $696,000 for the year
ended  December 31,  2006,  as compared to $611,000  for 2005,  representing  an
$85,000 increase. The increase was primarily attributable a $385,000 increase in
net interest income and a $375,000  increase in non-interest  income,  partially
offset by a $223,000 increase in non-interest  expenses,  a $121,000 increase in
provision  for loan losses,  a $131,000  reduction  in the gain on  discontinued
operations  as there were no  discontinued  operations  during  the year  ending
December 31, 2006 and a $200,000 increase in provision for income taxes.

                                       26

<PAGE>

         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  $385,000 or 9.4% to $4.5
million for the year ended  December 31,  2006,  as compared to $4.1 million for
2005. The average balance of interest-earning  assets increased $15.9 million or
13.7%,  while the average yield thereon  increased 70 basis points.  The average
balance of interest-bearing liabilities increased $12.7 million or 10.7% and the
average  rate  paid  thereon   increased  75  basis  points.   The  increase  in
interest-earning  assets is  attributed  to the  investment  of the increases in
deposits  into new  loans.  The  balance  of higher  costing  money  market  and
certificate of deposit  accounts equaled 68.7% and 55.3% of total deposits as of
December 31, 2006 and 2005, respectively.

         The net  interest  rate  spread,  which is the  difference  between the
average   yield   on   interest-earning   assets   and  the   average   cost  of
interest-bearing  liabilities,  decreased to 3.39% for 2006 from 3.60% for 2005.
The  decrease  in the net  interest  rate  spread  is  primarily  due to  margin
compression.

         Provision for Loan Losses. During the years ended December 31, 2006 and
2005,  the  Company  established  provisions  for loan  losses of  $476,000  and
$355,000,  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,  2006 of  $121,000  or 34.1% is the result of  management's
decision to increase the allowance due to growth in commercial real estate loans
and commercial loans.

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

         Noninterest  Income.  Total  noninterest  income,  primarily  fees  and
service  charges,  increased  $375,000 or 13.4% for the year ended  December 31,
2006,  as compared to 2005.  The $368,000 or 14.6%  increase in fees and service
charges is due, in part, to growth of the Bank's  overdraft  protection plan for
consumer  checking  accounts  resulting  in the  realization  of more  overdrawn
account fees in 2006 compared to 2005.  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 2006 and 2005, is reported in noninterest income.

         Noninterest Expense. Total noninterest expense increased by $223,000 or
3.9% for the year ended  December 31, 2006,  as compared to 2005.  This increase
was  attributable to increases of $165,000 or 5.5% in compensation  and benefits
resulting  primarily  from increased  cost for employee  insurance  programs and
normal cost of living  increases;  $68,000 or 21.4% in advertising and marketing
as the Bank  attempted  to  improve  deposit  and  loan  growth  with  increased
advertising  throughout its market area;  $50,000 or 6.1% in office  operations;
and $11,000 or 9.6% in training expenses.  These increases were partially offset
by  decreases  of  $5,000  or 0.4% in  occupancy  expenses,  $19,000  or 7.5% in
professional fees resulting from reduction in consulting costs; $34,000 or 47.8%
in loan  servicing  expense as the Bank  modified  its  24-hour  telephone  loan
application  service;  and $13,000 or 13.9% in other miscellaneous  non-interest
expenses.

                                       27

<PAGE>

         Income Tax Expense.  The  provision  for income  taxes from  continuing
operations totaled $491,000 for the year ended December 31, 2006, as compared to
$290,000 for 2005.  The $200,000 or 69 % increase is the result of increased net
taxable income from  continuing  operations.  The provision for income taxes was
further  impacted  for the years ended  December 31, 2006 as compared to 2005 as
the Company had no  discontinued  operations in the year ended December 31, 2006
but  recognized  an  income  tax  expense  of  $83,000  as a result  of gains on
discontinued operations during the year ended December 31, 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, 2006 totaled $1.5 million, a decrease of $2.4 million as
compared to 2005.

         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 2006
totaled  $11.4  million,  a decrease of $6.4  million as  compared to 2005.  The
decrease in cash used was primarily  attributable  to a decrease of $5.6 million
to fund loans  receivable,  net; a $1.3  million  decrease  in  interest-bearing
deposits in other financial institutions;  and the net redemption of $860,000 in
FHLB stock;  partially  offset by a reduction of $1.0  million in proceeds  from
maturities,  redemption  and sales of securities  available for sale and held to
maturity,  $363,000 in proceeds from sales of intangible  assets of discontinued
components  during  2005,  and an increase in cash used for purchase of property
and equipment of $5,000.

         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, 2006 totaled $9.7 million, a decrease of $5.5 million as
compared to 2005. The decrease is primarily attributable the paydown of advances
from the FHLB of $7.3 million for the year ending  December 31, 2006 as compared
to an  increase  in such  borrowed  funds of $8.2  million  for the year  ending
December 31, 2005,  increases in cash from deposit growth of $10.0 million,  and
increases from the allocated fair value of ESOP shares distributed of $22,000.

         At December  31, 2006  approximately  $22.7  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 $24.6 million through the Federal Home Loan Bank of Atlanta.

                                       28

<PAGE>

Item 7.  Financial Statements.
-----------------------------

         The Company's financial  statements are contained in this Annual Report
on Form 10-KSB immediately following Item 14.

Item 8.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
--------------------------------------------------------------------------------
         Financial Disclosure.
         --------------------

         None.

Item 8A. Controls and Procedures.
---------------------------------

         (a) Evaluation of disclosure  controls and  procedures.  Based on their
evaluation of the Company's  disclosure  controls and  procedures (as defined in
Rule 13a-15(e) under the Securities  Exchange Act of 1934 (the "Exchange Act")),
the Company's  principal  executive officer and principal financial officer have
concluded that as of the end of the period covered by this Annual Report on Form
10-KSB such disclosure controls and procedures are effective.

         (b) Changes in internal  control over financial  reporting.  During the
last  quarter of the year  under  report,  there was no change in the  Company's
internal control over financial  reporting that has materially  affected,  or is
reasonably  likely to materially  affect,  the Company's  internal  control over
financial reporting.

Item 8B. Other Information.
---------------------------

         None.

                                       29

<PAGE>

                                    PART III

Item 9. Directors,  Executive  Officers,  Promoters  and  Control  Persons  and
--------------------------------------------------------------------------------
        Corporate Governance: Compliance with Section 16(a) of the Exchange Act.
        ------------------------------------------------------------------------

         Set forth  below is  information  about  the  directors  and  executive
officers  and  significant  employees  of  the  Corporation.   The  Articles  of
Incorporation require that the Board of Directors be divided into three classes,
as nearly  equal in number as  possible,  each  class to serve for a  three-year
period,  with  approximately  one-third of the directors  elected each year. The
Board of Directors currently consists of twelve members. Each director is also a
director of the Bank.

<TABLE>
<CAPTION>
                                                                                        Current Term
   Name                      Age       Positions with the Corporation                     To Expire
   ----                      ---       ------------------------------                     ---------

<S>                          <C>    <C>                                                  <C>
   Joseph Pescrille          69        Chairman of the Board and Director                   2007
   A. Virginia Wampler       60        Director                                             2007
   Dale Summers              49        Director                                             2007
   Joseph J. Mezzanotte      42        Director                                             2007
   Allen Maier               58        Director                                             2008
   M. Robin Copeland         52        Director and Secretary                               2008
   Herbert J. Moltzan        61        President and Chief Executive Officer                2008
   Thomas Markel             53        Director                                             2008
   Brian Bowers              43        Director and Treasurer                               2009
   Harry Fox                 58        Director                                             2009
   Peg Ohrt                  58        Director                                             2009
   Gregory A. Devou          55        Director                                             2009
   Matthew J. Ford           37        Senior Vice President of Finance and Senior           N/A
                                       Financial Officer
   Debra J. Vinson           47        Senior Vice President of Financial Services           N/A
   James E. Shinsky          43        Senior Vice President of Lending and Support          N/A
   William H. Howard, Jr.    56        Senior Vice President/Head of Business Banking        N/A
                                       Department

</TABLE>

Biographical Information

         Set forth below is the business  experience  for the past five years of
each of the  nominees,  directors  and  executive  officers  of the  Company and
certain  executive  officers of the Bank.  All  directors of the Bank in October
2000 became directors of the Company at that time.

         Joseph Pescrille has been a director since 1996 and currently serves as
Chairman of the Board. Mr. Pescrille  retired during 1999. He was  self-employed
as an  actuary/financial  consultant  from 1996 to 1999.  From 1994 to 1996, Mr.
Pescrille  served as the Chief  Financial  Officer of United  Health Care of Mid
Atlantic.  Prior to that,  he was a Senior Vice  President and the Chief Actuary
for Blue Cross and Blue Shield of  Maryland,  Inc. He is active in  volunteering
for the  Baltimore  County  Department  of Aging and is a member of the Board of
Advisors for Play Centers Inc., a non-profit child care organization.

                                       30

<PAGE>

         Virginia Wampler has been a director since 1983. Ms. Wampler retired in
January 2002. She served as a Systems Manager for CareFirst BlueCross BlueShield
from 1966 until 2002 and was responsible for business design and support of core
software   systems  for  health   insurance   products   and  claim   processing
administration.

         Dale  Summers  has  served as a director  since  1991.  Currently,  Mr.
Summers is  employed  as a Senior  Associate  by Booz Allen  Hamilton,  a global
strategy and  technology  consulting  firm.  He was  previously  employed by the
Centers  for  Medicare  and  Medicaid  Services  as a  Technical  Advisor in the
Medicare Drug Benefit Group. Mr. Summers' experience also includes marketing and
product  leadership  positions with Caremark (formerly  AdvancePCS),  HealthCare
Automation, Inc., and BlueCross BlueShield of Maryland.

         Joseph J. Mezzanotte has been a director since 2003. He is a partner in
the law firm of  Whiteford,  Taylor & Preston  L.L.P.  Mr.  Mezzanotte  has been
engaged in the private  practice of law since 1989.  He has served in leadership
roles  in  professional  associations  related  to  the  practice  of  law.  Mr.
Mezzanotte  also serves as an Officer and Director of the Howard County  Chamber
of Commerce.

         Allen  Maier  has been a  director  since  1983.  Mr.  Maier is a Sales
Representative with CareFirst BlueCross BlueShield, a position he has held since
1972. Mr. Maier is a cousin of the wife of Director Fox.

         Robin  Copeland  has  been a  director  since  1992 and has  served  as
Secretary  since 1994.  Ms.  Copeland has been the Assistant  Treasurer and Vice
President of Treasury for Magellan Health Services, a managed care organization,
since 1995. Her duties include management of the corporate  function,  including
banking, cash management, and investments.

         Herbert J.  Moltzan  has been a director  since  January  1999.  He has
served as President and Chief  Executive  Officer since 1985.  Mr.  Moltzan also
serves as the senior loan officer of the Bank.  Mr. Moltzan is active in the Red
Cross.  He is also a member of the  Boards of  Directors  of The 1st Tee  Howard
County,  the Better Business Bureau Educational  Foundation,  Camp Attaway Youth
Camp, and the Maryland Bankers Association. Mr. Moltzan also serves as Treasurer
of the Rotary Club of Columbia, Maryland.

         Thomas Markel has been a director since 1994. Mr. Markel is a certified
public  accountant and since 1995 has served as the Controller and the Assistant
Vice President in Finance for Med Star Physician Partners,  a physician practice
management firm.

         Brian  Bowers has  served as a director  since  1995.  Mr.  Bowers is a
Managing Director with Friedman,  Billings, Ramsey Group, Inc. (FBR). Mr. Bowers
is  responsible  for the  proprietary  investments  of FBR and manages  over $11
billion in securities.  Prior to joining FBR, Mr. Bowers was the Chief Portfolio
Strategist  for BB&T  Capital  Markets and prior to that,  he was the  Portfolio
Manager for CareFirst BlueCross BlueShield.

         Harry Fox has been a director since 1987. Mr. Fox is an Account Manager
in the major accounts division for CareFirst  BlueCross  BlueShield where he has
been  employed  since 1972.  He also  serves on the  Advisory  Committee  of The
Learning Ladder Infant through  Pre-School Center. Mr. Fox's wife is a cousin of
Director Maier.

         Peg Ohrt has been a director  since  1999.  Since  1998,  Ms.  Ohrt has
served as a Vice President of Human  Resources for Corporate  Office  Properties
Trust, a business engaged in real estate investment  trusts.

                                       31

<PAGE>

From 1996 to 1997, Ms. Ohrt was employed by Aether Technologies Inc., a software
development  company,  and served as its Vice  President of Human  Resources and
Customer Service.

         Gregory A. Devou has been a director since February 2005. Mr. Devou has
been Executive Vice President and Chief Marketing Officer at CareFirst BlueCross
BlueShield since 1995. Prior to CareFirst BlueCross BlueShield,  Mr. Devou was a
Senior Vice President and Managing  Director at the Alexander  Consulting  Group
for 17 years. Mr. Devou also serves on various non-profit boards.

         Matthew J. Ford  joined  the  Company  and the Bank in August  2002 and
serves as the Senior Vice President of Finance and Chief Financial Officer.  Mr.
Ford's  responsibilities  within the  organization  include the oversight of the
Finance,  Human  Resource,  and Marketing  departments.  Additionally,  he is an
active member of the Financial  Managers  Society,  is recognized by NACHA as an
Accredited  ACH  Professional  (AAP),  and recently  served as Treasurer for the
Owings Mills-Reisterstown Rotary Club.

         Debra J.  Vinson  serves as the  Senior  Vice  President  of  Financial
Services for the Bank and has been  employed by the Bank since 1987.  Ms. Vinson
functions  as  the  chief  operations   officer  and  compliance   officer  with
responsibility  for  retail  bank  operations.   Her  responsibilities   include
oversight  of  lending  personnel,   customer  service,  and  branch  operations
functions.  Ms.  Vinson serves as a member of the board of directors of Maryland
Bank Services, Inc.

         James E. Shinsky has been employed by the Bank since  February 1994 and
serves  as  Senior  Vice  President  of  Lending  and  Support.   Mr.  Shinsky's
responsibilities   within  the  Bank  include  supervision  of  the  Information
Technology and Consumer  Lending  departments.  Mr. Shinsky  currently serves as
Treasurer of Boy Scout Troop 9.

         William H. Howard,  Jr. has been with the Bank since September 2000. He
serves as Senior Vice President and head of the Business Banking Department. Mr.
Howard is a member of the Maryland Bankers'  Association and America's Community
Bankers' Legislative Committees.  He is also active in the Howard County Chamber
of  Commerce  and  Leadership  Howard  County.  He is  active on  various  other
community-oriented committees,  including those of Hospice Howard County and the
Association of Retarded  Citizens of Howard  County.  He is also a member of the
Resurrection St. Paul School Board.


Audit Committee

         The Audit  Committee  consists of Directors  Markel,  Wampler,  Fox and
Devou. All members of the Audit Committee are independent under the rules of the
Nasdaq Global Market.  The Board of Directors has determined  that Mr. Markel is
an Audit Committee Financial Expert within the meaning of the regulations of the
Securities and Exchange Commission. The Audit Committee meets with the Company's
independent  auditor to review the results of the annual audit and other related
matters.  The Board of  Directors  has  reviewed,  assessed  the adequacy of and
approved a formal written charter for the Audit  Committee.  The Audit Committee
met 4 times during the year ended December 31, 2006.

                                       32

<PAGE>

Corporate Governance

         There have been no material changes to the procedures by which security
holders may  recommend  nominees to the Company's  Board of Directors  since the
date of the Registrant's last proxy statement mailed to its stockholders.

Section 16(a) Beneficial Ownership Reporting Compliance

         Section 16(a) of the  Securities  and Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than ten
percent  of the  Common  Stock,  to file  reports of  ownership  and  changes in
ownership of the Common Stock with the Securities and Exchange Commission and to
provide copies of those reports to the Company.  The Company is not aware of any
beneficial  owner,  as defined under Section 16(a),  of more than ten percent of
its Common  Stock.  To the best of the  Company's  knowledge,  all Section 16(a)
filing requirements  applicable to its officers and directors were complied with
during the 2006 fiscal year.

         The Company has adopted a Code of Ethics that applies to its  principal
executive officer,  principal financial officer, principal accounting officer or
controller or persons performing similar functions. The Company's Code of Ethics
will be provided  without charge upon request to the Corporate  Secretary,  BUCS
Financial Corp, 10802 Red Run Boulevard, Owings Mills, Maryland 21117.

                                       33

<PAGE>

Item 10. Executive Compensation.
--------------------------------

         Summary  Compensation Table The following table sets forth the cash and
non-cash  compensation  for each of the three  years  ended  December  31,  2006
awarded to the chief executive  officer and other named  executive  officers who
served in such capacity during such period and received total cash  compensation
in excess of $100,000 during the year ended December 31, 2006.

<TABLE>
<CAPTION>
                                                                                            Change in Pension
                                                                                                Value and
                                                                                              Nonqualified
                                                                               Non-Equity       Deferred
                                                            Stock    Option  Incentive Plan   Compensation   All Other
Name and Principal Position   Year   Salary     Bonus      Awards    Awards   Compensation      Earnings    Compensation    Total
---------------------------   ----   ------     -----      ------    ------   ------------      --------    ------------    -----

<S>                          <C>   <C>        <C>       <C>       <C>         <C>              <C>            <C>         <C>
Herbert J. Moltzan            2006  $159,239   $33,588   $     -   $       -   $      -         $ 47,203       $ 8,163     $248,193
  President and Chief
  Executive Officer

Matthew J. Ford               2006  $ 98,241   $14,119   $     -   $      -    $     -          $     -        $ 5,198     $117,558
  Senior Vice President and
  Chief Financial Officer

Debra J. Vinson               2006  $ 97,477   $14,848   $     -   $      -    $     -          $     -        $ 5,112     $117,437
  Senior Vice President of
  Financial Services

James E. Shinsky              2006  $ 97,218   $14,090   $     -   $      -    $     -          $     -        $ 5,125     $116,433
  Senior Vice President of
  Systems & Support

William H. Howard, Jr.        2006  $ 82,949   $ 9,472   $     -   $      -    $     -          $     -        $ 5,017     $ 97,438
  Senior Vice President of
  Business Banking

</TABLE>

                                       34

<PAGE>

Outstanding Equity Awards At December 31, 2006

         The following table sets forth  information  concerning the exercise of
options by the Chief Executive  Officer and the other Named  Executive  Officers
during the last fiscal  year,  as well as the value of such options held by such
persons at the end of the fiscal year.

<TABLE>
<CAPTION>
                                               Option Awards
                       -------------------------------------------------------------
                                                      Equity
                                                     Incentive
                         Number of     Number of   Plan Awards:
                        Securities    Securities     Number of
                        Underlying    Underlying    Securities
                        Unexercised   Unexercised   Underlying
                          Options       Options     Unexercised Option     Option
                                                     Unearned   Exercise  Expiration
Name                    Exercisable  Unexercisable   Options     Price      Date
----                    -----------  -------------   -------     -----      ----
<S>                       <C>        <C>           <C>         <C>      <C>
Herbert J. Moltzan         7,260           -             -       $8.73    4/28/2012
Herbert J. Moltzan        16,940                                  9.34    8/24/2013
Matthew J. Ford            7,260           -             -        9.34    8/24/2013
Debra J. Vinson            2,420                                  8.73    4/28/2012
Debra J. Vinson            4,820           -             -        9.34    8/24/2013
James E. Shinsky           2,420                                  8.73    4/28/2012
James E. Shinsky           4,820           -             -        9.34    8/24/2013
William H. Howard, Jr.     1,210                                  8.73    4/28/2012
William H. Howard, Jr.     4,820           -             -        9.34    8/24/2013
</TABLE>

<TABLE>
<CAPTION>
                                                 Stock Awards
                      ---------------------------------------------------------------

                                                        Equity     Equity Incentive
                                                    Incentive Plan   Plan Awards:
                         Number of   Market Value   Awards: Number Market or Payout
                         Shares or   of Shares or    of Unearned       Value of
                          Units of      Units of     Shares, Units Unearned Shares,
                        Stock That    Stock That   or Other Rights   Units or Other
                           Have          Have       That Have Not  Rights That Have
Name                    Not Vested    Not Vested        Vested        Not Vested
----                    ----------    ----------        ------        ----------
<S>                     <C>          <C>           <C>           <C>
Herbert J. Moltzan          -             -              -                 -
Herbert J. Moltzan          -             -              -                 -
Matthew J. Ford             -             -              -                 -
Debra J. Vinson             -             -              -                 -
Debra J. Vinson             -             -              -                 -
James E. Shinsky            -             -              -                 -
James E. Shinsky            -             -              -                 -
William H. Howard, Jr.      -             -              -                 -
William H. Howard, Jr.      -             -              -                 -

</TABLE>

                                       35

<PAGE>

Compensation Committee

         The Company has no full time  employees  and relies on the employees of
the Bank for the limited services required by the Company. All compensation paid
to  executive  officers  of the  Company is paid by the Bank.  The  Compensation
Committee of the Bank's Board of Directors consists of Directors  Summers,  Ohrt
and  Mezzanotte.  The  Compensation  Committee met 4 times during the year ended
December 31, 2006.

Compensation of Directors

         Board Fees. The Company does not presently compensate its directors for
membership  on the Board of  Directors.  Each  director of the Company is also a
director  of the Bank.  Each  director  of the Bank  receives  an annual  fee of
$6,720.  Directors do not receive compensation for attending committee meetings.
The total fees paid to the directors  for the year ended  December 31, 2006 were
approximately $73,920.

         Set  forth  below  is a  table  providing  information  concerning  the
compensation  of the  directors  of the  Company  who  are not  Named  Executive
Officers for the last completed fiscal year (2006).

<TABLE>
<CAPTION>
                                                                                            Change in
                                                                                        Pension Value and
                                                                                           Nonqualified
                              Fees Earned                                Non-Equity         Deferred
                                or Paid       Stock        Option      Incentive Plan      Compensation       All Other
            Name                in Cash       Awards       Awards       Compensation         Earnings       Compensation     Total
            ----                -------       ------       ------       ------------         --------       ------------     -----
<S>                        <C>              <C>         <C>             <C>             <C>             <C>             <C>
Joseph Pescrille                $6,720         $ -          $ -             $ -                $ -               $ -         $6,720
A. Virginia Wampler             $6,720         $ -          $ -             $ -                $ -               $ -         $6,720
Dale Summers                    $6,720         $ -          $ -             $ -                $ -               $ -         $6,720
Joseph J. Mezzanotte            $6,720         $ -          $ -             $ -                $ -               $ -         $6,720
Allen Maier                     $6,720         $ -          $ -             $ -                $ -               $ -         $6,720
M. Robin Copeland               $6,720         $ -          $ -             $ -                $ -               $ -         $6,720
Thomas Markel                   $6,720         $ -          $ -             $ -                $ -               $ -         $6,720
Brian Bowers                    $6,720         $ -          $ -             $ -                $ -               $ -         $6,720
Harry Fox                       $6,720         $ -          $ -             $ -                $ -               $ -         $6,720
Peg Ohrt                        $6,720         $ -          $ -             $ -                $ -               $ -         $6,720
Gregory A. Devou                $6,720         $ -          $ -             $ -                $ -               $ -         $6,720
</TABLE>

                                       36

<PAGE>

         Employment  Agreements.   The  Bank  has  entered  into  an  employment
agreement with its President and Chief  Executive  Officer,  Herbert J. Moltzan.
Mr.  Moltzan's  current base salary under the employment  agreement is $153,544.
The employment  agreement has a term of three years. The agreement is terminable
by the Bank for "just  cause" as defined  in the  agreement.  If Mr.  Moltzan is
terminated  without  just cause,  he will be entitled to a  continuation  of his
salary from the date of termination through the remaining term of the agreement,
but in no event for a period of less than one  year.  The  employment  agreement
contains a provision  stating that in the event of the termination of employment
in connection with any change in control of the Bank or the Company, Mr. Moltzan
will be paid a lump sum amount equal to 2.999 times his five-year average annual
taxable cash  compensation.  If such payment were to be made under the agreement
as of December 31, 2006,  the payment would equal  approximately  $440,000.  The
aggregate  payment that would have been made to Mr.  Moltzan would be an expense
to the Bank and would have  resulted in  reductions to the Bank's net income and
capital.  The agreement may be renewed annually by the Bank's Board of Directors
upon a  determination  of  satisfactory  performance  within  the  board's  sole
discretion.  If Mr.  Moltzan  shall  become  disabled  during  the  term  of the
agreement, he shall continue to receive payment of 100% of his base salary for a
period of 12 months  and 65% of his base  salary for the  remaining  term of the
agreement.  The payments  shall be reduced by any other  benefit  payments  made
under other disability programs in effect for the Bank's employees.

         Change in Control Severance Agreements. The Bank entered into change in
control  severance  agreements  on May 10, 2006 with  Matthew J. Ford,  Debra J.
Vinson,  James E. Shinsky and William H.  Howard,  Jr., who are each Senior Vice
Presidents  of the  Bank.  The  agreements  provide  that if,  within  12 months
following   completion  of  the  merger,   the  employment  of  the  officer  is
involuntarily  terminated  for other than "just cause" or is  terminated  by the
officer following the occurrence of certain events adverse to the officer,  then
the officer shall be entitled to (1) a lump sum cash severance  payment equal to
two times his aggregate taxable  compensation for the calendar year ending prior
to the year in which the merger is completed  (including 401(k) deferrals),  and
(2)  continued  medical and dental  insurance  coverage  for the officer and his
dependents for a period of 18 months, provided that the severance payment to the
officer  shall be reduced by the  minimum  amount  necessary  to ensure that the
officer does receive parachute  payments under Section 280G of the Code. In that
event,  the lump sum cash  severance  payments are  estimated as of December 31,
2006  to be  approximately  $240,000  for Mr.  Ford,  $240,000  for Ms.  Vinson,
$240,000 for Mr. Shinsky and $220,000 for Mr. Howard.

         Executive  Supplemental  Retirement  Plan.  The Bank has entered into a
supplemental  retirement  plan  with  Mr.  Moltzan.  The  SERP  provides  for  a
contribution to Mr. Moltzan's  retirement fund of up to $50,000 annually through
2010.  The plan earns a return  equal to prime plus 200 basis  points.  The plan
provides for retirement benefits for Mr. Moltzan upon reaching retirement age of
65  of  the  balance  in  his  pre-retirement   account  in  156  equal  monthly
installments and an index retirement benefit thereafter for life. If Mr. Moltzan
terminates  service  with the Bank prior to age 65, he will  receive  10% of the
balance in his pre-retirement account times the number of years service with the
Bank (to a maximum of 100%) payable in 156 equal monthly installments  following
age 65. In addition,  Mr. Moltzan will receive the index retirement  benefit for
life. Upon the death of Mr. Moltzan, the beneficiary shall receive the remaining
balance  paid in a lump sum.  In the event of a change in control of the Company
or the Bank,  Mr.  Moltzan is  entitled  to receive  100% of the  balance in the
pre-retirement  account upon  attaining  age 65, as if he had been  continuously
employed by the Bank.

                                       37

<PAGE>

Item 11.  Security  Ownership of Certain  Beneficial  Owners and  Management and
--------------------------------------------------------------------------------
          Related Stockholder Matters.
          ---------------------------

         (a)      Security Ownership of Certain Beneficial Owners

The following table sets forth,  as of December 31, 2006,  persons or groups who
own more than 5% of the Common Stock and the ownership of all executive officers
and directors of the Company as a group.  Other than as noted below,  management
knows of no person or group that owns more than 5% of the outstanding  shares of
Common Stock at December 31, 2006.

<TABLE>
<CAPTION>
                                                                                    Percent of Shares of
                                                      Amount and Nature of             Common Stock
Name and Address of Beneficial Owner                  Beneficial Ownership             Outstanding
------------------------------------                  --------------------             -----------
<S>                                                       <C>                          <C>
BUCS Federal Bank Employee Stock Ownership Plan              75,375(1)                     8.54%
10802 Red Run Boulevard
Owings Mills, Maryland 21117

Jeffrey L. Gendell
200 Park Avenue, Suite 3900                                  78,650(2)                     8.92%
New York, New York 10166

Herbert J. Moltzan
10802 Red Run Boulevard                                      60,567(3)                     6.87%
Owings Mills, Maryland 21117

All directors and executive officers of the
     Company as a group (16 persons)                        234,384(4)                    24.58%
</TABLE>
____________________
(1)  These  shares  are  held in a  suspense  account  and are  allocated  among
     participants  annually  on the  basis of  compensation  as the ESOP debt is
     repaid.  As of December 31, 2006,  42,824 shares had been allocated to ESOP
     participants  and  32,941  shares  remained  unallocated.   The  ESOP  Plan
     Committee  directs  the vote of  unallocated  shares  and  shares for which
     voting directions are not received.
(2)  Based upon a Schedule 13D filed with the SEC on March 28, 2001.
(3)  Includes 24,200 shares of Common Stock that may be acquired pursuant to the
     exercise of options.
(4)  Includes  shares of Common  Stock  held  directly  as well as by spouses or
     minor  children,  in trust and other indirect  beneficial  ownership,  over
     which shares the  individuals  exercise  voting  and/or  investment  power.
     Includes 71,386 shares of Common Stock that may be acquired pursuant to the
     exercise of options.  Excludes  shares held by the ESOP over which the ESOP
     Plan Committee  exercises  voting power.  The Board of Directors  appointed
     Director Moltzan and Officers Vinson and Ford to serve as the ESOP Trustees
     and as the ESOP Plan Committee. The ESOP Plan Committee directs the vote of
     unallocated shares and shares for which voting directions are not received.

                                       38

<PAGE>

         (b)      Security Ownership of Management

The following  table  provides  information  as of December 31, 2006  concerning
ownership of the Corporation's Common Stock (which constitutes its only class of
equity  securities) each of its directors,  the Named Executive Officers and all
executive  officers and directors as a group. Each person listed has sole voting
and  investment  power with  respect to the shares  listed  across from his name
except as noted otherwise.

                                           Beneficial Ownership(1)
                                   ------------------------------------
                                                        Percentage of
                                                           Shares
         Name                      Number of Shares     Outstanding (2)
         ----                      ----------------     ---------------

         Joseph Pescrille              27,696 (3)           2.83%
         A. Virginia Wampler           16,504 (3)           1.69%
         Dale Summers                   8,881 (3)           0.91%
         Joseph J. Mezzanotte           3,040 (6)           0.31%
         Allen Maier                    6,824 (3)           0.70%
         M. Robin Copeland              2,589 (3)           0.26%
         Herbert J. Moltzan            60,567 (4)(5)        6.19%
         Thomas Markel                 31,439 (3)           3.22%
         Brian Bowers                   1,984 (3)           0.20%
         Harry Fox                      8,034 (3)           0.82%
         Peg Ohrt                       4,404 (3)           0.45%
         Gregory A. Devou               4,620               0.47%
         Matthew J. Ford               10,230 (5)(7)        1.06%
         Debra J. Vinson               24,775 (5)(7)        2.53%
         James E. Shinsky              14,992 (7)           1.53%
         William H. Howard, Jr.        10,486 (8)           1.07%

         All directors and executive  237,065              24.25%
         officers as a group (16 persons)
______________
(1)  Beneficial  ownership as of December 31,  2006.  Includes  shares of Common
     Stock held directly as well as by spouses or minor children,  in trust, and
     other indirect  ownership,  over which shares the  individuals  effectively
     exercise  sole or shared  voting and  investment  power,  unless  otherwise
     indicated.
(2)  In  calculating  percentage  ownership  for a given  individual or group of
     individuals,  the number of shares of the Common Stock outstanding includes
     unissued shares subject to options  exercisable  within 60 days of December
     31, 2006 held by that individual or group.
(3)  Includes 1,984 shares that may be acquired pursuant to exercisable options.
(4)  Includes  24,200  shares  that  may be  acquired  pursuant  to  exercisable
     options.
(5)  Excludes  shares of Common  Stock  held  under  the ESOP  over  which  such
     individual,  an ESOP  Trustee,  exercises  voting  power.  Such  individual
     disclaims beneficial ownership with respect to ESOP shares.
(6)  Includes 1,500 shares that may be acquired pursuant to exercisable options.
(7)  Includes 7,260 shares that may be acquired pursuant to exercisable options.
(8)  Includes 6,050 shares that may be acquired pursuant to exercisable options.

                                       39

<PAGE>

     (c)  Changes of Control

          Other  than the  pending  merger  with  Community,  management  of the
          Company knows of no  arrangements,  including any pledge by any person
          of  securities  of  the  Company,  the  operation  of  which  may at a
          subsequent date result in a change in control of the Registrant.

     (d)  Securities Authorized for Issuance Under Equity Compensation Plans

          Set forth below is information as of December 31, 2006 with respect to
          compensation plans under which equity securities of the Registrant are
          authorized for issuance.

<TABLE>
<CAPTION>
                                       EQUITY COMPENSATION PLAN INFORMATION
                                                (a)                     (b)                       (c)
                                                                                          Number of securities
                                                                  Weighted-average       remaining available for
                                      Number of securities to    exercise price of    future issuance under equity
                                      be issued upon exercise       outstanding            compensation plans
                                      of outstanding options,    options, warrants        (excluding securities
                                        warrants and rights          and rights         reflected in column (a))
                                        -------------------          ----------         ------------------------
<S>                                          <C>                    <C>                         <C>
Equity compensation plans
  approved by shareholders:
BUCS Financial Corp 2002
    Stock Option Plan............              95,586                 $   9.18                    2,442
BUCS Federal Bank 2002
    Restricted Stock Plan........               N/a                     N/a                        N/a

Equity compensation plans
  Not approved by
  Shareholders:
Not applicable...................
     TOTAL.......................              95,586                 $   9.18                    2,442
</TABLE>


Item  12.  Certain   Relationships  and  Related   Transactions,   and  Director
--------------------------------------------------------------------------------
           Independence
           ------------

         The Bank,  like many financial  institutions,  has followed a policy of
offering residential mortgage loans for the financing of personal residences and
consumer loans to its officers,  directors and employees.  Loans are made in the
ordinary  course of business  on  substantially  the same terms and  conditions,
including  interest rate and  collateral,  as those of  comparable  transactions
prevailing  at the time with other  persons,  and do not  include  more than the
normal risk of collectibility or present other unfavorable features.

Director Independence

        The Board of Directors has determined that all of its members other than
Herbert Moltzan are "independent  directors" in accordance with the standards of
the Nasdaq Global Market.  There are no directors that are members of the Audit,
Compensation  or Nominating  Committees  that are not  independent in accordance
with the standards established by the Nasdaq Global Market.

                                       40

<PAGE>

Item 13. Exhibits and Lists
---------------------------

     (a)  Listed below are all financial  statements  and exhibits filed as part
          of this report.

     1.   The consolidated  balance sheets of BUCS Financial Corp as of December
          31,  2006  and  2005  and  the  related  consolidated   statements  of
          operations,  changes  in  stockholders'  equity and cash flows for the
          years then ended,  together with the related notes and the independent
          auditors' report.

     2.   Schedules omitted as they are not applicable.

     3.   The  following  exhibits are  included in this Report or  incorporated
          herein by reference:

          (a)  List of Exhibits:
<TABLE>
<CAPTION>
        <S>       <C>
               2.1  Agreement,  dated as of  September  5, 2006,  by and between
                    Community Banks, Inc. and BUCS Financial Corp *****
               3(i) Articles of Incorporation of BUCS Financial Corp *
               3(ii) Bylaws of BUCS Financial Corp *
               10.1 Employment Agreement with Herbert J. Moltzan, amended and restated******
               10.2 BUCS Financial Corp 2002 Stock Option Plan**
               10.3 BUCS Federal Bank 2002 Restricted Stock Plan**
               10.4 Executive Supplemental Retirement Plan Agreement and
                    Endorsement Method Split Dollar Plan Agreement for Herbert J. Moltzan***
               10.5 Change in Control Severance Agreement with Matthew J. Ford****
               10.6 Change in Control Severance Agreement with Debra J. Vinson****
               10.7 Change in Control Severance Agreement with James E. Shinsky******
               10.8 Change in Control Severance Agreement with William H. Howard, Jr.******
               21   Subsidiaries of the Registrant (See "Item 1. Description of Business")
               23   Consent of Stegman & Company
               31   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
                    32   Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

         _______________
         *        Incorporated  by  reference  to  the  Company's   Registration
                  Statement on Form SB-2 (File No. 333-47524) filed with the SEC
                  on October 6, 2000.
         **       Incorporated by reference to the Company's proxy statement dated March 27, 2002 (File No. 000-32437).
         ***      Incorporated by reference to the Company's Annual Report on Form 10-KSB for the fiscal year ended
                  December 31, 2003 (File No. 000-32437).
         ****     Incorporated by reference to the Company's Annual Report on Form 10-KSB for the fiscal year ended
                  December 31, 2004 (File No.000-32437)
         *****    Incorporated by reference to the Registrant's Form 8-K filed with the SEC on September 7, 2006.
         ******   Incorporated by reference to the Company's Annual Report on Form 10-KSB for the fiscal year
                  ended December 31, 2005 (File No. 000-32437).

</TABLE>

                                       41

<PAGE>

Item 14. Principal Accountant Fees and Services.
-----------------------------------------------

         Effective  July 30, 2002,  the  Securities and Exchange Act of 1934 was
amended by the  Sarbanes-Oxley  Act of 2002 to require all auditing services and
non-audit services provided by an issuer's independent auditor to be approved by
the issuer's  audit  committee  prior to such services  being  rendered or to be
approved  pursuant to  pre-approval  policies and procedures  established by the
issuer's audit  committee.  The Audit Committee has not adopted any pre-approval
policies and procedures for audit and non-audit  services to be performed by the
independent  accountants.  Such  services  are  approved in advance by the Audit
Committee itself. No services were approved pursuant to the de minimus exception
of the Sarbanes-Oxley Act of 2002.

         Audit  Fees.  The  aggregate  fees  billed by  Stegman  &  Company  for
professional   services   rendered  for  the  audit  of  the  Company's   annual
consolidated  financial  statements  and  for  the  review  of the  consolidated
financial  statements included in the Company's Quarterly Reports on Form 10-QSB
for the fiscal years ended  December 31, 2006 and 2005 were $53,000 and $51,250,
respectively.

         Audit Related Fees.  The aggregate fees billed by Stegman & Company for
assurance  and  related  services  related to the audit of the annual  financial
statements  and to the review of the S-4 statement for the years ended  December
31, 2006 and 2005 were $3,250 and $3,025, respectively.

         Tax  Fees.  There  were  no  fees  billed  by  Stegman  &  Company  for
professional  services  rendered for tax compliance,  tax advice or tax planning
for the years ended December 31, 2006 and 2005.

         All Other  Fees.  The  aggregate  fees  billed by Stegman & Company for
professional  services rendered for services or products other than those listed
under the captions  "Audit Fees" and  "Audit-Related  Fees," for the years ended
December 31, 2006 and 2005 totaled $500 and $0, respectively.

         It is the Audit  Committee's  policy to approve all audit and non-audit
services  prior to the  engagement of the  independent  auditor being engaged to
perform such  service.  All of the services  listed above for 2005 and 2006 were
approved by the audit committee prior to the service being rendered.

                                       42

<PAGE>

                              BUCS FINANCIAL CORP.

                                    INDEX TO
                        CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

                                                                           Page
                                                                           ----
Report of Independent Registered Public Accounting Firm..................   F-1
Consolidated Balance Sheets..............................................   F-2
Consolidated Statements of Operations....................................   F-3
Consolidated Statements of Changes in Stockholders' Equity...............   F-5
Consolidated Statements of Cash Flows....................................   F-6
Notes to Consolidated Financial Statements...............................   F-8

                                       43
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




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  (the  "Company")  as of December 31, 2006 and
2005,  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, 2006 and 2005 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 28, 2007

                                      F-1

<PAGE>
                      BUCS FINANCIAL CORP AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2006 AND 2005

<TABLE>
<CAPTION>
                                     ASSETS
                                                                                         2006             2005
                                                                                   -------------    -------------

<S>                                                                               <C>              <C>
Cash and cash equivalents                                                          $   2,074,091    $   2,246,408
Interest-bearing deposits in other banks                                               5,832,667        6,773,975
Investment securities:
   Available-for-sale - at fair value                                                  3,100,987        4,221,024
   Held-to-maturity - at amortized cost - fair value
     of $6,211,271 (2006) and $7,308,493 (2005)                                        6,470,586        7,623,787
Loans receivable, net of allowance for loan losses
   of $859,389 (2006) and $732,315 (2005)                                            122,934,757      108,579,247
Property and equipment, net                                                            3,583,431        3,837,801
Investment in Federal Home Loan Bank of Atlanta stock - at cost                        1,192,200        1,583,500
Accrued interest receivable                                                              669,913          505,900
Bank-owned life insurance                                                              2,294,770        2,213,018
Prepaid merger costs                                                                     269,620                -
Deferred tax assets                                                                      135,413           20,325
Prepaid expenses and other assets                                                      1,001,645        1,044,099
                                                                                   -------------    -------------
         TOTAL ASSETS                                                              $ 149,560,080    $ 138,649,084
                                                                                   =============    =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
   Deposits                                                                        $ 112,445,965    $  95,554,243
   Accounts payable and other liabilities                                              1,576,791        1,087,785
   Borrowed funds - Federal Home Loan Bank of Atlanta                                 20,400,000       27,700,000
   Guaranteed preferred beneficial interest in
     Company's subordinated debt                                                       3,000,000        3,000,000
                                                                                   -------------    -------------

         Total liabilities                                                           137,422,756      127,342,028
                                                                                   -------------    -------------
STOCKHOLDERS' EQUITY:
   Common stock, par value $0.10 per share, 5,000,000 shares authorized, 882,108
     and 801,968 shares issued and outstanding
     at December 31, 2006 and 2005, respectively                                          88,211           80,197
   Stock dividend distributable                                                                -            8,724
   Additional paid-in capital                                                          5,317,787        5,229,806
   Retained earnings                                                                   6,873,230        6,177,720
   Unallocated common stock held by employee stock
     ownership plan ("ESOP")                                                            (136,122)        (168,532)
   Accumulated other comprehensive loss                                                   (5,782)         (20,859)
                                                                                   -------------    -------------

         Total stockholders' equity                                                   12,137,324       11,307,056
                                                                                   -------------    -------------

         TOTAL LIABILITIES AND STOCKHOLDERS'
            EQUITY                                                                 $ 149,560,080    $ 138,649,084
                                                                                   =============    =============
</TABLE>

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

                                      F-2

<PAGE>

                      BUCS FINANCIAL CORP AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

<TABLE>
<CAPTION>
                                                                   2006          2005
                                                               -----------   -----------
<S>                                                           <C>           <C>
INTEREST INCOME:
   Loans receivable                                            $ 7,891,907   $ 6,054,987
   Investment securities                                           781,714       752,798
                                                               -----------   -----------
         Total interest income                                   8,673,621     6,807,785
                                                               -----------   -----------

INTEREST EXPENSE:
   Deposits                                                      2,850,928     1,625,213
   Borrowed funds                                                1,335,968     1,080,596
                                                               -----------   -----------
         Total interest expense                                  4,186,896     2,705,809
                                                               -----------   -----------

NET INTEREST INCOME                                              4,486,725     4,101,976

PROVISION FOR LOAN LOSSES                                          475,604       354,859
                                                               -----------   -----------

NET INTEREST INCOME AFTER PROVISION
   FOR LOAN LOSSES                                               4,011,121     3,747,117
                                                               -----------   -----------

NONINTEREST INCOME:
   Fees and service charges                                      2,893,580     2,525,961
   Gain on sale of loans                                            65,917         6,826
   Fee to process and maintain cash facility                       120,000       120,000
   Other                                                            91,510       143,035
                                                               -----------   -----------
         Total noninterest income                                3,171,007     2,795,822
                                                               -----------   -----------

NONINTEREST EXPENSE:
   Compensation and benefits                                     3,165,322     3,000,571
   Occupancy expense of premises                                 1,092,087     1,096,875
   Office expense                                                  871,673       821,753
   Professional fees                                               233,685       252,644
   Advertising and marketing expense                               385,955       317,966
   Training and continuing education expense                       128,834       117,538
   Loan servicing                                                   37,203        71,270
   Other operating expenses                                         81,326        94,491
                                                               -----------   -----------
         Total noninterest expense                               5,996,085     5,773,108
                                                               -----------   -----------

INCOME BEFORE INCOME TAXES                                       1,186,043       769,831

INCOME TAX EXPENSE                                                 490,533       290,486
                                                               -----------   -----------
INCOME FROM CONTINUING OPERATIONS                                  695,510       479,345
                                                               -----------   -----------

DISCONTINUED OPERATIONS:
   Gain from operations of discontinued componen                         -       214,339
   Income tax expense                                                    -       (82,964)
                                                               -----------   -----------
   Net gain on discontinued operation                                    -       131,375
                                                               -----------   -----------
NET INCOME                                                     $   695,510   $   610,720
                                                               ===========   ===========

EARNINGS PER SHARE - BASIC
         From continuing operations                            $       .83   $       .58
         From discontinued operations                                  .00           .16
                                                               -----------   -----------
         Net Income                                            $       .83   $       .74
                                                               ===========   ===========
         Shares used in computing basic earnings per share         841,324       833,480
                                                               ===========   ===========

EARNINGS PER SHARE - DILUTED
         From continuing operations                            $       .77   $       .56
         From discontinued operations                                  .00           .15
                                                               -----------   -----------
         Net Income                                            $       .77   $       .72
                                                               ===========   ===========
         Shares used in computing diluted earnings per share       899,646       865,214
                                                               ===========   ===========
</TABLE>

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

                                      F-3

<PAGE>

                      BUCS FINANCIAL CORP AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

<TABLE>
<CAPTION>
                                                                                                        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, 2005              $ 40,099   $       -    $4,170,343   $ 6,609,556    $(200,942)   $   8,725      $10,627,781

Comprehensive Income:

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

   Other comprehensive (loss),
     net of tax - unrealized gains 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

Comprehensive Income:

   Net income                                  -           -             -       695,510            -            -          695,510

   Other comprehensive gain, net
     of tax - unrealized losses on
     available-for-sale securities             -           -             -             -            -       15,077           15,077

         Total comprehensive income            -           -             -             -            -            -          710,587

   Stock dividend  paid                    8,014      (8,724)            -           710            -            -                -

   Cash paid for fractional dividend           -           -             -          (710)           -            -             (710)

     Fair value of ESOP shares
     allocated                                 -           -        87,981             -       32,410            -          120,391
                                        --------   ---------    ----------   -----------    ---------    ---------      -----------

Balance at December 31, 2006            $ 88,211   $       -    $5,317,787   $ 6,873,230    $(136,122)   $  (5,782)     $12,137,324
                                        ========   =========    ==========   ===========    =========    =========      ===========
</TABLE>

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

                                      F-4

<PAGE>
                      BUCS FINANCIAL CORP AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

<TABLE>
<CAPTION>
                                                                   2006            2005
                                                                ---------      ----------
<S>                                                        <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                $    695,510    $    610,720
   Reconciliation of net income to net cash provided
     by operating activities:
     Gain on sale of loans                                        (65,917)         (6,826)
     Provision for loan losses                                    475,604         354,859
      Non-cash ESOP expense                                       120,391          98,137
     Deferred income taxes                                       (131,851)        (91,541)
     Increase in cash surrender value of life insurance           (81,752)        (80,489)
      Proceeds from sale of loans                               4,581,219       3,522,564
     Origination of loans held for sale                        (4,515,302)       (758,564)
         Gain on discontinued operations                                -        (131,375)
     Depreciation and amortization                                414,268         449,217
   Effects of changes in operating assets and liabilities:
     Accrued interest receivable                                 (164,013)       (128,615)
     Prepaid merger costs                                        (269,620)              -
     Prepaid expenses and other assets                             49,731        (103,723)
     Accounts payable and other liabilities                       368,616         187,700
                                                             ------------    ------------

         Net cash provided by operating activities              1,476,884       3,922,064
                                                             ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Net increase in loans                                      (14,831,114)    (20,476,054)
   Net decrease (increase) to interest-bearing deposits
      of other financial institutions                             941,308        (364,255)
   Proceeds from maturities, redemption and sales
     of securities available-for-sale                           1,142,013       1,651,590
   Proceeds from repayments on securities held-to-maturity      1,132,916       1,631,993
   Redemption (purchase) of FHLB stock                            391,300        (468,600)
   Proceeds from sale of discontinued operations                        -         362,915
   Purchase of property and equipment                            (137,026)       (131,857)
                                                             ------------    ------------

         Net cash used in investing activities                (11,360,603)    (17,794,268)
                                                             ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Allocated fair value of ESOP shares                            120,390          98,137
   (Decrease)/increase in Federal Home Loan Bank of
     Atlanta borrowings                                        (7,300,000)      8,200,000
   Net increase in deposits                                    16,891,722       6,933,688
   Cash paid for fractional shares of stock dividend                 (710)              -
                                                             ------------    ------------

         Net cash provided by financing activities              9,711,402      15,231,825
                                                             ------------    ------------

</TABLE>

                                      F-5

<PAGE>

BUCS Financial Corp and Subsidiaries

Consolidated Statements of Cash Flows (Continued)
For the Years Ended December 31, 2006 and 2005

                                                        2006          2005
                                                    -----------   -----------

NET (DECREASE) INCREASE IN CASH
   AND CASH EQUIVALENTS                             $  (172,317)  $ 1,359,621
CASH AND CASH EQUIVALENTS
   AT BEGINNING OF YEAR                               2,246,408       886,787
                                                    -----------   -----------
CASH AND CASH EQUIVALENTS
   AT END OF YEAR                                   $ 2,074,091   $ 2,246,408
                                                    ===========   ===========


Supplemental disclosure of cash flow information:
   Cash paid for income taxes                       $   441,351   $   631,405
                                                    ===========   ===========

   Cash paid for interest                           $ 4,188,218   $ 2,604,901
                                                    ===========   ===========


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

                                      F-6

<PAGE>

                      BUCS FINANCIAL CORP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

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 types of loans and deposit products to its customers.  The Bank's
customers  include  individuals and commercial  enterprises  throughout  central
Maryland; emphasizing the areas surrounding its main office and branch locations
in Owings Mills and Columbia, Maryland, respectively.

         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 2006.

         Use of Estimates
         ----------------

               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.  The principal  material  estimates that are particularly
susceptible to  significant  change in the near term relate to the allowance for
loan losses and the evaluation of other than temporary  impairment of investment
securities.

         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.  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  Insurance
Corporation  ("FDIC")  Insurance.  At December 31, 2006 these balances include a
deposit of $50,000 in a non-interest bearing account with the Maryland Financial
Bank ("MFB").  The Company maintains several loan participation  agreements with
MFB and is  required  to maintain a deposit  account  with a minimum  balance of
$50,000 in order to transact loan participations agreements with MFB.

                                      F-7

<PAGE>

         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  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.

               Declines  in the  fair  value  of  available-for-sale  or held to
maturity    securities    below    their    cost   that   are   deemed   to   be
"other-than-temporary"   are  reflected  in  the   Consolidated   Statements  of
Operations as realized  losses.  In estimating  other-than-temporary  impairment
losses,  management considers (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 Bank to retain
its  investment  in the issuer for a period of time  sufficient to allow for any
anticipated  recovery  in fair value.  Realized  gains and losses on the sale of
securities  are  recognized  using the  specific  identification  method and are
included in "non-interest income" in the Consolidated Statements of Operations.

         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

                                       F-8

<PAGE>

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.  The  components  of the  allowance  for  loan  losses  represent  an
estimation done pursuant to Statement of Financial Accounting Standards ("SFAS")
No. 5, Accounting for  Contingencies  and 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

                                      F-9

<PAGE>

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.

         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. No ready market exists for this stock and it has no quoted market
value. The Bank's investment in this stock is carried 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
such amounts will be realized based upon  consideration  of available  evidence,
including tax planning strategies and other factors.

                                      F-10

<PAGE>

         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 earnings per share  represents  income  available to common
stockholders divided by the weighted-average number of common shares outstanding
during the period.  Diluted earnings per share reflects additional common shares
that would have been outstanding if potentially  dilutive common shares had been
issued,  as well as any  adjustment to income that would result from the assumed
issuance.  Potentially  dilutive common shares that may be issued by the Company
relate soley to outstanding stock options, and are determined using the treasury
stock method.  All share and per share amounts are restated for stock splits and
stock dividends that occur prior to the issuance of the financial statements.

Earnings  per share for the years  ended  December  31,  2006 and 2005 have been
computed as follows.

                                                         2006            2005
                                                      ---------       ---------

Net Income                                            $ 695,510       $ 610,720
                                                      =========       =========

Weighted average shares outstanding (basic)             841,324         833,480
Effect of dilutive stock options                         58,322          16,396
                                                      ---------       ---------

Weighted average shares outstanding (diluted)           899,646         849,876
                                                      =========       =========

Per share information:
     Basic earnings per share                            $ 0.83          $ 0.74
     Diluted earnings per share                          $ 0.77          $ 0.72

There were no options  that would cause an  antidilutive  effect on earnings per
share in the years ending December 31, 2006 or 2005.

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

               Effective  January 1, 2006, The Company adopted the provisions of
Statement of Financial  Accounting  Standards ("SFAS") No. 123,  "Accounting for
Stock-Based   Compensation"  as  revised  by  SFAS  No.  123  (R),  "Share-Based
Payments,"  using the  modified  prospective  method.  Under  this  method,  the
share-based  compensation cost recognized  beginning  January 1, 2006,  includes
compensation  cost for (1) all  share-based  payments  granted prior to, but not
vested as of  January 1,  2006,  based on the grant  date fair value  originally
estimated  in  accordance  with  the  provisions  of SFAS  No.  123 and (ii) all
share-based payments granted subsequent to December 31, 2005, based on the grant
date fair value estimated in accordance with the provisions of SFAS No. 123 (R).
Compensation  cost  under  SFAS No.  123 (R) is  recognized  ratably  using  the
straight-line  attribution  method over the  expected  vesting  period or to the
retirement eligibility date, if less than the vesting period when vesting is not
contingent upon any future performance.

                                      F-11

<PAGE>

               Prior to January 1, 2006 the Company  applied the intrinsic value
method to account for stock-based compensation.  Under this method, compensation
cost is recognized for awards of shares of common stock to employees only if the
quoted  market  price of the stock at the  measurement  date is greater than the
price the employee must pay to acquire the stock.

                No options were granted or vested in 2006 or 2005.  Accordingly,
no  compensation  expense  has been  recognized  in the  consolidated  financial
statements for 2006 and 2005.

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

               Advertising  and marketing costs are expensed as incurred and for
the years  ended  December  31, 2006 and 2005  totaled  $385,955  and  $317,966,
respectively.

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

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

         In 2005 the  Company  realized  certain  cash  proceeds  on the sale of
intangible  assets and goodwill in the amount of $307,201  resulting in a before
tax gain on sale of  $307,201  and  tax-adjusted  gain on sale of  approximately
$188,565.  The  Company  also  liquidated  certain  tangible  assets,  including
furniture and  equipment  during 2005. 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
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

         In May 2005,  the  Financial  Accounting  Standards  Board (the "FASB")
issued SFAS No. 154,  "Accounting  Changes and Error Corrections - a replacement
of APB  Opinion  No.  20 and FASB  Statement  No.  3." This  statement  requires
retrospective  application to prior periods' financial  statements of changes in
accounting  principle,  unless  it is  impracticable  to  determine  either  the
period-specific  effects or the cumulative  effect of the change. In the case of
impracticability in retrospective  application,  the statement gives guidance as
to the  appropriate  treatment  of the change or  correction.  The  statement is
effective for accounting  changes made in fiscal years  beginning after December
15, 2005.  The adoption of this  standard did not have a material  impact on the
Company's financial condition, results of operation or liquidity.

         In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain
Hybrid Financial Instruments." SFAS No.155 amends SFAS No. 133 and SFAS No. 140,
and improves the financial reporting of certain hybrid financial  instruments by
requiring more consistent  accounting that eliminates  exemptions and provides a
means to simplify the accounting for these instruments.  Specifically,  SFAS No.
155 allows financial  instruments that have embedded derivatives to be accounted
for as a whole  (eliminating the need to bifurcate the derivative from its host)
if the holder elects to account for the whole  instrument on a fair value basis.
SFAS No. 155 is effective for all financial instruments acquired or issued after
the beginning of an entity's  fiscal year that begins after  September 15, 2006.
The adoption of SFAS No. 155 is not expected to have a significant impact on the
Company's financial position or results of operations.

                                      F-12

<PAGE>

         In June 2006, the FASB issued FASB  Interpretation  No. 48, "Accounting
for Uncertainty in Income Taxes - an  interpretation  of FASB Statement No. 109"
(FIN 48), which clarifies the accounting for uncertainty in tax positions.  This
Interpretation  requires that companies recognize in their financial  statements
the impact of a tax position,  if that position is more likely than not of being
sustained  on  audit,  based  on  the  technical  merits  of the  position.  The
provisions of FIN 48 are effective for fiscal years beginning after December 15,
2006, with the cumulative effect of the change in accounting  principle recorded
as an adjustment to opening  retained  earnings.  Ther adoption of FIN 48 is not
expected to have a  significant  impact on the Company's  financial  position or
result of operations.

         In  September  2006,  the FASB's  Emerging  Issues Task Force  ("EITF")
issued  EITF  Issue  No.  06-4,   "Accounting  for  Deferred   Compensation  and
Postretirement  Benefit  Aspects of  Endorsement  Split  Dollar  Life  Insurance
Arrangements."  EITF 06-4 requires the recognition of a liability related to the
postretirement  benefits covered by an endorsement  split-dollar  life insurance
arrangement.  The  consensus  highlights  that  the  employer  (who is also  the
policyholder)  has a liability  for the benefit it is providing to its employee.
As such,  if the  policyholder  has agreed to maintain the  insurance  policy in
force  for  the  employee's  benefit  during  his or her  retirement,  then  the
liability recognized during the employee's active service period should be based
on the future cost of insurance to be incurred during the employee's retirement.
Alternatively,  if the policy  holder has agreed to provide the employee  with a
death  benefit,  then the  liability  for the  future  death  benefit  should be
recognized by following  the guidance in SFAS No. 106 or  Accounting  Principles
Board Opinion No. 12, as appropriate.  For  transition,  an entity can choose to
apply the guidance  using either of the  following  approaches:  (a) a change in
accounting principle through retrospective  application to all periods presented
or (b) a change in accounting  principle through a cumulative-effect  adjustment
to the balance in retained  earnings at the  beginning  of the year of adoption.
Adoption is required in fiscal years  beginning  after  December 15, 2007,  with
early adoption permitted. The Company is currently analyzing the effects of EITF
06-4 but does not expect its  implementation  will have a material impact on the
Company's consolidated financial position or results of operations.

         In  September   2006,   the  FASB  issued  SFAS  No.  157  "Fair  Value
Measurements,"  which defines fair value,  establishes a framework for measuring
fair  value  under  Generally  Accepted  Accounting   Principles,   and  expands
disclosures  about  fair  value  measurements.  SFAS No.  157  applies  to other
accounting  pronouncements that require or permit fair value  measurements.  The
new  guidance is  effective  for  financial  statements  issued for fiscal years
beginning  after November 15, 2007, and for interim  periods within those fiscal
years. The Company is currently  evaluating the potential impact, if any, of the
adoption  of FASB  Statement  No. 157 on the  Company's  consolidated  financial
position or results of operations.

         In February  2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial  Assets and Financial  Liabilities-Including  an Amendment of FASB
Statement  No.  115." SFAS No. 159 permits  entities  to choose to measure  many
financial  instruments and certain other items at fair value.  Unrealized  gains
and losses on items for which the fair value  option  has been  elected  will be
recognized  in  earnings  at each  subsequent  reporting  date.  SFAS No. 159 is
effective  as of the  beginning  of the  first  fiscal  year that  begins  after
November 15, 2007. The Company is currently analyzing the effect, if any, on the
consolidated financial position or results of operations

                                      F-13

<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         Gains         Losses        Value
                                               -----------   -----------   -----------   -----------
<S>                                           <C>           <C>           <C>           <C>
December 31, 2006:
   Investment securities available-for-sale:
     Obligations of U.S. Government agencies   $ 1,000,000   $         -   $    10,011   $   989,989
     Mortgage-backed securities                  2,110,408        13,450        12,860     2,110,998
                                               -----------   -----------   -----------   -----------
                                                 3,110,408        13,450        22,871     3,100,987
                                               -----------   -----------   -----------   -----------
   Investment securities held-to-maturity:
     Collateralized mortgage obligations            26,117             -           129        25,988
     Mortgage-backed securities                  6,444,469             -       259,186     6,185,283
                                               -----------   -----------   -----------   -----------
                                                 6,470,586             -       259,315     6,211,271
                                               -----------   -----------   -----------   -----------

                                               $ 9,580,994   $    13,450   $   282,117   $ 9,312,258
                                               ===========   ===========   ===========   ===========
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
                                               ===========   ===========   ===========   ===========
</TABLE>

The  amortized  cost and  estimated  fair  values of  investment  securities  by
contractual maturity date at December 31, 2006 are as follows:


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

Investment securities available-for-sale:
   Within one year                                 $         -      $         -
   1 -   5 years                                     1,041,764        1,031,684
   6 - 10 years                                        332,949          324,997
   After 10 years                                    1,735,696        1,744,306

Investment securities held-to-maturity:
   Within one year                                      26,118           25,988
   1 -   5 years                                             -                -
   6 - 10 years                                              -                -
   After 10 years                                    6,444,468        6,185,283
                                                   -----------      -----------

         Totals                                    $ 9,580,995      $ 9,312,258
                                                   ===========      ===========

                                      F-14

<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.

         The Company did not sell any available for sale securities in the years
ended December 31, 2006 or 2005. Accordingly,  the Company did not recognize any
gross  realized  gains or  losses,  or  receive  any  proceeds  from the sale of
available for sale securities for the years ended December 31, 2006 or 2005.
         Gross  unrealized   losses  by  length  of  time  that  the  individual
securities  have been in a continuous  unrealized  loss position at December 31,
2006 are as follows:

<TABLE>
<CAPTION>
                                                    Continuous Unrealized
                                                      Losses Existing for
                                                      -------------------      Total
                                       Estimated    Less than    More than   Unrealized
   Available-for-Sale                 Fair Value    12 Months    12 Months     Losses
   ------------------                 ----------    ---------    ---------     ------
<S>                                  <C>          <C>          <C>          <C>
U. S. Agency                          $  989,989   $        -   $   10,011   $   10,011
Mortgage-backed securities                41,695           69       12,791       12,860
                                      ----------   ----------   ----------   ----------
                                      $1,031,684   $       69   $   22,802   $   22,871
                                      ==========   ==========   ==========   ==========
</TABLE>

<TABLE>
<CAPTION>
                                                    Continuous Unrealized
                                                      Losses Existing for
                                                      -------------------      Total
                                       Estimated    Less than    More than   Unrealized
   Held-to-Maturity                   Fair Value    12 Months    12 Months     Losses
   ----------------                   ----------    ---------    ---------     ------
<S>                                  <C>          <C>          <C>          <C>

Collateralized mortgage obligations   $   25,988   $        -   $      129   $      129
Mortgage-backed securities             6,185,283            -      259,186      259,186
                                      ----------   ----------   ----------   ----------

                                      $6,211,271   $        -   $  259,315   $  259,315
                                      ==========   ==========   ==========   ==========
</TABLE>

         At December 31, 2006,  twelve debt securities  have  unrealized  losses
with aggregate  depreciation  of 3.17% 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.

                                      F-15

<PAGE>

4. LOANS RECEIVABLE

         Loans receivable consist of the following at December 31:

                                                     2006               2005
                                                -------------      -------------
     Categories:
       Mortgage loans:
         Residential:
           Permanent 1 - 4 single family        $  22,613,986      $  19,628,425
           Land                                         1,229              2,082
           Commercial                              30,616,390         24,234,811
       Consumer loans:
         Home equity loans                         36,404,602         38,239,422
         Secured loans                             16,770,081         18,900,252
         Other                                      3,481,392          3,383,821
       Commercial                                  13,428,946          4,358,025
                                                -------------      -------------
               Total loans                        123,316,626        108,746,838
       Net deferred loan costs                        477,520            564,724
                                                -------------      -------------
                                                  123,794,146        109,311,562
       Less allowance for loan losses                 859,389            732,315
                                                -------------      -------------

               Loans receivable, net            $ 122,934,757      $ 108,579,247
                                                =============      =============

         Loans  aggregating  approximately  $56.5 million and $56.1 million have
been  pledged  to the FHLB as  collateral  for credit  extended  by the FHLB for
short-term borrowings at December 31, 2006 and 2005, respectively.

         Nonperforming  loans  amounted to $257,477  and $114,894 as of December
31, 2006 and 2005,  respectively.  The amount of interest income that would have
been  recorded on loans in  nonaccrual  status as of December 31, 2006 and 2005,
had such loans performed in accordance with their terms,  was $8,861 and $5,121,
respectively.

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

                                                    2006              2005
                                                 ---------         ---------

         Balance at beginning of year            $ 732,315         $ 682,339
         Provision for loan losses                 475,604           354,859
         Recoveries                                 61,021            64,301
         Loan loss write-offs                     (409,551)         (369,184)
                                                 ---------         ---------

        Balance at end of year                   $ 859,389         $ 732,315
                                                 =========         =========

Impairment  of loans  having  recorded  investments  of $257,477 and $114,894 at
December 31, 2006 and 2005, respectively, has been recognized in conformity with
SFAS No. 114 as amended by SFAS No. 118.  The average  recorded  investments  in
impaired  loans  during  2006  and  2005  approximate   $325,857  and  $292,000,
respectively.  Interest  income on impaired  loans of  approximately  $3,215 and
$1,675 was recognized for cash payments received in the years ended December 31,
2006 and 2005, respectively.  The Bank is not committed to lend additional funds
to debtors whose loans have been modified.  The valuation allowance for impaired
loans was $134,954 and $58,536 at December 31, 2006 and 2005, respectively.

                                      F-16

<PAGE>

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

                                                         2006           2005
                                                     -----------    -----------

         Balance at beginning of year                $ 1,335,899    $   941,021
         Balance of newly installed board members              -        373,933
         Additional borrowings                           668,914        235,659
         Repayments                                     (125,891)      (214,714)
                                                     -----------    -----------

         Balance at end of year                      $ 1,878,922    $ 1,335,899
                                                     ===========    ===========



5. PROPERTY AND EQUIPMENT

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

                                                         2006          2005
                                                     -----------   -----------

         Building                                    $ 1,873,462   $ 1,873,462
         Leasehold improvements                          770,456       767,539
         Furniture, fixtures and equipment             2,440,717     2,290,096
                                                     -----------   -----------
                                                       5,084,635     4,931,097
           Less accumulated depreciation               2,520,018     2,136,290
                                                     -----------   -----------
                                                       2,564,617     2,794,807
         Land                                          1,018,814     1,042,994
                                                     -----------   -----------
                                                     $ 3,583,431   $ 3,837,801
                                                     ===========   ===========

         Depreciation  expense totaled $358,554 and $411,005 for the years ended
December 31, 2006 and 2005, 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 prepaid amount.

At December  31,  2006,  future  minimum  lease  payments  under  non-cancelable
operating leases having an initial term in excess of one year are as follows:

Years ending December 31:
               2007                                          $88,390
               2008                                           88,390
               2009                                           71,557
               2010                                           30,701
               2011 and thereafter                                 -
                                                         -----------
               Total minimum lease payments              $   279,038
                                                         ===========

                                      F-17

<PAGE>

6.   DEPOSITS

         Deposits at December 31, 2006 and 2005 were as follows:

                                                          2006           2005
                                                    -------------   ------------

      Checking                                      $  14,473,506   $ 14,969,815
      Regular savings                                  19,054,277     24,845,654
      Money markets                                    42,036,937     29,307,778
      IRA's floating rate                               1,649,944      2,863,004
      Certificate of deposits (including IRA CDs)      35,231,301     23,567,992
                                                    -------------   ------------

                                                    $ 112,445,965   $ 95,554,243
                                                    =============   ============


Scheduled maturities of certificate of deposits are as follows:

                                                                   December 31,
                                                                       2006
                                                                  ------------

                            2007                                  $ 22,717,615
                            2008                                     5,196,330
                            2009                                     3,936,206
                            2010                                     1,316,167
                            2011                                     2,064,983
                                                                  ------------

                                                                  $ 35,231,301
                                                                  ============

         Officers' and directors'  savings  accounts  amounted to  approximately
$1,674,000 and $1,556,000 at December 31, 2006 and 2005, 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,
2006 these indexed products totaled $1,318,579.

         Deposits over $100,000  approximated  $18,778,628  and  $19,249,144  at
December 31, 2006 and 2005, respectively.

                                      F-18

<PAGE>

7. BORROWED FUNDS

         Borrowings  consist of FHLB  advances at December 31, 2006 and 2005 and
are summarized as follows:

                                        2006                       2005
                              ------------------------    ----------------------

                                              Weighted                  Weighted
                                              Average                   Average
                                              Interest                  Interest
                                  Amount        Rate         Amount      Rate
                              ------------     ----       -----------    ----

      Less than one year       $15,400,000     5.20%      $18,800,000    4.31%
      One to two years           5,000,000     3.91         2,400,000    3.18
      Two to three years                 -        -         5,000,000    3.91
      Three to four years                -        -                 -       -
      Four to five years                 -        -                 -       -
      Thereafter                         -        -         1,500,000    4.79
                               -----------                -----------

                               $20,400,000     4.89%      $27,700,000    4.17%
                               ===========                ===========


         The Company has  $13,400,000 in adjustable rate advances and $7,000,000
in fixed rate advances from the FHLB at December 31, 2006.

         At December 31, 2006, the Company had line of credit  commitments  with
the FHLB totaling  $45,020,400 of which $20,400,000 was advanced and $24,620,400
was available.

         The Bank has pledged its qualified portfolio of residential real estate
mortgage loans and home equity 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.

                                      F-19

<PAGE>

      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 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, 2006 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:

                                                  2006                  2005
                                               ---------             ---------

         Current income taxes:
           Federal                             $ 509,576             $ 380,710
           State                                 112,809                84,281
                                               ---------             ---------
                                                 622,385               464,991
                                               ---------             ---------

         Deferred income taxes:
           Federal                              (107,953)              (74,949)
           State                                 (23,899)              (16,592)
                                               ---------             ---------
                                                (131,852)              (91,541)
                                               ---------             ---------

               Total income tax expense        $ 490,533             $ 373,450
                                               =========             =========

                                      F-20

<PAGE>

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

<TABLE>
<CAPTION>
                                                                       2006           2005
                                                                    ---------      ---------
<S>                                                               <C>            <C>
    Deferred tax assets:
      Deferred compensation                                         $  60,540      $  47,196
      Depreciation                                                      2,460              -
      Allowance for loan losses                                       202,875        153,800
                                                                    ---------      ---------

          Gross deferred tax assets                                   265,875        200,996
                                                                    ---------      ---------

    Deferred tax liabilities:
      Deferred loan costs                                             126,824        159,033
      Depreciation                                                          -         30,140
      Other                                                                 -          4,623
                                                                    ---------      ---------


          Gross deferred tax liabilities                              126,824        193,796
                                                                    ---------      ---------

    Net deferred taxes from operations                                139,051          7,200

    Unrealized (gains) losses on available-for-sale securities         (3,638)        13,124
                                                                    ---------      ---------

          Net deferred tax asset                                    $ 135,413      $  20,325
                                                                    =========      =========
</TABLE>


         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>
                                                                     2006            2005
                                                                     ----            ----

<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                                                      2.7             (.9)
                                                                     ----            ----

               Effective tax rate                                    41.3%           37.7%
                                                                     ====            ====
</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, 2006 and
2005 approximated $90,939 and $78,746, 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

                                      F-21

<PAGE>

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,
2006 and 2005 was $47,509 and $47,197 respectively. The Company is a beneficiary
of life insurance policies, with an aggregate cash surrender value of $2,294,770
at December 31,  2006,  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 $120,391 and $98,137 for the
years ended  December 31, 2006 and 2005,  respectively.  The ESOP shares for the
year ended December 31, 2006 were as follows:

               Allocated shares                                 34,592
               Shares released for allocation                    7,843
               Unreleased shares                                32,940
                                                                ------

                   Total ESOP shares                            75,375
                                                                ======

         Fair value of unreleased shares at December 31, 2006 was $775,737.



         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.

                                      F-22

<PAGE>

     Information  with respect to stock options is as follows for the year ended
December 31, 2006 and 2005:

<TABLE>
<CAPTION>
                                                            2006                        2005
                                                  ----------------------         ---------------------
                                                                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, 2006:

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

                 $ 8.73             24,926               5.3
                 $ 9.34             70,660               6.7
                                    ------
                                    95,586

No options have been granted since August 25, 2003 and all  outstanding  options
were fully  vested as of April 29,  2004.  At  December  31,  2006,  outstanding
options,  all of which  are  fully-vested,  have a  weighted  average  remaining
contractual life of 6.3 years and an aggregate  intrinsic value of $1.4 million.
No options were exercised in the years ended December 31, 2006 and 2005.

12. 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 Bank'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's 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

                                      F-23

<PAGE>

defined).  Management  believes as of December 31, 2006, that the Bank meets all
capital adequacy requirements to which they are subject.

         As of December 31, 2006, 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.

         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, 2006:
   Total capital (to risk-weighted assets)   $13,112,000      10.8%       $9,738,160       8.0%     $12,172,700      10.0%

   Tier 1 capital (to risk-weighted assets)   13,118,000      10.8         4,869,080       4.0        7,303,620       6.0

    Tier 1 capital (to average assets)        13,118,000       8.8         5,874,280       4.0        7,342,850       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, 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>


13. 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.

           Interest-bearing Deposits in Other Banks
           ----------------------------------------

                The fair values for  interest-bearing  deposits  approximate its
carrying amount.

                                      F-24

<PAGE>

           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.

                                      F-25

<PAGE>

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

<TABLE>
<CAPTION>
                                                                  2006                                2005
                                                   ---------------------------------   -------------------------------
                                                                         Estimated                          Estimated
                                                      Carrying             Fair             Carrying          Fair
                                                       Amount              Value             Amount           Value
                                                       ------              -----             ------           -----
<S>                                              <C>                 <C>                <C>              <C>
       Financial assets:
         Cash and cash equivalents                 $  2,074,091       $  2,074,091       $  2,246,408     $  2,246,408
         Interest-bearing deposits in
           other banks                                5,832,667          5,832,667          6,773,975        6,773,975
         Investment securities                         9,571573          9,312,258         11,844,811       11,529,517
         Loans receivable                           122,934,757        121,152,742        108,579,247      107,228,000
         Investment in FHLB stock                     1,192,200          1,192,200          1,583,500        1,583,500
         Bank-owned life insurance                    2,294,770          2,294,770          2,213,018        2,213,018

       Financial liabilities:
         Deposits                                   112,445,965        113,750,000         95,554,243       95,830,000
         Borrowed funds                              20,400,000         20,307,000         27,700,000       27,573,000
         Guaranteed preferred beneficial
           interest in subordinated debt              3,000,000          3,000,000          3,000,000        3,000,000
</TABLE>

       Off-Balance Sheet Financial Assets:

<TABLE>
<CAPTION>
                                                                    2006                                   2005
                                                     -----------------------------         ----------------------------
                                                     Estimated                             Estimated
                                                     Contract           Estimated          Contract          Estimated
                                                      Amount            Fair Value          Amount           Fair Value
                                                      ------            ----------          ------           ----------

<S>                                              <C>                 <C>                 <C>              <C>
       Commitments to extend credit               $  37,001,112       $ 37,001,112        $30,952,000      $30,952,000
       Commercial Letters of Credit                     140,000            140,000            200,000          200,000
</TABLE>


14. 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 $37,001,112 at December 31,
2006 and $30,952,435 at December 31, 2005. 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 7.25% to 9.25% for December 31, 2006.

                                      F-26

<PAGE>

15. 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 $21,898 per annum under the sublease during the term of the agreement.

16. PARENT COMPANY FINANCIAL STATEMENTS

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

                                             CONDENSED BALANCE SHEETS
                                            DECEMBER 31, 2006 AND 2005

<TABLE>
<CAPTION>
                                     ASSETS
                                                                                  2006                    2005
                                                                              ------------            ------------
<S>                                                                           <C>                     <C>
Cash                                                                          $  1,458,928            $  2,165,090
Investment in subsidiaries                                                      13,111,789              11,546,608
Notes receivable                                                                   136,122                 200,942
Other                                                                              804,454                 643,778
                                                                              ------------            ------------

         Total assets                                                         $ 15,511,293            $ 14,556,418
                                                                              ============            ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
   Other                                                                      $    218,395            $     47,612
   Long-term notes payable                                                       3,000,000               3,000,000
                                                                              ------------            ------------

         Total liabilities                                                       3,218,395               3,047,612
                                                                              ------------            ------------


Stockholders' equity:
   Common stock                                                                     88,211                  80,197
   Stock dividend distributable                                                          -                   8,724
   Additional paid-in capital                                                    5,317,787               5,229,806
   Retained earnings                                                             6,892,682               6,210,938
   Accumulated other comprehensive (loss) income                                    (5,782)                (20,859)
                                                                              ------------            ------------

           Total stockholders' equity                                           12,292,898              11,508,806
                                                                              ------------            ------------

           Total liabilities and stockholders' equity                         $ 15,511,293            $ 14,556,418
                                                                              ============            ============

</TABLE>

                                      F-27

<PAGE>

                       CONDENSED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

<TABLE>
<CAPTION>
                                                                 2006           2005
                                                              ---------      ---------
<S>                                                           <C>            <C>
Interest income                                               $  70,324      $  61,679

Management Fee income                                                 -        132,500

Operating expenses                                              270,682        251,295
                                                              ---------      ---------

Loss before income tax benefit and equity
   in undistributed income of subsidiaries                     (200,448)       (57,116)

Income tax benefit                                              (45,234)       (21,821)
                                                              ---------      ---------

Loss before income in undistributed income of subsidiaries     (155,214)       (35,295)

Equity in undistributed income of subsidiaries                  850,724        646,015
                                                              ---------      ---------

Net income                                                    $ 695,510      $ 610,720
                                                              =========      =========
</TABLE>

                                      F-28

<PAGE>

                       CONDENSED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


<TABLE>
<CAPTION>
                                                                     2006           2005
                                                                 -----------    -----------
<S>                                                             <C>            <C>
Cash flows from operating activities:
   Net income                                                    $   695,510    $   610,720
   Adjustments to reconcile net income to net cash
     provided by operating activities:
     Equity in undistributed income of subsidiaries                 (850,724)      (646,015)
     Net (increase) decrease in other assets                        (305,293)           410
     Net increase in other liabilities                               190,235              -
                                                                 -----------    -----------

           Net cash used in operating activities                    (270,272)       (34,885)
                                                                 -----------    -----------

Cash flows from investing activities:
   Investment in subsidiaries                                       (500,000)             -
   Proceeds from notes receivable                                     64,820         32,410
                                                                 -----------    -----------

           Net cash (used in) provided by investing activities      (435,180)        32,410
                                                                 -----------    -----------

Cash flows from financing activities:
   Net proceeds from sale of subsidiary                                    -        841,899
   Cash paid for fractional shares of stock dividend                    (710)             -
                                                                 -----------    -----------

           Net cash (used in) provided by financing activities          (710)       841,899
                                                                 -----------    -----------

NET (DECREASE) INCREASE IN CASH                                     (706,162)       839,424

CASH AT BEGINNING OF YEAR                                          2,165,090      1,325,666
                                                                 -----------    -----------

CASH AT END OF YEAR                                              $ 1,458,928    $ 2,165,090
                                                                 ===========    ===========
</TABLE>

                                      F-29

<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended,  the registrant has duly caused this report to
be signed on its behalf by the  undersigned,  thereunto  duly  authorized  as of
March 30, 2007.

                                     BUCS FINANCIAL CORP

                                     By:   /s/Herbert J. Moltzan
                                           -------------------------------------
                                           Herbert J. Moltzan
                                           President and Chief Executive Officer
                                           (Duly Authorized Representative)

         Pursuant to the requirement of the Securities  Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated as of March 30, 2007.

<TABLE>
<CAPTION>
<S>                                             <C>

/s/Allen Maier                                       /s/Joseph Pescrille
----------------------------------------------       -----------------------------------------
Allen Maier                                          Joseph Pescrille
Chairman and Director                                Vice Chairman and Director

                                                     /s/M. Robin Copeland
----------------------------------------------       -----------------------------------------
Brian Bowers                                         M. Robin Copeland
Treasurer and Director                               Secretary and Director

/s/Thomas Markel                                    /s/ A. Virginia Wampler
---------------------------------------------       -----------------------------------------
Thomas Markel                                        A. Virginia Wampler
Director                                             Director

/s/Harry Fox
----------------------------------------------       -----------------------------------------
Harry Fox                                            Peg Ohrt
Director                                             Director

/s/Dale Summers                                      /s/Herbert J. Moltzan
----------------------------------------------       -----------------------------------------
Dale Summers                                         Herbert J. Moltzan
Director                                             President, Chief Executive Officer
                                                     and Director (Principal Executive Officer)

/s/Matthew J. Ford                                   /s/Joseph Mezzanotte
----------------------------------------------       -----------------------------------------
Matthew J. Ford                                      Joseph Mezzanotte
Chief Financial Officer (Principal Accounting        Director
and Financial Officer)


----------------------------------------------
Gregory A. Devou
Director

</TABLE>