BUCS Financial Corp
                                  Annual Report


                                Table of Contents


Letter to Stockholders......................................................   1

Corporate Profile...........................................................   2

Stock Price Information.....................................................   3

Selected Financial Ratios and Other Data....................................   4

Management's Discussion and Analysis........................................   5

Report of Independent Auditors..............................................  14

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

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

Corporate Information.......................................................  43


<PAGE>

                               BUCS Financial Corp

Dear Fellow Stockholders:

On behalf of our Board of Directors and employees, we are pleased to present the
2003 Annual Report to the Stockholders of BUCS Financial Corp (the "Company").

2003 proved to be another  successful  year as we continue to grow the  Company,
BUCS  Federal  Bank ("the  Bank") and Armor  Insurance  Group,  Inc.  ("Armor").
Despite  increased  non-interest  expenses  related  to the  opening  of two new
branches and a new computer operations center in January, September, and October
2003,  respectively,  diluted earnings for the year ended December 31, 2003 were
$460,000, or $1.24 per share, compared to $466,000, or $1.21 per share for 2002.

Gross  commission  revenue from the sale of property  and  casualty,  life,  and
health insurance products by Armor, the Company's wholly-owned  subsidiary,  was
approximately $440,000 in 2003, an increase of 18% from 2002.

Growth  trends were  excellent  with total assets at December 31, 2003  reaching
$118.3  million,  as compared to $96.8  million at December  31,  2002.  A $10.5
million or 14.3% increase in deposits,  a $7.8 million  increase in Federal Home
Loan Bank  borrowings and the sale of $3.0 million of pooled capital  securities
helped fund a $10.8 million or 16.2% growth of loans receivable,  net and a $9.8
million or 683.2% increase in securities held to maturity. Loans receivable, net
totaled $77.1 million at December 31, 2003 compared to $66.3 million at December
31,  2002.  The  loan  growth  included  a $1.0  million  or 32.0%  increase  in
commercial  real estate loans,  a $5.8 million or 29.1%  increase in one-to-four
family  residential loans, a $3.8 million or 19.6% increase in home equity loans
and a $1.4  million or 85.4%  increase  in  commercial  loans.  The  increase in
securities  held to maturity was the result of  implementation  of a $10 million
leverage strategy in April 2003.

At year-end,  stockholders'  equity was $10.0  million,  resulting in total book
value per share and  tangible  book  value per share,  adjusted  for a 10% stock
dividend that was paid on January 31, 2004, of $24.93 and $24.11, respectively.

We believe that the  investments we made in people,  technology,  and facilities
during 2003 will be key in growing the asset base of the  Company.  We were able
to double the number of  full-service  branches we operate and expand our market
presence  during 2003 while not  reducing  shareholder  earnings  from the prior
year.

We expect that the  investments  in the  infrastructure  of the Company put into
place in 2003 will help fuel  continued  excellent  asset  growth  and  improved
earnings into 2004 and beyond.  We thank you for your support;  we are committed
to enhancing your investment in the Company.

                                           Sincerely,

                                           /s/Herbert J. Moltzan

                                           Herbert J. Moltzan
                                           President and Chief Executive Officer

                                       1
<PAGE>

CORPORATE PROFILE

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

         The Bank was originally founded in 1970 as Maryland Blue Cross and Blue
Shield  Employees  Federal Credit Union. In the early 1980s, it changed its name
to BUCS  Federal  Credit  Union.  As a credit  union,  it  initially  served the
employees of  Carefirst  Blue Cross and Blue Shield and its  subsidiaries.  Over
time,  membership grew to include other employee  groups.  However,  as a credit
union, it was legally  restricted to serving only customers who shared a "common
bond" such as a common  employer.  On March 1, 1998, it converted its charter to
federal mutual savings  association and became BUCS Federal.  Upon completion of
the mutual to stock  conversion in March 2001, the Bank changed its name to BUCS
Federal Bank.

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

         Armor  Insurance  Group,  Inc.  was  formed  in late  1999 as a limited
liability  company and  wholly-owned  subsidiary of the Bank.  Subsequent to the
Bank's mutual-to-stock conversion, Armor was restructured as a subsidiary of the
Company and in December  2001  converted to a Maryland  corporation.  Armor is a
traditional  multi-line  property and casualty  insurance  agency with an office
located in Ellicott City, Maryland.  Armor sells automobile,  homeowners,  life,
health,   and  small  business  property  and  casualty  insurance  policies  to
individuals and small businesses  throughout central Maryland.  In separate cash
deals  Armor  has  acquired  four  smaller  insurance  agencies,   Comprehensive
Insurance  Associates,  Inc. and the Carolyn  Brooks Agency Inc. in August 2001,
Scott & Geiger,  Inc. in June 2002,  and First  Choice  Insurance  Solutions  in
December 2003.

                                       2
<PAGE>

         During March 2003, the Company formed a wholly-owned  subsidiary,  BUCS
Financial  Capital  Trust I, to  facilitate  the sale of $3  million  of  pooled
capital securities.

Stock Price Information

         The Company's  common stock has traded on the  OTC-Electronic  Bulletin
Board under the trading  symbol  "BUCS" since it commenced  trading on March 15,
2001.  The following  table  reflects  high and low sale closing  prices for the
calendar quarters indicated. The quotations reflect inter-dealer prices, without
retail   mark-up,   markdown  or  commission   and  may  not  represent   actual
transactions.  The  following  information  has been  adjusted  for a 10%  stock
dividend paid by the Company on January 31, 2004.

         2003                                     High              Low
         ----                                     ----              ---

         First Quarter                           $19.92            $19.00

         Second Quarter                          $20.19            $19.86

         Third Quarter                           $21.15            $20.19

         Fourth Quarter                          $24.55            $21.15

         2002                                     High              Low
         ----                                     ----              ---

         First Quarter                           $17.82            $15.12

         Second Quarter                          $19.58            $17.37

         Third Quarter                           $18.99            $18.27

         Fourth Quarter                          $18.90            $17.33

         The  number  of  shareholders  of  record  as of  March  12,  2004  was
approximately  275.  This does not reflect the number of persons or entities who
held stock in nominee or "street" name through various brokerage firms. At March
12, 2004, there were 400,984 shares of the Company's common stock outstanding.

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

                                       3
<PAGE>

Selected Financial Ratios and Other Data

--------------------------------------------------------------------------------
                                                           For the Years Ended
                                                               December 31,
Selected Financial Ratios and Other Data                   2003          2002
                                                           ----          ----
Performance Ratios
Return on average assets                                   0.41%         0.50%
Return on average equity                                   4.71%         4.86%
Net interest rate spread                                   2.99%         3.17%
Net interest margin on average  interest-
      earning assets                                       3.08%         3.36%
Average interest-earning assets to
      average interest-bearing liabilities               103.69%       106.79%
Efficiency Ratio  (non-interest expense
      divided by the sum of net interest
      income and noninterest income)                      84.34%        81.98%

Asset Quality Ratios
Non-performing loans to total loans, net                   0.06%         0.08%
Non-performing loans to total assets                       0.04%         0.06%
Net charge offs to average loans
       outstanding                                         0.29%         0.48%
Allowance for loan losses to total loans                   0.82%         0.87%

Capital Ratios
Average equity to average assets                           8.64%        10.36%
Equity to assets at period end                             8.45%         9.99%

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

                                       4
<PAGE>

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


General

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

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

         The Company  cautions that the foregoing  list of important  factors is
not  exclusive.  The Company does not  undertake  to update any  forward-looking
statement,  whether written or oral, that may be made from time to time by or on
behalf of the Company.

         The Company's  results of operations  are primarily  dependent upon net
interest income,  which is the difference  between the interest income earned on
interest-earnings  assets,  primarily  loans,   mortgage-backed  securities  and
investments, and the interest expense on interest-bearing liabilities, primarily
deposits and borrowings.  Net interest income may be affected  significantly  by
general economic and competitive conditions and policies of regulatory agencies,
particularly  those  with  respect  to market  interest  rates.  The  results of
operations  are  also  significantly  influenced  by the  level  of  noninterest
expenses such as employee  salaries and benefits,  noninterest  income,  such as
loan related fees and fees on deposit  related  services,  and the provision for
loan losses.

Management of Interest Rate Risk and Market Risk

         Qualitative  Analysis.  Because the  majority of the Bank's  assets and
liabilities  are  sensitive  to  changes in  interest  rates,  the  Bank's  most
significant form of market risk is

                                       5
<PAGE>

interest rate  risk/changes in interest rates.  The Bank may be vulnerable to an
increase  or decrease  in  interest  rates to the extent  that  interest-bearing
liabilities mature or reprice more rapidly or more slowly than  interest-earning
assets.

         The Board of Directors has  established an asset  liability  management
committee which consists of the Bank's  president and chief  executive  officer,
its senior officers, including two vice-presidents, and two members of the Board
of Directors,  one 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,  to  originate  and hold in its  portfolio
     adjustable  rate  loans  which  have  quarterly  or  annual  interest  rate
     adjustments; and

o    maintain an investment  portfolio that provides a stable cash flow, thereby
     providing investable funds in varying interest rate cycles.

         The Bank has also made a  significant  effort to maintain  its level of
lower costs  deposits as a method of  enhancing  profitability.  At December 31,
2003,  the Bank had  approximately  40% of its deposits in  relatively  low cost
savings  and  non-interest  bearing  checking  accounts.   These  deposits  have
traditionally  remained relatively stable and are expected to be only moderately
affected in a period of rising interest rates.  This stability  enables the Bank
to offset the impact of rising rates in other deposit accounts.

         Quantitative  Analysis. The Bank uses the Interest Rate Exposure Report
prepared by the Office of Thrift  Supervision  based on information  provided by
the Bank to monitor its  exposure to interest  rate risk.  The  following  table
presents  the effect on the Banks net  portfolio  value (NPV) as of December 31,
2003 of upward and downward shifts (shock) in the Treasury yield curve.

                                       6

<PAGE>

--------------- ------------------------------- --------------------------------
            Net Portfolio Value (ANPV)    NPV as % of Present Value of Assets
--------------- ------------------------------- --------------------------------
  Change in                                                         Basis Point
   Rates(1)   $ Amount   $ Change       % Change      NPV Ratio       Change
   --------   --------   --------       --------      ---------       ------
            (Dollars in thousands)
+300 bp         11,252    -2,676           -19           9.53         -181bp
+200 bp         12,248    -1,679           -12          10.23         -111bp
+100 bp         13,177      -750            -5          10.86          -48bp
   0 bp         13,928                                  11.35
-100 bp         14,185       258            +2          11.46          +11bp


         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 which restrict  changes in
interest  rates on a  short-term  basis and over the life of the  asset.  In the
event of a change in interest  rates,  prepayments and early  withdrawal  levels
could deviate  significantly from those assumed in making calculations set forth
above. Additionally,  an increased credit risk may result as the ability of many
borrowers to service  their debt may  decrease in the event of an interest  rate
increase.


Changes in Financial Condition

         The  Company's  total  assets of $118.3  million at  December  31, 2003
reflect an  increase of $21.5  million or 22.3% as compared to $96.8  million at
December  31, 2002.  The increase in assets was  comprised of increases in loans
receivable,  net,  of $10.8  million,  investment  securities  of $6.7  million,
property and equipment,  net, of $1.8 million, and other assets of $2.8 million,
partially  offset by a decrease in cash and cash  equivalents  of $608,000.  The
increase in loans receivable was mainly the result of strong demand for mortgage
loans,  especially  refinances,  home equity lines of credit, and small business
loans.  The increase in property and  equipment,  net,  resulted  primarily from
construction  of a new branch in  Columbia,  Maryland  and the  purchase  of new
imaging and loan processing hardware and software.  The increase in other assets
is

                                       7
<PAGE>

primarily  the  result  of the Bank  investing  $2,000,000  in  bank-owned  life
insurance during 2003.

         The increase in the Company's  liabilities was due primarily to a $10.5
million or 14.3%  increase  in  deposits,  a $7.8  million or 62.4%  increase in
advances from the Federal Home Loan Bank ("FHLB"),  and the sale of $3.0 million
of pooled  capital  securities in March 2003 through a newly formed  subsidiary,
BUCS Financial Capital Trust I. The increase in deposits is attributed to growth
at all four of the Bank's branches,  especially in small business deposits.  The
Bank  increased  advertising  and community  investment  during 2003,  mainly in
conjunction with the two new branch openings. The advances from the FHLB and the
proceeds of the sale of pooled  capital  securities  were used primarily for the
purchase of  mortgage-backed  securities in conjunction with a leverage strategy
implemented in April 2003.

         Stockholders'  equity  totaled  $10.0  million at December 31, 2003, an
increase of $329,000 or 3.4%. The increase is the result of net earnings for the
year ended December 31, 2003 and the effect of the allocation of shares from the
Bank's  Employee Stock  Ownership  Plan ("ESOP")  totaling  $548,000,  partially
offset by a $219,000 decline in the unrealized gain on securities available.

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.


                                       8
<PAGE>

<TABLE>
<CAPTION>
                                                                          Year Ended December 31
                                            ----------------------------------------------------------------------------------
                                                              2003                                      2002
                                            ---------------------------------------   ----------------------------------------
                                              Average                                    Average
                                            Outstanding      Interest                  Outstanding    Interest
($ in thousands)                              Balance      Earned/Paid   Yield/Rate      Balance     Earned/Paid   Yield/Rate
                                              -------      -----------   ----------      -------     -----------   ----------
<S>                                       <C>            <C>             <C>          <C>           <C>             <C>
Interest-earning assets:
 Loans receivable (1)                        $ 70,105       $ 4,327         6.17%        $61,885       $4,286          6.93%
 Investment securities (2)                     35,764         1,328         3.71%         26,192        1,209          4.62%
                   --                        --------       -------                      -------       ------
           Total interest-earning assets      105,869         5,655         5.34%         88,077        5,495          6.24%
                                                             ------                                    ------
Noninterest-earning assets:                     7,183                                      4,419
                                             --------                                    -------
           Total assets                      $113,052                                    $92,496
                                             ========                                    =======

Interest-bearing liabilities :
  Savings accounts                           $ 27,283         $ 228         0.84%        $24,641        $ 433          1.76%
  Money market accounts                        15,422           227         1.47%         13,287          310          2.33%
  Certificates of Deposit                      29,971         1,213         4.05%         23,990        1,188          4.95%
  Checking                                     10,563             -         0.00%          8,058            -          0.00%
                   --                        --------       -------                      -------       ------
    Total deposits                             83,239         1,668         2.00%         69,976        1,931          2.76%
   Borrowed Funds                              18,859           727         3.85%         12,500          601          4.81%
                   --                        --------       -------                      -------       ------
          Total interest-bearing liabilities  102,098         2,395         2.35%         82,476        2,532          3.07%
Noninterest-bearing liabilities                 1,186                                        436
                                             --------                                    -------
          Total liabilities                   103,284                                     82,912
Equity                                          9,768                                      9,584
                                             --------                                    -------
         Total liabilities and equity        $113,052                                    $92,496
                                             ========                                    =======

Net Interest income                                          $3,260                                    $2,963
                                                             ======                                    ======
Interest rate spread (3)                                                    2.99%                                      3.17%
                                                                          ======                                     ======
Net yield on interest- earning assets (4)                                   3.08%                                      3.36%
                                                                          ======                                     ======
Ratio of average interest-earning assets
 to average interest-bearing liabilities                                  103.69%                                    106.79%
                                                                          ======                                     ======
</TABLE>

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

                                        9
<PAGE>

Rate/Volume Analysis

The  relationship  between  the volume and rates of the bank's  interest-earning
assets and  interest-bearing  liabilities  influence  the  Bank's  net  interest
income.  The following  table reflects the  sensitivity  of the Bank's  interest
income and  interest  expense to  changes in volume and in  prevailing  interest
rates during the periods  indicated.  Each category reflects the: (1) changes in
volume  (changes in volume  multiplied by old rate; (2) changes in rate (changes
in rate multiplied by old volume);  (3) changes in rate/volume  (changes in rate
multiplied by changes in volume); (4) net change. The net change attributable to
the combined impact of volume and rate has been allocated  proportionally to the
absolute dollar amounts of change in each.
($ in thousands)

                                                 Year Ended December 31
                                           -------------------------------------
                                                       2003 vs. 2002
                                           -------------------------------------
                                                     Increase (Decrease)
                                                          Due to
                                           -------------------------------------
                                                                Rate/
                                            Volume     Rate    Volume      Net
                                            ------     ----    ------      ---
Interest income:
 Loans receivable                           $  569   $ (466)   $  (62)   $   41
 Investment securities and other               442     (237)      (86)      119
                                            ------   ------    ------    ------
    Total interest-earning assets           $1,011   $ (703)   $ (148)   $  160
                                            ======   ======    ======    ======

Interest expense:
 Savings accounts                           $   46   $ (227)   $  (24)   $ (205)
 Money market accounts                          50     (115)      (18)      (83)
 Certificates of deposit                       296     (217)      (54)       25
 Checking accounts                               -        -         -         -
 Borrowed funds                                306     (119)      (61)      126
                                            ------   ------    ------    ------
    Total interest-bearing liabilities      $  698   $ (678)   $ (157)   $ (137)
                                            ======   ======    ======    ======
                                                                         ======

Change in net interest income               $  313   $  (25)   $    9    $  297
                                            ======   ======    ======    ======


                                       10

<PAGE>

Results of Operations

         Net Income.  The Company  recorded  net income of $460,000 for the year
ended December 31, 2003, as compared to $466,000 for 2002, representing a $6,000
decrease.  The decrease was  primarily  attributable  to a $910,000  increase in
non-interest expense and a $39,000 increase in provision for loan loss expenses.
This was  partially  offset by increases in net interest  income of $297,000 and
non-interest  income of  $634,000,  and a decrease of $13,000 in  provision  for
income taxes.

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

         The  Bank's  net  interest  income  increased   $297,000  or  10.0%  to
$3,260,000  for the year ended  December 31, 2003, as compared to $2,963,000 for
2002. The average balance of interest-earning  assets increased $17.8 million or
20.2%,  while the average yield thereon  decreased 90 basis points.  The average
balance of interest-bearing liabilities increased $19.6 million or 23.7% and the
average  rate  paid  thereon   decreased  72  basis  points.   The  increase  in
interest-earning  assets is  attributed  to the  investment  of the increases in
deposits  and FHLB  borrowings.  The average  yield on  interest-earning  assets
decreased  primarily due to the continuation of historically low market interest
rates  throughout  2003 resulting in lower yields on new loans and  investments.
The average cost of interest-bearing liabilities decreased less than the average
yield of  interest-bearing  assets mainly  because the  interest-earning  assets
repriced faster than the interest-bearing  liabilities, and because the majority
of the increase in deposits came in higher costing money market and  certificate
of deposit  accounts.  The balance of money  market and  certificate  of deposit
accounts  equaled 56.7% and 56.5% of total  deposits as of December 31, 2003 and
2002, 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 2.99% for 2003 from 3.17% for 2002.
The decrease in the net interest  rate spread is primarily  due to the fact that
as general market interest rates have fallen,  interest-earning assets have been
repricing faster than interest-bearing liabilities.

         Provision for Loan Losses. During the years ended December 31, 2003 and
2002,  the  Company  established  provisions  for loan  losses of  $255,000  and
$216,000,  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, 2003 of $39,000 is the result of  management's  decision to
increase  the  allowance  due to growth in total loans  receivable,  net, and to
provide for probable  losses from a checking  deposit  overdraft  program  begun
during December 2002.

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

                                       11
<PAGE>

         Noninterest  Income.  Total  noninterest  income,  primarily  fees  and
service  charges,  increased  $634,000 or 27.1% for the year ended  December 31,
2003, as compared to the same period in 2002.  The $520,000 or 29.1% increase in
fees and service charges  reflects an emphasis on charging  appropriate fees for
services,  such as ATM fees,  insufficient  funds fees, and  interchange  income
generated by customers' use of check cards. In addition, income from commissions
on insurance sales by the Company's wholly-owned subsidiary, Armor, increased to
$440,000  for the year ended  December  31, 2003 from  $371,000  for 2002.  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 2003 and 2002,  is
reported in noninterest income.

         Noninterest Expense. Total noninterest expense increased by $910,000 or
20.9% for the year ended  December 31, 2003, as compared to 2002.  This increase
was  attributable to increases of $402,000 or 18.3% in compensation and benefits
resulting  from addition of employees to staff the two new branch offices opened
during 2003, increased cost for employee insurance programs,  and normal cost of
living  increases;  $369,000 or 25.7% in office  occupancy and operations  costs
resulting mainly from costs associated with opening the new branch offices;  and
$173,000 or 90.2% in marketing and advertising.  Marketing and advertising costs
increased as the Bank introduced new products and strongly  promoted the two new
office locations during 2003.

         Income Tax Expense. The provision for income taxes totaled $260,000 for
the year ended  December 31, 2003, as compared to $273,000 for 2002. The $13,000
or 4.8% decrease is the result of decreased net taxable income.

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 to 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, 2003 totaled $805,000 a decrease of $241,000 as compared
to 2002.

                                       12

<PAGE>

         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 December
31, 2003 totaled $22.7 million an increase of $12.1 million as compared to 2002.
The increase in cash used was primarily  attributable to funding net loan growth
of $11.9  million in 2003 as  compared to $7.2  million in 2002;  an increase in
securities  held to maturity of $12.0 million in 2003 as compared to an increase
of $1.0 million in 2002; and the  investment of $2.0 million in bank-owned  life
insurance  during 2003. The increase in net cash uses was partially  offset by a
decreases  resulting  from an increase  in  maturities,  redemption  and sale of
securities  available-for-sale  of $203,000 as compared to 2002;  an increase in
proceeds from repayments on securities held-to-maturity of $1.9 million compared
to 2002;  and a decrease in purchases of securities  available-for-sale  of $3.0
million compared to 2002 .

         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, 2003 totaled $21.3 million, an increase of $10.0 million
as compared  to 2002.  The  increase  is  primarily  attributable  to  increased
advances  from the FHLB of $7.8  million  and from the  proceeds  of the sale of
Trust Preferred  Debentures of $3.0 million,  partially  offset by a decrease in
cash from deposit growth of $1.7 million during 2003 as compared to 2002.

         Approximately  $16.3 million of the Bank's time deposits  mature within
the next 12  months.  The Bank  expects  such  deposits  to be renewed at market
rates. In addition to this source of continuing funding, the Bank has additional
borrowing capacity of approximately $9.2 million through the FHLB of Atlanta.

                                       13
<PAGE>


                          INDEPENDENT AUDITORS' REPORT




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


         We have audited the  accompanying  consolidated  balance sheets of BUCS
Financial  Corp and  subsidiaries  as of  December  31,  2003 and 2002,  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 auditing standards generally
accepted in the United States of America.  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  as of  December  31,  2003  and  2002  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
January 16, 2004

                                       14
<PAGE>

                      BUCS FINANCIAL CORP AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2003 AND 2002

                                     ASSETS

<TABLE>
<CAPTION>
                                                                           2003             2002
                                                                     -------------    -------------
<S>                                                                <C>              <C>
Cash and cash equivalents                                            $   3,486,463    $   4,094,866
Investment securities:
   Available-for-sale - at fair value                                   16,988,850       20,023,154
   Held-to-maturity - at amortized cost - fair value
     of $11,075,730 (2003) and $1,448,835 (2002)                        11,204,342        1,430,628
Loans receivable, net of allowance for loan losses
   of $630,702 (2003) and $579,627 (2002)                               77,128,367       66,336,895
Property and equipment, net                                              4,683,974        2,920,855
Investment in Federal Home Loan Bank of Atlanta stock - at cost          1,140,000          875,000
Accrued interest receivable                                                409,549          321,214
Bank-owned life insurance                                                2,045,410                -
Goodwill                                                                   165,667          165,667
Other intangible assets                                                    298,859          229,762
Prepaid expenses and other assets                                          767,735          387,696
                                                                     -------------    -------------

         TOTAL ASSETS                                                $ 118,319,216    $  96,785,737
                                                                     =============    =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
   Deposits                                                          $  84,187,323    $  73,654,190
   Accounts payable and other liabilities                                  803,825          794,475
   Borrowed funds - Federal Home Loan Bank of Atlanta                   20,300,000       12,500,000
   Notes payable                                                            30,000          168,000
   Guaranteed preferred beneficial interest in
     Company's subordinated debt                                         3,000,000                -
                                                                     -------------    -------------

         Total liabilities                                             108,321,148       87,116,665
                                                                     -------------    -------------

STOCKHOLDERS' EQUITY:
   Common stock, par value $0.10 per share, 5,000,000 shares
     authorized, 364,585 and 364,585 shares issued and outstanding
     at December 31, 2003 and 2002, respectively                            36,459           36,459
   Stock dividends distributable                                             3,640                -
   Additional paid-in capital                                            4,117,839        3,140,377
   Retained earnings                                                     6,021,020        6,486,967
   Unallocated common stock held by employee stock
     ownership plan ("ESOP")                                              (233,352)        (265,762)
   Accumulated other comprehensive income                                   52,462          271,031
                                                                     -------------    -------------

         Total stockholders' equity                                      9,998,068        9,669,072
                                                                     -------------    -------------

         TOTAL LIABILITIES AND STOCKHOLDERS'
            EQUITY                                                   $ 118,319,216    $  96,785,737
                                                                     =============    =============
</TABLE>

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

                                       15
<PAGE>

                      BUCS FINANCIAL CORP AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


                                                  2003         2002
                                               ----------   ----------

INTEREST INCOME:
   Loans receivable                            $4,327,118   $4,286,016
   Investment securities                        1,328,229    1,209,014
                                               ----------   ----------

         Total interest income                  5,655,347    5,495,030
                                               ----------   ----------

INTEREST EXPENSE:
   Deposits                                     1,667,484    1,930,086
   Borrowed funds                                 727,886      601,783
                                               ----------   ----------

         Total interest expense                 2,395,370    2,531,869
                                               ----------   ----------

NET INTEREST INCOME                             3,259,977    2,963,161

PROVISION FOR LOAN LOSSES                         255,427      216,000
                                               ----------   ----------

NET INTEREST INCOME AFTER PROVISION
   FOR LOAN LOSSES                              3,004,550    2,747,161
                                               ----------   ----------

NONINTEREST INCOME:
   Fees and service charges                     2,303,397    1,783,586
   Gain on sale of investment securities            4,429       60,140
   Gain on sale of loans                           36,996            -
   Fee to process and maintain cash facility      120,000      120,000
   Commission income                              440,260      371,201
   Other                                           64,701        1,121
                                               ----------   ----------

         Total noninterest income               2,969,783    2,336,048
                                               ----------   ----------

NONINTEREST EXPENSE:
   Compensation and benefits                    2,599,258    2,197,388
   Occupancy expense of premises                  940,915      590,295
   Office expense                                 865,468      846,661
   Professional fees                              197,166      200,374
   Advertising and marketing expense              363,862      191,335
   Conferences and training                       101,738      108,757
   Loan servicing                                  86,495      105,336
   Other operating expenses                        99,089      104,062
                                               ----------   ----------

         Total noninterest expense              5,253,991    4,344,208
                                               ----------   ----------

INCOME BEFORE INCOME TAXES                        720,342      739,001

INCOME TAX EXPENSE                                260,335      273,424
                                               ----------   ----------

NET INCOME                                     $  460,007   $  465,577
                                               ==========   ==========

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

                                       16
<PAGE>

BUCS Financial Corp and Subsidiaries

Consolidated Statements of Operations (Continued)
For the Years Ended December 31, 2003 and 2002


                                         December 31, 2003   December 31, 2002
                                         -----------------   -----------------

NET INCOME                                   $460,007             $465,577
                                             ========             ========

EARNINGS PER SHARE - BASIC                      $1.24                $1.21
                                                =====                =====

SHARES USED IN COMPUTING BASIC
   EARNINGS PER SHARES                        371,750              383,539
                                              =======              =======

EARNINGS PER SHARE - DILUTED                    $1.24                $1.21
                                                =====                =====

SHARES USED IN COMPUTING DILUTED
   EARNINGS PER SHARES                        372,405              383,539
                                              =======              =======


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

                                       17

<PAGE>

                      BUCS FINANCIAL CORP AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

<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, 2002          $40,508   $        -       $3,508,708   $6,443,132     $(298,172)    $  23,351    $9,717,527

Comprehensive income:

   Net income                             -            -                -      465,577             -             -       465,577

   Other comprehensive income,
     net of tax - unrealized gains on
     available-for-sale securities        -            -                -            -             -       247,680       247,680
                                                                                                                     -----------

       Total comprehensive income         -            -                -            -             -             -       713,257

   Repurchase of common stock        (4,049)           -         (404,321)    (421,742)            -             -      (830,112)

   Fair value of ESOP shares
     allocated                            -            -           35,990            -        32,410             -        68,400
                                    -------       ------       ----------   ----------     ---------     ---------    ----------

Balance at December 31, 2002         36,459            -        3,140,377    6,486,967      (265,762)      271,031     9,669,072

   Net income                             -            -                -      460,007             -             -       460,007

   Other comprehensive (loss), net
     of tax - unrealized gains on
     available-for-sale securities        -            -                -            -             -      (218,569)     (218,569)
                                                                                                                     -----------

         Total comprehensive income       -            -                -            -             -             -       241,438

   Stock dividends declared               -        3,640          922,314     (925,954)            -             -             -

   Fair value of ESOP shares
     allocated                            -            -           55,148            -        32,410             -        87,558
                                    -------       ------       ----------   ----------     ---------     ---------    ----------

Balance at December 31, 2003        $36,459       $3,640       $4,117,839   $6,021,020     $(233,352)    $  52,462    $9,998,068
                                    =======       ======       ==========   ==========     =========     =========    ==========
</TABLE>

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

                                       18
<PAGE>

                      BUCS FINANCIAL CORP AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

<TABLE>
<CAPTION>
                                                                  2003            2002
                                                             ------------    ------------
<S>                                                        <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                $    460,007    $    465,577
   Reconciliation of net income to net cash provided
     by operating activities:
     Gain on sale of investment securities                         (4,429)        (60,140)
     Gain on sale of loans                                        (36,996)              -
     Provision for loan losses                                    255,427         216,000
     Deferred income taxes                                         14,717          74,325
     Increase in cash surrender value of life insurance           (45,410)              -
     Depreciation and amortization                                507,314         338,204
   Effects of changes in operating assets and liabilities:
     Accrued interest receivable                                  (88,335)         11,219
     Prepaid expenses and other assets                           (124,319)         57,776
     Accounts payable and other liabilities                      (132,720)        (57,430)
                                                             ------------    ------------

         Net cash provided by operating activities                805,256       1,045,531
                                                             ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Net increase in loans                                      (11,829,220)     (7,191,987)
   Proceeds from maturities, redemption and sales
     of securities available-for-sale                          14,728,129      14,525,126
   Proceeds from repayments on securities held-to-maturity      2,163,101         296,009
   Proceeds from sale of loans                                    819,317               -
   (Purchase of) proceeds from redemption of FHLB stock          (265,000)         55,800
   Purchase of securities held-to-maturity                    (11,970,496)     (1,005,000)
   Purchase of securities available-for-sale                  (12,100,042)    (15,069,464)
   Purchase of bank-owned life insurance                       (2,000,000)              -
   Purchase of property and equipment                          (2,143,939)     (2,179,670)
   Acquisition of insurance subsidiaries                          (98,200)        (30,900)
                                                             ------------    ------------

         Net cash used in investing activities                (22,696,350)    (10,600,086)
                                                             ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Repurchase of common stock                                           -        (830,112)
   Proceeds from issuance of guaranteed preferred
     beneficial interest in Company's subordinated debt         3,000,000               -
   Allocated fair value of ESOP shares                             87,558          68,400
   Increase in Federal Home Loan Bank of
     Atlanta borrowings                                         7,800,000               -
   Net increase in deposits                                    10,533,133      12,237,097
   Repayments of notes payable                                   (138,000)       (185,000)
                                                             ------------    ------------

         Net cash provided by financing activities             21,282,691      11,290,385
                                                             ------------    ------------
</TABLE>

                                       19
<PAGE>

BUCS Financial Corp and Subsidiaries

Consolidated Statements of Cash Flows (Continued)
For the Years Ended December 31, 2003 and 2002


                                                        2003           2002
                                                    -----------    -----------

NET (DECREASE) INCREASE IN CASH
   AND CASH EQUIVALENTS                             $  (608,403)   $ 1,735,830

CASH AND CASH EQUIVALENTS
   AT BEGINNING OF YEAR                               4,094,866      2,359,036
                                                    -----------    -----------

CASH AND CASH EQUIVALENTS
   AT END OF YEAR                                   $ 3,486,463    $ 4,094,866
                                                    ===========    ===========


Supplemental disclosure of cash flow information:
   Cash paid for income taxes                       $   157,285    $   433,885
                                                    ===========    ===========

   Cash paid for interest                           $ 2,392,976    $ 2,523,433
                                                    ===========    ===========


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

                                       20
<PAGE>

                      BUCS FINANCIAL CORP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002



1.      NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

               BUCS Financial Corp (the "Company") is a savings and loan holding
company that  provides its  customers  with  banking and  non-banking  financial
services  through its wholly-owned  subsidiaries  BUCS Federal Bank (the "Bank")
and ARMOR  Insurance  Group,  Inc.  ("ARMOR").  The Bank offers  various  loans,
deposit  and other  financial  service  products  to its  customers.  The Bank's
customers  include  individuals and commercial  enterprises  throughout  central
Maryland; emphasizing the areas surrounding its main office and branch locations
in Owings Mills and Columbia, Maryland, respectively.

         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 2003.

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

               The  preparation  of  financial  statements  in  conformity  with
accounting  principles  generally  accepted  in the  United  States  of  America
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from these estimates.

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

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

                                       21
<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.

         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 to customers.

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

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

                                       22
<PAGE>

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

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

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

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

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

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

                                       23

<PAGE>

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

               Property  and  equipment  are  stated  at cost  less  accumulated
depreciation  and  amortization.  Depreciation  and amortization are accumulated
using  straight-line  method  over the  estimated  useful  lives of the  assets.
Additions  and   betterments   are  capitalized  and  charges  for  repairs  and
maintenance are expensed when incurred. The cost and accumulated depreciation or
amortization  are eliminated  from the accounts when an asset is sold or retired
and the  resultant  gain or loss is  credited  or charged  to income.  Leasehold
improvements  are  amortized  over 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. This stock is considered to be a  non-marketable  equity security
under SFAS No. 115 and, accordingly, is reported at cost.

         Goodwill
         --------

               Goodwill  represents the excess of the cost of assets acquired in
business  combinations  accounted  for under the  purchase  method over the fair
value of the net assets at dates of acquisition and is  periodically  tested for
impairment.

         Other Intangible Assets
         -----------------------

               Other  intangible  assets,  consisting  of contracts  and related
customer  relationships,  were created with the acquisition of certain insurance
agencies by ARMOR in 2003 and 2002.  Intangible  assets are  amortized  over the
estimated lives and evaluated regularly for impairment. If circumstances suggest
that their  value may be  impaired  and the  write-down  would be  material,  an
assessment of recoverability is performed prior to any write-down of the asset.

               Amortization on contracts and related customer  relationships are
calculated using the straight-line method over a ten-year period.

         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 amount that
could be realized under the insurance  policies as an asset in the  consolidated
balance sheets.

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

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

                                       24
<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 net  earnings  per common share is computed by dividing net
earnings  applicable to common  stockholders by the  weighted-average  number of
common  shares  outstanding  during the period.  Diluted  earnings  per share is
determined using the weighted-average number of common shares outstanding during
the  period,  adjusted  for the  dilutive  effect of common  stock  equivalents,
consisting  of shares that might be issued upon exercise of common stock options
(Treasury Stock Method).  At December 31, 2002 there were no options outstanding
that are considered in the money. Accordingly, options outstanding had no effect
on diluted earnings per share for the year ended December 31, 2002. Earnings per
share  amounts  have been  given  retroactive  effect to the 10% stock  dividend
declared December 22, 2003.

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

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

                The option  strike  price was equal to the  market  price of the
common stock at the date of the grant for all options  granted in 2003 and 2002;
accordingly,  no compensation expense related to options was recognized.  If the
Company had applied a fair value based method to recognize compensation cost for
the options  granted,  net income and earnings per share would have been changed
to the  following  pro forma  amounts for the year ended  December  31, 2003 and
2002:

                                                        2003          2002
                                                     ---------   -----------

Net income - as reported                             $ 460,007   $   465,577

Deduct:  Total stock-based compensation determined
  under fair value based method for all awards,
  net of related income tax effects                   (161,959)      (22,518)
                                                     ---------   -----------

Pro forma net income                                 $ 298,048   $   443,059
                                                     =========   ===========


Earnings per share:
  Basic - as reported                                $    1.24   $      1.21
                                                     =========   ===========
  Basic - pro forma                                  $     .80   $      1.15
                                                     =========   ===========

  Diluted - as reported                              $    1.24   $      1.21
                                                     =========   ===========
  Diluted - pro forma                                $     .80   $      1.15
                                                     =========   ===========

                                       25
<PAGE>

                For purposes of pro forma  disclosures,  the  estimated  minimum
value of the options is amortized to expense over the option's  vesting  period.
Note that the effects of applying SFAS No. 123 for pro forma  disclosures in the
current year are not necessarily  representative of the effects on pro forma net
income for future years.

                The weighted  average fair value of options  granted during 2003
and 2002 was $6.89 and $9.72,  respectively,  on the date of the grant. The fair
value of  options  granted  is  estimated  on the date of the  grant  using  the
Black-Scholes  option pricing model. The Black-Scholes  option pricing model was
originally  developed  for use in estimating  the fair value of traded  options,
which have different characteristics from the Company's stock options. The model
is also sensitive to changes in the subjective assumptions, which can materially
affect  the  fair  value  estimate.   As  a  result,   management  believes  the
Black-Scholes model may not necessarily provide a reliable single measure of the
fair value of employee stock options. The following weighted average assumptions
were used in the Black-Scholes option pricing model:

                                                           2003         2002
                                                           ----         ----

                      Dividend yield                       0.00%       0.00%
                      Expected volatility                  5.00%      29.17%
                      Risk-free interest rate              4.49%       4.58%
                      Expected lives (in years)              10           10

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

               Advertising  and marketing costs are expensed as incurred and for
the years  ended  December  31, 2003 and 2002  totaled  $363,862  and  $191,335,
respectively.

         Business Segments
         -----------------

               The  Corporation  has  determined  that its current  business and
operations consist of one business segment.

2. RECENT ACCOUNTING PRONOUNCEMENTS

             In April 2003, the Financial  Accounting  Standards  Board ("FASB")
issued and the Company  adopted  Statement  of  Financial  Accounting  Standards
("SFAS") No. 149,  Amendment of Statement No. 133 on Derivative  Instruments and
Hedging Activities. This Statement amends and clarifies financial accounting and
reporting for derivative  instruments,  including certain derivative instruments
embedded  in other  contracts,  and for hedging  activities  under SFAS No. 133,
Accounting for Derivative  Instruments and Hedging  Activities.  The adoption of
SFAS  No.  149  did  not  have a  material  impact  on the  Company's  financial
statements.

             In  November  2002,  the  FASB  issued  and  the  Company   adopted
Interpretation  No.  45  ("FIN  45"),   Guarantor's  Accounting  and  Disclosure
Requirements for Guarantees,  Including  Indirect  Guarantees of Indebtedness of
Others. This interpretation expands the disclosures to be made by a guarantor in
its financial  statements  about its  obligations  under certain  guarantees and
requires  the  guarantor  to  recognize  a  liability  for the fair  value of an
obligation  assumed  under a  guarantee.  The  adoption of FIN 45 did not have a
material impact on the Company's financial statements.

                                       26
<PAGE>

             In  January   2003,   the  FASB  issued   Interpretation   No.  46,
Consolidation  of  Variable  Interest   Entities"  ("FIN  46"),  which  explains
identification  of variable  interest  entities and the assessment of whether to
consolidated these entities.  FIN 46 requires existing  unconsolidated  variable
interest  entities to be  consolidated  by their  primary  beneficiaries  if the
entities do not  effectively  disperse  risks among the  involved  parties.  The
potential de-consolidation of subsidiary trusts of bank holding companies formed
in connection with the issuance of trust preferred  securities  appears to be an
unintended  consequence of FIN 46. On December 17, 2003, the FASB revised FIN 46
("FIN46R") and deferred the effective date of FIN 46 to no later than the end of
the first  reporting  period that ends after March 15,  2004.  Accordingly,  the
Company  has  chosen  to  postpone   de-consolidation  of  the  trust  preferred
securities  until March 31, 2004. The overall effect on the Company's  financial
position and operating  results of this  de-consolidation  will not be material.
The Company has no  significant  variable  interests in any entities which would
require disclosure or consolidation.

             In May 2003,  the FASB issued SFAS No. 150,  Accounting for Certain
Financial  Instruments with Characteristics of both Liabilities and Equity. This
Statement  establishes  standards  for how an  issuer  classifies  and  measures
certain  financial  instruments  with  characteristics  of both  liabilities and
equity.  It  requires  that an issuer  classify a financial  instrument  that is
within its scope as a  liability  (or an asset in some  circumstances).  Many of
those instruments were previously  classified as equity.  Some of the provisions
of this Statement are consistent  with the current  definition of liabilities in
FASB Concepts Statement No. 6, Elements of Financial  Statements.  The remaining
provisions of this Statement are consistent with the Board's  proposal to revise
that definition to encompass certain  obligations that a reporting entity can or
must settle by issuing  its own equity  shares,  depending  on the nature of the
relationship  established  between  the holder and the  issuer.  While the Board
still plans to revise that definition through an amendment to Concepts Statement
6, the Board decided to defer issuing that amendment  until it has concluded its
deliberations on the next phase of this project.  That next phase will deal with
certain compound financial  instruments  including puttable shares,  convertible
bonds, and dual-indexed financial instruments.  These provisions of SFAS No. 150
are effective for  financial  statements  for fiscal years ending after June 15,
2003.  The  application  of SFAS No. 150 did not have a  material  impact on the
Company's operations.

3. BUSINESS COMBINATIONS

         During the year ended December 31, 2003, the Company's insurance agency
subsidiary acquired assets of two other insurance agencies.  The transaction was
accounted for using the purchase method of accounting. Total acquisition cost of
the company was $98,200,  including  brokers'  commissions of $700. The purchase
price was allocated entirely to contracts and related customer relationships.

         The  amount  due to the  entities  acquired  in  this  transaction  and
acquisitions  occurring  in  previous  years in the amount of $30,000 is payable
during  2004.  During  2003  $138,000  has been  paid  related  to the  purchase
agreements.

                                       27
<PAGE>


4. INVESTMENT SECURITIES

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

<TABLE>
<CAPTION>
                                                                                 Gross         Gross         Estimated
                                                              Amortized       Unrealized     Unrealized        Fair
                                                                Cost             Gain          Losses          Value
                                                           ---------------  -------------   ------------   ------------
<S>                                                        <C>              <C>              <C>          <C>
December 31, 2003:
   Investment securities available-for-sale:
     Obligations of U.S. Government agencies                 $ 3,984,216       $ 10,601        $ 83,380      $ 3,911,437
     Mortgage-backed securities                               12,921,361        165,163           9,111       13,077,413
                                                             -----------       --------        --------      -----------
                                                              16,905,577        175,764          92,491       16,988,850
                                                             -----------       --------        --------      -----------
   Investment securities held-to-maturity:
     Collateralized mortgage obligations                         324,274          2,168              51          326,391
     Mortgage-backed securities                               10,880,068              -         130,729       10,749,339
                                                             -----------       --------        --------      -----------
                                                              11,204,342          2,168         130,780       11,075,730
                                                             -----------       --------        --------      -----------

                                                             $28,109,919       $177,932        $223,271      $28,064,580
                                                             ===========       ========        ========      ===========

December 31, 2002:
   Investment securities available-for-sale:
     Obligations of U.S. Government agencies                 $ 1,998,896       $ 29,845        $      -      $ 2,028,741
     Mortgage-backed securities                               17,594,049        416,218          15,854       17,994,413
                                                             -----------       --------         -------      -----------
                                                              19,592,945        446,063          15,854       20,023,154
   Investment securities held-to-maturity:
     Collateralized mortgage obligations                       1,430,628         18,207               -        1,448,835
                                                             -----------       --------        --------      -----------

                                                             $21,023,573       $464,270        $ 15,854      $21,471,989
                                                             ===========       ========        ========      ===========
</TABLE>

         The amortized cost and estimated  fair values of investment  securities
by contractual maturity date at December 31, 2003 are as follows:

<TABLE>
<CAPTION>
                                                                                     Estimated
                                                                Amortized              Fair
                                                                   Cost                Value
                                                               -----------          -----------
<S>                                                          <C>                  <C>
Investment securities available-for-sale:
   Within one year                                             $         -          $         -
   1 -   5 years                                                 4,258,898            4,329,143
   6 - 10 years                                                  3,698,052            3,762,448
   After 10 years                                                8,948,627            8,897,259

Investment securities held-to-maturity:
   Within one year                                                       -                    -
   1 -   5 years                                                   324,274              326,391
   6 - 10 years                                                          -                    -
   After 10 years                                               10,880,068           10,749,339
                                                               -----------          -----------

         Totals                                                $28,109,919          $28,064,580
                                                               ===========          ===========
</TABLE>

         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.

                                       28
<PAGE>

         Investment  securities  with an amortized  cost of  $15,092,762  and an
estimated fair value of  $15,183,061  have been pledged as collateral for credit
extended by the Federal Home Loan Bank of Atlanta ("FHLB") at December 31, 2003.

         The gross  realized  gains and losses on debt  securities for the years
ended December 31, 2003 and 2002 are as follows:

<TABLE>
<CAPTION>
                                                                 2003                               2002
                                                      ------------------------------     --------------------------------
                                                        Gross            Gross             Gross            Gross
                                                      Realized          Realized         Realized          Realized
                                                        Gains            Losses            Gains            Losses
                                                      ---------         --------         ---------         ---------
<S>                                                   <C>              <C>               <C>                <C>
         Securities available-for-sale                 $43,310          $38,881           $60,140            $    -
                                                       =======          =======           =======            =======
</TABLE>

         Proceeds  from  sales  of  securities  available-for-sale  amounted  to
$3,328,405  and  $5,389,662  for the years  ended  December  31,  2003 and 2002,
respectively.

         Net  unrealized  holding gain (loss) on  available-for-sale  securities
that has been included in accumulated  other  comprehensive  income  amounted to
$218,569  and  $247,680  for  the  years  ended  December  31,  2003  and  2002,
respectively. The amount of gains (losses) reclassified out of accumulated other
comprehensive income amounted to $4,229 and $60,140 for the years ended December
31, 2003 and 2002, respectively.

         Gross  unrealized  losses  and fair  value by  length  of time that the
individual  securities  have been in a continuous  unrealized  loss  position at
December 31, 2003 are as follows:

<TABLE>
<CAPTION>
                                                                            Continuous Unrealized
                                                                              Losses Existing for
                                                                     ----------------------------------          Total
                                                                       Less than          More than           Unrealized
         Available-for-Sale                        Fair Value          12 Months          12 Months              Losses
         ------------------                        ----------          ---------          ---------           ------------
<S>                                            <C>                   <C>              <C>                     <C>
     Obligations of U.S. Government agencies       $2,900,836            $83,380            $    -              $83,380
     Mortgage-backed securities                     3,365,777              7,092             2,019                9,111
                                                   ----------            -------            ------              -------

                                                   $6,266,613            $90,472            $2,019              $92,491
                                                   ==========            =======            ======              =======
</TABLE>


<TABLE>
<CAPTION>
                                                                          Continuous Unrealized
                                                                          Losses Existing for
                                                                     ----------------------------------         Total
                                                                       Less than          More than           Unrealized
               Held-to-Maturity                    Fair Value          12 Months          12 Months             Losses
               ----------------                  ----------          ---------          ---------           ------------
<S>                                           <C>                   <C>                <C>                <C>
     Collateralized mortgage obligations          $    27,487           $     51         $      -              $     51
     Mortgage-backed securities                    10,749,339            130,729                -               130,729
                                                  -----------           --------         --------              --------

                                                  $10,776,826           $130,780         $      -              $130,780
                                                  ===========           ========         ========              ========
</TABLE>

         The  unrealized  losses that exist are the result of 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.

                                       29
<PAGE>

5. LOANS RECEIVABLE

         Loans receivable consist of the following at December 31:

                                          2003          2002
                                      -----------   -----------

Categories:
  Mortgage loans:
    Residential:
      Permanent 1 - 4 single family   $25,693,522   $19,942,010
      Land                                  3,740         4,579
      Commercial                        4,129,739     3,129,141
  Consumer loans:
    Home equity loans                  23,335,770    19,506,951
    Secured loans                      17,015,230    17,428,290
    Other                               3,975,759     4,774,100
  Commercial                            3,163,715     1,707,180
                                      -----------   -----------
          Total loans                  77,317,475    66,492,251
  Net deferred loan costs                 441,594       424,271
                                      -----------   -----------
                                       77,759,069    66,916,522
  Less allowance for loan losses          630,702       579,627
                                      -----------   -----------

          Loans receivable, net       $77,128,367   $66,336,895
                                      ===========   ===========

         Loans aggregating  $22,895,186 and $19,320,357 have been pledged to the
FHLB as collateral for credit extended by the FHLB for short-term  borrowings at
December 31, 2003 and 2002, respectively.

         Nonperforming loans amounted to approximately $44,000 and $54,000 as of
December  31, 2003 and 2002,  respectively.  The amount of interest  income that
would have been recorded on loans in nonaccrual  status at period-end,  had such
loans performed in accordance with their terms, was immaterial.

         The allowance for loan losses activity at December 31, is as follows:

                                         2003         2002
                                      ---------    ---------

       Balance at beginning of year   $ 579,627    $ 662,885
       Provision for loan losses        255,427      216,000
       Recoveries                        59,574       67,065
       Loan loss write-offs            (263,926)    (366,323)
                                      ---------    ---------

       Balance at end of year         $ 630,702    $ 579,627
                                      =========    =========

         Impairment  of  loans  having  recorded  investments  of  approximately
$44,000 and $54,000 at December 31, 2003 and 2002,
respectively,  has been recognized in conformity with SFAS No. 114 as amended by
SFAS  Statement  No. 118. The average  recorded  investments  in impaired  loans
during 2003 and 2002 approximate  $47,000 and $122,000,  respectively.  Interest
income on impaired loans of  approximately  $1,700 and $7,100 was recognized for
cash  payments  received  in  the  years  ended  December  31,  2003  and  2002,
respectively.  The Bank is not  committed  to lend  additional  funds to debtors
whose loans have been modified.  The valuation  allowance for impaired loans was
approximately $44,000 and $48,000 at December 31, 2003 and 2002, respectively.

                                       30
<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:

                                                2003            2002
                                             -----------    -----------

         Balance at beginning of year        $   548,688    $   236,000
         Additional borrowings                   457,844        345,716
         Repayments                             (188,788)       (33,028)
                                             -----------    -----------

         Balance at end of year              $   817,744    $   548,688
                                             ===========    ===========

6. PROPERTY AND EQUIPMENT

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

                                                 2003           2002
                                             -----------    -----------

         Building                            $ 1,800,268    $   444,685
         Leasehold improvements                1,094,660      1,083,434
         Furniture, fixtures and equipment     2,052,051      1,273,921
                                             -----------    -----------
                                               4,945,979      2,802,040
           Less allowance for depreciation     1,304,999        924,179
                                             -----------    -----------
                                               3,640,980      1,877,861
         Land                                  1,042,994      1,042,994
                                             -----------    -----------

                                             $ 4,683,974    $ 2,920,855
                                             ===========    ===========

         Depreciation  expense totaled $380,820 and $236,806 for the years ended
December 31, 2003 and 2002, respectively.

         The Bank occupies a branch banking facility in Columbia, Maryland. BUCS
Federal prepaid ten (10) years of rent totaling  $327,218 for the period July 1,
1999 to June 30, 2009. BUCS Federal has the option to extend the lease for three
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.

7. OTHER INTANGIBLE ASSETS

         Other  intangible  assets  consisting of contracts and related customer
relationships acquired in business combinations are as follows:

                                       31
<PAGE>

<TABLE>
<CAPTION>
                                         2003                                                  2002
                  ---------------------------------------------------  -----------------------------------------------------
                                                          Weighted                                              Weighted
                   Gross                       Net         Average       Gross                       Net         Average
                  Carrying    Accumulated    Carrying     Remaining     Carrying    Accumulated    Carrying     Remaining
                   Amount     Amortization    Amount         Life        Amount     Amortization    Amount         Life
                   ------     ------------    ------         ----        ------     ------------    ------         ----
<S>              <C>           <C>          <C>          <C>           <C>           <C>          <C>          <C>
Contracts and
 related customer
 relationships     $350,673      $51,814      $298,859     8.52 years    $252,473      $22,711      $229,762     9.1 years
                   ========    =========     =========                 ==========      =======      ========
</TABLE>

         Amortization  expense on intangible assets for the years ended December
31, 2003 and 2002 was $29,103 and $22,711, respectively.

8.   DEPOSITS

         Deposits at December 31, 2003 and 2002 are as follows:

                                                        2003          2002
                                                    -----------   -----------

      Checking                                      $ 9,612,718   $ 7,981,416
      Regular savings                                24,184,152    21,320,850
      Money markets                                  17,603,832    12,979,421
      IRA's floating rate                             2,595,766     2,716,498
      Certificate of deposits (including IRA CDs)    30,190,855    28,656,005
                                                    -----------   -----------

                                                    $84,187,323   $73,654,190
                                                    ===========   ===========

         Scheduled maturities of certificate of deposits are as follows:

                                                         December 31,
                                                             2003
                                                         ------------

                            2004                         $16,339,307
                            2005                           5,831,791
                            2006                           2,188,531
                            2007                           3,722,588
                            2008                           2,108,638
                            Thereafter                             -
                                                         -----------

                                                         $30,190,855
                                                         ===========

         Officers' and directors'  savings  accounts  amounted to  approximately
$1,114,000 and $912,000 at December 31, 2003 and 2002, respectively.

         Deposits over $100,000  approximated  $25,381,000  and  $19,430,000  at
December 31, 2003 and 2002, respectively.

9. BORROWED FUNDS

         Borrowings  consist of FHLB  advances at December 31, 2003 and 2002 and
are summarized as follows:

                                   2003                              2002
                         -----------------------  ---------------------------
                                       Weighted                     Weighted
                                       Average                      Average
                                       Interest                     Interest
                             Amount      Rate         Amount           Rate
                          -----------   --------   -------------    ----------

Less than one year        $ 7,800,000     1.72%     $10,000,000        4.14%
One to two years            1,800,000     2.06        1,000,000        4.72
Two to three years          1,800,000     2.66          -               .00
Three to four years         2,400,000     3.18          -               .00
Four to five years          5,000,000     3.91          -               .00
Thereafter                  1,500,000     4.78        1,500,000        4.78
                          -----------               -----------

                          $20,300,000     2.77%     $12,500,000        4.26%
                          ===========               ===========

                                       32
<PAGE>

         The Company has $6,500,000 in adjustable  rate advances and $13,800,000
in fixed rate  advances  from the FHLB at December 31, 2003.  As of December 31,
2003, the Company's adjustable rate FHLB advances include $1,500,000 of advances
with a scheduled maturity of 2011. The FHLB under certain  circumstances,  has a
one time call provision in 2006 related to these advances.

         At December 31, 2003, the Company had line of credit  commitments  with
the FHLB totaling  $29,500,000 of which  $20,300,000 was advanced and $9,200,000
was available at December 2003.

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

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

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

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

      Interest on the Capital  Securities is cumulative and payable quarterly in
arrears.  The Capital  Securities  mature on April 7, 2033.  The Company has the
right to optionally  redeem the Junior  Subordinated  Debt prior to the maturity
date, but no sooner than five years after the issuance, at 100% of the principal
amount to be  redeemed,  plus accrued and unpaid  distributions,  if any, on the
redemption  date.  Upon the  occurrence of certain  events,  the Company has the
right to redeem the Junior  Subordinated  Debt before five years have elapsed in
whole, but not in part, at a special redemption price of 107.5% of the principal
amount to be  redeemed,  plus accrued and unpaid  distributions,  if any, on the
redemption date.  Proceeds from any redemption of the Junior  Subordinated  Debt
will cause a mandatory  redemption  of 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 until April 7, 2008 at 6.65%.  The interest rate resets quarterly after
April 7, 2008 to LIBOR plus 3.25%. The interest rate at June 30, 2003 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.

                                       33
<PAGE>

11. INCOME TAXES

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

                                         2003       2002
                                       --------   --------

      Current income taxes:
        Federal                        $199,759   $147,019
        State                            45,859     52,080
                                       --------   --------
                                        245,618    199,099
                                       --------   --------

      Deferred income taxes:
        Federal                          12,050     60,853
        State                             2,667     13,472
                                       --------   --------
                                         14,717     74,325
                                       --------   --------

            Total income tax expense   $260,335   $273,424
                                       ========   ========

         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:

                                                            2003       2002
                                                          --------   --------

      Deferred tax assets:
        Organization expenses                             $      -   $  1,884
        Deferred compensation                               10,655          -
        Allowance for loan losses                          114,557     94,831
                                                          --------   --------

            Gross deferred tax assets                      125,212     96,715
                                                          --------   --------

      Deferred tax liabilities:
        Deferred loan costs                                112,081    105,916
        Depreciation                                       118,789     83,875
        Other                                                2,322        187
                                                          --------   --------

            Gross deferred tax liabilities                 233,192    189,978
                                                          --------   --------

      Total from operations                                107,980     93,264

      Unrealized gains on available-for-sale securities     32,160    166,147
                                                          --------   --------

            Net deferred tax liability                    $140,140   $259,410
                                                          ========   ========

         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:

                                                           2003       2002
                                                          ------     ------

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                                                    (2.5)      (1.6)
                                                          ------     ------

      Effective tax rate                                   36.1%      37.0%
                                                          ======     ======

                                       34
<PAGE>

12. 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, 2003 and
2002 approximated $60,000 and $45,000, respectively.

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

               The Company  sponsors a leveraged  employee stock  ownership plan
(ESOP) that  covers all  employees  who work twenty or more hours per week.  The
Company makes annual contributions to the ESOP equal to the ESOP's debt service.
ESOP  shares are  pledged  as  collateral  for its debt.  As the debt is repaid,
shares are released from  collateral and allocated to active  employees based on
the  proportion of debt service paid in the year.  The Company  accounts for its
ESOP in accordance with Statement of Position 93-6. Accordingly, the debt of the
ESOP is recorded as debt and the shares  pledged as  collateral  are reported as
unearned  ESOP shares in the  statement  of  financial  position.  As shares are
released from collateral,  the Company reports compensation expense equal to the
current  market  price of the  shares  and the  shares  become  outstanding  for
earnings-per-share (EPS) computations. ESOP compensation expense was $87,600 and
$68,400 for the years ended December 31, 2003 and 2002,  respectively.  The ESOP
shares for the year ended December 31, 2003 were as follows:

            Allocated shares                                   5,834
            Shares released for allocation                     3,241
            Unreleased shares                                 23,335
                                                             -------

                Total ESOP shares                             32,410
                                                              ======

         Fair value of unreleased shares at December 31, 2003 was $572,874.

         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.

                Information  with respect to stock options is as follows for the
year ended December 31, 2003 and 2002:

<TABLE>
<CAPTION>
                                                                    2003                               2002
                                                   ---------------------------------  -------------------------------
                                                                       Weighted                         Weighted
                                                                       Average                          Average
                                                     Number            Exercise       Number            Exercise
                                                    of Shares            Price       of Shares            Price
                                                   ---------           -------------  ---------        -----------
<S>                                                 <C>                <C>            <C>               <C>
         Outstanding at beginning of year              11,330             $19.20              -            $  .00
         Granted                                       32,120              20.55         11,330             19.20
         Exercised                                          -                .00              -               .00
         Forfeited/cancelled                                -                .00              -               .00
                                                       ------             ------         ------            ------
         Outstanding at end of year                    43,450             $20.19         11,330            $19.20
                                                       ======             ======         ======            ======
</TABLE>
                                       35
<PAGE>

         Options outstanding are summarized as follows at December 31, 2003:

                           Options Outstanding            Options Exercisable
      -----------------------------------------------     -------------------
                                          Weighted
                                           Average
                                          Remaining
                                         Contractual
      Exercise                              (Years)
        Price            Shares                Life              Shares
      -----------        ------          ------------         ------------
        19.20            11,330              8.3                  7,553
        20.55            32,120              9.7                 32,120

13. REGULATORY CAPITAL

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

         Quantitative  measures  established  by  regulation  to ensure  capital
adequacy require the Bank to maintain amounts and ratios (set forth in the table
below)  of  total  and  Tier  1  capital  (as  defined  in the  regulations)  to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined).  Management believes as of December 31, 2003, that the Bank
meets all capital adequacy requirements to which they are subject.

         As of December 31, 2003, 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.

                                       36

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                         To be
                                                                                                    Well Capitalized
                                                                                                       Under Prompt
                                                                           For Capital              Corrective Action
                                                   Actual                Adequacy Purposes              Provision
                                          -------------------------   ------------------------   ------------------------

                                            Amount         Ratio         Amount         Ratio       Amount        Ratio
                                          -----------      -----       -----------      -----      --------       -----
<S>                                      <C>              <C>         <C>              <C>       <C>             <C>
As of December 31, 2003:
   Total capital (to risk-weighted assets) $10,861,551      13.97%      $6,219,520       8.0%      $7,774,400      10.0%

   Tier 1 capital (to risk-weighted assets) 10,310,092      13.26        3,109,760       4.0        4,664,640       6.0

   Tier 1 capital (to average assets)       10,310,092       8.97        4,599,560       4.0        5,749,450       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, 2002:
   Total capital (to risk-weighted assets)  $9,166,267      14.3%       $5,132,000       8.0%      $6,415,000      10.0%

   Tier 1 capital (to risk-weighted assets)  8,625,565      13.4         2,566,000       4.0        3,849,000       6.0

   Tier 1 capital (to average assets)        8,625,565       9.5         3,647,000       4.0        4,558,000       5.0
</TABLE>

         The following is a reconciliation  of capital computed under accounting
principles  generally  accepted  in the United  States of America to  regulatory
capital at December 31, 2003:

<TABLE>
<CAPTION>
                                                        GAAP           Tangible           Core              Total
                                                       Capital          Capital          Capital           Capital
                                                     -----------      -----------       -----------      -----------
<S>                                                <C>              <C>               <C>              <C>
GAAP capital                                         $10,362,554      $10,362,554       $10,362,554      $10,362,554
                                                     ===========

Accumulated losses (gains) on certain
   available-for-sale securities                                          (52,462)          (52,462)         (52,462)
Additional capital items - general
  valuation allowance                                                           -                 -          551,459
                                                                      -----------       -----------      -----------

Regulatory capital - computed                                         $10,310,092       $10,310,092      $10,861,551
                                                                      ===========       ===========      ===========
</TABLE>

           The  following  is  a   reconciliation   of  capital  computed  under
accounting  principles  generally  accepted in the United  States to  regulatory
capital at December 31, 2002:

<TABLE>
<CAPTION>
                                                       GAAP             Tangible           Core               Total
                                                      Capital            Capital          Capital            Capital
                                                     ----------        ----------       ----------          ----------
<S>                                                <C>               <C>              <C>                 <C>
GAAP capital                                         $8,896,596        $8,896,596       $8,896,596          $8,896,596
                                                     ==========

Accumulated losses (gains) on certain
   available-for-sale securities                                         (271,031)        (271,031)           (271,031)
Additional capital items -
   General valuation allowance                                                  -                -             540,702
                                                                       ----------       ----------          ----------

Regulatory capital - computed                                          $8,625,565       $8,625,565          $9,166,267
                                                                       ==========       ==========          ==========
</TABLE>

                                       37
<PAGE>

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

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


14. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

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

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

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

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

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

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

           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.

                                       38
<PAGE>

           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.

                The estimated fair values of the Bank's  financial  instruments,
excluding goodwill, as of December 31, are as follows:
<TABLE>
<CAPTION>
                                                               2003                                2002
                                                   --------------------------------    --------------------------------
                                                                      Estimated                             Estimated
                                                     Carrying            Fair             Carrying             Fair
                                                      Amount             Value             Amount              Value
                                                    ----------        ------------      -----------       -----------
<S>                                               <C>                <C>               <C>              <C>
       Financial assets:
         Cash and cash equivalents                  $ 3,486,463        $ 3,486,463       $  4,094,866      $ 4,094,866
         Investment securities                       28,193,192         28,064,580         21,453,782       21,471,989
         Loans receivable                            77,128,367         78,171,000         66,472,312       66,659,627
         Investment in FHLB stock                     1,140,000          1,140,000            875,000          875,000
         Bank-owned life insurance                    2,045,410          2,045,410                  -                -

       Financial liabilities:
         Deposits                                    84,187,323         84,356,540         73,654,190       72,969,312
         Borrowed funds                              20,300,000         20,429,920         12,500,000       12,300,000
</TABLE>

       Off-Balance Sheet Financial Assets:
<TABLE>
<CAPTION>
                                                               2003                                 2002
                                                  ----------------------------------------------------------------------------------

                                                   Estimated                            Estimated
                                                    Contract         Estimated           Contract        Estimated
                                                     Amount          Fair Value           Amount         Fair Value
                                                     ------          ----------           ------         ----------
<S>                                            <C>                <C>                <C>              <C>
       Commitments to extend credit              $18,513,000        $18,507,900        $16,231,000      $16,222,000
</TABLE>

15. 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 $18,513,000 at December 31,
2003 and $16,231,000 at December 31, 2002. These commitments are contingent upon
continuing customer compliance with the terms of the agreement.

                                       39
<PAGE>

           Variable rate loan  commitments  were at current market rates ranging
from 3.00% to 4.25% for December 31, 2003.


16. 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 $18,000 per annum under the sublease during the term of the agreement.

                                       40

<PAGE>

17. PARENT COMPANY FINANCIAL STATEMENTS

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

                             CONDENSED BALANCE SHEET
                           DECEMBER 31, 2003 AND 2002

                                     ASSETS
<TABLE>
<CAPTION>
                                                                  2003            2002
                                                             ------------    ------------
<S>                                                        <C>             <C>
Cash                                                         $  1,450,800    $    161,503
Investment in subsidiaries                                     11,304,375       9,369,368
Notes receivable                                                  265,762         298,172
Other                                                             351,095         105,791
                                                             ------------    ------------

         Total assets                                        $ 13,372,032    $  9,934,834
                                                             ============    ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
   Other                                                     $     47,612    $          -
   Long-term notes payable                                      3,093,000               -
                                                             ------------    ------------

         Total liabilities                                      3,140,612               -
                                                             ------------    ------------

Stockholders' equity:
   Common stock                                                    36,459          36,459
   Stock dividend distributable                                     3,640               -
   Additional paid-in capital                                   4,117,839       3,140,377
   Retained earnings                                            6,021,020       6,486,967
   Accumulated other comprehensive income                          52,462         271,031
                                                             ------------    ------------

           Total stockholders' equity                          10,231,420       9,934,834
                                                             ------------    ------------

           Total liabilities and stockholders' equity        $ 13,372,032    $  9,934,834
                                                             ============    ============
</TABLE>

                         CONDENSED STATEMENT OF INCOME
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

<TABLE>
<CAPTION>
                                                                  2003            2002
                                                             ------------    ------------
<S>                                                        <C>             <C>
Interest income                                              $     21,820    $     20,880

Operating expenses                                                216,272          56,149
                                                             ------------    ------------

Loss before income tax expense and equity
   in undistributed income of subsidiaries                       (194,402)        (35,269)

Income tax benefit                                                (71,929)        (13,050)
                                                             ------------    ------------

Loss before income in undistributed income of subsidiaries       (122,473)        (22,219)

Equity in undistributed income of subsidiaries                    582,480         487,796
                                                             ------------    ------------

Net income                                                       $460,007    $    465,577
                                                             ============    ============
</TABLE>

                                       41
<PAGE>

                        CONDENSED STATEMENT OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002



<TABLE>
<CAPTION>
                                                                  2003           2002
                                                              -----------    -----------
<S>                                                         <C>            <C>
Cash flows from operating activities:
   Net income                                                 $   460,007    $   465,577
   Adjustments to reconcile net income to cash
     provided by operating activities:
     Equity in undistributed income of subsidiaries              (582,480)      (487,796)
     Net increase in other assets                                (245,252)       (84,266)
     Net increase in other liabilities                             47,612         (2,534)
                                                              -----------    -----------

           Net cash used in operating activities                 (320,113)      (109,019)
                                                              -----------    -----------

Cash flows from investing activities:
   Investment in subsidiaries                                  (1,516,000)      (100,000)
   Proceeds from notes receivable                                  32,410         25,928
                                                              -----------    -----------

           Net cash used in investing activities               (1,483,590)       (74,072)
                                                              -----------    -----------

Cash flows from financing activities:
   Proceeds from long-term notes                                3,093,000              -
   Repurchase of common stock                                           -       (830,112)
   Liquidating dividend from subsidiary                                 -          5,514
                                                              -----------    -----------

           Net cash provided (used) by financing activities     3,093,000       (824,598)
                                                              -----------    -----------

NET INCREASE (DECREASE) IN CASH                                 1,289,297     (1,007,689)

CASH AT BEGINNING OF YEAR                                         161,503      1,169,192
                                                              -----------    -----------

CASH AT END OF YEAR                                           $ 1,450,800    $   161,503
                                                              ===========    ===========
</TABLE>

                                       42


<PAGE>

                            Corporate Information

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

                               BUCS Federal Bank

10455 Mill Run Circle          10802 Red Run Blvd      8801 Columbia 100 Parkway
Owings Mills, MD 21117       Owings Mills, MD 21117        Columbia, MD  21045

                             8820 Snowden River Pkwy
                               Columbia, MD 21045

                                 Armor Insurance
                              3203 Corporate Court
                             Ellicott City, MD 21042

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

                               EXECUTIVE OFFICERS

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

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

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

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

The Company's  Annual  Report on Form 10-KSB for the fiscal year ended  December
31, 2003 is available  without  charge upon written  request.  For a copy of the
Form 10-KSB,  please write or call Herbert J.  Moltzan,  President & CEO, at the
Company's Red Run Blvd.  Office. The Annual Meeting of Stockholders will be held
on April 28, 2004 at 5:00 PM at the BUCS  Federal  Bank  Offices,  10802 Red Run
Blvd., Owings Mills, MD 21117.

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