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 Registered Public Accounting Firm...................... 15

Consolidated Financial Statements............................................ 16

Notes to Consolidated Financial Statements................................... 22

Corporate Information........................................................ 45


<PAGE>

                               BUCS Financial Corp

Dear Fellow Stockholders:

On behalf of our Board of Directors and employees, we are pleased to present the
2004 Annual Report to the Stockholders of BUCS Financial Corp (the "Company").

During  2004,  we  continued  to grow the  Company and BUCS  Federal  Bank ("the
Bank").  However,  during October 2004, as a result of the loss of key personnel
and increased uncertainty and competition in the insurance industry, we sold our
wholly-owned  subsidiary,  Armor Insurance Group, Inc. ("Armor"),  with plans to
reinvest  the proceeds of the sale into  operations  at the Company and our core
banking business.

Despite  increased  operating  expenses as a result of the Bank opening two new,
full-service branches and a computer operations center in 2003, earnings for the
year ended December 31, 2004 were $590,000, or $1.56 per diluted share, compared
to $460,000, or $1.24 per diluted share for 2003.

Asset growth  continued a positive  trend with total assets at December 31, 2004
reaching  $122.8  million,  as compared to $118.3  million at December 31, 2003.
Total  deposits  increased  during 2004 by $4.4  million or 5.3%  compared  with
growth of $10.5 million or 14.3% for the twelve months ended  December 31, 2003.
The deposit  growth during 2004 was made up of a $9.7 million or 18.9%  increase
in core checking, savings, and money market deposits, partially offset by a $5.1
million or 16.8% decline in certificate of deposit accounts.

The growth in deposits and the sale and maturity of  investments  available  for
sale and investments held to maturity totaling $13.0 million helped fund a $14.0
million or 18.2% growth of loans receivable, net and the pay down of $800,000 or
3.9% of Federal Home Loan Bank borrowings.  Loans receivable,  net totaled $91.2
million at December  31, 2004  compared to $77.1  million at December  31, 2003.
Total loans growth included a $5.0 million or 120.9% increase in commercial real
estate loans,  an $8.8 million or 37.7%  increase in home equity  loans,  a $3.4
million or 20.0% increase in secured  consumer loans and a $2.4 million or 74.8%
increase  in  commercial  loans,  partially  offset by a $5.3  million  or 20.8%
decline in one-to-four family residential loans.

At year-end,  stockholders'  equity was $10.6  million,  resulting in total book
value per share and tangible book value per share of $26.50.

We expect that the  investments  in the  infrastructure  that the Company put in
place in 2003 and 2004 will help  fuel  continued  excellent  asset  growth  and
improved  earnings into 2005 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  managing  its  portfolio  of  investments
purchased with the Company's  portion of the net proceeds obtained in the mutual
to stock conversion.

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

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

         Armor  Insurance  Group,  Inc.  ("Armor")  was formed in late 1999 as a
limited liability company and wholly-owned subsidiary of the Bank. Subsequent to
the Bank's mutual-to-stock conversion, Armor was restructured as a subsidiary of
the Company and in December 2001 converted to a Maryland corporation.  Armor was
a traditional  multi-line  property and casualty insurance agency with an office
located in Ellicott City,  Maryland.  Armor sold automobile,  homeowners,  life,
health,   and  small  business  property  and  casualty  insurance  policies  to
individuals and small businesses  throughout central Maryland.  In separate cash
deals Armor acquired four smaller insurance  agencies,  Comprehensive  Insurance
Associates,  Inc. and the Carolyn  Brooks  Agency Inc. in August  2001,  Scott &
Geiger,  Inc. in June 2002,  and First  Choice  Insurance  Solutions in December
2003. In October 2004, the Company sold most of the business  assets of Armor to
the Russell Insurance Group, Inc. of Taylorville,  Maryland. The sales price was
based on total 2004 actual  commission  income from the Armor book of  business.
The final  settlement of this sale will be complete  after all 2004  commissions
have been received. This settlement is expected to occur during April 2005.

                                       2

<PAGE>

Stock Price Information

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

         2004                                      High              Low

         First Quarter                            $26.77            $23.00

         Second Quarter                           $26.60            $26.00

         Third Quarter                            $26.00            $24.50

         Fourth Quarter                           $24.75            $24.25

         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

         The  number  of  shareholders  of  record  as of  March  11,  2005  was
approximately  267.  This does not reflect the number of persons or entities who
held stock in nominee or "street" name through various brokerage firms. At March
11, 2005, 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>

                                                          For the Years Ended
                                                              December 31,
                                                          2004            2003
                                                          ----            ----
Selected Financial Ratios and Other Data
----------------------------------------
Performance Ratios
------------------
  Return on average assets                               0.49%           0.41%
  Return on average equity                               5.79%           4.71%
  Net interest rate spread                               3.32%           3.00%
  Net interest margin on average  interest-
        earning assets                                   3.28%           3.08%
  Average interest-earning assets to
        average interest-bearing liabilities            98.02%         103.69%
  Efficiency Ratio  (non-interest expense
        divided by the sum of net interest
        income and noninterest income)                  85.57%          82.76%

Asset Quality Ratios
--------------------
  Non-performing loans to total loans, net               0.11%           0.06%
  Non-performing loans to total assets                   0.08%           0.04%
  Net charge offs to average loans
         outstanding                                     0.28%           0.29%
  Allowance for loan losses to total loans               0.74%           0.82%

Capital Ratios
--------------
  Average equity to average assets                       8.38%           8.64%
  Equity to assets at period end                         8.65%           8.45%


                                        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 interest rate risk/changes in interest rates.
The Bank may be vulnerable  to an increase or

                                       5
<PAGE>

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 of whom  also  serves  as  treasurer.  The  committee  meets
periodically to review loan and deposit pricing and production volumes, interest
rate risk analysis,  liquidity and borrowing needs, and a variety of other asset
and liability management topics.

         To reduce the effect of interest  rate changes on net  interest  income
the Bank has  adopted  various  strategies  to enable it to improve  matching of
interest-earning asset maturities to interest-bearing  liability maturities. The
principal elements of these strategies include seeking to:

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

o    lengthen the maturities of its liabilities  when it would be cost effective
     through  the  pricing  and  promotion  of   certificates  of  deposits  and
     utilization of FHLB advances;

o    attract low cost checking and  transaction  accounts  which tend to be less
     interest rate sensitive when interest rates rise;

o    when  market  conditions  permit,  originate  and  hold  in  its  portfolio
     adjustable rate loans which have monthly, quarterly or annual interest rate
     adjustments; and

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

The Bank has also made a significant effort to maintain its level of lower costs
deposits as a method of enhancing profitability.  At December 31, 2004, the Bank
had  approximately  50% 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,
2004 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       12,935      -3,171             -20%     10.42%      -213 bp
   +200 bp       14,049      -2,058             -13%     11.19%      -136 bp
   +100 bp       15,162        -945              -6%     11.94%       -61 bp
      0 bp       16,107                                  12.56%
   -100 bp       16,658         551              +3%     12.88%       +32 bp

-----------
(1)  Interest  rate changes of -200bp and -300bp are not  reflected in the table
     because  market rates are at low enough levels to make the  resulting  data
     derived from such modeling immaterial to estimated changes in Net Portfolio
     Value.

         Future interest rates or their effect on NPV or net interest income are
not predictable.  Computations of prospective  effects of hypothetical  interest
rate changes are based on numerous  assumptions,  including  relative  levels of
market  interest rates,  prepayments,  and deposit  run-offs,  and should not be
relied upon as indicative of actual results.  Certain  shortcomings are inherent
in this type of  computation.  Although  certain assets and liabilities may have
similar maturity or periods of repricing,  they may react at different times and
in different  degrees to changes in the market interest rates. The interest rate
on certain types of assets and  liabilities  may fluctuate in advance of changes
in market interest  rates,  while rates on other types of assets and liabilities
may lag  behind  changes  in  market  interest  rates.  Certain  assets  such as
adjustable  rate mortgages  generally  have features  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 $122.8  million at  December  31, 2004
reflect an  increase of $4.4  million or 3.8% as  compared to $118.3  million at
December 31, 2003. The increase in assets was comprised of increases in cash and
cash  equivalents  of $3.8 million,  loans  receivable,  net, of $14.1  million,
miscellaneous  other  assets of  $167,000  and  establishment  of an account for
assets  held for  sale,  in  conjunction  with the sale of Armor,  of  $363,000,
partially offset by a decreases in investment  securities available for sale and
held  to  maturity  totaling  $13.0  million,  property  and  equipment,  net of
$567,000,  and goodwill and other intangible assets of $464,000. The increase in
loans receivable was mainly the result of strong demand for commercial  mortgage
loans,  home equity

                                       7

<PAGE>

loans and lines of credit,  and small business loans. The decrease in investment
securities was mainly the result of sales of investments in order to fund strong
loan demand and pay down Federal Home Loan Bank ("FHLB") borrowings.

         The increase in the Company's  liabilities  was due primarily to a $4.4
million or 5.3% increase in deposits,  partially offset by an $800,000  decrease
in FHLB  borrowings.  The  increase  in  deposits  is  attributed  to  growth of
non-interest  bearing  checking  accounts,  regular  savings  and  money  market
accounts at all four of the Bank's branches.

         Stockholders'  equity  totaled  $10.6  million at December 31, 2004, an
increase of $630,000 or 6.3%. The increase is the result of net earnings for the
year ended December 31, 2004 and the effect of the allocation of shares from the
Bank's  Employee Stock  Ownership  Plan ("ESOP")  totaling  $673,000,  partially
offset by a $44,000 decline in the unrealized  gain on securities  available for
sale.

                                       8

<PAGE>

                              Average Balance Sheet

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

<TABLE>
<CAPTION>
                                                                        Year Ended December 31
                                               ---------------------------------------------------------------------------
                                                               2004                                   2003
                                               -----------------------------------    ------------------------------------
                                                 Average                                 Average
                                               Outstanding   Interest                 Outstanding   Interest
                                                 Balance   Earned/Paid  Yield/Rate       Balance   Earned/Paid  Yield/Rate
                                                 -------   -----------  ----------       -------   -----------  ----------
<S>                                           <C>          <C>          <C>         <C>          <C>            <C>
Interest-earning assets:
 Loans receivable (1)                           $ 85,848      $4,852      5.65%        $ 70,105      $4,327        6.17%
 Investment securities (2)                        22,529         892      3.96%          35,764       1,328        3.71%
                                                --------      ------                   --------      ------
           Total interest-earning assets         108,377       5,744      5.30%         105,869       5,655        5.34%
Noninterest-earning assets:                       13,241      ------                      7,183      ------
                                                --------                               --------
           Total assets                         $121,618                               $113,052
                                                ========                               ========

Interest-bearing liabilities :
  Savings accounts                              $ 28,536       $ 152      0.53%        $ 27,283      $  228        0.84%
  Money market accounts                           20,653         256      1.24%          15,422         226        1.47%
  Certificates of Deposit                         28,425       1,017      3.58%          29,971       1,213        4.05%
  Checking                                        11,073           -      0.00%          10,563           -        0.00%
                                                --------      ------                   --------      ------
    Total deposits                                88,687       1,425      1.61%          83,239       1,667        2.00%
   Borrowed Funds                                 21,879         763      3.49%          18,859         723        3.83%
                                                --------      ------                   --------      ------
          Total interest-bearing liabilities     110,566       2,188      1.98%         102,098       2,390        2.34%
Noninterest-bearing liabilities                      865                                  1,186
                                                --------                               --------
          Total liabilities                      111,431                                103,284
Equity                                            10,187                                  9,768
                                                --------                               --------
         Total liabilities and equity           $121,618                               $113,052
                                                ========                               ========

Net Interest income                                           $3,556                                 $3,265
                                                              ======                                 ======
Interest rate spread (3)                                                  3.32%                                    3.00%
                                                                         =====                                   ======
Net yield on interest- earning assets (4)                                 3.28%                                    3.08%
                                                                         =====                                   ======
Ratio of average interest-earning assets
 to average interest-bearing liabilities                                 98.02%                                  103.69%
                                                                         =====                                   ======

</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.

                                                    Year Ended December 31
                                               --------------------------------
                                                       2004 vs. 2003
                                               --------------------------------
                                                     Increase (Decrease)
                                                          Due to
                                               --------------------------------
                                                       ($ in thousands)
                                                                 Rate/
                                              Volume     Rate    Volume     Net
Interest income:
 Loans receivable ..........................   $ 972    $(365)   $ (82)   $ 525
 Investment securities and other ...........    (491)      88      (33)    (436)
                                               --------------------------------
    Total interest-earning assets ..........   $ 481    $(277)   $(115)   $  89
                                               ================================

Interest expense:
 Savings accounts ..........................   $  10    $ (82)   $  (4)   $ (76)
 Money market accounts .....................      77      (35)     (12)      30
 Certificates of deposit ...................     (63)    (140)       7     (196)
 Checking accounts .........................       -        -        -        -
 Borrowed funds ............................     116      (65)     (10)      41
                                               --------------------------------
    Total interest-bearing liabilities .....   $ 140    $(322)   $ (19)   $(201)
                                               ================================

Change in net interest income ..............   $ 341    $  45    $ (96)   $ 290
                                               ================================

                                       10

<PAGE>

Results of Operations

         Net Income.  The Company  recorded  net income of $590,000 for the year
ended  December  31,  2004,  as compared to $460,000  for 2003,  representing  a
$130,000 increase.  The increase was primarily  attributable a $291,000 increase
in net  interest  income,  a  $381,000  increase  in  non-interest  income and a
$191,000  increase  as a  result  of the sale of Armor  Insurance  Group,  Inc.,
partially  offset by a $739,000  increase in  non-interest  expenses,  a $38,000
increase in provision  for loan losses and a $79,000  increase in provision  for
income taxes.

         Net  Interest  Income.  Net  interest  income  is the most  significant
component of our income from  operations.  Net interest income is the difference
between interest the Bank receives on interest-earning  assets, mainly loans and
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  Company's  net  interest  income  increased  $291,000  or  8.9% to
$3,556,000  for the year ended  December 31, 2004, as compared to $3,264,000 for
2003. The average balance of  interest-earning  assets increased $2.5 million or
2.4%,  while the average  yield thereon  decreased 4 basis  points.  The average
balance of interest-bearing  liabilities  increased $8.5 million or 8.3% and the
average  rate  paid  thereon   decreased  37  basis  points.   The  increase  in
interest-earning  assets is  attributed  to the  investment  of the increases in
deposits.  The  average  yield on  interest-earning  assets  decreased  slightly
primarily due to the  continuation  of  historically  low market  interest rates
during early 2004. Later in the year, yields began to increase as general market
interest  rates  began  to  increase.   The  average  cost  of  interest-bearing
liabilities  decreased faster than the average yield of interest-bearing  assets
mainly   because  the   interest-earning   assets   repriced   faster  than  the
interest-bearing liabilities as market interest rates began to rise, and because
the  majority of the  increase in deposits  came in lower  costing  checking and
savings  deposits,  rather  than  higher  costing  money  markets  accounts  and
certificates  of  deposit.  The  balance  of higher  costing  money  market  and
certificate of deposit  accounts equaled 50.2% and 56.8% of total deposits as of
December 31, 2004 and 2003, respectively.

           The net interest  rate spread,  which is the  difference  between the
average   yield   on   interest-earning   assets   and  the   average   cost  of
interest-bearing  liabilities,  increased to 3.32% for 2004 from 2.99% for 2003.
The increase in the net interest  rate spread is primarily  due to the fact that
as general market interest rates began to increase, interest-earning assets have
been repricing faster than  interest-bearing  liabilities.  The Company does not
know whether this trend will continue.

         Provision for Loan Losses. During the years ended December 31, 2004 and
2003,  the  Company  established  provisions  for loan  losses of  $294,000  and
$255,000,  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,  2004 of  $38,000  or

                                       11

<PAGE>

14.9% is the result of  management's  decision to increase the  allowance due to
growth in total loans receivable, net, and to provide for probable losses from a
checking deposit overdraft program begun during December 2002.

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

         Noninterest  Income.  Total  noninterest  income,  primarily  fees  and
service  charges,  increased  $381,000 or 15.1% for the year ended  December 31,
2004,  as compared to 2003.  The $337,000 or 14.6%  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. 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 2004 and 2003, is reported in noninterest income.

         Noninterest Expense. Total noninterest expense increased by $739,000 or
15.4% for the year ended  December 31, 2004, as compared to 2003.  This increase
was  attributable to increases of $531,000 or 23.5% 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;  $253,000 or 15.0% in office  occupancy and operations  costs
resulting  mainly from costs  associated  with the branch  offices and  computer
operations  center  opened in 2003;  and $72,000 or 36.7% in  professional  fees
resulting  from  increased  use of  consulting  help  for  human  resources  and
compliance.  These increases were partially  offset by a decrease of $114,000 or
31.7% in advertising and marketing costs as the Bank scaled back after extensive
promotions of the new branches opened during 2003.

         Income Tax Expense.  The  provision  for income  taxes from  continuing
operations totaled $225,000 for the year ended December 31, 2004, as compared to
$269,000 for 2003.  The $44,000 or 16.2% decrease is the result of decreased net
taxable income from  continuing  operations.  The provision for income taxes was
further impacted for the year ending December 31, 2004 by changes resulting from
discontinued  operations that resulted in an increase of approximately $123,000.
The net impact of such changes on provision for income taxes from continuing and
discontinued  operations  was a $79,000  increase  or 30.38% for the year ending
December 31, 2004 compared to the year ending December 31, 2003.

         Discontinued  Operations.  Upon the sale of the Armor Insurance  Group,
Inc.  ("Armor")  subsidiary  assets  in  October  2004,  the  results  of  Armor
operations for 2004 and 2003 were reclassified in the statement of operations as
results  from  discontinued  operations.  The after  tax gain from  discontinued
operations  totaled $176,000 for the year

                                       12

<PAGE>

ended December 31, 2004 as compared to a loss of $15,000 for 2003 representing a
$191,000 or 1313.1% increase. The $176,000 gain for December 31, 2004 represents
normal 2004  operating net income from  insurance  business prior to the sale of
$11,000 and an initial gain on the sale of Armor's book of business of $165,000.
The final  sales  price for the book of business  will be  determined  after the
actual  income  for the Armor  book of  business  for 2004 has been  determined,
expected to be known during April 2005.

         Assets held for sale from discontinued  operations  equaled $363,000 at
December 31, 2004 and are comprised mostly of fixed assets and real estate owned
by Armor Insurance Group, Inc. The Company expects to liquidate all fixed assets
within the first quarter of 2005 and does not expect such  liquidation to result
in any material gain or loss on sale of such assets.

Liquidity and Capital Resources

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

         Net cash provided by the Bank's operating  activities (the cash effects
of transactions that enter into the Bank's  determination of net income) for the
year ended  December 31, 2004 totaled $2.6  million,  an increase of $954,000 as
compared to 2003.

         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 2004
totaled  $2.5  million,  a decrease of $21.1  million as  compared to 2003.  The
decrease in cash used was primarily  attributable  to a decrease in the purchase
of securities  held to maturity,  investments  available for sale and bank owned
life   insurance  from  $12.0   million,   $12.1  million,   and  $2.0  million,
respectively,  during 2003 to zero for 2004, and a decrease in cash used for the
purchase of fixed assets of $2.0 million for 2004 as compared to 2003, partially
offset by an  increase  in cash used to fund loans of $3.7  million  for 2004 as
compared to 2003.

         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, 2004 totaled $3.7 million,  a decrease of $17.6 million
as compared  to 2003.  The  decrease  is  primarily  attributable  to  decreased
advances from the FHLB of $8.6 million,  a decrease in cash from deposit  growth
of $6.1  million  and a  decrease  in  proceeds  from  sale of  trust  preferred
securities of $3.0 million for 2004 as compared to 2003.

                                       13

<PAGE>

         At December 31, 2004,  approximately  $13.2  million of the Bank's time
deposits were  scheduled to mature  within the next 12 months.  The Bank expects
the majority of such deposits to be renewed at market rates. In addition to this
source of continuing  funding,  the Bank has  additional  borrowing  capacity of
approximately $11.0 million through the FHLB of Atlanta.

                                       14
<PAGE>
             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




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


         We have audited the  accompanying  consolidated  balance sheets of BUCS
Financial  Corp and  subsidiaries  as of  December  31,  2004 and 2003,  and the
related consolidated statements of operations,  changes in stockholders' equity,
and cash flows for the years then ended. These consolidated financial statements
are  the   responsibility   of  the  management  of  BUCS  Financial  Corp.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

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

         In our opinion, the consolidated financial statements referred to above
present  fairly,  in all  material  respects,  the  financial  position  of BUCS
Financial Corp and subsidiaries as of December 31, 2004 and 2003 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
February 8, 2005


                                       15
<PAGE>

                      BUCS FINANCIAL CORP AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2004 AND 2003

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                        2004             2003
                                                                                   -------------    -------------

<S>                                                                              <C>              <C>
Cash and cash equivalents                                                          $   7,296,507    $   3,486,463
Investment securities:
   Available-for-sale - at fair value                                                  5,928,920       16,988,850
   Held-to-maturity - at amortized cost - fair value
     of $9,174,946 (2004) and $11,075,730 (2003)                                       9,285,882       11,204,342
Loans receivable, net of allowance for loan losses
   of $682,339 (2004) and $630,702 (2003)                                             91,215,225       77,128,367
Property and equipment, net                                                            4,116,949        4,683,974
Investment in Federal Home Loan Bank of Atlanta stock - at cost                        1,114,900        1,140,000
Accrued interest receivable                                                              377,285          409,549
Bank-owned life insurance                                                              2,132,529        2,045,410
Goodwill                                                                                       -          165,667
Other intangible assets                                                                        -          298,859
Assets held for sale                                                                     362,915                -
Prepaid expenses and other assets                                                        935,039          767,735
                                                                                   -------------    -------------

         TOTAL ASSETS                                                              $ 122,766,151    $ 118,319,216
                                                                                   =============    =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
   Deposits                                                                        $  88,620,555    $  84,187,323
   Accounts payable and other liabilities                                              1,017,815          803,825
   Borrowed funds - Federal Home Loan Bank of Atlanta                                 19,500,000       20,300,000
   Notes payable                                                                               -           30,000
   Guaranteed preferred beneficial interest in
     Company's subordinated debt                                                       3,000,000        3,000,000
                                                                                   -------------    -------------

         Total liabilities                                                           112,138,370      108,321,148
                                                                                   -------------    -------------

STOCKHOLDERS' EQUITY:
   Common stock, par value $0.10 per share, 5,000,000 shares
     authorized, 400,984 and 364,585 shares issued and outstanding
     at December 31, 2004 and 2003, respectively                                          40,099           36,459
   Stock dividends distributable                                                               -            3,640
   Additional paid-in capital                                                          4,170,343        4,117,839
   Retained earnings                                                                   6,609,556        6,021,020
   Unallocated common stock held by employee stock
     ownership plan ("ESOP")                                                            (200,942)        (233,352)
   Accumulated other comprehensive income                                                  8,725           52,462
                                                                                   -------------    -------------

         Total stockholders' equity                                                   10,627,781        9,998,068
                                                                                   -------------    -------------
         TOTAL LIABILITIES AND STOCKHOLDERS'
            EQUITY                                                                 $ 122,766,151    $ 118,319,216
                                                                                   =============    =============
</TABLE>

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

                                       16
<PAGE>

                      BUCS FINANCIAL CORP AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003


                                                      2004           2003
                                                  -----------    -----------

INTEREST INCOME:
   Loans receivable                               $ 4,851,442    $ 4,327,118
   Investment securities                              892,413      1,328,229
                                                  -----------    -----------

         Total interest income                      5,743,855      5,655,347
                                                  -----------    -----------

INTEREST EXPENSE:
   Deposits                                         1,425,146      1,667,484
   Borrowed funds                                     762,783        723,396
                                                  -----------    -----------

         Total interest expense                     2,187,929      2,390,880
                                                  -----------    -----------

NET INTEREST INCOME                                 3,555,926      3,264,467

PROVISION FOR LOAN LOSSES                             293,705        255,427
                                                  -----------    -----------

NET INTEREST INCOME AFTER PROVISION
   FOR LOAN LOSSES                                  3,262,221      3,009,040
                                                  -----------    -----------

NONINTEREST INCOME:
   Fees and service charges                         2,640,201      2,303,397
   (Loss)/Gain on sale of investment securities        (5,422)         4,429
   Gain on sale of loans                               28,280         36,996
   Fee to process and maintain cash facility          120,000        120,000
   Other                                              127,608         64,701
                                                  -----------    -----------

         Total noninterest income                   2,910,667      2,529,523
                                                  -----------    -----------

NONINTEREST EXPENSE:
   Compensation and benefits                        2,792,026      2,261,108
   Occupancy expense of premises                    1,100,680        866,878
   Office expense                                     843,433        824,316
   Professional fees                                  269,590        197,166
   Advertising and marketing expense                  245,700        359,979
   Conferences and training                           104,468        100,153
   Loan servicing                                      74,531         86,495
   Other operating expenses                           103,548         99,089
                                                  -----------    -----------

         Total noninterest expense                  5,533,976      4,795,184
                                                  -----------    -----------

INCOME BEFORE INCOME TAXES                            638,912        743,379

INCOME TAX EXPENSE                                    225,296        268,832
                                                  -----------    -----------

INCOME FROM CONTINUING OPERATIONS                 $   413,616    $   474,547


DISCONTINUED OPERATIONS:
   Gain/(loss) from operations of
     discontinued component, including
     gain on disposal of $269,554                     290,302        (23,037)
   Income tax (expense)/benefit                      (113,922)         8,497
                                                  -----------    -----------

   Net gain/(loss) on discontinued operation      $   176,380    $   (14,540)
                                                  -----------    -----------

NET INCOME                                        $   589,996    $   460,007
                                                  ===========    ===========

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

                                       17

<PAGE>

<TABLE>
<CAPTION>

<S>                                                          <C>            <C>
EARNINGS PER SHARE - BASIC
         From continuing operations                            $      1.11   $      1.27
         From discontinued operations                                  .48          (.03)
                                                               -----------   -----------
         Net Income                                            $      1.59   $      1.24
                                                               ===========   ===========
         Shares used in computing basic earnings per share         371,750       371,750
                                                               ===========   ===========

EARNINGS PER SHARE - DILUTED
         From continuing operations                            $      1.09   $      1.27
         From discontinued operations                                  .47          (.03)
                                                               -----------   -----------
         Net Income                                            $      1.56   $      1.24
                                                               ===========   ===========
         Shares used in computing diluted earnings per share       379,010       372,405
                                                               ===========   ===========
</TABLE>
The  notes  to  the  consolidated  financials  are an  integral  part  of  these
statements.

                                       18


<PAGE>

                      BUCS FINANCIAL CORP AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003


<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, 2003          $36,459      $     -     $3,140,377   $6,486,967     $(265,762)    $ 271,031    $9,669,072

Comprehensive income:

   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

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

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

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

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

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

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

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

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

                                       19

<PAGE>

                      BUCS FINANCIAL CORP AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                  2004            2003
                                                             ------------    ------------
<S>                                                        <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                $    589,996    $    460,007
   Reconciliation of net income to net cash provided
     by operating activities:
     Loss (gain) on sale of investment securities                   5,422          (4,429)
     Gain on sale of loans                                        (28,280)        (36,996)
     Provision for loan losses                                    293,705         255,427
      Non-cash ESOP expense                                        84,914          87,600
     Deferred income taxes                                         23,638          14,717
     Increase in cash surrender value of life insurance           (87,119)        (45,410)
      Proceeds from sale of loans                               1,137,538         819,317
     (Gain) loss on discontinued operations                      (176,380)         14,540
     Depreciation and amortization                                562,743         507,314
   Effects of changes in operating assets and liabilities:
     Accrued interest receivable                                   32,264         (88,335)
     Prepaid expenses and other assets                            (75,838)       (226,459)
     Accounts payable and other liabilities                       215,674        (132,720)
                                                             ------------    ------------

         Net cash provided by operating activities              2,578,277       1,624,573
                                                             ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Net increase in loans                                      (15,489,821)    (11,829,220)
   Proceeds from maturities, redemption and sales
     of securities available-for-sale                          10,936,876      14,728,129
   Proceeds from repayments on securities held-to-maturity      1,882,437       2,163,101
   (Purchase of) proceeds from redemption of FHLB stock            25,100        (265,000)
   Purchase of securities held-to-maturity                              -     (11,970,496)
   Purchase of securities available-for-sale                            -     (12,100,042)
   Purchase of bank-owned life insurance                                -      (2,000,000)
   Purchase of property and equipment                                   -      (2,143,939)
  Proceeds from sale of discontinued operations                   435,422               -
   Acquisition of insurance subsidiaries                         (244,933)        (98,200)
                                                             ------------    ------------

         Net cash used in investing activities                 (2,454,919)    (23,515,667)
                                                             ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of guaranteed preferred
     beneficial interest in Company's subordinated debt                 -       3,000,000
   Allocated fair value of ESOP shares                             84,914          87,558
   (Decrease)/Increase in Federal Home Loan Bank of
     Atlanta borrowings                                          (800,000)      7,800,000
   Net increase in deposits                                     4,433,232      10,533,133
   Cash paid for fractional shares of stock dividend               (1,460)              -
   Repayments of notes payable                                    (30,000)       (138,000)
                                                             ------------    ------------

         Net cash provided by financing activities              3,686,686      21,282,691
                                                             ------------    ------------
</TABLE>

                                       20

<PAGE>

BUCS Financial Corp and Subsidiaries

Consolidated Statements of Cash Flows (Continued)
For the Years Ended December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                                 2004            2003
                                                             ------------    -----------
<S>                                                         <C>             <C>
NET INCREASE (DECREASE) IN CASH
   AND CASH EQUIVALENTS                                      $ 3,810,044     $  (608,403)

CASH AND CASH EQUIVALENTS
   AT BEGINNING OF YEAR                                        3,486,463       4,094,866
                                                             ------------    -----------

CASH AND CASH EQUIVALENTS
   AT END OF YEAR                                            $ 7,296,507     $ 3,486,463
                                                             ===========     ===========


Supplemental disclosure of cash flow information:
   Cash paid for income taxes                                $   198,400     $   157,285
                                                             ===========     ===========

   Cash paid for interest                                    $ 2,174,219     $ 2,392,976
                                                             ===========     ===========
</TABLE>

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

                                       21

<PAGE>

                      BUCS FINANCIAL CORP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003




1.      NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

               BUCS Financial Corp (the "Company" or "Corporation") is a savings
and  loan  holding   company  that  provides  its  customers  with  banking  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 2004.

         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.

                                       22

<PAGE>

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

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

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

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

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

               A loan is  determined  to be  impaired  when,  based  on  current
information  and  events,  it is  probable  that the  Company  will be unable to
collect  all  amounts  due  according  to the  contractual  terms  of  the  loan
agreement. A loan is not considered impaired during a period of delay in payment
if the

                                       23

<PAGE>

Company expects to collect all amounts due,  including  interest  past-due.  The
Company generally  considers a period of delay in payment to include delinquency
up to 90 days.

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

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

               The  allowance for loan losses  represents  an amount  which,  in
management's  judgment,  will be adequate to absorb  probable losses on existing
loans  and  other  extensions  of  credit  that may  become  uncollectible.  The
allowance for loan losses consists of an allocated  component and an unallocated
component.  The  components  of the  allowance  for  loan  losses  represent  an
estimation done pursuant to 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.

                                       24

<PAGE>

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

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

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

               As a member of the  Federal  Home Loan Bank of Atlanta  ("FHLB"),
the Bank is required to maintain an  investment  in capital stock of the FHLB in
varying amounts based on balances of outstanding  loans and on amounts  borrowed
from the FHLB. 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 for impairment when  necessary.  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.

                                       25

<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,  2004  there were  43,451  options
outstanding  that  are  considered  in  the  money.  Accordingly,  such  options
outstanding  had a  dilutive  effect on  earnings  per share for the year  ended
December  31,  2004  of  $.03.  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.

                No options  were  granted in 2004.  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; accordingly, no compensation expense related to options
was  recognized in 2003. 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:

                                                       2004          2003
                                                     ----------   -----------

Net income - as reported                             $  589,996   $   460,007

Deduct:  Total stock-based compensation determined
  under fair value based method for all awards,
  net of related income tax effects                           0      (161,959)
                                                     ----------   -----------

Pro forma net income                                 $  589,996   $   298,048
                                                     ==========   ===========


Earnings per share:
  Basic - as reported                                $     1.59   $      1.24
                                                     ==========   ===========
  Basic - pro forma                                  $     1.59   $       .80
                                                     ==========   ===========

  Diluted - as reported                              $     1.56   $      1.24
                                                     ==========   ===========
  Diluted - pro forma                                $     1.56   $       .80
                                                     ==========   ===========

                                       26
<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
was  $6.89 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
                                                        ----

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

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

               Advertising  and marketing costs are expensed as incurred and for
the years  ended  December  31, 2004 and 2003  totaled  $245,700  and  $359,979,
respectively.


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

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

                The Company  realized cash proceeds for this sale of $709,944 on
October  1,  2004.  These  proceeds  resulted  in a  before  tax gain on sale of
$274,095 and tax-adjusted  gain on sale of approximately  $168,240.  The Company
retains the right to additional  cash proceeds in the first or second quarter of
2005  contingent  upon  performance  of the assets  sold as  determined  through
year-end 2004 but such additional proceeds are not certain at December 31, 2004.
The Company  further expects to liquidate  tangible  assets of the  discontinued
operation  that carry a book value of  approximately  $327,000 at  December  31,
2004. The net asset value of the discontinued  operation is reported as an asset
held for sale as of December 31, 2004.


         Reclassifications
         -----------------

                Certain  reclassifications  have been made to the 2003 financial
statement  presentation to correspond to the current year's format. Total equity
and net income are unchanged due to these reclassifications.

                                       27

<PAGE>

2.   RECENT ACCOUNTING PRONOUNCEMENTS

             In January 2003, the Financial  Accounting Standards Board ("FASB")
issued  Financial  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   chose  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  were not  material.  The Company has no  significant  variable
interests in any entities which would require disclosure or consolidation.

             In May 2003,  the FASB issued  Statement  of  Financial  Accounting
Standard  ("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.

             On September  30,  2004,  FASB issued FASB Staff  Position  ("FSP")
Emerging Issues Task Force ("EITF") Issue No. 03-1-1 delaying the effective date
of  paragraphs  10-20  of  EITF  03-1,  "The  Meaning  of   Other-Than-Temporary
Impairment and Its Application to Certain Investments",  which provides guidance
for  determining  the  meaning  of  "other-than-temporarily  impaired"  and  its
application to certain debt and equity  securities  within the scope of SFAS No.
115,  "Accounting for Certain  Investments in Debt and Equity  Securities",  and
investments  accounted  for under the cost method.  The guidance  requires  that
investments which have declined in value due to credit concerns or solely due to
changes in interest  rates must be recorded as  other-than-temporarily  impaired
unless the Company can assert and demonstrate its intention to hold the security
for a period of time  sufficient  to allow for a recovery of fair value up to or
beyond the cost of the investment,  which might mean maturity.  The delay of the
effective  date of EITF  03-1  will be  superceded  concurrent  with  the  final
issuance of proposed FSP Issue 03-1-a.  Proposed FSP Issue 03-1-a is intended to
provide  implementation  guidance  with respect to all  securities

                                       28

<PAGE>

analyzed  for  impairment  under  paragraphs  10-20  of  EITF  03-1.  Management
continues to closely  monitor and evaluate how the  provisions  of EITF 03-1 and
proposed FSP Issue 03-1-a will affect the Company.

               In December  2004,  the FASB issued SFAS No. 123  (revised  2004)
("SFAS No. 123(R)"),  Share-Based Payment,  which is a revision of SFAS No. 123.
SFAS 123(R) supercedes APB No. 25 and amends FASB Statement No. 95, Statement of
Cash Flows.  SFAS No.  123(R)  requires all  share-based  payments to employees,
including  grants of employee  stock options,  to be recognized as  compensation
expense  through the income  statement  based upon their fair values.  Pro forma
disclosure is no longer an  alternative.  SFAS 123(R) is effective for the first
quarter of 2006.  The adoption of this standard will 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  was paid
during  2004.  During  2003  $138,000  had been  paid  related  to the  purchase
agreements.


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

                                               $15,200,587   $    30,946   $   127,667   $15,103,866
                                               ===========   ===========   ===========   ===========

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
                                               ===========   ===========   ===========   ===========
</TABLE>

                                       29
<PAGE>

         The amortized cost and estimated  fair values of investment  securities
by contractual maturity date at December 31, 2004 are as follows:

                                                                   Estimated
                                                     Amortized       Fair
                                                       Cost          Value
                                                    -----------   -----------
Investment securities available-for-sale:
   Within one year                                  $         -   $         -
   1 - 5 years                                        1,191,691     1,186,754
   6 - 10 years                                         576,778       578,565
   After 10 years                                     4,146,236     4,163,601

Investment securities held-to-maturity:
   Within one year                                            -             -
   1 - 5 years                                          203,170       204,248
   6 - 10 years-                                              -             -
   After 10 years                                     9,082,712     8,970,698
                                                    -----------   -----------

         Totals                                     $15,200,587   $15,103,866
                                                    ===========   ===========

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

         Investment  securities  with an amortized  cost of  $10,915,736  and an
estimated fair value of  $10,844,586  have been pledged as collateral for credit
extended by the Federal Home Loan Bank of Atlanta ("FHLB") at December 31, 2004.

         The gross  realized  gains and losses on available for sale  securities
for the years ended December 31, 2004 and 2003 are as follows:

<TABLE>
<CAPTION>
                                                          2004                            2003
                                            ------------------------------     --------------------------------
                                              Gross            Gross             Gross            Gross
                                            Realized          Realized         Realized          Realized
                                              Gains            Losses            Gains             Losses
                                            ---------         --------         ---------         ---------

<S>                                         <C>              <C>               <C>              <C>
         Securities available-for-sale       $69,513          $75,341           $43,310          $38,881
                                             =======          =======           =======          =======
</TABLE>

         Proceeds  from  sales  of  securities  available-for-sale  amounted  to
$6,647,681  and  $3,328,405  for the years  ended  December  31,  2004 and 2003,
respectively.

         Net unrealized  holding losses on  available-for-sale  securities  that
have been included in accumulated other comprehensive income amounted to $43,737
and $218,569 for the years ended December 31, 2004 and 2003,  respectively.  The
amount of (losses) gains  reclassified  out of accumulated  other  comprehensive
income amounted to $(5,422) and $4,429 for the years ended December 31, 2004 and
2003, respectively.

                                       30

<PAGE>

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,
2004 are as follows:

<TABLE>
<CAPTION>

                                                  Continuous Unrealized
                                                   Losses Existing for
                                                  ------------------------     Total
                                                    Less than    More than   Unrealized
         Available-for-Sale           Fair Value    12 Months    12 Months     Losses
         ------------------           ----------   ----------   ----------   ----------

<S>                                  <C>          <C>          <C>          <C>
U. S. Agency                          $  990,373   $    9,626   $        -   $    9,626
Mortgage-backed securities             4,938,546        2,392        3,635        6,027
                                      ----------   ----------   ----------   ----------

                                      $5,928,919   $   12,018   $    3,635   $   15,653
                                      ==========   ==========   ==========   ==========


                                                  Continuous Unrealized
                                                   Losses Existing for
                                                  ------------------------     Total
                                                    Less than    More than   Unrealized
         Held-to-Maturity             Fair Value    12 Months    12 Months     Losses
         ----------------             ----------   ----------   ----------   ----------


Collateralized mortgage obligations   $  204,248   $        -   $        -   $        -
Mortgage-backed securities             8,970,698      112,014            -      112,014
                                      ----------   ----------   ----------   ----------

                                      $9,174,946   $  112,014   $        -   $  112,014
                                      ==========   ==========   ==========   ==========

</TABLE>

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

         At December 31, 2004, nine debt securities have unrealized  losses with
aggregate  depreciation of 1.15% from the Company's  amortized cost basis. These
losses relate principally to market changes in interest rates since the original
purchase.  These  factors  coupled with the fact the Company has both the intent
and ability to hold these  investments  for a period of time sufficient to allow
for any  anticipated  recovery in fair value  substantiates  that the unrealized
losses in the available-for-sale and held-to-maturity portfolio are temporary.

                                       31

<PAGE>

5.   LOANS RECEIVABLE

         Loans receivable consist of the following at December 31:

                                                       2004             2003
                                                    -----------     -----------
     Categories:
       Mortgage loans:
         Residential:
           Permanent 1 - 4 single family            $20,351,675     $25,693,522
           Land                                           2,978           3,740
           Commercial                                 9,116,932       4,127,739
       Consumer loans:
         Home equity loans                           32,141,332      23,335,770
         Secured loans                               20,414,641      17,015,230
         Other                                        3,804,507       3,975,759
       Commercial                                     5,528,692       3,163,715
                                                    -----------     -----------
               Total loans                           91,360,757      77,317,475
       Net deferred loan costs                          536,807         441,594
                                                    -----------     -----------
                                                     91,897,564      77,759,069
       Less allowance for loan losses                   682,339         630,702
                                                    -----------     -----------
               Loans receivable, net                $91,215,225     $77,128,367
                                                    ===========     ===========

         Loans aggregating  $52,076,306 and $22,895,186 have been pledged to the
FHLB as collateral for credit extended by the FHLB for short-term  borrowings at
December 31, 2004 and 2003, respectively.

         Nonperforming  loans amounted to $97,609 and $44,000 as of December 31,
2004 and 2003, respectively.  The amount of interest income that would have been
recorded on loans in nonaccrual  status as of December 31, 2004,  had such loans
performed in accordance with their terms, was $4,263.

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

                                                      2004             2003
                                                     --------        --------

        Balance at beginning of year                 $630,702       $ 579,627
         Provision for loan losses                    293,705         255,427
         Recoveries                                    58,399          59,574
         Loan loss write-offs                        (300,467)       (263,926)
                                                     --------        --------
         Balance at end of year                      $682,339        $630,702
                                                     ========        ========


                                       32
<PAGE>

         Impairment of loans having recorded  investments of $97,609 and $44,000
at December 31, 2004 and 2003, 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 2004 and 2003
approximate  $102,000 and  $47,000,  respectively.  Interest  income on impaired
loans of  approximately  $2,400  and  $1,700 was  recognized  for cash  payments
received in the years ended December 31, 2004 and 2003,  respectively.  The Bank
is not  committed  to lend  additional  funds to debtors  whose  loans have been
modified.  The valuation allowance for impaired loans was $97,609 and $44,000 at
December 31, 2004 and 2003, respectively.

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

                                                      2004              2003
                                                    ---------         ---------

         Balance at beginning of year               $ 817,744         $ 548,688
         Additional borrowings                        250,771           457,844
         Repayments                                  (127,494)         (188,788)
                                                    ---------         ---------

         Balance at end of year                     $ 941,021         $ 817,744
                                                    =========         =========

6. PROPERTY AND EQUIPMENT

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

                                                       2004           2003
                                                    ----------      ----------

         Building                                   $1,524,839      $1,800,268
         Leasehold improvements                      1,096,584       1,094,660
         Furniture, fixtures and equipment           2,179,135       2,052,051
                                                    ----------      ----------
                                                     4,800,558       4,945,979
           Less allowance for depreciation           1,726,603       1,304,999
                                                    ----------      ----------
                                                     3,073,955       3,640,980
         Land                                        1,042,994       1,042,994
                                                    ----------      ----------

                                                    $4,116,949      $4,683,974
                                                    ==========      ==========

         Depreciation  expense totaled $447,220 and $380,820 for the years ended
December 31, 2004 and 2003, respectively.

         The Bank occupies a branch banking facility in Columbia, Maryland. BUCS
Federal prepaid ten years of rent totaling  $327,218 for the period July 1, 1999
to June 30,  2009.  BUCS  Federal  has the  option to extend the lease for three
5-year periods at a rent to be determined.  Occupancy  expense is charged $2,750
per month for rent and amortization of the $327,218 of the prepaid amount.

                                       33

<PAGE>


7.   DEPOSITS

         Deposits at December 31, 2004 and 2003 were as follows:

<TABLE>
<CAPTION>
                                                               2004             2003
                                                          ---------------  --------------
<S>                                                         <C>              <C>
         Checking                                            $14,191,039      $ 9,612,718
         Regular savings                                      27,551,990       24,184,152
         Money markets                                        19,388,381       17,603,832
         IRA's floating rate                                   2,383,238        2,595,766
         Certificate of deposits (including IRA CDs)          25,105,907       30,190,855
                                                             -----------      -----------

                                                             $88,620,555      $84,187,323
                                                             ===========      ===========
</TABLE>


Scheduled maturities of certificate of deposits are as follows:

                                                                   December 31,
                                                                      2004
                                                                   -----------

                            2005                                   $13,196,766
                            2006                                     3,687,765
                            2007                                     4,848,125
                            2008                                     2,122,043
                            2009                                     1,248,858
                            Thereafter                                   2,350
                                                                   -----------

                                                                   $25,105,907
                                                                   ===========

         Officers' and directors'  savings  accounts  amounted to  approximately
$1,498,000 and $1,114,000 at December 31, 2004 and 2003, respectively.

         Deposits over $100,000  approximated  $25,232,440  and  $25,381,000  at
December 31, 2004 and 2003, respectively.

                                       34

<PAGE>

8.   BORROWED FUNDS

         Borrowings  consist of FHLB  advances at December 31, 2004 and 2003 and
are summarized as follows:

                                   2004                       2003
                           -----------------------  -----------------------
                                        Weighted                  Weighted
                                        Average                   Average
                                        Interest                  Interest
                              Amount      Rate          Amount      Rate
                           -----------   --------  ------------   ---------

   Less than one year      $ 8,800,000     2.20%      $7,800,000     1.72%
   One to two years          1,800,000     2.66        1,800,000     2.06
   Two to three years        2,400,000     3.18        1,800,000     2.66
   Three to four years       5,000,000     3.91        2,400,000     3.18
   Four to five years                -        -        5,000,000     3.91
   Thereafter                1,500,000     4.79        1,500,000     4.78
                           ------------              -----------

                           $19,500,000     3.00%     $20,300,000     2.77%
                           ===========               ===========



         The Company has $8,500,000 in adjustable  rate advances and $11,000,000
in fixed rate  advances  from the FHLB at December 31, 2004.  As of December 31,
2004, the Company's adjustable rate FHLB advances include $1,500,000 of advances
with a scheduled maturity in 2011. The FHLB under certain  circumstances,  has a
one time call provision in 2006 related to these advances.

         At December 31, 2004, the Company had line of credit  commitments  with
the FHLB totaling  $30,500,000 of which $19,500,000 was advanced and $11,000,000
was available.

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

                                       35

<PAGE>


9.   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 December 31, 2004 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.

                                       36

<PAGE>


10.  INCOME TAXES

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

                                                       2004         2003
                                                     ---------    ---------

     Current income taxes:
       Federal                                       $ 277,047    $ 199,759
       State                                            80,027       45,859
                                                     ---------    ---------
                                                       357,074      245,618
                                                     ---------    ---------

     Deferred income taxes:
       Federal                                         (19,354)      12,050
       State                                            (4,284)       2,667
                                                     ---------    ---------
                                                       (23,638)      14,717
                                                     ---------    ---------

           Total income tax expense                  $ 333,436    $ 260,335
                                                     =========    =========

         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:

                                                           2004       2003
                                                         --------   --------

     Deferred tax assets:
       Deferred compensation                             $ 34,217   $ 10,655
       Allowance for loan losses                          134,499    114,557
                                                         --------   --------

           Gross deferred tax assets                      168,716    125,212
                                                         --------   --------

     Deferred tax liabilities:
       Deferred loan costs                                149,720    112,081
       Depreciation                                        98,714    118,789
       Other                                                4,623      2,322
                                                         --------   --------

           Gross deferred tax liabilities                 253,057    233,192
                                                         --------   --------

     Net deferred taxes from operations                    84,341    107,980

     Unrealized gains on available-for-sale securities      5,490     32,160
                                                         --------   --------

           Net deferred tax liability                    $ 89,831   $140,140
                                                         ========   ========

         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:

                                                                   2004    2003
                                                                  ------  ------

      Federal income tax rate                                     34.0%    34.0%
      Increase (decrease) resulting from:
        State income taxes, net of federal income tax benefit      4.6      4.6
        Other                                                     (2.7)    (2.5)
                                                                 -----    -----

            Effective tax rate                                    35.9%    36.1%
                                                                  ====     ====


                                       37

<PAGE>

11.  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, 2004 and
2003 approximated $74,000 and $60,000, respectively.

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

               The Company has entered  into a deferred  compensation  agreement
with its Chief Executive Officer. The estimated present value of future benefits
to be paid is being  accrued  over the  period  from the  effective  date of the
agreement  until  the full  eligibility  date of the  participant.  The  expense
incurred  for this  plan for the  years  ended  December  31,  2004 and 2003 was
$34,217  and  $27,590,  respectively.  The  Company  is a  beneficiary  of  life
insurance  policies,  with an aggregate  cash  surrender  value of $2,132,529 at
December  31,  2004,  that was  purchased  as a method  of  partially  financing
benefits under this plan.

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

               The Company  sponsors a leveraged  employee stock  ownership plan
(ESOP) that  covers all  employees  who work twenty or more hours per week.  The
Company makes annual contributions to the ESOP equal to the ESOP's debt service.
ESOP  shares are  pledged  as  collateral  for its debt.  As the debt is repaid,
shares are released from  collateral and allocated to active  employees based on
the  proportion of debt service paid in the year.  The Company  accounts for its
ESOP in accordance with Statement of Position 93-6. Accordingly, the debt of the
ESOP is recorded as debt and the shares  pledged as  collateral  are reported as
unearned  ESOP shares in the  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 $84,914 and
$87,600 for the years ended December 31, 2004 and 2003,  respectively.  The ESOP
shares for the year ended December 31, 2004 were as follows:

                  Allocated shares                               9,982
                  Shares released for allocation                 3,565
                  Unreleased shares                             22,103
                                                               -------

                      Total ESOP shares                         35,650
                                                                ======

         Fair value of unreleased shares at December 31, 2004 was $535,998.

         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.


                                       38

<PAGE>

                Information  with respect to stock options is as follows for the
year ended December 31, 2004 and 2003:

<TABLE>
<CAPTION>
                                                    2004                    2003
                                           ----------------------    -----------------------
                                                        Weighted                  Weighted
                                                         Average                   Average
                                            Number       Exercise      Number      Exercise
                                           of Shares      Price       of Shares     Price
                                           ---------    ---------     ---------   ----------
<S>                                           <C>         <C>           <C>          <C>
         Outstanding at beginning of year      43,450      $20.19        11,330       $19.20
         Granted                                    -           -        32,120        20.55
         Exercised                                  -           -             -            -
         Forfeited/cancelled                        -           -             -            -
                                               ------      ------        ------       ------

         Outstanding at end of year            43,450      $20.19        43,450       $20.19
                                               ======      ======        ======       ======
</TABLE>



             Options outstanding are summarized as follows at December 31, 2004:

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

               19.20            11,330              7.3                7,553
               20.55            32,120              8.7               32,120


12.  REGULATORY CAPITAL

         The  Bank  is  subject  to  various  regulatory  capital   requirements
administered  by the  Office  of Thrift  Supervision.  Failure  to meet  minimum
capital  requirements  can initiate  certain  mandatory and possibly  additional
discretionary  actions by regulators  that, if  undertaken,  could have a direct
material effect on the 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, 2004, that the Bank
meets all capital adequacy requirements to which they are subject.

         As of December 31, 2004, 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.

                                       39

<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, 2004:
   Total capital (to risk-weighted assets) $10,962,000    11.9%    $7,339,760       8.0%    $9,174,700    10.0%

   Tier 1 capital (to risk-weighted assets) 10,954,000    11.9      3,669,880       4.0      5,504,820     6.0

    Tier 1 capital (to average assets)      10,954,000     9.0      4,891,720       4.0      6,114,650     5.0
</TABLE>

<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    14.0%     $6,219,520      8.0%    $7,774,400    10.0%

   Tier 1 capital (to risk-weighted assets) 10,310,092    13.3       3,109,760      4.0      4,664,640     6.0

   Tier 1 capital (to average assets)       10,310,092     9.0       4,599,560      4.0      5,749,450     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, 2004:

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

<S>                               <C>            <C>               <C>             <C>
GAAP capital                       $10,961,918    $10,961,918       $10,961,918     $10,961,918
                                   ===========
Accumulated gains on certain
   available-for-sale securities                       (8,725)           (8,725)         (8,725)
Additional capital items - general
  valuation allowance                                       -                 -         624,129
                                                  -----------       -----------     -----------
Regulatory capital - computed                     $10,953,193       $10,953,193     $11,577,322
                                                  ===========       ===========     ===========
</TABLE>

           The  following  is  a   reconciliation   of  capital  computed  under
accounting  principles  generally  accepted in the United  States 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 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      $10,861,561
                                                   ===========        ===========      ===========
</TABLE>

                                       40

<PAGE>

13.  DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

           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.

           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.

                                       41

<PAGE>

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

<TABLE>
<CAPTION>
                                                              2004                        2003
                                                   ---------------------------  --------------------------
                                                                  Estimated                    Estimated
                                                    Carrying          Fair        Carrying         Fair
                                                     Amount          Value        Amount          Value
                                                   -----------    ------------  -----------    -----------
<S>                                               <C>            <C>            <C>           <C>
       Financial assets:
         Cash and cash equivalents                  $ 7,296,507    $ 7,296,507    $ 3,846,463   $ 3,846,463
         Investment securities                       15,214,802     15,103,866     28,193,192    28,064,580
         Loans   receivable                          91,215,225     90,118,000     77,128,367    78,171,000
         Investment in FHLB stock                     1,114,900      1,114,900      1,140,000     1,140,000

       Financial liabilities:
         Deposits                                    88,620,555     88,664,865     84,187,323    84,356,540
         Borrowed funds                              19,500,000     19,565,000     20,300,000    20,429,920

       Off-Balance Sheet Financial Assets:
</TABLE>

<TABLE>
<CAPTION>
                                                              2004                        2003
                                                   ---------------------------  --------------------------
                                                     Estimated                     Estimated
                                                      Contract      Estimated       Contract     Estimated
                                                      Amount        Fair Value       Amount      Fair Value
                                                      ------        ----------       ------      ----------

<S>                                                <C>            <C>            <C>           <C>
       Commitments to extend credit                 $23,323,000    $23,323,000    $18,513,000   $18,507,000
</TABLE>


14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

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

           Loan and credit line commitments, totaled $23,323,000 at December 31,
2004 and $18,513,000 at December 31, 2003. These commitments are contingent upon
continuing customer compliance with the terms of the agreement.

           Variable rate loan  commitments  were at current market rates ranging
from 4.25% to 7.25% for December 31, 2004.


15.  RENT/RELATED PARTY TRANSACTIONS

           The Bank  occupies  administrative  and banking  facilities in Owings
Mills,  Maryland.  The Bank does not make  rental  payments  on these  premises.
However, BUCS Federal has an agreement with CareFirst (Blue Cross/Blue Shield of
Maryland)  through  March  2009 to  process  and  maintain  a cash  facility  on
premises.   The  estimated   value  of  these  service  fees  for  rent  expense
approximates  $120,000  per annum.  Non-interest  income and  occupancy  expense
include recognition of this agreement.

           In November  2002 the Company  entered  into an agreement to sublease
additional  administrative  and  banking  facility  space in Owings  Mills  from
CareFirst  with an initial term through  November 30, 2009. The Bank is required
to pay $18,500 per annum under the sublease during the term of the agreement.

                                       42

<PAGE>

16.  PARENT COMPANY FINANCIAL STATEMENTS

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

                             CONDENSED BALANCE SHEET
                           DECEMBER 31, 2004 AND 2003

                                     ASSETS
<TABLE>
<CAPTION>
                                                                       2004            2003
                                                                  ------------    ------------

<S>                                                             <C>             <C>
Cash                                                              $  1,325,666    $  1,450,800
Investment in subsidiaries                                          11,953,393      11,211,375
Notes receivable                                                       233,352         265,762
Other                                                                  363,924         351,095
                                                                  ------------    ------------

         Total assets                                             $ 13,876,335    $ 13,279,032
                                                                  ============    ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

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

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

Stockholders' equity:
   Common stock                                                         40,099          36,459
   Stock dividend distributable                                           --             3,640
   Additional paid-in capital                                        4,170,343       4,117,839
   Retained earnings                                                 6,609,556       6,021,020
   Accumulated other comprehensive income                                8,725          52,462
                                                                  ------------    ------------

           Total stockholders' equity                               10,828,723      10,231,420
                                                                  ------------    ------------

           Total liabilities and stockholders' equity             $ 13,876,335    $ 13,279,032
                                                                  ============    ============

</TABLE>

                          CONDENSED STATEMENT OF INCOME
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                       2004            2003
                                                                  ------------    ------------

<S>                                                             <C>             <C>
Interest income                                                   $     22,519    $     21,820

Operating expenses                                                     270,897         216,272
                                                                  ------------    ------------

Loss before income tax benefit and equity
   in undistributed income of subsidiaries                            (248,378)       (194,402)

Income tax benefit                                                    (105,134)        (71,929)
                                                                  ------------    ------------

Loss before income in undistributed income of subsidiaries            (143,244)       (122,473)

Equity in undistributed income of subsidiaries                         733,240         582,480
                                                                  ------------    ------------

Net income                                                        $    589,996    $    460,007
                                                                  ============    ============
</TABLE>

                                       43

<PAGE>

                        CONDENSED STATEMENT OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003



<TABLE>
<CAPTION>

                                                                      2004           2003
                                                                 -----------    -----------
<S>                                                            <C>            <C>
Cash flows from operating activities:
   Net income                                                    $   589,996    $   460,007
   Adjustments to reconcile net income to net cash
     provided by operating activities:
     Equity in undistributed income of subsidiaries                 (733,240)      (582,480)
     Net increase in other assets                                    (12,829)      (245,252)
     Net increase in other liabilities                                     -         47,612
                                                                 -----------    -----------

           Net cash used in operating activities                    (156,073)      (320,113)
                                                                 -----------    -----------

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

           Net cash provided by (used in) investing activities        32,410     (1,483,590)
                                                                 -----------    -----------

Cash flows from financing activities:
   Proceeds from long-term notes                                           -      3,093,000
   Cash paid for fractional shares of stock dividend                  (1,461)             -
                                                                 -----------    -----------

           Net cash (used in) provided by financing activities        (1,461)     3,093,000
                                                                 -----------    -----------

NET (DECREASE) INCREASE IN CASH                                     (125,134)     1,289,297

CASH AT BEGINNING OF YEAR                                          1,450,800        161,503
                                                                 -----------    -----------

CASH AT END OF YEAR                                              $ 1,325,666    $ 1,450,800
                                                                 ===========    ===========

</TABLE>

                                       44
<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


                               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
                                Gregory A. Devou

                             BANK EXECUTIVE OFFICERS

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

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

<TABLE>
<CAPTION>
<S>                                                       <C>
                                                               Independent Registered Public
Local Counsel                                                  Accounting Firm
Gordon, Feinblatt, Rothman, Hoffberger, & Hollander, LLC       Stegman & Company
233 E. Redwood St.                                             405 E. Joppa Rd., Ste. 200
Baltimore, MD  21202                                           Baltimore, MD  21286

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
</TABLE>

The Company's  Annual  Report on Form 10-KSB for the fiscal year ended  December
31, 2004 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 27, 2005 at 5:00 PM at the BUCS  Federal  Bank  Offices,  10802 Red Run
Blvd., Owings Mills, MD 21117.

                                       45