SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended: March 31, 2004
--------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________ to ________
SEC File Number: 000-50467
SYNERGY FINANCIAL GROUP, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
New Jersey 52-2413926
- ------------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
310 North Avenue East, Cranford, New Jersey 07016
- --------------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
(800) 693-3838
----------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the registrant: (1) has filed all reports required to be
filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares outstanding of common stock as of May 14, 2004:
$0.10 Par Value Common Stock 12,452,098
- ---------------------------- ---------------------------
Class Shares Outstanding
SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page
- ------ --------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2004 (unaudited), and
December 31, 2003 (audited).....................................................................1
Consolidated Statements of Income for the three months ended March 31, 2004
and 2003 (unaudited)............................................................................2
Consolidated Statement of Changes in Stockholders' Equity for the three months ended
March 31, 2004 and 2003 (unaudited).............................................................3
Consolidated Statements of Cash Flows for the three months ended March 31, 2004
and 2003 (unaudited)............................................................................4
Notes to Consolidated Financial Statements (unaudited)..............................................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................................13
Item 3. Quantitative and Qualitative Disclosures about Market Risk.........................................21
Item 4. Controls and Procedures............................................................................22
PART II OTHER INFORMATION
- ------- -----------------
Item 1. Legal Proceedings..................................................................................23
Item 2. Changes in Securities, Use of Proceeds and
Issuer Purchases of Equity Securities..........................................................23
Item 3. Defaults Upon Senior Securities....................................................................25
Item 4. Submission of Matters to a Vote of Security Holders................................................25
Item 5. Other Information..................................................................................25
Item 6. Exhibits and Reports on Form 8-K...................................................................25
Signatures.......................................................................................................26
SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
March 31, December 31,
2004 2003
(unaudited) (audited)
----------- ---------
Assets:
Cash and amounts due from banks $ 5,738 $ 4,481
Interest-bearing deposits with banks 5,892 2,811
--------- ---------
Cash and cash equivalents 11,630 7,292
Investment securities, available-for-sale,
at fair value 154,936 123,779
Investment securities held-to-maturity (fair
value of $45,070 and $33,216, respectively) 44,839 33,214
Federal Home Loan Bank of New York
stock, at cost 4,248 3,644
Loans receivable, net 448,720 434,585
Accrued interest receivable 2,281 2,021
Property and equipment, net 17,585 17,620
Cash surrender value of officer life insurance 2,564 2,475
Other assets 3,858 3,988
--------- ---------
Total assets $ 690,661 $ 628,618
========= =========
Liabilities:
Deposits $ 495,471 $ 473,535
Federal Home Loan Bank advances 84,952 72,873
Advance payments by borrowers
for taxes and insurance 1,688 1,582
Accrued interest payable on advances 157 119
Stock subscriptions payable - 38,322
Other liabilities 2,837 1,259
--------- ---------
Total liabilities 585,105 587,690
--------- ---------
Commitments and contingencies - -
Stockholders' equity:
Preferred stock; $.10 par value, 2,000,000 shares
authorized; issued and outstanding - none - -
Common stock; $.10 par value, 18,000,000 shares
authorized; issued March 31, 2004 - 12,452,098,
December 31, 2003 - 3,344,252 1,245 334
Additional paid-in-capital 83,456 15,008
Retained earnings 28,863 27,858
Unearned ESOP shares (6,471) (1,009)
Unearned RSP compensation (951) (1,011)
Treasury stock acquired for the RSP (862) (103)
Accumulated other comprehensive
income (loss), net of taxes 276 (149)
--------- ---------
Total stockholders' equity 105,556 40,928
--------- ---------
Total liabilities and stockholders' equity $ 690,661 $ 628,618
========= =========
-1-
SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per share data)
For the quarter ended March 31,
2004 2003
(unaudited) (unaudited)
----------- -----------
Interest income:
Loans, including fees $ 6,716 $ 6,267
Investment securities 1,511 1,197
Other 21 44
----------- -----------
Total interest income 8,248 7,508
----------- -----------
Interest expense:
Deposits 2,095 2,258
Borrowed funds 476 416
----------- -----------
Total interest expense 2,571 2,674
----------- -----------
Net interest income before provision for loan losses 5,677 4,834
----------- -----------
Provision for loan losses 368 118
----------- -----------
Net interest income after provision for loan losses 5,309 4,716
----------- -----------
Other income:
Service charges and other fees on deposit accounts 484 311
Commissions 15 35
Other 173 36
----------- -----------
Total other income 672 382
----------- -----------
Other expenses:
Salaries and employee benefits 2,255 1,862
Premises and equipment 1,009 793
Occupancy 473 507
Professional services 128 158
Advertising 176 162
Other operating 271 288
----------- -----------
Total other expenses 4,312 3,770
----------- -----------
Income before income tax expense 1,669 1,328
----------- -----------
Income tax expense 664 492
----------- -----------
Net income $ 1,005 $ 836
=========== ===========
Per share of common stock:
Basic earnings per share $ 0.10 $ 0.26
Diluted earnings per share $ 0.10 $ 0.26
Basic weighted average shares outstanding 10,086,963 3,233,206
Diluted weighted average shares outstanding 10,312,989 3,233,206
-2-
SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the Three Months Ended March 31, 2004
(Dollars in thousands, except share amounts)
Accu-
mulated
Treasury Compre-
Common stock stock hensive
------------------- Additional Unearned Unearned acquired income
Shares Par paid-in- Retained ESOP RSP for the (loss),
issued value capital earnings shares compensation RSP net TOTAL
----------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 1, 2004 3,344,252 $ 334 $15,008 $27,858 $(1,009) $(1,011) $(103) $(149) $40,928
Net income - - - 1,005 - - - - 1,005
Other comprehensive
income, net of
reclassification
adjustment and taxes - - - - - - - 425 425
- -----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 1,430
- -----------------------------------------------------------------------------------------------------------------------------------
Net proceeds of stock
offering and issuance
of common stock 9,107,846 911 68,351 - - - - - 69,282
Common stock acquired by
ESOP (562,873 shares) - - - - (5,628) - - - (5,628)
Common stock held by ESOP
committed to be
released (24,906 shares) - - 97 - 166 - - - 263
Compensation recognized
under RSP Plan - - - - - 60 - - 60
Common stock repurchased
for RSP Plan
(90,614 shares) (759) (759)
BALANCE AT MARCH 31, 2004 12,452,098 $1,245 $83,456 $28,863 $(6,471) (951) $(862) $ 276 $105,556
===================================================================================================
-3- .
SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
For the quarter
ended March 31,
---------------
2004 2003
(unaudited) (unaudited)
-----------------------
Operating activities
Net income $ 1,005 $ 836
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 369 353
Provision for loan losses 368 118
Deferred income taxes 73 1
Amortization of deferred loan fees (5) 16
Amortization of premiums on investment securities 284 266
Release of ESOP shares 263 53
Compensation under RSP plan 60 -
Increase in accrued interest receivable (261) (389)
Decrease (increase) in other assets 57 (656)
Increase in other liabilities 1,580 404
(Increase) decrease in cash surrender value of officer life insurance (90) 20
Increase (decrease) in accrued interest payable on advances 38 (7)
-------- --------
Net cash provided by operating activities 3,741 1,015
-------- --------
Investing activities
Purchase of investment securities held-to-maturity (14,269) (6,514)
Purchase of investment securities available-for-sale (38,708) (40,716)
Maturity and principal repayments of investment
securities held-to-maturity 2,563 3,769
Maturity and principal repayments of investment
securities available-for-sale 7,775 10,072
Purchase of property and equipment (336) (793)
Purchase of FHLB Stock (604) (1,234)
Loan originations, net of principal repayments (13,687) (6,891)
Purchase of loans (811) -
Cash consideration paid to acquire First Bank of Central Jersey - (2,269)
Cash and equivalents acquired from First Bank of Central Jersey - 7,773
-------- --------
Net cash used in investing activities (58,077) (36,803)
-------- --------
Financing activities
Net increase in deposits 21,936 18,731
Net advances from (repayments to) FHLB 12,079 15,646
Increase in advance payments by borrowers
for taxes and insurance 106 35
Decrease in stock subscriptions payable (38,322) -
Net proceeds from issuance of common stock 69,262 -
Purchase of common stock for ESOP (5,628) -
Purchase of treasury stock for the RSP Plan (759) -
-------- --------
Net cash provided by financing activities 58,674 34,412
-------- --------
Net increase in cash and cash equivalents 4,338 (1,377)
Cash and cash equivalents at beginning of year 7,292 7,886
-------- --------
Cash and cash equivalents at end of year $ 11,630 $ 6,509
======== ========
Supplemental disclosure of cash flow information
Cash paid during the year for income taxes $ 925 $ 435
======== ========
Interest paid on deposits and borrowed funds $ 2,714 $ 2,668
======== ========
-4-
SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accounting policies followed by Synergy Financial Group, Inc. (the
"Company") conforms to accounting principles generally accepted in the United
States of America and to predominant practice within the banking industry.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Synergy Bank, Synergy Financial Services, Inc.and
Synergy Capital Investments, Inc.. All significant intercompany accounts and
transactions have been eliminated in consolidation.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the balance
sheets, and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The principal estimates that are susceptible to significant change in the near
term relate to the allowance for loan and lease losses. The evaluation of the
adequacy of the allowance for loan and lease losses includes an analysis of the
individual loans and overall risk characteristics and size of the different loan
portfolios, and takes into consideration current economic and market conditions,
the capability of specific borrowers to pay specific loan obligations, as well
as current loan collateral values. However, actual losses on specific loans,
which also are encompassed in the analysis, may vary from estimated losses.
Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about
Segments of an Enterprise and Related Information, establishes standards for the
way business enterprises report information about operating segments in annual
financial statements. The Bank has one operating segment and, accordingly, has
one reportable segment, "Community Banking." All of the Bank's activities are
interrelated, and each activity is dependent and assessed based on how each of
the activities of the Bank supports the others. For example, commercial lending
is dependent upon the ability of the Bank to fund itself with retail deposits
and other borrowings and to manage interest rate and credit risk. This situation
is also similar for consumer, residential, multi-family and non-residential
mortgage lending. Accordingly, all significant operating decisions are based
upon analysis of the Bank as one operating segment.
2. REORGANIZATION AND STOCK CONVERSION
The Company completed its second-step conversion from the mutual
holding company form of organization to a full stock corporation (the
"Conversion"). on January 20, 2004. Upon closing, Synergy, MHC and the former
Mid-Tier Stock Holding Company were eliminated.
The Company sold 7,035,918 shares of its common stock in the Conversion
at $10.00 per share. In addition, each share of common stock held by the public
stockholders of its former Mid-Tier Stock Holding Company were converted into
3.7231 shares of common stock of the Company, resulting in an aggregate of
5,416,180 exchange shares. Cash was issued in lieu of fractional shares.
Accordingly, the Company now has 12,452,098 total shares outstanding following
the Conversion, which was the adjusted maximum of the estimated valuation range.
-5-
SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
3. EARNINGS PER SHARE
Basic earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock (such as stock
options) were exercised or resulted in the issuance of common stock. These
potentially dilutive shares would then be included in the weighted number of
shares outstanding for the period using the treasury stock method. Shares issued
and shares reacquired during any period are weighted for the portion of the
period that they were outstanding.
The computation of both basic and diluted earnings per share includes the ESOP
shares previously allocated to participants and shares committed to be released
for the allocation to participants and RSP shares which have vested or have been
allocated to participants. ESOP and RSP shares that have been purchased but not
committed to be released have not been considered in computing basic and diluted
earnings per share.
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computation for the three months ended
March 31, 2004 (dollars in thousands, except per share data):
Weighted
Income average shares Per
(numerator) (denominator) share amount
----------- ------------- ------------
Basic earnings per share
Income available to common stockholders $ 1,005 10,086,963 $ 0.10
Effect of dilutive common stock equivalents 226,026 -
--------- ---------- ---------
Diluted earnings per share
Income available to common stockholders $ 1,005 10,312,989 $ 0.10
========= ========== =========
-6-
SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computation for the three months ended
March 31, 2003 (dollars in thousands, except per share data):
Weighted
Income average shares Per
(numerator) (denominator) share amount
----------- ------------- ------------
Basic earnings per share
Income available to common stockholders $ 836 3,233,206 $ 0.26
Effect of dilutive common stock equivalents - -
--------- ---------- ---------
Diluted earnings per share
Income available to common stockholders $ 836 3,233,206 $ 0.26
========== ============ =========
4. STOCK-BASED COMPENSATION
The Company's stock option plan and the restricted stock plan are accounted for
in accordance with the provisions of Accounting Principles Board Opinion (APB)
No. 25, Accounting for Stock Issued to Employees, and released Interpretations.
Accordingly, no compensation expense has been recognized for the stock option
plan. Expense for the restricted stock plan in the amount of the fair value of
the common stock at the date of grant is recognized ratable over the vesting
period. Prior to April 22, 2003, the Company did not have a Stock Option Plan or
a Restricted Stock Plan.
Had an expense for the Company's stock option plan been determined based on the
fair value at the grant date for the Company's stock options consistent with the
method outlined in SFAS No. 123, the Company's net income and earnings per share
for all expenses related to stock options and stock granted in its restricted
stock plan would have been reduced to the pro forma amounts that follow (in
thousands, except per share data):
For the quarter ended
March 31, 2004 March 31, 2003
-------------- --------------
Net income, as reported $ 1,005 $ 836
Add expense recognized for the restricted stock plan,
net of related tax effect 36 -
Less total stock option and restricted stock plan expense,
determined under the fair value method,
net of related tax effect (84) -
--------- ---------
Net income, pro forma $ 957 $ 836
========= =========
Basic earnings per share
As reported $ 0.10 $ 0.26
Pro forma $ 0.09 $ 0.26
Diluted earnings per share
As reported $ 0.10 $ 0.26
Pro forma $ 0.09 $ 0.26
-7-
SYNERGY FINANCIAL GROUP, INC. AND AUDSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes options price model with the following weighted average
assumptions used for grants in 2003: dividend yield of 0.00%; expected
volatility of 29.44 %; risk-free interest rate of 3.01%; and expected life of
five years.
The Company has established an Employee Stock Ownership Plan (ESOP) covering
eligible employees with one year of service, as defined by the ESOP. The Company
accounts for the ESOP in accordance with the American Institute of Certified
Public Accountants' Statement of Position (SOP) No. 93-6, Employers' Accounting
for Employee Stock Ownership Plans. SOP No. 93-6 addresses the accounting for
shares of stock issued to employees by an ESOP. SOP No. 93-6 requires that the
employer record compensation expense in the amount equal to the fair value of
shares committed to be released from the ESOP to employees.
Compensation expense for the ESOP is recorded at an amount equal to the shares
allocated by the ESOP multiplied by the average fair market value of the shares
during the year. The Company recognizes compensation expense ratably over the
year for the ESOP shares to be allocated based upon the Company's current
estimate of the number of shares expected to be allocated by the ESOP during
each calendar year. The difference between the average fair market value and the
cost of the shares allocated by the ESOP is recorded as an adjustment to
additional paid-in-capital.
5. RECENT ACCOUNTING PRONOUNCEMENTS
The SEC recently released Staff Accounting Bulletin No. 105, Application of
Accounting Principles to Loan Commitments. SAB 105 provides guidance about the
measurement of loan commitments recognized at fair value under FASB Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities. SAB 105
also requires companies to disclose their accounting policy for those loan
commitments including methods and assumptions used to estimate fair value and
associated hedging strategies. SAB 105 is effective for all loan commitments
accounted for as derivatives that are entered into after March 31, 2004. The
adoption of SAB 105 is not expected to have a material effect on the Company's
consolidated financial statements.
On March 31, 2004, the Financial Accounting Standards Board (FASB) issued a
proposed Statement, Share-Based Payment an Amendment of FASB Statements No. 123
and APB No. 95, that addresses the accounting for share-based payment
transactions in which an enterprise receives employee services in exchange for
(a) equity instruments of the enterprise or (b) liabilities that are based on
the fair value of the enterprise's equity instruments or that may be settled by
the issuance of such equity instruments. Under the FASB's proposal, all forms of
share-based payments to employees, including employee stock options, would be
treated the same as other forms of compensation by recognizing the related cost
in the income statement. The expense of the award would generally be measured at
fair value at the grant date. Current accounting guidance requires that the
expense relating to so-called fixed plan employee stock options only be
disclosed in the footnotes to the financial statements. The proposed Statement
would eliminate the ability to account for share-based compensation transactions
using APB Opinion No. 25, Accounting for Stock Issued to Employees. The Company
is currently evaluating this proposed statement and its effects on its results
of operations.
In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). In
general, a variable interest entity (VIE) is a corporation, partnership, trust
or any other legal structure used for business purposes that either (a) does not
have equity investors with voting rights or (b) has equity investors that do not
provide sufficient financial resources for the entity to support its activities.
FIN 46 requires certain VIEs to be consolidated by the primary beneficiary if
the investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support
-8-
SYNERGY FINANCIAL GROUP, INC. AND AUDSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
from other parties. For public companies, the consolidation requirements of FIN
46 applied immediately to interest entities created after September 15, 2003. In
December 2003, the FASB issued FIN 46R with respect to VIEs, which among other
things revised the implementation date for small business filers to the first
fiscal year or interim period ending after December 15, 2004, with the exception
of Special Purpose Entities (SPEs). The Bank currently has no SPEs. The adoption
of this statement did not have a material impact on the financial condition or
results of operations of the Bank.
6. INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses, and fair value of the
Company's investment securities available for sale and held to maturity are as
follows (in thousands):
March 31, 2004 (unaudited)
------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
-------- -------- -------- --------
Available-for-sale
U.S. government obligations $ 3,518 $ 10 $ (23) $ 3,505
Mortgage-backed securities
FHLMC 87,134 407 (156) 87,385
FNMA 62,818 439 (213) 63,044
Equity securities 1,028 6 (32) 1,002
-------- -------- -------- --------
Total $154,498 $ 862 $ (424) $154,936
======== ======== ======== ========
March 31, 2004 (unaudited)
------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
-------- -------- -------- --------
Held-to-maturity
Mortgage-backed securities
FHLMC $ 17,354 $ 54 $ (55) $ 17,353
FNMA 20,923 156 (53) 21,026
GNMA 6,552 129 - 6,681
Other debt securities 10 - - 10
-------- -------- -------- --------
Total $ 44,839 $ 339 $ (108) $ 45,070
======== ======== ======== ========
-9-
SYNERGY FINANCIAL GROUP, INC. AND AUDSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
December 31, 2004 (unaudited)
------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
-------- -------- -------- --------
Available-for-sale
U.S. government obligations $ 3,527 $ 9 $ (69) $ 3,467
Mortgage-backed securities
FHLMC 64,136 282 (320) 64,098
FNMA 55,332 241 (324) 55,249
Equity securities 1,017 3 (55) 965
-------- -------- -------- --------
Total $124,012 $ 535 $ (768) $123,779
======== ======== ======== ========
December 31, 2004 (unaudited)
------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
-------- -------- -------- --------
Held-to-maturity
Mortgage-backed securities
FHLMC $ 5,623 $ 20 $ (84) $ 5,559
FNMA 20,285 69 (98) 20,256
GNMA 7,296 95 - 7,391
Other debt securities 10 - - 10
-------- -------- -------- --------
Total $ 33,214 $ 184 $ (182) $ 33,216
======== ======== ======== ========
7. LOANS RECEIVABLE
Major groupings of loans are as follows (in thousands):
March 31, December 31,
2004 2003
--------- ---------
Mortgages
Residential, 1-4 family $ 226,619 $ 226,085
Residential, multi-family 37,642 33,971
Non-residential 60,730 56,694
Automobile 115,340 109,277
Commercial 8,023 7,838
Credit card 61 71
Other loans 3,609 3,745
--------- ---------
452,024 437,681
Deferred loan fees and costs 169 178
Allowance for loan and lease losses (3,473) (3,274)
--------- ---------
$ 448,720 $ 434,585
========= =========
-10-
SYNERGY FINANCIAL GROUP, INC. AND AUDSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
A summary of the activity in the allowance for loan and lease losses is as
follows (in thousands):
Three Months Ended
-------------------------
March 31, March 31,
2004 2003
------- -------
Balance, beginning of period $ 3,274 $ 2,231
Provision for loan and lease losses 368 118
Acquisition of First Bank of Central Jersey - 823
Recoveries 91 119
Loans charged-off (260) (378)
------- -------
Balance, end of period $ 3,473 $ 2,913
======= =======
8. DEPOSITS
Deposits are summarized as follows (in thousands):
March 31, December 31,
2004 2003
-------- --------
Checking accounts $ 49,242 $ 45,259
Interest-bearing checking 1,213 708
Money market accounts 151,360 139,121
Savings and club accounts 71,709 72,061
Certificates accounts 221,947 216,386
-------- --------
$495,471 $473,535
======== ========
9. FHLB of New York Advances
1. Short-term FHLB Advances
------------------------
Short-term FHLB Advances generally have maturities of less than one year. The
details of these advances are present below (in thousands, except percentages):
At or For the Three Months Ended
--------------------------------
March 31, December 31,
2004 2003
----------- -----------
Average balance outstanding $39,453 $35,413
Maximum amount outstanding
at any month-end during the period 44,304 69,300
Balance outstanding at period end 41,025 38,299
Weighted-average interest rate during the period 1.28% 1.21%
Weighted-average interest rate at period end 1.35% 1.17%
-11-
SYNERGY FINANCIAL GROUP, INC. AND AUDSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
2. Long-term FHLB Advances
-----------------------
At March 31, 2004, long-term advances from the Federal Home Loan Bank (FHLB)
totaled $43,927. Advances consist of fixed-rate advances that will mature within
one to nine years. The advances are collateralized by FHLB stock and certain
first mortgage loans and mortgage-backed securities. These advances had a
weighted average interest rate of 3.61%.
As of March 31, 2004 long-term FHLB advances mature as follows (in thousands):
2004 $ 6,188
2005 2,739
2006 7,000
2007 13,000
2008 13,000
Thereafter 2,000
--------
$ 43,927
========
-12-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Management's discussion and analysis of financial condition and results
of operations is intended to provide assistance in understanding our
consolidated financial condition and results of operations. The information in
this section should be read with the consolidated interim financial statements
and the notes thereto included in this Form 10-Q.
Our results of operations are primarily dependent on our net interest
income. Net interest income is a function of the balances of interest earning
assets outstanding in any one period, the yields earned on those assets and the
interest paid on deposits and borrowed funds that were outstanding in that same
period. To a lesser extent, our results of operations are also affected by the
relative levels of our other income and other expenses. Our other income
consists primarily of fees and service charges and gains (losses) on the sale of
loans and investments. The other expenses consist primarily of employee
compensation and benefits, occupancy and equipment expenses, data processing
costs, marketing costs, professional fees, office supplies, telephone and
postage costs. Our results of operations are also significantly impacted by the
amount of provisions for loan and lease losses which, in turn, are dependent
upon, among other things, the size and makeup of the loan portfolio, loan
quality and loan trends.
Forward-Looking Statements
This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21 E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Company intends such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Reform Act of 1995, and is
including this statement for the purpose of these safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe
future plans, strategies and expectations of the Company, are generally
identified by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project," or similar expressions. The Company's ability to predict
results or the actual effect of future plans or strategies is inherently
uncertain. Factors which could have a material adverse effect on the operations
of the Company and its subsidiaries include, but are not limited to, changes in
interest rates, general economic conditions, legislative/regulatory changes,
monetary and fiscal policies of the U.S. Government, including policies of the
U.S. Treasury and the Federal Reserve Board, the quality or composition of the
loan or investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in the Company's market area and
accounting principles and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements. Further information concerning the Company and
its business, including additional factors that could materially effect the
Company's financial results, is included in the Company's filings with the
Securities and Exchange Commission (the "SEC").
The Company does not undertake - and specifically disclaims any
obligation - to release publicly the results of any revisions which may be made
to any forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
-13-
Critical Accounting Policies, Judgments and Estimates
The accounting and reporting policies of the Company conform with the
accounting principals generally accepted in the United States of America and
general practices within the financial services industry. The preparation of the
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 amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
Allowance for Loan and Lease Losses. The Company considers that the
determination of the allowance for loan and lease losses involves a higher
degree of judgment and complexity than its other significant accounting
policies. The balance in the allowance for loan losses is determined based on
management's review and evaluation of the loan portfolio in relation to past
loss experience, the size and composition of the portfolio, current economic
events and conditions, and other pertinent factors, including management's
assumptions as to future delinquencies, recoveries and losses. All of these
factors may be susceptible to significant change. To the extent actual outcomes
differ from management's estimates, additional provisions for loan and lease
losses may be required that would adversely impact earnings in future periods.
Intangible Assets. Intangible assets such as goodwill and the core
deposit intangible associated with the January 2003 acquisition of First Bank of
Central Jersey are subject to annual impairment tests and, in the case of the
core deposit intangible, amortization of the asset through a charge to expense.
To the extent the outcome of the impairment tests differ from the carrying
value, additional charges to expense could be required to reduce the carrying
value, which would adversely impact earnings in future periods.
Income Taxes. Under the liability method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax basis of assets and liabilities. Deferred tax assets are
subject to management's judgment based upon available evidence that future
realization is more likely than not. If management determines that the Company
may be unable to realize all or part of the net deferred tax assets in the
future, a direct charge to income tax expense may be required to reduce the
recorded value of the net deferred tax assets to the expected realizable amount,
thereby impacting earnings.
Comparison of Financial Condition at March 31, 2004 and December 31, 2003
Assets. Total assets increased $62.0 million, or 9.87%, to $690.7 million
at March 31, 2004 from $628.6 million at December 31, 2003. The increase in
total assets resulted primarily from the investment of recently raised capital
in investment securities and loans.
The Company increased investment securities and cash and cash equivalents
by $42.8 million or 27.25%, and $4.3 million or 59.49%, respectively. The
increase in investment securities reflects $53.0 million in purchases offset by
$10.2 million in maturities and principal repayments, as well as premium
amortization. Investment purchases were exclusively federal agency issued
mortgage-backed securities.
-14-
During the first quarter of 2004, net loans receivable increased by $14.1
million or 3.25%. The automobile loan, non-residential and multi-family mortgage
loan portfolios increased by $6.1 million, $4.0 million and $3.7 million,
respectively. Residential, 1-4 family, mortgage loans and commercial loans
accounted for the remainder of the increase. Auto loans increased due to our
alliance with an internet-based lending referral agent. Non-residential and
multi-family mortgage loans increased due to our continued emphasis on these
credits to diversify the loan portfolio and manage the Company's exposure to
risk posed by a potential increase in interest rates.
Liabilities. Total liabilities decreased $2.6 million, or 0.44%, to
$585.1 million at March 31, 2004 from $587.7 million at December 31, 2003. The
decline in total liabilities resulted primarily from the elimination of $38.3
million in stock subscriptions payable, offset by an increase of $21.9 million,
or 4.63%, in deposits and a $12.1 million or 16.58% increase in FHLB advances.
The balance of the change is attributable to a $1.6 million increase in other
liabilities, which represented an amount payable related to the purchase of an
undelivered investment security.
The majority of the deposit growth consisted of an increase in money
market deposit accounts of $12.2 million. This is primarily the result of the
promotion of this type of account.
The increase in FHLB advances was to fund both the purchase of investment
securities and the origination of loans during this period. It is projected that
the deposit flow from existing and new branches will be used to fund our loan
demand and pay down the FHLB advances.
Equity. Total equity increased $64.6 million or 157.91% to $105.6 million
at March 31, 2004 from $40.9 million at December 31, 2003. The increase in
equity is largely attributable to $69.2 million in net proceeds from the
completion of a second step stock conversion on January 20, 2004 . This
transaction resulted in an increase to common stock and additional
paid-in-capital of $911,000 and $68.4 million, respectively. This was offset by
an increase in unearned ESOP shares of $5.5 million as a result of the
transaction.
The increase in equity also reflects $1.0 million in net income for the
three months ended March 31, 2004 and an increase in accumulated other
comprehensive income net of tax effect of $425,000, offset by an increase in
treasury stock repurchased for the restricted stock plan of $759,000.
-15-
Average Balance Sheet. The following table sets forth certain information for
the three months ended March 31, 2004 and 2003. The average yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods presented. Average balances are
derived from daily average balances. The table does not include the allowance
for loan and lease losses in the average balances of loans receivable.
Management does not believe that this causes any material differences in the
information presented.
For the Three Months Ended March 31,
-----------------------------------------------------------------------------
2004 2003
------------------------------------ ------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
Interest-earning assets:
Loans receivable, net(1) $442,045 $6,716 6.08% $336,434 $6,267 7.45%
Securities(2) 174,772 1,511 3.46 117,853 1,197 4.06
Other interest-earning assets(3) 3,702 21 2.27 6,988 44 2.52
-------- ------ -------- ------
Total interest-earning assets 620,519 8,248 5.32 461,275 7,508 6.51
Non-interest-earning assets 35,858 26,870
-------- --------
Total assets $656,377 $488,145
======== ========
Interest-bearing liabilities:
Checking accounts $ 44,874 $ 2 0.02 $ 50,734 $ 2 0.02
Savings and club accounts 70,031 87 0.50 69,767 183 1.05
Money market accounts 145,121 605 1.67 54,250 238 1.75
Certificates of deposit 217,417 1,401 2.58 227,409 1,835 3.23
FHLB advances 68,158 453 2.66 47,774 416 3.48
Stock subscriptions payable 23,207 23 0.40 - - -
------ ------
Total interest-bearing liabilities 568,808 2,571 1.81 449,934 2,674 2.38
------ ------
Non-interest-bearing liabilities 3,193 6,853
-------- --------
Total liabilities 572,001 456,787
Stockholders' equity 84,376 31,358
-------- --------
Total liabilities and stockholders' equity $656,377 $488,145
======== ========
Net interest income $5,677 $4,834
Interest rate spread(4) 3.51% 4.13%
====== ======
Net yield on interest-earning assets(5) 3.66% 4.19%
====== ======
Ratio of average interest-earning assets to
average interest-bearning liabilities 109.09% 102.52%
====== ======
- -------------------------------
(1) Non-accruing loans have been included in loans receivable, and the effect
of such inclusion was not material.
(2) Includes U.S. government obligations, mortgage-backed securities and
interest-bearing deposits in banks.
(3) Includes FHLB stock at cost and term deposits with other financial
institutions.
(4) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(5) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
-16-
Comparison of Operating Results for Three Months Ended March 31, 2004 and 2003
Net Income. Net income increased by $169,000 to $1.0 million for the
three months ended March 31, 2004 compared to $836,000 for the same period in
2003, a 20.22% increase. The increase was attributable primarily to a $843,000
increase in net interest income and a $290,000 increase in other income, offset
by a $250,000 increase in the provisions for loan and lease losses, a $542,000
increase in other expenses and a $172,000 increase in income tax expense as a
result of higher earnings.
Net Interest Income. Net interest income grew $843,000, or 17.44%, for
the three months ended March 31, 2004 compared to the same period in 2003. Total
interest income increased by $740,000, to $8.2 million, for the three months
ended March 31, 2004, while total interest expense declined by $103,000 to
approximately $2.6 million, for the three months ended March 31, 2004.
The 9.86% increase in total interest income was primarily due to a
$159.2 million, or 34.52%, increase in the average balance of interest-earning
assets, offset by a 119 basis point decrease in the average yield earned on
these investments. The increase in interest-earning assets was a direct result
of management's growth strategy. The decrease in the average yield was primarily
attributable to lower market interest rates.
The 3.85% decrease in total interest expense resulted primarily from a
57 basis point decrease in the average cost of funds offset by an 26.42%
increase in the average balance of interest-bearing liabilities . The decrease
in the average cost of interest-bearing liabilities was primarily attributable
to pricing strategies and lower market interest rates. The majority of the
increase in the average balance of interest-bearing liabilities for the 2004
period was comprised of a $90.9 million or 167.50% increase in the average
balance of money market accounts and a $20.4 million, or 42.67%, increase in the
average balance of advances from the Federal Home Loan Bank.
Provision for Loan and Lease Losses. We maintain an allowance for loan
and lease losses through provisions for loan and lease losses that are charged
to earnings. The provision is made to adjust the total allowance for loan and
lease losses to an amount that represents management's best estimate of losses
known and inherent in the loan portfolio at the balance sheet date that are both
probable and reasonable to estimate. In estimating the known and inherent loan
losses in the loan portfolio that are both probable and reasonable to estimate,
management considers factors such as an internal analysis of credit quality,
general levels of loan delinquencies, collateral values, the bank's historical
loan and lease loss experience, changes in loan concentrations by loan category,
peer group information and economic and market trends affecting our market area.
The provision established for loan and lease losses each month reflects
management's assessment of these factors in relation to the level of the
allowance at such time. Management allocates the allowance to various categories
based on its classified assets, historical loan and lease loss experience, and
its assessment of the risk characteristics of each loan category and the
relative balances at month end of each loan category. Management's estimation
did not change either in estimation methods or assumptions during either period.
The provision for loan and lease losses increased by $250,000, or
211.86%, to $368,000 for the three months ended March 31, 2004 from $118,000 for
the same period in 2003. Total charge-offs amounted to $260,000 and recoveries
amounted to $91,000 for a net charge-off amount of $169,000 for the three months
ended March 31, 2004. This represents a decrease in net charge-offs of $90,000
over the same period in 2003.
Other Income. Other income increased $290,000 or 75.92%, to $672,000
for the three months ended March 31, 2004 compared to $382,000 for the same
period in 2003. The increase is primarily attributable to higher fees and an
increase in other income (primarily late charges and the value of the bank-owned
life
-17-
insurance policy), which increased $173,000 and $137,000, respectively, offset
by a $20,000 decrease in commissions.
Other Expenses. Other expenses increased $542,000 or 14.26% to $4.3
million for the three months ended March 31, 2004 compared to $3.8 million for
the same period in 2003. The increase was primarily attributable to a $393,000
or 21.11% increase in compensation expense, specifically the Company's 2003
Restricted Stock Plan, its Employee Stock Ownership Plan and customary employee
merit increases, and an increase in premises and equipment expenditures of
$216,000, or 27.24%, offset by a $64,000 decrease in occupancy and professional
service expenses.
Income Tax Expense. Income tax expense increased by $172,000, or
34.96%, during the three- months ended March 31, 2004 as compared to the same
period in 2003, reflecting higher taxable income for the 2004 period.
Liquidity
The Bank maintains liquid assets at levels we consider adequate to meet
liquidity needs. The liquidity of the Bank reflects its ability to provide funds
to meet loan requests, accommodate possible outflows in deposits, fund current
and planned expenditures and take advantage of interest rate market
opportunities in connection with asset and liability management objectives.
Funding of loan requests, providing for liability outflows and management of
interest rate fluctuations require continuous analysis in order to match the
maturities of earning assets with specific types of deposits and borrowings.
Bank liquidity is normally considered in terms of the nature and mix of the
bank's sources and uses of funds.
The Bank's primary sources of liquidity are deposits, scheduled
amortization and prepayment of loans and mortgage-backed securities. In
addition, the Bank invests excess funds in overnight federal funds investments,
which provide liquidity. Our cash and cash equivalents, defined as cash and
deposits in other financial institutions with original maturities of three
months or less, totaled $11.6 million at March 31, 2004. To a lesser extent, the
earnings and funds provided from our operating activities are a source of
liquidity.
Liquidity management is both a daily and long-term function of business
management. While scheduled principal repayments on loans and mortgage-backed
securities are a relatively predictable source of funds, deposit flows and loan
and securities prepayments are greatly influenced by general interest rates,
economic conditions and competition. If we require funds beyond our ability to
generate them internally, we have the ability to obtain advances from the FHLB
of New York, which provides an additional source of funds. At March 31, 2004,
the Bank's borrowing limit with the FHLB of New York was $156.2 million. At
March 31, 2004, Bank had $84.9 million of borrowings outstanding.
Management is not aware of any trends, events or uncertainties that will
have or are reasonably likely to have a material effect on the Company's
liquidity, capital or operations nor are we aware of any current recommendation
by regulatory authorities, which, if implemented, would have a material effect
on liquidity, capital or operations. The total amount of the Bank's commitments
to extend credit for mortgage and consumer loans as of March 31, 2004 was $46.2
million, excluding commitments on unused lines of credit, which totaled $23.1
million.
Management intends to grow the Bank's branch network either through
opening or acquiring branch offices. We currently plan to open four additional
new branch locations over the next four years. We also intend to actively
consider the acquisition of local financial institutions as part of expanding
our banking operations. We do not, however, have any current understandings,
agreements or arrangements for the expansion of our business, other than opening
new branch office locations.
-18-
The following table discloses our contractual obligations as of March 31, 2004:
Total Less Than 1-3 Years 4-5 Years After
1 Year 5 Years
------- --------- --------- --------- -------
FHLB advances (1) $84,952 $47,213 $24,739 $13,000 $ -
Rental under operating leases 4,714 423 1,608 470 2,213
------- ------- ------- ------- -------
Total $89,666 $47,636 $26,347 $13,470 $ 2,213
======= ======= ======= ======= =======
- ----------------
(1) At March 31, 2004, we had $84.9 million of borrowings outstanding with the
FHLB. At March 31, 2004, our borrowing limit with the FHLB was $156.2 million.
The following table discloses our commercial commitments as of March 31,
2004:
Total Less Than 1-3 Years 4-5 Years After
1 Year 5 Years
------- --------- --------- --------- -------
Lines of Credit (1) $23,000 $ 95 $ 350 $ 205 $22,350
Other commitments to extend credit 46,000 46,000 - - -
------- ------- ------- ------- -------
Total $69,000 $46,095 $ 350 $ 205 $22,350
======= ======= ======= ======= =======
- ----------------
(1) Represents amounts committed to customers.
-19-
Regulatory Capital Requirements
The Bank is subject to federal regulations that impose certain minimum
capital requirements. Quantitative measures, established by regulation to ensure
capital adequacy, require the Bank to maintain amounts and ratios of tangible
and core capital to adjusted total assets and of total risk-basked capital to
risk-weighted assets. On March 31, 2004, the Bank was in compliance with all of
its regulatory capital requirements. The following table sets forth the Bank's
capital position and relativity to regulatory requirements as of March 31, 2004:
OTS Requirements
-------------------------------------------------------------------------
Regulatory
Minimum for classification as
Bank actual capital adequacy well-capitalized
----------- ---------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Total risk-based capital (to $89,399 20.59% $34,730 8.00% $43,412 10.00%
risk-weighted assets)
Tier 1 capital (to risk-weighted 85,926 19.79% N/A N/A 26,047 6.00%
assets)
Tier 1 capital (to adjusted total 85,926 12.67% 27,120 4.00% 33,900 5.00%
assets)
Tangible capital (to adjusted total 85,926 12.67% 10,170 1.50% N/A N/A
assets)
Impact of Inflation and Changes Prices
The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with Generally
Accepted Accounting Principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time and
due to inflation. The impact of inflation is reflected in the increased cost of
the Company's operations, primarily those at the Bank. Unlike most industrial
companies, nearly all the assets and liabilities of the Bank are financial. As a
result, interest rates have a greater impact on the Bank's performance than do
the effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or to the same extent as the prices of goods and
services.
-20-
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Management of Interest Rate Risk and Market Risk
Qualitative Analysis. Because the majority of our interest-earning assets and
interest-bearing liabilities are sensitive to changes in interest rates, a
significant form of market risk for the Bank is interest rate risk, or changes
in interest rates. We are vulnerable to an increase in interest rates to the
extent that interest-bearing liabilities mature or reprice more rapidly than
interest-earning assets. Our assets include long-term, fixed loans and
investments, while our primary sources of funds are deposits and borrowings with
substantially shorter maturities. Although having interest-bearing liabilities
that reprice more frequently than interest-earning assets is generally
beneficial to net interest income during a period of declining interest rates,
this type of asset/liability mismatch is generally detrimental during periods of
rising interest rates.
The Board of Directors has established an Asset and Liability Management and
Budget Committee that consists of Directors Scott (Chairman), De Perez, Fiore,
LaCorte and Stender. The Committee meets quarterly with management to review
current investments: average lives, durations and repricing frequencies of loans
and securities; loan and deposit pricing and production volumes and alternative
funding sources; interest rate risk analysis; liquidity and borrowing needs; and
a variety of other assets and liability management topics. The executive session
of the Committee is held monthly with Director Fiore presiding and senior
management in attendance. The results of the quarterly and monthly meetings of
the Committee are reported to the full Board at its regular meetings. In
addition, the Committee generally meets during October and November each year
with the goal of developing an annual business and operating plan for
presentation to the full Board.
To reduce the effect of interest rate changes on net interest income, the Bank
has adopted various strategies to enable it to improve the matching of
interest-earning asset maturities to interest-bearing liability maturities. The
main elements of these strategies include seeking to:
o originate loans with adjustable-rate features or fixed rate loans with
short maturities, such as home equity and consumer loans;
o lengthen the maturities of time deposits and borrowings when it would be
cost effective through the aggressive pricing and promotion of certificates
of deposits and utilization of FHLB advances;
o increase core deposits (i.e., transaction and savings accounts) which tend
to be less interest rate sensitive; and
o purchase intermediate and adjustable-rate investment securities that
provide a stable cash flow, thereby providing investable funds in varying
interest rate cycles.
Quantitative Analysis. Management actively monitors its interest rate risk
exposure. The Bank's objective is to maintain a consistent level of
profitability within acceptable risk tolerances across a broad range of
potential interest rate environments. The Bank uses the Office of Thrift
Supervision ("OTS") Net Portfolio Value (NPV) Model to monitor its exposure to
interest rate risk, which calculates changes in net portfolio value. Reports
generated from assumptions provided and modified by management are reviewed by
the Asset and Liability Management Committee and reported to the Board of
Directors quarterly. The Interest Rate Sensitivity of Net Portfolio Value Report
shows the degree to which balance sheet line items and the net portfolio value
are potentially affected by a 100 to 300 basis point (1/100th of a percentage
point) upward and downward shift (shock) in the Treasury yield curve.
Management of the Company believes that there has not been a material adverse
change in market risk during the three months ended March 31, 2004.
-21-
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures. Based on their
-----------------------------------------------------
evaluation of the Company's disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")),
the Company's principal executive officer and principal financial officer have
concluded that as of the end of the period covered by this Quarterly Report on
Form 10-Q such disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
Changes in internal controls. During the quarter under report, there
-----------------------------
was no change in the Company's internal control over financial reporting that
has materially affected, or is reasonable likely to materially affect, the
Company's internal control over financial reporting.
-22-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
The Company and its subsidiaries, from time to time, may be a party to
routine litigation, which arises in the normal course of business, such as
claims to enforce liens, condemnation proceedings on properties in which the
Bank, the wholly-owned subsidiary of the Company, holds security interests,
claims involving the making and servicing of real property loans, and other
issues incident to its business. There were no lawsuits pending or known to be
contemplated at March 31, 2004 that would be expected to have a material effect
on the Company's operations or income.
Item 2. Changes in Securities , Use of Proceeds and Issuer Purchases of Equity
----------------------------------------------------------------------
Securities.
-----------
Synergy Financial Group, Inc. (the "Company"), the holding company of
Synergy Bank and Synergy Financial Services, Inc., completed its second-step
conversion from the mutual holding company form of organization to a full stock
corporation (the "Conversion") on January 20, 2004. Upon completion of the
conversion, Synergy, MHC and the former Mid-Tier Stock Holding Company were
eliminated.
Shares of the Company commenced trading on Wednesday, January 21, 2004
on the Nasdaq National Market. The stock trades under the symbol "SYNF," which
is the same symbol formerly used by the Mid-Tier Stock Holding Company on the
OTC Bulletin Board.
The Company's registration statement on Form S-1 (File No. 333-108884)
registering its common stock, par value $0.10 per share, was declared effective
by the Securities and Exchange Commission on November 12, 2003. The subscription
offering commenced on November 20, 2003 and terminated on December 15, 2003. A
community offering commenced on December 18, 2003 and terminated on January 7,
2004. The stock sale occurred on January 20, 2004.
The Company sold 7,035,918 shares of its common stock in the Conversion
at $10.00 per share for an aggregate sales price of $70,359,180. In addition,
each share of common stock held by the public stockholders of its former
Mid-Tier Stock Holding Company were converted into 3.7231 shares of common stock
of the Company, resulting in an aggregate of 5,416,180 exchange shares. Cash was
issued in lieu of fractional shares. Accordingly, the Company now has 12,452,098
total shares outstanding following the Conversion, which was the adjusted
maximum of the estimated valuation range.
Net proceeds of the offering were $69.2 million, reflecting total
offering expenses of approximately $1.2 million, including total underwriter's
fees and expenses of $425,000. The net proceeds have been applied as follows:
(i) $58.0 million was used to make a capital contribution to Synergy Bank, for
general business purposes, including funding the origination of loans and
investments in securities; (ii) $5.6 million was loaned to the Company's
employee stock ownership plan cash to enable the plan to buy 8% of the shares
sold in the offering; and (iii) $5.6 million was retained by the Company as its
initial capitalization to be used for general business purposes which may
include investment in securities, repurchasing shares of the Company's common
stock, or paying cash dividends. The Company initially has invested the portion
of the proceeds retained by it in intermediate term mortgage-backed securities
issued by government sponsored enterprises.
-23-
ISSUER PURCHASES OF EQUITY SECURITIES
- -------------------------------------------------------------------------------------------------------------------
Period (a) Total (b) Average (c) Total Number of (d) Maximum Number (or
Number of Price Paid per Shares (or Units) Approximate Dollar Value)
Shares (or Share (or Unit) Purchased as Part of of Shares (or Units) that
Units) Publicly Announced May Yet Be Purchased Under
Purchased Plans or Programs the Plans or Programs
- -------------------------------------------------------------------------------------------------------------------
January 1-31, 2004 - - - 192,428
- -------------------------------------------------------------------------------------------------------------------
February 1-29, 2004 45,600 10.64 45,600 146,828
- -------------------------------------------------------------------------------------------------------------------
March 1-31, 2004 26,400 10.37 26,400 120,428
- -------------------------------------------------------------------------------------------------------------------
Total 72,000 10.53 72,000
- -------------------------------------------------------------------------------------------------------------------
- ---------------
1 On June 3, 2003, Synergy Financial Group Inc. (Company) announced its plans
to purchase shares of its common stock in open market transactions for use
by the Company's 2003 Restricted Stock Plan.
2 The Company intends to purchase up to 192,428 shares of its common stock.
3 Currently there is no expiration date for the repurchase of the Company's
stock.
4 There has been no expiration of any plan during the period covered by the
table above.
5 The Company has determined not to terminate any plan prior to expiration.
-24-
Item 3. Defaults Upon Senior Securities.
--------------------------------
None.
Item 4. Submission of Matters to a Vote of SecurityHolders.
---------------------------------------------------
None.
Item 5. Other Information.
------------------
None.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
a) Exhibits:
31 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
b) Reports on Form 8-K:
During the quarter ended March 31, 2004, the Company filed a Report on
Form 8-K dated January 20, 2004 to announce the successful completion of the
Plan of Conversion and Reorganization by which the Company converted from the
mutual holding company form of organization into a full stock company. The
Company also filed a Report on Form 8-K dated January 28, 2004 to report
consolidated earnings for the year ended December 31, 2003.
-25-
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SYNERGY FINANCIAL GROUP, INC.
Date: May 14, 2004 By: /s/John S. Fiore
-------------------------------------
John S. Fiore
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/John S. Fiore /s/Ralph A. Fernandez
- ------------------------------------- -------------------------------------------------
John S. Fiore Ralph A. Fernandez
President and Chief Executive Officer Senior Vice President and Chief Financial Officer
(Principal Executive Officer) (Principal Financial and Accounting Officer)
Date: May 14, 2004 Date: May 14, 2004
-26-