-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RCYkKR2AGHXQAm9ESlkADQVQF5L1LaAFqTEa649wPfKfj+rhINololcvly9b29gp bYgeQ2x+8QPKZwu7N1RBDA== 0000946275-03-000643.txt : 20030917 0000946275-03-000643.hdr.sgml : 20030917 20030917171655 ACCESSION NUMBER: 0000946275-03-000643 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 20030917 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNERGY FINANCIAL GROUP INC /NJ/ CENTRAL INDEX KEY: 0001263766 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-108884 FILM NUMBER: 03900016 BUSINESS ADDRESS: STREET 1: 310 NORTH AVE EAST CITY: CRANFORD STATE: NJ ZIP: 07016 BUSINESS PHONE: 8006933838 S-1 1 s1_091603-0207.txt FORM As filed with the Securities and Exchange Commission on September 17, 2003 Registration No. 333- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Synergy Financial Group, Inc. -------------------------------------------------- (Exact name of registrant as specified in charter) New Jersey 6035 Applied For - ---------------------------- ----------------- ---------------- (State or other jurisdiction (Primary SIC No.) (I.R.S. Employer of incorporation or organization) Identification No.) 310 North Avenue East, Cranford, New Jersey 07016 908-272-3838 - -------------------------------------------------------------------------------- (Address and telephone number of principal executive offices) Mr. John S. Fiore, President and Chief Executive Officer 310 North Avenue East, Cranford, New Jersey 07016 (908) 272-3838 - -------------------------------------------------------------------------------- (Name, address and telephone number of agent for service) Please send copies of all communications to: Samuel J. Malizia, Esq. Tiffany A. Hasselman, Esq. MALIZIA SPIDI & FISCH, PC 1100 New York Ave., N.W. Suite 340 West Washington, D.C. 20005 (202) 434-4660 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this registration statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE - --------------------------- ---------------- -------------------- ------------------------ ----------------- Title of Each Amount Proposed Maximum Proposed Maximum Amount of Class of Securities to be Offering Price Aggregate Registration To Be Registered Registered Per Unit Offering Price(1) Fee - --------------------------- ---------------- -------------------- ------------------------ ----------------- Common Stock, $0.10 Par Value 9,588,125(2) $10.00 $95,881,250 $7,756.79 Interests of participants in the 401(k) Plan 412,050(3) $10.00 $ - - (4) - --------------------------- ---------------- -------------------- ------------------------ -----------------
(1) Estimated solely for purposes of calculating the registration fee. (2) Includes the maximum numbers of shares that may be sold or exchanged for shares of common stock in connection with this offering. (3) These shares are included in the 9,588,125 shares being registered. (4) The $4,120,500 of participations to be registered are based upon the assets of the 401(k) Plan. Pursuant to Rule 457(h)(2) under the Securities Act of 1933, no additional fee is required with respect to the interests of participants of the 401(k) Plan. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. [GRAPHIC OMITTED] PROSPECTUS SYNERGY FINANCIAL GROUP, INC. (Holding Company for Synergy Bank and Synergy Financial Services, Inc.) Up to 4,711,099 Shares of Common Stock We are offering common stock in connection with the conversion of Synergy, MHC from the mutual to the stock form of organization. The shares being offered represent the 56.5% ownership interest in Synergy Financial Group, Inc. now owned by Synergy, MHC, its mutual holding company parent. Synergy Financial Group, Inc. is the holding company of Synergy Bank and Synergy Financial Services, Inc. The remaining 43.5% ownership interest in Synergy Financial Group, Inc. is owned by the public and will be exchanged for shares of the new Synergy Financial Group, Inc.'s common stock. All new shares of common stock being offered for sale will be sold at a price of $10.00 per share. If you are a current or former depositor of Synergy Bank as of the eligibility dates: o You may have priority rights to purchase shares of our common stock. If you are currently a stockholder of Synergy Financial Group, Inc.: o Each of your shares will be exchanged automatically for between 1.8425 and 2.4925 new shares of Synergy Financial Group, Inc. o After the exchange of shares, your percentage ownership will remain essentially equivalent to your current percentage ownership interest in Synergy Financial Group, Inc. o You may also purchase additional shares in the offering after priority orders are filled. If you fit neither of the above categories, but are interested in purchasing shares of our common stock: o You may purchase shares of our common stock after orders in the preceding categories are filled. We are offering for sale up to 4,711,099 shares of common stock. We may sell up to 5,417,793 shares because of changes in the market and general financial and economic conditions without notifying prospective purchasers. We must sell a minimum of [min.] shares in order to complete the offering and the exchange of existing shares. The minimum purchase is 25 shares. The offering is expected to terminate on December ___, 2003 at 12:00 noon, eastern time. We may extend this termination date without notice to you until __________, 2004. Once submitted, orders are irrevocable unless the offering is terminated or extended beyond ___________, 2004. Funds received prior to completion of the offering will be held in an escrow account at Synergy Bank and will earn interest at our savings account rate. Our stock is currently quoted on the OTC Bulletin Board under the symbol "SYNF." The Nasdaq National Market has given us preliminary approval to list our common stock on the National Market under the same symbol. Sandler O'Neill & Partners, L.P. will assist us in our selling efforts on a best efforts basis. Sandler O'Neill & Partners, L.P. is not required to purchase any of the common stock that is being offered. This investment involves risk, including the possible loss of principal. Please read the "Risk Factors" beginning at page __. ================================================================================ Minimum Maximum Maximum, as Adjusted ------- ------- -------------------- Number of Shares.............. 3,482,123 4,711,099 5,417,793 Total Offering Expenses....... $1,100,000 $1,100,000 $1,100,000 Net Proceeds.................. $33,721,230 $46,010,990 $53,077,930 Net Proceeds Per Share........ $9.68 $9.77 $9.80 These securities are not deposits or savings accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. Neither the Securities and Exchange Commission, the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, nor any state securities regulator has approved or disapproved these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense. For assistance, please contact the conversion center at (908) 956-4011 Sandler O'Neill & Partners, L.P. The Date of this Prospectus is November __, 2003 TABLE OF CONTENTS Page ---- Summary....................................................................... Risk Factors.................................................................. Use of Proceeds............................................................... Dividend Policy............................................................... Market for the Stock.......................................................... Capitalization................................................................ Pro Forma Data......................................................... Historical and Pro Forma Capital Compliance................................... Selected Consolidated Financial and Other Data................................ Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. Business of Synergy Financial Group, Inc...................................... Business of Synergy Bank ..................................................... Regulation.................................................................... Taxation...................................................................... Management.................................................................... The Conversion................................................................ The Stock Offering............................................................ Restrictions on Acquisition of Synergy Financial Group, Inc................... Description of Capital Stock.................................................. Legal and Tax Opinions........................................................ Experts....................................................................... Registration Requirements..................................................... Where You Can Find Additional Information..................................... Index to Consolidated Financial Statements.................................... - -------------------------------------------------------------------------------- SUMMARY This summary highlights selected information from this document and may not contain all the information that is important to you. To better understand the stock offering, you should read this entire document carefully, including the consolidated financial statements of Synergy Financial Group, Inc. and the notes thereto. The Companies Synergy, MHC - 310 North Avenue East, Cranford, New Jersey 07016 Synergy, MHC is currently the federally-chartered mutual holding company of Synergy Financial Group, Inc. As of June 30, 2003, Synergy, MHC's sole business activity consists of its ownership of 1,889,502 shares of Synergy Financial Group, Inc.'s common stock, which represents 56.5% of its outstanding shares. At the conclusion of this stock offering and the completion of the mutual-to-stock conversion of Synergy, MHC, Synergy, MHC will cease to exist.
Synergy Financial Group, Inc. - 310 North Avenue East, Cranford, New Jersey 07016 (908) 272-3838
Synergy Financial Group, Inc. is currently the middle-tier federal stock holding company of Synergy Bank and Synergy Financial Services, Inc. and owns all of the outstanding common stock of both entities. At June 30, 2003, Synergy Financial Group, Inc. had total assets of $561.4 million and total stockholders' equity of $39.6 million. At the conclusion of this stock offering and the completion of the mutual-to-stock conversion of Synergy, MHC, Synergy Financial Group, Inc. will cease to exist but will be succeeded by a newly formed New Jersey corporation also called Synergy Financial Group, Inc., which will own all of the outstanding common stock of Synergy Bank and Synergy Financial Services, Inc. As of June 30, 2003, Synergy Financial Group, Inc. had 3,344,252 shares of common stock issued and outstanding. Synergy, MHC owns 1,889,502 shares, or 56.5%, of Synergy Financial Group, Inc.'s outstanding common stock. The remaining shares of common stock are held by the public. Synergy Bank - 310 North Avenue East, Cranford, New Jersey 07016 Synergy Bank is a federally-chartered stock savings bank that was organized in 1952 as a federal credit union and converted to a savings bank in 1998. Synergy Bank conducts a traditional community bank operation, offering retail banking services, one- to-four family residential mortgages and home equity loans, multi-family and non-residential mortgages, commercial loans and consumer loans, including automobile loans.
Synergy Financial Services, Inc. - 310 North Avenue East Cranford, New Jersey 07016
Synergy Financial Services, Inc. was incorporated under New Jersey law in June 1997 and began operation in May 1998. It was organized for the purpose of providing securities brokerage, insurance and investment services and products, including mutual funds and annuities, to customers of Synergy Bank and the general public. - -------------------------------------------------------------------------------- 1 - -------------------------------------------------------------------------------- How the Ownership Structure Will Change After the Conversion The following chart shows our current structure which is commonly referred to as a "two-tier" mutual holding company structure: - ---------------------------- -------------------------------------- Synergy Financial Group, Inc. Synergy, MHC Minority Stockholders (Public Stockholders) - ---------------------------- -------------------------------------- | 56.5% | 43.5% -------------------------------------------------------------------- Synergy Financial Group, Inc. -------------------------------------------------------------------- | 100% | 100% ------------------------ ------------------------------------- Synergy Bank Synergy Financial Services, Inc. ------------------------ ------------------------------------- The following chart shows our ownership structure after the conversion: ---------------------- Public Stockholders ---------------------- | 100% ---------------------- -------------------------------------- Synergy Financial Group, Inc. ---------------------- -------------------------------------- | 100% | 100% ---------------------- -------------------------------------- Synergy Bank Synergy Financial Services, Inc. ---------------------- -------------------------------------- The Offering We are selling common stock which represents the 56.5% ownership interest in Synergy Financial Group, Inc. now owned by Synergy, MHC in the following order of priority. First: Depositors at Synergy Bank with $50 or more on deposit as of March 31, 2002. Second: Synergy Financial Group, Inc.'s employee stock ownership plan. Third: Depositors at Synergy Bank with $50 or more on deposit as of September 30, 2003. Fourth: Depositors at Synergy Bank as of October __, 2003. We are selling between 3,482,123 and 4,711,099 shares of common stock, all at a price of $10.00 per share. The number of shares to be sold may be increased to 5,417,793. The actual number of shares we sell will depend on an independent appraisal performed by FinPro, Inc., an independent appraisal firm. See Stock Pricing and the Number of Shares to be Offered at page __. - -------------------------------------------------------------------------------- 2 The subscription offering expires at 12:00 noon, eastern time, on December __, 2003, but may be extended to _____________, 2004. You cannot transfer your subscription rights. If you attempt to transfer your rights, you may lose the right to purchase shares and may be subject to criminal prosecution and/or other sanctions. Commencing concurrently with the subscription offering, we may also offer shares of common stock in a community offering. In the community offering, current stockholders of Synergy Financial Group, Inc. will have first preference and people who reside in the communities where Synergy Bank has offices will have second preference. This part of the offering may terminate at any time without notice but no later than __________, 2004. Shares not sold in the subscription or community offering may be offered for sale in a syndicated community offering, which would be an offering to the general public on a best efforts basis by a syndicate of broker dealers managed by Sandler O'Neill & Partners, L.P. We have the right to reject any orders of stock in the community offering and syndicated community offering. We have described the offering in greater detail beginning at page __ . The Exchange of Synergy Financial Group, Inc. Common Stock If you are now a stockholder of Synergy Financial Group, Inc., your shares will be canceled and exchanged for new shares. The number of shares you will receive will be based on an exchange ratio. The actual number of shares you receive will depend upon the number of shares we sell in our offering. The following table shows how the exchange ratio will adjust based on the number of shares sold in our offering. The table also shows how many shares an owner of Synergy Financial Group, Inc. common stock would receive in the exchange, adjusted for the number of shares sold in the offering.
100 Shares of Shares of the New Synergy Financial Synergy Financial Group, Inc. Would be Group, Inc. to be Exchanged for the Exchanged for Total Shares Following Number of Existing Shares of of Common Shares of the New Shares to be Sold Synergy Financial Stock to be Exchange Synergy Financial in the Offering Group, Inc. Outstanding Ratio Group, Inc. --------------- ----------- ----------- ----- ----------- Amount Percent Amount Percent ------ ------- ------ ------- Minimum.............. 3,482,123 56.5% 2,680,377 43.5% 6,162,500 1.8425% 184 Midpoint............. 4,096,683 56.5 3,153,317 43.5 7,250,000 2.1676 216 Maximum.............. 4,711,099 56.5 3,626,401 43.5 8,337,500 2.4925 249 Adjusted maximum..... 5,417,793 56.5 4,170,332 43.5 9,588,125 2.8667 286
If you own your shares of Synergy Financial Group, Inc. in "street name," the exchange will occur automatically; you do not need to take any action. If you have shares registered in your name, you will receive a transmittal form with instructions to surrender your stock certificates after the offering is completed. You will receive new certificates of our common stock within five business days after we receive your properly executed transmittal form. No fractional shares of our common stock will be issued to any public stockholder of Synergy Financial Group, Inc. upon consummation of the conversion. Payment for fractional shares will be made after the receipt of surrendered Synergy Financial Group, Inc. stock certificates by Registrar and Transfer Company, which is the transfer agent for our stock and will act as the exchange agent for the conversion. We have described the exchange in greater detail beginning at page __. - -------------------------------------------------------------------------------- 3 - -------------------------------------------------------------------------------- Reasons for the Conversion We are pursuing the conversion for several reasons, including the following: o The proceeds from the sale of common stock will provide us with additional equity capital, which will support future deposit growth and expanded operations. While we currently exceed applicable regulatory capital requirements, the sale of stock, coupled with the accumulation of earnings, less dividends or other reductions in capital, from year to year, represents a means for the orderly preservation and expansion of our capital base. If our current growth continues at the same rate and if we expand further as we currently plan, we will need the additional capital to continue to comply with applicable regulatory capital requirements. o The larger capital base after the offering will allow us to increase our interest-earning assets, which should permit us to increase our earnings. o Because a greater amount of our outstanding stock will be held by public stockholders after the conversion, we have applied to have our common stock quoted on the Nasdaq National Market. This is expected to provide additional liquidity and visibility for our common stock and is expected to make it easier for you to buy and sell our common stock. o As a fully converted holding company, we will have greater strategic flexibility in connection with merger and acquisition transactions. Unlike a mutual holding company, we can use stock as a form of payment for acquisitions and merge with any other stock institution or its holding company. Currently, however, we have no plans, agreements or understandings regarding any acquisition. o As a fully converted company, we believe it will be easier to access the capital markets through possible future equity and debt offerings. Conditions to Complete the Conversion We cannot complete our conversion and our offering unless: (1) It is approved by a majority of the votes eligible to be cast by members of Synergy, MHC; (2) It is approved by at least two-thirds of the votes eligible to be cast by stockholders of Synergy Financial Group, Inc.; and (3) It is approved by a majority of the votes cast by stockholders of Synergy Financial Group, Inc., not including those shares held by Synergy, MHC. We have described the conditions to complete the conversion in greater detail at page __. $10.00 Per Share Stock Pricing and the Number of Shares to be Issued in the Conversion As mandated by the regulations of the Office of Thrift Supervision, the number of shares offered is determined by an independent appraisal of the pro forma estimated market value of our stock performed by FinPro, Inc. divided by the purchase price of $10.00 and multiplied by 56.5%, the percentage of Synergy, MHC shares being offered to the public. The amount of stock sold in this offering is required by regulation to be based upon an independent appraisal which is reviewed by the Office of Thrift Supervision. The appraisal is not approved or otherwise determined by the Board of Directors of Synergy. - -------------------------------------------------------------------------------- 4 - -------------------------------------------------------------------------------- FinPro has determined that as of September __, 2003, our estimated aggregate pro forma market value was $72.5 million, the mid-point of the valuation range. Pursuant to regulations, this value must be within a minimum valuation range of $61.6 million and a maximum valuation range of $83.4 million. Based on this valuation and the ownership of Synergy, MHC, an offering range between 3,482,123 shares and 4,711,099 shares is being offered. This offering range means that the $10.00 per share purchase price for our shares will range from 18.52x to 27.78x of our pro forma net income per share and from 90.42% to 112.49% of pro forma tangible book value per share using the financial data at and for the six month period ended June 30, 2003. The ratios we have presented are commonly requested by a prospective investor in order to determine whether or not the stock meets his investment criteria. Because of possible differences and important factors such as operating characteristics, financial performance, asset size, capital structure, and business prospects between us and other fully converted institutions, you should not rely solely on these comparative valuation ratios as an indication as to whether or not the stock is an appropriate investment for you. See Risk Factors - You may not be able to sell your shares when you desire or for $10.00 or more per share at page __ and Pro Forma Data at page __ and The Offering - Stock Pricing and the Number of Shares to be Offered at page __. The Amount of Stock You May Purchase The minimum number of shares that you may purchase is 25. If you are not a Synergy Financial Group, Inc. stockholder, you (or other individuals on a single account on an eligibility record date) may generally not, either alone or together with persons acting in concert with you, purchase more than 20,000 shares of common stock. The maximum number of shares that any individual may generally purchase together with any associate or group of persons acting in concert is 40,000 shares. If you are now a Synergy Financial Group, Inc. stockholder, you (or other individuals on a single account on an eligibility record date) may generally not, either alone or together with persons acting in concert with you, purchase shares that, when combined with shares you receive in the exchange for Synergy Financial Group, Inc. stock, exceed 20,000 shares. Any current stockholder, however, will not be required to divest of any stock received in exchange for their current Synergy Financial Group, Inc. stock. The maximum number of shares that any current stockholder may generally purchase together with any associate or group of persons acting in concert, when combined with shares received in the exchange for Synergy Financial Group, Inc. stock, is 40,000 shares. For further discussion of the purchase limits and definitions of "associate" and "acting in concert," see The Offering - Limitations on Purchases of Common Stock at page __. Our Use of the Proceeds Raised from the Sale of Stock We estimate that we will receive net proceeds from the sale of the common stock of between $33.7 million at the minimum of the offering range and $53.1 million at the maximum, as adjusted of the offering range. Synergy Financial Group, Inc. will use up to 80% of the proceeds of the offering to make a capital contribution to Synergy Bank. Synergy Financial Group, Inc. will also lend its employee stock ownership plan cash to enable the plan to refinance its existing debt and to buy 8.0% of the shares sold in the offering. The balance will be used for general business purposes, which may include investments in securities, repurchasing shares of common stock or paying cash dividends. The funds received by Synergy Bank will be used for general business purposes, including funding the origination of loans and investments in securities. We may also use a portion of the proceeds to pay - -------------------------------------------------------------------------------- 5 - -------------------------------------------------------------------------------- down FHLB advances. We intend to continue to expand our branch office network. We will also evaluate various diversification opportunities, including the development of new lines of business in addition to expanding our core banking business. In addition to expansion of our branch network through opening or acquiring branch offices, we intend to actively consider the acquisition of local financial institutions as a means to expand our banking operations. It is uncertain, however, when or if such diversification or acquisitions will occur. We do not have any current understandings, agreements or arrangements for the expansion of our business, other than opening new branch office locations. See Use of Proceeds at page __. Stock Benefit Plans for Management In order to link our officers,' directors' and employees' interests closer to our stockholders' interests, we intend to establish certain benefit plans that use our stock as compensation. The following table presents information regarding the employee stock ownership plan and stock-based incentive plans. The table below assumes the sale of 4,096,683 shares in the offering (the midpoint). It is assumed that the value of the stock is $10 per share.
Percentage of Estimated Shares Sold Participants Shares Value of Shares in the Offering ------------ ------ --------------- --------------- Employee Stock Ownership Plan........... Employees 327,734 $3,277,340 8.0% Stock-Based Incentive Plans: Restricted Stock Awards................. Directors and Officers 163,867 1,638,670 4.0 Stock Options........................... Directors and Officers 409,668 -(1) 10.0 ------- ---------- ---- Total..................... 901,269 $4,916,010 22.0% ======= ========== ====
__________ (1) The grant of options is subject to several contingencies, including stockholder approval. If, or when, options are granted, they will have an exercise price equal to the fair market value on the date granted. Accordingly, options are given no value because it is uncertain if and when they will be granted and whether the price of the stock will increase after the date granted. We will also convert restricted stock awards and options previously awarded to officers and directors of Synergy Financial Group, Inc. and its subsidiaries. The number of restricted stock awards received will be adjusted based upon the exchange ratio and other terms. The vesting period will remain unchanged. The number of stock options received and the exercise price will be adjusted based on the exchange ratio and other terms. The vesting period will remain unchanged. Market For Common Stock We have applied to Nasdaq to have our common stock quoted on the Nasdaq National Market under the symbol "SYNF." Quotations for the common stock of Synergy Financial Group, Inc. currently appear on the OTC Bulletin Board under the same symbol. While it is expected that our common stock will be more easily tradeable because there will be significantly more outstanding shares than before the conversion, there can be no assurance of this. Sandler O'Neill has advised us that it intends to be a market maker in the common stock and will assist us in obtaining additional market makers. - -------------------------------------------------------------------------------- 6 - -------------------------------------------------------------------------------- Dividend Policy Since the completion of our initial public stock offering in September 2002, Synergy Financial Group, Inc. has not paid a cash dividend. After the conversion, we will consider the payment of a dividend. The payment of a dividend will depend on a number of factors, including our capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions. No assurance can be given that we will pay dividends in the future. Receiving a Prospectus and an Order Form To ensure that each purchaser receives a prospectus at least 48 hours before the applicable expiration date, in accordance with Rule 15c2-8 of the Securities Exchange Act of 1934, no prospectus will be mailed any later than five days prior to the expiration date or hand delivered any later than two days prior to the expiration date. Execution of the order form will confirm receipt or delivery in accordance with Rule 15c2-8. Order forms will only be distributed with a prospectus. For assistance, please contact the conversion center at (908) 956-4011 - -------------------------------------------------------------------------------- 7 RISK FACTORS In addition to the other information in this document, you should carefully consider the following risk factors in evaluating an investment in our stock. A relatively large portion of our total loan portfolio consists of consumer loans, primarily automobile loans, and we intend to maintain our origination of such loans after the offering. The credit risk related to these types of loans is considered to be greater than the risk related to residential lending. At June 30, 2003, our loan portfolio included $93.2 million of consumer loans, or 24.6% of our total loan portfolio,$89.2 million of which consisted of automobile loans. Consumer lending is generally considered to involve a higher degree of credit risk than long-term financing of residential real estate and any late payments or the failure to repay such loans would hurt our earnings. See Business of Synergy Bank - Lending Activities - Consumer Loans at page __. We originate most of our automobile loans though a single source, and we would be unable to maintain the current high volume of automobile loan originations if we were no longer able to obtain business though this source. In late 1999, we began to originate direct automobile loans over the Internet through an independent online loan referral web site. Currently, we originate an average of $7.4 million of automobile loans monthly through this source. We intend to continue to originate and purchase automobile loans at a level necessary to maintain the consumer loan portfolio at approximately one-fourth of our total loan portfolio. However, if for any reason we lose this source of business, we would be unable to maintain or increase our level of automobile lending. We intend to continue to increase our origination of non-residential and multi-family (five or more units) mortgage loans after the offering. These types of loans traditionally involve a higher degree of repayment risk than residential loans. At June 30, 2003, our loan portfolio included $60.7 million of non-residential and multi-family mortgage loans, or 16.0% of our total loan portfolio, representing a 25.5% increase from December 31, 2002 and a 219.0% increase from December 31, 2001. We intend to continue to increase our origination of non-residential and multi-family mortgage loans after the offering, with the goal of growing this portfolio to approximately one-fourth of our total loan portfolio with non-mortgage loans, including consumer and automobile loans, comprising another fourth of our total loan portfolio, traditional single-family residential real estate lending comprising another fourth of our total loan portfolio, and home equity loans comprising the last fourth of our total loan portfolio. Non-residential lending is generally considered to involve a higher degree of credit risk than long- term financing of residential properties. The likelihood that non-residential mortgage loans will not be repaid or will be late in paying is generally greater than with residential loans. Any failure to pay or late payments would hurt our earnings. See Business of Synergy Bank - Lending Activities - Non-Residential Mortgage Loans at page __. We have a relatively high percentage of unseasoned credits, which are considered to pose a potentially greater repayment risk than loans that have been outstanding for a longer period of time. 8 As a result of our strong growth during the past five years, including growth in our non-residential mortgage loans, a significant portion of our loan portfolio is represented by new credits. Generally, loans that are relatively new, referred to as unseasoned loans, do not have sufficient repayment history to determine the likelihood of repayment in accordance with their terms. At June 30, 2003, 86.7% of our total loan portfolio consisted of loans that would be considered unseasoned (i.e., less than three years). We intend to continue expanding our branch office network and add a new administrative center, and expenses related to such expansion will negatively impact earnings in future periods. We intend to continue to increase our branch network. At June 30, 2003, we had eighteen office locations, including our main office. Four new branch offices are expected to open in 2004. We also plan the relocation of one branch and the opening of an approximately 50,000 square foot administrative center during 2004. In addition to the four branch offices expected to open in 2004, we currently plan to open four additional new branch locations over the next four years. However, there can be no assurance when, or if, these new offices will open. This growth plan will result in an increase in our fixed assets over such period. The expenses associated with opening new branch offices, in addition to the personnel and operating costs that we will have once such offices open, will significantly increase our non-interest expense in future periods and decrease earnings. We may not continue to experience the same rate of growth that we have in the past, and we may not be able to successfully manage our current growth. Over the past several years, we have experienced rapid and significant growth. Our total assets have increased by $357.0 million, or 175%, from $204.4 million at December 31, 1998, to $561.4 million at June 30, 2003. There can be no assurance that we will continue to experience such rapid growth, or any growth, in the future. If we do experience continued growth, we can not assure you that we will be able to adequately and profitably manage such growth or that our earnings will adequately provide the necessary capital to maintain required regulatory capital levels. Rising interest rates would likely hurt our profits and may affect our ability to pay dividends, repurchase stock or undertake other corporate transactions. To be profitable, we must earn more in interest and fees than we pay in interest and expenses. If interest rates rise, the interest we pay on interest-bearing liabilities, such as deposits and borrowings, may increase more quickly than interest earned on interest-earning assets, such as loans and investment securities. This will reduce our net interest income and thereby reduce our net income in the short-term. In addition, rising interest rates are likely to reduce our income via a reduction in the demand for loans and the value of our investment securities and make it more difficult for our borrowers to repay their loans. As a result, this could restrict the capital resources of Synergy Bank and could require us to contribute additional capital to Synergy Bank or may prevent Synergy Bank from paying dividends to us. This could restrict our ability to pay dividends, repurchase stock or undertake other corporate transactions. Currently, a material increase in interest rates would have a material adverse effect on our income and regulatory capital. Increases in market rates of interest are likely to adversely affect our stockholders' equity. At June 30, 2003, Synergy Financial Group, Inc. owned $112.1 million of marketable securities that were held as available-for-sale. Generally accepted accounting principles require that these securities be carried at fair value on the consolidated balance sheet. Unrealized gains or losses on these securities, 9 that is, the difference between the fair value and the amortized cost of these securities, is reflected in stockholders' equity, net of deferred taxes. When interest rates increase, the fair value of Synergy Financial Group, Inc.'s available-for-sale marketable securities generally decreases, which decreases stockholders' equity. As of June 30, 2003, Synergy Financial Group, Inc.'s available-for-sale securities portfolio had unrealized income, net of taxes, of $663,000. Our stockholders' equity is likely to be adversely affected by an increase in market interest rates. Our subsidiary, Synergy Financial Services, Inc., has negatively affected our earnings. Our service corporation subsidiary, Synergy Financial Services, Inc., had a net operating loss of $34,000 and $30,000 for the years ended December 31, 2002 and 2001, respectively and a net operating loss of $66,000 for the six months ended June 30, 2003. We are unable to guarantee when, or if, such subsidiary will be profitable. We plan to remain independent and you should not invest in our common stock if you are anticipating our sale. It is our intention to continue operating as an independent financial institution, and you are urged not to invest in our stock if you are anticipating a quick sale of Synergy Financial Group, Inc. We do not plan to undertake a sale of Synergy Financial Group, Inc. even if the acquisition would result in our stockholders receiving a substantial premium over the market price of our stock at the time of a sale. Our certificate of incorporation and bylaws contain provisions that may make it difficult for someone to acquire control of us. These provisions may discourage takeover attempts and prevent you from receiving a premium over the market price of your shares as part of a takeover. Directors, officers and employees, directly and through stock benefit plans, own a significant percentage of our outstanding common stock. In addition, certain officers have change in control severance agreements with Synergy Bank, and we have change in control severance payment plans covering our directors, officers and employees. Additionally, the Office of Thrift Supervision regulations may also prevent anyone from acquiring us for three years after the conversion. See Restrictions on Acquisitions of Synergy Financial Group, Inc. at page __. The implementation of certain stock-based benefit plans will increase our future compensation expense and may reduce our earnings and dilute stockholder ownership. We adopted a stock option plan and a restricted stock plan in 2003. In connection with this offering, we intend to adopt a new stock option plan that will provide for the granting of further options to purchase common stock and a new restricted stock plan that will provide for further awards of restricted stock to our eligible officers and directors. Our previously established employee stock ownership plan will make additional stock purchases in this offering, and it will distribute stock to all of our qualifying employees over a period of time. The new restricted stock plan and the additional stock purchases by the employee stock ownership plan will increase our future costs of compensating our directors, officers, and employees. The cost of the employee stock ownership plan will vary based on our stock price over time, while the cost of the new restricted stock plan will be based on our stock price when the awards are first granted. If the restricted stock plans and stock option plans are funded with newly-issued shares, there will be dilution to stockholders. 10 Our low return on equity after the conversion may negatively impact the value of our common stock. As a result of the additional capital that will be raised by us in the conversion, our ability to leverage the net proceeds from the conversion may be limited in the near future. The return on equity is initially expected to be lower than it has been in recent years, which may negatively impact the value of our common stock. You may not be able to sell your shares when you desire or for $10.00 or more per share. Publicly traded stocks have recently experienced substantial market price volatility. This is due, in part, to investors' shifting perceptions of the effect on various industry sectors of changes and potential changes in the economy. Volatility, therefore, may be unrelated to the current operating performance of particular companies whose shares are traded. The purchase price of common stock sold in conversion transactions, including mutual-to-stock conversion transactions of mutual holding companies, is based on an independent appraisal. Independent appraisals are not intended to be, and should not be construed as, a recommendation as to the advisability of purchasing shares. After our common stock begins to trade, the trading price will be determined by the marketplace. The trading price will fluctuate because it will be influenced by many factors, including prevailing interest rates, other economic conditions, our operating performance and investor perceptions of the outlook for us and the banking industry in general. We cannot assure you that if you choose to sell shares you purchased in the stock offering, you will be able to sell them at or above the $10 per share offering price. A downturn in our local economy may adversely affect our earnings. Our business of attracting deposits and making loans (other than automobile loans) is primarily conducted within our market area. A downturn in our local economy could reduce the amount of funds available for deposit and the ability of borrowers to repay their loans and could negatively impact collateral values. As a result, our earnings could be adversely affected. We operate in a highly regulated environment and may be adversely affected by changes in laws and regulations. We are subject to extensive regulation, supervision and examination by the Office of Thrift Supervision and by the Federal Deposit Insurance Corporation. Such regulation and supervision govern the activities in which a bank and its holding company may engage and are intended primarily for the protection of the insurance fund and depositors. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of a bank, the classification of assets by a bank and the adequacy of a bank's allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, or legislation could have a material impact on Synergy Financial Group, Inc., its subsidiaries and their operations. See Regulation beginning at page __. USE OF PROCEEDS We are conducting this stock offering principally to raise additional capital to support our continued growth. The net proceeds will depend on the total number of shares of stock issued in the offering, which will depend on the independent valuation and marketing considerations. The net proceeds will also be impacted by the expenses incurred by us in connection with the offering. Although the actual net proceeds from the sale of the common stock cannot be determined until the offering is completed, we estimate that 11 we will receive net proceeds from the sale of common stock of between $33.7 million at the minimum and $46.0 million at the maximum of the offering range. Assuming the sale of $34.8 million, $41.0 million, $47.1 million and $54.2 million of common stock at the minimum, midpoint, maximum and maximum, as adjusted, respectively, of the offering range, expenses of $1.1 million, and the purchase of 8% of the shares by the employee stock ownership plan, the following table shows the manner in which we will use the net proceeds:
MAXIMUM, AS MINIMUM MIDPOINT MAXIMUM ADJUSTED -------------------- ----------------- ------------------ ------------------- $ % $ % $ % $ % -------- ------ ------- ------ ------- ------ ------- ------- (Dollars in thousands) Loan to employee stock ownership plan............ $ 2,786 8.3% $ 3,277 8.2% $ 3,729 8.2% $ 4,334 8.2% Investment in Synergy Bank.............. 26,977 80.0 31,894 80.0 36,809 80.0 42,462 80.0 Synergy Financial Group, Inc. 3,958 11.7 4,696 11.8 5,433 11.8 6,282 11.8 working capital........... ------- ----- ------- ----- ------- ----- ------- ----- Net Proceeds......... $33,721 100.0% $39,867 100.0% $46,011 100.0% $53,078 100.0% ======= ===== ======= ===== ======= ===== ======= =====
We will use up to 80% of the cash received in the offering to make a capital contribution to Synergy Bank. We will also lend our employee stock ownership plan cash to enable the plan to buy 8% of the shares sold in the offering. The balance will be retained as our initial capitalization and used for general business purposes which may include investment in securities, repurchasing shares of our common stock, or paying cash dividends. We will initially invest these proceeds in intermediate term mortgage- backed securities issued by government sponsored enterprises. The funds received by Synergy Bank from us will be used for general business purposes, including funding the origination of loans and investments in securities. We may also use a portion of the proceeds to pay down FHLB advances. We intend to continue to grow Synergy Bank's branch network either through opening or acquiring branch offices. At June 30, 2003, we had eighteen office locations, including our main office. Four new branch offices are expected to open in 2004. We also plan the relocation of one branch and the opening of an approximately 50,000 square feet administrative center during 2004. In addition to the four branch offices expected to open in 2004, we currently plan to open four additional new branch locations over the next four years. In addition to expansion of our branch network through opening or acquiring branch offices, we intend to actively consider the acquisition of local financial institutions as part of expanding our banking operations. It is uncertain when or if these acquisitions will occur. We do not, however, have any current understandings, agreements or arrangements for the expansion of our business, other than opening new branch office locations. Initially, we will invest the proceeds in intermediate term mortgage-backed securities issued by government sponsored enterprises. If the employee stock ownership plan does not purchase common stock in the offering, it may purchase shares of common stock in the market after the stock offering. If the purchase price of the common stock is higher than $10 per share, the amount of proceeds required for the purchase by the employee stock ownership plan will increase, and the resulting stockholders' equity will decrease. The net proceeds may vary significantly because total expenses of the stock offering may be significantly more or less than those estimated. The net proceeds will also vary if the number of shares 12 to be issued in the stock offering are adjusted to reflect a change in the estimated pro forma market value of Synergy Financial Group, Inc. and its subsidiaries. Payments for shares made through withdrawals from existing deposit accounts at Synergy Bank will not result in the receipt of new funds for investment but will result in a reduction of Synergy Bank's deposits and interest expense as funds are transferred from interest-bearing certificates or other deposit accounts. DIVIDEND POLICY Since the completion of our stock offering in September 2002, we have not paid a cash dividend. After the conversion, we will consider the payment of a dividend. The payment of a dividend will depend on a number of factors including our capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions. No assurance can be given that we will pay dividends in the future, or that, if paid, dividends will not be reduced or eliminated in future periods. Under New Jersey law, Synergy Financial Group, Inc. may not pay dividends if, after giving effect thereto, it would be unable to pay its debts as they become due in the usual course of its business or if its total assets would be less than its total liabilities. Synergy Financial Group, Inc.'s ability to pay dividends also depends on the receipt of dividends from Synergy Bank which is subject to a variety of regulatory limitations on the payment of dividends. See Regulation - Regulation of Synergy Bank - Dividend and Other Capital Distribution Limitations at page __. Furthermore, as a condition to the OTS giving its authorization to conduct the stock offering, Synergy Financial Group, Inc. has agreed that it will not initiate any action within one year of completion of the stock offering in the furtherance of payment of a special distribution or return of capital to stockholders of Synergy Financial Group, Inc. MARKET FOR THE STOCK Quotations for Synergy Financial Group, Inc.'s common stock currently appear on the OTC Bulletin Board under the symbol "SYNF." The new Synergy Financial Group, Inc. is a newly formed company and has not issued capital stock. It will not have any stock outstanding until the completion of this offering. It is expected that there will be a more active trading market for the common stock of the new Synergy Financial Group, Inc. because there will be more shares outstanding to the public. We applied to have our common stock quoted on the Nasdaq National Market under the symbol "SYNF." There can be no assurance, however, that an active and liquid trading market for our common stock will develop or, if developed, be maintained. The following table sets forth the high and low sales prices for our common stock for the periods indicated. To date, we have not paid dividends to stockholders. Our stock commenced trading on September 18, 2002. The following stock price information represents inter-dealer quotations and, therefore, may not include retail markups, markdowns, or commissions and may not reflect actual transactions. As of June 30, 2003, there were 1,454,750 shares of our common stock outstanding to persons other than Synergy, MHC. In connection with the conversion, each share of our common stock will be converted into shares of common stock of the new Synergy Financial Group, Inc., based upon the exchange ratio that is described under The Conversion - Share Exchange Ratio at page __. Accordingly, the information in this table should be reviewed in conjunction with the exchange ratio at various levels of the offering range. 13 High Low ---- --- Fiscal 2002 - ----------- Fourth Quarter (September 18, 2002 to December 31, 2002)..... $19.00 $12.50 Fiscal 2003 - ----------- First Quarter................................................ 19.50 16.50 Second Quarter............................................... 22.00 19.25 Third Quarter (through November __, 2003).................... At July 28, 2003, the business day immediately preceding the public announcement of the conversion and new stock offering, and at November __, 2003, the closing price of our common stock as reported on the OTC Bulletin Board was $20.55 per share and $____ per share, respectively. At October __, 2003, we had ____ stockholders of record. CAPITALIZATION Set forth below is the historical capitalization as of June 30, 2003 and the pro forma capitalization of Synergy Financial Group, Inc. after giving effect to the offering. The table also gives effect to the assumptions set forth under Pro Forma Data at page __. A change in the number of shares sold in the offering may materially affect the pro forma capitalization.
Pro Forma Capitalization at June 30, 2003 ------------------------------------------------------------ Maximum, Minimum Midpoint Maximum as adjusted 3,482,123 4,096,683 4,711,099 5,417,793 Actual at Shares at Shares at Shares at Shares at June 30, $10.00 per $10.00 per $10.00 per $10.00 per 2003(1) share share share share(2) -------- -------- -------- -------- -------- (In thousands) Deposits(3)........................................... $443,418 $443,418 $443,418 $443,418 $443,418 FHLB advances......................................... 75,202 75,202 75,202 75,202 75,202 Total deposits and borrowings......................... $518,620 $518,620 $518,620 $518,620 $518,620 Stockholders' equity: Preferred stock, $0.10 par value, 5,000,000 shares authorized (post conversion); none to be issued(4)................................ $ - $ - $ - $ - $ - Common stock, $0.10 par value, 20,000,000 shares authorized (post conversion); assuming shares outstanding as shown(4).................... 334 616 725 834 959 Additional paid-in capital(4)(5)...................... 14,888 48,327 54,364 60,399 67,341 Retained earnings(6).................................. 26,009 26,009 26,009 26,009 26,009 Assets received from Synergy, MHC(7).................. - 92 92 92 92 Accumulated other comprehensive income, net of tax.... 663 663 663 663 663 Less: Unearned employee stock ownership plan shares(8)... (1,067) (3,853) (4,344) (4,836) (5,401) Unearned restricted stock plans shares (9)......... (1,233) (2,803) (3,080) (3,357) (3,676) -------- -------- -------- -------- ------- Total stockholders' equity............................ $ 39,594 $ 69,051 $ 74,429 $ 79,804 $85,987 ======== ======== ======== ======== =======
14 __________________ (1) Actual capitalization at June 30, 2003 consists of the existing capitalization of Synergy Financial Group, Inc. (2) As adjusted to give effect to an increase in the number of shares which could occur due to an increase in the independent valuation and a commensurate increase in the offering range of up to 15% to reflect changes in market and financial conditions. (3) Does not reflect withdrawals from deposit accounts for the purchase of stock in the offering. Any withdrawals would reduce pro forma deposits by an amount equal to the withdrawals. (4) The new Synergy Financial Group, Inc. has 5,000,000 authorized shares of preferred stock and 20,000,000 authorized shares of common stock. Pro forma Synergy Financial Group, Inc. common stock and additional paid-in capital reflect the number of shares of new Synergy Financial Group, Inc. common stock to be outstanding. Additional paid-in capital amounts under pro forma capitalization are net of stock offering expenses. (5) No effect has been given to the issuance of additional shares of stock pursuant to the 2003 Stock Option Plan or any stock option plan that may be adopted by Synergy Financial Group, Inc. and presented for approval by the stockholders after the offering. An amount equal to 10% of the shares of stock sold in the offering would be reserved for issuance upon the exercise of options to be granted under the stock option plan following the stock offering. See Management - Potential Stock Benefit Plans - Stock Option Plan at page __. (6) The retained earnings of Synergy Bank will be substantially restricted after the conversion. See Regulation - Regulation of Synergy Bank - Dividends and Other Capital Distribution Limitations at page __. (7) Pro forma data reflects the consolidation of $92,000 of capital from Synergy, MHC. (8) The purchase price of unearned shares held by the employee stock ownership plan is reflected as a reduction of stockholders' equity. Includes unearned shares held currently by the employee stock ownership plan (as adjusted for the exchange ratio at the respective offering levels) and assumes that 8.0% of the shares sold in the offering will be purchased by the employee stock ownership plan, and that the funds used to acquire the employee stock ownership plan shares will be borrowed from Synergy Financial Group, Inc. For an estimate of the impact of the loan on earnings, see Pro Forma Data at page __. Synergy Financial Group, Inc. intends to make scheduled discretionary contributions to the employee stock ownership plan sufficient to enable the plan to service and repay its debt over a ten year period. See Management - Potential Stock Benefit Plans - Employee Stock Ownership Plan at page __. If the employee stock ownership plan does not purchase stock in the stock offering and the purchase price in the open market is greater than $10.00 price per share, there will be a corresponding reduction in stockholders' equity. See The Stock Offering - Subscription Offering - Subscription Rights at page __. (9) The purchase price of unearned shares held by the restricted stock plans is reflected as a reduction of stockholders' equity. Includes shares held currently by the 2003 Restricted Stock Plan (as adjusted for the exchange ratio at the respective offering levels) and assumes that both (i) an amount equal to 4% of the shares of stock sold in the offering for the new restricted stock plan and (ii) 9,613 shares (or 17,711, 20,837, 23,963 and 27,557 shares of, respectively, as adjusted for the exchange ratio, at the minimum, midpoint, maximum and 15% above the maximum of the range) for the 2003 Stock Bonus Plan, are purchased following the stock offering at $10.00 per share. In addition, the 2003 Restricted Stock Plan intends to continue to make stock purchases in the open market from time to time to fund such plan after the completion of this offering. If the purchase price in the open market is greater than $10.00 per share, there will be a corresponding reduction in stockholders' equity. See footnote (2) to the table under Pro Forma Data at page __. See Management - Potential Stock Benefit Plans - Restricted Stock Plan at page __. PRO FORMA DATA The actual net proceeds from the sale of the stock cannot be determined until the offering is completed. However, investable net proceeds to Synergy Financial Group, Inc. are currently estimated to be between approximately $29.6 million and $40.4 million (or $46.7 million if the independent valuation is increased by 15%) based on the following assumptions: o receipt of assets of $92,000 from Synergy, MHC; o an amount equal to the cost of purchasing 8% of the shares issued will be loaned to the employee stock ownership plan to fund its purchase of 8% of the shares issued; o an amount equal to 4% of the shares issued will be awarded pursuant to the restricted stock plan adopted no sooner than six months following the offering, funded through open market purchases; and o expenses of the offering are estimated to be approximately $1.1 million. 15 We have prepared the following table, which sets forth our historical net income and stockholders' equity prior to the offering and our pro forma consolidated net income and stockholders' equity following the offering. In preparing this table, and in calculating pro forma data, we have made the following assumptions: o Pro forma earnings have been calculated assuming the stock had been sold at the beginning of the period and the net proceeds had been invested at an average yield of 1.5% for the six months ended June 30, 2003 and for the year ended December 31, 2002, respectively, which approximates the yield on a three-year U.S. Treasury bill on June 30, 2003. The yield on a one-year U.S. Treasury bill, rather than an arithmetic average of the average yield on interest-earning assets and the average rate paid on deposits, has been used to estimate income on net proceeds because it is believed that the one-year U.S. Treasury bill rate is a more accurate estimate of the rate that would be obtained on an investment of net proceeds from the offering. o The pro forma after-tax yield on the net proceeds is assumed to be 0.95% for the six months ended June 30, 2003 and for the year ended December 31, 2002, based on an effective tax rate of 39.94% for both periods. o We did not include any withdrawals from deposit accounts to purchase shares in the offering. o Historical and pro forma per share amounts have been calculated by dividing historical and pro forma amounts by the indicated number of shares of stock, as adjusted in the pro forma net earnings per share to give effect to the purchase of shares by the employee stock ownership plan. o Pro forma stockholders' equity amounts have been calculated as if the stock had been sold on June 30, 2003 and December 31, 2002, respectively, and no effect has been given to the assumed earnings effect of the transactions. The following pro forma data rely on the assumptions we outlined above, and these data do not represent the fair market value of the common stock, the current value of assets or liabilities, or the amount of money that would be distributed to stockholders if we liquidated Synergy Financial Group, Inc. The pro forma data do not predict how much we will earn in the future. You should not use the following information to predict future results of operations. The following tables summarize historical data and pro forma data of Synergy Financial Group, Inc. at or for the six months ended June 30, 2003 and at or for the year ended December 31, 2002 based on the assumptions set forth above and in the tables and should not be used as a basis for projections of market value of the stock following the stock offering. No effect has been given in the tables to the possible issuance of additional stock reserved for future issuance pursuant to a stock option plan that may be adopted by the Board of Directors of Synergy Financial Group, Inc. and approved by stockholders following the stock offering. Pro forma stockholders' equity per share does not give effect to the liquidation account to be established in the conversion or, in the event of liquidation of Synergy Bank, to the tax effect of the recapture of the bad debt reserve. See Management - Potential Stock Benefit Plans - Stock Option Plan at page __ and The Conversion - Liquidation Rights at page __. 16
At or For the Six Months Ended June 30, 2003 ------------------------------------------------------------------- $34,821,230 $40,966,830 $47,110,990 $54,177,930 Independent Independent Independent Independent Valuation Valuation Valuation Valuation 3,482,123 4,096,683 4,711,099 5,417,793 Shares at Shares at Shares at Shares at $10.00 per $10.00 per $10.00 per $10.00 per share share share share ----------- ----------- ----------- ----------- (Dollars in thousands, except per share amounts) Gross proceeds ................................................... $ 34,821 $ 40,967 $ 47,111 $ 54,178 Less expenses .................................................... (1,100) (1,100) (1,100) (1,100) ----------- ----------- ----------- ----------- Estimated net proceeds ........................................ 33,721 39,867 46,011 53,078 Less ESOP funded by Synergy Financial Group, Inc. ................ (2,786) (3,277) (3,769) (4,334) Less restricted stock plans adjustment ........................... (1,570) (1,847) (2,124) (2,443) ----------- ----------- ----------- ----------- Estimated investable net proceeds ............................. $ 29,365 $ 34,743 $ 40,118 $ 46,301 =========== =========== =========== =========== Net Income: Historical .................................................... $ 1,563 $ 1,563 $ 1,563 $ 1,563 Pro forma income on net proceeds .............................. 139 165 191 220 Pro forma ESOP adjustments(1) ................................. (84) (98) (113) (130) Pro forma restricted stock plans adjustment(2) ................ (95) (110) (127) (147) ----------- ----------- ----------- ----------- Pro forma net income(1)(3)(4) ................................. $ 1,523 $ 1,520 $ 1,514 $ 1,506 =========== =========== =========== =========== Per share net income: Historical .................................................... $ 0.27 $ 0.23 $ 0.20 $ 0.18 Pro forma income on net proceeds .............................. 0.02 0.02 0.02 0.02 Pro forma ESOP adjustments(1) ................................. (0.01) (0.01) (0.01) (0.01) Pro forma restricted stock plans adjustment(2) ................ (0.01) (0.01) (0.01) (0.01) ----------- ----------- ----------- ----------- Pro forma net income per share(1)(3)(4) ....................... $ 0.27 $ 0.23 $ 0.20 $ 0.18 =========== =========== =========== =========== Shares used in calculation of income per share (1) ............... 5,701,296 6,707,408 7,713,519 8,870,548 Stockholders' equity: Historical .................................................... $ 39,594 $ 39,594 $ 39,594 $ 39,594 Estimated net proceeds ........................................ 33,721 39,867 46,011 53,078 Assets received from Synergy, MHC .............................. 92 92 92 92 Less: Common Stock acquired by the ESOP(1) .................... (2,786) (3,277) (3,769) (4,334) Less: Common Stock acquired by the restricted stock plans(2) .......................... (1,570) (1,847) (2,124) (2,443) ----------- ----------- ----------- ----------- Pro forma stockholders' equity(1)(3)(4) ....................... 69,051 74,429 79,804 85,987 Less intangible assets ........................................ (810) (810) (810) (810) ----------- ----------- ----------- ----------- Pro forma tangible stockholders' equity(1)(3)(4) .............. $ 68,241 $ 73,619 $ 78,994 $ 85,177 ========= ========= ========= ========= Stockholders' equity per share: Historical .................................................... $ 6.42 $ 5.46 $ 4.75 $ 4.13 Estimated net proceeds ........................................ 5.47 5.50 5.52 5.54 Assets received from Synergy, MHC .............................. 0.01 0.01 0.01 0.01 Less: Common Stock acquired by the ESOP(1) .................... (0.45) (0.45) (0.45) (0.45) Less: Common stock acquired by the restricted stock plans(2) .......................... (0.26) (0.26) (0.26) (0.26) ----------- ----------- ----------- ----------- Pro forma stockholders' equity per share(4) ................... $ 11.19 $ 10.26 $ 9.57 $ 8.97 Less intangible assets ........................................ (0.13) (0.11) (0.10) (0.08) ----------- ----------- ----------- ----------- Pro forma tangible stockholders' equity per share(4) .......... $ 11.06 $ 10.15 $ 9.47 $ 8.89 =========== =========== =========== =========== Offering price as a percentage of pro forma stockholders' equity per share ................................. 89.37% 97.47% 104.49% 111.48% =========== =========== =========== =========== Offering price as a percentage of pro forma tangible stockholders' equity per share ................................ 90.42% 98.52% 105.60% 112.49% =========== =========== =========== =========== Offering price as a percentage of pro forma net income per share ............................................ 18.52X 21.74X 25.00X 27.78X =========== =========== =========== =========== Shares used in calculation of stockholders' equity per share .... 6,162,500 7,250,000 8,337,500 9,588,125 (Footnotes on following page)
17 - ------------------ (1) Assumes that 8% of the shares of stock sold in the offering will be purchased by the employee stock ownership plan and that the plan will borrow funds from Synergy Financial Group, Inc. The stock acquired by the employee stock ownership plan is reflected as a reduction of stockholders' equity. Synergy Financial Group, Inc. intends to make annual contributions to the plan in an amount at least equal to the principal and interest requirement of the loan. This table assumes a 10 year amortization period. See Management - Potential Stock Benefit Plans - Employee Stock Ownership Plan at page __. The pro forma net earnings assumes: (i) that Synergy Financial Group, Inc.'s contribution to the employee stock ownership plan for the principal portion of the debt service requirement for the six months ended June 30, 2003 was made at the end of the period; (ii) that 13,928, 16,387, 18,844 and 21,671 shares at the minimum, midpoint, maximum, and 15% above the maximum of the range, respectively, were committed to be released during the six months ended June 30, 2003, at an average fair value of $10.00 per share and were accounted for as a charge to expense in accordance with Statement of Position ("SOP") No. 93-6; and (iii) only the employee stock ownership plan shares committed to be released were considered outstanding for purposes of the net earnings per share calculations. All employee stock ownership plan shares were considered outstanding for purposes of the stockholders' equity per share calculations. (2) Gives effect to the restricted stock plan that may be adopted by Synergy Financial Group, Inc. following the stock offering and presented for approval at a meeting of stockholders to be held after completion of the stock offering. If the restricted stock plan is approved by the stockholders, the restricted stock plan is expected to acquire an amount of stock equal to 4% of the shares of stock sold in the offering, or 139,285, 163,867, 188,444 and 216,712 shares of stock, respectively, at the minimum, midpoint, maximum and 15% above the maximum of the range through open market purchases. Also give effect to the 2003 Stock Bonus Plan to be presented to stockholders for ratification at the special meeting of stockholders to be held in December 2003. If the 2003 Stock Bonus Plan is approved by the stockholders, this plan is expected to acquire 9,613 shares of stock or 17,711, 20,837, 23,963 and 27,557 shares of stock, respectively, as adjusted for the exchange ratio, at the minimum, midpoint, maximum and 15% above the maximum of the range through open market purchases. Funds used by both restricted stock plans to purchase shares will be contributed to the restricted stock plans by Synergy Financial Group, Inc. In calculating the pro forma effect of the restricted stock plan, it is assumed that the required stockholder approval has been received for both plans, that the shares were acquired by both restricted stock plans at the beginning of the six months ended June 30, 2003 through open market purchases, at $10.00 per share, and that 20% of the amount contributed was amortized to expense during the six months ended June 30, 2003. The restricted stock plans will be amortized over 5 years. The issuance of authorized but unissued shares of stock to these restricted stock plans instead of open market purchases would dilute the voting interests of existing stockholders by approximately 2.5% and pro forma net income per share for the six months ended June 30, 2003 would be $0.26, $0.22, $0.19 and $0.17 at the minimum, midpoint, maximum and 15% above the maximum of the range, respectively, and pro forma stockholders' equity per share at June 30, 2003 would be $10.93, $10.01, $9.33 and $8.75 at the minimum, midpoint, maximum and 15% above the maximum of the range, respectively. There can be no assurance that stockholder approval of these restricted stock plans will be obtained, or the actual purchase price of the shares will be equal to $10.00 per share. See Management - Potential Stock Benefit Plans - Restricted Stock Plan at page __. (3) The retained earnings of Synergy Financial Group, Inc. and Synergy Bank will continue to be substantially restricted after the stock offering. See Dividend Policy at page __ and Regulation - Regulation of Synergy Bank - Dividends and Other Capital Distribution Limitations at page __. (4) No effect has been given to the issuance of additional shares of stock pursuant to the stock option plan that may be adopted by Synergy Financial Group, Inc. following the stock offering which, in turn, would be presented for approval at a meeting of stockholders to be held after the completion of the stock offering. If the stock option plan is presented and approved by stockholders, an amount equal to 10% of the stock sold in the offering, or 348,212, 409,668, 471,110 and 541,779 shares, respectively, at the minimum, midpoint, maximum and 15% above the maximum of the range, respectively, will be reserved for future issuance upon the exercise of options to be granted under the stock option plan. The issuance of authorized but unissued shares of stock to the stock option plan instead of open market purchases would dilute the voting interests of existing stockholders by approximately 9.1%. Assuming stockholder approval of the stock option plan and the exercise of all options at the end of the period at an exercise price of $10.00 per share, the pro forma net earnings per share would be $0.25, $0.21, $0.18 and $0.16, respectively, at the minimum, midpoint, maximum and 15% above the maximum of the range for the six months ended June 30, 2003; pro forma stockholders' equity per share would be $11.14, $10.25, $9.59, and $9.02, respectively, at the minimum, midpoint, maximum and 15% above the maximum of the range at June 30, 2003. See Management - Potential Stock Benefit Plans - Stock Option Plan at page __. 18
At or For the Year Ended December 31, 2002 ------------------------------------------------------------------ $34,821,230 $40,966,830 $47,110,990 $54,177,930 Independent Independent Independent Independent Valuation Valuation Valuation Valuation 3,482,123 4,096,683 4,711,099 5,417,793 Shares at Shares at Shares at Shares at $10.00 per $10.00 per $10.00 per $10.00 per share share share share ----------- ----------- ----------- ----------- (Dollars in thousands, except per share amounts) Gross proceeds .................................................. $ 34,821 $ 40,967 $ 47,111 $ 54,178 Less expenses ................................................... (1,100) (1,100) (1,100) (1,100) ----------- ----------- ----------- ----------- Estimated net proceeds ....................................... 33,721 39,867 46,011 53,078 Less ESOP funded by Synergy Financial Group, Inc. ............... (2,786) (3,277) (3,769) (4,334) Less restricted stock plans adjustment .......................... (1,570) (1,847) (2,124) (2,443) ----------- ----------- ----------- ----------- Estimated investable net proceeds ............................ $ 29,365 $ 34,743 $ 40,118 $ 46,301 =========== =========== =========== =========== Net Income: Historical ................................................... $ 2,031 $ 2,031 $ 2,031 $ 2,031 Pro forma income on net proceeds ............................. 279 330 381 440 Pro forma ESOP adjustments(1) ................................ (167) (197) (226) (260) Pro forma restricted stock plans adjustment(2) ............... (188) (222) (255) (293) ----------- ----------- ----------- ----------- Pro forma net income(1)(3)(4) ................................ $ 1,955 $ 1,942 $ 1,931 $ 1,918 =========== =========== =========== =========== Per share net income: Historical ................................................... $ 0.36 $ 0.30 $ 0.26 $ 0.23 Pro forma income on net proceeds ............................. 0.05 0.05 0.05 0.05 Pro forma ESOP adjustments(1) ................................ (0.03) (0.03) (0.03) (0.03) Pro forma restricted stock plans adjustment(2) ............... (0.03) (0.03) (0.03) (0.03) ----------- ----------- ----------- ----------- Pro forma net income per share(1)(3)(4) ...................... $ 0.35 $ 0.29 $ 0.25 $ 0.22 =========== =========== =========== =========== Shares used in calculation of income per share (1) .............. 5,718,800 6,728,000 7,737,200 8,897,779 Stockholders' equity: Historical ................................................... $ 37,872 $ 37,872 $ 37,872 $ 37,872 Estimated net proceeds ....................................... 33,721 39,867 46,011 53,078 Assets received from Synergy, MHC ............................ 92 92 92 92 Less: Common Stock acquired by the ESOP(1) ................... (2,786) (3,277) (3,769) (4,334) Less: Common Stock acquired by the restricted stock plans(2) ......................... (1,570) (1,847) (2,124) (2,443) ----------- ----------- ----------- ----------- Pro forma stockholders' equity(1)(3)(4) ...................... 67,329 72,707 78,082 84,265 Less intangible assets ....................................... - - - - ----------- ----------- ----------- ----------- Pro forma tangible stockholders' equity(1)(3)(4) ............. $ 67,329 $ 72,707 $ 78,082 $ 84,265 =========== =========== =========== =========== Stockholders' equity per share: Historical ................................................... $ 6.15 $ 5.22 $ 4.54 $ 3.95 Estimated net proceeds ....................................... 5.47 5.50 5.52 5.54 Assets received from Synergy, MHC ............................ 0.01 0.01 0.01 0.01 Less: Common Stock acquired by the ESOP(1) ................... (0.45) (0.45) (0.45) (0.45) Less: Common stock acquired by the restricted stock plans(2) ......................... (0.26) (0.26) (0.26) (0.26) ----------- ----------- ----------- ----------- Pro forma stockholders' equity per share(4) .................. 10.92 10.02 9.36 8.79 Less intangible assets ....................................... - - - - ----------- ----------- ----------- ----------- Pro forma tangible stockholders' equity per share(4) ......... $ 10.92 $ 10.02 $ 9.36 $ 8.79 =========== =========== =========== =========== Offering price as a percentage of pro forma stockholders' equity per share ................................ 91.58% 99.80% 106.84% 113.77% =========== =========== =========== =========== Offering price as a percentage of a pro forma tangible stockholders' equity per share ............................... 91.58% 99.80% 106.84% 113.77% =========== =========== =========== =========== Offering price as a percentage of pro forma net income per share .......................................... 29.41X 34.48X 40.00X 45.45X =========== =========== =========== =========== Shares used in calculation of stockholders' equity per share .... 6,162,500 7,250,000 8,337,500 9,588,125 (Footnotes on following page)
19 - ----------------- (1) Assumes that 8% of the shares of stock sold in the offering will be purchased by the employee stock ownership plan and that the plan will borrow funds from Synergy Financial Group, Inc. The stock acquired by the employee stock ownership plan is reflected as a reduction of stockholders' equity. Synergy Financial Group, Inc. intends to make annual contributions to the plan in an amount at least equal to the principal and interest requirement of the loan. This table assumes a 10 year amortization period. See Management - Potential Stock Benefit Plans - Employee Stock Ownership Plan at page __. The pro forma net earnings assumes: (i) that Synergy Financial Group, Inc.'s contribution to the employee stock ownership plan for the principal portion of the debt service requirement for year ended December 31, 2002 was made at the end of the period; (ii) that 27,857, 32,773, 37,689 and 43,342 shares at the minimum, midpoint, maximum, and 15% above the maximum of the range, respectively, were committed to be released during the year ended December 31, 2002, at an average fair value of $10.00 per share and were accounted for as a charge to expense in accordance with Statement of Position ("SOP") No. 93-6; and (iii) only the employee stock ownership plan shares committed to be released were considered outstanding for purposes of the net earnings per share calculations. All employee stock ownership plan shares were considered outstanding for purposes of the stockholders' equity per share calculations. (2) Gives effect to the restricted stock plan that may be adopted by Synergy Financial Group, Inc. following the stock offering and presented for approval at a meeting of stockholders to be held after completion of the stock offering. If the restricted stock plan is approved by the stockholders, the restricted stock plan is expected to acquire an amount of stock equal to 4% of the shares of stock sold in the offering, or 139,285, 163,867, 188,444 and 216,712 shares of stock, respectively, at the minimum, midpoint, maximum and 15% above the maximum of the range through open market purchases. Also give effect to the 2003 Stock Bonus Plan to be presented to stockholders for ratification at the special meeting of stockholders to be held in December 2003. If the 2003 Stock Bonus Plan is approved by the stockholders, this plan is expected to acquire 9,613 shares of stock or 17,711, 20,837, 23,963 and 27,557 shares of stock, respectively, as adjusted for the exchange ratio, at the minimum, midpoint, maximum and 15% above the maximum of the range through open market purchases. Funds used by both restricted stock plans to purchase shares will be contributed to the restricted stock plans by Synergy Financial Group, Inc. In calculating the pro forma effect of the restricted stock plan, it is assumed that the required stockholder approval has been received for both plans, that the shares were acquired by both restricted stock plans at the beginning of the year ended December 31, 2002 through open market purchases, at $10.00 per share, and that 20% of the amount contributed was amortized to expense during the year ended December 31, 2002. The restricted stock plans will be amortized over 5 years. The issuance of authorized but unissued shares of stock to these restricted stock plans instead of open market purchases would dilute the voting interests of existing stockholders by approximately 2.5% and pro forma net income per share for the year ended December 31, 2002 would be $0.33, $0.28, $0.25 and $0.21 at the minimum, midpoint, maximum and 15% above the maximum of the range, respectively, and pro forma stockholders' equity per share at December 31, 2002 would be $10.65, $9.78, $9.13 and $8.57 at the minimum, midpoint, maximum and 15% above the maximum of the range, respectively. There can be no assurance that stockholder approval of these restricted stock plans will be obtained, or the actual purchase price of the shares will be equal to $10.00 per share. See Management - Potential Stock Benefit Plans - Restricted Stock Plan at page __. (3) The retained earnings of Synergy Financial Group, Inc. and Synergy Bank will continue to be substantially restricted after the stock offering. See Dividend Policy at page __ and Regulation - Regulation of Synergy Bank - Dividends and Other Capital Distribution Limitations at page __. (4) No effect has been given to the issuance of additional shares of stock pursuant to the stock option plan that may be adopted by Synergy Financial Group, Inc. following the stock offering which, in turn, would be presented for approval at a meeting of stockholders to be held after the completion of the stock offering. If the stock option plan is presented and approved by stockholders, an amount equal to 10% of the stock sold in the offering, or 348,212, 409,668, 471,110 and 541,779 shares, respectively, at the minimum, midpoint, maximum and 15% above the maximum of the range, respectively, will be reserved for future issuance upon the exercise of options to be granted under the stock option plan. The issuance of authorized but unissued shares of stock to the stock option plan instead of open market purchases would dilute the voting interests of existing stockholders by approximately 9.1%. Assuming stockholder approval of the stock option plan and the exercise of all options at the end of the period at an exercise price of $10.00 per share, the pro forma net earnings per share would be $0.32, $0.27, $0.24 and $0.20, respectively, at the minimum, midpoint, maximum and 15% above the maximum of the range for the year ended December 31, 2002; pro forma stockholders' equity per share would be $10.88, $10.03, $9.40, and $8.85, respectively, at the minimum, midpoint, maximum and 15% above the maximum of the range at December 31, 2002. See Management - Potential Stock Benefit Plans - Stock Option Plan at page __. 20 HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE The following table presents Synergy Bank's historical and pro forma capital position relative to its capital requirements as of June 30, 2003. Pro forma capital levels assume receipt by Synergy Bank of up to 80% of the net proceeds. For a discussion of the assumptions underlying the pro forma capital calculations presented below, see Use of Proceeds, Capitalization and Pro Forma Data at pages __, __ and __. The definitions of the terms used in the table are those provided in the capital regulations issued by the OTS. For a discussion of the capital standards applicable to Synergy Bank, see Regulation - Regulation of Synergy Bank - Regulatory Capital Requirements at page __.
Pro Forma at June 30, 2003 ----------------------------------------------------------------------------------------------------- Actual, at $34,821,230 $40,966,830 $47,110,990 $54,177,930 June 30, 2003 Offering Offering Offering Offering (1) ------------------ ------------------ ------------------- ------------------ ----------------- Percentage Percentage Percentage Percentage Percentage of of of of of Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2) ------ --------- ------ --------- ------ --------- ------ --------- ------ --------- (Dollars in thousands) GAAP Capital(3).............. $37,680 6.70% $60,478 10.33% $64,658 10.97% $68,836 11.60% $73,641 12.31% Tangible Capital: Actual or Pro Forma........ $36,249 6.46% $59,047 10.12% $63,227 10.76% $67,405 11.39% $72,210 12.10% Required................... 8,413 1.50 8,752 1.50 8,814 1.50 8,876 1.50 8,948 1.50 ------- ---- ------- ---- ------- ---- ------- ---- ------- ----- Excess..................... $27,836 4.96% $50,295 8.62% $54,413 9.26% $58,529 9.89% $63,262 10.60% ======= ==== ======= ==== ======= ==== ======= ==== ======= ===== Core Capital: Actual or Pro Forma........ $36,249 6.46% $59,047 10.12% $63,227 10.76% $67,405 11.39% $72,210 12.10% Required(4)................ 22,434 4.00 23,339 4.00 23,505 4.00 23,671 4.00 23,861 4.00 ------- ---- ------- ---- ------- ---- ------- ---- ------- ----- Excess..................... $13,815 2.46% $35,708 6.12% $39,722 6.76% $43,734 7.39% $48,349 8.10% ======= ==== ======= ==== ======= ==== ======= ==== ======= ==== Risk-Based Capital: Actual or Pro Forma(5)(6).. $39,218 10.77% $62,016 16.51% $66,196 17.53% $70,374 18.54% $75,179 19.68% Required................... 29,137 8.00 30,042 8.00 30,208 8.00 30,373 8.00 30,564 8.00 ------- ---- ------- ---- ------- ---- ------- ----- ------- ----- Excess..................... $10,081 2.77% $31,974 8.51% $35,988 9.53% $40,001 10.54% $44,615 11.68% ======= ==== ======= ==== ======= ==== ======= ===== ======= ===== Tier 1 Risk-Based Capital: Actual or Pro Forma(5)(6).. $36,249 9.95% $59,047 15.72% $63,227 16.74% $67,405 17.75% $72,210 18.90% Required................... 14,568 4.00 15,021 4.00 15,104 4.00 15,187 4.00 15,282 4.00 ------- ---- ------- ---- ------- ---- ------- ----- ------- ----- Excess..................... $21,681 5.95% $44,026 11.72% $48,123 12.74% $52,218 13.75% $56,928 14.90% ======= ==== ======= ===== ======= ===== ======= ===== ======= =====
_________________ (1) As adjusted to give effect to an increase in the number of shares which could occur due to an increase in the offering range of up to 15% as a result of regulatory considerations or changes in market or general financial and economic conditions following the commencement of the offerings. (2) Tangible and core capital levels are shown as a percentage of total adjusted assets. The risk-based capital level is shown as a percentage of risk-weighted assets. (3) GAAP capital includes unrealized gain (loss) on available-for-sale securities, net, which is not included as regulatory capital. (4) The current OTS core capital requirement for savings banks is 3% of total adjusted assets for thrifts that receive the highest supervisory rating for safety and soundness and a 4% to 5% core capital ratio requirement for all other thrifts. See Regulation - Regulation of Synergy Bank - Regulatory Capital Requirements at page __. (5) Assumes net proceeds are invested in assets that carry a 50% risk-weighing. (6) The difference between equity under GAAP and regulatory risk-based capital is attributable to the subtraction of $663,000 of accumulated other comprehensive income. 21 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA The following tables set forth selected consolidated historical financial and other data of Synergy Financial Group, Inc. for the years and at the dates indicated. On March 1, 2001, Synergy Bank was reorganized from a mutual savings bank into a mutual holding company structure and Synergy Financial Group, Inc. was formed. Accordingly, the financial and other data prior to March 1, 2001 represents the financial condition and results of operations of Synergy Bank. On September 17, 2002, Synergy Financial Group, Inc. completed a minority stock offering. Prior to completion of the minority stock offering, Synergy Financial Group, Inc. existed but had no significant assets, liabilities or operations and all of its outstanding common stock was held by Synergy, MHC. The information at December 31, 2002 and 2001 and for the years ended December 31, 2002, 2001 and 2000 is derived in part from and should be read together with the audited consolidated financial statements and notes thereto beginning at page F-1. The information at and for the years ended December 31, 1999 and 1998 was derived in part from audited consolidated financial statements which are not included in this prospectus. The information at and for the six months ended June 30, 2003 and 2002 is unaudited. However, in the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results of operations for the unaudited periods have been made. The selected operating data presented below for the six months ended June 30, 2003, are not necessarily indicative of the results that may be expected for the full year or any other period. Selected Financial Highlights (Dollars in thousands)
Balance Sheet: At At December 31, - -------------- June 30, ----------------------------------------------------- 2003 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- ---- (Unaudited) Assets ................... $561,365 $431,275 $296,963 $244,742 $222,917 $204,368 Loans receivable, net .... 376,270 319,423 224,689 189,098 163,173 133,366 Investment securities .... 147,636 79,710 51,047 38,225 46,377 51,780 Deposits ................. 443,418 354,142 249,813 191,144 180,943 169,176 FHLB advances ............ 75,202 36,456 22,500 31,500 21,700 16,000 Total stockholders' equity 39,594 37,872 22,390 20,362 18,196 17,890
Summary of Operations: For the Six Months Ended For the Year Ended June 30, December 31, ------------------- ------------------------------------------------ 2003 2002 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- ---- ---- (Unaudited) Interest income ................ $14,927 $10,902 $23,359 $19,071 $17,120 $15,575 $14,195 Interest expense ............... 5,322 4,118 9,044 9,296 7,959 6,830 6,161 ------- ------- ------- ------- ------- ------- ------- Net interest income ............ 9,605 6,784 14,315 9,775 9,161 8,745 8,034 Provision for loan losses ...... 470 551 1,077 363 480 125 1,210 ------- ------- ------- ------- ------- ------- ------- Net interest income after provision for loan losses .. 9,135 6,233 13,238 9,412 8,681 8,620 6,824 Net (losses) gains on sales of loans and investment securities .................. - 117 112 893 - 14 137 Other income ................... 1,034 768 1,608 1,622 1,770 1,098 684 Operating expense .............. 7,763 5,389 11,726 9,001 8,209 7,876 6,479 Income before income tax expense 2,406 1,729 3,232 2,926 2,242 1,856 1,166 Income tax expense ............. 843 600 1,201 1,024 712 670 195 ------- ------- ------- ------- ------- ------- ------- Net income(1) .................. $ 1,563 $ 1,129 $ 2,031 $ 1,902 $ 1,530 $ 1,186 $ 971 ======= ======= ======= ======= ======= ======= ======= (Footnote on following page)
22 - ---------------- (1) Earnings per share for the period from September 17, 2002 (the date of the minority stock offering of Synergy Financial Group, Inc.) through December 31, 2002 and all prior periods is not presented because the calculation is not meaningful.
Selected Financial Ratios At or For the At or For Six Months Ended the Year Ended June 30, December 31, -------------------- ------------------------------------------------------ Performance Ratios (1): 2003 2002 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- ---- ---- Return on average assets (net income divided by average total assets) ............ 0.61% 0.66% 0.54% 0.69% 0.65% 0.55% 0.52% Return on average equity (net income divided by average equity) .................. 8.08 9.76 7.31 8.95 8.04 6.63 5.63 Net interest rate spread ........... 3.90 4.19 4.12 3.54 3.91 4.02 4.27 Net interest margin on average interest-earning assets ........................... 3.97 4.21 4.13 3.72 4.08 4.21 4.39 Average interest-earning assets to average interest-bearing liabilities .... 103.29 100.94 101.74 104.17 105.15 104.85 107.33 Efficiency ratio (operating expenses divided by the sum of net interest income and other income) ............... 72.97 70.28 72.87 73.84 75.35 79.91 73.17 Asset Quality Ratios: Non-performing loans to total loans, net at period end .. 0.14 0.02 0.14 0.03 0.10 0.08 0.16 Non-performing assets to total assets at period end ...... 0.10 0.03 0.10 0.02 0.08 0.06 0.11 Net charge-offs to average loans outstanding ............... 0.22 0.05 0.15 0.08 0.17 0.19 0.87 Allowance for loan losses to total loans at period end ....... 0.79 0.66 0.70 0.61 0.62 0.60 0.85 Capital Ratios: Average equity to average assets ratios (average equity divided by average total assets) ........... 7.57 6.80 7.45 7.70 8.12 8.29 9.20 Equity to assets at period end ..... 7.03 6.43 8.78 7.54 8.31 8.11 8.64 Full-service offices:(2) ............. 18 12 16 11 11 11 10
- -------------- (1) Performance ratios for the six month periods ended June 30, 2003 and 2002 are annualized, where appropriate. (2) At June 30, 2003, we had eighteen office locations, including our main office. Four new branch offices are expected to open in 2004. We also plan the relocation of one branch and the opening of an approximately 50,000 square foot administrative center during 2004. In addition to the four branch offices expected to open in 2004, we currently plan to open four additional new branch locations over the next four years. 23 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 the consolidated financial condition and results of operations of Synergy Financial Group, Inc. The information in this section should be read with the consolidated financial statements and the notes thereto beginning at page F-1. Our results of operations are primarily dependent on our net interest income. Net interest income is a function of the balances of loans and investments outstanding in any one period, the yields earned on those loans and investments 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 non-interest income and operating expenses. Our non-interest income consists primarily of fees and service charges, and to a lesser extent, gains (losses) on the sale of loans and investments. The operating expenses consist primarily of employee compensation and benefits, occupancy and equipment expenses, data processing costs, marketing costs, professional fees, office supplies, and telephone and postage costs. Our results of operations are significantly impacted by the amount of provisions for loan losses which, in turn, are dependent upon, among other things, the size and makeup of the loan portfolio, loan quality and loan trends. Our results of operations are affected by general economic, regulatory and competitive conditions, including changes in prevailing interest rates and the policies of regulatory agencies. Forward-Looking Statements This document contains statements that project our future operations, which involve risks and uncertainties. Our actual results may differ significantly from the results discussed in these forward- looking statements. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of Synergy Financial Group, Inc., are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. Synergy Financial Group, Inc.'s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that might cause a difference in results include, but are not limited to, those discussed in "Risk Factors" beginning at page __ of this document. Business Strategy Our business strategy has been to operate as a well-capitalized independent financial institution dedicated to providing convenient access and quality service at competitive prices. Generally, we have sought to implement this strategy by maintaining a substantial part of our assets in loans secured by one- to four-family residential real estate located in our market area and home equity and consumer loans. During recent years, we have significantly increased our origination of automobile loans outside our market area and non-residential mortgage loans within our market area. To the extent that new deposits have exceeded loan originations, we have invested these deposits primarily in investment securities. We intend to continue to emphasize a variety of deposit and loan products, with the latter consisting primarily of one-to-four family mortgages, home equity loans, multi-family and non-residential mortgages and consumer loans. We will continue to evaluate our business beyond traditional retail banking to include other financial services such as trust and asset management services, either through internal development of such lines of business, third party affiliations or through acquisitions. We intend to grow our branch office network, which will expand our geographic reach, and will consider the acquisition of other financial institutions. We do not, however, have any current understandings, agreements or arrangements for the expansion of our business, other than opening new branch office locations. 24 Synergy Bank converted its charter in May of 1998 from a credit union, known as Synergy Federal Credit Union, to a federal savings bank. As a credit union, Synergy was primarily limited to serving employees of its former credit union sponsor corporation and its operations consisted primarily of accepting deposits and originating residential mortgages and consumer loans. Since its conversion from a credit union, Synergy has undertaken an aggressive branch expansion strategy in order to lessen its dependence on deposits primarily obtained from branch offices located within the corporate facilities of its former credit union sponsor corporation and has implemented a strategy to grow into a full-service financial institution offering a variety of financial products to the general public. The highlights of this strategy include the following: o In May 1998, Synergy had nine offices, including its main office, eight of which were located on various corporate premises of its former credit union sponsor. Subsequent to its conversion to a federal savings bank, Synergy opened additional branch offices accessible to the general public: one office in each of the years 1998, 1999, 2001; six offices in 2002; and two more offices in 2003 in connection with the acquisition of First Bank of Central Jersey ("First Bank"). At June 30, 2003, Synergy had eighteen office locations, including its main office. Four new branch offices are expected to open in 2004. The relocation of one branch and the opening of an approximately 50,000 square foot administrative center are also planned during 2004. In addition to the four branch offices expected to open in 2004, Synergy currently plans to open four additional new branch locations over the next four years. o Management intends to actively grow Synergy Bank not only through branching, but also via the possible acquisition of local financial institutions. On January 10, 2003, Synergy acquired First Bank for $2.1 million in cash. First Bank was a $54.3 million New Jersey-based financial institution with its main office located in North Brunswick and a branch office in Monroe. This transaction added $52.1 million of deposits and $22.9 million in loans. o Synergy Bank has actively increased its volume of loan originations and the size of its loan portfolios. It began to originate automobile loans through an Internet source in late 1999 and began to originate non-residential and multi-family mortgage loans in 2000. As of June 30, 2003, Synergy Bank had total automobile loans of $89.2 million and total non-residential mortgage loans, including multi-family loans, of $60.7 million. Automobile loans and non-residential mortgage loans generally have shorter terms than residential mortgages. o Synergy Financial Services, Inc., a subsidiary of Synergy Financial Group, Inc., began operations in 1998 for the purpose of providing securities brokerage, insurance and investment services and products, including mutual funds and annuities, to customers of Synergy Bank and the general public. See Subsidiary Activity at page __. Management of Interest Rate Risk and Market Risk Qualitative Analysis. Because the majority of our assets and liabilities are sensitive to changes in interest rates, a significant form of market risk for us 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 rate loans and investments, while our primary source of funds is deposits with substantially shorter maturities. Although having interest-bearing liabilities that reprice more frequently than interest-earnings assets is generally beneficial to net interest income during a period of declining interest rates, this type of an 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 25 monthly 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 results of the monthly meetings of the committee are reported to the full Board at its regular monthly meeting. 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, we have adopted various strategies intended to enable us 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 deposit 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. Exposure to interest rate risk is actively monitored by management. 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 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/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. The following table presents Synergy's NPV as of June 30, 2003. The NPV was calculated by the OTS, based on information provided by Synergy Bank. At June 30, 2003, the Bank was in compliance with the interest rate risk limits established by the Board of Directors. Net Portfolio Value NPV as % of Present Value of Assets ------------------- ----------------------------------- Changes in Basis Point Rates $ Amount $ Change % Change NPV Ratio Change ----- -------- -------- -------- --------- ------ (Dollars in thousands) +300 bp 35,084 (22,922) (40)% 6.28% (357) bp +200 bp 43,664 (14,342) (25)% 7.66 (218) bp +100 bp 51,837 (6,169) (11)% 8.93 (91) bp 0 bp 58,006 - - 9.85 - - -100 bp 60,621 2,616 5 % 10.19 35 bp - ----------------- (1) The -200bp and -300bp scenarios are not shown due to the prevailing low interest rate environment. 26 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 maturities or periods of repricing, they may react at different times and in different degrees to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets such as adjustable rate mortgages, generally have features that restrict changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayments and early withdrawal levels could deviate significantly from those assumed in making calculations set forth above. Additionally, an increased credit risk may result as the ability of many borrowers to service their debts may decrease in the event of an interest rate increase. Critical Accounting Policies, Judgments and Estimates The accounting and reporting policies of Synergy Financial Group, Inc. 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 Credit Losses. Synergy Financial Group, Inc. considers that the determination of the allowance for loan 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 losses may be required that would adversely impact earnings in future periods. Intangible Assets. Intangible assets such as goodwill and core deposits are subject to annual impairment tests and, in the case of the core deposit, 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 to fair 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. The realization of deferred tax assets is assessed and a valuation allowance provided for that portion of the asset for which the allowance is more likely than not to be realized. If management determines that Synergy Financial Group, Inc. 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. 27 Comparison of Financial Condition at June 30, 2003 and December 31, 2002 Assets. Total assets increased $130.1 million, or 30.2%, to $561.4 million at June 30, 2003, from $431.3 million at December 31, 2002. The increase in total assets resulted primarily from a $67.9 million increase in investment securities and a $56.8 million increase in net loans receivable. The increase in investment securities included $23.1 million of investment securities acquired from the First Bank acquisition. In addition, the increase in loans was also a result of acquiring $21.9 million of loans from First Bank, which were adjusted to reflect their fair market value. These credits were predominantly commercial and non-residential mortgage loans. For the six-month period ended June 30, 2003, the Bank originated $120.7 million in loans, compared with $116.3 million for the corresponding 2002 period. The low market interest rate environment in 2002 and the first six months of 2003 accelerated our loan originations due to increased loan refinancing. The outstanding balances in consumer loans, home equity loans, and multi-family and non- residential mortgage loans increased by $25.4 million, $13.3 million and $12.4 million, respectively, from December 31, 2002 to June 30, 2003. First mortgage loans decreased by $3.4 million, as a result of an increase in prepayments during this same period. Consumer loans increased due to greater volume. Home equity loans increased due to continued promotional efforts aimed at increasing the proportion of these credits to our total loan portfolio. Commercial loans also increased by $5.9 million from December 31, 2002 to June 30, 2003 as a direct result of our acquisition of First Bank. Liabilities. Total liabilities increased $128.4 million, or 32.6%, to $521.8 million at June 30, 2003 from $393.4 million at December 31, 2002. The increase in total liabilities resulted primarily from an increase of $89.3 million in deposits, of which $35.0 million was in core deposits. A large portion, $52.2 million or 58.5%, of the deposit growth was a result of the acquisition of First Bank. The majority of the deposit growth consisted of an increase in certificates of deposit, with terms predominantly in excess of one year, which were offered at competitive rates to lock in prevailing low interest rates. FHLB advances increased by $38.7 million or 106.3% over the December 31, 2002 balance. The increase in FHLB advances was to fund both the purchase of investment securities and loan originations 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. Stockholders' equity increased $1.7 million to $39.6 million at June 30, 2003 from $37.9 million at December 31, 2002. This increase was primarily attributable to $1.6 million in net income for the six months ended June 30, 2003 and an increase of $90,000 in accumulated other comprehensive income, net of tax. Comparison of Financial Condition at December 31, 2002 and December 31, 2001 Assets. Total assets increased $134.3 million, or 45.2%, to $431.3 million at December 31, 2002 from $297.0 million at December 31, 2001, primarily as a result of increased lending activity and the purchase of investment securities. Cash increased $4.2 million from $3.7 million at December 31, 2001 to $7.9 million at December 31, 2002. This increase was due primarily to the completion of the stock offering in September 2002 and earnings from operations. 28 Investment securities available-for-sale increased $18.4 million from $43.9 million at December 31, 2001 to $62.3 million at December 31, 2002. This increase was due primarily to the purchase of mortgage-backed securities using funds from loan repayments and FHLB borrowings, as well as unrealized gains attributable to market conditions. Investment securities held-to-maturity increased from $7.2 million at December 31, 2001 to $17.4 million due to reinvestment of cash inflows from loans, and investment of borrowed funds. Net loans receivable increased $94.7 million, or 42.2%, to $319.4 million at December 31, 2002 from $224.7 million at December 31, 2001, due primarily to increased lending activity, as well as the purchase of participations in externally originated loans. The latter included $13.7 million in indirect automobile loans purchased from First Bank prior to the acquisition of First Bank in January 2003 and a $2.5 million commercial loan participation. Liabilities. The Bank's deposits increased $104.3 million, or 41.8%, to $354.1 million at December 31, 2002 from $249.8 million at December 31, 2001. Increases were due primarily to growth in certificates of deposit, savings and checking accounts. FHLB advances increased $14.0 million, or 62.0%, to $36.5 million at December 31, 2002. The borrowings were utilized to finance operations. Equity. Stockholders' equity increased $15.5 million, or 69.1%, from $22.4 million at December 31, 2001, to $37.9 million at December 31, 2002, due primarily to the receipt of proceeds from the stock offering completed in September 2002 and net income. 29 Average Balance Sheet. The following tables set forth certain information at June 30, 2003 and for the six months ended June 30, 2003 and 2002 and for the years ended December 31, 2002, 2001 and 2000. 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 primarily from month-end balances. Management does not believe that the use of month-end balances instead of daily average balances has caused any material differences in the information presented. The tables do not include the allowance for loan losses in the average balances of loans receivable. Management does not believe that this causes any material differences in the information presented.
For the Six Months Ended June 30, At June 30, --------------------------------------------------------------- 2003 2003 2002 ------------------ ----------------------------- ------------------------------ Average Average Yield/ Average Yield/ Average Yield/ Balance Cost(1) Balance Interest Cost Balance Interest Cost ------- ------- ------- -------- ---- ------- -------- ---- (Dollars in thousands) Interest-earning assets: Loans receivable(2)......................... $378,839 6.70% $350,783 $12,544 7.15% $261,147 $ 9,340 7.15% Investment securities(3).................... 147,636 3.08 127,311 2,275 3.57 57,888 1,558 5.38 Other interest-earning assets............... 6,841 2.42 6,119 108 3.53 3,147 4 0.25 -------- -------- -------- Total interest-earning assets........... 533,316 5.65 484,213 14,927 6.17 322,182 10,902 6.77 Non-interest-earning assets.................. 28,049 26,452 20,151 -------- -------- -------- Total assets............................ $561,365 $510,665 $339,854 ======== ======== ======== Interest-bearing liabilities: Checking accounts........................... $ 48,339 0.02 $46,435 $ 54 0.23 $ 34,611 $ - 0.00 Savings and club accounts................... 75,007 0.85 71,639 348 0.97 62,052 368 1.19 Money market accounts....................... 63,517 1.07 59,238 400 1.35 43,790 383 1.75 Certificates of deposit..................... 256,554 2.88 238,857 3,695 3.09 138,617 2,493 3.60 FHLB advances............................... 75,202 2.52 52,640 825 3.13 40,103 874 4.36 -------- -------- -------- Total interest-bearing liabilities...... 518,619 2.04 468,809 5,322 2.27 319,173 4,118 2.58 ------- ------- Non-interest-bearing liabilities............. 3,152 3,164 2,791 -------- -------- -------- Total liabilities....................... 521,771 471,973 321,964 Stockholders' equity......................... 39,594 38,694 17,890 -------- -------- -------- Total liabilities and stockholders' equity.............................. $561,365 $510,667 $339,854 ======== ======== ======== Net interest income.......................... $ 9,605 $ 6,784 ======= ======= Interest rate spread(4)...................... 3.61 3.90 4.19 Net yield on interest-earning assets(5)..... 3.67 3.97 4.21 Ratio of average interest-earning assets to 102.88 103.29 100.94 average interest-bearing liabilities......
- --------------- (1) Interest yields at June 30, 2003 are calculated using the annualized interest for the month of June divided by the average balance for the month of June. (2) Non-accruing loans have been included in loans receivable, and the effect of such inclusion was not material. (3) Includes U.S. government obligations, mortgage-backed securities, interest-bearing deposits in banks, and FHLB stock. (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. 30
For the Year Ended Dece,ber 31, ----------------------------------------------------------------------------------------- 2002 2001 2000 ------------------ ----------------------------- ------------------------------ Average Average Average Average Yield/ Average Yield/ Average Yield/ Balance Interest Cost Balance Interest Cost Balance Interest Cost ------- -------- ---- ------- -------- ---- ------- -------- ---- (Dollars in thousands) Interest-earning assets: Loans receivable, net(1)........... $280,665 $20,191 7.19% $204,494 $15,989 7.82% $177,525 $14,247 8.03% Investment securities(2)........... 54,505 2,950 5.41 52,393 2,595 4.95 43,997 2,689 6.11 Other interest-earnings assets...... 11,308 218 1.93 5,768 487 8.44 2,471 184 7.45 -------- ------- -------- -------- ------- Total interest-earning assets.. 346,477 23,359 6.74 262,655 19,071 7.26 223,993 17,120 7.64 Non-interest-earning assets......... 25,156 9,390 9,358 -------- -------- -------- Total assets................... $371,634 $272,045 $233,351 ======== ======== ======== Interest-bearing liabilities: Checking accounts ................. $ 36,743 - - $ 28,561 - - $ 27,104 - - Savings and club accounts.......... 62,310 765 1.23 53,527 973 1.82 52,117 1,095 2.10 Money market accounts.............. 44,966 784 1.74 36,325 1,038 2.86 34,305 1,131 3.30 Certificates of deposit............ 160,305 5,773 3.60 101,594 5,452 5.37 65,598 3,601 5.49 FHLB advances...................... 40,532 1,722 4.25 29,809 1,833 6.15 33,943 2,132 6.28 -------- ------- -------- -------- ------- Total interest-bearing liabilities.................. 344,856 9,044 2.62 249,816 9,296 3.72 213,068 7,959 3.74 ------- ------ ------- Non-interest-bearing liabilities.... 1,742 1,308 1,315 -------- -------- -------- Total liabilities.............. 346,598 251,124 214,383 Stockholders' equity................ 25,036 20,921 18,968 -------- -------- -------- Total liabilities and stockholders' equity......... $371,634 $272,045 $233,351 ======== ======== ======== Net interest income................. $14,315 $9,775 $ 9,161 ======= ====== ======= Interest rate spread(3)............. 4.12 3.54 3.90 Net yield on interest-earning assets(4)......................... 4.13 3.72 4.09 Ratio of average interest-earning assets to average interest- 100.47 105.14 105.13 bearing liabilities..............
- ------------------ (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, interest-bearing deposits in banks, and FHLB stock. (3) Interest rate spread represents the difference between the average yield on interest-earning 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. 31 Rate/Volume Analysis. The relationship between the volume and rates of our interest-earning assets and interest-bearing liabilities influences our net interest income. The following table reflects the sensitivity of our 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 (change in rate multiplied by the change in volume); and (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.
For the Six Months Ended For the Year Ended For the Year Ended June 30, December 31, December 31, 2003 vs. 2002 2002 vs. 2001 2001 vs. 2000 Increase (Decrease) Increase (Decrease) Increase (Decrease) Due to Due to Due to ------------------------------------- ---------------------------------- ------------------------------- Rate/ Rate/ Rate/ Volume Rate Volume Net Volume Rate Volume Net Volume Rate Volume Net ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------ (In thousands) Interest and dividend income: Loans receivable ... $ 3,204 $ - $ - $ 3,204 $ 5,960 $(1,280) $ (479) $ 4,201 $ 2,226 $ (447) $ (51) $ 1,728 Investments, mortgage-backed securities and other ............ 1,867 (523) (627) 717 105 241 9 355 736 (368) (102) 266 Other .............. 4 52 48 104 468 (376) (361) (269) - - - - ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total interest- earning assets ..... $ 5,075 $ (471) $ (579) $ 4,025 $ 6,533 $(1,415) $ (831) $ 4,287 $ 2,962 $ (815) $ (153) $ 1,994 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= Interest expense: Checking accounts .. $ - $ 40 $ 14 $ 54 $ - $ - $ - $ - $ - $ - $ - $ - Savings and club accounts ......... 57 (67) (10) (20) 160 (316) (52) (208) 34 (152) (7) (125) Money market accounts ......... 134 (87) (30) 17 248 (406) (96) (254) 64 (148) (7) (91) Certificate accounts ......... 1,805 (351) (253) 1,201 3,153 (1,797) (1,035) 321 1,887 (27) (8) 1,852 FHLB advances ...... 274 (246) (77) (49) 659 (566) (204) (111) (126) (184) 11 (299) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total interest- bearing liabilities.......... $ 2,270 $ (711) $ (356) $ 1,203 $ 4,220 $(3,085) $(1,387) $ (252) $ 1,859 $ (511) $ (11) $ 1,337 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= Change in net interest income ..... $ 2,790 $ 238 $ (206) $ 2,822 $40,586 $(4,650) $(1,902) $ 4,539 $ 1,103 $ (304) $ (142) $ 657 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
32 Comparison of Operating Results for the Six Months Ended June 30, 2003 and 2002 Net Income. Net income increased by $434,000, to $1.6 million, for the six months ended June 30,2003 compared to $1.1 million for the same period in 2002, a 38.5% increase. The increase was primarily attributable to a $2.8 million increase in net interest income and a $149,000 increase in total other income, offset by a $2.4 million increase in total other expenses and a $243,000 increase in income tax expense as a result of higher taxable income. Net Interest Income. Net interest income grew $2.8 million, or 41.6%, for the six months ended June 30, 2003 compared to the same period in 2002. Total interest income increased by $4.0 million, to $15.0 million, for the six months ended June 30, 2003, while total interest expense increased by $1.2 million, to $5.3 million, for the six months ended June 30, 2003. The 36.9% increase in total interest income was primarily due to a $162.0 million, or 50.3%, increase in the average balance of interest-earning assets, offset by a 60 basis point decrease in the average yield earned on these investments. The increase in interest-earning assets was a direct result of management's strategy of combining internal growth with an acquisition. The average balance of interest- earning loans increased by $89.6 million, to $350.8 million, or 34.3%, over last year's comparable period. The decrease in the average yield was primarily attributable to lower market interest rates during the 2003 period. The 29.2% increase in total interest expense resulted primarily from a 46.9% increase in the average balance of interest-bearing liabilities, offset by a 31 basis point decrease in the average cost of these funds. The increase in the average balance of interest-bearing liabilities during this period reflects organic growth as well as the acquisition of First Bank in the first-quarter of 2003. More specifically, the average balance of both certificates of deposit and core deposits increased by $100.2 million and $36.9 million, respectively. Deposits acquired from First Bank totaled $52.2 million. Further, the average balance of interest-bearing liabilities reflected an increased level of borrowings, with the average balance increasing by $12.5 million for this period. The decrease in the average cost of interest-bearing liabilities was primarily attributable to lower market yields during this time period, as well as the acquisition of core deposits from First Bank. Provision for Loan Losses. We maintain an allowance for loan losses through provisions for loan losses which are charged to operations. The provision is made to adjust the total allowance for loan 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 internal analysis of credit quality, general levels of loan delinquencies, collateral values, Synergy Bank's historical loan loss experience, changes in loan concentrations by loan category, peer group information and economic and market trends affecting our market area. See Business of Synergy Bank - Non-Performing Loans and Problem Assets - Allowance for Loan Losses at page __. The provision established for loan losses each month reflects management's assessment of these factors in relation to the level of the allowance at such time. The provision for loan losses was $470,000 for the six months ended June 30, 2003, compared to $551,000 for the same period in 2002. The decrease in the provision reflects our present level of allowance requirements based on our credit risk exposure utilizing the above noted allowance for loan losses methodologies. The Bank experienced an increase in charge-offs from $8,000 for the first six months of 2002, as compared to $554,000 for the same period in 2003, of which $326,000 was a direct 33 result of the acquisition of indirect automobile loans from First Bank. The Bank is maintaining a higher percentage of valuation allowances against these higher risk credits. The balance of this indirect automobile loan portfolio is steadily decreasing through principal amortization. These loans are closely monitored through an in-house collection process as well as within the Asset and Liability Management Committee. There can be no assurance, however, that the Bank will not recognize additional future losses on its indirect automobile loan portfolio. The allowance for loan losses was $3.0 million at June 30, 2003 compared to $1.9 million at June 30, 2002. We allocate the allowance to various categories based on our classified assets, historical loan loss experience, and our assessment of the risk characteristics of each loan category and the relative balances at month end of each loan category. The allocation did not change materially from June 30, 2002 to June 30, 2003. See Business of Synergy Bank - Non-Performing Loans and Problem Assets - Allowance for Loan Losses at page __ and - Allocation of Allowance for Loan Losses at page __. Other Income. Other income, which is primarily comprised of deposit account fees, ATM fees, loan fees, service charges and a bank-owned life insurance policy, increased by $149,000, to $1.0 million, for the six months ended June 30, 2003 from the $885,000 reported during the same period in 2002. Excluding a net gain from the sale of assets of $117,000 during the comparable period last year, other income increased $266,000, primarily due an increase in other service charges. Other Expenses. Other expenses increased by $2.4 million, to $7.8 million, for the six months ended June 30, 2003 when compared to the same period in 2002. The increase resulted mostly from higher operating expenses associated with six additional full-service branch offices opened in 2002 and the acquisition of two full-service branches in 2003 from the First Bank transaction. This included increases of $983,000 and $657,000, respectively, in total salary compensation and office premises expenses. Historically, we have had a high level of operating expense because of the large number of branch offices relative to our asset size. In future periods, management anticipates a similar impact on future earnings resulting from the continued expansion of the Bank's branch office network consistent with implementation of our strategic plan. During the 2003 period, we also absorbed increased expenses not present in the 2002 period associated with being a public company, such as periodic reporting, an annual stockholder meeting, retention of a transfer agent and professional fees associated with complying with the mandated requirements of the Sarbanes-Oxley Act, as well as management of an employee stock ownership plan. Income Tax Expense. Income tax expense increased by $243,000 for the six months ended June 30, 2003 compared to the same period in 2002, reflecting higher taxable income for the 2003 period. Comparison of Operating Results for Years Ended December 31, 2002 and 2001 Net Income. Net income totaled $2.0 million for 2002 compared to net income of $1.9 million for 2001. The $129,000, or 6.8%, increase was primarily due to an increase in net interest income of $4.5 million, or 46.4%. Net Interest Income. Net interest income for 2002 was $14.3 million as compared to $9.8 million for 2001. The net interest rate margin was 4.13% for 2002 and 3.72% for 2001. The increase in margin was primarily due to a lower cost of funds for both deposits and borrowings during 2002. 34 Total interest income amounted to $23.4 million and $19.1 million for 2002 and 2001, respectively. The $4.3 million, or 22.5%, increase for 2002 compared to 2001 was primarily due to increased interest income from loans and securities. Total interest expense was $9.0 million for 2002 and $9.3 million for 2001. The $252,000, or 2.7%, decrease for 2002 compared to 2001 was primarily due to a 116 basis point drop in deposit interest rates, along with a 190 basis point drop in FHLB advance rates, for 2002. The average rates paid on interest-bearing deposits decreased to 2.45% for 2002 from 3.39% for 2001. Provision for Loan Losses. The provision for loan losses was $1.1 million and $363,000 for the years ended December 31, 2002 and 2001, respectively. We had net charge-offs of $218,000 for the year ended December 31, 2002 compared to net charge-offs of $167,000 for 2001. The total loan portfolio grew by $95.4 million, or 42.2%, during 2002. The changes in the loan portfolio during 2002 were an increase in residential loans of $53.5 million, or 35.9%, an increase in non-residential and multi-family mortgage loans of $28.9 million, or 151.9%, and an increase in consumer loans, including automobile loans, of $10.0 million, or 17.2%. The allowance for loan losses was $2.2 million at December 31, 2002 compared to $1.4 million at December 31, 2001. We allocate the allowance to various categories based on our classified assets, historical loan loss experience, and our assessment of the risk characteristics of each loan category and the relative balances at month end of each loan category. The allocation did not change materially from December 31, 2001 to December 31, 2002. See Business of Synergy Bank - Non-Performing Loans and Problem Assets - Allowance for Loan Losses at page __ and - Allocation of Allowance for Loan Losses at page __. Other Income. Other income during 2002 and 2001 amounted to $1.7 million and $2.5 million, respectively. Other income was predominantly service charges and other fees on deposit accounts. The higher income during 2001 was primarily the result of a one-time gain on the sale of the Bank's credit card portfolio during 2001; which provided a gross gain of $888,000 or $549,000 after tax. The remaining portion of that portfolio was sold during 2002, with gross gains of $66,000 or $40,000 after tax for 2002. Other Expenses. Other expenses were $11.7 million for 2002 and $9.0 million for 2001. The increase was due to higher operating expenses associated with expansion of the branch network and increased marketing expenses. The principal component of other expenses, compensation and employee benefits, increased to $6.1 million for 2002 from $4.8 million for 2001. Income Tax Expense. For 2002 and 2001, the Bank incurred income tax expenses of $1.2 million and $1.0 million, respectively. The increase in taxes reflected higher income and changes in income tax rates. Synergy Financial Group, Inc. and its subsidiaries file New Jersey income tax returns and are subject to a state income tax that is calculated based on federal taxable income, with certain adjustments. In July, 2002, New Jersey eliminated the 3% tax rate formerly applicable to thrift institutions located in the state, making thrift institutions subject to the 9% tax rate applicable to New Jersey corporations. Such change was retroactive to January 1, 2002. Our state tax rate has been reduced by holding investment securities in Synergy Capital Investments, Inc., a wholly-owned subsidiary of Synergy Bank, formed in November 2002. 35 Comparison of Operating Results for Years Ended December 31, 2001 and 2000 Net Income. Net income for 2001 increased $372,000 to $1.9 million compared to net income of $1.5 million for 2000. This increase was primarily attributable to a $614,000 increase in net interest income, a $745,000 increase in other income, and a $117,000 decrease in the provision for loan losses, partially offset by a $792,000 increase in operating expenses and a $312,000 increase in income tax expense. Net Interest Income. Net interest income increased by $614,000, or 6.7%, to $9.8 million for 2001 compared to $9.2 million for 2000. This increase was attributable to a $2.0 million increase in total interest income, partially offset by a $1.3 million increase in interest expense. Total interest income increased by 11.4% to $19.1 million for 2001 compared to $17.1 million for 2000 as a result of a $38.7 million increase in the average balance of interest-earning assets, consisting of a $27.0 million, or 15.2%, increase in the average balance of loans and an $8.4 million, or 19.1%, increase in the average balance of securities. Interest income on loans increased by $1.7 million, reflecting the increase in the average balance of loans, offset by a decrease in the average yield thereon of 21 basis points, from 8.03% for 2000 to 7.82% for 2001. Interest income on securities decreased by $94,000, or 3.5%, for 2001, reflecting the increase in the average balance of securities, offset by a decrease in the average yield thereon of 116 basis points, from 6.11% for 2000 to 4.95% for 2001. Total interest expense increased by 16.8%, to $9.3 million in 2001, primarily as a result of a $36.7 million increase in the average balance of interest-bearing liabilities to $249.8 million for 2001 as compared to $213.1 million for 2000. The majority of this increase was in certificates of deposit, the average balance of which increased by 54.9%. The average cost of total interest-bearing liabilities fell 2 basis points to 3.72% for 2001 as compared to 3.74% for 2000, with the decrease primarily attributable to a 13 basis point decrease in the average rate paid on FHLB advances. Provision for Loan Losses. The provision for loan losses was $363,000 for the year ended December 31, 2001 and $480,000 for the same period in 2000. We had net charge-offs of $167,000 for the year ended December 31, 2001 compared to net charge-offs of $299,000 for 2000. The major changes in the loan portfolio during 2001 were an increase in loans secured by real estate from 67.8% of total loans at December 31, 2000 to 74.2% at December 31, 2001 and a drop in our unsecured loan portfolio from 8.2% of total loans at December 31, 2000 to 2.7% at December 31, 2001 resulting from the sale of the credit card portfolio. Our allowance for loan losses stood at $1.4 million at December 31, 2001 compared to $1.2 million at December 31, 2000. Management allocates the allowance to various categories based on its assessment of the risk characteristics of each loan category and the relative balances at month end of each loan category. The allocation did not change materially from December 31, 2001 to December 31, 2000. See Business of Synergy Bank - Non-Performing Loans and Problem Assets - Allowance for Loan Losses at page __ and - Allocation of Allowance for Loan Losses at page __. Other Income. Other income increased $745,000 to $2.5 million for 2001 from $1.8 million for 2000, primarily attributable to the gain on the sale of loans of $888,000 comprised mostly of the sale of the credit card portfolio, partially offset by a $345,000 decrease in commissions on securities and insurance sales through Synergy Financial Group, Inc.'s wholly-owned subsidiary, Synergy Financial Services, Inc. Other income for 2001 also included $274,000 in loan service charges for 2001 as compared to $256,000 for 2000, and a $5,000 gain in 2001 on the sale of investment securities held as available-for-sale. 36 Other Expenses. Other expenses increased $792,000, or 9.7%, to $9.0 million for 2001 compared to $8.2 million for 2000. This increase was primarily due to a $425,000, or 9.6%, increase in compensation and employee benefits and a $385,000, or 13.8%, increase in office operation and office occupancy expenses due primarily to the opening of one new branch and the costs associated with renovating our main office. Provision for Income Taxes. Income tax expense increased by $312,000, or 43.9%, to $1.0 million for 2001 compared to $712,000 for 2000, reflecting higher income for 2001. Liquidity and Commitments We maintain liquid assets at levels we consider adequate to meet liquidity needs. The liquidity of a savings institution 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. Savings institution liquidity is normally considered in terms of the nature and mix of the savings institution's sources and uses of funds. Our primary sources of liquidity are deposits, scheduled amortization and prepayment of loans and mortgage-backed securities. In addition, we invest 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 $6.9 million at June 30, 2003. 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 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 June 30, 2003, our borrowing limit with the FHLB of New York was $104.4 million. Subsequent to June 30, 2003, the limit was increased to $156.2 million. See Business of Synergy Bank - Sources of Funds - Borrowings at page __. At June 30, 2003, we had $75.2 million of borrowings outstanding. Synergy Bank is subject to federal regulations that impose minimum capital requirements. For a discussion on these capital levels, see Historical and Pro Forma Capital Compliance at page __ and Regulation - Regulation of Synergy Bank - Regulatory Capital Requirements at page __. We are not aware of any trends, events or uncertainties that will have or are reasonably likely to have a material effect on our 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 our commitments to extend credit for mortgage and consumer loans as of June 30, 2003 was $51.7 million, excluding commitments on unused lines of credit which totaled $18.3 million. 37 The following table discloses our contractual obligations as of June 30, 2003.
Less Than After Total 1 Year 1-3 Years 4-5 Years 5 Years ----- ------ --------- --------- ------- FHLB advances(1).................. $75,000 $55,000 $ 9,000 $2,000 $ 9,000 Rentals under operating leases.... 5,000 400 1,000 1,000 2,600 ------- ------- ------- ------ ------- Total......................... $80,000 $55,400 $10,000 $3,000 $11,600 ======= ======= ======= ====== =======
- ------------------- (1) At June 30, 2003, the total collateralized borrowing limit was $104.4 million of which we had $75.2 million outstanding. Subsequent to June 30, 2003, the limit was increased to $156.2 million. The following table discloses our commercial commitments as of June 30, 2003.
Total Amounts Less Than Over Committed 1 Year 1-3 Years 4-5 Years 5 Years --------- ------ --------- --------- ------- Lines of credit(1)....................... $18,300 $ 90 $ 140 $ 270 $17,800 Other commitments to extend credit(1).... 51,700 51,700 - - - ------- ------- --------- --------- ------- Total................................ $70,000 $50,790 $ 140 $ 270 $17,800 ======= ======= ========= ========= =======
- ---------------- (1) Represents amounts committed to customers. For additional information about cash flows from our operating, financing, and investing activities, see the Statements of Cash Flows included in the Consolidated Financial Statements beginning at page F-1. Impact of Inflation and Changing Prices The consolidated financial statements and accompanying notes presented elsewhere in this document have been prepared in accordance with generally accepted accounting principles, which generally 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 our operations. As a result, interest rates have a greater impact on our 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 prices of goods and services. Change in Auditor On December 5, 2002, Synergy Financial Group, Inc. dismissed Fontanella and Babitts, Certified Public Accountants, as its independent auditors and appointed Grant Thornton LLP as its new independent auditors. The decision to change accountants was recommended by the audit committee and approved by the Board of Directors. Fontanella and Babitts' reports on Synergy Financial Group, Inc.'s consolidated financial statements for the two fiscal years ended December 31, 2001 did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. In connection with audits of the two fiscal years ended December 31, 2001 and any subsequent interim period preceding the date hereof, there were no disagreements or reportable events between Synergy Financial Group, Inc. and Fontanella and Babitts on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of Fontanella and Babitts, would have caused them to make a reference to the subject matter of the disagreements or reportable events in connection with their reports. During the two most recent fiscal years and the subsequent interim period to the date hereof, Synergy Financial Group, Inc. did not 38 consult with Grant Thornton LLP regarding the application of accounting principles to any transaction or as to any accounting, auditing or financial reporting issues. Recent Accounting Pronouncements Synergy Financial Group, Inc. adopted Statement of Financial Accounting Standard (SFAS) No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, on July 1, 2003. SFAS No. 149 clarifies and amends SFAS No. 133 for implementation issues raised by constituents or includes the conclusions reached by the Financial Accounting Standards Board (FASB) on certain FASB Staff Implementation Issues. Statement No. 149 also amends SFAS No. 133 to require a lender to account for loan commitments related to mortgage loans that will be held for sale as derivatives. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003. Synergy Financial Group, Inc. periodically enters into commitments with its customers, which it intends to sell in the future. Management does not anticipate the adoption of SFAS No. 149 to have a material impact on Synergy Financial Group, Inc.'s financial position or results of operations. The FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, on May 15, 2003. SFAS No. 150 changes the classification in the statement of financial position of certain common financial instruments from either equity or mezzanine presentation to liabilities and requires an issuer of those financial statements to recognize changes in fair value or redemption amount, as applicable, in earnings. SFAS No. 150 is effective for public companies for financial instruments entered into or modified after May 31, 2003 and is effective at the beginning of the first interim period beginning after June 15, 2003. Management has not entered into any financial instruments that would qualify under SFAS No. 150. As a result, management does not anticipate the adoption of SFAS No. 150 to have a material impact on Synergy Financial Group, Inc.'s financial position or results of operations. Synergy Financial Group, Inc. adopted FASB Interpretation No. 45 ("FIN 45"), Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others, on January 1, 2003. FIN 45 requires a guarantor entity, at the inception of a guarantee covered by the measurement provisions of the interpretation, to record a liability for the fair value of the obligation undertaken in issuing the guarantee. Financial letters of credit require Synergy Financial Group, Inc. to make payment if the customer's financial condition deteriorates, as defined in the agreements. Performance letters of credit require Synergy Financial Group, Inc. to make payments if the customer fails to perform certain non-financial contractual obligations. Synergy Financial Group, Inc. previously did not record a liability when guaranteeing obligations unless it became probable that Synergy Financial Group, Inc. would have to perform under the guarantee. FIN 45 applies prospectively to guarantees Synergy Financial Group, Inc. issues or modifies subsequent to December 31, 2002. At June 30, 2003, Synergy Financial Group, Inc. was not contingently liable for any financial and performance letters of credit. It is the Bank's practice to generally hold collateral and/or obtain personal guarantees supporting any outstanding letter of credit commitments. In the event that the Bank is required to fulfill its contingent liability under a standby letter of credit, it could liquidate the collateral held, if any, and enforce the personal guarantee(s) held, if any, to recover all or a portion of the amount paid under the letter of credit. In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), Consolidation of Variable Interest Entities. FIN 46 clarifies the application of Accounting Research Bulletin 51, "Consolidated Financial Statements," for certain entities that do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties or in which equity investors do not have the characteristics of a controlling financial interest ("variable interest 39 entities"). Variable interest entities within the scope of FIN 46 will be required to be consolidated by their primary beneficiary. The primary beneficiary of a variable interest entity is determined to be the party that absorbs a majority of the entity's expected losses, receives a majority of its expected returns, or both. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003 to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. Synergy Financial Group, Inc. does not anticipate FIN 46 to have a material impact on its consolidated financial position and results of operations. BUSINESS OF SYNERGY FINANCIAL GROUP, INC. Synergy Financial Group, Inc. is currently the middle-tier federal stock holding company of Synergy Bank and Synergy Financial Services, Inc. and owns all of the outstanding common stock of both entities. It was organized for the purpose of acquiring all of the capital stock that Synergy Bank issued upon its mutual holding company reorganization from the mutual-to-stock form of ownership in 2001. Synergy Financial Group, Inc. completed a minority stock offering in September 2002, at which time shares of its common stock were first issued to public stockholders. A total of 1,454,750 shares were issued to persons other than Synergy, MHC, the parent mutual holding company of Synergy Financial Group, Inc., representing 43.5% of the outstanding common stock of Synergy Financial Group, Inc. At the conclusion of this stock offering and the completion of the mutual-to-stock conversion of Synergy, MHC, Synergy Financial Group, Inc. will cease to exist, but will be succeeded by a newly formed New Jersey corporation also called Synergy Financial Group, Inc., which will own all of outstanding common stock of Synergy Bank and Synergy Financial Services, Inc. As of June 30, 2003, Synergy Financial Group, Inc. had 3,344,252 shares of common stock issued and outstanding. Synergy, MHC owns 1,889,502 shares, or 56.5%, of Synergy Financial Group, Inc.'s outstanding common stock. The remaining shares of common stock are held by the public. Synergy Financial Group, Inc. has not engaged in any significant business to date. Its primary activity will be to hold all of the stock of Synergy Bank and Synergy Financial Services, Inc., a wholly- owned subsidiary engaged in offering insurance and securities products. Synergy Financial Group, Inc. will invest the proceeds of the offering as discussed under Use of Proceeds at page __. In the future, it may pursue other business activities, including mergers and acquisitions, investment alternatives and diversification of operations. There are, however, no current understandings or agreements for these activities. Synergy Financial Group, Inc. does not maintain offices separate from those of Synergy Bank or employ any persons other than certain of Synergy Bank's officers. Officers of Synergy Financial Group, Inc. are not separately compensated for their service. BUSINESS OF SYNERGY BANK General Synergy Bank was originally founded in 1952 as a federal credit union for a pharmaceutical research and manufacturing company. Synergy Bank converted its charter in 1998 to a federal mutual savings bank and in 2001 became a federal stock savings bank upon the completion of its mutual holding company reorganization. Synergy Bank's deposits are federally insured by the Savings Association Insurance Fund ("SAIF") as administered by the Federal Deposit Insurance Corporation ("FDIC"). Synergy Bank is regulated by the OTS and the FDIC. 40 Synergy Bank is in the business of offering financial services, including offering retail banking services, one- to four-family residential mortgage loans, home equity loans, multi-family and non- residential mortgage loans and consumer loan products, including automobile and personal loans. We attract deposits from the general public and borrow money from the FHLB and use these deposits and FHLB advances primarily to originate loans and to purchase investment securities. Our principal sources of funds for lending and investing activities are deposits, FHLB advances, the repayment and maturity of loans and the sale, maturity, and call of securities. Our principal source of income is interest on loans and investment securities. Our principal expense is interest paid on deposits and FHLB advances. Market Area Our main office is located in Cranford, New Jersey, and our branches are located in Middlesex, Monmouth, Morris and Union counties, New Jersey. Our primary market area is Essex, Middlesex, Monmouth, Morris, Somerset and Union counties, New Jersey. Essex and Union counties are highly urbanized and densely populated counties in the New York City metropolitan area, lying at the heart of the northeast corridor, one of the largest population and industrial areas in the country. The remaining counties are suburban areas located in central New Jersey. The market areas surrounding each of Synergy Bank's branches are mostly growth markets, with population densities and income levels generally above the average levels for New Jersey. Competition We face substantial competition in our attraction of deposits, which are our primary source of funds for lending, and in the origination of loans. Many of our competitors are significantly larger institutions and have greater financial and managerial resources. Our ability to compete successfully is a significant factor affecting our profitability. Our competition for deposits and loans historically has come from other insured financial institutions such as local and regional commercial banks, savings institutions, and credit unions located in our primary market area. We also compete with mortgage banking companies for real estate loans. Competition for funds also comes from investment products such as mutual funds, short-term money funds and corporate and government securities. Lending Activities General. We primarily originate real estate loans, including one- to four-family first mortgage loans, home equity loans, multi-family and non-residential mortgages, and consumer loans, comprised mostly of direct automobile loans for both new and used vehicles. The loan portfolio is predominately comprised of one- to four-family residential real estate loans, most of which have fixed rates of interest. 41 Loan Portfolio Composition. The following table analyzes the composition of the loan portfolio by loan category at the dates indicated.
At December 31, At June 30, ----------------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 1998 --------------- --------------- --------------- --------------- --------------- -------------- Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- (Dollars in thousands) Type of Loans: - -------------- Mortgage loans: One- to Four-Family Residential(1).... $216,666 57.15% $202,325 62.92% $148,826 65.81% $127,004 66.69% $116,727 70.95% $ 91,746 68.07% Non-Residential and Multi-Family...... 60,749 16.03 48,386 15.05 19,044 8.43 2,072 1.08 - - - - Automobile............ 89,219 23.53 63,796 19.83 52,206 23.08 45,812 24.06 30,171 18.34 22,475 16.68 Commercial............ 8,465 2.23 2,472 0.77 - - - - - - - - Credit Card........... 97 0.03 136 0.04 30 0.01 6,969 3.66 7,260 4.41 8,093 6.01 Other Consumer(2)..... 3,909 1.03 4,454 1.39 6,033 2.67 8,594 4.51 10,363 6.30 12,457 9.24 -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ Total loans...... 379,105 100.00% 321,569 100.00% 226,139 100.00% 190,451 100.00% 164,521 100.00% 134,771 100.00% ====== ====== ====== ====== ====== ====== Deferred loan fees and costs.... 135 85 (78) (177) (353) (257) Less: Allowance for loan losses........ (2,970) (2,231) (1,372) (1,176) (995) (1,148) -------- -------- -------- -------- -------- -------- Total loans, net. $376,270 $319,423 $224,689 $189,098 $163,173 $133,366 ======== ======== ======== ======== ======== ========
- -------------- (1) This category includes home equity loans. (2) This category consists of personal loans (unsecured) and savings secured loans. 42 Loan Maturity Schedule. The following tables set forth the maturity or repricing of the loan portfolio at December 31, 2002 and June 30, 2003. Demand loans, loans having no stated maturity and overdrafts are shown as due in one year or less.
At December 31, 2002 -------------------------------------------------------------------------------------- Non- One- to Residential Four-Family and Credit Other Residential(1) Multi-Family Automobile Commercial Card Consumer(2) Total -------------- ------------ ---------- ---------- ---- ----------- ----- (In thousands) Amounts Due: Within 1 Year................... $ 324 $ - $ 1,480 $ - $ 136 $ 505 $ 2,445 -------- ------- ------- ------ ------- ------ -------- After 1 year: 1 to 3 years.................. 4,201 - 39,595 - - 2,784 46,580 3 to 5 years.................. 10,026 - 22,694 2,472 - 1,154 36,346 5 to 10 years................. 33,968 2,008 26 - - - 36,002 10 to 15 years................ 83,218 21,108 - - - 2 104,328 Over 15 years................. 70,588 25,270 1 - - 9 95,868 -------- ------- ------- ------ ------- ------ -------- Total due after one year... 202,001 48,386 62,316 2,472 - 3,949 319,124 -------- ------- ------- ------ ------- ------ -------- Total amount due........... $202,325 $48,386 $63,796 $2,472 $ 136 $4,454 $321,569 ======== ======= ======= ====== ======= ====== ========
- -------------- (1) This category includes home equity loans. (2) This category consists of personal loans (unsecured) and savings secured loans.
At June 30, 2002 -------------------------------------------------------------------------------------- Non- One- to Residential Four-Family and Credit Other Residential(1) Multi-Family Automobile Commercial Card Consumer(2) Total -------------- ------------ ---------- ---------- ---- ----------- ----- (In thousands) Amounts Due: Within 1 Year................... $ 2,727 $ 859 $ 1,969 $1,374 $97 $ 336 $ 7,362 -------- ------- ------- ------ --- ------ -------- After 1 year: 1 to 3 years.................. 1,145 2,843 21,386 2,199 - 1,498 29,071 3 to 5 years.................. 11,991 2,508 58,534 3,856 - 2,070 78,959 5 to 10 years................. 30,359 4,077 7,304 158 - - 41,898 10 to 15 years................ 97,988 20,206 25 35 - 1 118,255 Over 15 years................. 72,456 30,256 1 843 - 4 103,560 -------- ------- ------- ------ --- ------ -------- Total due after one year... 213,939 59,890 87,250 7,091 - 3,573 371,743 -------- ------- ------- ------ --- ------ -------- Total amount due........... $216,666 $60,749 $89,219 $8,465 $97 $3,909 $379,105 ======== ======= ======= ====== === ====== ========
- ------------- (1) This category includes home equity loans. (2) This category consists of personal loans (unsecured) and savings secured loans. 43 The following tables set forth the dollar amount of all loans at December 31, 2002 and June 30, 2003, respectively, due after December 31, 2003 and June 30, 2004, respectively, which have fixed interest rates and which have floating or adjustable interest rates. At December 31, 2002 ------------------------------------------ Floating or Fixed Rates Adjustable Rates Total ----------- ---------------- ----- (In thousands) Mortgage loans: One-to Four-Family Residential(1)............ $165,571 36,430 $202,001 Non-Residential and Multi- Family.................... 5,527 42,859 48,386 Automobile...................... 62,316 - 62,316 Commercial...................... 2,472 - 2,472 Other Consumer(2)............... 3,949 - 3,949 -------- ------- -------- Total...................... $239,835 $79,289 $319,124 ======== ======= ======== ________________ (1) This category includes home equity loans. (2) This category consists of personal loans (unsecured) and savings secured loans. At June 30, 2003 ------------------------------------------ Floating or Fixed Rates Adjustable Rates Total ----------- ---------------- ----- (In thousands) Mortgage loans: One-to Four-Family Residential(1)............ $196,814 $17,125 $213,939 Non-Residential and Multi-Family.............. 6,030 53,860 59,890 Automobile...................... 87,250 - 87,250 Commercial...................... 7,091 - 7,091 Other Consumer(2)............... 3,573 - 3,573 -------- ------- -------- Total...................... $300,758 $70,985 $371,743 ======== ======= ======== - -------------- (1) This category includes home equity loans. (2) This category consists of personal loans (unsecured) and savings secured loans. Residential Lending. Our primary lending activity consists of the origination of one- to four-family mortgage loans. The majority of our residential lending is secured by property located in New Jersey. We will generally originate a mortgage loan in an amount up to 80% of the lesser of the appraised value or the purchase price of a mortgaged property. For loans exceeding this guideline, private mortgage insurance for the borrower is required. The majority of our residential loans are originated with fixed rates and have terms of fifteen to thirty years. Our adjustable rate loans have terms of fifteen to thirty years and adjustment periods of one, three, five or ten years according to the terms of the loan. These loans provide for an interest rate that is tied to a U.S. Treasury security index. 44 We generally make fixed rate mortgage loans that meet the secondary mortgage market standards of the Federal Home Loan Mortgage Corporation ("FHLMC"). In accordance with our interest rate risk management policy, we occasionally sell qualifying one- to four-family residential mortgages in the secondary market to FHLMC without recourse and with servicing retained. During the year ended December 31, 2002, we sold $4.9 million of residential mortgages, all of which were 30 year fixed-rate loans. We may continue to sell loans in the future when doing so will assist in mitigating interest rate risk. Substantially all of our residential mortgages include "due on sale" clauses, which are provisions giving us the right to declare a loan immediately payable if the borrower sells or otherwise transfers an interest in the property to a third party. Property appraisals on real estate securing our one- to four-family residential loans are made by state certified or licensed independent appraisers approved by the Board of Directors. Appraisals are performed in accordance with applicable regulations and policies. We require title insurance policies on all first mortgage real estate loans originated. All property secured loans require fire and casualty insurance. Loans made on property located in designated flood zones require minimum flood insurance coverage based on the amount of the loan. Our residential loan portfolio includes home equity loans, which are originated in our market area and have maturities of up to fifteen years. At June 30, 2003, home equity loans totaled $91.5 million, or 24.1%, of total loans. Collateral value is determined through the use of an Internet based on-line value estimator, a drive-by appraisal or a full appraisal. All loans over $250,000 require a full appraisal and title insurance policy. Non-Residential and Multi-Family Mortgage Loans. In 2000, we began to originate non- residential mortgage loans, including loans on retail/service space, and other income-producing properties. Our non-residential loan portfolio also includes multi-family (five or more units) mortgage loans. We require no less than a 25% down payment or equity position for non-residential and multi-family mortgage loans. Typically these loans are made with variable rates of interest with terms of up to twenty years. Essentially all of these mortgage loans are on properties located within our market area and all are within New Jersey. We occasionally sell participation interests in non-residential and multi-family mortgage loans originated by us that would otherwise exceed our loans-to-one-borrower limit. At June 30, 2003, the average balance of a multi-family and non-residential mortgage loan was $333,000 and $519,000, respectively. Non-residential and multi-family mortgage loans generally are considered to entail significantly greater risk than that which is involved with residential real estate lending. The repayment of these loans typically is dependent on the successful operations and income stream of the real estate and the borrower. These risks can be significantly affected by economic conditions. In addition, non-residential and multi- family real estate lending generally requires substantially greater evaluation and oversight efforts compared to one- to four-family residential real estate lending. Consumer Loans. At June 30, 2003, consumer loans amounted to $93.2 million, or 24.6% of the total loan portfolio, the vast majority of which are automobile loans. At June 30, 2003, automobile loans totaled $89.2 million. In late 1999, we began to originate direct automobile loans over the Internet through an independent online loan referral web site. A bank participating in the referral program sets certain criteria with the referral company to select those borrowers who meet that bank's lending standards. The borrower completes a qualification form online and submits it via the web site. The referral company's automated system screens the borrower's qualification form and, if it meets our preset criteria, we receive the 45 borrower's qualification form. The borrower's qualification form is sent to no more than four of the more than two hundred participating banks. Once we receive a qualification form, we check the borrower's credit report via an automated computer system. If the credit report is consistent with our criteria, the automated system sends a notice to the borrower that he or she is pre-approved and we make the borrower a loan offer. The borrower then decides whether to accept the loan offer. We pay a fee to the referral company for each qualification form we receive (even if that borrower does not accept our loan offer) and for each loan that is originated. Currently, an average of $7.4 million, or 37.2% of our monthly automobile loan originations are generated from this referral source. We intend to continue to originate and purchase automobile loans at a level necessary to maintain the non-mortgage loan portfolio at approximately one-fourth of our total loans. We will generally lend up to 100% of the purchase price of a new or used vehicle. Consumer loans also consist of personal loans (unsecured) and savings secured loans. We will generally lend up to 100% of the account balance on a savings secured loan. Consumer loans generally have shorter terms and higher interest rates than residential loans. Consumer loans generally have maturities of up to six years. Consumer loans can be helpful in improving the spread between the average loan yield and the cost of funds and at the same time improve the matching of rate sensitive assets and liabilities. Consumer loans entail greater risks than residential mortgage loans, particularly consumer loans secured by rapidly depreciable assets, such as automobiles, or loans that are unsecured. In these cases, any repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance, since there is a greater likelihood of damage, loss or depreciation of the underlying collateral. Further, consumer loan repayment is dependent on the borrower's continuing financial stability and is more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Finally, the application of various federal laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on consumer loans in the event of a default. Our underwriting standards for consumer loans include a determination of the applicant's credit history and an assessment of the applicant's ability to meet existing obligations and payments on the proposed loan. The stability of the applicant's monthly income may be determined by verification of gross monthly income from primary employment and additionally from any verifiable secondary income. Credit worthiness of the applicant is of primary consideration; however, the underwriting process also includes a comparison of the value of the collateral in relation to the proposed loan amount. Certain of our officers are authorized to approve unsecured consumer loan applications of up to $20,000. Commercial Loans. During the fourth quarter of 2002, we participated in a $2.5 million secured commercial loan without recourse with a financial institution that also operates in the state of New Jersey. The loan is guaranteed by the borrower, a luxury limousine company that is expanding its business, and is securitized by vehicles used in the business. At December 31, 2002, the commercial loan portfolio consisted of this single loan participation, representing 0.77% of the total loan portfolio at that date. At June 30, 2003, the commercial loan portfolio had grown to $8.5 million. The increase is the result of commercial loans acquired in connection with our acquisition of First Bank. Aside from these loans, we do not currently originate or purchase commercial loans. Unlike single-family residential mortgage loans, which generally are made on the basis of the borrower's ability to make repayment from his or her employment and other income and which are secured by real property whose value tends to be more easily ascertainable, commercial business loans typically 46 are made on the basis of the borrower's ability to make repayment from the cash flow of the borrower's business. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself and the general economic environment. Commercial business loans, therefore, have greater credit risk than residential mortgage loans. In addition, commercial loans generally carry larger balances to single borrowers or related groups of borrowers than one- to four-family loans. In addition, commercial lending generally requires substantially greater evaluation and oversight efforts compared to residential or non-residential real estate lending. Loans to One Borrower. Under federal law, savings institutions have, subject to certain exemptions, lending limits to one borrower in an amount equal to the greater of $500,000 or 15% of the institution's unimpaired capital and surplus. Accordingly, as of June 30, 2003, our loans to one borrower limit was $5.9 million, and we had seventy-two borrowers with loan balances in excess of $500,000. At June 30, 2003, our largest single borrower had an aggregate balance of $3.3 million, representing five non-residential mortgage loans secured by apartment buildings located in our market area and two residential one- to four-family mortgage loans. Our second largest single borrower had an aggregate balance of $3.0 million, representing seven mortgage loans secured by multi-family and non- residential properties, including retail strip mall shopping centers located in our market area. Our third largest borrower had an aggregate balance of $2.7 million, representing two mortgage loans secured by retail strip mall shopping centers located in our market area. At June 30, 2003, all of these three lending relationships were current and performing in accordance with the terms of their loan agreements. Loan Originations, Purchases, Sales, Solicitation and Processing. Our customary sources of loan applications include newspaper advertisements, employees, repeat customers, on-line applications through Synergy Bank's Internet site, real-estate broker referrals, and "walk-in" customers. A significant source for our automobile loan originations is an independent online loan referral web site, through which we currently originate an average of $7.4 million, or 37.2% of our monthly automobile loan originations. 47 The following table shows total loans originated, sold and repaid at Synergy during the periods indicated.
Three Months Ended June 30, Year Ended December 31, ---------------------- ----------------------------------- 2003 2002 2002 2001 2000 -------- -------- -------- -------- -------- Loan originations and purchases: Loan originations: One- to Four-Family Residential................. $54,431 $66,965 $110,578 $ 60,490 $26,721 Non-Residential and Multi-Family................ 9,957 12,780 31,116 19,893 2,180 Automobile...................................... 44,517 29,915 31,820 27,333 29,819 Commercial...................................... 1,070 - 2,472 - - Credit Card..................................... - - - - - Other........................................... 10,721 6,636 13,026 6,772 7,151 -------- -------- -------- -------- -------- Total loan originations:............................ 120,696 116,296 189,012 114,488 65,871 Loans purchased through acquisition of First Bank: 21,880 Loan purchases: One- to Four-Family Residential................. - - - - - Non-Residential and Multi-Family................ - - - - - Automobile...................................... - 13,717 13,685 2,981 2,974 Commercial...................................... - - - - - Credit Card..................................... - - - - - Other........................................... - - - - - -------- -------- -------- -------- -------- Total loan purchases:............................... - 13,717 13,685 2,981 2,974 Sales and loan principal repayments: Loans sold: One- to Four-Family Residential................. - 4,822 4,852 9,336 - Non-Residential and Multi-Family................ - 500 500 1,000 - Automobile...................................... - - - - - Commercial...................................... - - - - - Credit Card..................................... - - - 6,158 - Other........................................... - - - - - -------- -------- -------- -------- -------- Total loan sold:.................................... - 5,322 5,352 16,494 - Loan principal repayments........................... 85,040 58,601 101,915 65,287 42,915 -------- -------- -------- -------- -------- Total loans sold and principal repayments....... 85,040 63,923 107,267 81,781 42,915 Decrease due to other items............................. 689 543 696 97 5 -------- -------- -------- -------- -------- Net increase (decrease) in loan portfolio............... $ 56,847 $ 65,547 $ 94,734 $ 35,591 $ 25,925 ======== ======== ======== ======== ========
48 The sale of mortgage loans is part of management's strategy to mitigate interest rate risk. During 2002, $4.9 million of the loan sales consisted of residential mortgages, all of which were 30 year fixed-rate loans. We occasionally sell participation interests in non-residential mortgage loans originated by us that are considered large credits in order to reduce credit exposure. We may continue to sell loans in the future when doing so will mitigate interest rate risk or reduce our credit risk exposure. We generally sell loans on a non-recourse basis, with servicing retained and with an average loan servicing fee of 0.25% of the loan balance. At June 30, 2003, loans serviced for the benefit of other lenders totaled $8.8 million, compared to $13.0 million at December 31, 2002. We occasionally purchase loans through other financial institutions' participation programs. During the year ended December 31, 2002, we purchased an aggregate of $3.1 million of loans through two participations, one a 90% interest in a commercial loan secured by a fleet of luxury automobile limousines. This participation was without recourse and had a balance of $2.0 million at June 30, 2003. The second participation was a 37.5% interest in a loan secured by a first mortgage on non-residential property in our market area. This participation had a balance of $585,000 as of June 30, 2003. In addition to these two participations, we purchased a portfolio of $13.7 million of indirect automobile loans from First Bank prior to our whole bank acquisition of First Bank was completed in January 2003. At June 30, 2003, $7.4 million of these loans remained on our books, including those acquired in the automobile loan purchase and the whole bank acquisition. As of June 30, 2003, we also had participations in three indirect automobile loan pools (each a 90% participation interest). Two of the three indirect automobile loan pools were purchased with full recourse and at June 30, 2003 had a remaining balance of $2.3 million. The third automobile loan pool was purchased without recourse and at June 30, 2003 had a remaining balance of $87,000. The seller retained servicing of each of these three automobile loan participations. We do not, however, pay a servicing fee on these loans. In addition, at June 30, 2003, we had a $1.0 million participation in one non-residential mortgage loan secured by real estate in our market area that was purchased without recourse. We pay a servicing fee of 0.25% of the loan balance under the terms of this agreement. Loan Commitments. We give written commitments to prospective borrowers on all residential and non-residential mortgage loans. The total amount of commitments to extend credit for mortgage and consumer loans as of June 30, 2003 was $51.7 million, excluding commitments on unused lines of credit of $18.3 million. Loan Origination and Other Loan Fees. In addition to interest earned on loans, we receive commitment fees, loan origination fees and points on certain loans. We also receive other fees and charges relating to existing loans, which include late charges and fees collected in connection with loan modifications. These fees and charges have not constituted a material source of income. Non-Performing Loans and Problem Assets Collection Procedures. The borrower is notified by mail when a loan is ten days delinquent. If the delinquency continues, subsequent efforts are made to contact the delinquent borrower and additional collection notices and letters are sent. When a collateralized loan is ninety days delinquent, it is referred to an attorney for repossession or foreclosure. All reasonable attempts are made to collect from borrowers prior to referral to an attorney for collection. In certain instances, we may modify the loan or grant a 49 limited moratorium on loan payments to enable the borrower to reorganize his or her financial affairs and we attempt to work with the borrower to establish a repayment schedule to cure the delinquency. In the case of mortgage loans, if a foreclosure action is taken and the loan is not reinstated, paid in full or refinanced, the property is sold at judicial sale at which we may be the buyer if there are no adequate offers to satisfy the debt. Any property acquired as the result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned ("REO") until it is sold or otherwise disposed of. When REO is acquired, it is recorded at the lower of the unpaid principal balance of the related loan or its fair market value less estimated selling costs. The initial write-down of the property is charged to the allowance for loan losses. Adjustments to the carrying value of the properties that result from subsequent declines in value are charged to operations in the period in which the declines occur. At June 30, 2003, we held no real estate owned. Loans are reviewed on a regular basis and are placed on a non-accrual status when they are more than ninety days delinquent. Loans may be placed on a non-accrual status at any time if, in the opinion of management, the collection of additional interest is doubtful. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income. Subsequent payments are either applied to the outstanding principal balance or recorded as interest income, depending on the assessment of the ultimate collectibility of the loan. 50 Non-Performing Assets. The following table provides information regarding our non-performing loans and other non-performing assets as of the dates indicated. As of each of the dates indicated, we did not have any troubled debt restructurings or any impaired loans.
At December 31, At June 30, --------------------------------------------------- 2003 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- ---- (Dollars in thousands) Loans accounted for on a non-accrual basis: One- to Four-Family Residential(1).................. $ - $ - $ - $ 57 $ 58 $ 113 Non-Residential and Multi-Family.................... - - - - - - Automobile.......................................... 502 374 32 19 55 45 Credit Card......................................... 3 5 22 32 67 38 Other Consumer(1)................................... 28 70 17 79 112 125 ----- ----- ----- ----- ----- ----- Total............................................ $ 533 $ 449 $ 71 $ 187 $ 292 $ 321 ===== ===== ===== ===== ===== ===== Accruing loans which are contractually past due 90 days or more: Residential mortgages............................... $ - $ - $ - $ - $ - $ - Non-Residential mortgages........................... - - - - - - Automobile.......................................... - - - - - - Credit Card......................................... - - - - - - Other Consumer(2)................................... - - - - - - ----- ----- ----- ----- ----- ----- Total............................................ $ - $ - $ - $ - $ - $ - ===== ===== ===== ===== ===== ===== Total non-performing loans....................... $ 533 $ 449 $ 71 $ 187 $ 292 $ 321 ===== ===== ===== ===== ===== ===== Other non-performing assets........................... $ - $ - $ - $ - $ - $ - ===== ===== ===== ===== ===== ===== Total non-performing assets...................... $ 533 $ 449 $ 71 $ 187 $ 292 $ 321 ===== ===== ===== ===== ===== ===== Total non-performing loans to net loans.......... 0.14% 0.14% 0.03% 0.10% 0.18% 0.24% ===== ===== ===== ===== ===== ===== Total non-performing loans to total assets....... 0.09% 0.10% 0.02% 0.08% 0.13% 0.16% ===== ===== ===== ===== ===== ===== Total non-performing assets to total assets...... 0.09% 0.10% 0.02% 0.08% 0.13% 0.16% ===== ===== ===== ===== ===== =====
- ---------------- (1) This category includes home equity loans. (2) This category consists of personal loans (unsecured) and savings secured loans. 51 For the year ended December 31, 2002 and the six months ended June 30, 2003, the amount of interest that would have been recorded on loans accounted for on a non-accrual basis if those loans had been current according to the original loan agreements for the entire period was $17,000 and $9,000, respectively. This amount was not included in our interest income for the period. No interest income on loans accounted for on a non-accrual basis was included in income during the year ended December 31, 2002 or the six months ended June 30, 2003. Classified Assets. Management, in compliance with OTS guidelines, has instituted an internal loan review program, whereby non-performing loans are classified as substandard, doubtful or loss. It is our policy to review the loan portfolio, in accordance with regulatory classification procedures, on at least a monthly basis. When a loan is classified as substandard or doubtful, management is required to establish a valuation reserve for loan losses in an amount considered prudent by management. When management classifies a portion of a loan as loss, a reserve equal to 100% of the loss amount is required to be established or the loan is to be charged-off. An asset is considered "substandard" if it is inadequately protected by the paying capacity and net worth of the obligor or the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard, with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable on the basis of currently existing facts, conditions, and values. Assets classified as loss are those considered uncollectible and of so little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose the insured institution to a sufficient degree of risk to warrant classification in one of the aforementioned categories but which have credit deficiencies or potential weaknesses are required to be designated as "special mention" by management. Management's classification of assets and its estimation of the amount of known and inherent loan losses in the loan portfolio is reviewed by the Board on a regular basis and by the regulatory agencies as part of their examination process. At June 30, 2003, classified loans totaled $787,000. This amount included $324,000 of loans classified as "substandard." Management has deemed $70,000 of the loans classified as substandard as non-performing assets, as shown in the table at page __. At June 30, 2003, we had $463,000 of loans classified as "doubtful," all of which amount is included under non-performing assets, as shown in the table at page __. At June 30, 2003, we had no loans classified as "loss." Allowance for Loan Losses. The allowance for loan losses is a valuation account that reflects our estimation of the losses known and inherent in our loan portfolio that are both probable and reasonable to estimate associated with both lending activities and particular problem assets. The allowance is maintained through provisions for loan losses that are charged to income in the period they are established. We charge losses on loans against the allowance for loan losses when we believe the collection of loan principal is unlikely. Recoveries on loans previously charged-off are added back to the allowance. Our estimation of known and inherent loan losses in the loan portfolio includes a separate review of all loans on which the collectibility of principal may not be reasonably assured. We evaluate all classified loans individually and base our determination of a loss factor on the likelihood of collectibility of principal including consideration of the value of the underlying collateral securing the loan. Larger loans, which would generally include multi-family mortgages and other non-residential mortgage loans, are also generally evaluated for impairment individually. We also segregate loans by loan category and evaluate homogenous loans as a group. 52 Although there may be other factors that also warrant consideration in estimating the amount of known and inherent loan losses in the loan portfolio, we consider the following factors in connection with our determination of loss factors and as part of our overall estimation of the amount of known and inherent loan losses in the loan portfolio: o our historical loan loss experience; o internal analysis of credit quality; o general levels of non-performing loans and delinquencies; o changes in loan concentrations by loan category; o current estimated collateral values; o peer group information; o analysis of credit quality conducted in bank regulatory examinations; and o economic and market trends impacting our lending area. In recent years, our charge-offs have been low and, consequently, our estimation of the amount of known and inherent loan losses in the loan portfolio has been more reflective of other factors. This estimation is inherently subjective as it requires estimates and assumptions that are susceptible to significant revisions as more information becomes available or as future events change. Future additions to the allowance for loan losses may be necessary if economic and other conditions in the future differ substantially from the current operating environment. In addition, the OTS as an integral part of its examination process, periodically reviews our loan and foreclosed real estate portfolios and the related allowance for loan losses and valuation allowance for foreclosed real estate. The OTS may require the allowance for loan losses or the valuation allowance for foreclosed real estate to be increased based on its review of information available at the time of the examination, which would negatively affect our earnings. 53 The following table sets forth information with respect to our allowance for loan losses at the dates indicated:
For the Six Months For the Year Ended Ended June 30, December 31, ------------------ ------------------------------------------------- 2003 2002 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- -------- -------- (Dollars in thousands) Allowance balance (at beginning of period) .............. $ 2,231 $ 1,372 $ 1,372 $ 1,176 $ 995 $ 1,148 $ 1,041 -------- -------- -------- -------- -------- -------- -------- Charge-offs: One- to Four Family Residential(1) .................... - - - - - 35 - Non-Residential and Multi-Family Automobile ............................................ 626 50 280 61 101 27 141 Credit Card ........................................... 8 6 26 108 127 135 264 Other Consumer(2) ..................................... 139 70 128 248 267 329 902 -------- -------- -------- -------- -------- -------- -------- Total .............................................. 773 126 434 417 495 526 1,307 Recoveries: One- to Four-Family Residential ....................... - 3 3 2 1 5 - Non-Residential and Multi-Family ...................... - - - - - - - Automobile ............................................ 148 21 42 39 26 36 32 Credit Card ........................................... 10 11 27 49 25 25 14 Other Consumer(2) ..................................... 61 83 144 160 144 182 158 -------- -------- -------- -------- -------- -------- -------- Total .............................................. 219 118 216 250 196 248 204 -------- -------- -------- -------- -------- -------- -------- Net (charge-offs) recoveries ............................ (554) (8) (218) (167) (299) (278) (1,103) Acquisition of First Bank ............................... 823 - - - - - - Provision for loan losses ............................... 470 551 1,077 363 480 125 1,210 -------- -------- -------- -------- -------- -------- -------- Allowance balance (at end of period) .................... $ 2,970 $ 1,915 $ 2,231 $ 1,372 $ 1,176 $ 995 $ 1,148 ======== ======== ======== ======== ======== ======== ======== Total gross loans outstanding (at end of period) ... $379,105 $292,039 $321,569 $226,139 $190,451 $164,521 $134,771 ======== ======== ======== ======== ======== ======== ======== Allowance for loan losses as a percent of total loans outstanding .................................... 0.78% 0.66% 0.69% 0.61% 0.62% 0.60% 0.85% ======== ======== ======== ======== ======== ======== ======== Net loans charged off as a percent of average loans outstanding during the period .................. 0.15% 0.003% 0.07% 0.08% 0.17% 0.19% 0.87% ======== ======== ======== ======== ======== ======== ========
- --------------- (1) This category includes home equity loans. (2) This category consists of personal loans (unsecured) and savings secured loans. 54 Allocation of Allowance for Loan Losses. The following table sets forth the allocation of our allowance for loan losses by collateral and the percent of loans in each category to total loans receivable, net, at the dates indicated. Management determines the allocation of our allowance for loan losses based on its assessment of the risk characteristics of each loan category. The change in allocation of the allowance from period to period also reflects the relative balances of each loan category. The portion of the loan loss allowance allocated to each loan category does not represent the total available for losses which may occur within the loan category since the total loan loss allowance is a valuation reserve applicable to the entire loan portfolio. The allocation is subject to change as management's assessment of the risk characteristics of each loan category may change from time to time.
At June 30, At December 31, -------------- --------------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 1998 -------------- --------------- --------------- ------------- -------------- ---------------- Percent Percent Percent Percent Percent Percent of Loans of Loans of Loans of Loans of Loans of Loans to Total to Total to Total to Total to Total to Total Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans ------ ----- ------ ----- ------ ----- ----- ----- ---- ----- ------ ----- (Dollars in thousands) At end of period allocated to: One- to Four- Family Residential(1)....... $ 637 62.51% $ 517 68.54% $ 813 68.15% $ 409 67.65% $312 70.95% $ 293 68.07% Non-Residential and Multi-Family..... 328 10.67 256 9.43 105 6.09 8 0.12 - - - - Automobile............. 1,678 23.53 1,113 19.83 319 23.08 158 24.06 86 18.34 96 16.68 Commercial............. 69 2.23 9 0.77 - - - - - - - - Credit Card............ 3 0.03 - 0.04 - 0.01 268 3.66 216 4.41 198 6.01 Other Consumer(1)...... 255 1.03 336 1.39 135 2.67 333 4.51 381 6.30 561 9.24 ------ ------ ------ ------ ------ ------ ------ ------ ---- ------ ------ ------ Total allowance..... $2,970 100.00% $2,231 100.00% $1,372 100.00% $1,176 100.00% $995 100.00% $1,148 100.00% ====== ====== ====== ====== ====== ====== ====== ====== ==== ====== ====== ======
- ---------------- (1) This category includes home equity loans. (2) This category consists of personal loans (unsecured) and savings secured loans. 55 Investment Securities Portfolio General. Federally-chartered savings banks have the authority to invest in various types of liquid assets, including U.S. government and government agency obligations, securities of various federal agencies and government-sponsored entities (including securities collateralized by mortgages), certificates of deposits of insured banks and savings institutions, municipal securities and corporate debt securities. SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," requires that securities be categorized as "held-to-maturity," "trading securities" or "available-for-sale," based on management's intent as to the ultimate disposition of each security. SFAS No. 115 allows debt securities to be classified as "held-to-maturity" and reported in financial statements at amortized cost only if the reporting entity has the positive intent and ability to hold these securities to maturity. Securities that might be sold in response to changes in market interest rates, changes in the security's prepayment risk, increases in loan demand, or other similar factors cannot be classified as "held-to-maturity." We do not currently use or maintain a trading account. Investment securities not classified as "held to maturity" are classified as "available-for-sale." These securities are reported at fair value, and unrealized gains and losses on the securities are excluded from earnings and reported, net of deferred taxes, as a separate component of equity. On occasion, we sell available-for-sale securities based on the evaluation of price levels obtained through multiple dealers. Our analysis in selling available-for-sale securities includes tracking the Treasury yield curve through Bloomberg and tracking the price of similar securities offered through dealers' inventory listings using their individual web sites. All of our investment securities carry market risk insofar as increases in market rates of interest may cause a decrease in their market value. Investments in securities are made based on certain considerations, which include the interest rate, tax considerations, yield, asset/liability position and maturity of the security, our liquidity position, and anticipated cash needs and sources. The effect that the proposed security would have on our credit and interest rate risk and risk-based capital is also considered. We purchase securities to provide necessary liquidity for day-to-day operations, and when investable funds exceed loan demand. Our investment policy, which is established by the Board of Directors, is designed to foster earnings and liquidity within prudent interest rate risk guidelines, while complementing our lending activities. Generally, our investment policy is to invest funds in various categories of securities and maturities based upon our liquidity needs, asset/liability management policy, investment quality, marketability and performance objectives. The Asset/Liability Management Committee reviews the securities portfolio on a monthly basis. The results of the committee's monthly review are reported to the full Board at its regular monthly meeting. We do not participate in hedging programs, interest rate swaps, or other activities involving the use of off-balance-sheet derivative financial instruments. Further, we do not invest in investment securities that are not rated investment grade. Mortgage-backed Securities. Mortgage-backed securities represent a participation interest in a pool of one- to four-family or multi-family mortgages, although we focus primarily on mortgage-backed securities secured by one- to four-family mortgages. The mortgage originators use intermediaries (generally U.S. government agencies and government- sponsored enterprises) to pool and repackage the participation interests in the form of securities, with 56 investors such as us receiving the principal and interest payments on the mortgages. Such U.S. government agencies and government-sponsored entities guarantee the payment of principal and interest to investors. At June 30, 2003, all of our mortgage-backed securities were issued by either U.S. government agencies or government-sponsored entities. Mortgage-backed securities are typically issued with stated principal amounts, and the securities are backed by pools of mortgages that have loans with interest rates that are within a specific range and have varying maturities. The life of a mortgage-backed pass-through security thus approximates the life of the underlying mortgages. The characteristics of the underlying pool of mortgages, i.e., fixed-rate or adjustable-rate, as well as prepayment risk, are passed on to the certificate holder. Mortgage-backed securities are generally referred to as mortgage participation certificates or pass-through certificates. Our mortgage-backed securities consist primarily of securities issued by the Government National Mortgage Association ("GNMA" or "Ginnie Mae"), the Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac") and the Federal National Mortgage Association ("FNMA" or "Fannie Mae"). Mortgage- backed securities generally yield less than the mortgage loans underlying such securities because of their payment guarantees or credit enhancements which offer nominal credit risk to the security holder. Expected maturities will differ from contractual maturities due to scheduled repayments and because the mortgagor may have the right to prepay the obligation with or without prepayment penalties. Other Securities. In addition, at June 30, 2003 we held an investment of $3.8 million in FHLB of New York common stock (this amount is not shown in the securities portfolio). As a member of the FHLB of New York, ownership of FHLB of New York common shares is required. 57 The following table sets forth the carrying value of our investment securities portfolio at the dates indicated.
At June 30, At December 31, ----------- ------------------------------ 2003 2002 2001 2000 -------- -------- -------- -------- (In thousands) Investment Securities Available-for-Sale: - ----------------------------------------- U.S. Government Obligations ............ $ 3,563 $ - $ - $ 5,952 Mortgage-Backed Securities: FHLMC(1) ....................... 44,236 21,407 24,595 3,819 FNMA ........................... 63,335 40,886 19,299 13,398 GNMA ........................... - - - 2,806 Equity Securities ..................... 1,003 10 - - -------- -------- -------- -------- Total Available-for-Sale .......... 112,137 62,303 43,894 25,975 Investment Securities Held-to-Maturity: - --------------------------------------- Other Debt Securities ................. $ 10 $ - $ - $ - U.S. Government Obligations ........... - - - 2,491 Mortgage-Backed Securities: FHLMC(2) ....................... 5,403 3,249 - 821 FNMA ........................... 19,827 11,395 2,458 2,374 GNMA ........................... 10,259 2,763 4,695 6,564 -------- -------- -------- -------- Total Held-to-Maturity ................ 35,499 17,407 7,153 12,250 -------- -------- -------- -------- Total ........................... $147,636 $ 79,710 $ 51,047 $ 38,225 ======== ======== ======== ========
- -------------- (1) At June 30, 2003, includes $296,000 of agency-issued collateralized mortgage obligations. (2) At June 30, 2003, includes $387,000 of agency-issued collateralized mortgage obligations. 58 Carrying Values, Yields and Maturities. The following table sets forth certain information regarding the carrying values, weighted average yields and maturities of our investment securities portfolio at the dates indicated.
At June 30, 2003 -------------------------------------------------------------------------------------------------- Mor than One Year or Less One to Five Years Five to Ten Years Ten Years Total ---------------- ----------------- ----------------- ------------------- ----------------------- Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market Value Yield Value Yield Value Yield Value Yield Value Yield Value ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- (Dollars in thousands) Investment Securities Available-for-Sale: - ------------------- U.S. Government Obligations $ - -% $ 1,565 1.96% $1,998 3.11% $ - -% $ 3,563 2.61% $ 3,563 Mortgage-Backed Securities: FHLMC......................... 225 5.66 21,459 3.10 624 2.11 21,928 3.34 44,236 3.22 44,236 FNMA.......................... - - 1,034 4.01 10,484 4.60 51,817 3.36 63,335 3.58 63,335 GNMA.......................... - - - - - - - - - - - ----- ---- ------- ---- ------- ---- ------- ---- -------- ---- -------- Total Available-for-Sale(1).. 225 5.66 24,058 3.06 13,106 4.24 73,745 3.35 111,134 3.32 111,134 Investment Securities Held-to-Maturity: - ----------------- Mortgage-Backed Securities: FHLMC......................... - - 2,146 2.54 2,455 3.37 802 2.52 5,403 2.91 5,425 FNMA.......................... - - - - 7,849 3.70 11,978 3.98 19,827 3.87 20,093 GNMA.......................... - - - - 453 6.55 9,806 4.08 10,259 4.19 10,446 Other Debt Securities............ - - 10 2.25 - - - - 10 2.25 10 ----- ---- ------- ---- ------- ---- ------- ---- -------- ---- -------- Total Held-to-Maturity....... - - 2,156 2.54 10,757 3.74 22,586 3.97 35,499 3.82 35,974 ----- ---- ------- ---- ------- ---- ------- ---- -------- ---- -------- Total(1)........................... $ 225 5.66% $26,214 3.02% $23,863 4.02% $96,331 3.49% $146,633 3.44% $147,108 ===== ==== ======= ==== ======= ==== ======= ==== ======== ==== ========
- --------------- (1) Total securities available-for-sale excludes equity securities that do not have stated maturities with a carrying value of $1.0 million and an average yield of 3.71%. 59 Sources of Funds General. Deposits are our major source of funds for lending and other investment purposes. In addition, we derive funds from loan and investment securities principal repayments, and proceeds from the maturity, call and sale of investment securities. Loan and securities payments are a relatively stable source of funds, while deposit inflows are significantly influenced by general interest rates and money market conditions. Borrowings (principally from the FHLB) are also periodically used to supplement the amount of funds for lending and investment. Deposits. Our current deposit products include checking, savings, money market, club accounts, certificate of deposit accounts ranging in terms from three months to ten years, and individual retirement accounts ("IRAs"). Deposit account terms vary, primarily as to the required minimum balance amount, the amount of time that the funds must remain on deposit and the applicable interest rate. Deposits are obtained primarily from within New Jersey. Traditional methods of advertising are used to attract new customers and deposits, including print media, radio, direct mail and inserts included with customer statements. We do not utilize the services of deposit brokers. Premiums or incentives for opening accounts are generally not offered. Periodically we select a particular certificate of deposit term for promotion. We pay interest rates on certificates of deposits that are toward the high range of rates offered by our competitors. Rates on savings and money market accounts are generally priced toward the middle range of rates offered in our market. The determination of interest rates is based upon a number of factors, including: (1) our need for funds based on loan demand, current maturities of deposits and other cash flow needs; (2) a current survey of a selected group of competitors' rates for similar products; (3) our current cost of funds and yield on assets and asset/liability position; and (4) the alternate cost of funds on a wholesale basis, in particular the cost of advances from the FHLB. Interest rates are reviewed by senior management on at least a weekly basis. A significant percentage of our deposits are in certificates of deposit (57.9% at June 30, 2003). Our liquidity could be reduced if a significant amount of certificates of deposit, maturing within a short period of time, were not renewed. A significant portion of the certificates of deposit remain with us after they mature and we believe that this will continue. However, the need to retain these time deposits could result in an increase in our cost of funds. 60 The following tables set forth the distribution of the average deposits in Synergy Bank for the periods indicated and the weighted average nominal interest rates for each period on each category of deposits presented.
For the Six Months Ended June 30, ----------------------------------------------------------------------------- 2003 2002 ----------------------------------- ------------------------------------- Percent Percent Average of Total Average Average of Total Average Balance Deposits Rate Paid Balance Deposits Rate Paid ------- -------- --------- ------- -------- --------- (Dollars in thousands) Money market accounts....................... $59,238 14.23% 1.35% $ 43,790 15.69% 1.75% Savings and club accounts................... 71,639 17.21 0.97 62,052 22.24 1.19 Certificates of deposit and other time deposit accounts..................... 238,857 57.40 3.09 138,617 49.67 3.60 Non-interest-bearing checking accounts(1)... 46,435 11.16 0.23 34,611 12.40 - -------- ------ ---- -------- ------ ---- Total deposits.......................... $416,169 100.00% 1.80% $279,070 100.00% 2.05% ======== ====== ==== ======== ====== ====
For the Year Ended December 31, ---------------------------------------------------------------------------------------- 2002 2001 2000 ----------------------------- ---------------------------- ---------------------------- Percent Percent Percent Average of Total Average Average of Total Average Average of Total Average Balance Deposits Rate Paid Balance Deposits Rate Paid Balance Deposits Rate Paid ------- -------- --------- ------- -------- --------- ------- -------- --------- (Dollars in thousands) Money market accounts...................... $ 44,966 14.78% 1.74% $ 36,325 16.51% 2.86% $ 34,305 19.15% 3.30% Savings and club accounts.................. 62,310 20.47 1.23 53,527 24.33 1.82 52,117 29.10 2.10 Certificates of deposit and other time deposit accounts.............. 160,305 52.68 3.60 101,594 46.18 5.37 65,598 36.62 5.49 Non-interest-bearing checking accounts(1).. 36,743 12.07 - 28,561 12.98 - 27,104 15.13 - -------- ------ ---- -------- ------ ---- -------- ------ ---- Total deposits......................... $304,324 100.00% 1.90% $220,007 100.00% 2.92% $179,124 100.00% 2.62% ======== ====== ==== ======== ====== ==== ======== ====== ====
- --------------- (1) On March 28, 2003, Synergy Bank converted interest-earning checking accounts acquired from First Bank into non-interest-bearing checking accounts. 61 The following table sets forth the time deposits in Synergy Bank classified by interest rate as of the dates indicated. At June 30, At December 31, ----------- ------------------------------------- 2003 2002 2001 2000 -------- -------- -------- ------- (In thousands) Interest Rate Less than 2%........... $ 35,857 $ 177 $ - $ - 2.00-2.99%............. 97,969 52,621 11,816 95 3.00-3.99%............. 99,104 120,057 26,303 832 4.00-4.99%............. 18,298 22,787 51,783 5,436 5.00-5.99%............. 4,750 5,907 25,626 45,182 6.00-6.99%............. 577 672 5,414 23,019 7.00-7.99%............. - 99 96 425 -------- -------- -------- ------- Total................ $256,555 $202,320 $121,038 $74,989 ======== ======== ======== ======= The following table sets forth the amount and maturities of time deposits at June 30, 2003.
After June 30, June 30, June 30, June 30, June 30, Interest Rate 2004 2005 2006 2007 2007 Total -------- ------- ------- ------ ------- -------- Less than 2%....... $ 33,483 $ 2,374 $ - $ - $ - $ 35,857 2.00-2.99%......... 50,402 43,196 4,371 - - 97,969 3.00-3.99%......... 73,764 18,352 4,618 - 2,370 99,104 4.00-4.99%......... 9,558 5,738 896 1,212 894 18,298 5.00-5.99%......... 3,488 326 515 384 37 4,750 6.00-6.99%......... 255 218 104 - - 577 -------- ------- ------- ------ ------ -------- Total............ $170,950 $70,204 $10,504 $1,596 $3,301 $256,555 ======== ======= ======= ====== ====== ========
The following table shows the amount of our certificates of deposit of $100,000 or more by time remaining until maturity as of June 30, 2003. Certificates Remaining Time Until Maturity of Deposits - ----------------------------- ----------- (In thousands) Within three months................................... $13,795 Three through six months.............................. 10,867 Six through twelve months............................. 8,913 Over twelve months.................................... 19,699 ------- $53,274 ======= Borrowings. As the need arises or in order to take advantage of funding opportunities or to supplement our deposits as a source of funds, we borrow funds in the form of advances from the FHLB to supplement our supply of lendable funds and to meet deposit withdrawal requirements. Advances from the FHLB are typically secured by the FHLB stock we own and a portion of our residential mortgage loans and may be secured by other assets, mainly securities which are obligations of or guaranteed by the U.S. government. We use convertible FHLB advances for a portion of our funding needs. These borrowings 62 are fixed rate advances that can be called at the option of the FHLB. At June 30, 2003, our borrowing limit with the Federal Home Loan Bank of New York was $104.4 million, consisting of an overnight line of credit of $17.2 million, an adjustable rate line of credit of $17.2 million and a regular advance limit of $69.0 million. Subsequent to June 30, 2003, the limit was increased to $156.2 million, consisting of an overnight line of credit of $26.0 million, an adjustable rate line of credit of $26.0 million and a regular advance limit of $104.2 million. Short-term FHLB advances generally have maturities of less than one year. The details of these advances are presented below:
At or for the Six Months Year Ended December 31, Ended ---------------------------------------- June 30, 2003 2002 2001 2000 ------------- ---- ---- ---- (Dollars in thousands) FHLB Advances: Average balance outstanding................... $21,526 $ 7,053 $ - $ 4,173 Maximum amount outstanding at any month-end during the period.......... $47,140 $19,225 $ - $11,200 Balance outstanding at period end............. $47,140 $ 2,500 $ - $ - Weighted average interest rate during the period................................. 1.33% 1.98% -% 6.69% Weighted average interest rate at period end................................. 1.21% 1.35% -% -%
At June 30, 2003, long-term FHLB advances totaled $28,062. Advances consist of fixed-rate advances that will mature within one to eight 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 4.28%. Unused overnight lines of credit at the FHLB at June 30, 2003 were $0. As of June 30, 2003, long-term advances mature as follows: (Dollars in thousands) 2004............................. $ 8,000 2005............................. 6,062 2006............................. 3,000 2007............................. 2,000 2008............................. - Thereafter....................... 9,000 ------- Total..................... $28,062 ======= Subsidiary Activity In addition to Synergy Bank, Synergy Financial Group, Inc. has one service corporation subsidiary, Synergy Financial Services, Inc., which was incorporated under New Jersey law in June 1997 and began operation in May 1998. It was organized for the purpose of providing securities brokerage, insurance and investment services and products, including mutual funds and annuities, to customers of Synergy Bank and the general public. Synergy Bank has entered into an agreement with INVEST Financial Corporation of 63 Tampa, Florida, one of the nation's largest full-service providers of investment and insurance products through financial institutions. At June 30, 2003, Synergy Financial Services, Inc. had total assets of $177,000. For the year ended December 31, 2002, it had commission income of $249,000, however, it reported a net operating loss of $34,000. In November 2002, Synergy Bank incorporated a wholly-owned subsidiary, Synergy Capital Investments, Inc., under New Jersey law, as an investment company primarily to hold investment securities. At June 30, 2003, Synergy Capital Investments, Inc. had total assets of $148.9 million. Personnel As of June 30, 2003, we had 116 full-time employees and 61 part-time employees. The employees are not represented by a collective bargaining unit. We believe our relationship with our employees is satisfactory. Properties and Equipment Our main office is located at 310 North Avenue East, Cranford, New Jersey. At June 30, 2003, we had eighteen locations, including our main office. All of our branch offices are located in Middlesex, Monmouth, Morris and Union counties, New Jersey. All data-processing is performed internally. The following table sets forth the location of our main office and branch offices, the year the offices were opened, the net book value of each office and per branch deposits at each office.
Net Book Branch Office Location Year Facility Leased or Value at Deposits at - --------------- Opened Owned June 30, 2003 June 30, 2003 ------ ----- ------------- ------------- Main Office 310 North Avenue East 1991 Owned $2,501,000 $104,512,000(1) Cranford, New Jersey Branch Offices: 2000 Galloping Hill Road 1989 Leased(2) - $ 25,740,000 Building K-6 Kenilworth, New Jersey - 2000 Galloping Hill Road 1978 Leased(2) $ 9,273,000 Building K-2 Kenilworth, New Jersey 1011 Morris Avenue 1952 Leased(2) - $ 12,658,000 Union, New Jersey One Giralda Farms 1983 Leased(2) - $ 4,450,000 Madison, New Jersey 1095 Morris Avenue 1993 Leased(2) - $ 5,195,000 Union, New Jersey 2000 Galloping Hill Road 1993 Leased(2) - $ 30,488,000 Building K-15 Kenilworth, New Jersey 15 Market Street 1998 Leased(3) $681,000 $ 61,495,000 Kenilworth, New Jersey 64 Net Book Branch Office Location Year Facility Leased or Value at Deposits at - --------------- Opened Owned June 30, 2003 June 30, 2003 ------ ----- ------------- ------------- 315 Central Avenue 1999 Leased(4) $382,000 $ 55,709,000 Clark, New Jersey 225 North Wood Avenue 2001 Leased(5) $159,000 $ 21,167,000 Linden, New Jersey 1162 Green Street 2002 Owned $1,954,000 $ 18,903,000 Iselin, New Jersey 168-170 Main Street 2002 Owned $2,578,000 $ 16,133,000 Matawan, New Jersey 473 Route 79 2002 Owned $1,890,000 $ 11,974,000 Morganville, New Jersey 101 Barkalow Avenue 2002 Owned(6) $2,164,000 $ 9,722,000 Freehold, New Jersey 1887 Morris Avenue 2002 Owned $2,060,000 $ 6,303,000 Union, New Jersey Renaissance Plaza 2002 Leased(7) $1,229,000 $ 4,014,000 3665 Route 9 North Old Bridge, New Jersey 1727 Route 130 South 1997 Leased(8) $ 22,000 $ 33,671,000 North Brunswick, New Jersey 337 Applegarth Road 2000 Leased(9) $ 13,000 $ 12,008,000 Monroe Township, New Jersey
- ------------------ (1) Includes deposit balances through our automated services and Call Center. (2) Branch is located within a corporate facility of Synergy Bank's former credit union sponsor. Synergy Bank makes no rent payments for such branch. These branch locations are occupied pursuant to a written agreement that provides for two-year terms that are automatically renewed upon expiration unless written notice of termination is given by either party. (3) Lease term of fifteen years to expire in 2013. Terms provide for four five-year renewal options. (4) Lease term of ten years to expire in 2009. Terms provide for one ten-year renewal option. (5) Lease term of five years to expire in 2005. Terms provide for one five-year renewal option. (6) Synergy Bank leases space in the building to three tenants. (7) Lease term of twenty years to expire in 2022. Terms provide for two ten-year renewal options. (8) Branch in the acquisition of First Bank in January 2003. Lease term renewed in 2002 and expires in 2007. Synergy Bank subleases space in the building to one subtenant. (9) Branch in the acquisition of First Bank in January 2003. Lease term renewed in 2002 and expires in 2003. Terms provide for three five-year renewal options. Legal Proceedings Synergy Financial Group, Inc. and its subsidiaries, from time to time, are 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 Synergy Bank holds security interests, claims involving the making and servicing of real property loans, and other issues incident to the business of Synergy Bank. There were no lawsuits pending or known to be contemplated against us at June 30, 2003 that would have a material effect on our operations or income. 65 REGULATION Set forth below is a brief description of certain laws that relate to the regulation of Synergy Bank and Synergy Financial Group, Inc. The description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations. Synergy Bank and Synergy Financial Group, Inc. operate in a highly regulated industry. This regulation and supervision establishes a comprehensive framework of activities in which a federal savings bank may engage and is intended primarily for the protection of the deposit insurance fund and depositors. Any change in applicable statutory and regulatory requirements, whether by the OTS, the FDIC or the United States Congress, could have a material adverse impact on the operations of Synergy Financial Group, Inc. and Synergy Bank. The adoption of regulations or the enactment of laws that restrict the operations of Synergy Bank and/or Synergy Financial Group, Inc. or impose burdensome requirements upon one or both of them could reduce their profitability and could impair the value of Synergy Bank's franchise which could hurt the trading price of Synergy Financial Group, Inc. common stock. Regulation of Synergy Bank General. As a federally-chartered, SAIF-insured savings bank, Synergy Bank is subject to extensive regulation by the OTS and the FDIC. This regulatory structure gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies regarding the classification of assets and the level of the allowance for loan losses. The activities of federal savings banks are subject to extensive regulation including restrictions or requirements with respect to loans to one borrower, the percentage of non-mortgage loans or investments to total assets, capital distributions, permissible investments and lending activities, liquidity management, transactions with affiliates and community reinvestment. Federal savings banks are also subject to reserve requirements of the Federal Reserve System. A federal savings bank's relationship with its depositors and borrowers is regulated by both state and federal law, especially in such matters as the ownership of savings accounts and the form and content of the bank's mortgage documents. Synergy Bank must file regular reports with the OTS and the FDIC concerning its activities and financial condition, and must obtain regulatory approvals prior to entering into certain transactions such as mergers with or acquisitions of other financial institutions. The OTS regularly examines Synergy Bank and prepares reports to Synergy Bank's Board of Directors on deficiencies, if any, found in its operations. Insurance of Deposit Accounts. The FDIC administers two separate deposit insurance funds. Generally, the Bank Insurance Fund ("BIF") insures the deposits of commercial banks and the Savings Association Insurance Fund ("SAIF") insures the deposits of savings institutions. The FDIC is authorized to increase deposit insurance premiums if it determines such increases are appropriate to maintain the reserves of either the BIF or SAIF or to fund the administration of the FDIC. In addition, the FDIC is authorized to levy emergency special assessments on BIF and SAIF members. The assessment rate for most savings institutions, including Synergy Bank, is currently 0%. In addition, all FDIC-insured institutions are required to pay assessments to the FDIC at an annual rate of approximately .0212% of insured deposits to fund interest payments on bonds issued by the Financing Corporation ("FICO"), an agency of the Federal government established to recapitalize the predecessor to the SAIF. These assessments will continue until the FICO bonds mature in 2017. 66 Regulatory Capital Requirements. OTS capital regulations require savings institutions to meet three capital standards: (1) tangible capital equal to 1.5% of total adjusted assets, (2) "Tier 1" or "core" capital equal to at least 4% (3% if the institution has received the highest possible rating on its most recent examination) of total adjusted assets, and (3) risk-based capital equal to 8% of total risk-weighted assets. For Synergy Bank's compliance with these regulatory capital standards, see Historical and Pro Forma Capital Compliance at page __. In addition, the OTS may require that a savings institution that has a risk-based capital ratio of less than 8%, a ratio of Tier 1 capital to risk-weighted assets of less than 4% or a ratio of Tier 1 capital to total adjusted assets of less than 4% (3% if the institution has received the highest rating on its most recent examination) take certain action to increase its capital ratios. If the savings institution's capital is significantly below the minimum required levels of capital or if it is unsuccessful in increasing its capital ratios, the OTS may restrict its activities. For purposes of the OTS capital regulations, tangible capital is defined as core capital less all intangible assets except for certain mortgage servicing rights. Tier 1 or core capital is defined as common stockholders' equity, non-cumulative perpetual preferred stock and related surplus, minority interests in the equity accounts of consolidated subsidiaries, and certain non-withdrawable accounts and pledged deposits of mutual savings banks. Synergy Bank does not have any non-withdrawable accounts or pledged deposits. Tier 1 and core capital are reduced by an institution's intangible assets, with limited exceptions for certain mortgage and non-mortgage servicing rights and purchased credit card relationships. Both core and tangible capital are further reduced by an amount equal to the savings institution's debt and equity investments in "non-includable" subsidiaries engaged in activities not permissible to national banks other than subsidiaries engaged in activities undertaken as agent for customers or in mortgage banking activities and subsidiary depository institutions or their holding companies. The risk-based capital standard for savings institutions requires the maintenance of total capital of 8% of risk-weighted assets. Total capital equals the sum of core and supplementary capital. The components of supplementary capital include, among other items, cumulative perpetual preferred stock, perpetual subordinated debt, mandatory convertible subordinated debt, intermediate-term preferred stock, the portion of the allowance for loan losses not designated for specific loan losses and up to 45% of unrealized gains on equity securities. The portion of the allowance for loan and lease losses includable in supplementary capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is limited to 100% of core capital. For purposes of determining total capital, a savings institution's assets are reduced by the amount of capital instruments held by other depository institutions pursuant to reciprocal arrangements and by the amount of the institution's equity investments (other than those deducted from core and tangible capital) and its high loan-to-value ratio land loans and non-residential construction loans. A savings institution's risk-based capital requirement is measured against risk-weighted assets, which equal the sum of each on-balance-sheet asset and the credit-equivalent amount of each off-balance- sheet item after being multiplied by an assigned risk weight. These risk weights range from 0% for cash to 100% for delinquent loans, property acquired through foreclosure, commercial loans, and other assets. OTS rules require a deduction from capital for savings institutions with certain levels of interest rate risk. The OTS calculates the sensitivity of an institution's net portfolio value based on data submitted by the institution in a schedule to its quarterly Thrift Financial Report and using the interest rate risk measurement model adopted by the OTS. The amount of the interest rate risk component, if any, deducted from an institution's total capital is based on the institution's Thrift Financial Report filed two quarters 67 earlier. The OTS has indefinitely postponed implementation of the interest rate risk component, and Synergy Bank has not been required to determine whether it will be required to deduct an interest rate risk component from capital. Prompt Corrective Regulatory Action. Under the OTS Prompt Corrective Action regulations, the OTS is required to take supervisory actions against undercapitalized institutions, the severity of which depends upon the institution's level of capital. Generally, a savings institution that has total risk-based capital of less than 8.0%, or a leverage ratio or a Tier 1 core capital ratio that is less than 4.0%, is considered to be undercapitalized. A savings institution that has total risk-based capital less than 6.0%, a Tier 1 core risk-based capital ratio of less than 3.0% or a leverage ratio that is less than 3.0% is considered to be "significantly undercapitalized." A savings institution that has a tangible capital to assets ratio equal to or less than 2.0% is deemed to be "critically undercapitalized." Generally, the banking regulator is required to appoint a receiver or conservator for an institution that is "critically undercapitalized." The regulation also provides that a capital restoration plan must be filed with the OTS within forty-five days of the date an institution receives notice that it is "undercapitalized," "significantly undercapitalized" or "critically undercapitalized." In addition, numerous mandatory supervisory actions become immediately applicable to the institution, including, but not limited to, restrictions on growth, investment activities, capital distributions, and affiliate transactions. The OTS may also take any one of a number of discretionary supervisory actions against undercapitalized institutions, including the issuance of a capital directive and the replacement of senior executive officers and directors. Dividend and Other Capital Distribution Limitations. The OTS imposes various restrictions or requirements on the ability of savings institutions to make capital distributions, including cash dividends. A savings institution that is a subsidiary of a savings and loan holding company, such as Synergy Bank, must file an application or a notice with the OTS at least thirty days before making a capital distribution. A savings institution must file an application for prior approval of a capital distribution if: (i) it is not eligible for expedited treatment under the applications processing rules of the OTS; (ii) the total amount of all capital distributions, including the proposed capital distribution, for the applicable calendar year would exceed an amount equal to the savings bank's net income for that year to date plus the institution's retained net income for the preceding two years; (iii) it would not adequately be capitalized after the capital distribution; or (iv) the distribution would violate an agreement with the OTS or applicable regulations. Synergy Bank is required to file a capital distribution notice or application with the OTS before paying any dividend to Synergy Financial Group, Inc. However, capital distributions by Synergy Financial Group, Inc., as a savings and loan holding company, are not subject to the OTS capital distribution rules. The OTS may disapprove a notice or deny an application for a capital distribution if: (i) the savings institution would be undercapitalized following the capital distribution; (ii) the proposed capital distribution raises safety and soundness concerns; or (iii) the capital distribution would violate a prohibition contained in any statute, regulation or agreement. In addition, a federal savings institution cannot distribute regulatory capital that is required for its liquidation account. See The Conversion - Liquidation Account at page __. Qualified Thrift Lender Test. Federal savings institutions must meet a qualified thrift lender ("QTL") test or they become subject to the business activity restrictions and branching rules applicable to national banks. To qualify as a QTL, a savings institution must either (i) be deemed a "domestic building and loan association" under the Internal Revenue Code by maintaining at least 60% of its total assets in 68 specified types of assets, including cash, certain government securities, loans secured by and other assets related to residential real property, educational loans and investments in premises of the institution or (ii) satisfy the statutory QTL test set forth in the Home Owners' Loan Act by maintaining at least 65% of its "portfolio assets" in certain "Qualified Thrift Investments" (defined to include residential mortgages and related equity investments, certain mortgage-related securities, small business loans, student loans and credit card loans, and 50% of certain community development loans). For purposes of the statutory QTL test, portfolio assets are defined as total assets minus intangible assets, property used by the institution in conducting its business, and liquid assets equal to 20% of total assets. A savings institution must maintain its status as a QTL on a monthly basis in at least nine out of every twelve months. Synergy Bank met the QTL test as of June 30, 2003 and in each of the last twelve months and, therefore, qualifies as a QTL. Transactions with Affiliates. Generally, federal banking law requires that transactions between a savings institution or its subsidiaries and its affiliates must be on terms as favorable to the savings institution as comparable transactions with non-affiliates. In addition, certain types of these transactions are restricted to an aggregate percentage of the savings institution's capital. Collateral in specified amounts must usually be provided by affiliates in order to receive loans from the savings institution. In addition, a savings institution may not extend credit to any affiliate engaged in activities not permissible for a bank holding company or acquire the securities of any affiliate that is not a subsidiary. The OTS has the discretion to treat subsidiaries of savings institutions as affiliates on a case-by-case basis. Community Reinvestment Act. Under the Community Reinvestment Act ("CRA"), every insured depository institution, including Synergy Bank, has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community. The CRA requires the OTS to assess the depository institution's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution, such as a merger or the establishment of a branch office by Synergy Bank. An unsatisfactory CRA examination rating may be used as the basis for the denial of an application by the OTS. Federal Home Loan Bank System. Synergy Bank is a member of the FHLB of New York, which is one of twelve regional FHLBs. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from funds deposited by financial institutions and proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans to members pursuant to policies and procedures established by the board of directors of the FHLB. As a member, Synergy Bank is required to purchase and maintain stock in the FHLB of New York in an amount equal to the greater of 1% of our aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year or 5% of FHLB advances. We are in compliance with this requirement. The FHLB imposes various limitations on advances such as limiting the amount of certain types of real estate related collateral to 30% of a member's capital and limiting total advances to a member. The FHLBs are required to provide funds for the resolution of troubled savings institutions and to contribute to affordable housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have adversely affected the level of FHLB dividends paid and could continue to do so in the future. 69 Federal Reserve System. The Federal Reserve System requires all depository institutions to maintain non-interest-bearing reserves at specified levels against their checking accounts and non-personal certificate accounts. The balances maintained to meet the reserve requirements imposed by the Federal Reserve System may be used to satisfy the OTS liquidity requirements. Savings institutions have authority to borrow from the Federal Reserve System "discount window," but Federal Reserve System policy generally requires savings institutions to exhaust all other sources before borrowing from the Federal Reserve System. Regulation of Synergy Financial Group, Inc. General. Upon completion of the conversion, Synergy Financial Group, Inc., the newly-formed New Jersey corporation, will be a federal savings and loan holding company, subject to regulation and supervision by the OTS. In addition, the OTS has enforcement authority over Synergy Financial Group, Inc. and any non-savings institution subsidiaries. This permits the OTS to restrict or prohibit activities that it determines to be a serious risk to Synergy Bank. This regulation is intended primarily for the protection of the depositors and not for the benefit of stockholders of Synergy Financial Group, Inc. Activities Restrictions. As a savings and loan holding company formed after May 4, 1999, Synergy Financial Group, Inc. is not a grandfathered unitary savings and loan holding company under the Gramm-Leach-Bliley Act (the "GLB Act"). As a result, Synergy Financial Group, Inc. and its non-savings institution subsidiaries are subject to statutory and regulatory restrictions on their business activities. Under the Home Owners' Loan Act, as amended by the GLB Act, the non-banking activities of Synergy Financial Group, Inc. are restricted to certain activities specified by OTS regulation, which include performing services and holding properties used by a savings institution subsidiary, activities authorized for savings and loan holding companies as of March 5, 1987, and non-banking activities permissible for bank holding companies pursuant to the Bank Holding Company Act of 1956 (the "BHC Act") or authorized for financial holding companies pursuant to the GLB Act. Furthermore, no company may acquire control of Synergy Bank unless the acquiring company was a unitary savings and loan holding company on May 4, 1999 (or became a unitary savings and loan holding company pursuant to an application pending as of that date) or the company is only engaged in activities that are permitted for multiple savings and loan holding companies or for financial holding companies under the BHC Act as amended by the GLB Act. Mergers and Acquisitions. Synergy Financial Group, Inc. must obtain approval from the OTS before acquiring more than 5% of the voting stock of another savings institution or savings and loan holding company or acquiring such an institution or holding company by merger, consolidation or purchase of its assets. In evaluating an application for Synergy Financial Group, Inc. to acquire control of a savings institution, the OTS would consider the financial and managerial resources and future prospects of Synergy Financial Group, Inc. and the target institution, the effect of the acquisition on the risk to the insurance funds, the convenience and the needs of the community and competitive factors. The USA Patriot Act. In response to the events of September 11, 2001, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, or the USA Patriot Act, was signed into law on October 26, 2001. The USA Patriot Act gives the federal government new powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. By way of amendments to the Bank Secrecy Act, Title III of the USA Patriot Act takes measures intended to encourage information sharing among bank regulatory agencies and law enforcement bodies. Further, certain provisions of Title III impose affirmative obligations on a broad 70 range of financial institutions, including banks, thrifts, brokers, dealers, credit unions, money transfer agents and parties registered under the Commodity Exchange Act. Among other requirements, Title III of the USA Patriot Act imposes the following requirements with respect to financial institutions: o Pursuant to Section 352, all financial institutions must establish anti-money laundering programs that include, at minimum: (i) internal policies, procedures, and controls; (ii) specific designation of an anti-money laundering compliance officer; (iii) ongoing employee training programs; and (iv) an independent audit function to test the anti-money laundering program. o Section 326 authorizes the Secretary of the Department of Treasury, in conjunction with other bank regulators, to issue regulations by October 26, 2002 that provide for minimum standards with respect to customer identification at the time new accounts are opened. o Section 312 requires financial institutions that establish, maintain, administer, or manage private banking accounts or correspondence accounts in the United States for non-United States persons or their representatives (including foreign individuals visiting the United States) to establish appropriate, specific, and, where necessary, enhanced due diligence policies, procedures, and controls designed to detect and report money laundering. o Effective December 25, 2001, financial institutions are prohibited from establishing, maintaining, administering or managing correspondent accounts for foreign shell banks (foreign banks that do not have a physical presence in any country), and will be subject to certain record keeping obligations with respect to correspondent accounts of foreign banks. o Bank regulators are directed to consider a holding company's effectiveness in combating money laundering when ruling on Federal Reserve Act and Bank Merger Act applications. The federal banking agencies have begun to propose and implement regulations pursuant to the USA Patriot Act. These proposed and interim regulations would require financial institutions to adopt the policies and procedures contemplated by the USA Patriot Act. Sarbanes-Oxley Act of 2002. On July 30, 2002, the President signed into law the Sarbanes-Oxley Act of 2002 (the "Act"), which implemented legislative reforms intended to address corporate and accounting fraud. In addition to the establishment of a new accounting oversight board that will enforce auditing, quality control and independence standards and will be funded by fees from all publicly traded companies, the Act places certain restrictions on the scope of services that may be provided by accounting firms to their public company audit clients. Any non-audit services being provided to a public company audit client will require preapproval by the company's audit committee. In addition, the Act makes certain changes to the requirements for partner rotation after a period of time. The Act requires chief executive officers and chief financial officers, or their equivalent, to certify to the accuracy of periodic reports filed with the Securities and Exchange Commission, subject to civil and criminal penalties if they knowingly or willingly violate this certification requirement. In addition, under the Act, counsel will be required to report evidence of a material violation of the securities laws or a breach of fiduciary duty by a company to its chief executive officer or its chief legal officer, and, if such officer does not appropriately respond, to report such evidence to the audit committee or other similar committee of the board of directors or the board itself. 71 Under the Act, longer prison terms will apply to corporate executives who violate federal securities laws; the period during which certain types of suits can be brought against a company or its officers is extended; and bonuses issued to top executives prior to restatement of a company's financial statements are now subject to disgorgement if such restatement was due to corporate misconduct. Executives are also prohibited from insider trading during retirement plan "blackout" periods, and loans to company executives (other than loans by financial institutions permitted by federal rules and regulations) are restricted. In addition, a provision directs that civil penalties levied by the Securities and Exchange Commission as a result of any judicial or administrative action under the Act be deposited to a fund for the benefit of harmed investors. The Federal Accounts for Investor Restitution provision also requires the Securities and Exchange Commission to develop methods of improving collection rates. The legislation accelerates the time frame for disclosures by public companies, as they must immediately disclose any material changes in their financial condition or operations. Directors and executive officers must also provide information for most changes in ownership in a company's securities within two business days of the change. The Act also increases the oversight of, and codifies certain requirements relating to audit committees of public companies and how they interact with the company's "registered public accounting firm." Audit Committee members must be independent and are absolutely barred from accepting consulting, advisory or other compensatory fees from the issuer. In addition, companies must disclose whether at least one member of the committee is a "financial expert" (as such term will be defined by the Securities and Exchange Commission) and if not, why not. Under the Act, a company's registered public accounting firm will be prohibited from performing statutorily mandated audit services for a company if such company's chief executive officer, chief financial officer, comptroller, chief accounting officer or any person serving in equivalent positions had been employed by such firm and participated in the audit of such company during the one-year period preceding the audit initiation date. The Act also prohibits any officer or director of a company or any other person acting under their direction from taking any action to fraudulently influence, coerce, manipulate or mislead any independent accountant engaged in the audit of the company's financial statements for the purpose of rendering the financial statements materially misleading. The Act also requires the Securities and Exchange Commission to prescribe rules requiring inclusion of any internal control report and assessment by management in the annual report to shareholders. The Act requires the company's registered public accounting firm that issues the audit report to attest to and report on management's assessment of the company's internal controls. We anticipate that we will incur additional expense in complying with the provisions of the Sarbanes-Oxley Act and the resulting regulations. TAXATION Federal Taxation Savings institutions are subject to the Internal Revenue Code of 1986, as amended (the "Code"), in the same general manner as other corporations. All thrift institutions are now subject to the same provisions as banks with respect to deductions for bad debts. Thrift institutions that are treated as "small banks" (the average adjusted bases for all assets of such institution equals $500 million or less) under the Code may account for bad debts by using the experience method for determining additions to their bad debt reserve. Thrift institutions that are not treated as small banks must now use the specific charge-off method. 72 Synergy Financial Group, Inc. may exclude from its income 100% of dividends received from Synergy Bank as a member of the same affiliated group of corporations. A 70% dividends received deduction generally applies with respect to dividends received from corporations that are not members of such affiliated group. Synergy Financial Group, Inc.'s and Synergy Bank's federal income tax returns have not been audited by the IRS during the past five years. State Taxation Synergy Financial Group, Inc. and its subsidiaries file New Jersey income tax returns and are subject to a state income tax that is calculated based on federal taxable income, subject to certain adjustments. In July 2002, New Jersey eliminated the 3% tax rate formerly applicable to thrift institutions located in New Jersey, and such institutions are now subject to the 9% tax rate applicable to New Jersey corporations. Such change was retroactive to January 1, 2002. Our state tax rate has been reduced by holding investment securities in Synergy Capital Investments, Inc., a wholly-owned subsidiary of Synergy Bank, formed in November 2002. The state income tax returns of Synergy Financial Group, Inc. and its subsidiaries have not been audited during the past five years. MANAGEMENT Directors and Executive Officers of Synergy Financial Group, Inc. Synergy Financial Group, Inc.'s Board of Directors is composed of nine members each of whom serves for a term of three years. Synergy Financial Group, Inc.'s certificate of incorporation requires that directors be divided into three classes, as nearly equal in number as possible, with approximately one-third of the directors elected each year. Synergy Financial Group, Inc.'s executive officers are appointed annually by the Board and serve at the Board's discretion. The following table sets forth information with respect to the directors and executive officers of Synergy Financial Group, Inc.
Age at Current June 30, Director Term Name 2003 Position Since(1) Expires - ---- ---- -------- -------- ------- Kenneth S. Kasper 48 Chairman of the Board 1993 2005 Nancy A. Davis 63 Director 1977 2006 Magdalena M. De Perez 53 Director 2001 2005 John S. Fiore 45 President, Chief Executive Officer 2000 2006 and Director David H. Gibbons, Jr. 33 Director 2001 2004 Paul T. LaCorte 50 Director 2001 2004 George Putvinski 54 Director 1993 2005 W. Phillip Scott 51 Director 1996 2006 Albert N. Stender 58 Director 1999 2004 73 Age at Current June 30, Director Term Name 2003 Position Since(1) Expires - ---- ---- -------- -------- ------- Kevin M. McCloskey 45 Senior Vice President and Chief N/A N/A Operating Officer Kevin A. Wenthen 49 Senior Vice President, Chief N/A N/A Administrative Officer and Secretary Ralph A. Fernandez 38 Vice President and Chief Financial N/A N/A Officer
- ---------------- (1) Indicates the year the individual first became a director of Synergy Bank or Synergy Financial Group, Inc. Following the completion of Synergy Bank's mutual holding company reorganization and the formation of Synergy Financial Group, Inc. in 2001, each director of Synergy Bank automatically became a director of Synergy Financial Group, Inc. The business experience of each of our directors and executive officers is set forth below. Each has held his or her present position for at least the past five years, except as otherwise indicated. Kenneth S. Kasper has served as chairman of the Board of Directors of Synergy Financial Group, Inc. since its formation in 2001. He has been a director of Synergy Bank since 1993, and has served as chairman of the Board of Directors of Synergy Bank since 1998. Mr. Kasper is a compliance director of corporate EHST audits for Schering-Plough Corporation, a pharmaceutical research and manufacturing company, a position he has held since 1991. Prior to that time, Mr. Kasper served as senior counsel for Schering-Plough. Mr. Kasper is also actively involved in civic activities, serving as chairman for the Chester Borough Board of Adjustment, chair-elect of the Board of Environmental Health & Safety Auditor Certifications ("BEAC") and a director of the Council of Engineering and Scientific Specialty Boards. Nancy A. Davis has served on the Board of Directors of Synergy Financial Group, Inc. since its formation in 2001 and Synergy Bank since 1977. Ms. Davis retired from Schering-Plough Corporation in 2002. She was employed by Schering-Plough since 1965, most recently as a senior legal assistant. Magdalena M. De Perez has served on the Board of Directors of Synergy Financial Group, Inc. and Synergy Bank since 2001. Ms. De Perez is a vice president of investments for Prudential Securities, a division of Wachovia Securities, LLC. She has worked in the financial services industry since 1983 and acts as a financial advisor to several community service organizations in Union County. John S. Fiore has been the president and chief executive officer of Synergy Financial Group, Inc. since its formation in 2001 and has served as president and chief executive officer of Synergy Bank since 1995. He also serves as a member of both Boards of Directors. He has been employed by Synergy Bank since 1989. Mr. Fiore also serves as chairman of the Board of Directors of Synergy Financial Services, Inc., a wholly-owned subsidiary of Synergy Financial Group, Inc. David H. Gibbons, Jr. has served on the Board of Directors of Synergy Financial Group, Inc. and Synergy Bank since 2001. Mr. Gibbons is the executive vice president and general counsel of David O. Evans, Inc. and Gibbons Realty Group, Inc., the operating companies for the affiliate commercial real estate holding companies known as Vestal Development Co., Elberon Development Co., Pitney Partners, L.P., and Portview Properties, LLC. Since 1999, Mr. Gibbons has been a salesperson with Kay Realty Services, LLC, a real estate brokerage company. Mr. Gibbons is also active in the community and serves as a trustee for Trinitas Hospital, as a director of the YMCA of Eastern Union County, the Union County Alliance and Elizabeth Chamber of Commerce, and is a past chairman of the Board of Directors of 74 Elizabeth Development Co. In addition, Mr. Gibbons serves as a trustee for the National Association of Office and Industrial Properties, a commercial real estate trade and lobbying organization. Paul T. LaCorte has served on the Board of Directors of Synergy Financial Group, Inc. and Synergy Bank since 2001. Mr. LaCorte is currently the president of Hamilton Holding Company and V & F, Inc., and a partner with Ditullio and LaCorte Associates, LLC, all of which are real estate management service companies. He is currently a member and former chairman of the Cranford Downtown Management Corporation and the Union County Economic Development Corporation. He is also a member and former president of the Cranford Chamber of Commerce. George Putvinski has served on the Board of Directors of Synergy Financial Group, Inc. since its formation in 2001 and Synergy Bank since 1993. Mr. Putvinski is employed as the director of global planning and reporting - technical operations for Schering-Plough Corporation. He has been employed by Schering-Plough Corporation since 1979. W. Phillip Scott has served on the Board of Directors of Synergy Financial Group, Inc. since its formation in 2001 and Synergy Bank since 1996. Mr. Scott is employed as the manager of sales accounting and logistics finance for Schering-Plough Corporation. He has been employed by Schering- Plough Corporation since 1980. Mr. Scott is a certified public accountant. Albert N. Stender has served on the Board of Directors of Synergy Financial Group, Inc. since its formation in 2001 and Synergy Bank since 1999. Mr. Stender is a partner with the law firm of Stender & Hernandez where he has practiced law since 1985. He is also a partner in Mid-October Company. Mr. Stender serves as a director of the Cranford Chamber of Commerce, is municipal attorney for the Township of Cranford and prosecutor for the boroughs of Kenilworth and Roselle Park. Kevin M. McCloskey has served as senior vice president and chief operating officer since 2000. Prior to that time, Mr. McCloskey was the vice president and chief operating officer for Lakeview Savings Bank. Mr. McCloskey is a board member and treasurer of the YMCA of Eastern Union County, a member of the Board of Trustees for Union County Economic Development Corporation and is a trustee of the Trinitas Health Foundation. Kevin A. Wenthen has served as senior vice president and chief administrative officer since 1996 and as secretary since 2002. Mr. Wenthen is also president and chief executive officer of Synergy Financial Services, Inc., a wholly-owned subsidiary of Synergy Financial Group, Inc. Ralph A. Fernandez has served as vice president and chief financial officer for Synergy Financial Group, Inc. and Synergy Bank since 2000 and was vice president of finance for Synergy Bank from 1999. Prior to that time, Mr. Fernandez was a regional executive policy committee member, a senior examiner and a senior analyst for the Office of Thrift Supervision. Meetings and Committees of the Board of Directors The Board of Directors conducts its business through meetings of the Board and through activities of its committees. During the year ended December 31, 2002, the Board of Directors met thirteen times, including regularly scheduled meetings and special meetings. No director attended fewer than 75% of the total meetings of the Board of Directors and committees on which he or she served during the year ended December 31, 2002. The Board maintains an Audit Committee, as well as an Executive Committee and 75 Compensation Committee, an Asset and Liability Management and Budget Committee and a Nominating Committee. The Audit Committee consists of Directors Gibbons (Chair), Davis, Kasper, LaCorte and Putvinski. Director Putvinski serves as the Audit Committee financial expert. All members of the Audit Committee are independent under the rules of the Nasdaq Stock Market. This committee typically meets every other month with the internal auditor and periodically as needed with the external auditors. Its main responsibilities include oversight of the internal and external auditors and monitoring of management and staff compliance with the Board's audit policies, and applicable laws and regulations. During the year ended December 31, 2002, this committee met eight times. The Executive Committee consists of Directors Kasper (Chair), De Perez, Fiore, Gibbons and Scott. This committee serves as an interim decision-making body to address matters that arise between regularly scheduled meetings of the full Board. This committee also makes recommendations to the Board of Directors on corporate governance matters and exercises supervision of major agenda items for and periodic reports presented at full Board meetings. During the year ended December 31, 2002, this committee met two times. The Compensation Committee consists of Directors Kasper (Chair), De Perez, Gibbons, Scott and Stender. The responsibilities of this committee include appraisal of the chief executive officer's performance, administration of management incentive compensation plans and review of the directors' compensation. During the year ended December 31, 2002, this committee met two times. The Asset and Liability Management and Budget Committee consists of Directors Scott (Chair), De Perez, Fiore, LaCorte and Stender. This committee oversees Synergy Bank's investments, loans, other assets and its liabilities, primarily its sources of funds, for the purpose of maintaining profitable spreads between the cost of liabilities and the yield on assets consistent with prudent risk. This committee meets monthly with management to review investment policies, 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. The results of each monthly meeting are presented to the full Board. In addition, this 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 at the regular November meeting. During the year ended December 31, 2002, this committee met eleven times. The Nominating Committee consists of Directors De Perez (Chair), Davis, Kasper, Putvinski and Scott. This committee recommends candidates for election to the Board of Directors. During the year ended December 31, 2002, this committee met one time. Director Compensation Board Fees. Directors of Synergy Financial Group, Inc. and Synergy, MHC do not receive compensation. Each director of the Bank is paid a fee of $1,000 per Board meeting and $300 per committee meeting for each such meeting attended. The Chairman receives an additional annual fee of $3,000. The total compensation paid to the directors for the year ended December 31, 2002, including profit sharing, was $144,650. Directors who also serve as employees of Synergy Bank do not receive compensation as directors. Other Director Compensation. During the 2003 fiscal year, Synergy Financial Group, Inc. adopted the 2003 Stock Option Plan and the 2003 Restricted Stock Plan. Each non-employee director of 76 Synergy Financial Group, Inc. was awarded options to purchase shares of common stock under the option plan and shares of common stock under the restricted stock plan. The number of options and the exercise price will be adjusted in accordance with the exchange ratio in connection with the conversion. The restricted stock awards will also be adjusted for the exchange ratio in connection with the conversion. Additionally, Synergy Financial Group, Inc. has adopted the 2003 Stock Bonus Plan, pursuant to which each non-employee director of Synergy Financial Group, Inc. has been awarded additional shares of common stock, subject to stockholder ratification at a special meeting of stockholders to be held in December 2003 prior to completion of the conversion. See 2003 Stock Awards at page __ for details related to such stock plans. Executive Compensation Summary Compensation Table. The following table sets forth the cash and non-cash compensation awarded to or earned by our president and chief executive officer and certain other executive officers for the years ended December 31, 2002, 2001, and 2000. No other officer received a total annual salary and bonus in excess of $100,000 during the reporting period. Awards to these officers under the 2003 Restricted Stock Plan and the 2003 Stock Option Plan in April 2003 are not shown in the following table. Annual Compensation(1) ---------------------- Fiscal All Other Name and Principal Position Year Salary Bonus Compensation - --------------------------- ---- ------ ----- ------------ John S. Fiore, 2002 $204,120 $205,140 $56,831(2) President and Chief 2001 189,000 68,040 49,333 Executive Officer 2000 175,000 94,500 44,969 Kevin M. McCloskey, 2002 $130,000 $124,150 $26,745(3) Senior Vice President and 2001 122,000 37,820 6,288 Chief Operating Officer 2000 115,000 42,263 - Kevin A. Wenthen, 2002 $125,000 $119,375 $25,790(4) Senior Vice President and 2001 115,000 35,650 11,443 Chief Administrative Officer 2000 103,000 49,870 9,904 Ralph A. Fernandez, 2002 $95,000 $90,725 $19,609(5) Vice President and Chief 2001 88,000 27,280 8,760 Financial Officer 2000 80,000 39,200 6,077 - --------------- (1) All compensation set forth in the table was paid by the Bank (2) For 2002, includes the Bank's accrual of $8,306 under the individual's Phantom Stock Plan, which was terminated in 2002 and replaced with a Deferred Compensation Plan, under which the Bank's accrual for 2002 totaled $4,718. The Deferred Compensation Plan was terminated upon adoption of the 2003 Stock Option Plan in April 2003. For 2002, also includes the Bank's contribution under the individual's Supplemental Executive Retirement Plan of $22,188, the Bank's contribution to the individual's account under a 401(k) Plan of $16,951, and the award of 263 shares under the ESOP as of December 31, 2002, based on the last reported sales price of the Common Stock on the OTC Electronic Bulletin Board on December 31, 2002 of $17.75 per share. (3) For 2002, includes the Bank's contribution under the individual's Supplemental Executive Retirement Plan of $13,000, the Bank's contribution to the individual's account under a 401(k) Plan of $10,710, and the award of 171 shares under the ESOP as of December 31, 2002, based on the last reported sales price of the Common Stock on the OTC Electronic Bulletin Board on December 31, 2002 of $17.75 per share. (4) For 2002, includes the Bank's contribution under the individual's Supplemental Executive Retirement Plan of $12,500, the Bank's contribution to the individual's account under a 401(k) Plan of $10,379, and the award of 164 shares under the ESOP as of December 31, 2002, based on the last reported sales price of the Common Stock on the OTC Electronic Bulletin Board on December 31, 2002 of $17.75 per share. 77 (5) For 2002, includes contribution to the individual's account under the Bank's Supplemental Executive Retirement Plan of $9,500, the Bank's contribution to the individual's account under a 401(k) Plan of $7,890, and the award of 125 shares under the ESOP as of December 31, 2002, based on the last reported sales price of the Common Stock on the OTC Electronic Bulletin Board on December 31, 2002 of $17.75 per share. Employment Agreements. Synergy Bank has entered into an employment agreement with Mr. Fiore. Mr. Fiore's base salary under the employment agreement for the year ended December 31, 2002 was $204,120. Mr. Fiore's employment agreement has a term of three years and may be terminated by Synergy Bank for "cause" as defined in the agreement. If Synergy Bank terminates Mr. Fiore's employment without just cause, he will be entitled to a continuation of his salary from the date of termination through the remaining term of the agreement. The employment agreement contains a provision stating that after Mr. Fiore's employment is terminated in connection with any change in control, he will be paid a lump sum amount equal to 2.99 times the sum of his base salary and the highest rate of bonus awarded to him during the three years prior to such termination. If payment had been made under the agreement as of December 31, 2002, the payments would have equaled $724,483. In addition, the Board has entered into Change in Control Severance Agreements with Officers McCloskey, Wenthen and Fernandez. Under such agreements, if their employment is terminated within eighteen months of a change in control of Synergy Bank, such individuals would receive severance benefits equal to three times their average annual compensation. At December 31, 2002, such payments would have equaled $435,429, $393,672 and $300,742, respectively, upon termination following a change in control. All payments to be made under these agreements shall be reduced as may be necessary so that such payments will not exceed the tax deductible limits under Section 280G of the Code. Supplemental Executive Retirement Plan. Synergy Bank has adopted a Supplemental Executive Retirement Plan ("SERP" or "Plan") for the benefit of John S. Fiore, president and chief executive officer. Annually, the Bank accrues an expense of 11% of his salary including projected increases through his retirement at age 60, plus projected earnings on prior year accruals at the rate of 7% per annum. Such accruals are projected to furnish Mr. Fiore with an annual pension benefit upon retirement at age 60 of $102,366 per year for a period of fifteen years. In addition, on January 1, 2002, Synergy Bank implemented a SERP for the benefit of executive officers McCloskey, Wenthen and Fernandez. In accordance with the Plan for Messrs. McCloskey, Wenthen and Fernandez, an annual accrual equal to 10% of each participant's base salary will be credited to the Plan reserve. The accumulated deferred compensation account for each participant will be payable to such participant at anytime following termination of employment after three years following Plan implementation, the death or disability of the participant, or termination of employment following a change in control of Synergy Bank whereby Synergy Bank or Synergy Financial Group, Inc. is not the resulting entity. 401(k) Savings Plan Synergy Financial Group, Inc. sponsors a tax-qualified defined contribution savings plan ("401(k) Plan") for the benefit of its employees and employees of its subsidiaries. Employees become eligible to participate under the 401(k) Plan on the first day of any calendar quarter following the completion of twelve months of service. Under the 401(k) Plan, employees may voluntarily elect to defer between 1% and 15% of compensation, not to exceed applicable limits under the Code. In calendar year 2002, an employee could defer up to the lower of $11,000 or 15% of his or her salary. In addition, the 401(k) Plan provides for matching contributions up to a maximum of 5% of such person's salary for each participant under the 401(k) Plan. Employee contributions are immediately fully vested under the 401(k) Plan and matching contributions are vested at a rate of 20% per year and completely vested after five years of service. Participants under the 401(k) Plan may direct Plan assets to be invested in company stock. 78 It is intended that the 401(k) Plan will operate in compliance with the provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the requirements of Section 401(a) of the Code. Contributions to the 401(k) Plan for employees may be reduced in the future or eliminated as a result of contributions made to the Employee Stock Ownership Plan. See Management - Potential Stock Benefit Plans - Employee Stock Ownership Plan at page __. Employee Stock Ownership Plan Synergy Financial Group, Inc. has previously established an employee stock ownership plan for the exclusive benefit of participating employees of Synergy Financial Group, Inc. and its subsidiaries. We intend to continue this plan after the conversion. Participating employees are employees who have completed one year of service and have attained the age of 21. An application for a letter of determination as to the tax-qualified status of the employee stock ownership plan has been received by the IRS. The employee stock ownership plan is funded by contributions made by Synergy Financial Group, Inc. in cash or common stock. Benefits may be paid either in shares of the common stock or in cash. In addition to the common stock previously acquired by the plan with funds borrowed by Synergy Financial Group, Inc., with an outstanding loan balance of $1,067,000 as of June 30, 2003, we intend for the plan trust to borrow additional funds with which to acquire up to 8% of the common stock to be issued in the offering. The employee stock ownership plan intends to borrow such funds for such new stock purchase and to refinance the existing plan trust debt from Synergy Financial Group, Inc. The loan is expected to be for a term of ten years at an annual interest rate equal to the prime rate as published in The Wall Street Journal. Presently it is anticipated that the employee stock ownership plan will purchase up to 8% of the common stock to be issued in the offering. The loan will be secured by the shares purchased and earnings of employee stock ownership plan assets. Shares purchased with loan proceeds will be held in a suspense account for allocation among participants as the loan is repaid. It is anticipated that all contributions will be tax-deductible. This loan is expected to be fully repaid in approximately ten years. Contributions to the employee stock ownership plan and shares released from the suspense account will be allocated among participants on the basis of total compensation. All participants must be employed at least 1,000 hours in a plan year, or have terminated employment following death, disability or retirement, in order to receive an allocation. Participant benefits become fully vested in plan allocations following five years of service. Employment before the adoption of the employee stock ownership plan shall be credited for the purposes of vesting. Contributions to the employee stock ownership plan by Synergy Financial Group, Inc. and its subsidiaries are discretionary and may cause a reduction in other forms of compensation, including our 401(k) Plan. As a result, benefits payable under this plan cannot be estimated. The Board of Directors appointed all non-employee directors to serve as ESOP Trustees and appointed John S. Fiore, president and chief executive officer, Kevin A. Wenthen, senior vice president, and Janice L. Ritz, a vice president of the Bank, as members of the ESOP Plan Committee. The ESOP Plan Committee directs the vote of all unallocated shares and shares allocated to participants if timely voting directions are not received for such shares. 2003 Stock Awards Directors and officers were awarded options to purchase shares of common stock on April 22, 2003, the date of stockholder approval of the Synergy Financial Group, Inc. 2003 Stock Option Plan, at an exercise price of $20.80, equal to the fair market value of the Common Stock on that date. Each 79 non-employee director was awarded 6,215 options. President and Chief Executive Officer Fiore was awarded 41,026 options. Officers McCloskey, Wenthen and Fernandez were each awarded 20,000 options. These options are first exercisable at a rate of 20% one year after the date of grant and 20% annually thereafter during such period of service as an employee, director or director emeritus. Upon disability, death, or a change in control, such awards become 100% exercisable. The number of options and the exercise price will be adjusted in accordance with the exchange ratio in connection with the conversion. Directors and officers were awarded shares of restricted stock on April 22, 2003, the date of stockholder approval of the Synergy Financial Group, Inc. 2003 Restricted Stock Plan. Each non-employee director was awarded 2,125 shares of restricted stock. President and Chief Executive Officer Fiore was awarded 14,110 shares of restricted stock. Officers McCloskey, Wenthen and Fernandez were each awarded 6,400 shares of restricted stock. Restricted stock awards are earned at the rate of 20% one year after the date of grant and 20% annually thereafter during periods of service as an employee, director or director emeritus. All awards become immediately 100% vested upon death or disability or termination of service following a change in control. The restricted stock awards will be adjusted for the exchange ratio in connection with the conversion. The 2003 Restricted Stock Plan intends to continue to make stock purchases in the open market from time to time to fund such plan after the completion of this offering. Further, directors and officers have been awarded additional shares of stock under the Synergy Financial Group, Inc. 2003 Stock Bonus Plan, which has been adopted by the Board subject to stockholder ratification and approval or non-objection by the OTS. Such plan authorizes the award of up to 9,613 shares of common stock to directors and officers of Synergy Financial Group, Inc. and its subsidiaries. In April 2003, stockholders of Synergy Financial Group, Inc. approved the Synergy Financial Group, Inc. 2003 Restricted Stock Plan which authorized the award of up to 66,298 shares of common stock to directors and officers of Synergy Financial Group, Inc. and its subsidiaries. Regulations of the OTS related to stock benefit plans implemented within one year of Synergy Financial Group, Inc.'s initial public stock offering completed in September 2002, limited the number of shares issuable under the 2003 Restricted Stock Plan to 56,685 shares of common stock. Therefore, Synergy Financial Group, Inc. adopted the 2003 Stock Bonus Plan in order to award the additional 9,613 shares of common stock previously approved by the stockholders. The plan and the awards are subject to ratification by the stockholders of Synergy Financial Group, Inc. at a special meeting of stockholders to be held in December 2003 prior to completion of the conversion. Awards under the 2003 Stock Bonus Plan are anticipated to include:
NEW PLAN BENEFITS 2003 STOCK BONUS PLAN --------------------- Number of Shares Name and Position Dollar Value ($)(1) Granted (2) - ----------------- ------------------- ----------- John S. Fiore, President 2,308 and Chief Executive Officer Kevin M. McCloskey, Senior Vice President 1,100 and Chief Operating Officer Kevin A. Wenthen, Senior Vice President 1,100 and Chief Administrative Officer Ralph A. Fernandez, Vice President 1,100 and Chief Financial Officer Kenneth S. Kasper, Director 360 80 NEW PLAN BENEFITS 2003 STOCK BONUS PLAN --------------------- Number of Shares Name and Position Dollar Value ($)(1) Granted (2) - ----------------- ------------------- ----------- Nancy A. Davis, Director 360 Magdalena M. De Perez, Director 360 David H. Gibbons, Jr., Director 360 Paul T. LaCorte, Director 360 George Putvinski, Director 360 W. Phillip Scott, Director 360 Albert N. Stender, Director 360 Executive Officer Group (4 persons) 5,600 Non-employee Director Group (8 persons) 2,888 Non-executive Officer Group (10 persons) 1,125
- -------------------- (1) These values are based on the last reported sales price of the Synergy Financial Group, Inc. common stock on the OTC Electronic Bulletin Board on November __, 2003, which was $_____ per share. The exact dollar value of the common stock granted will equal the market price of the common stock on the date of vesting of such awards. Accordingly, the exact dollar value is not presently determinable. (2) Such awards shall be earned at the rate of 20% on April 22, 2004 and 20% annually thereafter and shall become immediately 100% vested upon death or disability or termination of service following a change in control. Awards shall continue to vest during periods of service as an employee, director, or director emeritus. These awards will be adjusted for the exchange ratio in connection with the conversion. Equity Compensation Plan Information. Set forth below is information as of June 30, 2003 with respect to compensation plans under which equity securities of Synergy Financial Group, Inc. are authorized for issuance.
(a) (b) (c) Number of securities Number of securities Weighted-average remaining available to be issued upon exercise price of for future issuance under exercise of outstanding equity compensation plans outstanding options, options, warrants (excluding securities warrants and rights and rights reflected in column (a)) ------------------- ---------- ------------------------ Equity compensation plans approved by shareholders (1) Synergy Financial Group, Inc. 2003 Stock Option Plan...................... 165,742 $20.80 - Synergy Financial Group, Inc. 2003 Restricted Stock Plan.................. 56,685 0.00 - Equity compensation plans not approved by shareholders (2) - - - ------- ------ ---- TOTAL................................ 222,431 $15.50 - ======= ====== ====
- --------------- (1) Plans approved by shareholders as of June 30, 2003 include the 2003 Stock Option Plan and the 2003 Restricted Stock Plan. Awards under the 2003 Stock Bonus Plan are not included in the table. (2) Not Applicable. 81 Potential Stock Benefit Plans Stock Option Plan. We intend to adopt a new stock option plan for the benefit of directors and officers following the passage of at least one year from the completion of the conversion. We may, however, decide to adopt the stock option plan sooner than one year following the conversion, but in no event will the plan be adopted sooner than six months subsequent to the completion of the conversion. If the stock option plan is implemented within one year of the completion of the conversion, it will comply with the OTS regulations related to such plans, including limitations on vesting and allocation of awards. Any plan adopted within one year of the completion of the conversion will be subject to stockholder approval at a meeting of stockholders held no sooner than six months subsequent to the completion of the conversion. Such stock option plan may reserve an amount of common stock equal to up to 10% of the shares of common stock sold in the offering for awards under such plan. No determinations have been made as to the time of implementation of such stock option plan, the specific terms of such plan or any allocation of awards that may be made under such plan. The purpose of the stock option plan will be to attract and retain qualified personnel in key positions, provide officers and directors with a proprietary interest in Synergy Financial Group, Inc. as an incentive to contribute to our success and reward directors and officers for outstanding performance. Although the terms of the stock option plan have not yet been determined, it is expected that the stock option plan will provide for the grant of: (1) options to purchase the common stock intended to qualify as incentive stock options under the Code (incentive stock options); and (2) options that do not so qualify (non-statutory stock options). Any stock option plan would be in effect for up to ten years from the earlier of adoption by the Board of Directors or approval by the stockholders. Options would expire no later than 10 years from the date granted and would expire earlier if the option committee so determines or in the event of termination of employment. Options would be granted based upon several factors, including length of service, job duties and responsibilities and job performance. Restricted Stock Plan. We also intend to establish a new restricted stock plan to provide our directors and officers with an additional proprietary interest in Synergy Financial Group, Inc. We intend to adopt the restricted stock plan after the passage of at least one year from the completion of the conversion. We may, however, decide to adopt the restricted stock plan sooner than one year following the conversion, but in no event will the plan be adopted sooner than six months subsequent to the completion of the conversion. If the restricted stock plan is implemented within one year of the completion of the conversion, it will comply with the Office of Thrift Supervision regulations related to such plans, including limitations on vesting and allocation of awards. Any plan adopted within one year of the completion of the conversion will be subject to stockholder approval at a meeting of stockholders held no sooner than six months subsequent to the completion of the conversion. The restricted stock plan is expected to provide for the award of common stock, subject to vesting restrictions, to eligible directors and officers. We expect to contribute funds to the restricted stock plan to acquire, in the aggregate, up to 4% of the shares of common stock sold in the offering, provided, however, that, pursuant to the regulations of the OTS, the plan will be limited to up to 3% if such plan is established within one year of the conversion and if Synergy Bank does not have in excess of 10% tangible capital following the conversion. Shares used to fund the restricted stock plan may be acquired through open market purchases or provided from authorized but unissued shares. No determinations have been made as to the specific terms of the restricted stock plan or any allocation of awards that may be made under such plan. 82 Transactions with Management and Others Synergy Bank makes loans to its officers, directors and employees in the ordinary course of business and on substantially the same terms and conditions as those of comparable transactions prevailing at the time with other persons, other than a 1% discount on the interest rate paid on loans other than first mortgages while the person remains an employee, and do not include more than the normal risk of collectibility or present other unfavorable features. As of June 30, 2003, all of these loans were current. No discounts are offered to directors. Security Ownership of Certain Beneficial Owners and Management The following table sets forth, as of October __, 2003, the ownership of Synergy, MHC, the ownership of Synergy Financial Group, Inc.'s employee stock ownership plan and the ownership of all executive officers and directors of Synergy Financial Group, Inc., individually and as a group. Other than as set forth in the table, management knows of no person or group that owns more than 5% of the outstanding shares of common stock at October __, 2003. Information regarding the planned purchases of common stock in the stock offering by directors and executive officers of Synergy Financial Group, Inc. (including in each case all "associates" of the directors and executive officers) is set forth under Proposed Stock Purchases by Management at page __. The business address of each owner shown below is 310 North Avenue East, Cranford, New Jersey 07016.
Name and Address Percent of Shares of of Beneficial Owner Number of Shares(1)(2) Common Stock Outstanding - ------------------- ---------------------- ------------------------ Synergy, MHC 1,889,502 56.5% Synergy Financial Group, Inc. Bank Employee Stock Ownership Plan Trust (the "ESOP") 116,380(3) 3.5% Kenneth S. Kasper Nancy A. Davis Magdalena M. De Perez John S. Fiore David H. Gibbons, Jr. Paul T. LaCorte George Putvinski W. Phillip Scott Albert N. Stender Kevin McCloskey Kevin A. Wenthen Ralph A. Fernandez All directors and executive officers as a group (12 persons)
- ---------------------- (1) Includes shares of common stock held directly as well as by spouses or minor children, in trust and other indirect ownership. Excludes 115,657 shares held by the ESOP (116,380 shares less 723 shares allocated to executive officers). (2) Does not include shares underlying options and shares of restricted stock. Such option shares and restricted stock do not become exercisable or vested within 60 days of October __, 2003. See 2003 Stock Awards at page _. (3) These shares are held in a suspense account and are allocated among participants annually on the basis of compensation as the ESOP debt is repaid. As of October __, 2003, 3,879 shares have been allocated to ESOP participants. The Board of Directors appointed all non-employee directors to serve as ESOP Trustees and appointed John S. Fiore, president and 83 chief executive officer, Kevin A. Wenthen, senior vice president, and Janice L. Ritz, a vice president of the Bank, as members of the ESOP Plan Committee. The ESOP Plan Committee directs the vote of all unallocated shares and shares allocated to participants if timely voting directions are not received for such shares. Proposed Stock Purchases by Management The table below sets forth, for each of our directors and executive officers the following information: (1) the number of exchange shares to be held upon consummation of the conversion, based upon their beneficial ownership of Synergy Financial Group, Inc. common stock as of October __, 2003; (2) the proposed purchases of subscription shares, assuming sufficient shares are available to satisfy their subscriptions; and (3) the total amount of our common stock to be held upon consummation of the conversion. In each case, it is assumed that 4,096,683 shares are sold. Because of limitations on the purchase of subscription shares, directors and executive officers may be precluded from purchasing subscription shares if the offering is sold at the maximum or the maximum, as adjusted, of the offering range. See The Offering - Limitations on Common Stock Purchases at page __. The table does not take into account any stock benefit plans to be adopted following the stock offering. See Management - Potential Stock Benefit Plans at page __.
Proposed Purchases of Total Common Stock Conversion Stock(1) Held ------------------- ----------------------- Number of Exchange Number Number Shares to be of of Name Held(2) Shares Amount($) Shares % of Total(3) ---- ------- ------ --------- ------ ------------- Kenneth S. Kasper 2,500 25,000 Nancy A. Davis 1,000 10,000 Magdalena M. De Perez 2,500 25,000 John S. Fiore(4) - - David H. Gibbons, Jr. 5,000 50,000 Paul T. LaCorte 5,000 50,000 George Putvinski 2,500 25,000 W. Phillip Scott 2,500 25,000 Albert N. Stender 7,000 70,000 Kevin McCloskey(4) - - Kevin A. Wenthen 1,000 10,000 Ralph A. Fernandez 1,000 10,000 -------- ------ ------- ------ ------ Total 30,000 300,000 ======== ====== ======= ====== ======
- ----------------- (1) Includes proposed subscriptions, if any, by associates. Does not include the subscription order by the employee stock ownership plan. Purchases by the employee stock ownership plan are expected to be 8% of the shares sold in the offering. 84 (2) Does not include shares underlying options and shares of restricted stock. Such option shares and restricted stock do not become exercisable or vested within 60 days of October __, 2003. See 2003 Stock Awards at page _. (3) Less than 1.0% of the shares outstanding. (4) Such individuals will not be eligible to purchase additional stock in this offering due to the purchase limitations and the number of shares held by such individuals prior to the conversion. See The Offering - Limitations on Purchases of Common Stock at page __. THE CONVERSION The Board of Directors adopted the plan authorizing the conversion on July 26, 2003, subject to the approval of the OTS, members of Synergy, MHC, stockholders of Synergy Financial Group, Inc. and the satisfaction of certain other conditions. We received authorization from the OTS to conduct the conversion on November __, 2003. OTS authorization does not constitute a recommendation or endorsement of an investment in our stock by the OTS. General On July 26, 2003, the Board of Directors adopted the plan of conversion and reorganization, which was subsequently amended. In accordance with the plan, Synergy, MHC will convert from a mutual holding company to a full stock corporation. Public stockholders currently own 43.5% of Synergy Financial Group, Inc. and the remaining 56.5% is owned by Synergy, MHC. Upon consummation of the conversion, Synergy, MHC will cease to exist. The stock held by the public stockholders of Synergy Financial Group, Inc. will be converted into shares of a newly-formed New Jersey corporation, also named Synergy Financial Group, Inc. After the conversion, Synergy Bank and Synergy Financial Services, Inc. will be wholly-owned subsidiaries of the New Jersey corporation. Share Exchange Ratio OTS regulations provide that in a conversion of a mutual holding company to stock form, the minority stockholders of Synergy Financial Group, Inc. will be entitled to exchange their shares of common stock for common stock of the converted holding company, provided that the bank and the mutual holding company demonstrate to the satisfaction of the OTS that the basis for the exchange is fair and reasonable. Each publicly-held share of Synergy Financial Group, Inc. common stock will, on the date of completion of the conversion, be automatically converted into and become the right to receive a number of exchange shares determined pursuant to the exchange ratio. The public stockholders of Synergy Financial Group, Inc. common stock will own the same percentage of our common stock after the conversion as they hold in Synergy Financial Group, Inc., subject to additional purchases, or the receipt of cash in lieu of fractional shares. The total number of shares held by the public stockholders of Synergy Financial Group, Inc. common stock after the conversion will also be affected by any purchases by these persons in the offering. Based on the independent valuation, the 56.5% of the outstanding shares of Synergy Financial Group, Inc. common stock held by Synergy, MHC as of the date of the independent valuation and the 43.5% public ownership interest of Synergy Financial Group, Inc., the following table sets forth, at the minimum, mid-point, maximum, and adjusted maximum of the offering range: o the total number of subscription shares and exchange shares to be issued in the conversion; o the total shares of common stock outstanding after the conversion; 85 o the exchange ratio; and o the number of shares an owner of Synergy Financial Group, Inc. will receive in the exchange, adjusted for the number of shares sold in the offering.
100 Shares of Shares of the New Synergy Financial Synergy Financial Group, Inc. Would be Group, Inc. to be Exchanged for the Exchanged for Total Shares Following Number of Existing Shares of of Common Shares of the New Shares to be Sold Synergy Financial Stock to be Exchange Synergy Financial in the Offering Group, Inc. Outstanding Ratio Group, Inc. --------------- ----------- ----------- ----- ----------- Amount Percent Amount Percent ------ ------- ------ ------- Minimum................. 3,482,123 56.5% 2,680,377 43.5% 6,162,500 1.8425% 184 Midpoint................ 4,096,683 56.5 3,153,317 43.5 7,250,000 2.1676 216 Maximum................. 4,711,099 56.5 3,626,401 43.5 8,337,500 2.4925 249 Adjusted maximum........ 5,417,793 56.5 4,170,332 43.5 9,588,125 2.8667 286
Options to purchase shares of Synergy Financial Group, Inc. common stock will be converted into options to purchase our shares of common stock. Additionally, restricted stock awards of Synergy Financial Group, Inc. will also be converted into restricted shares of our common stock. At June 30, 2003 there were outstanding options to purchase 165,746 shares of Synergy Financial Group, Inc. common stock and there were 56,685 restricted stock awards of Synergy Financial Group, Inc. common stock outstanding, not including awards of restricted stock under the 2003 Stock Bonus Plan that are subject to stockholder ratification. The number of shares of common stock to be received upon exercise of these options will be determined pursuant to the exchange ratio. The aggregate exercise price, duration, and vesting schedule of these options and restricted stock awards will not be affected. Effect of the Conversion on Minority Stockholders Effect on Stockholders' Equity Per Share of the Shares Exchanged. The conversion will increase the stockholders' equity of the public stockholders of Synergy Financial Group, Inc. common stock. At June 30, 2003, the stockholders' equity per share of Synergy Financial Group, Inc. common stock was $11.84, including shares held by Synergy, MHC. Based on the pro forma information set forth for June 30, 2003, under Pro Forma Data at page __, pro forma stockholders' equity per share following the conversion will be $11.19, $10.26, $9.57, and $8.97, respectively, at the minimum, midpoint, maximum and adjusted maximum, respectively, of the offering range. Effect on Earnings per Share of the Shares Exchanged. The conversion will also affect the public stockholders of Synergy Financial Group, Inc. common stock pro forma earnings per share. For the six months ended June 30, 2003, basic and diluted earnings per share of Synergy Financial Group, Inc. common stock was $0.48, including shares held by Synergy, MHC. Based on the pro forma information set forth for the six months ended June 30, 2003 under Pro Forma Data at page __, earnings per share of common stock following the conversion will range from $0.27 to $0.18 for the minimum to the adjusted maximum of the offering range. Dissenters' and Appraisal Rights. Under OTS regulations, dissenters' rights of appraisal are available to holders of common stock in connection with the conversion and reorganization. 86 Effects of the Conversion on Depositors, Borrowers and Members General. Each depositor in Synergy Bank has both a deposit account in Synergy Bank and a pro rata ownership interest in the net worth of Synergy, MHC based upon the balance in his or her account. This interest may only be realized in the event of a liquidation of Synergy, MHC and Synergy Bank. However, this ownership interest is tied to the depositor's account and has no tangible market value separate from the deposit account. Any depositor who opens a deposit account obtains a pro rata ownership interest in Synergy, MHC without any additional payment beyond the amount of the deposit. A depositor who reduces or closes his account receives a portion or all of the balance in the account, but nothing for his ownership interest in the net worth of Synergy, MHC, which is lost to the extent that the balance in the account is reduced or closed. Consequently, depositors in a stock subsidiary of a mutual holding company normally have no way of realizing the value of their ownership interest, which has realizable value only in the unlikely event that Synergy, MHC and Synergy Bank are liquidated. If this occurs, the depositors of record at that time, as owners, would share pro rata in any residual surplus and reserves of Synergy, MHC after other claims, including claims of depositors to the amounts of their deposits, are paid. When a mutual holding company converts to stock form, permanent nonwithdrawable capital stock is created in the stock holding company to represent the ownership of the subsidiary institution's net worth. The common stock is separate and apart from deposit accounts and cannot be and is not insured by the FDIC or any other governmental agency. Certificates are issued to evidence ownership of the capital stock. The stock certificates are transferable and, therefore, the stock may be sold or traded if a purchaser is available with no effect on any account the seller may hold in Synergy Bank. Continuity. The stock offering will not have any effect on Synergy Bank's present business of accepting deposits and investing its funds in loans and other investments permitted by law. The stock offering will not result in any change in the existing services provided to depositors and borrowers, or in existing offices, management, and staff. After the stock offering, Synergy Bank will continue to be subject to regulation, supervision, and examination by the OTS and the FDIC. Deposits and Loans. Each holder of a deposit account in Synergy Bank at the time of the stock offering will continue as an account holder in Synergy Bank after the stock offering, and the stock offering will not affect the deposit balance, interest rate, or other terms. Each deposit account will be insured by the FDIC to the same extent as before the stock offering. Depositors will continue to hold their existing certificates, savings records, checkbooks, and other evidence of their accounts. The stock offering will not affect the loans of any borrower from Synergy Bank. The amount, interest rate, maturity, security for, and obligations under each loan will remain contractually fixed as they existed prior to the stock offering. Voting Rights of Members. At present, all depositors of Synergy Bank are members of, and have voting rights in, Synergy, MHC as to all matters requiring membership action. Upon completion of the conversion, depositors and borrowers will cease to be members of Synergy, MHC and will no longer be entitled to vote at meetings of Synergy, MHC. Upon completion of the conversion, the new Synergy Financial Group, Inc. will be the sole stockholder of Synergy Bank and have all voting rights in Synergy Bank. Stockholders of the new Synergy Financial Group, Inc. will have exclusive voting rights in such corporation. Depositors of Synergy Bank will not have voting rights after the conversion except to the extent that they become our stockholders through the purchase of common stock. 87 Tax Effects. Synergy Financial Group, Inc. has received an opinion from Malizia Spidi & Fisch, PC and an opinion from Grant Thornton LLP with regard to federal and state income taxation, respectively, to the effect that the adoption and implementation of the plan of conversion will not be taxable for federal or state income tax purposes to Synergy Financial Group, Inc., Synergy, MHC, the minority stockholders, members of Synergy, MHC, eligible account holders, supplemental eligible account holders or Synergy Bank. See Federal and State Tax Consequences of the Conversion at page __. Effect on Liquidation Rights. Each depositor in Synergy Bank has both a deposit account in Synergy Bank and a pro rata ownership interest in the net worth of Synergy, MHC based upon the balance in his or her account. This interest may only be realized in the event of a complete liquidation of Synergy, MHC and Synergy Bank. However, this ownership interest is tied to the depositor's account and has no tangible market value separate from the deposit account. Any depositor who opens a deposit account obtains a pro rata ownership interest in Synergy, MHC without any additional payment beyond the amount of the deposit. A depositor who reduces or closes his or her account receives a portion or all of the balance in the deposit account but nothing for his or her ownership interest in the net worth of Synergy, MHC, which is lost to the extent that the balance in the account is reduced or closed. Consequently, depositors in a stock subsidiary of a mutual holding company normally have no way of realizing the value of their ownership interest, which has realizable value only in the unlikely event that Synergy, MHC and Synergy Bank are liquidated. If this occurs, the depositors of record at that time, as owners, would share pro rata in any residual surplus and reserves of Synergy, MHC after other claims, including claims of depositors to the amounts of their deposits, are paid. In the unlikely event that Synergy Bank were to liquidate after the conversion, all claims of creditors, including those of depositors, also would be paid first, followed by distribution of the "liquidation account " to depositors as of March 31, 2002 and September 30, 2003 who continue to maintain their deposit accounts as of the date of liquidation, with any assets remaining thereafter distributed to the new Synergy Financial Group, Inc. as the holder of Synergy Bank's capital stock. Pursuant to the rules and regulations of the Office of Thrift Supervision, a post-conversion merger, consolidation, sale of bulk assets or similar combination or transaction with another insured savings institution would not be considered a liquidation and, in such a transaction, the liquidation account would be assumed by the surviving institution. See Liquidation Rights at page __. Federal and State Tax Consequences of the Conversion We have received opinions from Malizia Spidi & Fisch, PC, and from Grant Thornton LLP on the federal and New Jersey tax consequences, respectively, of the stock offering. The opinions have been filed as exhibits to the registration statement of which this prospectus is a part and cover those federal tax matters that are material to the transaction. The opinions are made in reliance upon various statements, representations and declarations as to matters of fact made by us, as detailed in the opinions. The opinions provide that: The transactions qualify as statutory mergers and each merger required by the Plan qualifies as a reorganization within the meaning of Code Section 368(a)(1)(A). Synergy, MHC, Synergy Financial Group, Inc., and Synergy Bank will be a party to a "reorganization" as defined in Code Section 368(b). o Synergy, MHC will not recognize any gain or loss on the transfer of its assets to Synergy Bank in exchange for Synergy Bank liquidation interests for the benefit of Synergy, MHC members who remain depositors of Synergy Bank. 88 o No gain or loss will be recognized by Synergy Bank upon the receipt of the assets of Synergy, MHC in exchange for the transfer to the members of Synergy Bank liquidation interests. o No gain or loss will be recognized by Synergy Bank upon the receipt of the assets of Interim Bank #2 (Synergy Financial Group, Inc.) and Interim Bank #3 pursuant to the conversion. o No gain or loss will be recognized by Interim Bank #2 (Synergy Financial Group, Inc. following its conversion to a federal stock savings bank) pursuant to the conversion. o The reorganization of the new Synergy Financial Group, Inc. as the holding company of Synergy Bank qualifies as a reorganization within the meaning of Code Section 368(a)(1)(A) by virtue of Code Section 368(a)(2)(E). Therefore, Synergy Bank, the new Synergy Financial Group, Inc., and Interim Bank #3 will each be a party to a reorganization, as defined in Code Section 368(b). o No gain or loss will be recognized by Interim Bank #3 upon the transfer of its assets to Synergy Bank pursuant to the conversion. o Members will recognize no gain or loss upon the receipt of Synergy Bank liquidation interests. o No gain or loss will be recognized by the new Synergy Financial Group, Inc. upon the receipt of Bank Stock solely in exchange for stock of the new Synergy Financial Group, Inc. o Current stockholders of Synergy Financial Group, Inc. will not recognize any gain or loss upon their exchange of common stock solely for shares of stock of the new Synergy Financial Group, Inc. o Each stockholder's aggregate basis in shares of stock of the new Synergy Financial Group, Inc. received in the exchange will be the same as the aggregate basis of common stock surrendered in the exchange before giving effect to any payment of cash in lieu of fractional shares. o No gain or loss will be recognized by the new Synergy Financial Group, Inc. on the receipt of money in exchange for stock of the new Synergy Financial Group, Inc. sold in the offering. o No gain or loss will be recognized by Eligible Account Holders, Supplemental Eligible Account Holders and Other Members upon the distribution to them of the non-transferable subscription rights to purchase shares of stock of the new Synergy Financial Group, Inc. The opinion in the last bullet above is predicated on representations from Synergy Bank, Synergy Financial Group, Inc. and Synergy, MHC that no person shall receive any payment, whether in money or property, in lieu of the issuance of subscription rights. The opinion in the last bullet above is based on the position that the subscription rights to purchase shares of common stock received by Eligible Account Holders, Supplemental Eligible Account Holders and Other Members have a fair market value of zero. 89 In reaching their opinion stated in the second bullet above, Malizia Spidi & Fisch, PC has noted that the subscription rights will be granted at no cost to the recipients, will be legally non-transferable and of short duration, and will provide the recipients with the right only to purchase shares of common stock at the same price to be paid by members of the general public in any community offering. Malizia Spidi & Fisch, PC believes that it is more likely than not that the fair market value of the subscription rights to purchase common stock is zero. If the non-transferable subscription rights to purchase common stock are subsequently found to have a fair market value, income may be recognized by various recipients of the subscription rights (in certain cases, whether or not the rights are exercised), and we may be taxed on the distribution of the subscription rights. We are also subject to New Jersey income taxes and have received an opinion from Grant Thornton LLP that the stock offering will be treated for New Jersey state tax purposes similarly to the treatment of the stock offering for federal tax purposes. Unlike a private letter ruling from the IRS, the federal and state tax opinions have no binding effect or official status, and no assurance can be given that the conclusions reached in any of those opinions would be sustained by a court if contested by the IRS or the New Jersey tax authorities. Eligible Account Holders, Supplemental Eligible Account Holders and Other Members are encouraged to consult with their own tax advisers as to the tax consequences in the event the subscription rights are determined to have any market value. Liquidation Rights In the unlikely event of a complete liquidation of Synergy Financial Group, Inc. prior to the conversion, all claims of creditors of Synergy Financial Group, Inc., including those of depositors to the extent of their deposit balances, would be paid first. Thereafter, if there were any assets of Synergy Financial Group, Inc. remaining, these assets would be distributed to stockholders, including Synergy, MHC. In the unlikely event that Synergy, MHC and Synergy Financial Group, Inc. are liquidated prior to the conversion, all claims of creditors would be paid first. Then, if there were any assets of Synergy, MHC remaining, members of Synergy, MHC would receive those remaining assets, pro rata, based upon the deposit balances in their deposit account in Synergy Bank immediately prior to liquidation. In the unlikely event that Synergy Bank were to liquidate after the conversion, all claims of creditors, including those of depositors, would be paid first, followed by distribution of the "liquidation account" to certain depositors, with any assets remaining thereafter distributed to the new Synergy Financial Group, Inc. as the holder of Synergy Bank capital stock. Pursuant to the rules and regulations of the Office of Thrift Supervision, a post-conversion merger, consolidation, sale of bulk assets or similar combination or transaction with another insured savings institution would not be considered a liquidation and, in these types of transactions, the liquidation account would be assumed by the surviving institution. The plan of conversion and reorganization provides for the establishment, upon the completion of the conversion, of a special "liquidation account" for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders (as those terms are defined in the plan of conversion and reorganization) in an amount equal to the greater of: (1) Synergy, MHC's ownership interest in the retained earnings of Synergy Financial Group, Inc. as of the date of its latest balance sheet contained in this prospectus; or 90 (2) the retained earnings of Synergy Bank at the time that Synergy Bank reorganized into Synergy, MHC on March 1, 2001. The purpose of the liquidation account is to provide Eligible Account Holders and Supplemental Eligible Account Holders who maintain their deposit accounts with Synergy Bank after the conversion with an interest in the unlikely event of the complete liquidation of Synergy Bank after the conversion. Each Eligible Account Holder and Supplemental Eligible Account Holder that continues to maintain his or her deposit account at Synergy Bank, would be entitled, on a complete liquidation of Synergy Bank after the conversion, to an interest in the liquidation account prior to any payment to the stockholders of the new Synergy Financial Group, Inc. Each Eligible Account Holder and Supplemental Eligible Account Holder would have an initial interest in the liquidation account for each deposit account, including savings accounts, checking accounts, money market deposit accounts, and certificates of deposit, with a balance of $50 or more held in Synergy Bank on March 31, 2002, or September 30, 2003. Each Eligible Account Holder and Supplemental Eligible Account Holder would have a pro rata interest in the total liquidation account for each such deposit account, based on the proportion that the balance of each such deposit account on March 31, 2002 or September 30, 2003 bears to the balance of all deposit accounts in Synergy Bank on such dates. If, however, on any December 31 annual closing date commencing after the completion of the conversion, the amount in any such deposit account is less than the amount in the deposit account on March 31, 2002 or September 30, 2003 or any other annual closing date, then the interest in the liquidation account relating to such deposit account would be reduced from time to time by the proportion of any such reduction, and such interest will cease to exist if such deposit account is closed. In addition, no interest in the liquidation account would ever be increased despite any subsequent increase in the related deposit account. Payment pursuant to liquidation rights of Eligible Account Holders and Supplemental Eligible Account Holders would be separate and apart from the payment of any insured deposit accounts to such depositor. Any assets remaining after the above liquidation rights of Eligible Account Holders and Supplemental Eligible Account Holders are satisfied would be distributed to the new Synergy Financial Group, Inc. as the sole stockholder of Synergy Bank. Amendment or Termination of the Plan of Conversion If deemed necessary or desirable by the Board of Directors, this plan may be substantively amended, as a result of comments from regulatory authorities or otherwise, at any time prior to the solicitation of proxies from members and stockholders to vote on the plan and at any time thereafter with the concurrence of the OTS. Any amendment to this plan made after approval by the members and stockholders with the concurrence of the OTS shall not necessitate further approval by the members or stockholders unless otherwise required by the OTS. This plan shall terminate if the sale of all shares of conversion stock is not completed within 24 months from the date of the special meeting of members. Prior to the earlier of the special meeting of members and the stockholders' meeting, this plan may be terminated by the Board of Directors without approval of the OTS; after the special meeting or the stockholders' meeting, the Board of Directors may terminate this plan only with the approval of the OTS. Conditions to the Conversion We cannot complete our conversion and our offering unless: (1) We sell a minimum of 3,482,123 shares of common stock; 92 (2) The plan of conversion is approved by a majority vote of members of Synergy, MHC; (3) The plan of conversion is approved by a two-thirds vote of stockholders of Synergy Financial Group, Inc.; and (4) The plan of conversion is approved by a majority vote of stockholders of Synergy Financial Group, Inc., not including those shares held by Synergy, MHC. The plan of conversion must also be approved by the OTS, which was given its conditional approval. If such conditions are not met before we complete the offering, all funds received will be promptly returned with interest at Synergy Bank's regular savings account rate and all withdrawal authorizations will be canceled. The stock purchases of our officers and directors will be counted for purposes of meeting the minimum number of shares. Synergy, MHC intends to vote its 56.5% ownership interest in favor of the conversion. In addition, as of October __, 2003, directors and executive officers of Synergy Financial Group, Inc. and their associates beneficially own ________ shares of Synergy Financial Group, Inc., or ____% of the outstanding shares other than those held by Synergy, MHC. They intend to vote those shares in favor of the conversion. Certain directors who serve as the trustee committee for Synergy Financial Group, Inc.'s 2003 Restricted Stock Plan may direct the voting of 56,685 shares held in the plan trust. Additionally, certain directors and an executive officer who serve as employee stock ownership plan trustees may vote 112,501 unallocated shares of the Synergy Financial Group, Inc. employee stock ownership plan and may vote, in the trustees' fiduciary capacity, allocated shares of the employee stock ownership plan for which no timely voting directions have been received from plan participants. THE STOCK OFFERING The Board of Directors adopted the plan authorizing the conversion on July 26, 2003, subject to the approval of the OTS. We received authorization from the OTS to conduct the stock offering on November __, 2003. OTS authorization does not constitute a recommendation or endorsement of an investment in our stock by the OTS. General On July 26, 2003, the Board of Directors adopted the plan of conversion and reorganization, which was subsequently amended, pursuant to which Synergy Financial Group, Inc. will sell shares of common stock to eligible depositors of Synergy Bank in a subscription offering and, if necessary, to the general public if a community and/or a syndicated community offering is held. The Board of Directors unanimously adopted the plan after consideration of the advantages and the disadvantages of the stock offering. After we receive the required authorization from the OTS, the stock will be issued. The stock offering will be accomplished in accordance with the procedures set forth in the plan, the requirements of applicable laws and regulations, and the policies of the OTS. We are offering between a minimum of 3,482,123 shares and an anticipated maximum of 4,711,099 shares of common stock in the offering (subject to adjustment to up to 4,711,099 shares if our estimated pro forma market value has increased at the conclusion of the offering), which will expire at 12:00 noon, eastern time, on ___________, 2003. The minimum purchase is 25 shares of common stock (minimum investment of $250). Our common stock is being offered at a fixed price of $10.00 per share in the offering. 92 We may extend the expiration date without notice to you for up to 45 days, until _____________, 2004. Once submitted, your order is irrevocable unless the offering is extended beyond _____________, 2004. We may request permission from the Office of Thrift Supervision to extend the offering beyond _____________, 2004, and the Office of Thrift Supervision may grant one or more extensions of the offering of up to 90 days per extension, but in no event may the offering be extended beyond _____________. If the offering is extended beyond _____________, 2004, we will be required to notify each subscriber and resolicit subscriptions. During any extension period, subscribers will have the right to modify or rescind their subscriptions, and, unless an affirmative response is received, a subscriber's funds will be returned with interest at Synergy Bank's regular savings account rate. We may cancel the offering at any time. If we do, orders for common stock already submitted will be canceled. In accordance with Rule 15c2-4 of the Securities Exchange Act of 1934, pending completion or termination of the offering, subscription funds received by us will be invested only in investments permissible under Rule 15c2-4. Conduct of the Offering Subject to the limitations of the plan of stock issuance adopted by our Board of Directors, shares of common stock are being offered in descending order of priority in the subscription offering to: o Eligible Account Holders (depositors at the close of business on March 31, 2002 with deposits of at least $50.00); o the employee stock ownership plan; o Supplemental Eligible Account Holders (depositors at the close of business on September 30, 2003 with deposits of at least $50.00); and o Other Members (depositors at the close of business on October __, 2003). To the extent that shares remain available and depending on market conditions at or near the completion of the subscription offering, we may conduct a community offering and possibly a syndicated community offering. The community offering, if any, may commence simultaneously with, during or subsequent to the completion of the subscription offering. A syndicated community offering, if we conduct one, would commence just prior to, or as soon as practicable after, the termination of the subscription offering. In any community offering or syndicated community offering, we will first fill orders for our common stock in an equitable manner as determined by the Board of Directors in order to achieve a wide distribution of the stock. If an oversubscription occurs in the offering by Eligible Account Holders, the employee stock ownership plan may, in whole or in part, fill its order through open market purchases subsequent to the closing of the offering, subject to any required regulatory approval. Shares sold above the maximum of the offering range may be sold to the employee stock ownership plan before satisfying remaining unfilled orders of Eligible Account Holders to fill the plan's subscription, or the plan may purchase some or all of the shares covered by its subscription after the offering in the open market, subject to any required regulatory approval. 93 Subscription Offering Subscription Rights. Non-transferable subscription rights to subscribe for the purchase of common stock have been granted under the plan of stock issuance to the following persons: Priority 1: Eligible Account Holders. Each Eligible Account Holder shall be given the opportunity to purchase, combined with shares received by existing stockholders pursuant to the exchange ratio in the conversion, and subject to the overall limitations described under The Stock Offering - Limitations on Purchases of Stock, up to the greater of (i) the maximum purchase limitation in the community offering (i.e., 20,000 shares or $200,000), (ii) one-tenth of 1% of the total offering of shares of common stock offered in the subscription offering, and (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of common stock offered in the subscription offering by a fraction, of which the numerator is the amount of the qualifying deposits of the Eligible Account Holder and the denominator is the total amount of all qualifying deposits of all Eligible Account Holders. If there are insufficient shares available to satisfy all subscriptions of Eligible Account Holders, shares will be allocated to Eligible Account Holders so as to permit each subscribing Eligible Account Holder to purchase a number of shares sufficient to make his or her total allocation equal to the lesser of 100 shares or the number of shares ordered. Thereafter, unallocated shares will be allocated to remaining subscribing Eligible Account Holders whose subscriptions remain unfilled in the same proportion that each subscriber's qualifying deposit bears to the total amount of qualifying deposits of all subscribing Eligible Account Holders, in each case on March 31, 2002, whose subscriptions remain unfilled. Subscription rights received by officers and directors, based on their increased deposits in Synergy Bank in the one year preceding the eligibility record date will be subordinated to the subscription rights of other eligible account holders. To ensure proper allocation of stock, each Eligible Account Holder must list on his or her order form all accounts in which he or she had an ownership interest as of the Eligibility Record Date. Priority 2: The Employee Plans. The tax qualified employee plans may be given the opportunity to purchase in the aggregate up to 10% of the common stock issued in the subscription offering. It is expected that the employee stock ownership plan will purchase up to 8% of the common stock issued in the offering. If an oversubscription occurs in the offering by Eligible Account Holders, the employee stock ownership plan may, in whole or in part, fill its order through open market purchases subsequent to the closing of the offering, subject to any required regulatory approval. Priority 3: Supplemental Eligible Account Holders. If there are sufficient shares remaining after satisfaction of subscriptions by Eligible Account Holders and the employee stock ownership plan and other tax-qualified employee stock benefit plans, each Supplemental Eligible Account Holder shall have the opportunity to purchase, combined with shares received by existing stockholders pursuant to the exchange ratio in the conversion, and subject to the overall limitations described under The Stock Offering - Limitations on Purchases of Common Stock, up to the greater of (i) the maximum purchase limitation in the community offering (i.e., 20,000 shares or $200,000), (ii) one-tenth of 1% of the total offering of shares of common stock offered in the subscription offering, and (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of common stock offered in the subscription offering by a fraction, of which the numerator is the amount of the qualifying deposits of the Eligible Account Holder and the denominator is the total amount of all qualifying deposits of all Eligible Account Holders. If Supplemental Eligible Account Holders subscribe for a number of shares which, when added to the shares subscribed for by Eligible Account Holders and the employee stock ownership plan and other tax-qualified employee stock benefit plans, if any, is in excess of the total number of shares offered in the offering, the shares of common stock will be allocated among subscribing Supplemental Eligible 94 Account Holders first so as to permit each subscribing Supplemental Eligible Account Holder to purchase a number of shares sufficient to make his or her total allocation equal to the lesser of 100 shares or the number of shares ordered. Thereafter, unallocated shares will be allocated to each subscribing Supplemental Eligible Account Holder whose subscription remains unfilled in the same proportion that each subscriber's qualifying deposits bear to the total amount of qualifying deposits of all subscribing Supplemental Eligible Account Holders, in each case on September 30, 2003, whose subscriptions remain unfilled. To ensure proper allocation of stock, each Supplemental Eligible Account Holder must list on his or her order form all accounts in which he or she had an ownership interest as of the Supplemental Eligibility Record Date. Priority 4: Other Members. To the extent that there are shares remaining after satisfaction of subscriptions by Eligible Account Holders, our tax-qualified employee stock benefit plans, and Supplemental Eligible Account Holders, each member of Synergy, MHC (depositor of Synergy Bank) on the voting record date of October __, 2003 who is not an Eligible Account Holder or Supplemental Eligible Account Holder ("Other Members") will receive, without payment therefor, nontransferable subscription rights to purchase up to the greater of 20,000 shares of common stock or one-tenth of 1% of the total offering of shares of common stock offered in the subscription offering, subject to the overall purchase limitations. See Limitations on Common Stock Purchases at page __. If there are not sufficient shares available to satisfy all subscriptions, available shares will be allocated on a pro rata basis based on the size of the order of each Other Member. State Securities Laws. We, in our sole discretion, will make reasonable efforts to comply with the securities laws of any state in the United States in which Synergy Bank account holders at the eligibility record date or the supplemental eligibility record date reside, and will only offer the common stock in states in which the offers and sales comply with state securities laws. However, subject to our discretion, no person will be offered common stock if he or she resides in a foreign country or in a state of the United States with respect to which: o a small number of persons otherwise eligible to purchase shares reside in that state; or o the offer or sale of shares of common stock to these persons would require us or our employees to register, under the securities laws of that state, as a broker or dealer or to register or otherwise qualify its securities for sale in that state; or o registration or qualification would be impracticable for reasons of cost or otherwise. Restrictions on Transfer of Subscription Rights and Shares. The plan of stock issuance prohibits any person with subscription rights, including Eligible Account Holders and Supplemental Eligible Account Holders, from transferring or entering into any agreement or understanding to transfer the legal or beneficial ownership of the subscription rights or the shares of common stock to be issued when subscription rights are exercised. Subscription rights may be exercised only by the person to whom they are granted and only for his or her account. Each person subscribing for shares will be required to certify that he or she is purchasing shares solely for his or her own account and that he or she has no agreement or understanding regarding the sale or transfer of the shares. The regulations also prohibit any person from offering or making an announcement of an offer or intent to make an offer to purchase subscription rights or shares of common stock before the completion of the offering. 95 We will pursue any and all legal and equitable remedies in the event we become aware of the transfer of subscription rights and will not honor orders that we determine involve the transfer of subscription rights. Deadlines for Purchasing Stock The subscription offering will terminate at 12:00 noon, eastern time, on _____________, 2003. We may extend this expiration date without notice to you for up to 45 days, until _____________, 2004. Once submitted, your order is irrevocable unless the offering is extended beyond _____________, 2004. We may request permission from the Office of Thrift Supervision to extend the offering beyond _____________, 2004, and the Office of Thrift Supervision may grant one or more extensions of the offering of up to 90 days per extension, but in no event may the offering be extended beyond _______________. If the offering is extended beyond _____________, 2004, we will be required to notify each subscriber and resolicit subscriptions. During any extension period, subscribers will have the right to modify or rescind their subscriptions, and, unless an affirmative response is received, a subscriber's funds will be returned with interest at Synergy Bank's regular savings account rate. A community offering and a syndicated community offering, if such offerings are conducted, may terminate at any time without notice but no later than _____________, 2004. Community Offering and Syndicated Community Offering Community Offering. If less than the total number of shares of common stock to be subscribed for in the offering are sold in the subscription offering and depending on market conditions at or near the completion of the subscription offering, shares remaining unsubscribed may be made available for purchase in the community offering to certain members of the general public. The maximum amount of common stock that any person may purchase in the community offering, subject to the overall purchase limitations described under The Stock Offering - Limitations on Purchases of Common Stock at page __, is 20,000 shares, or $200,000. In the community offering, if any, shares will be available for purchase by the general public, and preference may be given first to existing stockholders, second to natural persons residing in counties in which Synergy Bank has branch offices, and third to natural persons residing in New Jersey. We will attempt to issue the shares in a manner that would promote a wide distribution of common stock. If purchasers in the community offering, whose orders would otherwise be accepted, subscribe for more shares than are available for purchase, the shares available to them will be allocated among persons submitting orders in the community offering in an equitable manner we determine. The community offering, if any, may commence simultaneously with, during or subsequent to the completion of the subscription offering. The community offering, if any, must be completed within 45 days after the completion of the subscription offering unless otherwise extended by the OTS. We, in our absolute discretion, reserve the right to reject any or all orders in whole or in part which are received in the community offering, at the time of receipt or as soon as practicable following the completion of the community offering. Syndicated Community Offering. If shares remain available after the subscription offering, and depending on market conditions at or near the completion of the subscription offering, we may offer shares to selected persons through a syndicated community offering on a best-efforts basis conducted through Sandler O'Neill in accordance with such terms, conditions and procedures as may be determined by our 96 Board of Directors. A syndicate of broker-dealers (selected dealers) may be formed to assist in the syndicated community offering. A syndicated community offering, if we conduct one, would commence just prior to, or as soon as practicable after, the termination of the subscription offering. Orders received in connection with the syndicated community offering, if any, will receive a lower priority than orders received in the subscription offering and community offering. Common stock sold in the syndicated community offering will be sold at the same price as all other shares in the subscription offering. A syndicated community offering would be open to the general public beyond the local community, however, we have the right to reject orders, in whole or in part, in our sole discretion in the syndicated community offering. No person will be permitted, subject to the overall purchase limitations described under The Stock Offering - Limitations on Purchases of Common Stock on page __, to purchase more than 20,000 shares, or $200,000, of common stock in the syndicated community offering. The date by which orders must be received in the syndicated community offering will be set by us at the time the syndicated community offering commences; but if the syndicated community offering is extended beyond ______________, 2004, each purchaser will have the opportunity to maintain, modify, or rescind his or her order. In that event, all funds received in the syndicated community offering will be promptly returned with interest at Synergy Bank's regular savings account rate to each purchaser unless he or she requests otherwise. Limitations on Purchases of Common Stock The following additional limitations have been imposed on purchases of shares of common stock: 1. The maximum number of shares which may be purchased in the offering by any individual (or individuals through a single account) shall not exceed 20,000 shares, or $200,000, including shares received by existing stockholders pursuant to the exchange ratio in the conversion. This limit applies to stock purchases in total in the subscription, community and syndicated community offerings. 2. The maximum number of shares that may be purchased by any individual together with any associate or group of persons acting in concert is 40,000 shares, or $400,000, including shares received by existing stockholders pursuant to the exchange ratio in the conversion. This limit applies to stock purchases in total in the subscription, community and syndicated community offerings. This limit does not apply to our employee stock benefit plans, which in the aggregate may subscribe for up to 10% of the common stock issued in the offering. 3. The maximum number of shares which may be purchased in all categories in the offering by our officers and directors and their associates in the aggregate shall not exceed 25% of the total number of shares issued in the offering. 4. The minimum order is 25 shares, or $250. 5. If the number of shares otherwise allocable to any person or that person's associates would be in excess of the maximum number of shares permitted as set forth above, the number of shares allocated to that person shall be reduced to the lowest limitation applicable to that person, and then the number of shares allocated to each group consisting of a person and 97 that person's associates shall be reduced so that the aggregate allocation to that person and his or her associates complies with the above maximums, and the maximum number of shares shall be reallocated among that person and his or her associates in proportion to the shares subscribed by each (after first applying the maximums applicable to each person separately). 6. Depending on market or financial conditions, we may decrease or increase the purchase limitations, provided that the maximum purchase limitations may not be increased to a percentage in excess of 5% of the offering. If we increase the maximum purchase limitations, we are only required to resolicit persons who subscribed for the maximum purchase amount and may, in our sole discretion, resolicit certain other large subscribers. 7. If the total number of shares offered increases in the offering due to an increase in the maximum of the estimated valuation range of up to 15% (the adjusted maximum) the additional shares will be used in the following order of priority: (a) to fill the employee stock ownership plan's subscription up to 8% of the adjusted maximum (unless the employee stock ownership plan elects to purchase stock subsequent to the offering in the open market); (b) if there is an oversubscription at the Eligible Account Holder level, to fill unfilled subscriptions of Eligible Account Holders exclusive of the adjusted maximum unless the employee stock ownership plan elects to purchase stock subsequent to the offering in the open market); (c) if there is an oversubscription at the Supplemental Eligible Account Holder level, to fill unfilled subscriptions of Supplemental Eligible Account Holders exclusive of the adjusted maximum; (d) if there is an oversubscription at the Other Members level, to fill unfilled subscriptions of Other Members exclusive of the adjusted maximum; (e) to fill orders received in a community offering exclusive of the adjusted maximum, with preference given to persons who live in the local community; and (f) to fill orders received in the syndicated community offering exclusive of the adjusted maximum. 8. No person will be allowed to purchase any stock if that purchase would be illegal under any federal law or state law or regulation or would violate regulations or policies of the National Association of Securities Dealers, Inc., particularly those regarding free riding and withholding. We and/or our representatives may ask for an acceptable legal opinion from any purchaser regarding the legality of the purchase and may refuse to honor any purchase order if that opinion is not timely furnished. 9. We have the right to reject any order submitted by a person whose representations we believe are untrue or who we believe is violating, circumventing, or intends to violate, evade, or circumvent the terms and conditions of the plan of stock issuance, either alone or acting in concert with others. 10. The above restrictions also apply to purchases by persons acting in concert under applicable regulations of the OTS. Under regulations of the OTS, our directors are not considered to be affiliates or a group acting in concert with other directors solely as a result of membership on our Board of Directors. 11. In addition, in any community offering or syndicated community offering, we must first fill orders for our common stock up to a maximum of 2% of the total shares issued in the offering in a manner that will achieve a wide distribution of the stock, and thereafter any 98 remaining shares will be allocated on an equal number of shares per order basis, until all orders have been filled or the shares have been exhausted. The term "associate" of a person is defined in the plan of stock issuance to mean: (1) any corporation or organization of which a person is an officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities; (2) any trust or other estate in which a person has a substantial beneficial interest or as to which a person serves as trustee or in a similar fiduciary capacity; or (3) any relative or spouse of a person or any relative of a spouse, who has the same home as that person. For example, a corporation for which a person serves as an officer would be an associate of that person and all shares purchased by that corporation would be included with the number of shares which that person individually could purchase under the above limitations. The term "acting in concert" means: (1) knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement; or (2) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. A person or company which acts in concert with another person or company ("other party") shall also be deemed to be acting in concert with any person or company who is also acting in concert with that other party, except that any tax-qualified employee stock benefit plan will not be deemed to be acting in concert with its trustee or a person who serves in a similar capacity solely for the purpose of determining whether stock held by the trustee and stock held by the plan will be aggregated. We will presume that certain persons are acting in concert based upon various facts, including the fact that persons have joint account relationships or the fact that such persons have filed joint Schedules 13D with the Securities and Exchange Commission with respect to other companies. We reserve the right to make an independent investigation of any facts or circumstances brought to our attention that indicate that one or more persons acting independently or as a group acting in concert may be attempting to violate or circumvent the regulatory prohibition on the transferability of subscription rights. We have the right, in our sole discretion, to determine whether prospective purchasers are "associates" or "acting in concert." These determinations are in our sole discretion and may be based on whatever evidence we believe to be relevant, including joint account relationships or shared addresses on the records of Synergy Bank. Each person purchasing shares of the common stock in the offering will be considered to have confirmed that his or her purchase does not conflict with the maximum purchase limitation. If the purchase limitation is violated by any person or any associate or group of persons affiliated or otherwise acting in concert with that person, we will have the right to purchase from that person at the $10.00 purchase price per share all shares acquired by that person in excess of that purchase limitation or, if the excess shares have been sold by that person, to receive the difference between the purchase price per share paid for the 99 excess shares and the price at which the excess shares were sold by that person. Our right to purchase the excess shares will be assignable. Common stock purchased pursuant to the offering will be freely transferable, except for shares purchased by our directors and executive officers. For certain restrictions on the common stock purchased by our directors and executive officers, see Restrictions on Transferability by Directors and Executive Officers at page __. In addition, under guidelines of the NASD, members of the NASD and their associates are subject to certain restrictions on the transfer of securities purchased in accordance with subscription rights and to certain reporting requirements after the purchase. Ordering and Receiving Common Stock Use of Order Forms. Rights to subscribe may only be exercised by completion of an order form. Any person receiving an order form who desires to subscribe for shares of common stock must do so prior to the applicable expiration date by delivering by mail or in person a properly executed and completed order form, together with full payment of the purchase price for all shares for which subscription is made; provided, however, that if the employee plans subscribe for shares during the subscription offering, the employee plans will not be required to pay for the shares at the time they subscribe but rather may pay for the shares upon completion of the offering. All subscription rights will expire on the expiration date, whether or not we have been able to locate each person entitled to subscription rights. Once tendered, subscription orders cannot be revoked without our consent. If a stock order form: o is not delivered and is returned to us by the United States Postal Service or we are unable to locate the addressee; o is not received or is received after the applicable expiration date; o is not completed correctly or executed; or o is not accompanied by the full required payment for the shares subscribed for, including instances where a savings account or certificate balance from which withdrawal is authorized is unavailable, uncollected or insufficient to fund the required payment, but excluding subscriptions by the employee plans, then the subscription rights for that person will lapse as though that person failed to return the completed order form within the time period specified. However, we may, but will not be required to, waive any irregularity on any order form or require the submission of corrected order forms or the remittance of full payment for subscribed shares by a date that we may specify. The waiver of an irregularity on an order form in no way obligates us to waive any other irregularity on any other order form. Waivers will be considered on a case by case basis. We will not accept orders received on photocopies or facsimile order forms, or for which payment is to be made by wire transfer or payment from private third parties. Our interpretation of the terms and conditions of the plan of stock issuance and of the acceptability of the order forms will be final, subject to the authority of the OTS. 100 To ensure that each purchaser receives a prospectus at least 48 hours before the applicable expiration date, in accordance with Rule 15c2-8 of the Securities Exchange Act of 1934, no prospectus will be mailed any later than five days prior to the expiration date or hand delivered any later than two days prior to the expiration date. Execution of the order form will confirm receipt or delivery in accordance with Rule 15c2-8. Order forms will only be distributed with a prospectus. Payment for Shares. For subscriptions to be valid, payment for all subscribed shares will be required to accompany all properly completed order forms on or prior to the expiration date specified on the order form unless we extend the date. Employee plans subscribing for shares during the subscription offering may pay for those shares upon completion of the offering. Payment for shares of common stock may be made: o in cash, if delivered in person; o by check or money order made payable to Synergy Bank; or o for shares subscribed for in the subscription offering, by authorization of withdrawal from deposit accounts maintained with Synergy Bank. Payment for subscriptions of $25,000 or more must be paid by account withdrawal, certified or cashier's check, or money order. In accordance with Rule 15c2-4 of the Securities Exchange Act of 1934, subscribers' checks must be made payable to Synergy Bank, and checks received by the Stock Information Center will be transmitted by noon of the following business day directly to the segregated deposit account at Synergy Bank established to hold funds received as payment for shares. Appropriate means by which account withdrawals may be authorized are provided on the order form. Once a withdrawal has been authorized, none of the designated withdrawal amount may be used by a subscriber for any purpose other than to purchase the common stock for which a subscription has been made until the offering has been completed or terminated. In the case of payments authorized to be made through withdrawal from savings accounts, all sums authorized for withdrawal will continue to earn interest at the contract rate until the offering has been completed or terminated. Interest penalties for early withdrawal applicable to certificate accounts will not apply to withdrawals authorized for the purchase of shares, however, if a partial withdrawal results in a certificate account with a balance less than the applicable minimum balance requirement, the certificate shall be canceled at the time of withdrawal, without penalty, and the remaining balance will earn interest at the regular savings account rate subsequent to the withdrawal. In the case of payments made in cash or by check or money order, funds will be placed in a segregated account and interest will be paid by Synergy Bank at the regular savings account rate from the date payment is received until the offering is completed or terminated. An executed order form, once we receive it, may not be modified, amended, or rescinded without our consent, unless the offering is not completed within 45 days after the conclusion of the subscription offering, in which event subscribers may be given the opportunity to increase, decrease, or rescind their subscription for a specified period of time. If the offering is not completed for any reason, all funds submitted pursuant to the offerings will be promptly refunded with interest as described above. Owners of self-directed IRAs may use the assets of their IRAs to purchase shares of common stock in the offerings, provided that their IRAs are not maintained on deposit at Synergy Bank. Persons with IRAs maintained at Synergy Bank must have their accounts transferred to an unaffiliated institution or broker to purchase shares of common stock in the offerings. There is no early withdrawal or IRS interest penalties for these transfers. Instructions on how to transfer self-directed IRAs maintained at Synergy Bank can be obtained from the Stock Information Center. Depositors interested in using funds in a Synergy Bank 101 IRA to purchase common stock should contact the Stock Information Center as soon as possible so that the necessary forms may be forwarded, executed and returned prior to the expiration date. Federal regulations prohibit Synergy Bank from lending funds or extending credit to any person to purchase the common stock in the offering. Stock Information Center. Our Stock Information Center is located at 310 North Avenue East, Cranford, New Jersey 07016. The telephone number is (908) 956-4011. The Stock Information Center's hours of operation are 9:00 a.m. to 5:00 p.m., eastern time, Monday through Friday. Exchange of Stock Certificates of Minority Stockholders The conversion of common stock into shares of the new Synergy Financial Group, Inc. common stock will occur automatically on the date of completion of the conversion. After such date, former holders of common stock will have no further equity interest in the old Synergy Financial Group, Inc., other than as stockholders of the new Synergy Financial Group, Inc., and there will be no further transfers of shares of the old Synergy Financial Group, Inc. common stock on the stock transfer records of the old Synergy Financial Group, Inc. As soon as practicable after the completion of the conversion, the exchange agent will send a transmittal form to each stockholder of the old Synergy Financial Group, Inc. The transmittal forms are expected to be mailed within five business days after the date of the completion of the conversion and will contain instructions with respect to the surrender of certificates representing the old Synergy Financial Group, Inc. common stock to be exchanged into the new common stock. It is expected that certificates for shares of the new common stock will be distributed within five business days after the receipt of properly executed transmittal forms and other required documents. Stockholders should not forward their stock certificates to the exchange agent until they have received transmittal forms. Until the certificates representing the old common stock are surrendered for exchange after consummation of the conversion, in compliance with the terms of the transmittal form, holders of such certificates will not receive new shares. All shares of the new common stock issued upon exchange of shares of the old common stock shall be deemed to have been issued in full satisfaction of all rights pertaining to shares of the old common stock. No fractional shares of our common stock will be issued to any stockholder upon consummation of the conversion. For each fractional share that would otherwise be issued, we will pay by check an amount equal to the product obtained by multiplying the fractional share interest to which the holder would otherwise be entitled by the subscription price. Payment for fractional shares will be made as soon as practicable after the receipt by the exchange agent of surrendered old Synergy Financial Group, Inc. stock certificates. If a certificate for the old Synergy Financial Group, Inc. common stock has been lost, stolen or destroyed, the exchange agent will issue the consideration properly payable upon receipt of appropriate evidence as to the loss, theft or destruction, appropriate evidence as to the ownership of the certificate by the claimant, and appropriate and customary indemnification. 102 Delivery of Stock Certificates of Conversion Stock Certificates representing common stock issued in the offering, to all persons other than minority stockholders of Synergy Financial Group, Inc., will be mailed to the persons entitled thereto at the address noted on the order form as soon as practicable following consummation of the offering. Any certificates returned as undeliverable will be held until claimed by persons legally entitled thereto or otherwise disposed of in accordance with applicable law. Until certificates for the common stock are available and delivered to subscribers, subscribers may not be able to sell the shares of stock for which they subscribed. Restrictions on Repurchase of Shares Generally, during the first year following the offering, we will not be permitted to repurchase shares of our stock unless we can show extraordinary circumstances. If extraordinary circumstances exist and if we can show a compelling and valid business purpose for the repurchase, the OTS may approve repurchases of up to 5% of the outstanding stock during the first year after the offering. After the first year following the offering, we can repurchase any amount of stock so long as the repurchase would not cause us to become undercapitalized. If, in the future, the rules and regulations regarding the repurchase of stock are liberalized, we may utilize the rules and regulations then in effect. Stock Pricing and the Number of Shares to be Offered FinPro, Inc. which is experienced in the valuation and appraisal of business entities, including savings institutions, has been retained to prepare an independent valuation of the estimated pro forma market value of the common stock (the "independent valuation"), as mandated by OTS regulations. This independent valuation will express our pro forma market value in terms of an aggregate dollar amount. The appraisal is an independent appraisal not approved or otherwise determined by the Board of Directors. FinPro will receive fees of $32,000 for its appraisal services, including the independent valuation and any subsequent update, and assistance in preparation of our business plan, plus up to $3,000 for reasonable out-of-pocket expenses incurred in connection with the independent valuation and business plan. We have agreed to indemnify FinPro under certain circumstances against liabilities and expenses arising out of or based on any misstatement or untrue statement of a material fact contained in the information supplied by us to FinPro, except where FinPro is determined to have been negligent or failed to exercise due diligence in the preparation of the independent valuation. The number of shares of common stock to be offered in the offering will be based on the estimated pro forma market value of the common stock and the purchase price of $10.00 per share. FinPro has determined that as of September __, 2003, the estimated aggregate pro forma market value of Synergy Financial Group, Inc. was $72.5 million. Pursuant to regulations, this estimate must be included within a range with a minimum of $61.6 million and a maximum of $83.4 million. Based on this valuation and Synergy, MHC's ownership of 56.5% of the common stock of Synergy Financial Group, Inc. currently outstanding, an offering range of between $34,821,230 and $47,110,990 is being offered. We have determined to offer shares of common stock in the offering at a price of $10.00 per share. The independent valuation contains an analysis of a number of factors, including but not limited to our financial condition and results of operations as of June 30, 2003, our operating trends, the competitive environment in which we operate, operating trends of certain savings institutions and savings and loan holding companies, relevant economic conditions both nationally and in New Jersey that affect the operations of savings institutions, stock market values of certain institutions, and stock market conditions for publicly traded savings institutions and savings and loan holding companies. In addition, FinPro considered the 103 effect of the additional capital raised by the sale of the common stock on the estimated pro forma market value. We are offering a maximum of 4,711,099 shares in the offering, subject to adjustment. The actual number of shares to be sold in the offering may be increased or decreased before completion of the offering, subject to approval and conditions that may be imposed by the OTS, to reflect any change in our estimated pro forma market value. Depending on market and financial conditions at the time of the completion of the offering, we may increase or decrease the number of shares to be issued in the offering. No resolicitation of purchasers will be made and purchasers will not be permitted to modify or cancel their purchase orders unless the change in the number of shares to be issued in the offering results in fewer than 3,482,123 shares or more than 5,417,793 shares being sold in the offering at the purchase price of $10.00, in which event we may also elect to terminate the offering. If we terminate the offering, purchasers will receive a prompt refund of their purchase orders, together with interest earned thereon from the date of receipt to the date of termination of the offering. Furthermore, any account withdrawal authorizations will be terminated. If we receive orders for less than 3,482,123 shares, at the discretion of the Board of Directors and subject to approval of the OTS, we may establish a new offering range and resolicit purchasers. If we resolicit, purchasers will be allowed to modify or cancel their purchase orders. Any adjustments in our pro forma market value as a result of market and financial conditions or a resolicitation of prospective purchasers must be approved by the OTS. The independent valuation will be updated at the time of the completion of the offering, and the number of shares to be issued may increase or decrease to reflect the changes in market conditions, the results of the offering, or our estimated pro forma market value. If the updated independent valuation increases, we may increase the number of shares sold in the offering to up to 5,417,793 shares. Subscribers will not be given the opportunity to change or withdraw their orders unless more than 5,417,793 shares or fewer than 3,482,123 shares are sold in the offering. Any adjustment of shares of common stock sold will have a corresponding effect on the estimated net proceeds of the offering and the pro forma capitalization and per share data. An increase in the total number of shares to be issued would decrease a subscriber's percentage ownership interest and pro forma net worth (book value) per share and increase the pro forma net income and net worth (book value) on an aggregate basis. In the event of a reduction in the valuation, we may decrease the number of shares to be issued to reflect the reduced valuation. A decrease in the number of shares to be issued would increase a subscriber's percentage ownership interest and the pro forma net worth (book value) per share and decrease the pro forma net income and net worth on an aggregate basis. For a presentation of the possible effects of an increase or decrease in the number of shares to be issued, see Pro Forma Data at page __. The independent valuation is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing the common stock. In preparing the independent valuation, FinPro has relied on and assumed the accuracy and completeness of financial and statistical information provided by us. FinPro did not independently verify the consolidated financial statements and other information provided by us, nor did FinPro value independently our assets and liabilities. The independent valuation considers us only as a going concern and should not be considered as an indication of our liquidation value. Moreover, because the independent valuation is based on estimates and projections on a number of matters, all of which are subject to change from time to time, no assurance can be given that persons purchasing the common stock will be able to sell their shares at a price equal to or greater than the purchase price. 104 The following table compares Synergy Financial Group, Inc.'s pro forma price to core earnings multiple and pro forma price to tangible book ratio at the minimum, midpoint and maximum of the offering range to the median price to core earnings multiple and price to tangible book ratio for the comparable publicly traded peer group companies identified in the valuation report. See Pro Forma Data at page __ for a description of the assumptions used in calculating the pro forma price to core earnings multiples and pro forma price to tangible book ratios for Synergy Financial Group, Inc. Pro Forma Pro Forma Price to Core Price to Earnings Tangible Multiple Book Ratio -------- ---------- Synergy Financial Group, Inc.(1): Minimum (3,482,123 shares sold)......... 22.73x 90.42% Midpoint (4,096,683 shares sold)........ 27.03x 98.52% Maximum (4,711,099 shares sold)......... 31.25x 105.60% Price to Core Price to Earnings Tangible Multiple Book Ratio -------- ---------- Median for comparable peer group companies... 17.05x 146.02% - -------------- (1) The price/core earnings multiples shown here for Synergy Financial Group, Inc. are based on core earnings for the twelve months preceding June 30, 2003 as required by regulatory appraisal guidelines, while the information presented in the tables under Pro Forma Data on page ___ is based on net income for the six months preceding June 30, 2003 and the twelve months preceding December 31, 2002. A copy of the independent valuation report is available for your review at our main office. In addition, our Board of Directors does not make any recommendation as to whether or not the stock will be a good investment for you. No sale of shares of common stock may be completed unless FinPro confirms that, to the best of its knowledge, nothing of a material nature has occurred that, taking into account all relevant factors, would cause FinPro to conclude that the independent valuation is incompatible with its estimate of our pro forma market value at the conclusion of the offering. Any change that would result in an aggregate value of the shares being offered to the public that is below $34,821,230 or above $54,177,930 would be subject to OTS approval. If confirmation from FinPro is not received, we may extend the offering, reopen or commence a new offering, request a new independent valuation, establish a new offering range and commence a resolicitation of all purchasers with the approval of the OTS, or take other action as permitted by the OTS in order to complete the offering. Plan of Distribution/Marketing Arrangements Offering materials have been initially distributed to certain persons by mail, with additional copies made available through our conversion center and Sandler O'Neill. All prospective purchasers are to send payment directly to Synergy Bank, where such funds will be held in a segregated savings account and not released until the offering is completed or terminated. We have engaged Sandler O'Neill, a broker-dealer registered with the NASD, as a financial and marketing advisor in connection with the offering of our common stock. In its role as financial and marketing advisor, Sandler O'Neill will assist us in the offering as follows: (i) consulting as to the securities marketing implications of any aspect of the plan of conversion or related corporate documents; (ii) 105 reviewing with our Board of Directors the financial and securities marketing implications of the independent appraiser's appraisal of the common stock; (iii) reviewing all offering documents, including the prospectus, stock order forms and related offering materials (we are responsible for the preparation and filing of such documents); (iv) assisting in the design and implementation of a marketing strategy for the offering; (v) assisting us in preparing for meetings with potential investors and broker-dealers; and (vi) providing such other general advice and assistance regarding financial and marketing aspects of the conversion. For these services, Sandler O'Neill will receive a fee of $________ if the conversion is completed. We have made an advance payment of $_______ to Sandler O'Neill. To the extent any shares of the common stock remain available after the subscription and direct community offering, Sandler O'Neill, at our request, may seek to form a syndicate of registered broker-dealers to assist in the solicitation of orders of the common stock in a syndicated community offering, subject to the terms and conditions to be set forth in a selected dealer's agreement. Sandler O'Neill has agreed to use its best efforts to assist us with the solicitation of subscriptions and orders for shares of our common stock in the syndicated community offering. Sandler O'Neill is not obligated to take or purchase any shares of our common stock in the offering. Sandler O'Neill has expressed no opinion as to the prices at which the common stock may trade nor has Sandler O'Neill provided any written report or opinion to us as to the fairness of the conversion. If there is a syndicated community offering, the total fees payable to Sandler O'Neill and other NASD member firms in the syndicated community offering shall not exceed ___% of the aggregate dollar amount of the common stock sold in the syndicated community offering. In addition, we have engaged Sandler O'Neill to act as conversion agent in connection with the offering. In its role as conversion agent, Sandler O'Neill will assist us in the offering as follows: (i) consolidation of accounts and development of a central file; (ii) preparation of proxy, order and/or request forms; (iii) organization and supervision of the conversion center; (iv) proxy solicitation and special meeting services; and (v) subscription services. For these services, Sandler O'Neill will receive a fee of $_______ and reimbursement for its reasonable out-of-pocket expenses. For these services, we have made an advance payment of $______ to Sandler O'Neill. We also will reimburse Sandler O'Neill for its reasonable out-of-pocket expenses associated with its marketing effort, up to a maximum of $_________ (including legal fees and expenses). If the plan of conversion is terminated or if Sandler O'Neill terminates its agreement with us in accordance with the provisions of the agreement, Sandler O'Neill will only receive reimbursement of its reasonable out-of-pocket expenses. We will indemnify Sandler O'Neill against liabilities and expenses (including legal fees) incurred in connection with certain claims or litigation arising out of or based upon untrue statements or omissions contained in the offering material for the common stock, including liabilities under the Securities Act of 1933. Our directors and executive officers will not participate in the solicitation of offers to purchase common stock. Other trained employees may participate in the offering in ministerial capacities, providing clerical work in effecting a sales transaction or answering questions of a ministerial nature. Other questions of prospective purchasers will be directed to registered representatives of Sandler O'Neill. No officer, director, or employee will be compensated for his participation by the payment of commissions or other remuneration based either directly or indirectly on the transactions in the common stock. 106 Restrictions on Transferability by Directors and Executive Officers Shares of the common stock purchased by our directors or executive officers cannot be sold for a period of one year following completion of the offering, except for a disposition of shares after death. To ensure this restriction is upheld, shares of the common stock issued to directors and executive officers will bear a legend restricting their sale. Any shares issued to directors and executive officers as a stock dividend, stock split, or otherwise with respect to restricted stock will be subject to the same restriction. For a period of three years following the offering, our directors and executive officers and their associates may not, without the prior approval of the OTS, purchase our common stock except from a broker or dealer registered with the SEC. This prohibition does not apply to negotiated transactions for more than 1% of our common stock or purchases made for tax qualified or non-tax qualified employee stock benefit plans which may be attributable to individual directors or executive officers. Restrictions on Agreements or Understandings Regarding Transfer of Common Stock to be Purchased in the Offering Before the completion of the offering, no depositor may transfer or enter into an agreement or understanding to transfer any subscription rights or the legal or beneficial ownership of the shares of common stock to be purchased in the offering. Depositors who submit an order form will be required to certify that their purchase of common stock is solely for their own account and there is no agreement or understanding regarding the sale or transfer of their shares. We intend to pursue any and all legal and equitable remedies after we become aware of any agreement or understanding, and will not honor orders we reasonably believe to involve an agreement or understanding regarding the sale or transfer of shares. RESTRICTIONS ON ACQUISITION OF SYNERGY FINANCIAL GROUP, INC. General The principal federal regulatory restrictions that affect the ability of any person, firm or entity to acquire Synergy Financial Group, Inc., Synergy Bank or their respective capital stock are described below. Also discussed are certain provisions in Synergy Financial Group, Inc.'s certificate of incorporation and bylaws which may be deemed to affect the ability of a person, firm or entity to acquire Synergy Financial Group, Inc. Statutory and Regulatory Restrictions on Acquisition The Change in Bank Control Act provides that no person, acting directly or indirectly or through or in concert with one or more other persons, may acquire control of a savings institution unless the Office of Thrift Supervision has been given 60 days prior written notice. The Home Owners' Loan Act provides that no company may acquire "control" of a savings institution without the prior approval of the Office of Thrift Supervision. Any company that acquires such control becomes a savings and loan holding company subject to registration, examination and regulation by the Office of Thrift Supervision. Pursuant to federal regulations, control of a savings institution is conclusively deemed to have been acquired by, among other things, the acquisition of more than 25% of any class of voting stock of the institution or the ability to control the election of a majority of the directors of an institution. Moreover, control is presumed to have been acquired, subject to rebuttal, upon the acquisition of more than 10% of any class of voting stock, or of more than 25% of any class of stock of a savings institution, where certain enumerated "control factors" are also present in the acquisition. 107 The Office of Thrift Supervision may prohibit an acquisition of control if: o it would result in a monopoly or substantially lessen competition; o the financial condition of the acquiring person might jeopardize the financial stability of the institution; or o the competence, experience or integrity of the acquiring person indicates that it would not be in the interest of the depositors or of the public to permit the acquisition of control by such person. These restrictions do not apply to the acquisition of a savings institution's capital stock by one or more tax-qualified employee stock benefit plans, provided that the plans do not have beneficial ownership of more than 25% of any class of equity security of the savings institution. For a period of three years following completion of the stock issuance, Office of Thrift Supervision regulations generally prohibit any person from acquiring or making an offer to acquire beneficial ownership of more than 10% of the stock of Synergy Financial Group, Inc. or Synergy Bank without Office of Thrift Supervision approval. Certificate of Incorporation and Bylaws of Synergy Financial Group, Inc. The following discussion is a summary of certain provisions of the certificate of incorporation and bylaws of Synergy Financial Group, Inc. that relate to corporate governance. The description is necessarily general and qualified by reference to the certificate of incorporation and bylaws and refers to the newly-formed New Jersey incorporated company. Classified Board of Directors. The Board of Directors of Synergy Financial Group, Inc. is required by the certificate of incorporation to be divided into three staggered classes which are as equal in size as is possible. One class is required to be elected annually for three-year terms, and classes are elected in series. A classified board promotes continuity and stability of management of Synergy Financial Group, Inc., but makes it more difficult for stockholders to change a majority of the directors because it generally takes at least two annual elections of directors for this to occur. Authorized but Unissued Shares of Capital Stock. Following the stock offering, Synergy Financial Group, Inc. will have authorized but unissued shares of preferred stock and common stock. See Description of Capital Stock at page __. These shares could be used by the Board of Directors to make it more difficult or to discourage an attempt to obtain control of Synergy Financial Group, Inc. through a merger, tender offer, proxy contest or otherwise. Special Meetings of Stockholders. Synergy Financial Group, Inc.'s certificate of incorporation provides that special meetings of stockholders may be called only by Synergy Financial Group, Inc.'s President or by its Board of Directors, except as provided by the New Jersey Business Corporation Act. Prohibition on Cumulative Voting. Synergy Financial Group, Inc.'s certificate of incorporation provides that there will not be cumulative voting by stockholders for the election of Synergy Financial Group, Inc.'s directors. This could prevent minority stockholder representation on Synergy Financial Group, Inc.'s Board of Directors. 108 Restrictions on Acquisition of Shares and Vote Sterilization. Synergy Financial Group, Inc.'s certificate of incorporation provides that for a period of five years from the date of completion of the conversion, no person may offer to acquire or acquire the beneficial ownership of more than 10% of any class of equity security of Synergy Financial Group, Inc. In addition, all shares owned over the 10% limit may not be voted in any matter submitted to stockholders for a vote. Procedures for Stockholder Nominations. Synergy Financial Group, Inc.'s bylaws provide that any stockholder wanting to make a nomination for the election of directors or a proposal for new business at a meeting of stockholders must send written notice to the Secretary of Synergy Financial Group, Inc. at least 60 days before the anniversary date of the prior year's annual meeting. The bylaws further provide that the Board of Directors may reject any nominations or proposals for new business that do not follow the prescribed procedures. Management believes that it is in the best interests of Synergy Financial Group, Inc. and its stockholders to provide enough time for management to disclose to stockholders information about a dissident slate of nominations for directors. This advance notice requirement may also give management time to solicit its own proxies in an attempt to defeat any dissident slate of nominations if management thinks it is in the best interest of stockholders generally. Similarly, adequate advance notice of stockholder proposals will give management time to study such proposals and to determine whether to recommend to the stockholders that such proposals be adopted. Procedures for Business Combinations. Our certificate of incorporation prohibits any merger, consolidation, sale, liquidation, or dissolution (each, a business combination) of Synergy Financial Group, Inc. with any "interested stockholder" for a period of five years following the interested stockholder's stock acquisition date unless the business combination is approved by a two-thirds vote of the Board prior to the stock acquisition date. An interested stockholder is any person who, directly or indirectly, has the right to vote or to sell 10% or more of the outstanding shares. Affiliates and associates of an interested shareholder are also considered to be interested shareholders. In addition, our certificate of incorporation requires that at least one of the following conditions be met to engage in a business combination with an interested stockholder: (i) approval by a vote of two-thirds of the Board prior to the interested stockholder's stock acquisition date and thereafter approved by stockholders; (ii) approval by the affirmative vote of the holders of at least 80% of the voting shares not beneficially owned by that interested stockholder at a meeting called for such purpose; or (iii) satisfaction of certain minimum price conditions, as set forth in our certificate of incorporation. In addition to the interested shareholder restrictions, our articles of incorporation also require the affirmative vote of at least 80% of the outstanding shares in order for us to enter into any merger, consolidation, sale, liquidation, or dissolution of us, unless the transaction is approved by two-thirds of our Board of Directors. Director Qualification Provisions. Synergy Financial Group, Inc.'s bylaws provide several qualification provisions applicable to members of its Board of Directors that serve to ensure the loyalty and professional integrity of each individual director. In particular, the bylaws provide that each director reside, at all times, within New Jersey in a county where Synergy Bank maintains an office, except that such provision does not apply to persons who were serving as director on December 31, 2001. In addition, the bylaws provide that each director be a shareholder of Synergy Financial Group, Inc. and, at all times, hold a minimum of one thousand shares of its stock. Synergy Financial Group, Inc.'s bylaws also prohibit persons from serving as director if that individual is currently serving as a management official of another depository institution or depository 109 holding company, as those terms are defined by the regulations of the OTS. Further, to ensure the integrity and good character of Synergy Financial Group, Inc.'s directors, the bylaws prohibit, in part, an individual who has been subject to conviction for a criminal offense involving dishonesty or breach of trust or who has been subject to a cease and desist order for similar conduct, or who has been found by a regulatory agency or a court to have breached a fiduciary duty involving personal profit or to have committed certain willful violations of the law from serving as a director. Any nominations for director of Synergy Financial Group, Inc., in the manner set forth above, must be accompanied by the nominee's certification, under oath, before a notary public, that he or she meets the eligibility requirements of integrity and good character to be a director. In addition to discouraging a takeover attempt which a majority of our public stockholders might determine to be in their best interest or in which our stockholders might receive a premium over the current market prices for their shares, the effect of these provisions may render the removal of our management more difficult. Amendment to Certificate of Incorporation and Bylaws. Amendments to our certificate of incorporation must be approved by our Board of Directors and also by the holders of a majority of the shares. Approval by at least 80% of the shares is required to amend provisions relating to preemptive rights; stockholder meetings; cumulative voting; proxies; stockholder proposals and nominations; directors; removal of directors; restrictions on the acquisition and voting of more than 10% of the common stock; approval of business combinations with interested stockholders; directors' and officers' liability; and indemnification of officers and directors; amendment of the bylaws; and amendment of the certificate of incorporation. Our bylaws may be amended by a two-thirds vote of our Board of Directors or by the holders of at least 80% of the shares. DESCRIPTION OF CAPITAL STOCK General Synergy Financial Group, Inc. is the newly-formed New Jersey incorporated company. It is authorized to issue 20,000,000 shares of common stock, par value $0.10 per share and 5,000,000 shares of serial preferred stock, par value $0.10 per share. Upon payment of the purchase price shares of common stock issued in the offering will be fully paid and non-assessable. Each share of common stock will have the same relative rights as, and will be identical in all respects with, each other share of common stock. The common stock will represent non-withdrawable capital, will not be an account of insurable type and will not be insured by the FDIC or any other governmental agency. The Board of Directors can, without stockholder approval, issue additional shares of common stock. Common Stock Distributions. Synergy Financial Group, Inc. can pay dividends if, as and when declared by its Board of Directors, subject to compliance with limitations that are imposed by law. See Dividend Policy at page __. The holders of common stock of Synergy Financial Group, Inc. will be entitled to receive and share equally in such dividends as may be declared by the Board of Directors of Synergy Financial Group, Inc. out of funds legally available therefor. If Synergy Financial Group, Inc. issues preferred stock, the holders thereof may have a priority over the holders of the common stock with respect to dividends. 110 Voting Rights. The holders of common stock will possess exclusive voting rights in Synergy Financial Group, Inc. The holder of shares of common stock will be entitled to one vote for each share held on all matters subject to stockholder vote and will not have any right to cumulate votes in the election of directors. Liquidation Rights. In the event of any liquidation, dissolution, or winding-up of Synergy Financial Group, Inc., the holders of the common stock generally would be entitled to receive, after payment of all debts and liabilities of Synergy Financial Group, Inc. (including all debts and liabilities of Synergy Bank and distribution of the balance in the special liquidation account of Synergy Bank to eligible account holders and supplemental eligible account holders), all assets of Synergy Financial Group, Inc. available for distribution. If preferred stock is issued, the holders thereof may have a priority over the holders of the common stock in the event of liquidation or dissolution. Preemptive Rights; Redemption. Because the holders of the common stock do not have any preemptive rights with respect to any shares Synergy Financial Group, Inc. may issue, the Board of Directors may sell shares of capital stock of Synergy Financial Group, Inc. without first offering such shares to existing stockholders. The common stock will not be subject to any redemption provisions. Preferred Stock We are authorized to issue up to 5,000,000 shares of serial preferred stock and to fix and state voting powers, designations, preferences, or other special rights of preferred stock and the qualifications, limitations and restrictions of those shares as the Board of Directors may determine in its discretion. Preferred stock may be issued in distinctly designated series, may be convertible into common stock and may rank prior to the common stock as to dividend rights, liquidation preferences, or both, and may have full or limited voting rights. The issuance of preferred stock could adversely affect the voting and other rights of holders of common stock. The authorized but unissued shares of preferred stock and the authorized but unissued and unreserved shares of common stock will be available for issuance in future mergers or acquisitions, in future public offerings or private placements. Except as otherwise required to approve the transaction in which the additional authorized shares of preferred stock would be issued, no stockholder approval generally would be required for the issuance of these shares. LEGAL AND TAX OPINIONS The legality of the issuance of the common stock being offered and certain matters relating to the stock offering and federal and state taxation will be passed upon for us by Malizia Spidi & Fisch, PC, Washington, D.C. and Grant Thornton LLP, Philadelphia, Pennsylvania. Certain legal matters will be passed upon for Sandler O'Neill & Partners, L.P. by Luse Gorman Pomerenk & Schick, P.C., Washington D.C. EXPERTS The consolidated financial statements of Synergy Financial Group, Inc. at December 31, 2002 and for the year ended December 31, 2002 have been included in this prospectus in reliance upon the report of Grant Thornton LLP, Philadelphia, Pennsylvania, appearing elsewhere in this prospectus, and upon the authority of said firm as experts in accounting and auditing. 111 The consolidated financial statements of Synergy Financial Group, Inc. at December 31, 2001 and for each of the years in the two year period ended December 31, 2001 have been included in this prospectus in reliance upon the report of Fontanella and Babitts, Certified Public Accountants, Totowa Boro, New Jersey, appearing elsewhere in this prospectus, and upon the authority of said firm as experts in accounting and auditing. FinPro, Inc. has consented to the publication in this document of a summary of its letter to Synergy Financial Group, Inc. setting forth its conclusion as to the estimated pro forma market value of the common stock and has also consented to the use of its name and statements with respect to it appearing in this document. REGISTRATION REQUIREMENTS Our common stock will be registered with the SEC pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We will be subject to the information, proxy solicitation, insider trading restrictions, tender offer rules, periodic reporting and other requirements of the SEC under the Exchange Act. We will not deregister the common stock under the Exchange Act for a period of at least three years following the stock offering. WHERE YOU CAN FIND ADDITIONAL INFORMATION We have filed with the SEC a registration statement on Form S-1 under the Securities Act of 1933, as amended, with respect to the common stock offered in this document. As permitted by the rules and regulations of the SEC, this document does not contain all the information set forth in the registration statement. This information can be examined without charge at the public reference facilities of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of the registration materials can be obtained from the SEC at prescribed rates. You may obtain information on the operation of the Public Reference Room by calling 1-800-SEC-0330. The SEC also maintains an Internet address ("web site") that contains reports, proxy and information statements and other information regarding registrants, including Synergy Financial Group, Inc., that file electronically with the SEC. The address for this web site is "http://www.sec.gov." The statements contained in this document as to the contents of any contract or other document filed as an exhibit to the Form S-1 are, of necessity, brief descriptions, and each statement is qualified by reference to the complete contract or document. Copies of the plan of conversion and reorganization are also available without charge. 112 SYNERGY FINANCIAL GROUP, INC. Index to Consolidated Financial Statements Reports of Independent Certified Public Accountants Report of Grant Thornton LLP F-1 Report of Fontanella and Babitts, Certified Public Accountants F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Income F-4 Consolidated Statements of Changes Stockholders' Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 Other schedules are omitted as they are not required or are not applicable or the required information is shown in the consolidated financial statements or related notes. 113 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS -------------------------------------------------- Board of Directors Synergy Financial Group, Inc. We have audited the accompanying consolidated balance sheet of Synergy Financial Group, Inc. and subsidiaries as of December 31, 2002, and the related consolidated statement of income, changes in stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit 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 audit provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Synergy Financial Group, Inc. and subsidiaries as of December 31, 2002, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. /s/Grant Thornton LLP Philadelphia, Pennsylvania February 15, 2003 F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS -------------------------------------------------- Board of Directors Synergy Financial Group, Inc. We have audited the accompanying consolidated balance sheet of Synergy Financial Group, Inc. and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statement of income, changes in stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Synergy Financial Group, Inc. and subsidiaries as of December 31, 2001 and 2000, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/Fontanella and Babitts Totowa, New Jersey January 31, 2002, except for Note 14 as to which the date is May 21, 2002 F-2 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Dollars in thousands)
December 31, June 30, --------------------------- 2003 2002 2001 ---------- ---------- ---------- (unaudited) ASSETS Cash and amounts due from banks $ 3,816 $ 3,064 $ 2,027 Interest-bearing deposits with banks 3,081 4,822 1,681 ---------- ---------- ---------- Cash and cash equivalents 6,897 7,886 3,708 Investment securities available for sale, at fair value 112,137 62,303 43,894 Investment securities held to maturity (fair value of $35,963, $17,689 and 7,230, respectively) 35,499 17,407 7,153 Federal Home Loan Bank of New York stock, at cost 3,760 1,856 1,550 Loans receivable, net 376,270 319,423 224,689 Accrued interest receivable 2,008 1,533 1,151 Property and equipment, net 18,049 17,647 11,639 Cash surrender value of officer life insurance 2,250 2,110 2,051 Other assets 4,495 1,110 1,128 -------- ---------- ---------- Total assets $ 561,365 $ 431,275 $ 296,963 ========= ========= ========= LIABILITIES Deposits $ 443,418 $ 354,142 $ 249,813 Federal Home Loan Bank advances 75,202 36,456 22,500 Advance payments by borrowers for taxes and insurance 1,606 1,414 1,046 Accrued interest payable on advances 116 165 174 Other liabilities 1,429 1,226 1,040 ---------- ---------- ---------- Total liabilities 521,771 393,403 274,573 ---------- ---------- ---------- STOCKHOLDERS' EQUITY Preferred stock; $0.10 par value, authorized 2,000,000 shares; none issued and outstanding - - - Common stock; $0.10 par value, authorized 18,000,000 shares; issued June 30, 2003 - 3,344,252 (unaudited), December 31, 2002 and 2001, 3,344,252 and 100, respectively 334 334 - Additional paid-in capital 14,888 13,644 100 Retained earnings 26,009 24,446 22,315 Unearned ESOP shares (1,067) (1,125) - Unearned RSP compensation (1,130) - - Treasury stock acquired for the RSP (103) - - Accumulated other comprehensive income (loss), net of taxes 663 573 (25) -------- ---------- ---------- Total stockholders' equity 39,594 37,872 22,390 ---------- ---------- ---------- Total liabilities and stockholders' equity $ 561,365 $ 431,275 $ 296,963 ========= ========= =========
F-3 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Income (Dollars in thousands)
For the Six Months Ended June 30, For the Year Ended December 31, ------------------- ----------------------------------- 2003 2002 2002 2001 2000 ------- ------ ------- ------- ------- (unaudited) Interest income: Loans, including fees $12,544 $ 9,340 $20,191 $15,989 $14,247 Investment securities 2,275 1,558 2,950 2,595 2,689 Other 108 4 218 487 184 ------- ------ ------- ------- ------- Total interest income 14,927 10,902 23,359 19,071 17,120 Interest expense: Deposits 4,497 3,244 7,322 7,463 5,827 Borrowed funds 825 874 1,722 1,833 2,132 ------- ------ ------- ------- ------- Total interest expense 5,322 4,118 9,044 9,296 7,959 Net interest income before provision for loan losses 9,605 6,784 14,315 9,775 9,161 ------- ------ ------- ------- ------- Provision for loan losses 470 551 1,077 363 480 ------- ------ ------- ------- ------- Net interest income after provision for loan losses 9,135 6,233 13,238 9,412 8,681 ------- ------ ------- ------- ------- Other income: Service charges and other fees on deposit accounts 732 475 1,112 885 753 Net gains on sales of loans - 123 118 888 - Net (losses) gains on sales of investments - (6) (6) 5 - Commissions 51 60 249 270 615 Other 251 233 247 467 402 ------- ------ ------- ------- ------- Total other income 1,034 885 1,720 2,515 1,770 Other expenses: Salaries and employee benefits 3,689 2,706 6,105 4,844 4,419 Premises and equipment 1,948 1,292 2,651 2,264 2,037 Occupancy 964 558 1,291 903 746 Professional services 276 163 384 301 281 Advertising 358 399 733 364 322 Other operating 528 271 563 325 404 ------- ------ ------- ------- ------- Total other expenses 7,763 5,389 11,727 9,001 8,209 Income before income tax expense 2,406 1,729 3,231 2,926 2,242 ------- ------ ------- ------- ------- Income tax expense 843 600 1,200 1,024 712 ------- ------ ------- ------- ------- Net income $ 1,563 $ 1,129 $ 2,031 $ 1,902 $ 1,530 ======== ====== ======= ======= ======= Per share of common stock: Basic earnings per share $ 0.48 $ N/M $ N/M $ - $ - ======== ===== ====== ======= ======= Diluted earnings per share $ 0.48 $ N/M $ N/M $ - $ - ======== ===== ====== ======= =======
F-4 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Statement of Changes In Stockholders' Equity (Dollars in thousands, except Per Share Amounts)
Common Stock ------------ Additional Unearned Shares Par Paid-in- Retained ESOP Issued Value capital Earnings Shares ---------- --------- ----------- ------------ ------------ - BALANCE AT JANUARY 1, 2000 -- $ -- $ -- $19,083 $ -- Net Income -- -- -- 1,530 -- Other comprehensive income, net of reclassification adjustment of taxes -- -- -- -- -- - ------------------------------------------------------------------------------------------------------ Total comprehensive income - ------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 2000 -- -- -- 20,613 -- Net Income -- -- -- 1,902 -- Other comprehensive income, net of reclassification adjustment and taxes -- -- -- -- -- - ------------------------------------------------------------------------------------------------------ Total comprehensive income - ------------------------------------------------------------------------------------------------------ Distribution to capitalize Mutual Holding Company and Stock Holding Company 100 -- 100 (200) -- - ------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 2001 100 -- 100 22,315 -- Net Income -- -- -- 2,031 -- Other comprehensive income (loss), net of reclassification adjustment and taxes -- -- -- -- -- - ------------------------------------------------------------------------------------------------------ Total comprehensive income - ------------------------------------------------------------------------------------------------------ Net proceeds of stock offering and issuance of common stock 3,344,152 334 13,526 100 -- Common stock acquired by ESOP (116,380 shares) -- -- -- -- (1,164) Common stock held by ESOP committed to be released (3,879 shares) -- -- 18 -- 39 - ------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 2002 3,344,252 334 13,644 24,446 (1,125) Net Income for the six months ended June 30, 2003 (unaudited) -- -- -- 1,563 -- Other comprehensive income (loss), net of reclassification adjustment and taxes -- -- -- -- -- - ------------------------------------------------------------------------------------------------------ Total comprehensive income - ------------------------------------------------------------------------------------------------------ Common stock held by ESOP committed to be released (5,818 shares) (unaudited) -- -- 54 -- 58 Common stock awarded through RSP Plan (56,685 shares) (unaudited) -- -- 1,190 -- Compensation recognized under RSP Plan (unaudited) -- -- -- -- -- Common stock held by RSP (5,000 shares) (unaudited) BALANCE AT JUNE 30, 2003 (Unaudited) 3,344,252 $334 $14,888 $26,009 $(1,067) ========= === ====== ====== ====== Accumulated Other Treasury Compre- Stock hensive Unearned Acquired Income RSP for the (loss), net Compensation RSP of taxes Total ------------- ---------- ------------ ----------- BALANCE AT JANUARY 1, 2000 $ -- $ -- $ (887) $18,196 Net Income -- -- -- 1,530 Other comprehensive income, net of reclassification adjustment of taxes -- -- 636 636 - -------------------------------------------------------------------------------------------- Total comprehensive income 2,166 - -------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 2000 -- -- (251) 20,362 Net Income -- -- -- 1,902 Other comprehensive income, net of reclassification adjustment and taxes -- -- 226 226 - -------------------------------------------------------------------------------------------- Total comprehensive income 2,128 - -------------------------------------------------------------------------------------------- Distribution to capitalize Mutual Holding Company and Stock Holding Company -- -- -- (100) - -------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 2001 -- -- (25) 22,390 Net Income -- -- -- 2,031 Other comprehensive income (loss), net of reclassification adjustment and taxes -- -- 598 598 - -------------------------------------------------------------------------------------------- Total comprehensive income 2,629 - -------------------------------------------------------------------------------------------- Net proceeds of stock offering and issuance of common stock -- -- -- 13,960 Common stock acquired by ESOP (116,380 shares) -- -- -- (1,164) Common stock held by ESOP committed to be released (3,879 shares) -- -- -- 57 - -------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 2002 -- -- 573 37,872 Net Income for the six months ended June 30, 2003 (unaudited) -- -- -- 1,563 Other comprehensive income (loss), net of reclassification adjustment and taxes -- -- 90 90 - -------------------------------------------------------------------------------------------- Total comprehensive income 1,653 - -------------------------------------------------------------------------------------------- Common stock held by ESOP committed to be released (5,818 shares) (unaudited) -- -- -- 112 Common stock awarded through RSP Plan (56,685 shares) (unaudited) (1,190) -- -- -- Compensation recognized under RSP Plan (unaudited) 60 -- -- 60 Common stock held by RSP (5,000 shares) (unaudited) (103) (103) BALANCE AT JUNE 30, 2003 (Unaudited) $(1,130) $(103) $ 663 $39,594 ====== ==== ==== ======
F-5 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands)
For the Six Months Ended June 30, For the Year Ended December 31, ----------------------- ----------------------------------- 2003 2002 2002 2001 2000 --------- --------- --------- --------- --------- (unaudited) Operating activities: Net income $ 1,563 $ 1,129 $ 2,031 $ 1,902 $ 1,530 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 756 388 944 736 682 Provision for loan losses 470 551 1,077 363 480 Deferred income taxes (97) (420) (337) (34) (33) Amortization of deferred loan fees 30 63 13 (123) (201) Amortization of premiums on investment securities 747 119 338 83 39 Net losses (gains) on sales of investment securities -- 6 6 (5) -- Gains on sale of loans -- (123) (118) (888) -- Release of ESOP shares 112 -- 56 -- -- Compensation under RSP plan 60 -- -- -- -- Increase in accrued interest receivable (375) (377) (382) (9) (130) (Increase) decrease in other assets (1,625) 478 39 (165) (35) (Decrease) increase in other liabilities (170) (63) 188 283 (475) Increase in cash surrender value of officer life insurance (140) (59) (59) (109) (99) (Decrease) increase in accrued interest payable on advances (50) (17) (9) (75) 121 --------- --------- --------- --------- --------- Net cash provided by operating activities 1,281 1,675 3,787 1,959 1,879 --------- --------- --------- --------- --------- Investing activities: Purchase of investment securities held-to-maturity (10,650) (11) (15,217) (6,000) -- Purchase of investment securities available-for-sale (67,661) (19,979) (49,199) (36,905) -- Maturity and principal repayments of investment securities held-to-maturity 9,422 -- 4,900 11,058 1,324 Maturity and principal repayments of investment securities available-for-sale 22,748 13,110 29,396 18,290 7,782 Purchase of property and equipment (934) (2,391) (6,951) (7,220) (910) (Purchases) redemption of FHLB Stock (1,904) (1,300) (306) 435 (635) Proceeds from sale of investment securities available-for-sale -- 2,026 2,036 1,010 -- Loan originations, net of principal repayments (34,649) (57,643) (87,384) (48,323) (23,193) Purchase of loans -- (13,717) (13,685) (3,998) (3,011) Proceeds from sale of loans -- 5,322 5,352 17,379 -- Cash consideration paid to acquire First Bank Central Jersey (2,269) -- -- -- -- Cash and equivalents acquired from First Bank Central Jersey 7,773 -- -- -- -- --------- --------- --------- --------- --------- Net cash used in investing activities (78,124) (74,583) (131,058) (54,274) (18,643) --------- --------- --------- --------- --------- Financing activities: Net increase in deposits 37,019 51,922 104,328 58,670 10,200 Net advances from (repayment to FHLB 38,746 20,700 13,956 (9,000) 9,800 Increase in advance payments by borrowers for taxes and insurance 192 404 369 315 13 Net proceeds from issuance of common stock -- -- 13,960 -- -- Purchase of common stock for ESOP -- -- (1,164) -- -- Capitalization of Mutual Holding Company -- -- -- (100) -- Purchase of treasury stock for the RSP Plan (103) -- -- -- -- --------- --------- --------- --------- --------- Net cash provided by financing activities 75,854 73,026 131,449 49,885 20,013 --------- --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents (989) 118 4,178 (2,430) 3,249 Cash and cash equivalents at beginning of year 7,886 3,708 3,708 6,138 2,889 --------- --------- --------- --------- --------- Cash and cash equivalents at end of period $ 6,897 $ 3,826 $ 7,886 $ 3,708 $ 6,138 ========= ========= ========= ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for income taxes $ 907 $ 720 $ 1,529 $ 1,058 $ 918 ========= ========= ========= ========= ========= Interest paid on deposits and borrowed funds $ 5,130 $ 4,130 $ 9,053 $ 9,376 $ 7,831 ========= ========= ========= ========= =========
F-6 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- As part of a reorganization completed in 2001 and described more fully in Note B, Synergy Financial Group, Inc. (the Company) was formed as a federally-chartered corporation and parent of Synergy Bank, formerly known as Synergy Federal Savings Bank (the Bank). The Bank has eighteen office locations, including its main office and provides a range of financial services to individuals and corporate customers through its branch network located throughout Middlesex, Monmouth, Morris and Union counties in New Jersey. Although the Bank offers numerous services, its lending activity has concentrated primarily on residential and commercial real estate-secured loan located within New Jersey. Additionally, a moderate concentration of loans and deposits continue to be associated with employees of the Bank's former credit union sponsor organization, a pharmaceutical research and manufacturing company. The Bank competes with other banking and financial institutions in its primary market communities. Commercial banks, savings banks, savings and loan associations, credit unions and money market funds actively compete for savings and time deposits and loans. Such institutions, as well as consumer financial and insurance companies, may be considered competitors of the Bank with respect to one or more of the services it renders. The Bank is subject to regulations of certain federal agencies and, accordingly, it is periodically examined by those regulatory authorities. As a consequence of the regulation of commercial banking activities, the Bank's business is particularly susceptible to being affected by future federal legislation and regulations. Basis of Financial Statement Presentation - ----------------------------------------- The accounting policies followed by 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, the Bank and Synergy Financial Services, Inc. (SFSI). All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial Statements for the six months ended June 30, 2003 and 2002, are unaudited, but in the opinion of management such financial statements have been presented on the same basis as the audited financial statement for the years ended December 31, 2002, 2001 and 2000. These financial statements include all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of the financial position and results of operations and cash flows for these periods. The results of operations presented in the accompanying financial statements are not necessarily representative of operations for an entire year. 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 losses. The evaluation of the adequacy of the allowance for loan 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 F-7 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 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 and residential mortgage lending. Accordingly, all significant operating decisions are based upon analysis of the Bank as one operating segment. Cash and Cash Equivalents - ------------------------- The Company considers all cash on hand and in banks and highly liquid debt instruments with original maturities of three months or less to be cash equivalents. Investment Securities - --------------------- Investment securities which are held for indefinite periods of time, which management intends to use as part of its asset/liability strategy, or which may be sold in response to changes in interest rates, changes in prepayment risk, increases in capital requirements, or other similar factors are classified as available for sale and are carried at fair value. Net unrealized gains and losses for such securities, net of tax, are required to be recognized as a separate component of shareholders' equity and excluded from determination of net income. Gains or losses on disposition are based on the net proceeds and cost of the securities sold, adjusted for amortization of premiums and accretion of discounts, using the specific identification method. SFAS No. 119, Disclosure Derivative Financial Instruments and Fair Value of Financial Instruments, requires disclosure about financial instruments, which are defined as futures, forwards, swap and option contracts and other financial instruments with similar characteristics. On-balances-sheet receivables and payables are excluded from this definition. The Bank did not hold any derivative financial instruments as defined by SFAS No. 119 at June 30, 2003 or December 31, 2002, 2001 or 2000. The Bank follows SFAS No. 133 as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities. SFAS No. 138 requires that entities recognize all derivatives as either assets or liabilities in the statement of financial condition and measure those instruments as fair value. The Bank does not have any derivative instruments at June 30, 2003 or December 31, 2002, 2001 or 2000. Loans and Allowance for Loan Losses - ----------------------------------- Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at the amount of unpaid principal, reduced by unearned income and an allowance for loan losses. Interest on loans is calculated based upon the principal amount outstanding. The Company defers and amortizes certain origination and commitment fees, and certain direct loan origination costs over the contractual life of the related loans. This results in an adjustment of the related loan's yield. Accrual of interest is stopped on a loan when management believes, after considering economic and business conditions and collection efforts that the borrower's financial condition is such that collection of interest is doubtful. F-8 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management and is based upon management's periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. The Bank accounts for its impaired loans in accordance with SFAS No. 114, Accounting by Creditors for Impairment of a Loan, as amended by SFAS No. 118, Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures. Accordingly, a non-residential real estate loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reason for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogenous loans (residential mortgages and consumer installment loans) are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual consumer and residential loans for impairment disclosures. The Bank accounts for its transfers and servicing financial assets in accordance with SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 140 revises the standards for accounting for the securitizations and other transfers of financial assets and collateral. At June 30, 2003, December 31, 2002 and 2001, the Bank's servicing loan portfolio approximated $8.8 million, 13.0 million and 18.0 million, respectively. As of June 30, 2003, December 31, 2002 and 2001, the Bank has no mortgage serving assets remaining. The Company adopted FASB Interpretation ("FIN") 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others, on January 1, 2003. FIN 45 requires a guarantor entity, at the inception of a guarantee covered by the measurement provisions of the interpretation, to record a liability for the fair value of the obligation undertaken in issuing the guarantee. Financial letters of credit require the Company to make payment if the customer's financial condition deteriorates, as defined in the agreements. Performance letters of credit require the Company to make payments if the customer fails to perform certain non-financial contractual obligations. The Company previously did not record a liability when guaranteeing obligations unless it became probable that the Company would have to perform under the guarantee. FIN 45 applies prospectively to guarantees the Company issues or modifies subsequent to December 31, 2002. At June 30, 2003, the Company was not contingently liable for any financial and performance letters of credit. It is the Bank's practice to generally hold collateral and/or obtain personal guarantees supporting any outstanding letter of credit commitments. In the event that the Bank is required to fulfill its contingent liability under a F-9 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 standby letter of credit, it could liquidate the collateral held, if any, and enforce the personal guarantee(s) held, if any, to recover all or a portion of the amount paid under the letter of credit. In 2001, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 102, Selected Loan Loss Allowance Methodology and Documentation Issues. SAB No. 102 provides guidance on the development, documentation, and application of a systematic methodology for determining the allowance for loans and leases in accordance with US GAAP and is effective upon issuance. SAB No. 102 did not have a material impact on the Company's financial position or results of operations. Concentration Risk - ------------------ The lending activities are concentrated in loans secured by real estate located in the State of New Jersey. In addition, a moderate concentration of loans and deposits continue to be associated with employees of the Bank's former credit union sponsor organization, a pharmaceutical research and manufacturing company. At June 30, 2003, approximately 21.9% of the loan portfolio and 28.1% of total deposits were associated with individuals employed by this company. Premises and Equipment - ---------------------- Buildings, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization computed by the straight-line method over the estimated useful lives of the assets. On January 1, 2002, the Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 retains the existing requirements to recognize and measure the impairment of long-lived assets to be held and used or to be disposed of by sale. SFAS No. 144 changes the requirements relating to reporting the effects of a disposal or discontinuation of a segment of a business. The adoption of this statement did not have an impact on the financial condition or results of operations of the Company. Goodwill and intangible assets - ------------------------------ The Company accounts for goodwill and intangible assets acquired in a business combination in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets." Under SFAS No. 142 goodwill is not amortized; instead, the carrying value of goodwill is evaluated for impairment on an annual basis. Identifiable intangible assets are amortized over their useful lives and reviewed for impairment. On January 10, 2003, the Bank acquired all of the net assets of First Bank of Central Jersey (First Bank) for a cash purchase price of approximately $2.1 million plus expenses directly related to the acquisition. This transaction was accounted for under the purchase method. The acquisition resulted in the recording of approximately $42,000 of goodwill and approximately $668,000 of core deposit intangible, which is being amortized over approximately 8 years. Both of these amounts are included in other assets on the consolidated financial statements. F-10 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 Income Taxes - ------------ The Company accounts for income taxes under the liability method. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities. The principal types of differences between assets and liabilities for financial statement and tax return purposes are allowance for loan losses, deferred loan fees, deferred compensation and investment securities available for sale. Other Real Estate Owned - ----------------------- Other real estate owned is recorded at the lower of cost or estimated fair market value less costs of disposal. When property is acquired, the excess, if any, of the loan balance over fair market value is charged to the allowance for possible loan losses. Periodically thereafter, the asset is reviewed for subsequent declines in the estimated fair market value. Subsequent declines, if any, and holding costs, as well as gains and losses on subsequent sale, are included in the consolidated statements of income. 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. In computing both basic and diluted earnings per share, the weighted average number of common shares outstanding includes all 1,889,502 shares issued to Synergy, MHC. Also included are 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. Earnings per share is not presented for the period from September 17, 2002 (the date of conversion to a stock company) though December 31, 2002 and for the six months ended June 30, 2002 as the earnings per share calculation for that period is not meaningful. The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computation for the six months ended June 30, 2003 (dollars in thousands, except per share data): F-11 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
-------------------------------------------------------- Income Weighted Per (numerator) Average Shares Share Amount (denomninator) ------------- ---------------- ------------------ (unaudited) Basic earnings per share: Income available to common stockholders $1,563 3,233,946 $0.48 ===== Effect of dilutive common stock equivalents 722 - --------- ---- Diluted earnings per share: Income available to common stockholders plus assumed conversion $1,563 3,234,668 $0.48 ===== ========= ====
Stock-Based Compensation - ------------------------ At the annual meeting held on April 22, 2003, stockholders' of the Company approved the 2003 Stock Option Plan and the 2003 Restricted Stock Plan. A total of 165,746 and 66,297 shares of common stock have been made available for granting under the Stock Option and Restricted Stock Plans (RSP), respectively. During the quarter, the Company granted 165,746 options to purchase common shares of the Company and issued 56,685 shares of restricted stock. Prior to April 22, 2003, the Company did not have a Stock Option Plan or a Restricted Stock Plan. 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. 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 outline in SFAS No. 123, the Company's net income and earnings per share for all expenses related to stock options and stock granted in our restricted stock plan would have been reduced to the pro forma amounts that follow (in thousands, except per share data): F-12 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
For the Six Months Ended June 30, 2003 (unaudited) ------------------------- Net income, as reported $ 1,563 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 $ 1,515 ======== Basic earnings per share As reported $ 0.48 Pro forma $ 0.47 Diluted earnings per share As reported $ 0.48 Pro forma $ 0.47
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 5 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) 93-6, Employers' Accounting for Employee Stock Ownership Plans. SOP 93-6 addresses the accounting for shares of stock issued to employees by an ESOP. SOP 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. Advertising Costs - ----------------- It is the Company's policy to expense advertising costs in the period in which they are incurred. Comprehensive Income - -------------------- The Company reports comprehensive income, which includes net income as well as certain other items, which results in a change to equity during the period. The income tax effects allocated to comprehensive income (loss) are as follows (in thousands): F-13 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
For the Six Months Ended June 30, 2003 (unaudited) -------------------------------------- Before Tax Net of tax (expense) tax amount benefit amount ------------ ------------- ----------- Unrealized gains on investment securities: Unrealized holding gains arising during period $ 157 $ (67) $ 90 Less reclassification adjustment for losses realized in net income - - - ---- ------ ---- Other comprehensive income (loss), net $ 157 $ (67) $ 90 ==== ====== ====
For the Year Ended For the Year Ended For the Year Ended December 31, 2002 December 31, 2001 December 2000 ---------------------------------------------------------------------------------------------- Before Tax Net of Before Tax Net of Before Tax Net of tax (expense) tax tax (expense) tax tax (expense) tax amount benefit amount amount benefit amount amount benefit amount ---------------------------------------------------------------------------------------------- Unrealized gains on investment securities: Unrealized holding gains $ 918 $ (324) $ 594 $358 $ (129) $ 229 $993 $(357) $ 636 arising during period Less reclassification adjustment for losses realized in net income (6) 2 (4) 5 (2) 3 - - - ---- ---- ---- --- ----- ---- --- ---- ---- Other comprehensive income (loss), net $ 924 $ (326) $ 598 $353 $ (127) $ 226 $993 $(357) $ 636 ==== ===== ==== === ===== ==== === ==== ====
F-14 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 Reclassifications - ----------------- Reclassifications of prior years amounts have been made to conform to the June 30, 2003 presentation. NOTE B - MHC REORGANIZATION AND STOCK OFFERING - ---------------------------------------------- The Company is a federally-chartered corporation that was organized in 2001 for the purpose of acquiring all of the capital stock of the Bank upon completion of the Bank's reorganization from a mutual savings bank into a mutual holding company (MHC) structure. The overall MHC reorganization was a change in legal organization and form, not a change in enterprise. Specifically, SFAS No. 141 excludes from the definition of business combination, any transfer by an enterprise of its net assets to a newly-formed corporate entity chartered by the existing enterprise and a transfer of net assets and an exchange of shares between enterprises under common control. Accordingly, absent classification as a business combination as defined under SFAS No. 141, the basis of MHC's assets and liabilities subsequent to the reorganization will remain unchanged from the Bank's pre-existing historical basis. In 2002, the Company offered for sale 43.5% of the shares of its common stock in an offering fully subscribed for by eligible depositors of the Bank (the Offering). The remaining 56.5% of the Company's shares of common stock were issued to Synergy, MHC (MHC), a federally-chartered mutual holding company formed in 2001. The Offering was completed on September 17, 2002. Prior to that date, the Company had not engaged in any significant business. Completion of the Offering resulted in the issuance of 3,344,152 shares of common stock, 1,889,402 shares (56.5%) of which were issued to the MHC and 1,454,750 shares (43.5%) of which were sold to eligible depositors of the Bank at $10.00 per share. Costs related to the Offering (primarily marketing fees paid to an underwriting firm, professional fees, registration fees, and printing and mailing costs) aggregated approximately $687,000 and have been deducted to arrive at net proceeds of approximately $13,960,000 from the Offering. The Company contributed 43% of the net proceeds of the Offering to the Bank for general corporate use. F-15 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTE C - INVESTMENT SECURITIES - ------------------------------ The amortized cost, gross unrealized gains and losses, and fair value of the Bank's investment securities available for sale and held to maturity are as follows (in thousands):
June 30, 2003 (unaudited) ------------------------------------------------------------------ Gross Gross Amortized unrealized unrealized Fair cost gains losses value ------------- ------------- ------------- ------------- Available-for-sale: US Government Obligations $ 3,543 $ 20 $ - $ 3,563 Mortgage-backed securities: FHLMC 43,931 305 - 44,236 FNMA 62,604 730 - 63,335 Equity securities 1,017 1 15 1,003 ------- -------- ------ --------- Total $111,095 $ 1,056 $ 15 $ 112,137 ======= ======== ====== ========= Held-to-maturity Mortgage-backed securities: FHLMC $ 5,403 $ 22 $ - $ 5,425 FNMA 19,827 266 - 20,093 GNMA 10,259 187 - 10,446 Other debt securities 10 - - 10 ------- -------- ------ --------- Total $ 35,499 $ 475 $ - $ 35,974 ======= ======== ====== ========= December 31, 2002 ------------------------------------------------------------------ Gross Gross Amortized unrealized unrealized Fair cost gains losses value ------------- ------------- ------------- ------------- Available-for-sale: Mortgage-backed securities: FHLMC $ 21,140 $ 267 $ - $ 21,407 FNMA 40,267 619 - 40,886 Equity securities 11 - 1 10 ------- -------- ------ --------- Total $ 61,418 $ 886 $ 1 $ 62,303 ======= ======== ====== ========= Held-to-maturity: Mortgage-backed securities: FHLMC $ 3,249 $ 19 $ - $ 3,268 FNMA 11,395 124 - 11,519 GNMA 2,763 139 - 2,902 ------- -------- ------ --------- Total $ 17,407 $ 282 $ - $ 17,689 ======= ======== ====== =========
F-16 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
December 31, 2001 ------------------------------------------------------------------ Gross Gross Amortized unrealized unrealized Fair cost gains losses value ------------- ------------- ------------- ------------- Available-for-sale: Mortgage-backed securities: FHLMC $ 24,609 $ 179 $ 193 $ 24,595 FNMA 19,324 134 159 19,299 ------- ------- ----- ------- Total $ 43,933 $ 313 $ 352 $ 43,894 ======= ======== ===== ======= Held-to-maturity: Mortgage-backed securities: FNMA $ 2,458 $ 37 $ - $ 2,495 GNMA 4,695 40 - 4,735 ------- ------- ----- ------- Total $ 7,153 $ 77 $ - $ 7,230 ======= ======= ===== =======
The amortized cost and fair value of investment securities available for sale and held to maturity, by contractual maturity, at June 30, 2003 are shown below. 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.
Available for sale Held to maturity ------------------------------- ------------------------------- Amortized Fair Amortized Fair cost value cost value ------------- ------------- ------------- ------------- (unaudited) (unaudited) Due in one year or less $ 223 $ 225 $ - $ - Due after one through five years 23,790 24,057 2,147 2,162 Due after five through ten years 12,762 13,107 10,756 10,917 Due after ten years 73,303 73,745 22,586 22,885 Marketable equity securities and other 1,017 1,003 10 10 ------- -------- ------- -------- $ 111,095 $ 112,137 $ 35,499 $ 35,974 ======= ======= ======== =========
Proceeds from the sales of investment securities during the six months ended June 30, 2003 and 2002 and the years ended December 31, 2002, 2001 and 2000 were $0, $2,026,000, $2,036,000, $1,010,000 and $0, respectively. Gross gains realized on those sales were $0, $0, $0, $5,000 and $0 for the six months ended June 30, 2003 and 2002 and the years ended December 31, 2002, 2001 and 2000, respectively, and gross losses were $0, $6,000, $6,000, $0 and $0 for the six months ended June 30, 2003 and 2002 and the years ended December 31, 2002, 2001 and 2000, respectively. As of June 30, 2003 and December 31, 2002, investment securities with a book value of $4,209,000 and $291,000, respectively, were pledged to secure public deposits and for other purposes as provided by law. F-17 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTE D - LOANS RECEIVABLE - ------------------------- Major classifications of loans are as follows (in thousands):
December 31, ----------------------------- June 30, 2003 2002 2001 ------------- --------- --------- (unaudited) Mortgages Residential, 1-4 family $ 214,498 $ 202,325 $ 148,826 Residential, multi-family 22,471 18,069 5,281 Non-residential 40,445 30,317 13,763 Automobile 89,219 63,796 52,206 Commercial 8,465 2,472 - Credit card 97 136 30 Other loans 3,910 4,454 6,033 ---------- -------- ------- 379,105 321,569 226,139 Deferred loan fees and costs 135 85 (78) Allowance for loan losses (2,970) (2,231) (1,372) ---------- -------- ------- $ 376,270 $ 319,423 $ 224,689 =========== ======== =======
A summary of the activity in the allowance for loan losses is as follows (in thousands):
Six Months Ended June 30, Year Ended December 31, ---------------------- ------------------------------------- 2003 2002 2002 2001 2000 ------- ------ ------- ------- ------ (unaudited) Balance, beginning of period $ 2,231 $ 1,372 $ 1,372 $ 1,176 $ 995 Provision for loan losses 470 551 1,077 363 480 Acquisition of First Bank 823 - - - - Recoveries 219 118 216 250 196 Loans charged-off (773) (126) (434) (417) (495) ------- ------ ------- ------- ------ Balance, end of period $ 2,970 $ 1,915 $ 2,231 $ 1,372 $ 1,176 ======== ======= ======== ======== =======
Loan balances on which the accrual of interest has been discontinued amounted to $533,000, $123,000, $449,000 and $71,000 at June 30, 2003 and 2002 and December 31, 2002 and 2001, respectively. If interest on these loans had been accrued, interest income would have increased by $9,000, $1,000, $17,000 and $2,000, respectively. As of the end of these periods, there were no loans past due 90 days or more, which are not on a non-accrual status. The Bank's policy is to consider nonaccrual loans in excess of $300,000 as impaired. As defined, there were no impaired loans as of the periods noted. In the normal course of business, the Company makes loans to certain officers, directors and their related interests. All loan transactions entered into between the Company and such related parties were made on the same terms and conditions as transactions with all other parties. In management's opinion, such loans are consistent with sound banking practices and are within applicable regulatory lending limitations. The balance of these loans at June 30, 2003 and December 31, 2002 was approximately $2,501,000 and $1,999,000. For the six months ended June 30, 2003, and the year ended December 31, 2002 new loans to these individuals amounted to approximately $975,000 and 1,562,000, respectively. F-18 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTE E - PROPERTY AND EQUIPMENT - ------------------------------- Premises and Equipment are summarized ad follows (in thousands):
December 31, Estimated June 30, ---------------------------- useful life 2003 2002 2001 ----------- ------------- ---------- ---------- (unaudited) Land Indefinite $ 2,704 $ 2,704 $ 782 Building and improvements 3 to 40 years 11,190 10,986 2,230 Furniture, equipment and automobiles 3 to 12 years 6,672 5,596 4,284 Leasehold improvements 3 to 15 years 3,352 3,028 1,887 Property held for future office sites Indefinite 319 375 6,554 -------- -------- -------- 24,237 22,689 15,737 Less accumulated depreciation and amortization (6,188) (5,042) (4,098) -------- -------- -------- $ 18,049 $ 17,647 $ 11,639 ========= ========= =========
NOTE F - DEPOSITS - ----------------- Deposits are summarized as follows (in thousands):
December 31, June 30, ------------------------------ 2003 2002 2001 ------------ ---------- ---------- (unaudited) Demand accounts Non-interest bearing $ 48,339 $ 39,077 $ 31,148 Interest bearing 63,517 47,917 40,811 -------- -------- -------- 111,856 86,994 71,959 Savings and club accounts 75,007 64,827 56,816 Certificates of deposit under $100,000 203,281 131,463 88,718 Certificates of deposit over $100,000 53,274 70,857 32,320 -------- -------- -------- $ 443,418 $ 354,141 $ 249,813 ========= ========= =========
The scheduled maturities of certificates of deposit at June 30, 2003 are as follows (in thousands and unaudited): 2003 $ 170,950 2004 70,204 2005 10,505 2006 1,595 2007 2,632 Thereafter 668 --------- $ 256,554 ========= F-19 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 Interest expense on deposits is as follows (in thousands):
Six Months Ended June 30, Year Ended December 31, ------------------------- ------------------------------------------- 2003 2002 2002 2001 2000 ------- -------- -------- -------- -------- (unaudited) Demand $ 454 $ 383 $ 784 $ 1,038 $ 1,131 Savings 348 368 765 972 1,095 Certificates of deposit 3,695 2,493 5,773 5,453 3,601 ------- -------- -------- -------- -------- $ 4,497 $ 3,244 $ 7,322 $ 7,463 $ 5,827 ======= ======== ======== ======== ========
NOTE G - Federal Home Loan Bank 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 At or for the Year ended Six Months Ended December 31, June 30, --------------------------------------- 2003 2002 2001 2000 ------------- ---------- ---------- ---------- (unaudited) Average balance outstanding $ 21,526 $ 7,053 $ -- $ 4,173 Maximum amount outstanding $ 47,140 $ 19,225 $ -- $ 11,200 at any month-end during the period Balance outstanding at period end $ 47,140 $ 2,500 $ -- $ -- Weighted average interest rate during the period 1.33% 1.98% --% 6.69% Weighted average interest rate at period end 1.21% 1.35% --% --%
2. Long-Term FHLB Advances ----------------------- At June 30, 2003, advances from the Federal Home Loan Bank (FHLB) totaled $28,062. Advances consist of fixed-rate advances that will mature within one to eight 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 4.28%. Unused overnight lines of credit at the FHLB at June 30, 2003 were $0. As of June 30, 2003 Long-term FHLB advances mature as follows (in thousands and unaudited): 2004 8,000 2005 6,062 2006 3,000 2007 2,000 2008 -- Thereafter 9,000 --------- $ 28,062 ========= F-20 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTE H - Benefit Plans - ---------------------- 1. Profit Sharing Retirement Plan ------------------------------ The Company had a profit sharing plan which covered eligible employees and included an employees' thrift savings plan established under the provisions of the Internal Revenue Code Section 401(k). Contributions to the profit sharing plan were at the discretion of the Board of Directors. The Company's profit sharing retirement plan expense for the six months ended June 30, 2003 and June 30, 2002 and the years ended December 31, 2002, 2001 and 2000 were approximately $0, $81,000 and $216,000, $214,000 and $196,000, respectively. This plan was replaced by the Board of Directors on September 21, 2002 with an Employee Stock Ownership Plan (ESOP). 2. Supplemental Executive Retirement Plans --------------------------------------- The Company established a Supplemental Executive Retirement Plan (SERP) for the benefit of its chief executive officer. In connection therewith, the Company purchased a life insurance policy to satisfy its benefit obligation there under. This policy is held within a rabbi trust. The cash surrender value of the life insurance policy related to the SERP was approximately $2,250,000 and $2,110,000, at June 30, 2003 and December 31, 2002, respectively. Annual accruals for expense are paid to a trust for the benefit of the chief executive officer. The present value of future benefits is being accrued over the term of employment. SERP expense for the six months ended June 30, 2003 and 2002 and the years ended December 31, 2002, 2001 and 2000 were approximately $12,000, $11,000, $22,000, $20,000 and $17,000, respectively. On January 1, 2002 the Company adopted an SERP for the benefit of other executive officers. This plan requires an annual accrual equal to ten percent of each participant's base salary to be credited to the plan reserve. Plan expense for the six months ended June 30, 2003 and 2002 and the year ended December 31, 2002 were approximately $19,000, $17,000 and $35,000, respectively. 3. Phantom Stock Plan ------------------ Prior to the reorganization and stock offering as described in Note B, the Company maintained a phantom stock and phantom option plan for the benefit of its chief executive officer. Under the plan, the chief executive was awarded phantom stock and options, the value of which is determined annually based upon a valuation of the Company assuming it was a stock company. Plan expense for the six months ended June 30, 2003 and 2002 and the years ended December 31, 2002, 2001 and 2000 were approximately $5,000, $6,000, $8,000, $11,000 and $11,000, respectively. The phantom stock and phantom option plan for the benefit of the chief executive officer was replaced by a Deferred Compensation Plan in September, 2002. The Plan expenses for the six months ended June 30, 2003 and year ended December 31, 2002 were approximately $5,000 and $5,000, respectively. 4. Employee Stock Ownership Plan ----------------------------- On September 24, 2002, the Board of Directors approved an Employee Stock Ownership Plan (ESOP) that became effective January 1, 2002. The Plan is designed to provide eligible employees the advantage of ownership of Company stock. Employees are eligible to participate in the Plan after reaching age twenty-one, completion of one year of service and working at least one thousand hours of consecutive service during the year. Contributions are allocated to eligible participants on the basis of compensation. F-21 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 The ESOP borrowed $1,163,800 from the Company to finance the purchase of 116,380 shares in connection with the initial public offering. The loan is payable in annual installments over ten years at an annual interest rate equal to the prime rate as published in The Wall Street Journal with interest payable quarterly. The loan can be prepaid without penalty. Loan payments are principally funded by cash contributions from the Bank, subject to federal tax law limits. Shares used as collateral to secure the loan are released and available for allocation to eligible employees as the principal and interest on the loan is paid. Employees become fully vested in their ESOP account after five years of service. Dividends on unallocated shares are generally applied towards payment of the loan. ESOP shares committed to be released are considered outstanding in determining earnings per share. At June 30, 2003, the ESOP held 106,682 unallocated shares at an aggregate cost of $1,067,000; the market value of such shares at that date was approximately $2,187,000. For the six months ended June 31, 2003, $113,000 was charged to compensation and employee benefits expense based on the commitment to release 5,819 shares to eligible employees. 5. Stock-Based Compensation - --------------------------- At the annual meeting held on April 22, 2003, stockholders' of the Company approved the Company's 2003 Stock Option Plan and the 2003 Restricted Stock Plan. A total of 165,746 and 66,297 shares of common stock have been made available for granting under the Stock Option and Restricted Stock Plans (RSP), respectively. During he quarter, the Company granted 165,746 options to purchase common shares of the Company and issued 56,685 shares of restricted stock. Prior to April 22, 2003, the Company did not have a Stock Option Plan or a Restricted Stock Plan. The purpose of the RSP is to promote the growth and profitability of the Company by providing Directors, Officers and employees with an equity interest in the Company as an incentive to achieve corporate goals. Under the RSP, 66,297 shares of the Company's stock were reserved for issuance as restricted stock awards to officers, employees, and non-employee directors in recognition of prior service and as an incentive for such individuals to remain with the Company. A deferred compensation account for shares awarded under the RSP is recorded as a reduction of stockholders' equity. Shares issued upon vesting may be either authorized but unissued shares or reacquired shares held by the Company as treasury shares. Through June 30, 2003, the Company acquired 5,000 shares of stock that relates to the RSP; such shares are included in treasury stock. The restricted stock grants are generally held in a trust for the benefit of the award recipient until vested. Awards outstanding generally vest in five annual installments commencing one year from the date of the award. As of June 30, 2003, no shares were vested and no shares were forfeited under the RSP. Expense is recognized for shares awarded over the vesting period at the fair market value of the shares on the date they were awarded, or $21.00 per share. Compensation expense attributable to the RSP amounted to $60,000 for the six months ended June 30, 2003. Under the Stock Option Plan, each stock option granted entitles the holder to purchase one share of the Company's common stock at an exercise price not less than the fair market value of a share of common stock at the date of grant. Options granted vest over a five year period from the date of grant and will expire no later than 10 years following the grant date. A summary of the status of the stock option plan as of June 30, 2003 and changes during the period ended on that date are presented below (unaudited): F-22 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
Shares Weighted Average Exercise Price --------- ------------------------------- Outstanding, beginning of period - $ - Granted 165,746 20.80 Exercised - - Forfeited - - Expired - --------- Outstanding, end of period 165,746 $ 20.80 --------- Options exercisable at period end - - Weighted average fair value of options granted during the period $ 9.66
At June 30, 2003, there were 165,746 options outstanding all with an exercise price of $20.80. The weighted average remaining contractual life was 10 years and there were no options exercisable under the plan. At June 30, 2003, there were no option shares available to grant under the 2003 option plan. F-23 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTE I - Income Taxes - --------------------- The components of income taxes are summarized as follows (in thousands):
Six Months Ended June 30, Year Ended December 31, ------------------------ ----------------------------------------- 2003 2002 2002 2001 2000 ------- ------- ------- ------ ----- (unaudited) Current tax expense Federal income $ 828 $ 780 $ 1,203 $ 965 $ 667 State income 112 241 334 93 77 ------- ------- ------- ------ ----- 940 1,021 1,537 1,058 745 ------- ------- ------- ------ ----- Deferred tax (benefit) expense Federal income (69) (285) (223) (27) (30) State income (28) (135) (114) (7) (3) ------- ------- ------- ------ ----- (97) (420) (337) (34) (33) ------- ------- ------- ------ ----- $ 843 $ 601 $ 1,200 $ 1,024 $ 712 ======== ======== ======== ======= ======
A reconciliation of income taxes computed at the statutory federal income tax rate (34%) to the reported income tax expense is as follows (in thousands):
Six Months Ended June 30, Year Ended December 31, ------------------------ ----------------------------------------- 2003 2002 2002 2001 2000 ------- ------- ------- ------ ----- (unaudited) Expected federal income tax expense $ 819 $ 588 $ 1,099 $ 995 $ 763 Increase (decrease) in federal income tax expense resulting from state income tax, net of federal income tax effect 56 70 145 57 49 tax exempt income (47) -- -- -- -- Other, net 15 (57) (44) (28) (100) ------- ------- ------- ------ ------ $ 843 $ 601 $ 1,200 $ 1,024 $ 712 ======== ======== ======== ======= =======
Deferred tax assets and (liabilities) consisted of the following (in thousands):
Six Months Ended June 30, Year Ended December 31, ------------------------ ----------------------------------------- 2003 2002 2002 2001 2000 ------- ------- ------- ------ ----- (unaudited) Deferred loan fees, net of costs $ (112) $ (55) $ (98) $ (27) $ 20 Allowance for loan losses 672 460 581 196 135 Depreciation 169 275 121 102 90 Net operating loss carry over 1,456 -- -- -- -- Unrealized (gains) losses on available- for- sale investment securities (378) (186) (312) 14 141 Other (17) 17 10 6 (1) Valuation allowance for deferred tax assets (776) -- -- -- -- --------- --------- --------- -------- -------- $ 1014 511 $ 302 $ 291 $ 385 ======== ========= ======== ======= =======
F-24 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTE J - Fair Value of Financial Instruments - -------------------------------------------- SFAS No. 107 requires disclosure of the estimated fair value of an entity's assets and liabilities considered to be financial instruments. For the Bank, as for most financial institutions, the majority of its assets and liabilities are considered financial instruments as defined in SFAS No. 107. However, many such instruments lack an available trading market, as characterized by a willing buyer and seller engaging in an exchange transaction. Therefore, the Bank had to use significant estimates and present value calculations to prepare this disclosure, as required by SFAS No. 107. Accordingly, the information presented below does not purport to represent the aggregate net fair value of the Bank. Changes in the assumptions or methodologies used to estimate fair values may materially affect the estimated amounts. Also, management is concerned that there may not be reasonable comparability between institutions due to the wide range of permitted assumptions and methodologies in the absence of active markets. This lack of uniformity gives rise to a high degree of subjectivity in estimating financial instrument fair values. Estimated fair values have been determined by the Bank using what management believes to be the best available data and an estimation methodology suitable for each category of financial instruments. The estimation methodologies used, the estimated fair values, and recorded book balances at June 30, 2003, December 31, 2002 and 2001 are set forth below. For cash and due from banks and interest-bearing deposits with banks, the recorded book values of approximately $7,886,000, and $3,708,000 are deemed to approximate fair values at December 31, 2002 and 2001, respectively. The estimated fair values of investment and mortgage-backed securities are based on quoted market prices, if available. If quoted market prices are not available, the estimated fair values are based on quoted market prices of comparable instruments. The fair values of loans are estimated based on a discounted cash flow analysis using interest rates currently offered for loans with similar terms to borrowers of similar credit quality. The carrying value of accrued interest is deemed to approximate fair value.
December 31, ----------------------------------------------------------- 2002 2001 --------------------------- ----------------------------- Carrying Estimated Carrying Estimated amount fair value amount fair value ----------- ------------ ----------- ------------- (in thousands) Investment securities $ 78,826 $ 79,972 $ 51,047 $ 51,125 Federal Home Loan Bank stock 1,856 1,856 1,550 1,550 Loans receivable, net 321,654 332,740 226,061 226,290 Cash surrender value of officer life insurance 2,110 2,110 2,051 2,051
The estimated fair values of demand deposits (i.e., interest- and non-interest-bearing checking accounts, passbook savings and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. The fair values of fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered to a schedule of aggregated expected monthly time deposit maturities. The carrying amount of accrued interest payable approximates its fair value. F-25 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
December 31, ---------------------------------------------------------- 2002 2001 --------------------------- --------------------------- Carrying Estimated Carrying Estimated amount fair value Amount fair value ------------ ----------- ------------ ------------ (in thousands) Time Deposits $202,320 $206,047 $121,038 $122,531 FHLB Advances 36,456 36,456 22,500 22,500
The fair value of commitments to extend credit is estimated based on the amount of unamortized deferred loan commitment fees. The fair value of letters of credit is based on the amount of unearned fees plus the estimated cost to terminate the letters of credit. Fair values of unrecognized financial instruments including commitments to extend credit and the fair value of letters of credit are considered immaterial. NOTE K - Financial Instruments with Off-Balance-Sheet Risk - ---------------------------------------------------------- The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and unused lines of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and unused lines of credit are represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. The Bank had the following approximate off-balance-sheet financial instruments whose contract amounts represent credit risk (in thousands):
December 31, ----------------------------- June 30, 2003 2002 2001 ------------- ----------- ------------ (unaudited) Commitments to grant loans $ 51,652 $ 31,456 $ 38,948 Unfunded commitments under lines of credit 18,324 12,898 8,767 ----------- --------- ---------- $ 69,976 $ 44,354 $ 47,715 =========== ========== ===========
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the customer. Collateral held varies but primarily includes residential real estate located in New Jersey and the New York metropolitan area. F-26 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTE L - Commitments and Contingent Liabilities - ----------------------------------------------- 1. Lease Commitments ----------------- Future approximate lease payments under non-cancelable operating leases at June 30, 2003 are due as follows (in thousands and unaudited): 2004 409 2005 597 2006 590 2007 555 2008 484 Thereafter 2,545 --------- $ 5,180 ========= Total rent expense was approximately $289,000, $202,000, $426,000, $376,000 and $332,000 for the six months ended June 30, 2003 and 2002 and the years ended December 31, 2002, 2001 and 2000, respectively. The Company maintains six office locations within the corporate facilities of the Company's former credit union sponsor organization. The Company makes no rental payments for these branch locations. The locations are occupied pursuant to a written agreement that provides for two-year terms that are automatically renewed upon expiration unless written notice of termination is given by either party. 2. Other ----- In the normal course of business, the Company and the Bank have been named as defendants in certain lawsuits. Although the ultimate outcome of these suits cannot be ascertained at this time, it is the opinion of management that the resolutions of such suits will not have a material adverse effect on the consolidated financial position or results of operation of the Company. F-27 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTE M - Condensed Financial Information - Parent Corporation Only - ------------------------------------------------------------------- Condensed financial information for Synergy Financial Group, Inc. (Parent Corporation only) follows (in thousands): CONDENSED BALANCE SHEETS
December 31 --------------------------- 2002 2001 ---------- ---------- ASSETS Cash and cash equivalents $ 8,610 $ 100 Investment in subsidiaries, at equity 30,956 22,295 Other assets 98 23 ------- ------- Total assets $ 39,664 $ 22,418 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Loan payable to Bank for ESOP $ 1,135 $ - RSP obligation - - Other liabilities 657 28 Stockholders' equity 37,872 22,390 --------- ------- Total liabilities and stockholders' equity $ 39,664 $ 22,418 ======== ========
CONDENSED STATEMENTS OF INCOME
Year Ended December 31 -------------------------- 2002 2001 -------- -------- INCOME Equity in undistributed net earnings of subsidiaries $ 2,068 $ 1,907 -------- ------- Total income 2,068 1,907 -------- ------- EXPENSES Other expenses 37 5 -------- ------- Total expenses 37 5 -------- ------- NET INCOME $ 2,031 $ 1,902 ======== =======
F-28 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31 ------------------------- 2002 2001 ---------- -------- OPERATING ACTIVITIES Net income $ 2,031 $ 1,902 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed income of subsidiary (2,068) (1,907) Amortization, depreciation and other 73 - Increase in other assets (75) (23) Increase in other liabilities 629 28 --------- ------- Net cash provided by operating activities 590 - --------- ------- INVESTING ACTIVITIES Additional investment in subsidiaries $ (6,000) $ - -------- -------- Net cash (used in) provided by investing activities (6,000) - --------- ------- FINANCING ACTIVITIES Net proceeds from issuance of common stock 13,960 100 Increase in RSP Obligation - - Repayments of Bank loan for ESOP (29) - Purchase of investment securities available for sale (11) - --------- ------- Net cash provided by (used in) financing activities 13,920 100 --------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,510 100 Cash and cash equivalents at beginning of year 100 - --------- ------- Cash and cash equivalents at end of year $ 8,610 $ 100 ======== ========
NOTE N - Regulatory Matters - --------------------------- The Bank is subject to various regulatory capital requirements administered by its primary federal regulator, the Office of Thrift Supervision (OTS). Failure to meet minimum capital requirements can initiate certain mandatory - and possible additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Bank and the consolidated financial statements. Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classifications under the prompt corrective action guidelines are also subject to the qualitative judgments by the regulators about components, risk weightings, and other factors. F-29 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total risk-based capital and Tier I capital to risk-weighted assets (as defined in the regulations), Tier I capital (as defined) to adjusted total assets (as defined), and tangible capital to adjusted total assets (as defined). Management believes that the Bank meets all capital adequacy requirements to which it is subject. As of June 30, 2003, the Bank is considered well-capitalized under regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios, as set forth in the table below. There are no conditions or events that management believes have changed the institution's prompt corrective action category. The Bank's actual capital amounts and ratios are as follows (in thousands, except percentages):
OTS Requirements ------------------------------------------------------------------------------ Regulatory Minimum for classification as Bank actual capital adequacy well capitalized ------------------------ ------------------ ---------------------- Amount Ratio Amount Ratio Amount Ratio ------------ --------- ----------- --------- ------------ -------- As of June 30, 2003 (unaudited): Total risk-based capital (to risk-weighted assets) $ 39,218 10.77% $ 29,137 8.00% $ 36,421 10.00% Tier I capital (to risk-weighted assets) 36,249 9.95% N/A N/A 21,853 6.00% Tier I capital (to adjusted total assets) 36,249 6.46% 22,434 4.00% N/A N/A Tangible capital (to adjusted total assets) 36,249 6.46% 8,413 1.50% N/A N/A OTS Requirements ------------------------------------------------------------------------------ Regulatory Minimum for classification as Bank actual capital adequacy well capitalized ------------------------ ----------------------- ----------------------- Amount Ratio Amount Ratio Amount Ratio ------------ --------- ----------- --------- ------------ -------- As of December 31, 2002: Total risk-based capital (to risk-weighted assets) $ 32,535 11.17% $ 23,294 8.00% $ 29,118 10.00% Tier I capital (to risk-weighted assets) 30,305 10.41% N/A N/A 17,471 6.00% Tier I capital (to adjusted total assets) 30,305 7.01% 17,286 4.00% N/A N/A Tangible capital (to adjusted total assets) 30,305 7.01% 6,482 1.50% N/A N/A
F-30 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
OTS Requirements ------------------------------------------------------------------------------ Regulatory Minimum for classification as Bank actual capital adequacy well capitalized ------------------------ ----------------------- ----------------------- Amount Ratio Amount Ratio Amount Ratio ------------ --------- ----------- --------- ------------ -------- As of December 31, 2001: Total risk-based capital (to risk-weighted assets) $ 23,592 12.00% $ 15,731 8.00% $ 19,663 10.00% Tier I capital (to risk-weighted assets) 22,220 11.30% N/A N/A 11,798 6.00% Tier I capital (to adjusted total assets) 22,220 7.48% 11,883 4.00% 14,853 5.00% Tangible capital (to adjusted total assets) 22,220 7.48% 4,456 1.50% N/A N/A
NOTE O - SELECTED QUARTERLY FINANCIAL DATA - ------------------------------------------ Unaudited quarterly financial data is as follows (in thousands, except share data):
Six Months Ended June 30, 2003 (unaudited) ------------------------- First Second Quarter Quarter ------- ------- Interest income $7,508 $7,419 Interest expense 2,702 2,620 ------ ------ Net interest income 4,806 4,799 Provision for losses 118 352 ------ ------ Net interest income after provision for losses 4,688 4,447 Non-interest income 382 652 Non-interest expense 3,742 4,021 ------ ------ Income before taxes 1,328 1,078 Provision for income taxes 492 351 ------ ------ Net income $ 836 $ 727 ====== ====== Basic earnings per share $ 0.26 $ 0.22 ====== ====== Diluted earnings per share $ 0.26 $ 0.22 ====== ======
F-31 SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
Year Ended December 31, 2002 Year Ended December 31, 2001 ---------------------------- ---------------------------- First Second Third Fourth First Second Third Fourth Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter ------- ------- ------- ------- ------- ------- ------- ------- Interest income $5,115 $5,787 $6,029 $6,428 $4,426 $4,665 $4,921 $5,059 Interest expense 1,979 2,139 2,460 2,466 2,134 2,405 2,461 2,297 ---------------------------------------------- ------------------------------------------- Net interest income 3,136 3,648 3,569 3,962 2,293 2,260 2,460 2,762 Provision for losses 270 281 209 317 45 150 179 -11 ---------------------------------------------- ------------------------------------------- Net interest income after Provision for losses 2,866 3,367 3,360 3,645 2,248 2,110 2,281 2,773 Non-interest income 319 566 488 347 427 531 429 1,128 Non-interest expense 2,411 2,979 3,074 3,262 2,316 2,250 2,134 2,302 ---------------------------------------------- ------------------------------------------- Income before taxes 774 954 774 730 359 392 576 1,599 Provision for income taxes 266 334 325 276 121 134 200 569 ---------------------------------------------- ------------------------------------------- Net income $ 508 $ 620 $ 449 $ 454 $ 238 $ 258 $ 376 $1,030 ============================================== =========================================== Basic earnings per share NM NM NM NM NM NM NM NM Diluted earnings per share NM NM NM NM NM NM NM NM
NOTE P - REORGANIZATION AND STOCK OFFERING - ------------------------------------------ The Board of Directors of the MHC, the Company and the Bank adopted a Plan of Conversion and Reorganization (the Plan) on July 26, 2003. Pursuant to the Plan, the MHC will convert from the mutual to the stock form of organization and Synergy Financial Group, Inc., a newly formed New Jersey corporation will offer common stock representing the ownership interest in the Company now owned by the MHC. The existing publicly held shares of the Company, which represent the remaining ownership interest in the Company, will be exchanged for new shares of common stock of the new Synergy Financial Group, Inc. The exchange ratio will ensure that immediately after the reorganization and the share exchange, the public stockholders of the Company will own the same aggregate percentage of the new Synergy Financial Group, Inc. common stock that they owned immediately prior to the reorganization. Following the completion of the reorganization, the Corporation will hold all of the capital stock of the Bank. F-32 You should rely only on the information contained in this document or to that to which we have referred you. We have not authorized anyone to provide you with information that is different. This document does not constitute an offer to sell, or the solicitation of an offer to buy, any of the securities offered hereby to any person in any jurisdiction in which such offer or solicitation would be unlawful. The affairs of Synergy Financial Group, Inc. and its subsidiaries may change after the date of this prospectus. Delivery of this document and the sales of shares made hereunder does not mean otherwise. [GRAPHIC OMITTED] Synergy Financial Group, Inc. Proposed Holding Company for Synergy Bank and Synergy Financial Services, Inc. Up to 4,711,099 Shares of Common Stock (Subject to Increase to up to 5,417,793 Shares) PROSPECTUS Sandler O'Neill & Partners, L.P. November ___, 2003 Until the later of December__, 2003, or 25 days after commencement of the offering, all dealers effecting transactions in these securities, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the obligation of the dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. PART II: INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution * Legal Fees........................................ $ 200,000 * Accounting Fees................................... 100,000 * Appraisal/Business Plan Fees...................... 35,000 * Underwriting Fees and Expenses.................... 400,000 * Nasdaq Entry and Filing Fees...................... 105,000 * Blue Sky Expenses................................. 25,000 * Conversion Agent Fees............................. 25,000 * Transfer and Exchange Agent Fees.................. 20,000 * Printing Fees and Expenses........................ 50,000 * Postage and Mailing Expenses...................... 40,000 * Stock Certificate Expenses........................ 5,000 * OTS Filing Fees................................... 8,400 * SEC Filing Fee.................................... 8,000 * EDGAR Expenses.................................... 25,000 * NASD Regulation, Inc. Filing Fee.................. 10,000 * Other............................................. 43,600 ---------- Total..................................... $1,100,000 ========== _________________ * Estimated, at supermax. Item 14. Indemnification of Directors and Officers Article XVII of the Certificate of Incorporation of Synergy Financial Group, Inc. (the "Corporation") sets forth circumstances under which directors, officers, employees and agents of the Corporation may be insured or indemnified against liability which they incur in their capacities as such. Article XVII: - ------------- A. Indemnification. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, including actions by or in the right of the Corporation, whether civil, criminal, administrative, arbitrative or investigative, by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation or of any constituent corporation absorbed by the Corporation in a consolidation or merger, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another Corporation, partnership, joint venture, sole proprietorship, trust or other enterprise, against expenses (including attorneys' fees), judgements, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding to the full extent permissible under New Jersey law. B. Advance Payment. The Corporation may pay in advance any expenses (including attorneys' fees) which may become subject to indemnification under Section A of this Article XVII if the person receiving the payment undertakes in writing to repay the same if it is ultimately determined that he or she is not entitled to indemnification by the Corporation under New Jersey law. C. Nonexclusive. The indemnification and advancement of expenses provided by Sections A and B of this Article XVII or otherwise granted pursuant to New Jersey law shall not be exclusive of II-1 any other rights to which a person may be entitled by law, bylaw, agreement, vote of stockholders, or disinterested directors, or otherwise. D. Continuation. The indemnification and advance payment provided by Sections A and B of this Article XVII shall continue as to a person who has ceased to hold a position named in Section A and shall inure to his or her heirs, executors and administrators. In addition, any repeal or modification of this Article XVII by the stockholders of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation hereunder or otherwise with respect to any act or omission occurring before such repeal or modification is effective. E. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who holds or who has held any position named in Section A of this Article XVII, against any liability incurred by him or her in any such position, or arising out of his or her status as such, whether or not the Corporation would have power to indemnify him or her against such liability under this Article and New Jersey law. F. Savings Clause. If this Article XVII or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director, officer, employee, and agent of the Corporation as to costs, charges, and expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement with respect to any action, suit, or proceeding, whether civil, criminal, administrative, arbitrative or investigative, including an action by or in the right of the Corporation to the full extent permitted by any applicable portion of this Article XVII that shall not have been invalidated and to the full extent permitted by applicable law. Item 15. Recent Sales of Unregistered Securities. Not Applicable Item 16. Exhibits and Financial Statement Schedules. The exhibits and financial statement schedules filed as part of this Registration Statement are as follows: (a) Exhibits:
1 Form of Sales Agency Agreement with Sandler O'Neill & Partners, L.P.* 2 Plan of Conversion and Reorganization 3(i) Certificate of Incorporation of Synergy Financial Group, Inc. 3(ii) Bylaws of Synergy Financial Group, Inc. 4 Specimen Stock Certificate of Synergy Financial Group, Inc. 5 Opinion of Malizia Spidi & Fisch, PC regarding legality of securities registered 8.1 Federal Tax Opinion of Malizia Spidi & Fisch, PC 8.2 State Tax Opinion of Grant Thornton LLP 10.1 Employment Agreement between Synergy Bank and John S. Fiore** 10.2 Supplemental Executive Retirement Income Agreement for John S. Fiore** 10.3 Synergy Federal Savings Bank Supplemental Executive Retirement Plan for the Benefit of Senior Officers** 10.4 Synergy Financial Group, Inc. 2003 Restricted Stock Plan*** 10.5 Synergy Financial Group, Inc. 2003 Stock Option Plan*** 10.6 Change in Control Severance Agreement between Synergy Bank and Kevin M. McCloskey II-2 10.7 Change in Control Severance Agreement between Synergy Bank and Kevin A. Wenthen 10.8 Change in Control Severance Agreement between Synergy Bank and Ralph A. Fernandez 10.9 Directors Change in Control Severance Plan 10.10 Form of Synergy Financial Group, Inc. 2003 Stock Bonus Plan 23.1 Consent of Grant Thornton LLP 23.2 Consent of Fontanella and Babitts 23.3 Consent of FinPro, Inc. 23.4 Consent of Malizia Spidi & Fisch, PC (contained in its opinions filed as Exhibits 5.1, 8.1 and 8.2) 24 Power of Attorney (set forth on the signature page) 99.1 Prospectus Supplement for Interests in the 401(K) Savings Plan and Trust 99.2 Opinion of FinPro, Inc. as to the value of subscription rights 99.3 Conversion Valuation Appraisal Report prepared by FinPro, Inc.* 99.4 Marketing Materials* 99.5 Stock Order Form* 99.6 Proxy Statement for Special Meeting of Stockholders of Synergy Financial Group, Inc.**** __________________________________ * To be filed supplementally or by amendment. ** Incorporated by reference to the Registration Statement of Synergy Financial Group, Inc. on Form SB-2 (File No. 333-89384; filed with the SEC on May 30, 2002). Synergy Bank changed its name from Synergy Federal Savings Bank after these agreements were entered into. *** Incorporated by reference to the Definitive Proxy Statement of Synergy Financial Group, Inc. for the 2003 Annual Meeting of Stockholders (File No. 00049980; filed with the SEC on March 18, 2003). **** Incorporated by reference to the Preliminary Proxy Statement of Synergy Financial Group, Inc. for the Special Meeting of Stockholders (File No. 00049980; filed with the SEC on September 17, 2003).
(b) Financial Statement Schedules: No financial statement schedules are filed because the required information is not applicable or is included in the consolidated financial statements or the notes thereto. Item 17. Undertakings The undersigned registrant hereby undertakes: (1) To file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to: (i) Include any prospectus required by Section 10(a)(3) of the Securities Act of 1933 ("Securities Act"); (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and II-3 (iii) Include any additional or changed material information on the plan of distribution. (2) For determining liability under the Securities Act, the undersigned registrant shall treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. (3) The undersigned registrant shall file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. (4) The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. (5) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in Cranford, New Jersey on September 17, 2003. SYNERGY FINANCIAL GROUP, INC. By: /s/ John S. Fiore ------------------------------------- John S. Fiore President and Chief Executive Officer (Duly Authorized Representative) Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on September 17, 2003.
/s/John S. Fiore - ------------------------------------------- -------------------------------------- Kenneth S. Kasper John S. Fiore Chairman and Director President, Chief Executive Officer and Director /s/Ralph A. Fernandez /s/Paul T. LaCorte - ------------------------------------------- -------------------------------------- Ralph A. Fernandez Paul T. LaCorte Vice President and Chief Financial Officer Director (Principal Accounting Officer) /s/George Putvinski - ------------------------------------------- -------------------------------------- Nancy A. Davis George Putvinski Director Director /s/W. Phillip Scott /s/Albert N. Stender - ------------------------------------------- -------------------------------------- W. Phillip Scott Albert N. Stender Director Director /s/David H. Gibbons, Jr. /s/Magdalena M. De Perez - ------------------------------------------- -------------------------------------- David H. Gibbons, Jr. Magdalena M. De Perez Director Director
INDEX TO EXHIBITS TO FORM S-1 Exhibits: ---------
1 Form of Sales Agency Agreement with Sandler O'Neill & Partners, L.P.* 2 Plan of Conversion and Reorganization 3(i) Certificate of Incorporation of Synergy Financial Group, Inc. 3(ii) Bylaws of Synergy Financial Group, Inc. 4 Specimen Stock Certificate of Synergy Financial Group, Inc. 5 Opinion of Malizia Spidi & Fisch, PC regarding legality of securities registered 8.1 Federal Tax Opinion of Malizia Spidi & Fisch, PC 8.2 State Tax Opinion of Grant Thornton LLP 10.1 Employment Agreement between Synergy Bank and John S. Fiore** 10.2 Supplemental Executive Retirement Income Agreement for John S. Fiore** 10.3 Synergy Federal Savings Bank Supplemental Executive Retirement Plan for the Benefit of Senior Officers** 10.4 Synergy Financial Group, Inc. 2003 Restricted Stock Plan*** 10.5 Synergy Financial Group, Inc. 2003 Stock Option Plan*** 10.6 Change in Control Severance Agreement between Synergy Bank and Kevin M. McCloskey 10.7 Change in Control Severance Agreement between Synergy Bank and Kevin A. Wenthen 10.8 Change in Control Severance Agreement between Synergy Bank and Ralph A. Fernandez 10.9 Directors Change in Control Severance Plan 10.10 Form of Synergy Financial Group, Inc. 2003 Stock Bonus Plan 23.1 Consent of Grant Thornton LLP 23.2 Consent of Fontanella and Babitts 23.3 Consent of FinPro, Inc. 23.4 Consent of Malizia Spidi & Fisch, PC (contained in its opinions filed as Exhibits 5.1, 8.1 and 8.2) 24 Power of Attorney (set forth on the signature page) 99.1 Prospectus Supplement for Interests in the 401(K) Savings Plan and Trust 99.2 Opinion of FinPro, Inc. as to the value of subscription rights 99.3 Conversion Valuation Appraisal Report prepared by FinPro, Inc.* 99.4 Marketing Materials* 99.5 Stock Order Form* 99.6 Proxy Statement for Special Meeting of Stockholders of Synergy Financial Group, Inc.**** __________________________________ * To be filed supplementally or by amendment. ** Incorporated by reference to the Registration Statement of Synergy Financial Group, Inc. on Form SB-2 (File No. 333-89384; filed with the SEC on May 30, 2002). Synergy Bank changed its name from Synergy Federal Savings Bank after these agreements were entered into. *** Incorporated by reference to the Definitive Proxy Statement of Synergy Financial Group, Inc. for the 2003 Annual Meeting of Stockholders (File No. 00049980; filed with the SEC on March 18, 2003). **** Incorporated by reference to the Preliminary Proxy Statement of Synergy Financial Group, Inc. for the Special Meeting of Stockholders (File No. 00049980; filed with the SEC on September 17, 2003).
EX-2 3 ex2.txt EX2 PLAN OF CONVERSION PLAN OF CONVERSION AND REORGANIZATION of SYNERGY, MHC and PLANS OF MERGER between SYNERGY, MHC, SYNERGY FINANCIAL GROUP, INC. and SYNERGY BANK ADOPTED ON JULY 26, 2003 AND SUBSEQUENTLY AMENDED
TABLE OF CONTENTS Section Number Page - ------ ---- 1. Introduction........................................................... 1 2. Definitions............................................................ 3 3. General Procedure for Conversion and Reorganization.................... 9 4. Total Number of Shares and Purchase Price of Conversion Stock..................................................... 11 5. Subscription Rights of Eligible Account Holders (First Priority)....... 13 6. Subscription Rights of the Tax-Qualified Employee Stock Benefit Plans (Second Priority)...................................... 13 7. Subscription Rights of Supplemental Eligible Account Holders (Third Priority)..................................................... 14 8. Subscription Rights of Other Members (Fourth Priority)................. 14 9. Community Offering, Syndicated Community Offering and Other Offerings.................................................. 15 10. Limitations on Subscriptions and Purchases of Conversion Stock......... 17 11. Timing of Subscription Offering; Manner of Exercising Subscription Rights and Order Forms.................................. 19 12. Payment for Conversion Stock........................................... 20 13. Account Holders in Nonqualified States or Foreign Countries............ 21 14. Dissenters' Rights..................................................... 22 15. Voting Rights of Stockholders.......................................... 22 16. Liquidation Account.................................................... 22 17. Transfer of Deposit Accounts........................................... 24 18. Requirements Following Conversion and Reorganization for Registration, Market Making and Stock Exchange Listing............... 24 19. Directors and Officers of the Bank and the Holding Company............. 24 20. Requirements for Stock Purchases by Directors and Officers Following the Conversion and Merger................................... 24 21. Restrictions on Transfer of Stock...................................... 25 22. Restrictions on Acquisition of Stock of the Holding Company............ 25 23. Tax Rulings or Opinions................................................ 26 24. Stock Compensation Plans............................................... 26 25. Dividend and Repurchase Restrictions on Stock.......................... 27 26. Payment of Fees to Brokers............................................. 27 27. Effective Date......................................................... 27 28. Amendment or Termination of the Plan................................... 27 29. Interpretation of the Plan............................................. 28
Appendix A - Plan of Merger between Interim Bank No. 1 (formerly the Mutual Holding Company) and the Bank Appendix B - Plan of Merger between Interim Bank No. 2 (formerly Middle Tier Holding Company) and the Bank Appendix C - Plan of Merger between Interim Bank No. 3 (subsidiary of the Holding Company) and the Bank i 1. INTRODUCTION ------------ For purposes of this section, all capitalized terms have the meaning ascribed to them in Section 2. In 2001, Synergy Bank (the "Bank"), a federally chartered mutual savings bank (formerly Synergy Federal Savings Bank) reorganized into the mutual holding company form of organization and converted to a federal stock savings bank (the "MHC Reorganization"). Subsequent to the MHC Reorganization, in September 2002, Synergy Financial Group, Inc., a federally chartered corporation ("Middle Tier Holding Company"), sold 1,454,750 shares (or approximately 43.5%) of its common stock in a subscription offering at $10.00 per share and issued the remaining 56.5% to Synergy, MHC. A total of 3,344,252 shares of common stock of Synergy Financial Group, Inc. ("Middle Tier Holding Company Common Stock") were issued in connection with the MHC Minority Stock Offering. Upon completion of these transactions, the Bank became the wholly owned subsidiary of Synergy Financial Group, Inc. As of June 30, 2003, the MHC and the Public Stockholders own an aggregate of 1,889,402 (56.5%) and 1,454,750 (43.5%) of the outstanding Middle Tier Holding Company Common Stock, respectively. Pursuant to this Plan of Conversion, the Bank will form a new state-chartered stock holding company, Synergy Financial Group, Inc. ("Holding Company") and the existing shares of Middle Tier Holding Company Common Stock owned by Public Stockholders will be converted pursuant to an Exchange Ratio into shares of common stock of the Holding Company ("Holding Company Common Stock"). The Boards of Directors of the Mutual Holding Company, the Middle Tier Holding Company, the Holding Company and the Bank believe that a conversion of the Mutual Holding Company to stock form pursuant to this Plan of Conversion is in the best interests of the Mutual Holding Company and the Bank, as well as the best interests of their respective Members and Stockholders. The Boards of Directors have determined that this Plan of Conversion equitably provides for the interests of Members through the granting of subscription rights and the establishment of a liquidation account. The Conversion and Merger will result in the Bank being wholly owned by a state-chartered stock holding company which is owned by public stockholders, which is a more common structure and form of ownership than a mutual holding company. In addition, the Conversion and Merger will result in the raising of additional capital for the Bank and the Holding Company and should result in a more active and liquid market for the Holding Company Common Stock than currently exists for Middle Tier Holding Company Common Stock. Finally, the Conversion and Merger is designed to enable the Bank and the Holding Company to compete more effectively in a market which is consolidating. 1 In the current transaction, (i) the Middle Tier Holding Company will convert into an interim federal stock savings bank, which will merge with and into the Bank, and (ii) the Mutual Holding Company will convert into an interim federal stock savings bank and merge with and into the Bank, pursuant to which merger Mutual Holding Company will cease to exist and the shares of Middle Tier Holding Company Stock held by the Mutual Holding Company will be canceled. The Mutual Holding Company will cease to exist and a liquidation account will be established for the benefit of depositor Members as of specified dates. Shares of Middle Tier Holding Company Common Stock held by Public Stockholders shall be automatically converted into the right to receive shares of Holding Company Common Stock based on an Exchange Ratio plus cash in lieu of any fractional share interest. In connection with the Conversion and Mergers, the Holding Company will offer shares of Conversion Stock in the Offerings as provided herein. Shares of Conversion Stock will be offered in a Subscription Offering in descending order of priority to Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible Account Holders and Other Members. Any shares of Conversion Stock remaining unsold after the Subscription Offering will be offered for sale to the public through a Community Offering and/or Syndicated Community Offering, as determined by the Boards of Directors of the Holding Company and the Bank in their sole discretion. The Conversion is intended to raise capital and provide support to the Bank's lending and investment activities and thereby enhance the Bank's capabilities to serve the borrowing and other financial needs of the communities it serves. The use of the Holding Company will provide greater organizational flexibility and facilitate possible acquisitions and diversification. This Plan of Conversion was adopted by the Boards of Directors of the Mutual Holding Company, the Middle Tier Holding Company and the Bank on July 26, 2003, and subsequently amended. This Plan is subject to the approval of the OTS and also must be approved by (1) at least a majority of the total number of votes eligible to be cast by Voting Members of the Mutual Holding Company at the Special Meeting and (2) holders of at least two-thirds of the outstanding shares of Middle Tier Holding Company Common Stock at the Stockholders' Meeting. In addition, the Primary Parties have conditioned the consummation of the Conversion and Reorganization on the approval of the Plan by at least a majority of the votes cast, in person or by proxy, by the Public Stockholders at the Stockholders' Meeting. After the Conversion, the Bank will continue to be regulated by the OTS, as its chartering authority, and by the FDIC, which insures the Bank's deposits. In addition, the Bank will continue to be a member of the Federal Home Loan Bank System, and all insured savings deposits will continue to be insured by the FDIC up to the maximum amount provided by law. 2 2. DEFINITIONS ----------- As used in this Plan, the terms set forth below have the following meanings: Actual Purchase Price means the price per share at which the Conversion Stock is ultimately sold by the Holding Company in the Offerings in accordance with the terms hereof. Affiliate means a Person who, directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with the Person specified. Associate, when used to indicate a relationship with any Person, means (i) a corporation or organization (other than the Holding Company, the Mutual Holding Company, the Middle Tier Holding Company, the Bank, a majority-owned subsidiary of the Holding Company, Bank or the Middle Tier Holding Company) of which such Person is a director, officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities, (ii) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity, provided, however, that such term shall not include any Tax-Qualified Employee Stock Benefit Plan of the Holding Company or the Bank in which such Person has a substantial beneficial interest or serves as a trustee or in a similar fiduciary capacity, and (iii) any relative or spouse of such Person, or any relative of such spouse, who has the same home as such Person or who is a director or officer of the Holding Company, the Mutual Holding Company, the Middle Tier Holding Company or the Bank or any of the subsidiaries of the foregoing. Bank means Synergy Bank in its current stock form as a subsidiary of the Middle Tier Holding Company or Synergy Bank as a subsidiary of the Holding Company following consummation of the Conversion and Reorganization, as the context of the reference indicates. Bank Common Stock means the common stock of the Bank, par value $0.10 per share, which stock is not and will not be insured by the FDIC or any other governmental authority. Code means the Internal Revenue Code of 1986, as amended. Community Offering means the offering for sale by the Holding Company of any shares of Conversion Stock not subscribed for in the Subscription Offering to (i) Public Stockholders, (ii) natural persons residing in the Local Community, and (iii) such other Persons within or without the State of New Jersey as may be selected by the Holding Company and the Bank within their sole discretion. Control (including the terms "controlling," "controlled by," and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. 3 Conversion and Reorganization means (i) the conversion of the Mutual Holding Company to an interim federal stock savings bank and the subsequent merger, pursuant to which the Mutual Holding Company will cease to exist, (ii) the conversion of Middle Tier Holding Company to an interim federal stock savings bank and merger into Bank, and (iii) the issuance of Conversion Stock by the Holding Company in the Offerings as provided herein. Conversion Stock means the Holding Company Common Stock to be issued and sold in the Offerings pursuant to the Plan of Conversion. Deposit Account means savings and demand accounts, including passbook accounts, money market deposit accounts and negotiable order of withdrawal accounts, and certificates of deposit and other authorized accounts of the Bank held by a Member. Director, Officer and Employee means the terms as applied respectively to any person who is a director, officer or employee of the Mutual Holding Company, the Bank, the Middle Tier Holding Company, the Holding Company or any subsidiary thereof. Effective Date means the effective date of the Conversion and Reorganization, as set forth in Section 27 hereof. Eligible Account Holder means any Person holding a Qualifying Deposit on the Eligibility Record Date for purposes of determining subscription rights and establishing subaccount balances in the liquidation account to be established pursuant to the provision herein. Eligibility Record Date means the date for determining Qualifying Deposits of Eligible Account Holders and is the close of business on March 31, 2002. Estimated Price Range means the range of the estimated aggregate pro forma market value of the Conversion Stock to be issued in the Offerings, as determined by the Independent Appraiser in accordance with Section 4 hereof. Exchange Ratio means the rate at which shares of Holding Company Common Stock will be received by the Public Stockholders in exchange for their Middle Tier Holding Company Common Stock. The exact rate shall be determined by the Mutual Holding Company and the Holding Company in order to ensure that upon consummation of the Conversion and Reorganization, the Public Stockholders will own in the aggregate approximately the same percentage of the Holding Company Common Stock to be outstanding upon completion of the Conversion and Reorganization as the percentage of Middle Tier Holding Company Common Stock owned by them in the aggregate on the Effective Date, but before giving effect to (a) cash paid in lieu of any fractional interests of Middle Tier Holding Company Common Stock and (b) any shares of Conversion Stock purchased by the Public Stockholders in the Offerings or tax- qualified employee stock benefit plans thereafter. 4 Exchange Shares means the shares of Holding Company Common Stock to be issued to the Public Stockholders in connection with the merger of Interim Bank No. 1 (formerly Mutual Holding Company ("Merger No. 2") with and into the Bank. FDIC means the Federal Deposit Insurance Corporation or any successor thereto. Holding Company means Synergy Financial Group, Inc., a corporation newly organized under the laws of the State of New Jersey. At the completion of the Reorganization, the Bank will become a wholly owned subsidiary of the Holding Company. Holding Company Common Stock means the Common Stock of the Holding Company, par value $.10 per share, which stock cannot and will not be insured by the FDIC or any other governmental authority. Independent Appraiser means the independent investment banking or financial consulting firm retained by the Holding Company and the Bank to prepare an appraisal of the estimated pro forma market value of the Conversion Stock. Initial Purchase Price means the price per share to be paid initially by Participants for shares of Conversion Stock subscribed for in the Subscription Offering and by Public Stockholders and other Persons for shares of Conversion Stock ordered in the Community Offering and/or Syndicated Community Offering. Interim Bank No. 1 means the interim federal stock savings bank that will be formed as a result of the conversion of Synergy, MHC into the stock form of organization. Interim Bank No. 2 means the interim federal stock savings bank that will be formed as a result of the conversion of Middle Tier Holding Company into an interim federal stock savings bank. Interim Bank No. 3 mean an interim federal stock savings bank wholly owned by the Holding Company, which will be merged with and into the Bank. Local Community means all counties in which the Bank has its home office or a branch office. Member means any Person qualifying as a member of the Mutual Holding Company in accordance with its mutual charter and bylaws and the laws of the United States. Merger No. 1 means the merger of Interim Bank No. 2 (formerly Middle Tier Holding Company) with and into the Bank. Merger No. 2 means the merger of Interim Bank No. 1 (formerly Mutual Holding Company) with and into the Bank. 5 Merger No. 3 means the merger of Interim Bank No. 3, a subsidiary of the Holding Company, with and into the Bank. Mergers means the completion of Merger No. 1, Merger No. 2, and Merger No. 3. Middle Tier Holding Company means Synergy Financial Group, Inc., a corporation organized under the laws of the United States that, since the completion of the MHC Reorganization in 2001, has held all of the outstanding capital stock of the Bank. Middle Tier Holding Company Common Stock means the Common Stock of the Middle Tier Holding Company, par value $.10 per share, which stock cannot and will not be insured by the FDIC or any other governmental authority. Mutual Holding Company means Synergy, MHC prior to its conversion into an interim federal stock savings bank. Offerings means the Subscription Offering, the Community Offering and the Syndicated Community Offering, if applicable. Officer means the president, executive vice president, senior vice president, vice-president, secretary, treasurer or principal financial officer, comptroller or principal accounting officer and any other person performing similar functions with respect to any organization whether incorporated or unincorporated. Order Form means the form or forms provided by the Holding Company, containing all such terms and provisions as set forth herein, to a Participant or other Person by which Conversion Stock may be ordered in the Offerings. Other Member means a Voting Member who is not an Eligible Account Holder or a Supplemental Eligible Account Holder. OTS means the Office of Thrift Supervision or any successor thereto. Participant means any Eligible Account Holder, Tax-Qualified Employee Stock Benefit Plan, Supplemental Eligible Account Holder and Other Member. Person means an individual, a corporation, a partnership, an association, a joint stock company, a trust, an unincorporated organization or a government or any political subdivision thereof. Plan and Plan of Conversion mean this Plan of Conversion and Reorganization and Plan of Merger as adopted by the Boards of Directors of the Mutual Holding Company, the Middle Tier Holding Company and the Bank and any amendments hereto approved as provided herein. The 6 Board of Directors of Interim No. 1, Interim No. 2 and Interim No. 3 shall adopt the Plans of Merger included as Appendices hereto as soon as practicable following their organization. Primary Parties means the Middle Tier Holding Company, Mutual Holding Company, the Bank and the Holding Company. Prospectus means the one or more documents to be used in offering the Conversion Stock in the Offerings. Public Stockholders means those Persons who own shares of Middle Tier Holding Company Common Stock, excluding the Mutual Holding Company, as of the Stockholder Voting Record Date. Qualifying Deposit means the aggregate balance of all Deposit Accounts in the Bank of (i) an Eligible Account Holder at the close of business on the Eligibility Record Date, provided such aggregate balance is not less than $50, and (ii) a Supplemental Eligible Account Holder at the close of business on the Supplemental Eligibility Record Date, provided such aggregate balance is not less than $50. Resident means any person who, on the date designated for that category of subscriber in the Plan, maintained a bona fide residence within the Local Community and has manifested an intent to remain within the Local Community for a period of time. The designated dates for Eligible Account Holders, Supplemental Eligible Account Holders and Other Members are the Eligibility Record Date, the Supplemental Eligibility Record Date and the Voting Record Date, respectively. To the extent the person is a corporation or other business entity, the principal place of business or headquarters must be within the Local Community in order to qualify as a Resident. To the extent the person is a personal benefit plan, the circumstances of the beneficiary shall apply with respect to this definition. In the case of all other benefit plans, circumstances of the trustee shall be examined for purposes of this definition. The Bank may utilize deposit or loan records or such other evidence provided to it to make a determination as to whether a person is a bona fide resident of the Local Community. Subscribers in the Community Offering who are natural persons also will have a purchase preference if they were residents of the Local Community on the date of the Prospectus. In all cases, however, such determination shall be in the sole discretion of the Bank and the Holding Company. SEC means the Securities and Exchange Commission. Special Meeting means the Special Meeting of Members of the Mutual Holding Company called for the purpose of submitting this Plan to the Members for their approval, including any adjournments of such meeting. Stockholders means those Persons who own shares of Holding Company Common Stock. 7 Stockholders' Meeting means the annual or special meeting of stockholders of Middle Tier Holding Company called for the purpose of submitting this Plan to the Stockholders for their approval, including any adjournments of such meeting. Stockholder Voting Record Date means the date for determining the Public Stockholders of the Middle Tier Holding Company eligible to vote at the Stockholders' Meeting. Subscription Offering means the offering of the Conversion Stock to Participants. Subscription Rights means nontransferable rights to subscribe for Conversion Stock granted to Participants pursuant to the terms of this Plan. Supplemental Eligible Account Holder means any Person holding a Qualifying Deposit at the close of business on the Supplemental Eligibility Record Date. Supplemental Eligibility Record Date, if applicable, means the date for determining Qualifying Deposits of Supplemental Eligible Account Holders and shall be required if the Eligibility Record Date is more than 15 months prior to the date of the latest amendment to the Application for Conversion filed by the Mutual Holding Company prior to approval of such application by the OTS. If applicable, the Supplemental Eligibility Record Date shall be the last day of the calendar quarter preceding OTS approval of the Application for Conversion submitted by the Mutual Holding Company pursuant to this Plan of Conversion. Syndicated Community Offering means the offering for sale by a syndicate of broker- dealers to the general public of shares of Conversion Stock not purchased in the Subscription Offering and the Community Offering. Tax-Qualified Employee Stock Benefit Plan means any defined benefit plan or defined contribution plan, such as an employee stock ownership plan, stock bonus plan, profit-sharing plan or other plan, which is established for the benefit of the employees of the Holding Company and the Bank and which, with its related trust, meets the requirements to be "qualified" under Section 401 of the Code as from time to time in effect. A "Non-Tax-Qualified Employee Stock Benefit Plan" is any defined benefit plan or defined contribution stock benefit plan which is not so qualified. Voting Member means a Person who at the close of business on the Voting Record Date is entitled to vote as a Member of the Mutual Holding Company in accordance with its mutual charter and bylaws. Voting Record Date means the date or dates for determining the eligibility of Members to vote at the Special Meeting. 8 3. GENERAL PROCEDURE FOR CONVERSION AND REORGANIZATION --------------------------------------------------- A. An Application for the Conversion and Reorganization, including the Plan and all other requisite material (the "Application for Conversion"), shall be submitted to the OTS for approval. The Mutual Holding Company, the Middle Tier Holding Company and the Bank also will cause notice of the adoption of the Plan by the Boards of Directors of the Mutual Holding Company, the Middle Tier Holding Company and the Bank to be given by publication in a newspaper having general circulation in each community in which an office of the Bank is located and will cause copies of the Plan to be made available at each office of the Mutual Holding Company, the Middle Tier Holding Company and the Bank for inspection by Members and Stockholders. The Mutual Holding Company, the Middle Tier Holding Company and the Bank will cause to be published, in accordance with the requirements of applicable regulations of the OTS, a notice of the filing with the OTS of an application to convert the Mutual Holding Company from mutual to stock form. B. Promptly following receipt of requisite approval of the OTS, this Plan will be submitted to the Members for their consideration and approval at the Special Meeting. The Mutual Holding Company may, at its option, mail to all Members as of the Voting Record Date, at their last known address appearing on the records of the Mutual Holding Company and the Bank, a proxy statement in either long or summary form describing the Plan which will be submitted to a vote of the Members at the Special Meeting. The Holding Company also shall mail to all such Members (as well as other Participants) either a Prospectus and Order Form for the purchase of Conversion Stock or a letter informing them of their right to receive a Prospectus and Order Form and a postage prepaid card to request such materials, subject to the provisions herein. The Plan must be approved by the affirmative vote of at least a majority of the total number of votes eligible to be cast by Voting Members at the Special Meeting. C. Subscription Rights to purchase shares of Conversion Stock will be issued without payment therefor to Eligible Account Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account Holders and Other Members. D. The Middle Tier Holding Company shall file preliminary proxy materials with the OTS in order to seek the approval of the Plan by its Stockholders. Promptly following clearance of such proxy materials and the receipt of any other requisite approval of the OTS, the Middle Tier Holding Company will mail definitive proxy materials to all Stockholders as of the Stockholder Voting Record Date, at their last known address appearing on the records of the Middle Tier Holding Company, for their consideration and approval of this Plan at the Stockholders' Meeting. The Plan must be approved by the holders of at least two-thirds of the outstanding shares of Middle Tier Holding Company Common Stock as of the Stockholder Voting Record Date. In addition, the Primary Parties have conditioned the consummation of the Conversion and Reorganization on the approval of the Plan by at least a majority of the votes cast, in person or by proxy, by the Public Stockholders as of the Stockholder Voting Record Date at the Stockholders' Meeting. 9 E. The Mutual Holding Company shall apply to convert to a federal interim stock savings bank. F. The Middle Tier Holding Company shall apply to convert to a federal interim stock savings bank. G. The Holding Company shall file a Registration Statement with the SEC to register the Holding Company Common Stock to be issued in the Conversion and Merger under the Securities Act of 1933, as amended, and shall register such Holding Company Common Stock under any applicable state securities laws. Upon registration and after the receipt of all required regulatory approvals, the Conversion Stock shall be first offered for sale in a Subscription Offering to Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible Account Holders and Other Members. It is anticipated that any shares of Conversion Stock remaining unsold after the Subscription Offering will be sold through a Community Offering and/or a Syndicated Community Offering. The purchase price per share for the Conversion Stock shall be a uniform price determined in accordance with the provisions herein. The Holding Company shall contribute to the Bank an amount of the net proceeds received by the Holding Company from the sale of Conversion Stock as shall be determined by the Boards of Directors of the Holding Company and the Bank and as shall be approved by the OTS. H. The Effective Date of the Conversion and Reorganization shall be the date set forth in Section 27 hereof. Upon the Effective Date, the following transactions shall occur: (i) The Mutual Holding Company will convert into an interim federal stock savings bank to be known as Interim Bank No. 1. (ii) Middle Tier Holding Company will adopt an interim federal stock savings bank charter to be known as Interim Bank No. 2; Interim Bank No. 2 will then merge with and into the Bank ("Merger No. 1"), with the Bank as the surviving entity. (iii) Immediately following Merger No. 1, Interim Bank No. 1, formerly the Mutual Holding Company, will merge with and into the Bank with the Bank as the surviving entity ("Merger No. 2"). The shares of Middle Tier Holding Company Common Stock previously held by the Mutual Holding Company (now Interim Bank No. 1) will be canceled. Eligible members of the Mutual Holding Company as of certain specified dates will be granted interests in a liquidation account to be established by the Bank. The amount in the liquidation account will be the greater of (a) 100% of retained earnings as of March 31, 2002 (the date of the latest statement of financial condition contained in the final offering circular utilized in the Bank's initial stock offering), or (b) 56.5% of Middle Tier Holding Company's total shareholders' equity as reflected in its latest statement of financial condition. 10 (iv) The Holding Company will form an interim corporation ("Interim Bank No. 3"), a new, wholly owned first-tier subsidiary with an interim federal stock savings bank charter. (v) Immediately following Merger No. 2, Interim Bank No. 3 will merge with and into the Bank, with the Bank as the surviving entity ("Merger No. 3"). As a result of Merger No. 3, Bank stock deemed held by Public Stockholders will be converted into Holding Company Common Stock based upon the Exchange Ratio which is designed to ensure that the same Public Stockholders will own, approximately the same percentage of Holding Company Common Stock as the percentage of Middle Tier Holding Company Common Stock owned by them immediately prior to the Conversion and Reorganization before giving effect to (a) cash paid in lieu of fractional shares and (b) any shares of Holding Company stock purchased by Public Stockholders in the Offering. (vi) The Holding Company shall sell the Conversion Stock in the Offerings, as provided herein. I. The Primary Parties may retain and pay for the services of financial and other advisors and investment bankers to assist in connection with any or all aspects of the Conversion and Reorganization, including in connection with the Offerings, the payment of fees to brokers and investment bankers for assisting Persons in completing and/or submitting Order Forms. All fees, expenses, retainers and similar items shall be reasonable. 4. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK -------------------------------------------------------- A. The aggregate price at which shares of Conversion Stock shall be sold in the Offerings shall be based on a pro forma valuation of the aggregate market value of the Conversion Stock prepared by the Independent Appraiser. The valuation shall be based on financial information relating to the Primary Parties, market, financial and economic conditions, a comparison of the Primary Parties with selected publicly held financial institutions and holding companies such other factors as the Independent Appraiser may deem to be important. The valuation shall be stated in terms of an Estimated Price Range, the maximum of which shall generally be no more than 15% above the average of the minimum and maximum of such price range and the minimum of which shall generally be no more than 15% below such average. As mandated by OTS regulations, the amount of Conversion Stock is based upon an independent valuation, which is not approved or otherwise determined by the Holding Company or the Board of Directors. The valuation shall be updated during the Conversion as market and financial conditions warrant and as may be required by the OTS. B. Based upon the independent valuation, the Initial Purchase Price and the number (or range) of shares of Conversion Stock ("Offering Range") to be offered in the Offerings shall be established. The Actual Purchase Price and the total number of shares of Conversion Stock to 11 be issued in the Offerings shall be determined upon conclusion of the Offerings, subject to review by the OTS and in consultation with the Independent Appraiser. C. Subject to the approval of the OTS, the Estimated Price Range may be increased or decreased prior to completion of the Conversion to reflect changes in market, financial and economic conditions since the commencement of the Offerings, and under such circumstances the total number of shares of Conversion Stock to be issued in the Conversion may correspondingly be increased or decreased, to reflect any such change. Notwithstanding anything to the contrary contained in this Plan, no resolicitation of subscribers shall be required and subscribers shall not be permitted to modify or cancel their subscriptions unless the aggregate funds received from the offer of the Conversion Stock in the Conversion are less than the minimum or (excluding purchases, if any, by the Holding Company's and the Bank's Tax-Qualified Employee Stock Benefit Plans) more than 15% above the maximum of the Estimated Price Range set forth in the Prospectus. In the event of an increase in the total number of shares offered in the Conversion due to an increase in the Estimated Price Range, the priority of share allocation shall be as set forth in this Plan, provided, however, that such priority will have no effect whatsoever on the ability of the Tax-Qualified Employee Stock Benefit Plans to purchase additional shares pursuant to Section 4.D. D. (i) In the event that Tax-Qualified Employee Stock Benefit Plans are unable to purchase the number of shares subscribed for by such Tax-Qualified Employee Stock Benefit Plans due to an oversubscription for shares of Conversion Stock pursuant to Section 5 hereof, Tax- Qualified Employee Stock Benefit Plans may (unless the Tax-Qualified Employee Stock Benefit Plans elect to purchase stock subsequent to the Offerings in the open market) purchase from the Holding Company, and the Holding Company may sell to the Tax-Qualified Employee Stock Benefit Plans, such additional shares ("Additional Shares") of Holding Company Common Stock necessary to fill the subscriptions of the Tax-Qualified Employee Stock Benefit Plans, provided that such Additional Shares may not exceed 8% of the total number of shares of Conversion Stock sold in the Conversion. The sale of Additional Shares, if necessary, will occur contemporaneously with the sale of the Conversion Stock. The sale of Additional Shares to Tax-Qualified Employee Stock Benefit Plans by the Holding Company is conditioned upon receipt by the Holding Company of a letter from the Independent Appraiser to the effect that such sale would not have a material effect on the Conversion and Reorganization or the Actual Purchase Price and the approval of the OTS. The ability of the Tax-Qualified Employee Stock Benefit Plans to purchase up to an additional 8% of the total number of shares of Conversion Stock sold in the Conversion shall not be affected or limited in any manner by the priorities or purchase limitations otherwise set forth in this Plan of Conversion. (ii) Notwithstanding anything to the contrary contained in this Plan, if the final valuation of the Conversion Stock exceeds the maximum of the Estimated Price Range, up to 8% of the total number of shares of Conversion Stock sold in the Conversion may be sold to Tax- Qualified Stock Benefit Plans prior to filling any other orders for Conversion Stock from such shares in excess of the maximum of the Estimated Price Range. However, at the election of the 12 Holding Company, the Tax-Qualified Stock Benefit Plans may, in whole or in part, fill their orders through open market purchases subsequent to the closing of the Offerings. 5. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY) ------------------------------------------------ A. Each Eligible Account Holder shall receive, without payment, nontransferable Subscription Rights to purchase, subject to the further limitations of Section 10 hereof, up to the greater of (i) the maximum purchase limitation set forth in Section 9 hereof, (ii) one-tenth of 1% of the total offering of shares of Conversion Stock in the Subscription Offering, and (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Conversion Stock offered in the Subscription Offering by a fraction, of which the numerator is the amount of the Qualifying Deposit of the Eligible Account Holder and the denominator is the total amount of all Qualifying Deposits of all Eligible Account Holders, subject to Section 13 hereof. B. In the event of an oversubscription for shares of Conversion Stock pursuant to the provisions herein, available shares shall be allocated among subscribing Eligible Account Holders so as to permit each such Eligible Account Holder, to the extent possible, to purchase a number of shares which will make his total allocation equal to the lesser of the number of shares subscribed for or 100 shares. Any available shares remaining after each such subscribing Eligible Account Holder has been allocated the lesser of the number of shares subscribed for or 100 shares shall be allocated among the subscribing Eligible Account Holders in the proportion which the Qualifying Deposit of each such subscribing Eligible Account Holder bears to the total Qualifying Deposits of all such subscribing Eligible Account Holders whose orders are unfilled, provided that no fractional shares shall be issued. Subscription Rights of Eligible Account Holders who are also Directors or Officers and their Associates shall be subordinated to those of other Eligible Account Holders to the extent that they are attributable to increased deposits during the one-year period preceding the Eligibility Record Date. 6. SUBSCRIPTION RIGHTS OF THE TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLANS (SECOND PRIORITY) Notwithstanding the purchase limitations discussed below, Tax-Qualified Employee Stock Benefit Plans of the Holding Company and the Bank shall receive, without payment, Subscription Rights to purchase in the aggregate up to 10% of the Conversion Stock, including first priority to purchase any shares of Conversion Stock to be issued in the Conversion and Reorganization as a result of an increase in the Estimated Price Range after commencement of the Subscription Offering and prior to completion of the Conversion and Reorganization. The Tax-Qualified Employee Stock Benefit Plans may, in whole or in part, fill their orders through open market purchases subsequent to the closing of the Offering. The Tax-Qualified Employee Stock Benefit Plans shall not be deemed to be Associates or Affiliates of or Persons Acting in Concert with any Director or Officer of the Mutual Holding Company, the Holding Company or the Bank. Consistent with applicable laws, regulations, policies and practices of the OTS, Tax-Qualified 13 Employee Stock Benefit Plans may use funds contributed by the Holding Company or the Bank and/or borrowed from an independent third party to exercise such Subscription Rights, and the Holding Company and the Bank may make scheduled discretionary contributions thereto, provided that such contributions do not cause the Holding Company or the Bank to fail to meet any applicable regulatory capital requirement. 7. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD PRIORITY) ---------------------------------------------------- A. In the event that the Eligibility Record Date is more than 15 months prior to the date of the latest amendment to the Application for Conversion filed prior to OTS approval, then, and only in that event, a Supplemental Eligibility Record Date shall be set and each Supplemental Eligible Account Holder shall, subject to the further limitations of Section 10 hereof, receive, without payment, Subscription Rights to purchase up to the greater of (i) the maximum purchase limitation set forth in Section 9 hereof, (ii) one-tenth of 1% of the total offering of shares of Conversion Stock in the Subscription Offering, and (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Conversion Stock offered in the Subscription Offering by a fraction, of which the numerator is the amount of the Qualifying Deposits of the Supplemental Eligible Account Holder and the denominator is the total amount of all Qualifying Deposits of all Supplemental Eligible Account Holders, subject to Section 13 hereof and the availability of shares of Conversion Stock for purchase after taking into account the shares of Conversion Stock purchased by Eligible Account Holders and Tax-Qualified Employee Stock Benefit Plans though the exercise of Subscription Rights under Sections 5 and 6 hereof. B. In the event of an oversubscription for shares of Conversion Stock, available shares shall be allocated among subscribing Supplemental Eligible Account Holders so as to permit each such Supplemental Eligible Account Holder, to the extent possible, to purchase a number of shares sufficient to make his total allocation (including the number of shares, if any, allocated in accordance with Section 5.A) equal to the lesser of the number of shares subscribed for or 100 shares. Any remaining available shares shall be allocated among subscribing Supplemental Eligible Account Holders in the proportion that the Qualifying Deposits of each bears to the total amount of the Qualifying Deposits of all such subscribing Supplemental Eligible Account Holders whose orders are unfilled, provided that no fractional shares shall be issued. 8. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY) ------------------------------------------------------ A. Each Other Member shall, subject to the further limitations of Section 10 hereof, receive, without payment, Subscription Rights to purchase up to the greater of (i) the maximum purchase limitation set forth in Section 9 hereof and (ii) one-tenth of 1% of the total offering of shares of Conversion Stock in the Subscription Offering, in each case subject to Section 13 hereof and the availability of shares of Conversion Stock for purchase after taking into account the shares of Conversion Stock purchased by Eligible Account Holders, Tax-Qualified Employee Stock 14 Benefit Plans, and Supplemental Eligible Account Holders, if any, through the exercise of Subscription Rights under Sections 5, 6 and 7 hereof. B. If, pursuant to this Section, Other Members subscribe for a number of shares of Conversion Stock in excess of the total number of shares of Conversion Stock remaining, available shares shall be allocated among subscribing Other Members so as to permit each such Other Members, to the extent possible, to purchase a number of shares sufficient to make his total allocation equal to the lesser of the number of shares subscribed or 100 shares. Any remaining available shares shall be allocated among subscribing Other Members on a pro rata basis in the same proportion as each such Other Member's subscription bears to the total subscriptions of all such subscribing Other Members whose orders are unfilled, provided that no fractional shares shall be issued. 9. COMMUNITY OFFERING, SYNDICATED COMMUNITY OFFERING AND OTHER OFFERINGS ----------------------------------------------------- A. If less than the total number of shares of Conversion Stock are sold in the Subscription Offering, it is anticipated that all remaining shares of Conversion Stock shall, if practicable, be sold in a Community Offering and/or a Syndicated Community Offering. Subject to the requirements set forth herein, the manner in which the Conversion Stock is sold in the Community Offering and/or the Syndicated Community Offering shall have as the objective the achievement of a wide distribution of such stock, subject to the right of the Primary Parties, in their absolute discretion, to accept or reject in whole or in part all orders in the Community Offering and/or Syndicated Community Offering. B. In the event of a Community Offering, all shares of Conversion Stock which are not subscribed for in the Subscription Offering shall be offered for sale by means of a direct community marketing program, which may provide for the use of brokers, dealers or investment banking firms experienced in the sale of financial institution securities. Any available shares in excess of those not subscribed for in the Subscription Offering will be available for purchase by members of the general public to whom a Prospectus is delivered by the Holding Company or on its behalf, with preference first given to Public Stockholders as of the Stockholder Voting Record Date and then to natural persons who are Residents of the Local Community ("Preferred Subscribers"). C. A Prospectus and Order Form shall be furnished to such Persons as the Primary Parties may select in connection with the Community Offering, and each order for Conversion Stock in the Community Offering shall be subject to the absolute right of the Primary Parties to accept or reject any such order in whole or in part either at the time of receipt of an order or as soon as practicable following completion of the Community Offering. Available shares will be allocated first to each Preferred Subscriber whose order is accepted in an amount equal to the lesser of 100 shares or the number of shares subscribed for by each such Preferred Subscriber, if possible. Thereafter, unallocated shares shall be allocated among the Preferred Subscribers whose accepted orders remain unsatisfied in an equitable manner as determined by the Board of 15 Directors. If there are any shares remaining after all accepted orders by Preferred Subscribers have been satisfied, any remaining shares shall be allocated to other members of the general public who place orders in the Community Offering, applying the same allocation described above for Preferred Subscribers. D. The maximum amount of Conversion Stock that any Person may purchase in the Community Offering shall, subject to the further limitations of Section 10 hereof, not exceed $200,000, provided, however, that this amount may be decreased or increased to up to 5% of the total offering of shares in the Conversion and Reorganization, subject to any required regulatory approval but without the further approval of Members of the Mutual Holding Company or the Stockholders of the Middle Tier Holding Company, subject to the preferences set forth in Section 9.B and 9.C of this Plan. The Primary Parties may commence the Community Offering concurrently with, at any time during, or as soon as practicable after the end of, the Subscription Offering, and the Community Offering must be completed within 45 days after the completion of the Subscription Offering, unless extended by the Primary Parties with any required regulatory approval. E. Subject to such terms, conditions and procedures as may be determined by the Primary Parties, all shares of Conversion Stock not subscribed for in the Subscription Offering or ordered in the Community Offering may be sold by a syndicate of broker-dealers to the general pubic in a Syndicated Community Offering. Each order for Conversion Stock in the Syndicated Community Offering shall be subject to the absolute right of the Primary Parties to accept or reject any such order in whole or in part either at the time of receipt of an order or as soon as practicable after completion of the Syndicated Community Offering. The amount of Conversion Stock that any Person may purchase in the Syndicated Community Offering shall, subject to the further limitations of Section 10 hereof, not exceed $200,000, provided, however, that this amount may be decreased or increased to up to 5% of the total offering of shares in the Conversion and Reorganization, subject to any required regulatory approval but without the further approval of Members of the Mutual Holding Company or the Stockholders of the Middle Tier Holding Company. The Primary Parties may commence the Syndicated Community Offering concurrently with, at any time during, or as soon as practicable after the end of, the Subscription Offering and/or the Community Offering. The Syndicated Community Offering must be completed within 45 days after the completion of the Subscription Offering, unless extended by the Primary Parties with any required regulatory approval. F. If for any reason a Syndicated Community Offering of shares of Conversion Stock not sold in the Subscription Offering and the Community Offering cannot be effected, or in the event that any insignificant residue of shares of Conversion Stock is not sold in the Subscription Offering, Community Offering or Syndicated Community Offering, the Primary Parties shall use their best efforts to obtain other purchasers for such shares in such manner and upon such conditions as may be satisfactory to the OTS. 16 10. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF CONVERSION STOCK --------------------------------------------------------- The following limitations shall apply to all purchases of Conversion Stock: A. The number of shares of Conversion Stock which may be purchased by any Person (or persons through a single account), in the First Priority, Third Priority and Fourth Priority in the Subscription Offering shall not exceed such number of shares of Conversion Stock that when combined with Exchange Shares received shall equal $200,000 of Holding Company Common Stock, except for Tax-Qualified Employee Stock Benefit Plans, which in the aggregate may subscribe for up to 8% of the Conversion Stock. B. The number of shares of Conversion Stock which may be purchased by any Person in the Public Stockholders, the Community and/or the Syndicated Community Offerings shall not exceed such number of shares of Conversion Stock that when combined with Exchange Shares received shall equal $200,000 of Holding Company Common Stock. C. Except for the Tax-Qualified Employee Stock Benefit Plans, the maximum number of shares of Conversion Stock which may be purchased in all of the combined categories of the Conversion and Reorganization by any Person (or persons through a single account) together with any Associate or group of persons Acting in Concert shall not exceed such number of shares of Conversion Stock that when combined with Exchange Shares shall equal $400,000 of Holding Company Common Stock. D. The number of shares of Conversion Stock which Directors and Officers and their Associates may purchase in the aggregate in the Offering shall not exceed 25% of the total number of shares of Conversion Stock sold in the Offerings, including any shares which may be issued in the event of an increase in the maximum of the Estimated Price Range to reflect changes in market, financial and economic conditions after commencement of the Subscription Offering and prior to completion of the Offerings. E. No Person may purchase fewer than 25 shares of Conversion Stock in the Offerings, to the extent such shares are available; provided, however, that if the Actual Purchase Price is greater than $20.00 per share, such minimum number of shares shall be adjusted so that the aggregate Actual Purchase Price for such minimum shares will not exceed $500.00. F. For purposes of the foregoing limitations and the determination of Subscription Rights, (i) Directors, Officers and Employees shall not be deemed to be Associates or a group acting in concert solely as a result of their capacities as such, (ii) shares purchased by Tax- Qualified Employee Stock Benefit Plans shall not be attributable to the individual trustees or beneficiaries of any such plan for purposes of determining compliance with the limitations set forth in this Section, (iii) shares purchased by Tax-Qualified Employee Stock Benefit Plans shall not be attributable to the individual trustees or beneficiaries of any such plan for purposes of determining compliance with the limitation set forth in this Section, and (iv) Exchange Shares shall be valued at the Actual Purchase Price. 17 G. Subject to any required regulatory approval and the requirements of applicable laws and regulations, but without further approval of the Members of the Mutual Holding Company or the Stockholders of the Middle Tier Holding Company, the Primary Parties may increase or decrease the individual or overall purchase limitations set forth herein to a percentage which does not exceed 5% of the total shares of Holding Company Common Stock issued in the Conversion and Reorganization whether prior to, during or after the Subscription Offering, Community Offering and/or Syndicated Community Offering. Notwithstanding the foregoing, the maximum purchase limitation may be increased up to 9.99%, provided that orders for exceeding 5% of the shares being offered shall not exceed, in the aggregate, 10% of the total offering. In the event that the individual or overall purchase limitations are increased after commencement of the Subscription Offering or any other offering, the Primary Parties shall permit any Person who subscribed for the maximum number of shares of Conversion Stock (plus certain large subscribers as determined in the sole discretion of the Primary Parties) to purchase an additional number of shares, so that such Person shall be permitted to subscribe for the then maximum number of shares permitted to be subscribed for by such Person, subject to the rights and preferences of any Person who has priority Subscription Rights. In the event that the individual or overall purchase limitations are decreased after commencement of the Subscription Offering or any other offering, the orders of any Person who subscribed for more than the new purchase limitation shall be decreased by the minimum amount necessary so that such Person shall be in compliance with the then maximum number of shares permitted to be subscribed for by such Person. H. The Primary Parties shall have the right to take all such action as they may, in their sole discretion, deem necessary, appropriate or advisable in order to monitor and enforce the terms, conditions, limitations and restrictions contained in this Section and elsewhere in this Plan and the terms, conditions and representations contained in the Order Form, including, but not limited to, the absolute right (subject only to any necessary regulatory approvals or concurrences) to reject, limit or revoke acceptance of any subscription or order and to delay, terminate or refuse to consummate any sale of Conversion Stock which they believe might violate, or is designed to, or is any part of a plan to, evade or circumvent such terms, conditions, limitations, restrictions and representations. Any such action shall be final, conclusive and binding on all persons, and the Primary Parties and their respective Boards shall be free from any liability to any Person on account of any such action. I. Notwithstanding anything to the contrary contained in this Plan, except as may otherwise be required by the OTS, the Public Stockholders will generally not have to sell any Mid- Tier Common Stock or be limited in receiving Exchange Shares even if their ownership of Mid- Tier Common Stock when converted into Exchange Shares pursuant to the MHC Merger would exceed an applicable purchase limitation; however, they might be precluded from purchasing any Conversion Stock in the Offerings. 18 11. TIMING OF SUBSCRIPTION OFFERING; MANNER OF EXERCISING SUBSCRIPTION RIGHTS AND ORDER FORMS ------------------------------------------------------ A. The Subscription Offering may be commenced concurrently with or at any time after the mailing to Voting Members of the Mutual Holding Company and Stockholders of the Middle Tier Holding Company of the proxy statement(s) to be used in connection with the Special Meeting and the Stockholders' Meeting. The Subscription Offering may be closed before the Special Meeting and the Stockholders' Meeting, provided that the offer and sale of the Conversion Stock shall be conditioned upon the approval of the Plan by the Voting Members of the Mutual Holding Company and the Stockholders of the Middle Tier Holding Company at the Special Meeting and the Stockholders' Meeting, respectively. B. The exact timing of the commencement of the Subscription Offering shall be determined by the Primary Parties in consultation with the Independent Appraiser and any financial or advisory or investment banking firm retained by them in connection with the Conversion. The Primary Parties may consider a number of factors, including, but not limited to, their current and projected future earnings, local and national economic conditions, and the prevailing market for stocks in general and stocks of financial institutions in particular. The Primary Parties shall have the right to withdraw, terminate, suspend, delay, revoke or modify any such Subscription Offering, at any time and from time to time, as they in their sole discretion may determine, without liability to any Person, subject to compliance with applicable securities laws and any necessary regulatory approval or concurrence. C. The Primary Parties shall, promptly after the SEC has declared the Registration Statement, which includes the Prospectus, effective and all required regulatory approvals have been obtained, distribute or make available the Prospectus, together with Order Forms for the purchase of Conversion Stock, to all Participants for the purpose of enabling them to exercise their respective Subscription Rights, subject to Section 14 hereof. The Primary Parties may elect to mail a Prospectus and Order Form only to those Participants who request such materials by returning a postage-paid card to the Primary Parties by a date specified in the letter informing them of their Subscription Rights. Under such circumstances, the Subscription Offering shall not be closed until the expiration of 30 days after the mailing by the Primary Parties of the postage- paid card to Participants. D. A single Order Form for all Deposit Accounts maintained with the Bank by an Eligible Account Holder, Supplemental Eligible Account Holder and any Other Member may be furnished, irrespective of the number of Deposit Accounts maintained with the Bank on the Eligibility Record Date and Supplemental Eligibility Record Date and the Voting Record Date, respectively. E. The recipient of an Order Form shall have no less than 20 days and no more than 45 days from the date of mailing of the Order Form (with the exact termination date to be set forth on the Order Form) to properly complete and execute the Order Form and deliver it to the Primary Parties. The Primary Parties may extend such period by such amount of time as they determine is appropriate. Failure of any Participant to deliver a properly executed Order Form to the Primary Parties, along with payment (or authorization for payment by withdrawal) for the shares of Conversion Stock subscribed for, within time limits prescribed, shall be deemed a waiver and release by such person of any rights to subscribe for shares of Conversion Stock. Each Participant 19 shall be required to confirm to the Primary Parties by executing an Order Form that such Person has fully complied with all of the terms, conditions, limitations and restrictions in the Plan. F. The Primary Parties shall have the absolute right, in their sole discretion and without liability to any Participant or other Person, to reject any Order Form, including, but not limited to, any Order Form that is (i) improperly completed or executed; (ii) not timely received; (iii) not accompanied by the proper payment (or authorization of withdrawal for payment) or, in the case of institutional investors in the Community Offering, not accompanied by an irrevocable order together with a legally binding commitment to pay the full amount of the purchase price prior to 48 hours before the completion of the Offerings; or (iv) submitted by a Person whose representations the Primary Parties believe to be false or who they otherwise believe, either alone, or acting in concert with others, is violating, evading or circumventing, or intends to violate, evade or circumvent, the terms and conditions of the Plan. The Primary Parties may, but will not be required to, waive any irregularity on any Order Form or may require the submission of corrected Order Forms or the remittance of full payment for shares of Conversion Stock by such date as they may specify. The interpretation of the Primary Parties of the terms and conditions of the Order Forms shall be final and conclusive. 12. PAYMENT FOR CONVERSION STOCK ---------------------------- A. Payment for shares of Conversion Stock subscribed for by Participants in the Subscription Offering and payment for shares of Conversion Stock ordered by Public Stockholders and other Persons in the Community Offering and Syndicated Community Offering (if applicable) shall be equal to the Initial Purchase Price multiplied by the number of shares which are being subscribed for or ordered, respectively. Such payment may be made in cash, if delivered in person, or by check or money order at the time the Order Form is delivered to the Primary Parties. In addition, the Primary Parties may elect to provide Participants and/or other Persons who have a Deposit Account with the Bank the opportunity to pay for shares of Conversion Stock by authorizing the Bank to withdraw from such Deposit Account an amount equal to the aggregate Purchase Price of such shares. If the Actual Purchase Price is less than the Initial Purchase Price, the Primary Parties shall refund the difference to all Participants and other Persons, unless the Primary Parties choose to provide Participants and other Persons the opportunity on the Order Form to elect to have such difference applied to the purchase of additional whole shares of Conversion Stock. If the Actual Purchase Price is more than the Initial Purchase Price, the Primary Parties shall reduce the number of shares of Conversion Stock ordered by Participants and other Persons and refund any remaining amount which is attributable to a fractional share interest, unless the Primary Parties choose to provide Participants and other Persons the opportunity to increase the amount of funds submitted to pay for their shares of Conversion Stock. B. Consistent with applicable laws and regulations and policies and practices of the OTS, payment for shares of Conversion Stock subscribed for by Tax-Qualified Employee Stock Benefit Plans may be made with funds contributed by the Holding Company and/or funds obtained pursuant to a loan from an independent third party pursuant to a loan commitment which is in 20 force from the time that any such plan submits an Order Form until the closing of the transactions contemplated hereby. C. If a Participant or other Person authorizes the Bank to withdraw the amount of the Initial Purchase Price from his Deposit Account, the Bank shall have the right to make such withdrawal or to freeze funds equal to the aggregate Initial Purchase Price upon receipt of the Order Form. Notwithstanding any regulatory provisions regarding penalties for early withdrawals from certificate accounts, the Bank may allow payment by means of withdrawal from certificate accounts without the assessment of such penalties. In the case of an early withdrawal of only a portion of such account, the certificate evidencing such account shall be canceled if any applicable minimum balance requirement ceases to be met. In such case, at the sole discretion of the Bank, the remaining balance will be either returned to the depositor or will earn interest at the savings account rate subsequent to the withdrawal. However, where any applicable minimum balance is maintained in such certificate account, the rate of return on the balance of the certificate account shall remain the same as prior to such early withdrawal. This waiver of the early withdrawal penalty applies only to withdrawals made in connection with the purchase of Conversion Stock and is entirely within the discretion of the Primary Parties. D. The Bank shall pay interest, at not less than the passbook rate, for all amounts paid in cash, by check or money order to purchase shares of Conversion Stock in the Subscription Offering and the Community Offering from the date payment is received until the date the Conversion and Reorganization is completed or terminated. E. The Bank shall not knowingly loan funds or otherwise extend credit to any Participant or other Person to purchase Conversion Stock. F. Each share of Conversion Stock shall be non-assessable upon payment in full of the Actual Purchase Price. 13. ACCOUNTHOLDERS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES ---------------------------------------------------------- The Primary Parties shall make reasonable efforts to comply with the securities laws of all jurisdictions in the United States in which Participants reside. However, no Participant will be offered or receive any Conversion Stock under the Plan if such Participant resides in a foreign country or resides in a jurisdiction of the United States with respect to which any of the following apply; (a) there are few Participants otherwise eligible to subscribe for shares under this Plan who reside in such jurisdiction; (b) the granting of Subscription Rights or the offer or sale of shares of Conversion Stock to such Participants would require any of the Primary Parties or their respective Directors and Officers, under the laws of such jurisdiction, to register as a broker-dealer, salesman or selling agent or to register or otherwise qualify the Conversion Stock for sale in such jurisdiction, or any of the Primary Parties would be required to qualify as a foreign corporation or file a consent to service of process in such jurisdiction; or (c) such registration, qualification or filing in the judgment of the Primary Parties would be impracticable or unduly burdensome for reasons of cost or otherwise. 21 14. DISSENTERS' RIGHTS ------------------ The stockholders of the Middle Tier Holding Company shall have dissenter and appraisal rights in connection with their vote on the Conversion and Reorganization to the extent required by Section 552.14 of the Regulations Applicable to All Savings Associations, or any successor thereto. 15. VOTING RIGHTS OF STOCKHOLDERS ----------------------------- Following consummation of the Conversion and Reorganization, voting rights with respect to the Bank shall be held and exercised exclusively by the Holding Company as holder of all of the Bank's outstanding voting capital stock, and voting rights with respect to the Holding Company shall be held and exercised exclusively by the holders of the Holding Company's voting capital stock. 16. LIQUIDATION ACCOUNT ------------------- A. At the time of the Merger No. 2, the Bank shall establish a liquidation account in an amount equal to the greater of (i) the retained earnings of the Bank as of the date of the latest statement of financial condition contained in the final offering circular utilized in the Bank's initial public offering, or (ii) 56.5% of the Middle Tier Holding Company's total stockholders' equity as reflected in its latest statement of financial condition contained in the final Prospectus utilized in the Conversion and Reorganization. The function of the liquidation account will be to preserve the rights of certain holders of Deposit Accounts in the Bank who maintain such accounts in the Bank following the Conversion and Reorganization to priority to distributions in the unlikely event of a liquidation of the Bank subsequent to the Conversion and Reorganization. B. The liquidation account shall be maintained for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders, if any, who maintain their Deposit Accounts in the Bank after the Conversion and Reorganization. Each such account holder will, with respect to each Deposit Account held, have a related inchoate interest in a portion of the liquidation account balance, which interest will be referred to in this Section as the "subaccount balance." All Deposit Accounts having the same social security number will be aggregated for purposes of determining the initial subaccount balance with respect to such Deposit Accounts, except as provided in this Section. C. In the event of a complete liquidation of the Bank subsequent to the Conversion and Reorganization (and only in such event), each Eligible Account Holder and Supplemental Eligible Account Holder, if any, shall be entitled to receive a liquidation distribution from the liquidation account in the amount of the then current subaccount balances for Deposit Accounts then held (adjusted as described below) before any liquidation distribution may be made with respect to the capital stock of the Bank. No merger, consolidation, sale of bulk assets or similar combination transaction with another FDIC-insured institution in which the Bank is not the surviving entity 22 shall be considered a complete liquidation for this purpose. In any merger or consolidation transaction, the liquidation account shall be assumed by the surviving entity. D. The initial subaccount balance for a Deposit Account held by an Eligible Account Holder and Supplemental Eligible Account Holder, if any, shall be determined by multiplying the opening balance in the liquidation account by a fraction, of which the numerator is the amount of the Qualifying Deposits of such account holder and the denominator is the total amount of Qualifying Deposits of all Eligible Account Holders and Supplemental Eligible Account Holders, if any. For Deposit Accounts in existence at both the Eligibility Record Date and the Supplemental Eligibility Record Date, if any, separate initial subaccount balances shall be determined on the basis of the Qualifying Deposits in such Deposit Accounts on each such record date. Initial subaccount balances shall not be increased, and shall be subject to downward adjustment as provided below. E. If the aggregate deposit balance in the Deposit Account(s) of any Eligible Account Holder or Supplemental Eligible Account Holder, if any, at the close of business on any June 30 annual closing date is less than the lesser of (a) the aggregate deposit balance in such Deposit Account(s) at the close of business on any other annual closing date subsequent to such record dates or (b) the aggregate deposit balance in such Deposit Account(s) as of the Eligibility Record Date or the Supplemental Eligibility Record Date, the subaccount balance for such Deposit Accounts(s) shall be adjusted by reducing such subaccount balance in an amount proportionate to the reduction in such deposit balance. In the event of such a downward adjustment, the subaccount balance shall not be subsequently increased, notwithstanding any subsequent increase in the deposit balance of the related Deposit Account(s). The subaccount balance of an Eligible Account Holder or Supplemental Eligible Account Holder, if any, will be reduced to zero if the Account Holder ceases to maintain a Deposit Account at the Bank that has the same social security number as appeared on his Deposit Account(s) at the Eligibility Record Date or, if applicable, the Supplemental Eligibility Record Date. F. Subsequent to the Conversion and Reorganization, the Bank may not pay cash dividends generally on deposit accounts and/or capital stock of the Bank, if such dividend or repurchase would reduce the Bank's regulatory capital below the aggregate amount of the then current subaccount balances for Deposit Accounts then held; otherwise, the existence of the liquidation account shall not operate to restrict the use or application of any of the net worth accounts of the Bank. G. For purposes of this Section, a Deposit Account includes a predecessor or successor account which is held by an Account Holder with the same social security number. 17. TRANSFER OF DEPOSIT ACCOUNTS ---------------------------- Each Deposit Account in the Bank at the time of the consummation of the Conversion and Reorganization shall become, without further action by the holder, a Deposit Account in the Bank equivalent in withdrawable amount to the withdrawal value (as adjusted to give effect to any 23 withdrawal made for the purchase of Conversion Stock), and subject to the same terms and conditions (except as to voting and liquidation rights) as such Deposit Account in the Bank immediately preceding consummation of the Conversion and Reorganization. Holders of Deposit Accounts in the Bank shall not, as such holders, have any voting rights. 18. REQUIREMENTS FOLLOWING CONVERSION AND REORGANIZATION FOR REGISTRATION, MARKET MAKING AND STOCK EXCHANGE LISTING ------------------------------------------------------ In connection with the Conversion and Reorganization, the Holding Company shall register the Holding Company Common Stock pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended, and shall undertake not to deregister such stock for a period of three years thereafter. The Holding Company also shall use its best efforts to (i) encourage and assist a market maker to establish and maintain a market for the Holding Company Common Stock and (ii) list the Holding Company Common Stock on a national or regional securities exchange or to have quotations for such stock disseminated on the National Association of Securities Dealers Automated Quotation System. 19. DIRECTORS AND OFFICERS OF THE BANK AND THE HOLDING COMPANY ---------------------------------------------------------- Each person serving as a Director or Officer of the Bank or the Holding Company at the time of the Conversion and Reorganization shall continue to serve as a Director or Officer of the Bank or the Holding Company for the balance of the term for which the person was elected prior to the Conversion and Reorganization, and until a successor is elected and qualified. 20. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS FOLLOWING THE CONVERSION AND REORGANIZATION ---------------------------------------------------------- For a period of three years following the Conversion and Reorganization, the Directors and Officers of the Holding Company and the Bank and their Associates may not purchase, without the prior written approval of the OTS, Holding Company Common Stock except from a broker- dealer registered with the SEC. This prohibition shall not apply, however, to (i) a negotiated transaction arrived at by direct negotiation between buyer and seller and involving more than 1% of the outstanding Holding Company Common Stock and (ii) purchases of stock made by and held by any Tax-Qualified Employee Stock Benefit Plan (and purchases of stock made by and held by any Non-Tax-Qualified Employee Stock Benefit Plan following the receipt of stockholder approval of such plan) which may be attributable to individual officers or directors. The foregoing restriction on purchases of Holding Company Common Stock shall be in addition to any restrictions that may be imposed by federal and state securities laws. 24 21. RESTRICTIONS ON TRANSFER OF STOCK --------------------------------- All shares of the Conversion Stock which are purchased by Persons other than Directors and Officers shall be transferable without restriction, except in connection with a transaction proscribed by Section 22 of this Plan. Shares of Conversion Stock (excluding Exchange Shares) purchased by Directors and Officers of the Holding Company and the Bank on original issue from the Holding Company (by subscription or otherwise) shall be subject to the restriction that such shares shall not be sold or otherwise disposed of for value for a period of one year following the date of purchase, except for any disposition of such shares following the death of the original purchaser or pursuant to any merger or similar transaction approved by the OTS. The shares of Conversion Stock (excluding Exchange Shares) issued by the Holding Company to Directors and Officers shall bear the following legend giving appropriate notice of such one-year restriction. The shares of stock evidenced by this Certificate are restricted as to transfer for a period of one year from the date of this Certificate pursuant to Part 563b of the Rules and Regulations of the Office of Thrift Supervision. These shares may not be transferred during such one-year period without a legal opinion of counsel for the Company that said transfer is permissible under the provisions of applicable law and regulation. This restrictive legend shall be deemed null and void after one year from the date of this Certificate. In addition, the Holding Company shall give appropriate instructions to the transfer agent for the Holding Company Common Stock with respect to the applicable restrictions relating to the transfer of restricted stock. Any shares issued at a later date as a stock dividend, stock split or otherwise with respect to any such restricted stock shall be subject to the same holding period restrictions as may then be applicable to such restricted stock. The foregoing restriction on transfer shall be in addition to any restrictions on transfer that may be imposed by federal and state securities laws. 22. RESTRICTIONS ON ACQUISITION OF STOCK OF THE HOLDING COMPANY ----------------------------------------------------------- The certificate of incorporation of the Holding Company shall prohibit any Person together with Associates or groups of Persons acting in concert from offering to acquire or acquiring, directly or indirectly, beneficial ownership of more than 10% of any class of equity securities of the Holding Company, or of securities convertible into more than 10% of any such class, for five years following completion of the Conversion and Reorganization. The certificate of incorporation of the Holding Company also shall provide that all equity securities beneficially owned by any Person in excess of 10% of any class of equity securities during such five-year period shall be considered "excess shares," and that excess shares shall not be counted as shares entitled to vote and shall not be voted by any Person or counted as voting shares in connection with any matters submitted to the stockholders for a vote. The foregoing restrictions shall not apply to (i) any offer with a view toward public resale made exclusively to the Holding Company by underwriters or a selling group acting on this behalf, (ii) the purchase of shares by a Tax-Qualified Employee Stock Benefit Plan established for the benefit of the employees of the Holding Company and its subsidiaries which is exempt from approval requirements under 12 C.F.R. ss. 574.3(c)(1)(vi) or any 25 successor thereto, and (iii) any offer or acquisition approved in advance by the affirmative vote of two-thirds of the entire Board of Directors of the Holding Company. Directors, Officers or Employees of the Holding Company or the Bank or any subsidiary thereof shall not be deemed to be Associates or a group acting in concert with respect to their individual acquisition of any class of equity securities of the Holding Company solely as a result of their capacities as such. 23. TAX RULINGS OR OPINIONS ----------------------- Consummation of the Conversion and Reorganization is conditioned upon prior receipt by the Primary Parties of either a ruling or an opinion of counsel with respect to federal tax laws, and either a ruling or an opinion of counsel with respect to New Jersey tax laws, to the effect that consummation of the transactions contemplated hereby will not result in a taxable reorganization under the provisions of the applicable codes or otherwise result in any material adverse tax consequences to the Primary Parties or to account holders receiving Subscription Rights before or after the Conversion and Reorganization, except in each case to the extent, if any, that Subscription Rights are deemed to have fair market value on the date such rights are issued. 24. STOCK COMPENSATION PLANS ------------------------ A. By voting in favor of this Agreement, the Holding Company shall have approved adoption of the Middle Tier Holding Company's Employee Stock Ownership Plan, 2003 Stock Option Plan, 2003 Restricted Stock Plan, and Employees' Savings & Profit Sharing Plan and Trust (collectively, the "Plans") as plans of the Holding Company and shall have agreed to issue Holding Company Common Stock in lieu of Middle Tier Holding Company Common Stock pursuant to the terms of such Plans. As of the Effective Date, rights outstanding under the Plans shall be assumed by the Holding Company and thereafter shall be rights only for shares of Holding Company Common Stock, with each such right being for a number of shares of Holding Company Common Stock equal to the number of shares of Middle Tier Holding Company Common Stock that were available thereunder immediately prior to the Effective Date times the Exchange Ratio, as defined in the Plan of Conversion, and the price of each such right shall be adjusted to reflect the Exchange Ratio and so that the aggregate purchase price of the right is unaffected, but with no change in any other term or condition of such right. The Holding Company shall make appropriate amendments to the Plans to reflect the adoption of the Plans by the Holding Company without adverse effect upon the rights outstanding thereunder. B. The Holding Company and the Bank are authorized to adopt Tax-Qualified Employee Stock Benefit Plans in connection with the Conversion and Reorganization, including without limitation an employee stock ownership plan. C. The Holding Company and the Bank also are authorized to adopt stock option plans, restricted stock grant plans and other Non-Tax-Qualified Employee Stock Benefit Plans, provided that no stock options shall be granted, and no shares of Conversion Stock shall be purchased, pursuant to any of such plans prior to the earlier of (i) the one-year anniversary of the 26 consummation of the Conversion and Reorganization or (ii) the receipt of stockholder approval of such plans at either the annual or special meeting of stockholders of the Holding Company to be held not earlier than six months after the completion of the Conversion and Reorganization. D. Existing as well as any newly created Tax-Qualified Employee Stock Benefit Plans may purchase shares of Conversion Stock in the Offerings or in the open market subsequent to the Offerings, to the extent permitted by the terms of such benefit plans and this Plan. 25. DIVIDEND AND REPURCHASE RESTRICTIONS ON STOCK --------------------------------------------- A. Except as may otherwise may be permitted by the OTS, the Holding Company may not repurchase any shares of its capital stock during the first year following consummation of the Conversion and Reorganization. B. The Bank may not declare or pay a cash dividend on, or repurchase any of, its capital stock if the effect thereof would cause the regulatory capital of the Bank to be reduced below the amount required for the liquidation account. Any dividend declared or paid on, or repurchase of, the Bank's capital stock also shall be in compliance with Sections 563.140-146 of the Regulations Applicable to All Savings Associations, or any successor thereto. C. Notwithstanding anything to the contrary set forth herein, the Holding Company may repurchase its capital stock to the extent and subject to the requirements set forth in Section 563b.510 of the Regulations Applicable to All Savings Associations, or any successor thereto, or as otherwise may be approved by the OTS. 26. PAYMENT OF FEES TO BROKERS -------------------------- The Primary Parties may elect to offer to pay fees on a per share basis to securities brokers who assist purchasers of Conversion Stock in the Offerings. 27. EFFECTIVE DATE -------------- The Effective Date of the Conversion and Reorganization shall be the date upon which the last of the following actions occurs: (i) the filing of Articles of Combination with the OTS with respect to the Mergers, (ii) the closing of the issuance of the shares of Conversion Stock in the Offerings. The filing of Articles of Combination relating to the Mergers and the closing of the issuance of shares of Conversion Stock in the Offerings shall not occur until all requisite regulatory, Member and Stockholder approvals have been obtained, all applicable waiting periods have expired and sufficient subscriptions and orders for the Conversion Stock have been received. It is intended that the closing of the Mergers and the sale of shares of Conversion Stock in the Offerings shall occur consecutively and substantially simultaneously. 27 28. AMENDMENT OR TERMINATION OF THE PLAN ------------------------------------ If deemed necessary or desirable by the Boards of Directors of the Primary Parties, this Plan, including the Certificate of Incorporation of the Holding Company and the Charter of the Bank, may be substantively amended, as a result of comments from regulatory authorities or otherwise, at any time prior to the solicitation of proxies from members and Stockholders to vote on the Plan and at any time thereafter with the concurrence of the OTS. Any amendment to this Plan made after approval by the Members and Stockholders with the concurrence of the OTS shall not necessitate further approval by the Members or Stockholders unless otherwise required by the OTS. This Plan shall terminate if the sale of all shares of Conversion Stock is not completed within 24 months from the date of the Special Meeting. Prior to the earlier of the Special Meeting and the Stockholders' Meeting, this Plan may be terminated by the Boards of Directors of the Primary Parties without approval of the OTS; after the Special Meeting or the Stockholder's Meeting, the Boards of Directors may terminate this Plan only with the approval of the OTS. 29. INTERPRETATION OF THE PLAN -------------------------- All interpretations of this Plan and application of its provisions to particular circumstances by a majority of each of the Boards of Directors of the Primary Parties shall be final, subject to the authority of the OTS. 28 APPENDIX A MERGER NO. 2 Plan of Merger Between Synergy Interim Bank No. 1 (Formerly MHC) and the Bank PLAN OF MERGER, dated as of ______________, 2003 ("Plan of Merger") by and between Synergy Interim Bank No. 1, an interim federal stock savings bank, which was formerly Synergy, MHC ("Synergy Interim Bank No. 1" or "Interim Bank No. 1") and Synergy Bank, a federal stock savings bank (the "Bank"). Unless otherwise noted, defined terms shall have the same meaning as those set forth in the Plan of Conversion and Reorganization of Synergy, MHC (the "Mutual Holding Company") and Plans of Merger between the Mutual Holding Company, Synergy Financial Group, Inc. ("Middle Tier Holding Company") and the Bank ("Plan") (of which this Plan of Merger is Appendix A thereto). WITNESSETH: WHEREAS, In 2001, Synergy Bank (formerly "Synergy Savings Bank") (the "Mutual Association"), a federally chartered mutual savings institution reorganized into the mutual holding company form of organization whereby (i) the Mutual Association converted into a federally chartered, stock savings bank, Synergy Bank (the "Bank"), as a wholly owned subsidiary of the Middle Tier Holding Company, a Federal stock corporation, (ii) the Mutual Association reorganized itself into a federally chartered Mutual Holding Company, which owns a majority of the shares of the Middle Tier Holding Company, and (iii) subsequently, in September 2002, a minority of the shares of Middle Tier Holding Company Common Stock were sold to the public in a Minority Stock Offering; WHEREAS, the Board of Directors of the Mutual Holding Company has determined that it is in the best interests of the Mutual Holding Company and its members to convert from the mutual to stock form of organization; WHEREAS, the Bank is currently a wholly owned subsidiary of the Middle Tier Holding Company, which is currently a majority owned subsidiary of the Mutual Holding Company; WHEREAS, pursuant to the Plan, the Mutual Holding Company will convert into an interim federal stock savings bank to be known as Interim Bank No. 1; WHEREAS, Middle Tier Holding Company will adopt an interim federal stock savings bank charter to be known as Interim Bank No. 2, which will then merge with and into the Bank ("Merger No. 1"), with the Bank as the surviving entity; WHEREAS, immediately following Merger No. 1, Interim Bank No. 1, formerly the Mutual Holding Company, will merge with and into the Bank, with the Bank as the surviving entity ("Merger No. 2"). The shares of Middle Tier Holding Company Common Stock previously held by the Mutual Holding Company (now Interim Bank No. 1) will be canceled. Eligible A-1 members of the Mutual Holding Company as of certain specified dates will be granted interests in a Liquidation Account to be established by the Bank; WHEREAS, the Holding Company will form an interim corporation ("Interim Bank No. 3"), a new, wholly-owned first-tier subsidiary with an interim federal stock savings bank charter, and immediately following Merger No. 2, Interim Bank No. 3 will merge with and into the Bank, with the Bank as the surviving entity ("Merger No. 3"). As a result of Merger No. 3, Bank stock deemed held by Public Stockholders will be converted into Holding Company Common Stock based upon the Exchange Ratio which is designed to ensure that the same Public Stockholders will own approximately the same percentage of Holding Company Common Stock as the percentage of Middle Tier Holding Company Common Stock owned by them immediately prior to the Conversion. NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained, and in accordance with federal law, Interim Bank No. 1 and the Bank hereby agree that, subject to the conditions hereinafter set forth, the Mutual Holding Company shall convert to a federal interim stock savings bank, and Interim Bank No. 1 shall then be merged with and into the Bank with Bank as the surviving entity. The terms and conditions of such merger shall be as follows: 1. Regulatory Approvals. The merger shall not become effective until receipt of approval of the OTS and any other agency having jurisdiction over the merger, if any. 2. Identity and Name of Resulting Bank. The resulting bank in the Merger shall be the Bank, Synergy Bank. 3. Offices of Resulting Bank. The home office of the Bank, as the resulting company, shall be the Bank's office located at 310 North Avenue East, Cranford, New Jersey. The locations of the branch offices of the resulting savings bank shall be those of the Bank in existence on the date of this Plan of Merger. 4. The Bank's Federal Charter and Bylaws. The federal stock charter and bylaws of the Bank as in effect immediately prior to the effectiveness of the Merger shall be amended as necessary to accomplish the Merger. 5. Effective Date. The effective date of the Conversion and Merger ("Effective Date") shall be the date as soon as practicable after the issuance and/or execution by the OTS and any other federal or state regulatory agencies, of all approvals, certificates and documents as may be required in order to cause the Conversion and the Merger to become effective. 6. Middle Tier Holding Company Stockholder Approval. The affirmative vote of the holders of two-thirds of the outstanding shares of Middle Tier Holding Company Common Stock and at least a majority of the shares of Middle Tier Holding Company Common Stock cast A-2 which are not held by the Mutual Holding Company shall be required to approve this Plan of Merger. 7. Bank Stockholder Approval. The affirmative vote of the holders of two-thirds of the outstanding shares of the Bank shall be required to approve this Plan of Merger. 8. Mutual Holding Company Approval. The approval of a majority of the members of the Mutual Holding Company, as of a specified date, shall be required to approve this Plan of Merger. 9. Cancellation of Middle Tier Holding Company Common Stock held by the Mutual Holding Company and Member Interests; Liquidation Account. (a) On the Effective Date, (i) each share of Middle Tier Holding Company Common Stock issued and outstanding immediately prior to the Effective Date and held by the Mutual Holding Company shall, by virtue of the Reorganization and without any action on the part of the holder thereof, be canceled, (ii) the interests in the Mutual Holding Company of any person, firm or entity who or which qualified as a member of the Mutual Holding Company in accordance with its mutual charter and bylaws and the laws of the United States prior to the Mutual Holding Company's conversion from mutual to stock form (the "Members") shall, by virtue of the Reorganization and without any action on the part of the holder thereof, be canceled, and (iii) the Bank shall establish a Liquidation Account on behalf of each depositor member of the Mutual Holding Company, as defined in the Plan, in accordance with Section 16 of the Plan. (b) At or after the Effective Date and prior to the Merger, each certificate or certificates theretofore evidencing issued and outstanding shares of Middle Tier Holding Company Common Stock, other than any such certificate or certificates held by the Mutual Holding Company, which shall be canceled, shall be converted into outstanding shares of Holding Company Common Stock based upon the Exchange Ratio which is designed to provide Public Stockholders approximately a percentage of Holding Company Common Stock as Middle Tier Holding Company Stock owned by them before the Conversion and Merger. 10. Dissenting Shares. No Member of the Mutual Holding Company or stockholder of Middle Tier Holding Company or the Bank shall have any dissenter or appraisal rights in connection with Merger No. 2. 11. Deposits of the Bank. All deposit accounts of the Bank shall remain without change in their respective terms, interest rates, maturities, minimum required balances or withdrawal values. After the Effective Date, the resulting savings bank will continue to issue deposit accounts on the same basis as immediately prior to the Effective Date. 12. Effect of Merger. Upon the Effective Date of the Merger, all assets and property (real, personal and mixed, tangible and intangible, chooses in action, rights and credits) then owned by Interim Bank No. 1 would inure to it, shall immediately by operation of law and without A-3 any conveyance, transfer or further action, become the property of the Bank, which shall have, hold and enjoy them in its own right as fully and to the same extent as they were possessed, held and enjoyed by the Bank immediately prior to the Effective Date of the Merger. The resulting bank shall be deemed to be a continuation of the entity of both Interim Bank No. 1 and the Bank and all of the rights and obligations of Interim Bank No. 1 shall remain unimpaired; and the resulting bank, upon the Effective Date of the Merger, shall succeed to all those rights and obligations and the duties and liabilities connected therewith. 13. Directors and Executive Officers. The persons who are the current officers and directors of the Bank will be the directors and officers of the resulting bank and such terms or positions will be unchanged. 14. Abandonment of Plan of Merger. This Plan of Merger may be abandoned by either Interim Bank No. 1 or the Bank at any time before the Effective Date in the manner set forth in Section 28 of the Plan. 15. Amendment of this Plan of Merger. This Plan of Merger may be amended or modified at any time by mutual agreement of the Boards of Directors of Interim Bank No. 1 and the Bank in the manner set forth in Section 28 of the Plan. 16. Governing Law. This Plan of Merger is made pursuant to, and shall be construed and be governed by, the laws of the United States, and the rules and regulations promulgated thereunder, including without limitation, the rules and regulations of the OTS. 17. All Terms Included. This Plan of Merger sets forth all terms, conditions, agreements and understandings of the Mutual Holding Company, Interim Bank No. 1 and the Bank with respect to the Conversion. 18. Counterparts. This Plan of Merger may be executed in several identical counterparts, each of which when executed by the Parties and delivered shall be an original, but all of which together shall constitute a single instrument. In making proof of this Plan of Merger, it shall not be necessary to produce or account for more than one such counterpart. A-4 IN WITNESS WHEREOF, the parties have caused this Plan of Merger to be executed by their duly authorized officers as of the date first above written. SYNERGY, MHC Attest: /s/Kevin A. Wenthen By: /s/John S. Fiore ------------------------ ----------------- Kevin A. Wenthen John S. Fiore Secretary President SYNERGY INTERIM BANK NO. 1 Attest: By: ------------------------ ----------------- Kevin A. Wenthen John S. Fiore Secretary President SYNERGY BANK Attest: /s/Kevin A. Wenthen By: /s/John S. Fiore ------------------------ ----------------- Kevin A. Wenthen John S. Fiore Secretary President A-5 APPENDIX B MERGER NO. 1 Plan of Merger Between Synergy Interim Bank No. 2 (Formerly Middle Tier Holding Company) and the Bank PLAN OF MERGER, dated as of _______________, 2003 ("Plan of Merger") by and between Synergy Interim Bank No. 2, an interim federal stock savings bank, which was formerly Synergy Financial Group, Inc. ("Interim Bank No. 2") and Synergy Bank, a federal stock savings bank (the "Bank"). Unless otherwise noted, defined terms shall have the same meaning as those set forth in the Plan of Conversion and Reorganization of Synergy, MHC (the "Mutual Holding Company") and Plans of Merger between the Mutual Holding Company, the Middle Tier Holding Company and the Bank ("Plan") (of which this Plan of Merger is Appendix B thereto). WITNESSETH: WHEREAS, In 2001, Synergy Bank (formerly "Synergy Savings Bank") (the "Mutual Association"), a federally chartered mutual savings institution reorganized into the mutual holding company form of organization whereby (i) the Mutual Association converted into a federally chartered, stock savings bank, Synergy Bank (the "Bank"), as a wholly owned subsidiary of the Middle Tier Holding Company, a Federal stock corporation, (ii) the Mutual Association reorganized itself into a federally chartered Mutual Holding Company, which owns a majority of the shares of the Middle Tier Holding Company, and (iii) subsequently, in September 2002, a minority of the shares of Middle Tier Holding Company Common Stock were sold to the public in a Minority Stock Offering; WHEREAS, the Board of Directors of the Mutual Holding Company has determined that it is in the best interests of the Mutual Holding Company and its members to convert from the mutual to stock form of organization; WHEREAS, the Bank is currently a wholly owned subsidiary of the Middle Tier Holding Company, which is currently a majority owned subsidiary of the Mutual Holding Company; WHEREAS, pursuant to the Plan, the Mutual Holding Company will convert into an interim federal stock savings bank to be known as Interim Bank No. 1; WHEREAS, Middle Tier Holding Company will adopt an interim federal stock savings bank charter to be known as Interim Bank No. 2, which will then merge with and into the Bank ("Merger No. 1"), with the Bank as the surviving entity; WHEREAS, immediately following Merger No. 1, Interim Bank No. 1, formerly the Mutual Holding Company, will merge with and into the Bank with the Bank as the surviving entity ("Merger No. 2"). The shares of Middle Tier Holding Company Common Stock previously held by the Mutual Holding Company (now Interim Bank No. 1) will be canceled. Eligible members of the Mutual Holding Company as of certain specified dates will be granted interests in a Liquidation Account to be established by the Bank; B-1 WHEREAS, the Holding Company will form an interim corporation ("Interim Bank No. 3"), a new, wholly owned first-tier subsidiary with an interim federal stock savings bank charter, and immediately following Merger No. 2, Interim Bank No. 3 will merge with and into the Bank, with the Bank as the surviving entity ("Merger No. 3"). As a result of Merger No. 3, Bank stock deemed held by Public Stockholders will be converted into Holding Company Common Stock based upon the Exchange Ratio which is designed to ensure that the same Public Stockholders will own approximately the same percentage of Holding Company Common Stock as the percentage of Middle Tier Holding Company Common Stock owned by them immediately prior to the Conversion. NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained, and in accordance with federal law, Interim Bank No. 2 and the Bank hereby agree that, subject to the conditions hereinafter set forth, the Middle Tier Holding Company will adopt a federal interim stock savings bank charter, and Interim Bank No. 2 shall then be merged with and into the Bank with Bank as the surviving entity. The terms and conditions of such merger shall be as follows: 1. Regulatory Approvals. The merger shall not become effective until receipt of approval of the OTS and any other agency having jurisdiction over the merger, if any. 2. Identity and Name of Resulting Bank. The resulting bank in the Merger shall be the Bank, Synergy Bank. 3. Offices of Resulting Bank. The home office of Bank, as the resulting company, shall be the Bank's office located at 310 North Avenue East, Cranford, New Jersey. The locations of the branch offices of the resulting savings bank shall be those of the Bank in existence on the date of this Plan of Merger. 4. The Bank's Federal Charter and Bylaws. The federal stock charter and bylaws of the Bank as in effect immediately prior to the effectiveness of the Merger shall be amended as necessary to accomplish the Merger. 5. Effective Date. The effective date of the Conversion and Merger ("Effective Date") shall be the date as soon as practicable after the issuance and/or execution by the OTS and any other federal or state regulatory agencies, of all approvals, certificates and documents as may be required in order to cause the Conversion and the Merger to become effective. 6. Middle Tier Holding Company Stockholder Approval. The affirmative vote of the holders of two-thirds of the outstanding shares of Middle Tier Holding Company Common Stock and at least a majority of the shares of Middle Tier Holding Company Common Stock cast which are not held by the Mutual Holding Company shall be required to approve this Plan of Merger. B-2 7. Bank Stockholder Approval. The affirmative vote of the holders of two-thirds of the outstanding shares of the Bank shall be required to approve this Plan of Merger. 8. Mutual Holding Company Approval. The approval of a majority of the members of the Mutual Holding Company, as of a specified date shall be required to approve this Plan of Merger. 9. Cancellation of Middle Tier Holding Company Common Stock held by the Mutual Holding Company and Member Interests; Liquidation Account. (a) On the Effective Date, (i) each share of Middle Tier Holding Company Common Stock issued and outstanding immediately prior to the Effective Date and held by the Mutual Holding Company shall, by virtue of the Reorganization and without any action on the part of the holder thereof, be canceled, (ii) the interests in the Mutual Holding Company of any person, firm or entity who or which qualified as a member of the Mutual Holding Company in accordance with its mutual charter and bylaws and the laws of the United States prior to the Mutual Holding Company's conversion from mutual to stock form (the "Members") shall, by virtue of the Reorganization and without any action on the part of the holder thereof, be canceled, and (iii) the Bank shall establish a Liquidation Account on behalf of each depositor member of the Mutual Holding Company, as defined in the Plan, in accordance with Section 16 of the Plan. (b) At or after the Effective Date and prior to the Merger, each certificate or certificates theretofore evidencing issued and outstanding shares of Middle Tier Holding Company Common Stock, other than any such certificate or certificates held by the Mutual Holding Company, which shall be canceled, shall be converted into outstanding shares of Holding Company Common Stock based upon the Exchange Ratio which is designed to provide Public Stockholders approximately a percentage of Holding Company Common Stock as Middle Tier Holding Company Stock owned by them before the Conversion and Merger. 10. Dissenting Shares. The stockholders of the Middle Tier Holding Company shall have dissenter and appraisal rights in connection with their vote on the Conversion and Reorganization to the extent required by Section 552.14 of the Regulations Applicable to All Savings Associations, or any successor thereto. 11. Deposits of the Bank. All deposit accounts of the Bank shall remain without change in their respective terms, interest rates, maturities, minimum required balances or withdrawal values. After the Effective Date, the resulting savings bank will continue to issue deposit accounts on the same basis as immediately prior to the Effective Date. 12. Effect of Merger. Upon the Effective Date of the Merger, all assets and property (real, personal and mixed, tangible and intangible, chooses in action, rights and credits) then owned by Interim Bank No. 2 would inure to it, shall immediately by operation of law and without any conveyance, transfer or further action, become the property of the Bank, which shall have, hold and enjoy them in its own right as fully and to the same extent as they were possessed, held B-3 and enjoyed by the Bank immediately prior to the Effective Date of the Merger. The resulting bank shall be deemed to be a continuation of the entity of both Interim Bank No. 2 and the Bank and all of the rights and obligations of Interim Bank No. 2 shall remain unimpaired; and the resulting bank, upon the Effective Date of the Merger, shall succeed to all those rights and obligations and the duties and liabilities connected therewith. 13. Directors and Executive Officers. The persons who are the current officers and directors of the Bank will be the directors and officers of the resulting bank and such terms or positions will be unchanged. 14. Abandonment of Plan of Merger. This Plan of Merger may be abandoned by either Interim Bank No. 2 or the Bank at any time before the Effective Date in the manner set forth in Section 28 of the Plan. 15. Amendment of this Plan of Merger. This Plan of Merger may be amended or modified at any time by mutual agreement of the Boards of Directors of Interim Bank No. 2 and the Bank in the manner set forth in Section 28 of the Plan. 16. Governing Law. This Plan of Merger is made pursuant to, and shall be construed and be governed by, the laws of the United States, and the rules and regulations promulgated thereunder, including without limitation, the rules and regulations of the OTS. 17. All Terms Included. This Plan of Merger sets forth all terms, conditions, agreements and understandings of the Middle Tier Holding Company, Interim Bank No. 2 and the Bank with respect to the Conversion. 18. Counterparts. This Plan of Merger may be executed in several identical counterparts, each of which when executed by the Parties and delivered shall be an original, but all of which together shall constitute a single instrument. In making proof of this Plan of Merger, it shall not be necessary to produce or account for more than one such counterpart. B-4 IN WITNESS WHEREOF, the parties have caused this Plan of Merger to be executed by their duly authorized officers as of the date first above written. SYNERGY, MHC Attest: /s/ Kevin A. Wenthen By: /s/ John S. Fiore ------------------------- ------------------------------ Kevin A. Wenthen John S. Fiore Secretary President SYNERGY INTERIM BANK NO. 1 Attest: By: ------------------------- ------------------------------ Kevin A. Wenthen John S. Fiore Secretary President SYNERGY BANK Attest: /s/ Kevin A. Wenthen By: /s/ John S. Fiore ------------------------- ------------------------------ Kevin A. Wenthen John S. Fiore Secretary President B-5 APPENDIX C MERGER NO. 3 Plan of Merger Between Synergy Interim Bank No. 3 (Subsidiary of the Holding Company) and the Bank PLAN OF MERGER, dated as of _______________, 2003 ("Plan of Merger") by and between Synergy Interim Bank No. 3, an interim federal stock savings bank ("Interim Bank No. 3") that is a wholly owned subsidiary of Synergy Financial Group, Inc. (the "Holding Company"), and Synergy Bank, a federal stock savings bank (the "Bank"). Unless otherwise noted, defined terms shall have the same meaning as those set forth in the Plan of Conversion and Reorganization of Synergy, MHC (the "Mutual Holding Company") and Plans of Merger between the Mutual Holding Company, Synergy Financial Group, Inc. ("Middle Tier Holding Company") and the Bank ("Plan") (of which this Plan of Merger is Appendix C thereto). WITNESSETH: WHEREAS, In 2001, Synergy Bank (formerly "Synergy Savings Bank") (the "Mutual Association"), a federally chartered mutual savings institution reorganized into the mutual holding company form of organization whereby (i) the Mutual Association converted into a federally chartered, stock savings bank, Synergy Bank (the "Bank"), as a wholly owned subsidiary of the Middle Tier Holding Company, a Federal stock corporation, (ii) the Mutual Association reorganized itself into a federally chartered Mutual Holding Company, which owns a majority of the shares of the Middle Tier Holding Company, and (iii) subsequently, in September 2002, a minority of the shares of Middle Tier Holding Company Common Stock were sold to the public in a Minority Stock Offering; WHEREAS, the Board of Directors of the Mutual Holding Company has determined that it is in the best interests of the Mutual Holding Company and its members to convert from the mutual to stock form of organization; WHEREAS, the Bank is currently a wholly owned subsidiary of the Middle Tier Holding Company, which is currently a majority owned subsidiary of the Mutual Holding Company; WHEREAS, pursuant to the Plan, the Mutual Holding Company will convert into an interim federal stock savings bank to be known as Interim Bank No. 1; WHEREAS, Middle Tier Holding Company will adopt an interim federal stock savings bank charter to be known as Interim Bank No. 2, which will then merge with and into the Bank ("Merger No. 1"), with the Bank as the surviving entity; WHEREAS, immediately following Merger No. 1, Interim Bank No. 1, formerly the Mutual Holding Company, will merge with and into the Bank with the Bank as the surviving entity C-1 ("Merger No. 2"). The shares of Middle Tier Holding Company Common Stock previously held by the Mutual Holding Company (now Interim Bank No. 1) will be canceled. Eligible members of the Mutual Holding Company as of certain specified dates will be granted interests in a Liquidation Account to be established by the Bank; WHEREAS, Holding Company will form an interim corporation ("Interim Bank No. 3"), a new, wholly owned first-tier subsidiary with an interim federal stock savings bank charter, and immediately following Merger No. 2, Interim Bank No. 3 will merge with and into the Bank, with the Bank as the surviving entity ("Merger No. 3"). As a result of Merger No. 3, Bank stock deemed held by Public Stockholders will be converted into Holding Company Common Stock based upon the Exchange Ratio which is designed to ensure that the same Public Stockholders will own approximately the same percentage of Holding Company Common Stock as the percentage of Middle Tier Holding Company Common Stock owned by them immediately prior to the Conversion. NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained, and in accordance with federal law, Interim Bank No. 3 and the Bank hereby agree that, subject to the conditions hereinafter set forth, the Holding Company will form as a wholly owned subsidiary, a federal interim stock savings bank, and Interim Bank No. 3 shall then be merged with and into the Bank with Bank as the surviving entity. The terms and conditions of such merger shall be as follows: 1. Regulatory Approvals. The merger shall not become effective until receipt of approval of the OTS and any other agency having jurisdiction over the merger, if any. 2. Identity and Name of Resulting Bank. The resulting bank in the Merger shall be the Bank, Synergy Bank. 3. Offices of Resulting Bank. The home office of Bank, as the resulting company, shall be the Bank's office located at 310 North Avenue East, Cranford, New Jersey. The locations of the branch offices of the resulting savings bank shall be those of the Bank in existence on the date of this Plan of Merger. 4. The Bank's Federal Charter and Bylaws. The federal stock charter and bylaws of the Bank as in effect immediately prior to the Conversion and Merger shall be amended as necessary to accomplish the Merger. 5. Effective Date. The effective date of the Conversion and Merger ("Effective Date") shall be the date as soon as practicable after the issuance and/or execution by the OTS and any other federal or state regulatory agencies, of all approvals, certificates and documents as may be required in order to cause the Conversion and the Merger to become effective. 6. Middle Tier Holding Company Stockholder Approval. The affirmative vote of the holders of two-thirds of the outstanding shares of Middle Tier Holding Company Common C-2 Stock and at least a majority of the shares of Middle Tier Holding Company Common Stock cast which are not held by the Mutual Holding Company shall be required to approve this Plan of Merger. 7. Bank/Interim Stockholder Approval. The affirmative vote of the holders of two- thirds of the outstanding shares of the Bank and Interim Bank No. 3 shall be required to approve this Plan of Merger. 8. Mutual Holding Company Approval. The approval of a majority of the members of the Mutual Holding Company, as of a specified date shall be required to approve this Plan of Merger. 9. Cancellation of Middle Tier Holding Company Common Stock held by the Mutual Holding Company and Member Interests; Liquidation Account. (a) On the Effective Date, (i) each share of Middle Tier Holding Company Common Stock issued and outstanding immediately prior to the Effective Date and held by the Mutual Holding Company shall, by virtue of the Reorganization and without any action on the part of the holder thereof, be canceled, (ii) the interests in the Mutual Holding Company of any person, firm or entity who or which qualified as a member of the Mutual Holding Company in accordance with its mutual charter and bylaws and the laws of the United States prior to the Mutual Holding Company's conversion from mutual to stock form (the "Members") shall, by virtue of the Reorganization and without any action on the part of the holder thereof, be canceled, and (iii) the Bank shall establish a Liquidation Account on behalf of each depositor member of the Mutual Holding Company, as defined in the Plan, in accordance with Section 16 of the Plan. (b) At or after the Effective Date and prior to the Merger, each certificate or certificates theretofore evidencing issued and outstanding shares of Middle Tier Holding Company Common Stock, other than any such certificate or certificates held by the Mutual Holding Company, which shall be canceled, shall be converted into outstanding shares of Holding Company Common Stock based upon the Exchange Ratio which is designed to provide Public Stockholders approximately a percentage of Holding Company Common Stock as Middle Tier Holding Company Stock owned by them before the Conversion and Merger. 10. Dissenting Shares. The stockholders of the Middle Tier Holding Company shall have dissenter and appraisal rights in connection with their vote on the Conversion and Reorganization to the extent required by Section 552.14 of the Regulations Applicable to All Savings Associations, or any successor thereto. 11. Deposits of the Bank. All deposit accounts of the Bank shall remain without change in their respective terms, interest rates, maturities, minimum required balances or withdrawal values. After the Effective Date, the resulting savings bank will continue to issue deposit accounts on the same basis as immediately prior to the Effective Date. C-3 12. Effect of Merger. Upon the Effective Date of the Merger, all assets and property (real, personal and mixed, tangible and intangible, chooses in action, rights and credits) then owned by Interim Bank No. 3 would inure to it, shall immediately by operation of law and without any conveyance, transfer or further action, become the property of the Bank, which shall have, hold and enjoy them in its own right as fully and to the same extent as they were possessed, held and enjoyed by the Bank immediately prior to the Effective Date of the Merger. The resulting bank shall be deemed to be a continuation of the entity of both Interim Bank No. 3 and the Bank and all of the rights and obligations of Interim Bank No. 3 shall remain unimpaired; and the resulting bank, upon the Effective Date of the Merger, shall succeed to all those rights and obligations and the duties and liabilities connected therewith. 13. Directors and Executive Officers. The persons who are the current officers and directors of the Bank will be the directors and officers of the resulting bank and such terms or positions will be unchanged. 14. Abandonment of Plan of Merger. This Plan of Merger may be abandoned by either Interim Bank No. 3 or the Bank at any time before the Effective Date in the manner set forth in Section 28 of the Plan. 15. Amendment of this Plan of Merger. This Plan of Merger may be amended or modified at any time by mutual agreement of the Boards of Directors of Interim Bank No. 3 and the Bank in the manner set forth in Section 28 of the Plan. 16. Governing Law. This Plan of Merger is made pursuant to, and shall be construed and be governed by, the laws of the United States, and the rules and regulations promulgated thereunder, including without limitation, the rules and regulations of the OTS. 17. All Terms Included. This Plan of Merger sets forth all terms, conditions, agreements and understandings of the Holding Company, Interim Bank No. 3 and the Bank with respect to the Conversion. 18. Counterparts. This Plan of Merger may be executed in several identical counterparts, each of which when executed by the Parties and delivered shall be an original, but all of which together shall constitute a single instrument. In making proof of this Plan of Merger, it shall not be necessary to produce or account for more than one such counterpart. C-4 IN WITNESS WHEREOF, the parties have caused this Plan of Merger to be executed by their duly authorized officers as of the date first above written. SYNERGY, MHC Attest: /s/ Kevin A. Wenthen By: /s/ John S. Fiore ------------------------- -------------------------------- Kevin A. Wenthen John S. Fiore Secretary President SYNERGY INTERIM BANK NO. 1 Attest: By: ------------------------- -------------------------------- Kevin A. Wenthen John S. Fiore Secretary President SYNERGY BANK Attest: /s/ Kevin A. Wenthen By: /s/ John S. Fiore ------------------------- -------------------------------- Kevin A. Wenthen John S. Fiore Secretary President C-5 EX-3.(I) 4 ex3i.txt CERTIFICATE OF INCORPORATION CERTIFICATE OF INCORPORATION OF SYNERGY FINANCIAL GROUP, INC. ARTICLE I Name ---- The name of the corporation is Synergy Financial Group, Inc. (herein the "Corporation"). ARTICLE II Registered Office ----------------- The address of the Corporation's registered office in the State of New Jersey is 310 North Avenue East, Cranford, New Jersey 07016, in the County of Union. The name of the Corporation's registered agent at such address is John S. Fiore. ARTICLE III Powers ------ The purpose of the Corporation is to engage in any activity within the purposes for which corporations may be organized under 14A:2-7 of the New Jersey Business Corporation Act. ARTICLE IV Term ---- The Corporation is to have perpetual existence. ARTICLE V Incorporator ------------ The name and mailing address of the Incorporator is as follows: Name Mailing Address ---- --------------- John S. Fiore 310 North Avenue East Cranford, New Jersey 07016 ARTICLE VI Initial Directors ----------------- The number of directors constituting the initial board of directors of the Corporation is nine (9) and the names and addresses of the persons who are to serve as directors until their successors are elected and qualified, are: Name Mailing Address ---- --------------- Kenneth S. Kasper 310 North Avenue East Cranford, NJ 07016 Nancy A. Davis 310 North Avenue East Cranford, NJ 07016 Magdalena M. De Perez 310 North Avenue East Cranford, NJ 07016 John S. Fiore 310 North Avenue East Cranford, NJ 07016 David H. Gibbons, Jr. 310 North Avenue East Cranford, NJ 07016 Paul T. LaCorte 310 North Avenue East Cranford, NJ 07016 George Putvinski 310 North Avenue East Cranford, NJ 07016 W. Phillip Scott 310 North Avenue East Cranford, NJ 07016 Albert N. Stender 310 North Avenue East Cranford, NJ 07016 ARTICLE VII Capital Stock ------------- The aggregate number of shares of all classes of capital stock which the Corporation has authority to issue is 25,000,000 of which 20,000,000 are to be shares of common stock, $.10 par value per share, and of which 5,000,000 are to be shares of serial preferred stock, $.10 par value per share. The shares may be issued by the Corporation without the approval of stockholders except as otherwise provided in this Article VII or the rules of a national securities exchange, if applicable. The consideration for the issuance of the shares shall be paid to or received by the Corporation in full before their issuance and shall not be less than the par value per share. The consideration for the issuance of the shares shall be cash, services rendered, personal property (tangible or intangible), real property, leases of real property or any combination of the foregoing. In the absence of actual fraud in the transaction, the judgment of the board of directors as to the value of such consideration shall be conclusive. Upon payment of such consideration, such shares shall be deemed to be fully paid and nonassessable. In the case of a stock dividend, the part of the surplus of the 2 Corporation which is transferred to stated capital upon the issuance of shares as a stock dividend shall be deemed to be the consideration for their issuance. A description of the different classes and series (if any) of the Corporation's capital stock, and a statement of the relative powers, designations, preferences and rights of the shares of each class and series (if any) of capital stock, and the qualifications, limitations or restrictions thereof, are as follows: A. Common Stock. Except as provided in this Certificate, the holders of the common stock shall exclusively possess all voting power. Each holder of shares of common stock shall be entitled to one vote for each share held by such holders. Whenever there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class of stock having preference over the common stock as to the payment of dividends, the full amount of dividends and sinking fund or retirement fund or other retirement payments, if any, to which such holders are respectively entitled in preference to the common stock, then dividends may be paid on the common stock, and on any class or series of stock entitled to participate therewith as to dividends, out of any assets legally available for the payment of dividends, but only when as declared by the board of directors of the Corporation. In the event of any liquidation, dissolution or winding up of the Corporation, after there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class having preference over the common stock, the full preferential amounts to which they are respectively entitled, the holders of the common stock and of any class or series of stock entitled to participate therewith, in whole or in part, as to distribution of assets shall be entitled, after payment or provision for payment of all debts and liabilities of the Corporation, to receive the remaining assets of the Corporation available for distribution, in cash or in kind. Each share of common stock shall have the same relative powers, preferences and rights as, and shall be identical in all respects with, all the other shares of common stock of the Corporation. B. Serial Preferred Stock. Except as provided in this Certificate, the board of directors of the Corporation is authorized, by resolution or resolutions from time to time adopted, to provide for the issuance of serial preferred stock in series and to fix and state the powers, designations, preferences and relative, participating, optional or other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof, including, but not limited to determination of any of the following: (1) the distinctive serial designation and the number of shares constituting such series; (2) the dividend rates or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative and, if so, from which date or dates, the payment date or dates for dividends, and the participating or other special rights, if any, with respect to dividends; (3) the voting powers, full or limited, if any, of the shares of such series; (4) whether the shares of such series shall be redeemable and, if so, the price or prices at which, and the terms and conditions upon which, such shares may be redeemed; 3 (5) the amount or amounts payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation; (6) whether the shares of such series shall be entitled to the benefits of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and, if so entitled, the amount of such fund and the manner of its application, including the price or prices at which such shares may be redeemed or purchased through the application of such funds; (7) whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation and, if so convertible or exchangeable, the conversion price or prices, or the rate or rates of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; (8) the subscription or purchase price and form of consideration for which the shares of such series shall be issued; and (9) whether the shares of such series which are redeemed or converted shall have the status of authorized but unissued shares of serial preferred stock and whether such shares may be reissued as shares of the same or any other series of serial preferred stock. Each share of each series of serial preferred stock shall have the same relative powers, preferences and rights as, and shall be identical in all respects with, all the other shares of the Corporation of the same series. ARTICLE VIII Preemptive Rights ----------------- No holder of any of the shares of any class or series of capital stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued stock of any class or series, or any unissued bonds, certificates of indebtedness, debentures of other securities convertible into or exchangeable for stock of any class or series or carrying any right to purchase stock of any class or series; but any such unissued stock, bonds, certificates or indebtedness, debentures or other securities convertible into or exchangeable for stock or carrying any right to purchase stock may be issued pursuant to resolution of the board of directors of the Corporation to such persons, firms, corporations or associations, whether or not holders thereof, and upon such terms as may be deemed advisable by the board of directors in the exercise of its sole discretion. ARTICLE IX Repurchase of Shares -------------------- The Corporation may from time to time, pursuant to authorization by the board of directors of the Corporation and without action by the stockholders, purchase or otherwise acquire shares of capital stock of any class, bonds, debentures, notes, script, warrants, obligations, evidences of indebtedness, or other securities of the Corporation in such manner, upon such terms, and in such amounts as the board of directors shall determine; subject, however, to such limitations or restrictions, if any, as are contained in the express 4 terms of any class of shares of the Corporation outstanding at the time of the purchase or acquisition or as are imposed by law or regulation. ARTICLE X Meetings of Stockholders; Cumulative Voting; Proxies ---------------------------------------------------- A. Notwithstanding any other provision of this Certificate or the Bylaws of the Corporation, any action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, if all stockholders entitled to vote thereon consent thereto in writing. The power of stockholders to take action by non-unanimous consent is specifically denied. In the case of a merger, consolidation, acquisition of all capital shares of the Corporation or sale of assets, such action may be taken without a meeting only if all stockholders consent in writing, or if all stockholders entitled to vote consent in writing and all other stockholders are provided the advance notification required by Section 14A:5-6(2)(b) of the New Jersey Business Corporation Act. B. Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the President of the Corporation, by a majority of the board of directors of the Corporation, or by a committee of the board of directors which has been duly designated by the board of directors and whose powers and authorities, as provided in a resolution of the board of directors or in the Bylaws of the Corporation, include the power and authority to call such meetings, but no other person or persons may call a special meeting of the stockholders except as provided by the New Jersey Business Corporation Act. C. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him or her by proxy, but no such proxy shall be voted or acted upon after eleven months from its date, unless the proxy provides for a longer period. To be valid, a proxy must be executed and authorized as required or permitted by law. Without limiting the manner in which a stockholder may authorize another person or persons to act for him or her as proxy, the following shall constitute a valid means by which a stockholder may grant such authority. 1. A stockholder may execute a writing authorizing another person or persons to act for him or her as proxy. Execution may be accomplished by the stockholder or his authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature. 2. A stockholder may authorize another person or persons to act for him or her as proxy by transmitting or authorizing the transmission of a facsimile telecommunication, telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such facsimile telecommunication, telegram, cablegram or other means of electronic transmission, must either set forth or be submitted with information from which it can be determined that the facsimile telecommunication, telegram, cablegram or other electronic transmission was authorized by the stockholder. If it is determined that such facsimile telecommunications, telegrams, cablegrams or other electronic transmission are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied. 5 3. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this section may be substituted or used in lieu of the original writing or transmission for any or all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. D. There shall be no cumulative voting by stockholders of any class or series in the election of directors of the Corporation. E. Meetings of stockholders may be held within or outside the State of New Jersey, as the Bylaws may provide. F. The presence, in person or by proxy, of the holders of a majority of the outstanding shares of voting stock shall constitute a quorum at a meeting of stockholders. ARTICLE XI Notice for Nominations and Proposals ------------------------------------ Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation. ARTICLE XII Directors --------- A. Number; Vacancies. The number of directors of the Corporation shall be such number as shall be provided from time to time in or in accordance with the Bylaws, provided that a decrease in the number of directors shall not have the effect of shortening the term of any incumbent director, and provided further that no action shall be taken to decrease or increase the number of directors from time to time unless at least two-thirds of the directors then in office shall concur in said action. Vacancies in the board of directors of the Corporation, however caused, and newly-created directorships shall be filled by a vote of a majority of the directors then in office, whether or not a quorum, or by a sole remaining director, and any director so chosen shall hold office for a term expiring at the next annual meeting of stockholders. B. Classified Board. The board of directors of the Corporation shall be divided into three classes of directors, which shall be designated Class I, Class II and Class III. The members of each class shall be elected for a term of three years and until their successors are elected and qualified. Such classes shall be as nearly equal in number as the then total number of directors constituting the entire board of directors shall permit, with the terms of office of all members of one class expiring each year. At the first annual meeting of stockholders, directors in Class I shall be elected to hold office for a term expiring at the third succeeding annual meeting thereafter, directors of Class II shall be elected to hold office for a term expiring at the second succeeding meeting thereafter, and directors of Class III shall be elected to hold office for a term expiring at the first succeeding annual meeting thereafter. Directors whose term shall expire at any annual meeting shall continue to serve until such time as his or her successor shall have been duly elected and shall have qualified unless his or her position on the board of directors shall have been abolished by action taken to reduce the size of the board of directors prior to said meeting. 6 If the number of directors of the Corporation is reduced, the directorship(s) eliminated shall be allocated among classes as appropriate so that the number of directors in each class is as specified in the immediately preceding paragraph. The board of directors shall designate, by the name of the incumbent(s), the position(s) to be abolished. Notwithstanding the foregoing, no decrease in the number of directors shall have the effect of shortening the term of any incumbent director. If the number of directors of the Corporation is increased, the additional directorships shall be allocated among classes as appropriate so that the number of directors in each class is as specified in the immediately preceding paragraph. Whenever the holders of any one or more series of preferred stock of the Corporation shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the board of directors shall consist of said directors so elected in addition to the number of directors fixed as provided above in this Article XII. Notwithstanding the foregoing, and except as otherwise may be required by law, whenever the holders of any one or more series of preferred stock of the Corporation shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the terms of the director or directors elected by such holders shall expire at the next succeeding annual meeting of stockholders. ARTICLE XIII Removal of Directors -------------------- Notwithstanding any other provision of this Certificate or the Bylaws of the Corporation, any director or the entire board of directors of the Corporation may be removed for cause, at any time, by the affirmative vote of the holders of at least 80% of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. In addition, the board of directors shall have the power to remove directors for cause and to suspend directors pending a final determination that cause exists for removal. ARTICLE XIV Certain Limitations on Voting Rights ------------------------------------ A. Limitations. Notwithstanding any other provision of this Certificate of Incorporation, in no event shall any record owner of any outstanding Common Stock which is beneficially owned, directly or indirectly, by a person who, as of any record date for the determination of stockholders entitled to vote on any matter, beneficially owns in excess of 10% of the then-outstanding shares of Common Stock (the "Limit"), be entitled, or permitted to any vote in respect of the shares held in excess of the Limit. The number of votes which may be cast by any record owner by virtue of the provisions hereof in respect of Common Stock beneficially owned by such person owning shares in excess of the Limit shall be a number equal to the total number of votes which a single record owner of all Common Stock owned by such person would be entitled to cast, multiplied by a fraction, the numerator of which is the number of shares of such class or series which are both beneficially owned by such person and owned of record by such record owner and the denominator of which is the total number of shares of Common Stock beneficially owned by such person owning shares in excess of the Limit. Further, for a period of five years from the completion of the conversion of Synergy, MHC from mutual to stock form, no person shall directly or indirectly Offer to acquire or acquire the beneficial ownership of more than 10% of any class of any equity security of the Corporation. 7 B. Exclusions. The provisions of the foregoing Section A of this Article XIV shall not apply to: (1) the acquisition of more than 10% of any class of equity security by any tax-qualified defined benefit plan or defined contribution plan of the Corporation or its subsidiaries; (2) the purchase of shares by underwriters in connection with a public offering; or (3) the Offer to acquire or the acquisition of more than 10% of any class of equity security of the Corporation if such Offer to acquire or acquisition has been approved by two-thirds of those members of the Board of Directors who were directors prior to the Offer to acquire or acquisition. C. Definitions. The following definitions shall apply to this Article XIV. 1. "Beneficial Ownership" (including "Beneficially Owned") shall be determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934 (or any successor rule or statutory provision), or, if said Rule 13d-3 shall be rescinded and there shall be no successor rule or provision thereto, pursuant to said Rule 13d-3 as in effect on the date of filing of this Certificate of Incorporation; provided, however, that a person shall, in any event, also be deemed the "beneficial owner" of any Common Stock: (a) which such person or any of its affiliates (as defined in Article XV) beneficially owns, directly or indirectly; (b) which such person or any of its affiliates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding (but shall not be deemed to be the Beneficial Owner of any Voting Shares (as defined in Article XV) solely by reason of an agreement, contract, or other arrangement with this Corporation to effect any transaction which is described in any one or more of sections of Article XV) or upon the exercise of conversion rights, exchange rights, warrants, or options or otherwise, or (ii) sole or shared voting or investment power with respect thereto pursuant to any agreement, arrangement, understanding, relationship or otherwise (but shall not be deemed to be the Beneficial Owner of any Voting Shares solely by reason of a revocable proxy granted for a particular meeting of stockholders, pursuant to a public solicitation of proxies for such meeting, with respect to shares of which neither such person nor any such affiliate is otherwise deemed the Beneficial Owner); or (c) which are Beneficially Owned, directly or indirectly, by any other person with which such first mentioned person or any of its affiliates acts as a partnership, limited partnership, syndicate or other group pursuant to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of this Corporation; and provided further, however, that (1) no director or officer of this Corporation (or any affiliate of any such director or officer) shall, solely by reason of any or all of such Directors or Officers acting in their capacities as such, be deemed, for any purposes hereof, to Beneficially Own any Common Stock Beneficially Owned 8 by any other such director or officer (or any affiliate thereof), and (2) neither any employee stock ownership or similar plan of this Corporation or any subsidiary of this Corporation, nor any trustee with respect thereto or any affiliate of such trustee (solely by reason of such capacity of such trustee), shall be deemed, for any purposes hereof, to Beneficially Own any Common Stock held under any such plan. For purposes of computing the percentage Beneficial Ownership of Common Stock of a person, the outstanding Common Stock shall include shares deemed owned by such person through application of this subsection but shall not include any other Common Stock that may be issuable by this Corporation pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise. For all other purposes, the outstanding Common Stock shall include only Common Stock then outstanding and shall not include any Common Stock which may be issuable by this Corporation pursuant to any agreement, or upon the exercise of conversion rights, warrants or options, or otherwise. 2. The term "Offer" shall mean every written offer to buy or acquire, solicitation of an offer to sell, tender offer or request or invitation for tender of, a security or interest in a security for value; provided that the term "Offer" shall not include (i) inquiries directed solely to the management of the Corporation and not intended to be communicated to stockholders which are designed to elicit an indication of management's receptivity to the basic structure of a potential acquisition with respect to the amount of cash and/or securities, manner of acquisition and formula for determining price, or (ii) non-binding expressions of understanding or letters of intent with the management of the Corporation regarding the basic structure of a potential acquisition with respect to the amount of cash and/or securities, manner of acquisition and formula for determining price. 3. "Person" shall mean any individual, firm, corporation, or other entity. D. Board Determinations. The Board of Directors shall have the power to construe and apply the provisions of this Article XIV and to make all determinations necessary or desirable to implement such provisions, including but not limited to matters with respect to (i) the number of shares of Common Stock Beneficially Owned by any person, (ii) whether a person is an affiliate of another, (iii) whether a person has an agreement, arrangement, or understanding with another as to the matters referred to in the definition of beneficial ownership, (iv) the application of any other definition or operative provision of Article XIV to the given facts, or (v) any other matter relating to the applicability or effect of this Article XIV. Any constructions, applications, or determinations made by the directors pursuant to this Article XIV in good faith and on the basis of such information and assistance as was then reasonably available for such purpose shall be conclusive and binding upon the Corporation and its stockholders. E. Demand for Information; Investigation. The Board of Directors shall have the right to demand that any person who is reasonably believed to Beneficially Own Common Stock in excess of the Limit (or holders of record of Common Stock Beneficially Owned by any person in excess of the Limit) ("Holder in Excess") supply the Corporation with complete information as to (i) the record owner(s) of all shares Beneficially Owned by such person who is reasonably believed to own shares in excess of the Limit and (ii) any other factual matter relating to the applicability or effect of this Article XIV as may reasonably be requested of such person. The Board of Directors shall further have the right to receive from any Holder in Excess reimbursement for all expenses incurred by the Board in connection with its investigation of any matters relating to the applicability or effect of this section on such Holder in Excess, to the extent such investigation is deemed appropriate by the Board of Directors as a result of the Holder in Excess refusing to supply the Corporation with the information described in the previous sentence. F. Quorum Requirements. Except as otherwise provided by law or expressly provided in this Article XIV, the presence in person or by proxy, of the holders of record of shares of capital stock of the 9 Corporation entitling the holders thereof to cast a majority of the votes (after giving effect, if required, to the provisions of this Article XIV) entitled to be cast by the holders of shares of capital stock of the Corporation entitled to vote shall constitute a quorum at all meetings of the stockholders, and every reference in this Certificate of Incorporation to a majority or other proportion of capital stock (or the holders thereof) for purposes of determining any quorum requirement or any requirement for stockholder consent or approval shall be deemed to refer to such majority or other proportion of the votes (or the holders thereof) then entitled to be cast in respect of such capital stock. G. Enforceability. In the event any provision (or portion thereof) of this Article XIV shall be found to be invalid, prohibited or unenforceable for any reason, the remaining provisions (or portions thereof) of this Article XIV shall remain in full force and effect, and shall be construed as if such invalid, prohibited or unenforceable provision had been stricken here from or otherwise rendered inapplicable, it being the intent of this Corporation and its stockholders that each such remaining provision (or portion thereof) of this Article XIV remain, to the fullest extent permitted by law, applicable and enforceable as to all stockholders, including stockholders owning an amount of stock over the Limit, notwithstanding any such finding. ARTICLE XV Approval of Business Combinations --------------------------------- A. Definitions and Related Matters. For the purposes of this Article XV and as otherwise expressly referenced hereto in this Certificate of Incorporation: 1. "Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on the date of filing of this Certificate. 2. "Announcement date," when used in reference to any Business Combination, means the date of the first public announcement of the final, definitive proposal for that Business Combination. 3. "Associate," when used to indicate a relationship with any person, means (1) any corporation or organization of which that person is an officer or partner or is, directly or indirectly, the Beneficial Owner of 10% or more of any class of Voting Shares, (2) any trust or other estate in which that person has a substantial beneficial interest or as to which that person serves as trustee or in a similar fiduciary capacity, or (3) any relative or spouse of that person, or any relative of that spouse, who has the same home as that person. 4. "Beneficial Owner," when used with respect to any stock, means a person: (1) that, individually or with or through any of its affiliates or associates, beneficially owns that stock, directly or indirectly; (2) that, individually or with or through any of its affiliates or associates, has (a) the right to acquire that stock (whether that right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding (whether or not in writing), or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise; provided, however, that a person shall not be deemed the Beneficial Owner of stock tendered pursuant to a tender or exchange offer made by that person or any of that person's affiliates or associates until that tendered stock is accepted for purchase or exchange; or (b) the right to vote that stock pursuant to any agreement, arrangement or understanding 10 (whether or not in writing); provided, however, that a person shall not be deemed the Beneficial Owner of any stock under this subparagraph if the agreement, arrangement or understanding to vote that stock (i) arises solely from a revocable proxy or consent given in response to a proxy or consent solicitation made in accordance with the applicable rules and regulations under the Exchange Act, and (ii) is not then reportable on a Schedule 13D under the Exchange Act (or any comparable or successor report); or (3) that has any agreement, arrangement or understanding (whether or not in writing), for the purpose of acquiring, holding, voting (except voting pursuant to a revocable proxy or consent as described in subparagraph (b) of paragraph (2) of this subsection, or disposing of that stock with any other person that beneficially owns, or whose affiliates or associates beneficially own, directly or indirectly, that stock. 5. "Business Combination," when used in reference to the Corporation and any Interested Stockholder of the Corporation, means: (1) any merger or consolidation of the Corporation or any subsidiary of the Corporation with (a) that Interested Stockholder or (b) any other corporation (whether or not it is an Interested Stockholder of the Corporation) which is, or after a merger or consolidation would be, an affiliate or associate of that Interested Stockholder; (2) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with that Interested Stockholder or any affiliate or associate of that Interested Stockholder of assets of the Corporation or any subsidiary of the Corporation (a) having an aggregate market value equal to 10% or more of the aggregate market value of all the assets, determined on a consolidated basis, of the Corporation, (b) having an aggregate market value equal to 10% or more of the aggregate market value of all the outstanding stock of the Corporation, or (c) representing 10% or more of the earnings power or income, determined on a consolidated basis, of the Corporation; (3) the issuance or transfer by the Corporation or any subsidiary of the Corporation (in one transaction or a series of transactions) of any stock of the corporation or any subsidiary of the Corporation which has an aggregate market value equal to 5% or more of the aggregate market value of all the outstanding stock of the Corporation to that Interested Stockholder or any affiliate or associate of that Interested Stockholder, except pursuant to the exercise of warrants or rights to purchase stock offered, or a dividend or distribution paid or made, pro rata to all stockholders of the Corporation; (4) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by, on behalf of or pursuant to any agreement, arrangement or understanding (whether or not in writing) with that Interested Stockholder or any affiliate or associate of that Interested Stockholder; (5) any reclassification of securities (including, without limitation, any stock split, stock dividend, or other distribution of stock in respect of stock, or any reverse stock split), or recapitalization of the corporation, or any merger or consolidation of the Corporation with any subsidiary of the Corporation, or any other transaction (whether or not with, or into, or otherwise involving that Interested Stockholder), proposed by, on behalf of or pursuant to any agreement, arrangement or understanding (whether or not in writing) with that Interested Stockholder or any affiliate or associate of that Interested Stockholder, which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class or series of stock or securities convertible into Voting Shares of the Corporation or any subsidiary of the Corporation which is directly or indirectly owned by that Interested Stockholder or any affiliate or 11 associate of that Interested Stockholder, except as a result of immaterial changes due to fractional share adjustments; or (6) any receipt by that Interested Stockholder or any affiliate or associate of that Interested Stockholder of the benefit, directly or indirectly (except proportionately as a stockholder of the Corporation), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by or through the Corporation; provided, however, that the term "Business Combination" shall not be deemed to include the receipt of any of the foregoing benefits by the Corporation or any of the Corporation's affiliates arising from transactions (such as intercompany loans or tax sharing arrangements) between the Corporation and its affiliates in the ordinary course of business. 6. "Common Stock" means any stock other than preferred stock. 7. "Consummation date," with respect to any Business Combination, means the date of consummation of that Business Combination. 8. "Control," including the terms "controlling," "controlled by" and "under common control with," means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of Voting Shares, by contract, or otherwise. A person's beneficial ownership of 10% or more of the voting power of the Corporation's Voting Shares shall create a presumption that person has control of the Corporation. Notwithstanding the foregoing in this subsection, a person shall not be deemed to have control of a corporation if that person holds voting power, in good faith and not for the purpose of circumventing this section, as an agent, bank, broker, nominee, custodian or trustee for one or more Beneficial Owners who do not individually or as a group have control of the Corporation. 9. "Exchange Act" means the "Securities Exchange Act of 1934" (15 U.S.C. ss. 78a et seq.), as the same has been or hereafter may be amended from time to time. 10. "Interested Stockholder," when used in reference to the Corporation, means any person (other than the Corporation or any subsidiary of the Corporation) that: (1) is the Beneficial Owner, directly or indirectly, of 10% or more of the voting power of the outstanding Voting Shares of the Corporation; (2) is an affiliate or associate of the Corporation and at any time within the five-year period immediately prior to the date in question was the Beneficial Owner, directly or indirectly, of 10% or more of the voting power of the then outstanding stock of the Corporation. For the purpose of determining whether a person is an Interested Stockholder pursuant to this subsection, the number of shares of Voting Shares of the Corporation deemed to be outstanding shall include shares deemed to be Beneficially Owned by the person through application of subsection A.4 of this Article but shall not include any other unissued shares of voting stock of the Corporation which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise; or (3) is an assignee of or has otherwise succeeded to any shares of Voting Shares which were at any time within the two-year period immediately prior to the date in question Beneficially Owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. 12 11. "Market value," when used in reference to property of the Corporation, means: (1) in the case of stock, the highest closing sales price of the stock during the 30 day period immediately preceding the date in question, on the principal United States securities exchange registered under the Exchange Act on which that stock is listed, or, if that stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of that stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotation System, or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of the Corporation's stock as determined by the board of directors of the Corporation in good faith; and (2) in the case of property other than cash or stock, the fair market value of that property on the date in question as determined by the board of directors of the Corporation in good faith. 12. "Stock" means: (1) any stock or similar security, any certificate of interest, any participation in any profit sharing agreement, any voting trust certificate, or any certificate of deposit for stock; and (2) any security convertible, with or without consideration, into stock, or any warrant, call or other option or privilege of buying stock without being bound to do so, or any other security carrying any right to acquire, subscribe to or purchase stock. 13. "Stock acquisition date," with respect to any person and the Corporation, means the date that such person first becomes an Interested Stockholder of the Corporation. 14. "Subsidiary" of the Corporation means any other corporation of which voting stock having a majority of the votes entitled to be cast is owned, directly or indirectly, by the Corporation. 15. "Voting Shares" shall mean any shares of the authorized stock of the Corporation entitled to vote generally in the election of directors. B. Approval of Business Combinations. ---------------------------------- The Corporation shall not engage in a Business Combination with any Interested Stockholder for a period of five years following that Interested Stockholder's stock acquisition date unless the Business Combination is approved by a vote of two-thirds of the board of directors prior to the Interested Stockholder's stock acquisition date. In addition, the Corporation shall not engage in any Business Combination with any Interested Stockholder of the Corporation at any time unless one of the following three conditions are met: 1. the Business Combination is approved by a vote of two-thirds of the board of directors of the Corporation prior to that Interested Stockholder's stock acquisition date and thereafter approved by stockholders in accordance with applicable law. 2. the Business Combination is approved by the affirmative vote of the holders of at least 80% of the Voting Shares not Beneficially Owned by that Interested Stockholder at a meeting called for such purpose. 13 3. the Business Combination meets all of the following conditions: (1) the aggregate amount of the cash and the market value, as of the consummation date, of consideration other than cash to be received per share by holders of outstanding shares of common stock of the Corporation in that Business Combination is at least equal to the higher of the following: (a) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by that Interested Stockholder for any shares of common stock of the same class or series acquired by it (i) within the five-year period immediately prior to the announcement date with respect to that Business Combination, or (ii) within the five-year period immediately prior to, or in, the transaction in which that Interested Stockholder became an Interested Stockholder, whichever is higher; plus, in either case, interest compounded annually from the earliest date on which that highest per share acquisition price was paid through the consummation date at the rate for one-year United States Treasury obligations from time to time in effect; less the aggregate amount of any cash dividends paid, and the market value of any dividends paid other than in cash, per share of common stock since that earliest date, up to the amount of that interest; and (b) the market value per share of common stock on the announcement date with respect to that Business Combination or on that Interested Stockholder's stock acquisition date, whichever is higher; plus interest compounded annually from that date through the consummation date at the rate for one-year United States Treasury obligations from time to time in effect; less the aggregate amount of any cash dividends paid, and the market value of any dividends paid other than in cash, per share of common stock since that date, up to the amount of that interest; (2) the aggregate amount of the cash and the market value as of the consummation date of consideration other than cash to be received per share by holders of outstanding shares of any class or series of stock, other than common stock, of the Corporation is at least equal to the highest of the following (whether or not that Interested Stockholder has previously acquired any shares of that class or series of stock): (a) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by that Interested Stockholder for any shares of that class or series of stock acquired by it (i) within the five-year period immediately prior to the announcement date with respect to that Business Combination, or (ii) within the five-year period immediately prior to, or in, the transaction in which that Interested Stockholder became an Interested Stockholder, whichever is higher; plus, in either case, interest compounded annually from the earliest date on which the highest per share acquisition price was paid through the consummation date at the rate for one-year United States Treasury obligations from time to time in effect; less the aggregate amount of any cash dividends paid, and the market value of any dividends paid other than in cash, per share of that class or series of stock since that earliest date, up to the amount of that interest; (b) the highest preferential amount per share to which the holders of shares of that class or series of stock are entitled in the event of any liquidation, dissolution or winding up of the Corporation, plus the aggregate amount of any dividends declared or due at to which those holders are entitled prior to payment of dividends on some other class or series of stock (unless the aggregate amount of those dividends is included in that preferential amount); and (c) the market value per share of that class or series of stock on the announcement date with respect to that Business Combination or on that Interested Stockholder's stock 14 acquisition date, whichever is higher; plus interest compounded annually from that date through the consummation date at the rate for one-year United States Treasury obligations from time to time in effect; less the aggregate amount of any cash dividends paid, and the market value of any dividends paid other than in cash, per share of that class or series of stock since that date, up to the amount of that interest; (3) the consideration to be received by holders of a particular class or series of outstanding stock (including common stock) of the Corporation in that Business Combination is in cash or in the same form as the Interested Stockholder has used to acquire the largest number of shares of that class or series of stock previously acquired by it; (4) the holders of all outstanding shares of stock of the Corporation not Beneficially Owned by that Interested Stockholder immediately prior to the consummation of that Business Combination are entitled to receive in that Business Combination in cash or other consideration for those shares in compliance with paragraphs (1), (2) and (3) of this subsection; and (5) after that Interested Stockholder's stock acquisition date and prior to the consummation date with respect to that Business Combination, that Interested Stockholder has not become the Beneficial Owner of any additional shares of stock of the Corporation, except: (a) as part of the transaction which resulted in that Interested Stockholder becoming an Interested Stockholder; (b) by virtue of proportionate stock splits, stock dividends or other distributions of stock in respect of stock not constituting a Business Combination as defined in subsection A.5(5) of this Article; (c) through a Business Combination meeting all of the conditions of paragraph (3) and this paragraph; or (d) through the purchase by that Interested Stockholder at any price which, if that price had been paid in an otherwise permissible Business Combination, the announcement date and consummation date of which was the date of that purchase, would have satisfied the requirements of paragraphs (1), (2) and (3) of this subsection. (6) Exceptions. The provisions of this Article XV shall not apply to any Business Combination of the Corporation with an Interested Stockholder of the Corporation which became an Interested Stockholder inadvertently, if such Interested Stockholder (i) as soon as practicable divests itself, himself or herself of a sufficient amount of the Voting Shares of the Corporation so that it, he or she no longer is the Beneficial Owner, directly or indirectly, of 10% or more of the voting power of the outstanding Voting Shares of the Corporation or a subsidiary corporation, and (ii) would not at any time within the five- year period preceding the announcement date with respect to that Business Combination have been an Interested Stockholder but for that inadvertent acquisition. Nothing contained in this Article XV shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. C. Evaluation of Business Combinations. In connection with the exercise of its judgment in determining what is in the best interests of the Corporation and of the stockholders, when evaluating a Business Combination or a tender or exchange offer, the board of directors of the Corporation shall, in addition to considering the adequacy of the amount to be paid in connection with any such transaction, consider all of the following factors and any other factors which it deems relevant: (i) the social and 15 economic effects of entering into the transaction on the Corporation and its subsidiaries, and its present and future employees, depositors, loan and other customers, creditors and other elements of the communities in which the Corporation and its subsidiaries operate or are located; (ii) the business and financial condition and earnings prospects of the acquiring person or entity, including, but not limited to, debt service and other existing financial obligations, financial obligations to be incurred in connection with the acquisition, and other likely financial obligations of the acquiring person or entity, and the possible effect of such conditions upon the Corporation and its subsidiaries and the other elements of the communities in which the Corporation and its subsidiaries operate or are located; and (iii) the competence, experience, and integrity of the acquiring person or entity and its or their management. ARTICLE XVI Stockholder Approval of Certain Transactions -------------------------------------------- A. Stockholder Vote. Any merger, consolidation, liquidation, or dissolution of the Corporation or any action that would result in the sale or other disposition of all or substantially all of the assets of the Corporation ("Transaction") shall require the affirmative vote of the holders of at least eighty percent (80%) of the outstanding shares of capital stock of the Corporation eligible to vote at a legal meeting. B. Board Approval. The provisions of Section A of this Article XVI shall not apply to a particular Transaction, and such Transaction shall require only such stockholder vote, if any, as would be required under the New Jersey Business Corporation Act, if such Transaction is approved by two-thirds of the entire Board of Directors of the Corporation. ARTICLE XVII Elimination of Directors' and Officers' Liability ------------------------------------------------- Directors and officers of the Corporation shall have no personal liability to the Corporation or its stockholders for damages for breach of any duty owed to the Corporation or its stockholders, provided that this Article XVI shall not relieve a director or officer from liability for any breach of duty based upon an act or omission (i) in breach of the director's or officer's duty of loyalty to the Corporation or its stockholders, (ii) not in good faith or involving a knowing violation of law, or (iii) resulting in receipt by such person of an improper personal benefit. Any repeal or modification of this Article XVI by the stockholders of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation hereunder or otherwise with respect to any act or omission occurring before such repeal or modification is effective. If the New Jersey Business Corporation Act is amended to further limit the personal liability of directors and officers, then such liability will be limited to the fullest extent permitted under the law. ARTICLE XVIII Indemnification --------------- A. Indemnification. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, including actions by or in the right of the Corporation, whether civil, criminal, administrative, arbitrative or investigative, by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation or of any constituent corporation absorbed by the Corporation in a consolidation or merger, or 16 is or was serving at the request of the Corporation as a director, officer, employee or agent of another Corporation, partnership, joint venture, sole proprietorship, trust or other enterprise, against expenses (including attorneys' fees), judgements, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding to the full extent permissible under New Jersey law. B. Advance Payment. The Corporation may pay in advance any expenses (including attorneys' fees) which may become subject to indemnification under Section A of this Article XVII if the person receiving the payment undertakes in writing to repay the same if it is ultimately determined that he or she is not entitled to indemnification by the Corporation under New Jersey law. C. Nonexclusive. The indemnification and advancement of expenses provided by Sections A and B of this Article XVII or otherwise granted pursuant to New Jersey law shall not be exclusive of any other rights to which a person may be entitled by law, bylaw, agreement, vote of stockholders, or disinterested directors, or otherwise. D. Continuation. The indemnification and advance payment provided by Sections A and B of this Article XVII shall continue as to a person who has ceased to hold a position named in Section A and shall inure to his or her heirs, executors and administrators. In addition, any repeal or modification of this Article XVII by the stockholders of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation hereunder or otherwise with respect to any act or omission occurring before such repeal or modification is effective. E. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who holds or who has held any position named in Section A of this Article XVII, against any liability incurred by him or her in any such position, or arising out of his or her status as such, whether or not the Corporation would have power to indemnify him or her against such liability under this Article and New Jersey law. F. Savings Clause. If this Article XVII or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director, officer, employee, and agent of the Corporation as to costs, charges, and expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement with respect to any action, suit, or proceeding, whether civil, criminal, administrative, arbitrative or investigative, including an action by or in the right of the Corporation to the full extent permitted by any applicable portion of this Article XVII that shall not have been invalidated and to the full extent permitted by applicable law. ARTICLE XIX Amendment of Bylaws ------------------- In furtherance and not in limitation of the powers conferred by statute, the board of directors of the Corporation is expressly authorized to make, repeal, alter, amend and rescind the Bylaws of the Corporation by a vote of two-thirds of the board of directors present at a legal meeting held in accordance with the provisions of the Bylaws. Notwithstanding any other provision of this Certificate or the Bylaws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law), the Bylaws shall not be made, repealed, altered, amended or rescinded by the stockholders of the Corporation except by the vote of the holders of not less than 80% of the outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose (provided that notice of such proposed adoption, repeal, 17 alteration, amendment or rescission is included in the notice of such meeting), or, as set forth above, by the board of directors. ARTICLE XX Amendment of Certificate of Incorporation ----------------------------------------- The Corporation reserves the right to repeal, alter, amend or rescind any provision contained in this Certificate in the manner now or hereafter prescribed by law, and all rights conferred on stockholders herein are granted subject to this reservation. Notwithstanding the foregoing, the provisions set forth in Articles VIII, X, XI, XII, XIII, XIV, XV, XVI, XVII, XVIII, XIX and this Article XX of this Certificate may not be repealed, altered, amended or rescinded in any respect unless such action is approved by the affirmative vote of the holders of not less than 80% of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as a single class) cast at a meeting of the stockholders called for that purpose (provided that notice of such proposed adoption, repeal, alteration, amendment or rescission is properly included in the notice of such meeting). 18 EX-3.(II) 5 ex3ii.txt BYLAWS BYLAWS OF SYNERGY FINANCIAL GROUP, INC. ARTICLE I - Home Office The home office of Synergy Financial Group, Inc. (the "Corporation") shall be located in Cranford, New Jersey. The Corporation may also have offices at such other places within or outside of the State of New Jersey as the board of directors shall from time to time determine. ARTICLE II - Shareholders Section 1. Place of Meetings. All annual and special meetings of shareholders shall be held at the home office of the Corporation or at such other convenient place as the board of directors may determine. Section 2. Annual Meeting. A meeting of the shareholders of the Corporation for the election of directors and for the transaction of any other business of the Corporation shall be held annually at such date and time as the board of directors may determine. Section 3. Special Meetings. Special meetings of the shareholders for any purpose or purposes may be called only in accordance with the provisions of the Corporation's Certificate of Incorporation. Notwithstanding any other provision of the Certificate of Incorporation or these Bylaws of the Corporation, any action required to be taken or which may be taken at any annual or special meeting of shareholders of the Corporation may be taken without a meeting, only as provided in the Certificate of Incorporation. Section 4. Conduct of Meetings. Annual and special meetings shall be conducted in accordance with rules and procedures adopted by the board of directors. Section 5. Notice of Meetings. Written notice stating the place, day, and hour of the meeting and the purpose(s) for which the meeting is called shall be delivered not fewer than ten nor more than 50 days before the date of the meeting, either personally or by mail, by or at the direction of the chairman of the board, the president, or the secretary, or the directors calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the mail, addressed to the shareholder at the address as it appears on the stock transfer books or records of the Corporation as of the record date prescribed in Section 6 of this Article II with postage prepaid. When any shareholders' meeting, either annual or special, is adjourned for 30 days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. It shall not be necessary to give any notice of the time and place of any meeting adjourned for less than 30 days or of the business to be transacted at the meeting, other than an announcement at the meeting at which such adjournment is taken. Section 6. Fixing of Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors shall fix in advance a date as the record date for any such determination of shareholders. Such date in any case shall be not more than 60 days and, in case of a meeting of shareholders, not fewer than ten (10) days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section 6, such determination shall apply to any adjournment. Section 7. Voting Lists. A list of shareholders shall be kept on file at the home office of the Corporation and shall be subject to inspection, for a proper purpose and upon five days written demand, by any shareholder who has been a shareholder of record for at least six months preceding his or her demand or by any person holding, or so authorized in writing by the holders of, at least five percent (5%) of the outstanding shares. Section 8. Quorum. A majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less than a majority of the outstanding shares is represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time, subject to the notice requirements of Section 5 of this Article II. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to constitute less than a quorum. Section 9. Proxies. At all meetings of shareholders, a shareholder may vote by proxy executed by the shareholder in the manner provided by the Certificate of Incorporation. Proxies solicited on behalf of the management shall be voted as directed by the shareholder or, in the absence of such direction, as determined by a majority of the board of directors. No proxy shall be valid more than eleven months from the date of its execution unless otherwise provided in the proxy. Section 10. Voting. At each election for directors, every shareholder entitled to vote at such election shall be entitled to one vote for each share of stock held by him or her. Directors shall be elected by a plurality of votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Unless otherwise provided in the Certificate of Incorporation, by statute, or by these Bylaws, in matters other than the election of directors, a majority of the shares present in person or represented by proxy at a lawful meeting and entitled to vote on the subject matter, shall be sufficient to pass on a transaction or matter. Section 11. Voting of Shares in the Name of Two or More Persons. When ownership of stock stands in the name of two or more persons, in the absence of written directions to the Corporation to the contrary, at any meeting of the shareholders of the Corporation, any one or more of such shareholders may cast, in person or by proxy, all votes to which such ownership is entitled. In the event an attempt is made to cast conflicting votes, in person or by proxy, by the several persons in whose names shares of stock stand, the vote or votes to which those persons are entitled shall be cast as directed by a majority of those holding such and present in person or by proxy at such meeting, but no votes shall be cast for such stock if a majority cannot agree. Section 12. Voting of Shares of Certain Holders. Shares standing in the name of another corporation may be voted by any officer, agent, or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, as the board of directors of such corporation may determine. Shares held by an administrator, executor, guardian, or conservator may be voted by him or her, either in person or by proxy, without a transfer of such shares into his or her name. Shares standing in the name of a trustee may be voted by him or her, either in person or by proxy, but no trustee shall be entitled to vote shares held by him or her without a transfer of such shares into his or her name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer into his or her name if authority to do so is contained in an appropriate order of the court or other public authority by which such receiver was appointed. -2- A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter, the pledgee shall be entitled to vote the shares so transferred. Neither treasury shares of its own stock held by the Corporation nor shares held by another corporation, if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting. Section 13. Inspectors of Election. In advance of any meeting of shareholders, the board of directors may appoint any persons other than nominees for office as inspectors of election to act at such meeting or any adjournment. The number of inspectors shall be either one or three. Any such appointment shall not be altered at the meeting. If inspectors of election are not so appointed, the chairman of the board or the president may, or on the request of not fewer than ten percent (10%) of the votes represented at the meeting shall, make such appointment at the meeting. If appointed at the meeting, the majority of the votes present shall determine whether one or three inspectors are to be appointed. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the board of directors in advance of the meeting or at the meeting by the chairman of the board or the president. Unless otherwise prescribed by resolution of the board of directors, the duties of such inspectors shall include: determining the number of shares and the voting power of each share, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies; receiving votes, ballots, or consents; hearing and determining all challenges and questions in any way arising in connection with the rights to vote; counting and tabulating all votes or consents; determining the result; and such acts as may be proper to conduct the election or vote with fairness to all shareholders. Section 14. Nominating Committee. The board of directors shall appoint a nominating committee of at least three directors for selecting the management nominees for election as directors. Except in the case of a nominee substituted as a result of the death or other incapacity of a management nominee, the nominating committee shall deliver written nominations to the secretary at least 20 days prior to the date of the annual meeting. Provided that such committee makes such nominations, no nominations for directors except those made by the nominating committee shall be voted upon at the annual meeting unless other nominations by shareholders are made in writing and delivered to the secretary of the Corporation in accordance with the provisions of Article II, Section 15 of these Bylaws. Section 15. Notice for Nominations and Proposals. Nominations of candidates for election as directors at any annual meeting of shareholders may be made (a) by, or at the direction of, a majority of the board of directors or (b) by any shareholder entitled to vote at such annual meeting. Only persons nominated in accordance with the procedures set forth in this Section 15 shall be eligible for election as directors at an annual meeting. Ballots bearing the names of all the persons who have been nominated for election as directors at an annual meeting in accordance with the procedures set forth in this Section 15 shall be provided for use at the annual meeting. Nominations, other than those made by or at the direction of the board of directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation as set forth in this Section 15. To be timely, a shareholder's notice shall be delivered to, or mailed and received at, the principal office of the Corporation not less than 60 days prior to the anniversary date of the immediately preceding annual meeting of shareholders of the Corporation; provided, however, that with respect to the first scheduled annual meeting, notice by the shareholder must be so delivered or received no later than the close of business on the -3- tenth day following the day on which notice of the date of the scheduled meeting must be delivered or received no later than the close of business on the fifth day preceding the date of the meeting. Such shareholder's notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election or re-election as a director and as to the shareholder giving the notice (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of Corporation stock which are Beneficially Owned (as defined in Article XIV of the Certificate of Incorporation) by such person on the date of such shareholder notice, and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies with respect to nominees for election as directors, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including, but not limited to, information required to be disclosed by Items 4, 5, 6 and 7 of Schedule 14A to be filed with the Securities and Exchange Commission (or any successors of such items or schedule); and (b) as to the shareholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such shareholder and any other shareholders known by such shareholder to be supporting such nominees and (ii) the class and number of shares of Corporation stock which are Beneficially Owned by such shareholder on the date of such shareholder notice and, to the extent known, by any other shareholders known by such shareholder to be supporting such nominees on the date of such shareholder notice. At the request of the board of directors, any person nominated by, or at the direction of, the board for election as a director at an annual meeting shall furnish to the Secretary of the Corporation that information required to be set forth in a shareholder's notice of nomination which pertains to the nominee. Nominations for directors to be elected at an annual meeting of shareholders, except those made by the board of directors of the Corporation, must also be accompanied by a certification, under oath before a notary public, by each nominee that he or she meets the eligibility requirements to be a director as set forth in Article III, Sections 16-19 of these Bylaws. Proposals, other than those made by or at the direction of the board of directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation as set forth in this Section 15. For shareholder proposals to be included in the Corporation's proxy materials, the shareholder must comply with all the timing and informational requirements of Rule 14a-8 of the Exchange Act (or any successor regulation). With respect to shareholder proposals to be considered at the annual meeting of shareholders but not included in the Corporation's proxy materials, the shareholder's notice shall be delivered to, or mailed and received at, the principal office of the Corporation not less than 60 days prior to the anniversary date of the immediately preceding annual meeting of shareholders of the Corporation. Such shareholder's notice shall set forth as to each matter the shareholder proposes to bring before the annual meeting (a) a brief description of the proposal desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the shareholder proposing such business and, to the extent known, any other shareholders known by such shareholder to be supporting such proposal, (c) the class and number of shares of the Corporation stock which are Beneficially Owned by the shareholder on the date of such shareholder notice and, to the extent known, by any other shareholders known by such shareholder to be supporting such proposal on the date of such shareholder notice, and (d) any financial interest of the shareholder in such proposal (other than interests which all shareholders would have). The board of directors may reject any nomination by a shareholder or shareholder proposal not timely or properly made in accordance with the requirements of this Section 15. If the board of directors, or a designated committee thereof, determines that the information provided in a shareholder's notice does not satisfy the informational requirements of this Section 15 in any material respect, the Secretary of the Corporation shall notify such shareholder of the deficiency in the notice. The shareholder shall have an -4- opportunity to cure the deficiency by providing additional information to the Secretary within such period of time, not to exceed five days from the date such deficiency notice is given to the shareholder, as the board of directors or such committee shall reasonably determine. If the deficiency is not cured within such period, or if the board of directors or such committee reasonably determines that the additional information provided by the shareholder, together with information previously provided, does not satisfy the requirements of this Section 15 in any material respect, then the board of directors may reject such shareholder's nomination or proposal. The Secretary of the Corporation shall notify a shareholder in writing whether his or her nomination or proposal has been made in accordance with the time and informational requirements of this Section 15. Notwithstanding the procedures set forth in this paragraph, if neither the board of directors nor such committee makes a determination as to the validity of any nominations or proposals by a shareholder, the presiding officer of the annual meeting shall determine and declare at the annual meeting whether the nomination or proposal was made in accordance with the terms of this Section 15. If the presiding officer determines that a nomination or proposal was made in accordance with the terms of this Section 15, he shall so declare at the annual meeting and ballots shall be provided for use at the meeting with respect to such nominee or proposal. If the presiding officer determines that a nomination or proposal was not made in accordance with the terms of this Section 15, he shall so declare at the annual meeting and the defective nomination or proposal shall be disregarded. ARTICLE III - Board of Directors Section 1. General Powers. The business and affairs of the Corporation shall be under the direction of its board of directors. The board of directors shall annually elect a chairman of the board and a president from among its members and shall designate, when present, either the chairman of the board or the president to preside at its meetings. Section 2. Number, Term and Election. The board of directors shall be divided into three classes as nearly equal in number as possible. The board of directors shall be classified in accordance with the provisions of the Corporation's Certificate of Incorporation. The members of each class shall be elected for a term of three years and until their successors are elected and qualified. Directors are to be elected by a plurality of votes cast by the shares entitled to vote in the election at a meeting of shareholders at which a quorum is present. The board of directors may increase the number of members of the board of directors but in no event shall the number of directors be increased in excess of fifteen persons. Section 3. Place of Meeting. All annual and special meetings of the board of directors shall be held at the principal office of the Corporation or at such other place within or outside the State in which the principal office of the Corporation is located as the board of directors may determine and as designated in the notice of such meeting. Section 4. Regular Meetings. A regular meeting of the board of directors shall be held without other notice than this Bylaw at such time and date as the board of directors may determine. Section 5. Special Meetings. Special meetings of the board of directors may be called by or at the request of the chairman of the board, the president, or one-third of the directors. The persons authorized to call special meetings of the board of directors may fix any place, within or outside of the State of New Jersey, as the place for holding any special meeting of the board of directors called by such persons. Members of the board of directors may participate in special meetings by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other. Such participation shall constitute presence in person. -5- Section 6. Notice of Special Meeting. Written notice (which includes notice provided by facsimile transmission or by electronic mail) of at least 24 hours regarding any special meeting of the board of directors or of any committee designated thereby shall be given to each director in accordance with these Bylaws, although such notice may be waived by the director. The attendance of such director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the board of directors need be specified in the notice of waiver of notice of such meeting. Section 7. Quorum. A majority of the number of directors fixed by Section 2 of this Article III shall constitute a quorum for the transaction of business at any meeting of the board of directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time. Notice of any adjourned meeting shall be given in the same manner as prescribed by Section 6 of this Article III. Section 8. Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless a greater number is prescribed by these Bylaws, the Certificate of Incorporation or the laws of New Jersey. Section 9. Action Without a Meeting. Any action required or permitted to be taken by the board of directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors. Section 10. Resignation. Any director may resign at any time by sending a written notice of such resignation to the home office of the Corporation addressed to the chairman of the board or the president. Unless otherwise specified, such resignation shall take effect upon receipt by the chairman of the board or the president. More than three consecutive absences from regular meetings of the board of directors, unless excused by resolution of the board of directors, shall automatically constitute a resignation, effective when such resignation is accepted by the board of directors. Section 11. Vacancies. Any vacancy occurring on the board of directors may be filled by the affirmative vote of a majority of the remaining directors, although less than a quorum of the board of directors. A director elected to fill a vacancy shall be elected to serve until the next election of directors by the shareholders. Any directorship to be filled by reason of an increase in the number of directors may be filled by election by the board of directors for a term of office continuing only until the next election of directors by the shareholders. Section 12. Compensation. Directors, as such, may receive a stated salary or retainer for their services or may receive a reasonable fixed sum, and reasonable expenses of attendance, if any, for attendance at each regular or special meeting of the board of directors. Members of either standing or special committees may be allowed such compensation for attendance at committee meetings as the board of directors may determine. Section 13. Presumption of Assent. A director of the Corporation who is present at a meeting of the board of directors at which action on any Corporation matter is taken shall be presumed to have assented to the action taken unless his or her dissent or abstention shall be entered in the minutes of the meeting or unless he or she shall file a written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the -6- secretary of the Corporation within five days after the date a copy of the minutes of the meeting is received. Such right to dissent shall not apply to a director who voted in favor of such action. Section 14. Removal of Directors. Directors of the Corporation may be removed only in accordance with the Corporation's Certificate of Incorporation. Section 15. Associate Director Program. The board of directors may at any time and from time to time establish an Associate Director Program. In the event of a vacancy on the board between meetings of shareholders, the board of directors may, by their affirmative vote, fill such vacancy with a member from the Associate Director Program. A director elected to fill a vacancy shall be elected to serve only until the next election of directors by the shareholders. The purpose of the Associate Director Program is to provide continuity in assuming the authority and duties of a member of the board of directors. Appointment to this Program shall be made by the board of directors. Such appointed members shall serve at the pleasure of the board. Section 16. Residency Requirement. Each director of the Corporation must, at all times, reside within the State of New Jersey in a county where Synergy Bank maintains a branch office. The residency requirement of this Section 16 shall not apply to any director who was a member of the board of directors of the Corporation's predecessor federal MHC subsidiary holding company, Synergy Financial Group, Inc., as of December 31, 2001. Section 17. Minimum Share Requirement. Each director of the Corporation must be a shareholder of the Corporation and own at least one thousand (1,000) shares of the Corporation's Common Stock. Section 18. Affiliations With Other Depository Institutions. A person is not eligible to serve as a director of the Corporation if he or she is a "management official" of another "depository institution" or "depository holding company" as those terms are defined in Section 563f.2 of the Regulations of the Office of Thrift Supervision, 12 U.S.C. ss. 563f.2. If elected director of the Corporation, a person may not thereafter serve or agree to serve as a management official of another depository institution or depository holding company unless and until his or her term as director of the Corporation has expired. Section 19. Eligibility Requirement. A person is not eligible to serve as director if he or she: (1) is under indictment for, or has ever been convicted of, a criminal offense that involves dishonesty or breach of trust and for which the penalty could be imprisonment for more than one year; (2) is a person against whom a federal or state bank regulatory agency has issued a cease and desist order for conduct involving dishonesty or breach of trust and that order is final and not subject to appeal; (3) has been found either by any federal or state regulatory agency whose decision is final and not subject to appeal or by a court to have (a) committed a wilful violation of any law, rule or regulation governing banking, securities, commodities or insurance, or any final cease and desist order issued by a banking, securities, commodities or insurance regulatory agency or (b) breached a fiduciary duty involving personal profit; or (4) has been nominated by a person who would be disqualified from serving as a director of this Corporation under clauses (1), (2) or (3) of this Section 19. -7- ARTICLE IV - Executive And Other Committees Section 1. Appointment. The board of directors, by resolution adopted by a majority of the full board, may designate the chief executive officer, the chairman of the board and one or more of the other directors to constitute an executive committee. The designation of any committee pursuant to this Article IV and the delegation of authority shall not operate to relieve the board of directors, or any director, of any responsibility imposed by law or regulation. Section 2. Authority. The executive committee, when the board of directors is not in session, shall have and may exercise all of the authority of the board of directors except to the extent, if any, that such authority shall be limited by the resolution appointing the executive committee; and except also that the executive committee shall not have the authority of the board of directors with reference to: the declaration of dividends; the amendment of the Certificate of Incorporation or these Bylaws of the Corporation, or recommending to the shareholders a plan of merger, consolidation, or conversion; the sale, lease, or other disposition of all or substantially all of the property and assets of the Corporation otherwise than in the usual and regular course of its business; a voluntary dissolution of the Corporation; a revocation of any of the foregoing; or the approval of a transaction in which any member of the executive committee, directly or indirectly, has any material beneficial interest. Section 3. Tenure. Subject to the provisions of Section 8 of this Article IV, each member of the executive committee shall hold office until the next regular annual meeting of the board of directors following his or her designation and until a successor is designated as a member of the executive committee. Section 4. Meetings. Regular meetings of the executive committee may be held without notice at such times and places as the executive committee may fix from time to time by resolution. Special meetings of the executive committee may be called by any member thereof upon not less than one day's notice stating the place, date, and hour of the meeting, which notice may be written or oral. Any member of the executive committee may waive notice of any meeting and no notice of any meeting need be given to any member thereof who attends in person. The notice of a meeting of the executive committee need not state the business proposed to be transacted at the meeting. Section 5. Quorum. A majority of the members of the executive committee shall constitute a quorum for the transaction of business at any meeting thereof, and action of the executive committee must be authorized by the affirmative vote of a majority of the members present at a meeting at which a quorum is present. Section 6. Action Without a Meeting. Any action required or permitted to be taken by the executive committee at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the members of the executive committee. Section 7. Vacancies. Any vacancy in the executive committee may be filled by a resolution adopted by a majority of the full board of directors. Section 8. Resignations and Removal. Any member of the executive committee may be removed at any time with or without cause by resolution adopted by a majority of the full board of directors. Any member of the executive committee may resign from the executive committee at any time by giving written notice to the chairman, president or secretary of the Corporation. Unless otherwise specified, such resignation shall take effect upon its receipt; the acceptance of such resignation shall not be necessary to make it effective. -8- Section 9. Procedure. The chairman of the board shall be the presiding officer of the executive committee, and the executive committee may fix its own rules of procedure which shall not be inconsistent with these Bylaws. It shall keep regular minutes of its proceedings and report the same to the board of directors for its information at the meeting held next after the proceedings shall have occurred. Section 10. Other Committees. The board of directors may by resolution establish any other committee composed of directors as they may determine to be necessary or appropriate for the conduct of the business of the Corporation and may prescribe the duties, constitution, and procedures thereof. ARTICLE V - Officers Section 1. Positions. The officers of the Corporation shall include a president, one or more vice presidents, a secretary, and a treasurer or comptroller, each of whom shall be elected by the board of directors. The board of directors may also designate the chairman of the board as an officer. The offices of the secretary and treasurer may be held by the same person and a vice president may also be either the secretary or the treasurer or comptroller. The board of directors may designate one or more vice presidents as executive vice president or senior vice president. The board of directors may also elect or authorize the appointment of such other officers as the business of the Corporation may require. The officers shall have such authority and perform such duties as the board of directors may from time to time authorize or determine. In the absence of action by the board of directors, the officers shall have such powers and duties as generally pertain to their respective offices. Section 2. Election and Term of Office. The officers of the Corporation shall be elected annually at the first meeting of the board of directors held after each annual meeting of the shareholders. If the election of officers is not held at such meeting, such election shall be held as soon thereafter as possible. Each officer shall hold office until a successor has been duly elected and qualified or until the officer's death, resignation, or removal in the manner hereinafter provided. Election or appointment of an officer, employee, or agent shall not of itself create contractual rights. The board of directors may authorize the Corporation to enter into an employment contract with any officer, but no such contract shall impair the right of the board of directors to remove any officer at any time in accordance with Section 3 of this Article V. Section 3. Removal. Any officer may be removed by the board of directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal, other than for cause, shall be without prejudice to the contractual rights, if any, of the person so removed. Section 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification, or otherwise may be filled by the board of directors for the unexpired portion of the term. Section 5. Remuneration. The remuneration of the officers shall be fixed from time to time by the board of directors, by employment contracts or otherwise. ARTICLE VI - Contracts, Loans, Checks, and Deposits Section 1. Contracts. Except as otherwise prescribed by these Bylaws with respect to certificates for shares, the board of directors may authorize any officer, employee, or agent of the Corporation to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation. Such authority may be general or confined to specific instances. -9- Section 2. Loans. No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by the board of directors. Such authority may be general or confined to specific instances. Section 3. Checks, Drafts, Etc. All checks, drafts, or other orders for the payment of money, notes, or other evidences of indebtedness issued in the name of the Corporation shall be signed by one or more officers, employees, or agents of the Corporation, which may include facsimile signatures, in such manner as shall from time to time be determined by the board of directors. Section 4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in any duly authorized depositories as the board of directors may select. ARTICLE VII - Certificates for Shares and Their Transfer Section 1. Certificates for Shares. Certificates representing shares of capital stock of the Corporation shall be in such form as shall be determined by the board of directors. Such certificates shall be signed by the chief executive officer or by any other officer of the Corporation authorized by the board of directors, attested by the secretary or an assistant secretary, and sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent or a registrar other than the Corporation itself or one of its employees. Each certificate for shares of capital stock shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Corporation. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares has been surrendered and canceled, except that in the case of a lost or destroyed certificate, a new certificate may be issued upon such terms and indemnity to the Corporation as the board of directors may prescribe. Section 2. Transfer of Shares. Transfer of shares of capital stock of the Corporation shall be made only on its stock transfer books. Authority for such transfer shall be given only by the holder of record or by his or her legal representative, who shall furnish proper evidence of such authority, or by his or her attorney authorized by a duly executed power of attorney and filed with the Corporation. Such transfer shall be made only on surrender for cancellation of the certificate for such shares. The person in whose name shares of capital stock stand on the books of the Corporation shall be deemed by the Corporation to be the owner for all purposes. Section 3. Payment for Shares. No certificate shall be issued for any shares until such share is fully paid. Section 4. Form of Payment for Shares. The consideration for the issuance of shares shall be paid in accordance with the provisions of New Jersey law. Section 5. Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the shareholders entitled to examine the stock ledger, the list required by Section 7 of Article II of these Bylaws or the books of the Corporation, or to vote in person or by proxy at any meeting of shareholders. -10- Section 6. Lost Certificates. The board of directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. When authorizing such issue of a new certificate, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate, or his or her legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen, or destroyed. Section 7. Beneficial Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not the Corporation shall have express or other notice thereof, except as otherwise provided by law. ARTICLE VIII - Fiscal Year; Annual Audit The fiscal year of the Corporation shall end on the 31st day of December of each year. The Corporation shall be subject to an annual audit as of the end of its fiscal year by independent public accountants appointed by and responsible to the board of directors. ARTICLE IX - Dividends Subject only to the terms of the Corporation's Certificate of Incorporation and applicable law, the board of directors may, from time to time, declare and the Corporation may pay, dividends on its outstanding classes of capital stock which are eligible for dividends. ARTICLE X - Corporate Seal The board of directors shall provide a corporate seal, which shall be two concentric circles between which shall be the name of the Corporation. The year of incorporation or an emblem may appear in the center. ARTICLE XI - Amendments These Bylaws may be amended only as specified in the Corporation's Certificate of Incorporation. -11- EX-4 6 ex4.txt CERTIFICATE ================================================================================ CERTIFICATE No. [LOGO] COMMON STOCK PAR VALUE $0.10 SHARES INCORPORATED UNDER THE LAWS OF THE STATE OF NEW JERSEY SEE REVERSE FOR CERTAIN DEFINITIONS THIS CUSIP No. ________________ CERTIFIES THAT IS THE OWNER OF FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $0.10 PER SHARE, OF SYNERGY FINANCIAL GROUP, INC. The shares represented by this certificate are transferable only on the stock transfer books of the Corporation by the holder of record hereof, or by his duly authorized attorney or legal representative, upon the surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Certificate of Incorporation of the Corporation and any amendments thereto (copies of which are on file with the Secretary of the Corporation), and to all of these provisions the holder by acceptance hereof, assents. This certificate is not valid unless countersigned and registered by the Corporation's transfer agent and registrar. In Witness Whereof, Synergy Financial Group, Inc. has caused this certificate to be executed by the facsimile signatures of its duly authorized officers and has caused its facsimile corporate seal to be hereunto affixed. DATED: - ------------------------------ ----------------------------- PRESIDENT SECRETARY SEAL ================================================================================ SYNERGY FINANCIAL GROUP, INC. The Board of Directors of the Corporation is authorized by resolution or resolutions, from time to time adopted, to provide for the issuance of serial preferred stock, $0.10 par value per share, in series and to fix and state the voting powers, designations, preferences and relative, participating, optional, or other special rights of the shares of each such series and the qualifications, limitations and restrictions thereof. The Corporation will furnish to any shareholder upon request and without charge a full description of each class of stock and any series thereof. For a period of five years from the completion of the conversion of Synergy, MHC from mutual to stock form, no person shall directly or indirectly offer to acquire or acquire the beneficial ownership of more than 10% of any class of any equity security of the Corporation except as provided in Certificate of Incorporation of the Corporation. In addition, persons beneficially owning, directly or indirectly, in excess of 10% of the then outstanding shares of the Common Stock of the Corporation (the "Limit"), will not be entitled or permitted to vote such shares in excess of the Limit and may have their voting rights reduced below the Limit. The shares represented by this Certificate may not be cumulatively voted in the election of directors of the Corporation. The affirmative vote of the holders of at least 80% of each class or series of the voting stock of the Corporation, voting separately for each class or series entitled to vote separately and together as a single class for all classes or series not entitled to vote separately, shall be required to approve certain business combinations and other transactions, pursuant to the Certificate of Incorporation or to amend certain provisions of the Certificate of Incorporation. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF TRANS MIN ACT -_______________Custodian_______________ (Cus) (Minor) TEN ENT - as tenants by the entireties under Uniform Transfers to Minors JT TEN - as joint tenants with right of survivorship and not as tenants Act ___________________________ in common (State)
Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED _______________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Shares of Common Stock represented by the within Certificate and do hereby irrevocably constitute and appoint - -------------------------------------------------------------------------------- Attorney to transfer the said Stock on the books of the within named Corporation with full power of substitution in the premises. Dated ---------------------------- -------------------------------- NOTICE: The signature to this assignment must correspond with the name as written upon the face of the Certificate in every particular, without alteration or enlargement or any change whatever. THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED EX-5 7 ex5.txt MS&F OPINION MALIZIA SPIDI & FISCH, PC ATTORNEYS AT LAW 1100 NEW YORK AVENUE, N.W. 637 KENNARD ROAD SUITE 340 WEST STATE COLLEGE, PENNSYLVANIA 16801 WASHINGTON, D.C. 20005 (814) 466-6625 (202) 434-4660 FACSIMILE: (814) 466-6703 FACSIMILE: (202) 434-4661 September 17, 2003 Board of Directors Synergy Financial Group, Inc. 310 North Avenue East Cranford, New Jersey 07016 Re: Registration Statement Under the Securities Act of 1933 Gentlemen: This opinion is rendered in connection with the Registration Statement on Form S-1 (the "Form S-1") filed with the Securities and Exchange Commission under the Securities Act of 1933 relating to the offer and sale of up to 9,588,125 shares of common stock (the "Common Stock"), of Synergy Financial Group, Inc. (the "Company"), including shares to be exchanged pursuant in the Plan of Conversion and Reorganization and shares to be issued to certain employee benefit plans of the Company and its subsidiaries. The Common Stock is proposed to be issued pursuant to the Plan of Conversion and Reorganization (the "Plan") of the Company. As special counsel to the Company, we have reviewed the corporate proceedings relating to the Plan and such other legal matters as we have deemed appropriate for the purpose of rendering this opinion. Based on the foregoing, we are of the opinion that the shares of Common Stock of the Company covered by the aforesaid Registration Statement will, when issued in accordance with the terms of the Plan against full payment therefor and upon the declaration of the effectiveness of the Form S-1, be legally issued, fully paid, and non-assessable shares of Common Stock of the Company. We assume no obligation to advise you of any event that may hereafter be brought to our attention that may affect any statement made in the foregoing paragraph after the declaration of effectiveness of the Form S-1. We hereby consent to the use of this opinion and to the reference to our firm appearing in the Company's Prospectus under the heading "Legal and Tax Opinions." We also consent to any references to this legal opinion in the Prospectus. Very truly yours, /s/Malizia Spidi & Fisch, PC ---------------------------------- MALIZIA SPIDI & FISCH, PC EX-8 8 ex8-1.txt EX8-1 FEDERAL TAX OPINION MALIZIA SPIDI & FISCH, PC ATTORNEYS AT LAW 1100 NEW YORK AVENUE, N.W. SUITE 340 WEST WASHINGTON, D.C. 20005 (202) 434-4660 FACSIMILE: (202) 434-4661 September 15, 2003 Boards of Directors Synergy Bank Synergy, MHC Synergy Financial Group, Inc. 310 North Avenue East Cranford, New Jersey 07016 Dear Board Members: You have asked that we provide you our opinion in regard to the material federal income tax matters relating to the Plan of Conversion and Reorganization of Synergy, MHC, and Plans of Merger between Synergy, MHC, Synergy Financial Group Inc. and Synergy Bank adopted on July 26, 2003 and subsequently amended (the "Plan") (collectively referred to herein as the "Conversion and Reorganization"). We have examined the Plan and certain other documents as we deemed necessary in order to provide our opinions. Unless otherwise defined, all terms used in this letter have the meanings given to them in the Plan. In our examination, we assumed that original documents were authentic, copies were accurate and signatures were genuine. We have further assumed the absence of adverse facts not apparent from the face of the instruments and documents we examined. In rendering our opinion, we have relied upon certain written representations of Synergy Bank (the "Savings Bank"), Synergy, MHC (the "MHC"), and Synergy Financial Group, Inc. (the "Mid-Tier") (collectively referred to herein as the "Representations") which are attached hereto. We assumed that the Plan has been or will be duly and validly authorized and approved and adopted and that all parties will comply with the terms and conditions of the Plan, and that the various representations and warranties which have been provided to us are accurate, complete, true and correct. Accordingly, we express no opinion concerning the effect, if any, of variations from the foregoing. In issuing the opinions set forth below, we have referred solely to existing provisions of (1) the Internal Revenue Code of 1986, as amended (the "Code"), and existing and proposed Treasury Regulations thereunder; and (2) current administrative rulings, notices and procedures and court decisions. Such laws, regulations, administrative rulings, notices and procedures and court decisions MALIZIA SPIDI & FISCH, PC Boards of Directors Synergy Bank Synergy, MHC Synergy Financial Group, Inc. September 15, 2003 Page 2 are subject to change at any time. Any such change could affect the continuing validity of the opinions set forth below. This opinion is as of the date hereof, and we disclaim any obligation to advise you of any change after the date hereof. There can be no assurance that our opinions would be adopted by the Internal Revenue Service (the "Service") or a court. The outcome of litigation cannot be predicted. We have, however, attempted in good faith to opine as to the merits of each tax issue with respect to which an opinion was requested. STATEMENT OF FACTS The MHC is a federal chartered mutual holding company chartered on March 1, 2001, in connection with the Savings Bank's mutual to stock conversion and reorganization (the "MHC Reorganization"). The MHC uses the accrual method of accounting and files its tax return on a calendar year basis. As a federal chartered mutual holding company, the MHC does not have stockholders and has no authority to issue capital stock. Instead, the MHC (in its mutual form) has a unique equity structure, in that the MHC is owned by its members (the "Members"). The MHC's primary asset is 1,889,402 shares of Mid-Tier common stock ("Mid-Tier Common Stock"), which represents 56.5% of the shares of Mid-Tier Common Stock outstanding as of June 30, 2003. The Savings Bank is a federally chartered stock savings bank that was organized on March 1, 2001, as a subsidiary of the MHC, in connection with the MHC Reorganization. In September 2002, in connection with a Minority Stock Issuance of the Mid-Tier, the Mid-Tier sold 1,454,750 shares (or 43.5%) of its common stock in a subscription offering at $10.00 per share and issued the remaining 56.5% to the MHC. A total of 3,344,252 shares of common stock were issued in connection with the MHC Reorganization. The Mid-Tier has no other material business or activities other than acting as the holding company of the Savings Bank and holding certain equity securities. Pursuant to the Conversion and Reorganization, the Mid-Tier will, after a series of transactions, merge with the Savings Bank, with the Savings Bank as the survivor, and the Mid-Tier will cease to exist. Synergy Financial Group, Inc. (the "Holding Company") will be a savings and loan holding company, which was organized as a New Jersey corporation in August, 2003 at the direction of the Board of Directors of the Savings Bank and will acquire and hold all of the outstanding Savings Bank common stock ("Bank Stock") after the Conversion and Reorganization. Pursuant to regulations promulgated by the Office of Thrift Supervision (the "OTS"), consummation of the Conversion and Reorganization is conditioned upon the approval of the Plan by the OTS, certain Members of the MHC, and the stockholders of the Mid-Tier. Following the Conversion and Reorganization, the MALIZIA SPIDI & FISCH, PC Boards of Directors Synergy Bank Synergy, MHC Synergy Financial Group, Inc. September 15, 2003 Page 3 Holding Company's outstanding stock will be 100% publicly owned. The Boards of Directors of the MHC, the Mid-Tier, and the Savings Bank believe that a conversion of the MHC to stock form pursuant to the Plan is in the best interests of the MHC, the Mid-Tier, and the Savings Bank, as well as the best interests of their respective Members and stockholders. The Boards of Directors have determined that the Plan equitably provides for the interests of Members through the granting of subscription rights and the establishment of a liquidation account. The Conversion and Reorganization will result in the Savings Bank being wholly owned by a stock holding company which is owned by public stockholders, which is a more common structure and form of ownership than a mutual holding company. In addition, the Conversion and Reorganization will result in the raising of additional capital for the Savings Bank and the Holding Company and should result in a more active and liquid market for the Holding Company common stock ("HC Stock") than currently exists for the Mid-Tier Common Stock. Finally, the Conversion and Reorganization is designed to enable the Savings Bank and Holding Company to compete more effectively in a market which is consolidating. For valid business reasons, the present corporate structure of the MHC, the Mid-Tier, and the Savings Bank will be changed pursuant to the following proposed transactions: (i) The Savings Bank will cause the Holding Company to be incorporated, which will become a new New Jersey chartered savings and loan holding company. (ii) The MHC will convert into an interim federal stock savings bank to be known as Interim Bank No. 1. (iii) The Mid-Tier will adopt an interim federal stock savings bank charter to be known as Interim Bank No. 2; Interim Bank No. 2 will then merge with and into the Savings Bank ("Merger One"), with the Savings Bank as the surviving entity. (iv) Immediately following Merger One, Interim Bank No. 1, formerly the MHC, will merge with and into the Savings Bank with the Savings Bank as the surviving entity ("Merger Two"). The shares of Mid-Tier Common Stock previously held by the MHC (now Interim Bank No. 1) will be canceled. As part of Merger Two, eligible Members of the MHC who possess equity/ownership interests in the MHC immediately prior to Merger Two will exchange these interests in the MHC for substantially similar interests in a liquidation account to be established by the Savings Bank (referred to herein as "Savings Bank Liquidation Interests"). The amount in the liquidation account is greater of (a) 100% of retained earnings MALIZIA SPIDI & FISCH, PC Boards of Directors Synergy Bank Synergy, MHC Synergy Financial Group, Inc. September 15, 2003 Page 4 as of March 31, 2002 (the date of the latest statement of financial condition contained in the final offering circular utilized in the Savings Bank's initial stock offering), or (b) 56.5% of Mid-Tier's total shareholders' equity as reflected in its latest statement of financial condition. (v) The Holding Company will form an interim corporation ("Interim Bank No. 3"), a new, wholly owned first-tier subsidiary with an interim federal stock savings bank charter. (vi) Immediately following Merger Two, Interim Bank No. 3 will merge with and into the Savings Bank, with the Savings Bank as the surviving entity ("Merger Three"). As a result of Merger Three, Bank Stock deemed held by public stockholders will be converted into HC Stock based upon the exchange ratio which is designed to ensure that the same public stockholders will own, approximately the same percentage of HC Stock as the percentage of Mid-Tier Common Stock owned by them immediately prior to the Conversion and Reorganization before giving effect to (a) cash paid in lieu of fractional shares and (b) any shares of HC Stock purchased by public stockholders in the Holding Company's initial public offering. (vii) Simultaneously, with the Conversion and Reorganization, the Holding Company shall sell its common stock in an initial public offering. (viii) Members of the MHC possessing Savings Bank Liquidation Interests as a result of Merger Two will continue to maintain such interests upon the completion of Merger Two and Merger Three. ANALYSIS AND OPINION Code Section 354 provides that no gain or loss shall be recognized by stockholders who exchange common stock in a corporation, which is a party to a reorganization, solely for common stock in another corporation which is a party to the reorganization. Code Section 356 provides that stockholders shall recognize gain to the extent they receive money as part of a reorganization, such as money received in lieu of fractional shares. Code Section 358 provides that, with certain adjustments for money received in a reorganization, a stockholder's basis in the common stock he or she receives in a reorganization shall equal the basis of the common stock which he or she surrendered in the transaction. Code Section 1223(1) states that, where a stockholder receives property in an exchange which has the same basis as the property surrendered, he or she shall be deemed to have MALIZIA SPIDI & FISCH, PC Boards of Directors Synergy Bank Synergy, MHC Synergy Financial Group, Inc. September 15, 2003 Page 5 held the property received for the same period as the property exchanged, provided that the property exchanged had been held as a capital asset. Code Section 361 provides that no gain or loss shall be recognized to a corporation which is a party to a reorganization on any transfer of property pursuant to a plan of reorganization. Code Section 362 provides that if property is acquired by a corporation in connection with a reorganization, then the basis of such property shall be the same as it would be in the hands of the transferor immediately prior to the transfer. Code Section 1223(2) states that where a corporation will have a carryover basis in property received from another corporation which is a party to a reorganization, the holding period of such assets in the hands of the acquiring corporation shall include the period for which such assets were held by the transferor, provided that the property transferred had been held as a capital asset. Code Section 1032 states that no gain or loss shall be recognized to a corporation on the receipt of property in exchange for common stock. Code Section 368(a)(1)(F) provides that a mere change in identity, form, or place of organization, however effected, is a reorganization. When MHC converts itself from a federal mutual holding company to a federal interim stock savings bank, the changes at the corporate level will be insubstantial. Similarly, when the Mid-Tier adopts a federal charter and subsequently converts itself into a federal stock savings bank, the changes at the corporate level will be insubstantial. In addition, Rev. Rul. 80-105 provides that the conversion of a federal mutual savings and loan association to a state or federal stock savings and loan association, and the conversion of a state chartered mutual savings and loan association to a stock savings and loan association in the same state are reorganizations under Code Section 368(a)(1)(F). Therefore, the change in the form of operation of the MHC and the Mid-Tier should constitute reorganizations within the meaning of Code Section 368(a)(1)(F). Code Section 368(a)(1)(A) defines the term "reorganization" to include a "statutory merger or consolidation" of corporations. Code Section 368(a)(2)(E) provides that a transaction otherwise qualifying as a merger under Code Section 368(a)(1)(A), shall not be disqualified by reason of the fact that common stock of a corporation which before the merger was in control of the merged corporation, is used in the transaction if (i) after the transaction, the corporation surviving the merger holds substantially all of its properties and the properties of the merged corporation; and (ii) former stockholders of the surviving corporation exchanged, for an amount of voting common stock of the controlling corporation, an amount of common stock in the surviving corporation which constitutes control of such corporation. MALIZIA SPIDI & FISCH, PC Boards of Directors Synergy Bank Synergy, MHC Synergy Financial Group, Inc. September 15, 2003 Page 6 In order to qualify as a reorganization under Code Section 368(a)(1)(A), a transaction must constitute a merger or consolidation effected pursuant to the corporation laws of the United States or a state. Merger One, Merger Two and Merger Three will be consummated in accordance with applicable federal and state laws. In addition, a transaction qualifying as a reorganization under Code Section 368(a)(1)(A) must satisfy the "continuity of interest doctrine" which requires that the continuing common stock interest of the former owners of an acquired corporation, considered in the aggregate, represents a "substantial part" of the value of their former interest and provides them with a "definite and substantial interest" in the affairs of the acquiring corporation or a corporation in control of the acquiring corporation. Helvering v. Minnesota Tea -------------------------- Co., 296 U.S. 378 (1935); Southwest Natural Gas Co. v. Comm'r., 189 F.2d 332 - ---- -------------------------------------- (5th Cir. 1951), cert. denied, 342 U.S. 860 (1951). Treasury Regulation Section 1.368-1(b) and (e) provides that "Continuity of interest requires that in substance a substantial part of the value of the proprietary interests in the target corporation be preserved in the reorganization. A proprietary interest in the target corporation is preserved if, in a potential reorganization, it is exchanged for a proprietary interest in the issuing corporation, it is exchange by the acquiring corporation for a direct interest in the target corporation enterprise, or it otherwise continues as a proprietary interest in the target corporation." As a result of Merger One, the shareholders of the Mid-Tier receive a continuing proprietary interest in the Savings Bank which will subsequently be converted into a continuing proprietary interest in the Holding Company. Consequently, the continuity of interest doctrine should be satisfied with regard to Merger One. With regard to Merger Two, the MHC, as a federal chartered mutual holding company, does not have stockholders and has no authority to issue capital stock. Instead, the Members are accorded a variety of proprietary rights such as voting rights and certain rights in the unlikely event of liquidation. Prior to Merger Two, certain depositors in the Savings Bank have both a deposit account in the institution and a pro rata inchoate proprietary interest in the net worth of the MHC based upon the balance in his account in the Savings Bank, an interest which may only be realized in the event of a liquidation of the MHC. However, this inchoate proprietary interest is tied to the depositor's account and has no tangible market value separate from such deposit account. A depositor who reduces or closes his account receives a portion or all of the balance in the account but nothing for his ownership interest in the net worth of the MHC, which is lost MALIZIA SPIDI & FISCH, PC Boards of Directors Synergy Bank Synergy, MHC Synergy Financial Group, Inc. September 15, 2003 Page 7 to the extent that the balance in the account is reduced. In accordance with the Plan, the Members will receive Savings Bank Liquidation Interests and continue their inchoate proprietary interests in the Savings Bank following Merger Two. Although the Savings Bank Liquidation Interests would not allow the Members the right to vote or the right to pro rata distributions of earnings, they would be entitled to share in the distribution of assets upon the liquidation of the Savings Bank following Merger Two. The Members' Savings Bank Liquidation Interests in the Savings Bank is substantially similar to their current ownership interest in the MHC (a liquidation interest in the MHC). Because the Members are not in effect "cashing out" their inchoate proprietary interests in the MHC, they would continue to maintain an inchoate proprietary interest in the Savings Bank upon the consummation of Merger Two. Such payments to be received as Savings Bank Liquidation Interests are not guaranteed and can only be received by Members who continue to maintain deposit accounts in the Savings Bank following Merger One. Therefore, it would seem that the exchange of the Members' equity interests in the MHC for Savings Bank Liquidation Interests should not violate the continuity of interest requirement of Section 1.368-1(b) and (e) of the Treasury Regulations. Consequently, the continuity of interest doctrine should be satisfied with regard to Merger Two. As a result of Merger Three, the shareholders of the Savings Bank will receive a continuing proprietary interest in the Holding Company, the sole shareholder of the Savings Bank. Consequently, the continuity of interest doctrine should be satisfied with regard to Merger Three. One of the requirements of Code Section 368(a)(2)(E) is that subsequent to the transaction, the corporation surviving the merger must hold substantially all of its properties and the properties of the merged corporation. The Savings Bank has represented that, following Merger Three, it will hold at least 90% of the fair market value of its net assets and at least 70% of the fair market value of its gross assets, and at least 90% of the fair-market value of Interim Bank #3's net assets and at least 70% of the fair market value of Interim Bank #3's gross assets held immediately prior to Merger Three. Based upon representations received from the Savings Bank's management, the Savings Bank will clearly satisfy this requirement of Code Section 368(a)(2)(E). Pursuant to Code Section 368(a)(2)(E), the Holding Company must also acquire control of the Savings Bank in Merger Three. Control is defined as at least 80% of the total combined voting power of all classes of stock entitled to vote, and at least 80% of the total number of shares. Subsequent to Merger Three, the Holding Company will hold all of the Bank Stock. However, MALIZIA SPIDI & FISCH, PC Boards of Directors Synergy Bank Synergy, MHC Synergy Financial Group, Inc. September 15, 2003 Page 8 there is an issue as to whether the Savings Bank Liquidation Interests must be taken into account for purposes of the "control" test. If the Savings Bank Liquidation Interests are to be included in determining whether the Holding Company acquired control of the Savings Bank in Merger Three, it would be necessary to recognize such interests as another class of Bank Stock. Although the Savings Bank Liquidation Interests may be compared to the equity interests held by Members, which afforded Members an equity/ownership interest in the MHC, these interests in the Savings Bank are too remote to qualify as a separate class of Bank Stock. Therefore, the Savings Bank Liquidation Interests should be disregarded in determining whether the Holding Company acquires control of the Savings Bank in Merger Three. In addition to the requirements discussed above, there is a judicially created substance over form concept often referred to as the "step transaction doctrine" which applies throughout tax law, including the corporate reorganization area. The step transaction doctrine is an extremely amorphous concept. Often, application of the doctrine hinges on whether a court finds that a particular series of transactions runs counter to a significant tax policy. Notwithstanding years of litigation and hundreds of cases, the exact contours of the step transaction doctrine, and even its proper formulation, are still the subject of intense debate. Consequently, it often will be difficult to determine with a high degree of certainty whether a series of related transactions will be stepped together in some fashion for tax purposes. The courts over the years have developed three distinct verbal formulations of the doctrine: (i) the binding commitment test, (ii) the end result test, and (iii) the interdependence test. While the courts nominally apply one or more of these three tests, a careful reading of the relevant cases indicates that the courts, as a preliminary matter, in deciding whether to apply the step transaction doctrine, tend to focus primarily on two key factors: intent and temporal proximity. However, case law and the Service's pronouncements indicate that there are limitations on the ability to assert the step transaction doctrine, regardless of (i) the taxpayer's intent at the time of the first transaction to engage in the later transactions, and (ii) the short period of time that elapses between the transactions. Case law and the Service's pronouncements indicate that if two or more transactions carried out pursuant to an overall plan have economic significance independent of each other, the transactions generally will not be stepped together. The Service's most significant pronouncement regarding independent economic significance is Rev. Rul. 79-250. In that ruling, the Service asserted that: MALIZIA SPIDI & FISCH, PC Boards of Directors Synergy Bank Synergy, MHC Synergy Financial Group, Inc. September 15, 2003 Page 9 the substance of each of a series of steps will be recognized and the step transaction doctrine will not apply, if each such step demonstrates independent economic significance, is not subject to attack as a sham, and was undertaken for valid business purposes and not mere avoidance of taxes. The parties to Merger Two maintain a separate and distinct business purpose for consummating Merger Two (e.g., allowing for the conversion of the MHC from mutual to stock form). Immediately after the consummation of Merger Two, the Savings Bank will no longer be controlled by the MHC but will instead be controlled by its public stockholders. The facts indicate that the merger of MHC with and into the Savings Bank will result in a real and substantial change in the form of ownership of the Savings Bank that is sufficient to conclude that Merger Two comports with the underlying purposes and assumptions of a reorganization under Code Section 368(a)(1)(A). In addition, we believe that, because the various steps contemplated by the Plan were necessitated by the requirements of the Office of Thrift Supervision, each of Merger One, Merger Two and Merger Three has a business purpose and independent significance and, as a result, the step transaction doctrine should not be applied to these transactions. However, our opinion is not binding upon the Service, and there can be no assurance that the Service will not assert a contrary position. Revenue Ruling 72-405 involved Corporation X which formed a wholly owned subsidiary, merged an unrelated corporation Y into the subsidiary and then liquidated the subsidiary. The Service held that the overall plan for the transactions was the acquisition of Corporation Y assets by Corporation X and that the transitory existence of the subsidiary did not have independent economic significance. As a result, the step transaction doctrine was applied, the transitory existence of the subsidiary was ignored and the transaction was treated as a direct acquisition of Corporation Y assets by Corporation X. It is possible that the Service could assert, based upon reasoning similar to that which was applied in Revenue Ruling 72-405, that the overall plan of the transactions contemplated by the Plan is the maintenance of the Savings Bank's holding company structure and the merger of MHC into Bank and that, as a result, the step transaction doctrine should be applied and the transitory elimination of the holding company structure in Merger One and re-creation of the holding company structure in Merger Three should be ignored for tax purposes. If the Service were successful with such an assertion, the transaction would be treated as a direct merger of MHC into the Savings Bank which may not qualify as a tax free reorganization resulting in taxable gain to MALIZIA SPIDI & FISCH, PC Boards of Directors Synergy Bank Synergy, MHC Synergy Financial Group, Inc. September 15, 2003 Page 10 the parties to the transaction. The Service is currently reviewing the question of whether certain downstream mergers of a parent corporation into its subsidiary (where the parent does not own 80% or more of its subsidiary before a downstream merger) or inversion transactions, where a parent and its subsidiary reverse positions, which otherwise qualify for tax-free treatment nevertheless should be treated as taxable transactions because they circumvent the repeal of the "General Utilities doctrine." The MHC currently owns 56.5% of the Mid-Tier and we do not believe that the transactions undertaken pursuant to the Plan constitute the type of transactions which circumvent the "General Utilities doctrine." Based upon the foregoing, and assuming Merger One, Merger Two, and Merger Three are consummated as described herein and in the Plan, we are of the opinion that: 1. The transactions qualify as statutory mergers and each merger required by the Plan qualifies as a reorganization within the meaning of Code Section 368(a)(1)(A). The MHC, the Mid-Tier, and the Savings Bank will be a party to a "reorganization" as defined in Code Section 368(b). 2. The MHC will not recognize any gain or loss on the transfer of its assets to the Savings Bank in exchange for Savings Bank Liquidation Interests for the benefit of Members who remain Members of Savings Bank. 3. No gain or loss will be recognized by the Savings Bank upon the receipt of the assets of the MHC in exchange for the transfer to the Members of the Savings Bank Liquidation Interests. 4. No gain or loss will be recognized by the Savings Bank upon the receipt of the assets of Interim Bank #2 and Interim Bank #3 pursuant to the Conversion and Reorganization. 5. No gain or loss will be recognized by Interim Bank #2 (the Mid-Tier following its conversion to a federal stock savings bank) pursuant to the Conversion and Reorganization. 6. The reorganization of the Holding Company as the holding company of the Savings Bank qualifies as a reorganization within the meaning of Code Section 368(a)(1)(A) by virtue of MALIZIA SPIDI & FISCH, PC Boards of Directors Synergy Bank Synergy, MHC Synergy Financial Group, Inc. September 15, 2003 Page 11 Code Section 368(a)(2)(E). Therefore, the Savings Bank, the Holding Company, and Interim Bank #3 will each be a party to a reorganization, as defined in Code Section 368(b). 7. No gain or loss will be recognized by Interim Bank #3 upon the transfer of its assets to the Savings Bank pursuant to the Conversion and Reorganization. 8. Members will recognize no gain or loss upon the receipt of Savings Bank Liquidation Interests. 9. No gain or loss will be recognized by the Holding Company upon the receipt of Bank Stock solely in exchange for HC Stock. 10. Current stockholders of Mid-Tier will not recognize any gain or loss upon their exchange of Mid-Tier Common Stock solely for shares of HC Stock. 11. Each stockholder's aggregate basis in shares of HC Stock received in the exchange will be the same as the aggregate basis of Mid-Tier Common Stock surrendered in the exchange before giving effect to any payment of cash in lieu of fractional shares. 12. It is more likely than not that the fair market value of the subscription rights to purchase HC Stock is zero. Accordingly, no gain or loss will be recognized by Eligible Account Holders, Supplemental Eligible Account Holders and Other Members upon the distribution to them of the nontransferable subscription rights to purchase shares of HC Stock. Gain realized, if any, by the Eligible Account Holders, Supplemental Eligible Account Holders and Other Members on the distribution to them of nontransferable subscription rights to purchase shares of HC Stock will be recognized but only in an amount not in excess of the fair market value of such subscription rights (Code Section 356(a)). Eligible Account Holders, Supplemental Eligible Account Holders and Other Members will not realize any taxable income as a result of the exercise by them of the nontransferable subscription rights (Rev. Rul. 56-572, 1956-2 C.B. 182). Our opinion under paragraph 12 above is predicated on the representation that no person shall receive any payment, whether in money or property, in lieu of the issuance of subscription rights. Our opinion under paragraph 12 is based on the conclusion that the subscription rights to purchase shares of HC Stock received by Eligible Account Holders, Supplemental Eligible Account Holders and Other Members have a fair market value of zero. We note that the MALIZIA SPIDI & FISCH, PC Boards of Directors Synergy Bank Synergy, MHC Synergy Financial Group, Inc. September 15, 2003 Page 12 subscription rights will be granted at no cost to the recipients, will be legally non-transferable and of short duration, and will provide the recipient with the right only to purchase shares of HC Stock at the same price to be paid by members of the general public in any Community Offering. We note that we are not aware of the Service claiming in any similar transaction that subscription rights have any market value. In that there are no judicial opinions or official Service positions on this issue, however, our opinion related to subscription rights comes to a reasoned conclusion instead of an absolute conclusion on these issues. Our conclusion is supported by a letter from FinPro, Inc., which states that the subscription rights do not have any value when they are distributed or exercised. If the Service disagrees with this valuation of subscription rights and determines that such subscription rights have value, income may be recognized by recipients of these rights, in certain cases whether or not the rights are exercised. This income may be capital gain or ordinary income, and the Holding Company could recognize gain on the distribution of these rights. Based on the foregoing, we believe it is more likely than not that the nontransferable subscription rights to purchase HC Stock have no value. 13. No gain or loss will be recognized by the Holding Company on the receipt of money in exchange for HC Stock sold in the offering. SCOPE OF OPINION Our opinion is limited to the federal income tax matters of the transaction proposed as it relates to the Savings Bank, MHC, Mid-Tier and Holding Company and the recipients of subscription rights to purchase the Company Stock as described above and does not address any other federal income tax considerations or any state, local, foreign, or other tax considerations. If any of the information on which we have relied is incorrect, or if changes in the relevant facts occur after the date hereof, our opinion could be affected thereby. Moreover, our opinion is based on the Code, applicable Treasury regulations promulgated thereunder, and Service rulings, procedures, and other pronouncements published by the Service. These authorities are all subject to change, and such change may be made with retroactive effect. We can give no assurance that, after such change, our opinion would not be different. We undertake no responsibility to update or supplement our opinion. This opinion is not binding on the Service, and there can be no assurance, and none is hereby given, that the Service will not take a position contrary to one or more of the positions reflected in the foregoing opinion, or that our opinion will be upheld by the courts if challenged by the Service. However, we believe that a court, if such issues were litigated, is more likely than not to concur with our opinion. MALIZIA SPIDI & FISCH, PC Boards of Directors Synergy Bank Synergy, MHC Synergy Financial Group, Inc. September 15, 2003 Page 13 Further, the opinions set forth above represent our conclusions based upon the documents reviewed by us and the facts presented to us. Any material amendments to such documents or changes in any significant fact would affect the opinions expressed herein. USE OF OPINION This opinion is given solely for the benefit of the parties to the Plan, the stockholders of the Mid-Tier, and Eligible Account Holders, Supplemental Eligible Account Holders and Other Members who purchase stock pursuant to the Plan, and may not be relied upon by any other party or entity or referred to in any document without our express written consent. CONSENT We hereby consent to the filing of this opinion as an exhibit to the Registration Statement on Form S-1 ("Form S-1") to be filed by the Holding Company with the Securities and Exchange Commission, and as an exhibit to the MHC's Application for Conversion on Form AC as filed with the OTS ("Form AC"), and to the references to our firm in the Prospectus which is part of both the Form S-1 and the Form AC. Very truly yours, /s/Malizia Spidi & Fisch, PC ---------------------------- Malizia Spidi & Fisch, PC EX-8 9 ex8-2.txt EX8-2 STATE TAX OPINION GRANT THORNTON Accountants and Management Consultants Suite 3100 Two Commerce Square 2001 Market Street Philadelphia, PA 19103-7080 T 215.561.4200 F 215.561.1066 W www.grantthornton.com Grant Thornton LLP US Member of Grant Thornton International Boards of Directors Synergy Bank Synergy, MHC Synergy Financial Group, Inc. 310 North Avenue East Cranford, New Jersey 07016 Ladies and Gentlemen: You have requested our opinion regarding certain New Jersey state tax issues with respect to the Plan of Conversion and Reorganization of Synergy, MHC, and Plans of Merger between Synergy, MHC; Synergy Financial Group, Inc. and Synergy Bank adopted on July 26, 2003 (collectively referred to herein as the "Conversion and Reorganization"). In preparing this letter, we have relied upon the following facts. Facts Synergy, MHC ("MHC") is a federal-chartered mutual holding company. MHC does not have stockholders and has no authority to issue capital stock. Instead, MHC is owned by its members. MHC's primary asset is its 56.5% ownership interest in the common stock of Synergy Financial Group, Inc. ("Mid-Tier"). The remaining 43.5% of Mid-Tier's common stock is publicly traded. Mid-Tier has no material business activities other than acting as the holding company of Synergy Bank and holding certain equity securities. Synergy Bank, a federal-chartered stock savings bank, is a wholly owned subsidiary of Mid-Tier. Neither MHC, Mid-Tier nor Interim Bank 3 will transfer any real property in the Conversion and Reorganization. Mid-Tier and Synergy Bank are calendar year taxpayers and join in filing a consolidated federal income tax return. MHC, also a calendar year taxpayer, files a federal income tax return on a separate company basis. MHC, Mid-Tier and Synergy Bank are respectively subject to and pay the New Jersey Corporation Business Tax. For tax years that began prior to January 1, 2002, Synergy Bank was subject to and paid the New Jersey Savings Institution Tax. Pursuant to the Conversion and Reorganization the legal and ownership structure of MHC, Mid-Tier and Synergy Bank will change as follows: Boards of Directors Synergy Bank Synergy, MHC Synergy Financial Group, Inc. Page 2 1. Synergy Bank will form Holding Company, a new New Jersey chartered savings and loan holding company. 2. MHC will convert into an interim federal stock savings bank to be known as Interim Bank No. 1. 3. Mid-Tier will adopt an interim federal stock savings bank charter to be known as Interim Bank No. 2. Interim Bank No. 2 will then merge with and into Synergy Bank ("Merger One"), with Synergy Bank as the surviving entity. 4. Immediately following Merger One, Interim Bank No. 1, formerly MHC, will merge with and into Synergy Bank with Synergy Bank as the surviving entity ("Merger Two"). The shares of Mid-Tier Common Stock previously held by MHC (now Interim Bank No. 1) will be canceled. As part of Merger Two, eligible members of MHC who possess equity/ownership interests in the MHC immediately prior to Merger Two will exchange these interests in the MHC for substantially similar interests in a liquidation account to be established by Synergy Bank (referred to herein as "Savings Bank Liquidation Interests"). 5. Holding Company will form a new wholly owned first-tier subsidiary with a federal stock savings bank charter ("Interim Bank No. 3"). 6. Immediately following Merger Two, Interim Bank No. 3 will merge with and into Synergy Bank, with Synergy Bank as the surviving entity ("Merger Three"). As a result of Merger Three, Bank Stock deemed held by public stockholders will be converted into stock of Holding Company ("Holding Company Stock") based upon the exchange ratio which is designed to ensure that the same public stockholders will own approximately the same percentage of Holding Company Stock as the percentage of Mid-Tier Common Stock owned by them immediately prior to the Conversion and Reorganization before giving effect to (a) cash paid in lieu of fractional shares and (b) any shares of Holding Company Stock purchased by public stockholders in the Holding Company's initial public offering. 7. Simultaneously, with the Conversion and Reorganization, Holding Company will sell its common stock in an initial public offering. 8. The members of MHC possessing Savings Bank Liquidation Interests as a result of Merger Two will continue to maintain such interests upon the completion of Merger Two and Merger Three. The aforementioned conversions and merger transactions will be regarded as "reorganizations" within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended ("IRC"), and each entity mentioned will be regarded as a "party" ("Party") to the overall reorganization. Boards of Directors Synergy Bank Synergy, MHC Synergy Financial Group, Inc. Page 3 MHC, Mid-Tier and Synergy Bank maintain their respective books and records in accordance with generally accepted accounting principles. The Conversion and Reorganization will not result in the recognition of income under generally accepted accounting principles. Conclusions We are of the opinion that: 1. With respect to each Party, the Conversion and Reorganization should not result in the recognition of taxable income or gain for purposes of the New Jersey Corporation Business Tax, and the tax basis of corporate assets transferred in the Conversion and Reorganization should carryover to the successor/surviving corporations. 2. With respect to the transactions necessary to effect the Conversion and Reorganization, described above, New Jersey Sales and Use Taxes should not apply. Analysis 1. New Jersey Corporation Business Tax The New Jersey Corporation Business Tax is imposed on all domestic and foreign corporations that derive receipts from sources within New Jersey or engage in contacts within New Jersey, in addition to those that have or exercise a corporate franchise, do business, employ or own capital or property, or maintain an office in New Jersey. N.J. Rev. Stat.ss.54:10A-2. The term "corporation" is defined as any corporation, joint-stock company or association and any business conducted by a trustee or trustees wherein interest or ownership is evidenced by a certificate of interest or ownership or similar written instrument, any other entity classified as a corporation for federal income tax purposes, and any state or federally chartered building and loan association or savings and loan association. N.J. Rev. Stat.ss.54:10A-4(c). Prior to January 1, 2002, state and federally chartered savings banks, savings and loan associations, and building and loan associations that conducted business in New Jersey were subject to the Savings Institution Tax. See N.J. Rev. Stat.ss.54:10D-2 and 10D-3, prior law. New Jersey uses federal taxable income as the starting point for the computation of its tax base. N.J. Rev. Stat.ss.54:10A-4(k). Because federal taxable income serves as the measure of entire net income in almost all cases, only those modifications to federal taxable income specifically allowed by statute may be made. There is no provision of New Jersey law that modifies the federal recognition or nonrecognition rules applicable to reorganizations. Accordingly, the gain or loss recognized on a reorganization for New Jersey corporation business tax purposes should be the same as the gain or loss recognized for federal tax purposes. For Corporation Business Tax purposes, a net operating loss may only be carried over by the actual corporation that sustained the loss. N.J. Rev. Stat. 54:10A-4.5; N.J. Admin Code 18:7-5.13; Richard's Auto City, Inc. v. Director, -------------------------------------- Division of Taxation, 140 NJ 523, 659 A2d 1360 (June 21, 1995). Thus, a net - --------------------- operating loss generated by a corporation, which merges into a surviving corporation, will be lost. The New Jersey Division of Tax has informally indicated that Boards of Directors Synergy Bank Synergy, MHC Synergy Financial Group, Inc. Page 4 this treatment will also apply to reorganizations classified as changes in identity, form, or place of organization under IRCss.368(a)(1)(F). 2. New Jersey Sales and Use Taxes The New Jersey Sales Tax is imposed on receipts from retail sales of tangible personal property and sales of enumerated services. N.J. Rev. Stat.ss.54:32B-3. For Sales Tax purposes, "retail sale" is defined as a sale of tangible personal property to any person for any purpose other than for resale or for use in performing certain taxable services. N.J. Rev. Stat.ss.54:32B-2(e)(1). The term "sale" is defined as any transfer of title or possession, or both, exchange or barter, rental, lease or license to use or consume, conditional or otherwise, for a consideration. N.J. Rev. Stat.ss.54:32B-2(f). Under the New Jersey Sales Tax regime, certain transactions are excluded from the definition of retail sale, and are therefore not subject to tax. Two such exclusions apply to the Conversion and Reorganization. First, the transfer of tangible personal property to a corporation, solely in consideration for the issuance of its stock, pursuant to a merger or consolidation effected under the laws of New Jersey or any other jurisdiction is not a retail sale. N.J. Rev. Stat.ss.54:32B-2(e)(4)(B). Second, the term retail sale does not include the transfer of property to a corporation upon its organization in consideration for the issuance of its stock. N.J. Rev. Stat.ss.54:32B-2(e)(4)(E). The New Jersey Use Tax is incurred when taxable goods or services are purchased for use in New Jersey but sales tax has not been collected, or was collected at a rate less than the New Jersey Sales Tax rate. N.J Rev. Stat.ss.54:32B-6. Property or services the sales of which are exempt from Sales Tax are also exempt for Use Tax. N.J Rev. Stat.ss.54:32B-11(3). Based on the foregoing, New Jersey Sales and Use Taxes should not apply to the corporate formations, conversions and merger transactions described above. * * * * * The conclusions in this letter are based upon the facts set forth above. We have relied upon the accuracy of these facts and have not independently verified any of them. If the actual facts are otherwise, our conclusions might be different. Further, the conclusions are based upon the law, regulations and interpretations existing as of the date of this letter and no obligation is undertaken to update the conclusions should the law, regulations or interpretations subsequently change. Our conclusions are based upon our interpretations of the relevant authorities, they are not binding on any tax authority and we do not guarantee the New Jersey Division of Taxation or the courts will reach the same conclusions. Finally, our analysis is not intended as a discussion of the tax law beyond that which is essential to reach the conclusions set out herein with respect to the facts set out herein. Exceptions, alternatives and contrary rules may apply to alternative facts. Boards of Directors Synergy Bank Synergy, MHC Synergy Financial Group, Inc. Page 5 This letter is intended for the use of Synergy Bank; Synergy, MHC; Synergy Financial Group, Inc. and the professional advisors of each and is not intended for distribution to other persons. No obligation is assumed with respect to any other persons for the conclusions set forth in this letter. Other persons interested in the subject matter should consult with their own tax advisors. We consent to the filing of this opinion as an exhibit to the registration statement filed with regard to the transactions described herein and the related applications for conversion and merger. We appreciate being chosen to prepare this letter. If you have any questions or comments regarding the information contained herein, please contact Glenn James at (215) 656-3055. Very truly yours, /s/Grant Thornton LLP September 15, 2003 Philadelphia EX-10 10 ex10-6.txt KEVIN M. MCCLOSKEY CHANGE IN CONTROL SEVERANCE AGREEMENT THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement") entered into this 26 th day of March 2002 ("Effective Date"), by and between Synergy Federal Savings Bank (the "Savings Bank") and Kevin McCloskey (the "Employee"). WHEREAS, the Employee is currently employed by the Savings Bank as Senior Vice President and is experienced in certain phases of the business of the Savings Bank; and WHEREAS, the parties desire by this writing to set forth the rights and responsibilities of the Savings Bank and Employee if the Savings Bank should undergo a change in control (as defined hereinafter in the Agreement) after the Effective Date. NOW, THEREFORE, it is AGREED as follows: 1. Employment. The Employee is employed in the capacity as the Senior ---------- Vice President of the Savings Bank. The Employee's employment shall be for no definite period of time and the Employee or the Bank may terminate such employment relationship at any time for any reason or no reason. The employment at-will relationship remains in full force and effect regardless of any statements to the contrary made by company personnel or set forth in any documents other than those explicitly made to the contrary and signed by the President or the Chairman of the Bank. The Employee shall render such administrative and management services to the Savings Bank and any parent savings and loan holding company ("Parent") as are currently rendered and as are customarily performed by persons situated in a similar executive capacity. The Employee's other duties shall be such as the Board of Directors for the Savings Bank (the "Board of Directors" or "Board") may from time to time reasonably direct, including normal duties as an officer of the Savings Bank and the Parent. 2. Term of Agreement. The term of this Agreement shall be for the ------------------ period commencing on the Effective Date and ending thirty-six (36) months thereafter ("Term"). Additionally, on, or before, each annual anniversary date from the Effective Date, the Term of this Agreement may be extended for an additional period beyond the then effective expiration date upon a determination and resolution of the Board of Directors that the performance of the Employee has met the requirements and standards of the Board, and that the Term of such Agreement shall be extended. This Agreement shall be deemed terminated upon the Employee's termination of employment with the Bank, absent a Change in Control coincident or prior to such termination of employment. 1 3. Termination of Employment in Connection with or Subsequent to -------------------------------------------------------------- a Change in Control. -------------------- (a) Notwithstanding any provision herein to the contrary, in the event of the involuntary termination of Employee's employment under this Agreement, absent Just Cause, in connection with, or within twelve (12) months after, any Change in Control of the Savings Bank or Parent, Employee shall be paid an amount equal to the product of 2.999 times the Employee's "base amount" as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code") and regulations promulgated thereunder. Additionally, the Employee and his or her dependents shall remain eligible to participate in the medical and dental insurance programs offered by the Bank to its employees for a period of not less than eighteen months from the date of termination of employment. Said sum shall be paid in one (1) lump sum not later than the date of such termination of employment and such payments shall be in lieu of any other future payments which the Employee would be otherwise entitled to receive. Notwithstanding the forgoing, all sums payable hereunder shall be reduced in such manner and to such extent so that no such payments made hereunder when aggregated with all other payments to be made to the Employee by the Savings Bank or the Parent shall be deemed an "excess parachute payment" in accordance with Section 280G of the Internal Revenue Code of 1986, as amended (the "Code") and be subject to the excise tax provided at Section 4999(a) of the Code. The term "Change in Control" shall refer to: (i) the sale of all, or substantially all, of the assets of the Savings Bank or the Parent; (ii) the merger or recapitalization of the Savings Bank or the Parent whereby the Savings Bank or the Parent is not the surviving entity; (iii) a change in control of the Savings Bank or the Parent, as otherwise defined or determined by the Office of Thrift Supervision or regulations promulgated by it; or (iv) the acquisition, directly or indirectly, of the beneficial ownership (within the meaning of that term as it is used in Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) of twenty-five percent (25%) or more of the outstanding voting securities of the Savings Bank or the Parent by any person, trust, entity or group. The term "person" means an individual other than the Employee, or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. A Change in Control shall not include a transaction whereby Synergy, MHC shall merge into the Parent or the Bank and a new parent holding company of the Parent or the Bank is formed as part of a capital raising transaction by the Parent or the Bank. The provisions of this Section 3(a) shall survive the expiration of this Agreement occurring after a Change in Control. (b) Notwithstanding any other provision of this Agreement to the contrary except as provided at Sections 4 and 5, Employee may voluntarily terminate his employment under this Agreement within twelve (12) months following a Change in Control of the Savings Bank or Parent, and upon the occurrence, or within 180 days thereafter, of any of the following events, which have not been consented to in advance by the Employee in writing: (i) if Employee would be required to move his personal residence or perform his principal executive functions more than thirty-five (35) miles from the Employee's primary office as of the signing of this Agreement; (ii) if in the organizational structure of the Savings Bank or Parent, Employee would be required to report to a person or persons other than the Board of the Savings Bank or its President; (iii) if the Savings Bank or Parent should fail to maintain the Employee's base compensation in effect as of the date of the Change in Control and existing 2 employee benefits plans, including material fringe benefit, stock option and retirement plans, except to the extent that such reduction in benefit programs is part of an overall adjustment in benefits for all employees of the Savings Bank or Parent and does not disproportionately adversely impact the Employee; (iv) if Employee would be assigned duties and responsibilities other than those normally associated with his position as referenced at Section 1, herein; or (v) if Employee's responsibilities or authority have in any way been materially diminished or reduced. Upon such voluntary termination of employment by the Executive in accordance with this subsection, Executive shall thereupon be entitled to receive the payments described in Section 3(a) of this Agreement. The provisions of this Section 3(b) shall survive the expiration of this Agreement occurring after a Change in Control. 4. Other Changes in Employment Status. ----------------------------------- Except as provided for at Section 3, herein, the Board of Directors may terminate the Employee's employment at any time with or without Just Cause within its sole discretion. This Agreement shall not be deemed to give Employee any right to be retained in the employment or service of the Bank, or to interfere with the right of the Bank to terminate the employment of the Employee at any time. The Employee shall have no right to receive compensation or other benefits for any period after termination with or without Just Cause. Termination for "Just Cause" shall include termination because of the Employee's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the Agreement. 5. Regulatory Exclusions. ---------------------- (a) If the Employee is removed and/or permanently prohibited from participating in the conduct of the Savings Bank's affairs by an order issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Savings Bank under this Agreement shall terminate, as of the effective date of the order, but the vested rights of the contracting parties shall not be affected. (b) If the Savings Bank is in default (as defined in Section 3(x)(1) of FDIA) all obligations under this Agreement shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties. (c) All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Savings Bank: (i) by the Director of the Office of Thrift Supervision ("Director of OTS"), or his or her designee, at the time that the Federal Deposit Insurance Corporation ("FDIC") enters into an agreement to provide assistance to or on behalf of the Savings Bank under the authority contained in Section 13(c) of FDIA; or (ii) by the Director of the OTS, or his or her designee, at the time that the Director of the OTS, or his or her designee approves a supervisory merger to resolve problems related to operation of the Savings Bank or when the Savings Bank is determined by the Director of the OTS to be in an unsafe or 3 unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action. (d) If the Employee is suspended and/or temporarily prohibited from participating in the conduct of the Savings Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)), the Savings Bank's obligations under the Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Savings Bank may within its discretion (i) pay the Employee all or part of the compensation withheld while its contract obligations were suspended and (ii) reinstate (in whole or in part) any of its obligations which were suspended. (e) Notwithstanding anything herein to the contrary, any payments made to the Employee pursuant to the Agreement, or otherwise, shall be subject to and conditioned upon compliance with 12 USC ss.1828(k) and any regulations promulgated thereunder. 6. Successors and Assigns. ----------------------- (a) This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Savings Bank which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Savings Bank or Parent. (b) The Employee shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Savings Bank. 7. Amendments. No amendments or additions to this Agreement shall be ---------- binding upon the parties hereto unless made in writing and signed by both parties, except as herein otherwise specifically provided. 8. Applicable Law. This agreement shall be governed by all respects --------------- whether as to validity, construction, capacity, performance or otherwise, by the laws of the State of New Jersey, except to the extent that Federal law shall be deemed to apply. 9. Severability. The provisions of this Agreement shall be deemed ------------ severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 10. Arbitration. Any controversy or claim arising out of or relating to ----------- this Agreement, or the breach thereof, shall be settled exclusively by arbitration in accordance with the rules then in effect of the district office of the American Arbitration Association ("AAA") nearest to the home office of the Bank, and judgment upon the award rendered may be entered in any court having jurisdiction thereof, except to the extent that the parties may otherwise reach a mutual settlement of such issue. Further, the settlement of the dispute to be approved by the Board of the Bank may 4 include a provision for the reimbursement by the Bank to the Employee for all reasonable costs and expenses, including reasonable attorneys' fees, arising from such dispute, proceedings or actions, or the Board of the Bank or the Parent may authorize such reimbursement of such reasonable costs and expenses by separate action upon a written action and determination of the Board following settlement of the dispute. Such reimbursement shall be paid within ten (10) days of Employee furnishing to the Bank or Parent evidence, which may be in the form, among other things, of a canceled check or receipt, of any costs or expenses incurred by Employee. The provisions of this Section 10 shall survive the expiration of this Agreement. 11. Confidential Information. The Employee acknowledges that during his ------------------------ or her employment he or she will learn and have access to confidential information regarding the Savings Bank and the Parent and its customers and businesses ("Confidential Information"). The Employee agrees and covenants not to disclose or use for his or her own benefit, or the benefit of any other person or entity, any such Confidential Information, unless or until the Savings Bank or the Parent consents to such disclosure or use or such information becomes common knowledge in the industry or is otherwise legally in the public domain. The Employee shall not knowingly disclose or reveal to any unauthorized person any Confidential Information relating to the Savings Bank, the Parent, or any subsidiaries or affiliates, or to any of the businesses operated by them, and the Employee confirms that such information constitutes the exclusive property of the Savings Bank and the Parent. The Employee shall not otherwise knowingly act or conduct himself (a) to the material detriment of the Savings Bank or the Parent, or its subsidiaries, or affiliates, or (b) in a manner which is inimical or contrary to the interests of the Savings Bank or the Parent. Employee acknowledges and agrees that the existence of this Agreement and its terms and conditions constitutes Confidential Information of the Savings Bank, and the Employee agrees not to disclose the Agreement or its contents without the prior written consent of the Savings Bank. Notwithstanding the foregoing, the Savings Bank reserves the right in its sole discretion to make disclosure of this Agreement as it deems necessary or appropriate in compliance with its regulatory reporting requirements. Notwithstanding anything herein to the contrary, failure by the Employee to comply with the provisions of this Section may result in the immediate termination of the Agreement within the sole discretion of the Savings Bank, disciplinary action against the Employee taken by the Savings Bank, including but not limited to the termination of employment of the Employee for breach of the Agreement and the provisions of this Section, and other remedies that may be available in law or in equity. 12. Entire Agreement. This Agreement together with any understanding or ---------------- modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement between the parties hereto. 5 IN WITNESS WHEREOF, the parties have executed this Agreement on the day and first hereinabove written. Synergy Federal Saving Bank ATTEST: /s/Kevin Wenthen By: /s/John S. Fiore -------------------------- -------------------------------------- Kevin Wenthen John S. Fiore Secretary President and Chief Executive Officer Secretary WITNESS: /s/Ralph A. Fernandez By: /s/Kevin M. McCloskey -------------------------- -------------------------------------- Ralph A. Fernandez Kevin M. McCloskey (Employee) 6 EX-10 11 ex10-7.txt KEVIN A. WENTHEN CHANGE IN CONTROL SEVERANCE AGREEMENT THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement") entered into this 26 th day of March 2002 ("Effective Date"), by and between Synergy Federal Savings Bank (the "Savings Bank") and Kevin Wenthen (the "Employee"). WHEREAS, the Employee is currently employed by the Savings Bank as Senior Vice President and is experienced in certain phases of the business of the Savings Bank; and WHEREAS, the parties desire by this writing to set forth the rights and responsibilities of the Savings Bank and Employee if the Savings Bank should undergo a change in control (as defined hereinafter in the Agreement) after the Effective Date. NOW, THEREFORE, it is AGREED as follows: 1. Employment. The Employee is employed in the capacity as the Senior ---------- Vice President of the Savings Bank. The Employee's employment shall be for no definite period of time and the Employee or the Bank may terminate such employment relationship at any time for any reason or no reason. The employment at-will relationship remains in full force and effect regardless of any statements to the contrary made by company personnel or set forth in any documents other than those explicitly made to the contrary and signed by the President or the Chairman of the Bank. The Employee shall render such administrative and management services to the Savings Bank and any parent savings and loan holding company ("Parent") as are currently rendered and as are customarily performed by persons situated in a similar executive capacity. The Employee's other duties shall be such as the Board of Directors for the Savings Bank (the "Board of Directors" or "Board") may from time to time reasonably direct, including normal duties as an officer of the Savings Bank and the Parent. 2. Term of Agreement. The term of this Agreement shall be for the ------------------ period commencing on the Effective Date and ending thirty-six (36) months thereafter ("Term"). Additionally, on, or before, each annual anniversary date from the Effective Date, the Term of this Agreement may be extended for an additional period beyond the then effective expiration date upon a determination and resolution of the Board of Directors that the performance of the Employee has met the requirements and standards of the Board, and that the Term of such Agreement shall be extended. This Agreement shall be deemed terminated upon the Employee's termination of employment with the Bank, absent a Change in Control coincident or prior to such termination of employment. 1 3. Termination of Employment in Connection with or Subsequent to -------------------------------------------------------------- a Change in Control. -------------------- (a) Notwithstanding any provision herein to the contrary, in the event of the involuntary termination of Employee's employment under this Agreement, absent Just Cause, in connection with, or within twelve (12) months after, any Change in Control of the Savings Bank or Parent, Employee shall be paid an amount equal to the product of 2.999 times the Employee's "base amount" as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code") and regulations promulgated thereunder. Additionally, the Employee and his or her dependents shall remain eligible to participate in the medical and dental insurance programs offered by the Bank to its employees for a period of not less than eighteen months from the date of termination of employment. Said sum shall be paid in one (1) lump sum not later than the date of such termination of employment and such payments shall be in lieu of any other future payments which the Employee would be otherwise entitled to receive. Notwithstanding the forgoing, all sums payable hereunder shall be reduced in such manner and to such extent so that no such payments made hereunder when aggregated with all other payments to be made to the Employee by the Savings Bank or the Parent shall be deemed an "excess parachute payment" in accordance with Section 280G of the Internal Revenue Code of 1986, as amended (the "Code") and be subject to the excise tax provided at Section 4999(a) of the Code. The term "Change in Control" shall refer to: (i) the sale of all, or substantially all, of the assets of the Savings Bank or the Parent; (ii) the merger or recapitalization of the Savings Bank or the Parent whereby the Savings Bank or the Parent is not the surviving entity; (iii) a change in control of the Savings Bank or the Parent, as otherwise defined or determined by the Office of Thrift Supervision or regulations promulgated by it; or (iv) the acquisition, directly or indirectly, of the beneficial ownership (within the meaning of that term as it is used in Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) of twenty-five percent (25%) or more of the outstanding voting securities of the Savings Bank or the Parent by any person, trust, entity or group. The term "person" means an individual other than the Employee, or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. A Change in Control shall not include a transaction whereby Synergy, MHC shall merge into the Parent or the Bank and a new parent holding company of the Parent or the Bank is formed as part of a capital raising transaction by the Parent or the Bank. The provisions of this Section 3(a) shall survive the expiration of this Agreement occurring after a Change in Control. (b) Notwithstanding any other provision of this Agreement to the contrary except as provided at Sections 4 and 5, Employee may voluntarily terminate his employment under this Agreement within twelve (12) months following a Change in Control of the Savings Bank or Parent, and upon the occurrence, or within 180 days thereafter, of any of the following events, which have not been consented to in advance by the Employee in writing: (i) if Employee would be required to move his personal residence or perform his principal executive functions more than thirty-five (35) miles from the Employee's primary office as of the signing of this Agreement; (ii) if in the organizational structure of the Savings Bank or Parent, Employee would be required to report to a person or persons other than the Board of the Savings Bank or its President; (iii) if the Savings Bank or Parent should fail to maintain the Employee's base compensation in effect as of the date of the Change in Control and existing 2 employee benefits plans, including material fringe benefit, stock option and retirement plans, except to the extent that such reduction in benefit programs is part of an overall adjustment in benefits for all employees of the Savings Bank or Parent and does not disproportionately adversely impact the Employee; (iv) if Employee would be assigned duties and responsibilities other than those normally associated with his position as referenced at Section 1, herein; or (v) if Employee's responsibilities or authority have in any way been materially diminished or reduced. Upon such voluntary termination of employment by the Executive in accordance with this subsection, Executive shall thereupon be entitled to receive the payments described in Section 3(a) of this Agreement. The provisions of this Section 3(b) shall survive the expiration of this Agreement occurring after a Change in Control. 4. Other Changes in Employment Status. ----------------------------------- Except as provided for at Section 3, herein, the Board of Directors may terminate the Employee's employment at any time with or without Just Cause within its sole discretion. This Agreement shall not be deemed to give Employee any right to be retained in the employment or service of the Bank, or to interfere with the right of the Bank to terminate the employment of the Employee at any time. The Employee shall have no right to receive compensation or other benefits for any period after termination with or without Just Cause. Termination for "Just Cause" shall include termination because of the Employee's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the Agreement. 5. Regulatory Exclusions. ---------------------- (a) If the Employee is removed and/or permanently prohibited from participating in the conduct of the Savings Bank's affairs by an order issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Savings Bank under this Agreement shall terminate, as of the effective date of the order, but the vested rights of the contracting parties shall not be affected. (b) If the Savings Bank is in default (as defined in Section 3(x)(1) of FDIA) all obligations under this Agreement shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties. (c) All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Savings Bank: (i) by the Director of the Office of Thrift Supervision ("Director of OTS"), or his or her designee, at the time that the Federal Deposit Insurance Corporation ("FDIC") enters into an agreement to provide assistance to or on behalf of the Savings Bank under the authority contained in Section 13(c) of FDIA; or (ii) by the Director of the OTS, or his or her designee, at the time that the Director of the OTS, or his or her designee approves a supervisory merger to resolve problems related to operation of the Savings Bank or when the Savings Bank is determined by the Director of the OTS to be in an unsafe or 3 unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action. (d) If the Employee is suspended and/or temporarily prohibited from participating in the conduct of the Savings Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)), the Savings Bank's obligations under the Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Savings Bank may within its discretion (i) pay the Employee all or part of the compensation withheld while its contract obligations were suspended and (ii) reinstate (in whole or in part) any of its obligations which were suspended. (e) Notwithstanding anything herein to the contrary, any payments made to the Employee pursuant to the Agreement, or otherwise, shall be subject to and conditioned upon compliance with 12 USC ss.1828(k) and any regulations promulgated thereunder. 6. Successors and Assigns. ----------------------- (a) This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Savings Bank which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Savings Bank or Parent. (b) The Employee shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Savings Bank. 7. Amendments. No amendments or additions to this Agreement shall be ---------- binding upon the parties hereto unless made in writing and signed by both parties, except as herein otherwise specifically provided. 8. Applicable Law. This agreement shall be governed by all respects --------------- whether as to validity, construction, capacity, performance or otherwise, by the laws of the State of New Jersey, except to the extent that Federal law shall be deemed to apply. 9. Severability. The provisions of this Agreement shall be deemed ------------ severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 10. Arbitration. Any controversy or claim arising out of or relating to ----------- this Agreement, or the breach thereof, shall be settled exclusively by arbitration in accordance with the rules then in effect of the district office of the American Arbitration Association ("AAA") nearest to the home office of the Bank, and judgment upon the award rendered may be entered in any court having jurisdiction thereof, except to the extent that the parties may otherwise reach a mutual settlement of such issue. Further, the settlement of the dispute to be approved by the Board of the Bank may 4 include a provision for the reimbursement by the Bank to the Employee for all reasonable costs and expenses, including reasonable attorneys' fees, arising from such dispute, proceedings or actions, or the Board of the Bank or the Parent may authorize such reimbursement of such reasonable costs and expenses by separate action upon a written action and determination of the Board following settlement of the dispute. Such reimbursement shall be paid within ten (10) days of Employee furnishing to the Bank or Parent evidence, which may be in the form, among other things, of a canceled check or receipt, of any costs or expenses incurred by Employee. The provisions of this Section 10 shall survive the expiration of this Agreement. 11. Confidential Information. The Employee acknowledges that during his ------------------------ or her employment he or she will learn and have access to confidential information regarding the Savings Bank and the Parent and its customers and businesses ("Confidential Information"). The Employee agrees and covenants not to disclose or use for his or her own benefit, or the benefit of any other person or entity, any such Confidential Information, unless or until the Savings Bank or the Parent consents to such disclosure or use or such information becomes common knowledge in the industry or is otherwise legally in the public domain. The Employee shall not knowingly disclose or reveal to any unauthorized person any Confidential Information relating to the Savings Bank, the Parent, or any subsidiaries or affiliates, or to any of the businesses operated by them, and the Employee confirms that such information constitutes the exclusive property of the Savings Bank and the Parent. The Employee shall not otherwise knowingly act or conduct himself (a) to the material detriment of the Savings Bank or the Parent, or its subsidiaries, or affiliates, or (b) in a manner which is inimical or contrary to the interests of the Savings Bank or the Parent. Employee acknowledges and agrees that the existence of this Agreement and its terms and conditions constitutes Confidential Information of the Savings Bank, and the Employee agrees not to disclose the Agreement or its contents without the prior written consent of the Savings Bank. Notwithstanding the foregoing, the Savings Bank reserves the right in its sole discretion to make disclosure of this Agreement as it deems necessary or appropriate in compliance with its regulatory reporting requirements. Notwithstanding anything herein to the contrary, failure by the Employee to comply with the provisions of this Section may result in the immediate termination of the Agreement within the sole discretion of the Savings Bank, disciplinary action against the Employee taken by the Savings Bank, including but not limited to the termination of employment of the Employee for breach of the Agreement and the provisions of this Section, and other remedies that may be available in law or in equity. 12. Entire Agreement. This Agreement together with any understanding or ---------------- modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement between the parties hereto. 5 IN WITNESS WHEREOF, the parties have executed this Agreement on the day and first hereinabove written. Synergy Federal Saving Bank ATTEST: /s/Kevin A. Wenthen By: /s/John S. Fiore -------------------------- -------------------------------------- Kevin A. Wenthen John S. Fiore Secretary President and Chief Executive Officer Secretary WITNESS: /s/Jamaille Dudley By: /s/Kevin A. Wenthen -------------------------- -------------------------------------- Jamaille Dudley Kevin A. Wenthen (Employee) 6 EX-10 12 ex10-8.txt RALPH A. FERNANDEZ CHANGE IN CONTROL SEVERANCE AGREEMENT THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement") entered into this 26 th day of March 2002 ("Effective Date"), by and between Synergy Federal Savings Bank (the "Savings Bank") and Ralph Fernendez (the "Employee"). WHEREAS, the Employee is currently employed by the Savings Bank as Senior Vice President and is experienced in certain phases of the business of the Savings Bank; and WHEREAS, the parties desire by this writing to set forth the rights and responsibilities of the Savings Bank and Employee if the Savings Bank should undergo a change in control (as defined hereinafter in the Agreement) after the Effective Date. NOW, THEREFORE, it is AGREED as follows: 1. Employment. The Employee is employed in the capacity as the Senior ---------- Vice President of the Savings Bank. The Employee's employment shall be for no definite period of time and the Employee or the Bank may terminate such employment relationship at any time for any reason or no reason. The employment at-will relationship remains in full force and effect regardless of any statements to the contrary made by company personnel or set forth in any documents other than those explicitly made to the contrary and signed by the President or the Chairman of the Bank. The Employee shall render such administrative and management services to the Savings Bank and any parent savings and loan holding company ("Parent") as are currently rendered and as are customarily performed by persons situated in a similar executive capacity. The Employee's other duties shall be such as the Board of Directors for the Savings Bank (the "Board of Directors" or "Board") may from time to time reasonably direct, including normal duties as an officer of the Savings Bank and the Parent. 2. Term of Agreement. The term of this Agreement shall be for the ------------------ period commencing on the Effective Date and ending thirty-six (36) months thereafter ("Term"). Additionally, on, or before, each annual anniversary date from the Effective Date, the Term of this Agreement may be extended for an additional period beyond the then effective expiration date upon a determination and resolution of the Board of Directors that the performance of the Employee has met the requirements and standards of the Board, and that the Term of such Agreement shall be extended. This Agreement shall be deemed terminated upon the Employee's termination of employment with the Bank, absent a Change in Control coincident or prior to such termination of employment. 1 3. Termination of Employment in Connection with or Subsequent to -------------------------------------------------------------- a Change in Control. -------------------- (a) Notwithstanding any provision herein to the contrary, in the event of the involuntary termination of Employee's employment under this Agreement, absent Just Cause, in connection with, or within twelve (12) months after, any Change in Control of the Savings Bank or Parent, Employee shall be paid an amount equal to the product of 2.999 times the Employee's "base amount" as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code") and regulations promulgated thereunder. Additionally, the Employee and his or her dependents shall remain eligible to participate in the medical and dental insurance programs offered by the Bank to its employees for a period of not less than eighteen months from the date of termination of employment. Said sum shall be paid in one (1) lump sum not later than the date of such termination of employment and such payments shall be in lieu of any other future payments which the Employee would be otherwise entitled to receive. Notwithstanding the forgoing, all sums payable hereunder shall be reduced in such manner and to such extent so that no such payments made hereunder when aggregated with all other payments to be made to the Employee by the Savings Bank or the Parent shall be deemed an "excess parachute payment" in accordance with Section 280G of the Internal Revenue Code of 1986, as amended (the "Code") and be subject to the excise tax provided at Section 4999(a) of the Code. The term "Change in Control" shall refer to: (i) the sale of all, or substantially all, of the assets of the Savings Bank or the Parent; (ii) the merger or recapitalization of the Savings Bank or the Parent whereby the Savings Bank or the Parent is not the surviving entity; (iii) a change in control of the Savings Bank or the Parent, as otherwise defined or determined by the Office of Thrift Supervision or regulations promulgated by it; or (iv) the acquisition, directly or indirectly, of the beneficial ownership (within the meaning of that term as it is used in Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) of twenty-five percent (25%) or more of the outstanding voting securities of the Savings Bank or the Parent by any person, trust, entity or group. The term "person" means an individual other than the Employee, or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. A Change in Control shall not include a transaction whereby Synergy, MHC shall merge into the Parent or the Bank and a new parent holding company of the Parent or the Bank is formed as part of a capital raising transaction by the Parent or the Bank. The provisions of this Section 3(a) shall survive the expiration of this Agreement occurring after a Change in Control. (b) Notwithstanding any other provision of this Agreement to the contrary except as provided at Sections 4 and 5, Employee may voluntarily terminate his employment under this Agreement within twelve (12) months following a Change in Control of the Savings Bank or Parent, and upon the occurrence, or within 180 days thereafter, of any of the following events, which have not been consented to in advance by the Employee in writing: (i) if Employee would be required to move his personal residence or perform his principal executive functions more than thirty-five (35) miles from the Employee's primary office as of the signing of this Agreement; (ii) if in the organizational structure of the Savings Bank or Parent, Employee would be required to report to a person or persons other than the Board of the Savings Bank or its President; (iii) if the Savings Bank or Parent should fail to maintain the Employee's base compensation in effect as of the date of the Change in Control and existing 2 employee benefits plans, including material fringe benefit, stock option and retirement plans, except to the extent that such reduction in benefit programs is part of an overall adjustment in benefits for all employees of the Savings Bank or Parent and does not disproportionately adversely impact the Employee; (iv) if Employee would be assigned duties and responsibilities other than those normally associated with his position as referenced at Section 1, herein; or (v) if Employee's responsibilities or authority have in any way been materially diminished or reduced. Upon such voluntary termination of employment by the Executive in accordance with this subsection, Executive shall thereupon be entitled to receive the payments described in Section 3(a) of this Agreement. The provisions of this Section 3(b) shall survive the expiration of this Agreement occurring after a Change in Control. 4. Other Changes in Employment Status. ----------------------------------- Except as provided for at Section 3, herein, the Board of Directors may terminate the Employee's employment at any time with or without Just Cause within its sole discretion. This Agreement shall not be deemed to give Employee any right to be retained in the employment or service of the Bank, or to interfere with the right of the Bank to terminate the employment of the Employee at any time. The Employee shall have no right to receive compensation or other benefits for any period after termination with or without Just Cause. Termination for "Just Cause" shall include termination because of the Employee's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the Agreement. 5. Regulatory Exclusions. ---------------------- (a) If the Employee is removed and/or permanently prohibited from participating in the conduct of the Savings Bank's affairs by an order issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Savings Bank under this Agreement shall terminate, as of the effective date of the order, but the vested rights of the contracting parties shall not be affected. (b) If the Savings Bank is in default (as defined in Section 3(x)(1) of FDIA) all obligations under this Agreement shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties. (c) All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Savings Bank: (i) by the Director of the Office of Thrift Supervision ("Director of OTS"), or his or her designee, at the time that the Federal Deposit Insurance Corporation ("FDIC") enters into an agreement to provide assistance to or on behalf of the Savings Bank under the authority contained in Section 13(c) of FDIA; or (ii) by the Director of the OTS, or his or her designee, at the time that the Director of the OTS, or his or her designee approves a supervisory merger to resolve problems related to operation of the Savings Bank or when the Savings Bank is determined by the Director of the OTS to be in an unsafe or 3 unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action. (d) If the Employee is suspended and/or temporarily prohibited from participating in the conduct of the Savings Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)), the Savings Bank's obligations under the Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Savings Bank may within its discretion (i) pay the Employee all or part of the compensation withheld while its contract obligations were suspended and (ii) reinstate (in whole or in part) any of its obligations which were suspended. (e) Notwithstanding anything herein to the contrary, any payments made to the Employee pursuant to the Agreement, or otherwise, shall be subject to and conditioned upon compliance with 12 USC ss.1828(k) and any regulations promulgated thereunder. 6. Successors and Assigns. ----------------------- (a) This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Savings Bank which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Savings Bank or Parent. (b) The Employee shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Savings Bank. 7. Amendments. No amendments or additions to this Agreement shall be ---------- binding upon the parties hereto unless made in writing and signed by both parties, except as herein otherwise specifically provided. 8. Applicable Law. This agreement shall be governed by all respects --------------- whether as to validity, construction, capacity, performance or otherwise, by the laws of the State of New Jersey, except to the extent that Federal law shall be deemed to apply. 9. Severability. The provisions of this Agreement shall be deemed ------------ severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 10. Arbitration. Any controversy or claim arising out of or relating to ----------- this Agreement, or the breach thereof, shall be settled exclusively by arbitration in accordance with the rules then in effect of the district office of the American Arbitration Association ("AAA") nearest to the home office of the Bank, and judgment upon the award rendered may be entered in any court having jurisdiction thereof, except to the extent that the parties may otherwise reach a mutual settlement of such issue. Further, the settlement of the dispute to be approved by the Board of the Bank may 4 include a provision for the reimbursement by the Bank to the Employee for all reasonable costs and expenses, including reasonable attorneys' fees, arising from such dispute, proceedings or actions, or the Board of the Bank or the Parent may authorize such reimbursement of such reasonable costs and expenses by separate action upon a written action and determination of the Board following settlement of the dispute. Such reimbursement shall be paid within ten (10) days of Employee furnishing to the Bank or Parent evidence, which may be in the form, among other things, of a canceled check or receipt, of any costs or expenses incurred by Employee. The provisions of this Section 10 shall survive the expiration of this Agreement. 11. Confidential Information. The Employee acknowledges that during his ------------------------ or her employment he or she will learn and have access to confidential information regarding the Savings Bank and the Parent and its customers and businesses ("Confidential Information"). The Employee agrees and covenants not to disclose or use for his or her own benefit, or the benefit of any other person or entity, any such Confidential Information, unless or until the Savings Bank or the Parent consents to such disclosure or use or such information becomes common knowledge in the industry or is otherwise legally in the public domain. The Employee shall not knowingly disclose or reveal to any unauthorized person any Confidential Information relating to the Savings Bank, the Parent, or any subsidiaries or affiliates, or to any of the businesses operated by them, and the Employee confirms that such information constitutes the exclusive property of the Savings Bank and the Parent. The Employee shall not otherwise knowingly act or conduct himself (a) to the material detriment of the Savings Bank or the Parent, or its subsidiaries, or affiliates, or (b) in a manner which is inimical or contrary to the interests of the Savings Bank or the Parent. Employee acknowledges and agrees that the existence of this Agreement and its terms and conditions constitutes Confidential Information of the Savings Bank, and the Employee agrees not to disclose the Agreement or its contents without the prior written consent of the Savings Bank. Notwithstanding the foregoing, the Savings Bank reserves the right in its sole discretion to make disclosure of this Agreement as it deems necessary or appropriate in compliance with its regulatory reporting requirements. Notwithstanding anything herein to the contrary, failure by the Employee to comply with the provisions of this Section may result in the immediate termination of the Agreement within the sole discretion of the Savings Bank, disciplinary action against the Employee taken by the Savings Bank, including but not limited to the termination of employment of the Employee for breach of the Agreement and the provisions of this Section, and other remedies that may be available in law or in equity. 12. Entire Agreement. This Agreement together with any understanding or ---------------- modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement between the parties hereto. 5 IN WITNESS WHEREOF, the parties have executed this Agreement on the day and first hereinabove written. Synergy Federal Saving Bank ATTEST: /s/Kevin A. Wenthen By: /s/John S. Fiore -------------------------- -------------------------------------- Kevin A. Wenthen John S. Fiore Assistant Secretary President and Chief Executive Officer Secretary WITNESS: /s/Kevin A. Wenthen By: /s/Ralph A. Fernandez -------------------------- -------------------------------------- Kevin A. Wenthen Ralph A. Fernandez (Employee) 6 EX-9 13 ex10-9.txt DIRECTORS CHANGE IN CONTROL SEVERANCE PLAN SYNERGY FINANCIAL GROUP, INC. / SYNERGY BANK DIRECTORS CHANGE IN CONTROL SEVERANCE PLAN WHEREAS, Synergy Financial Group, Inc. (the "Company") and its wholly-owned subsidiary, Synergy Bank (the "Savings Bank"), referred to collectively as the "Bank," wish to provide assurances to its non-employee members of the Board of Directors ("Board") that their continued service and contribution is valued and to offer a degree of economic security to such individuals so long as such service is deemed beneficial to the Board as indicated by their continued election and re-election to such Board from time to time; and WHEREAS, the Bank believes it would be beneficial to the customers of the Bank and the community served by the Bank to retain members of the Board after a change of control; and WHEREAS, it is deemed advisable and in the best interests of the Bank to encourage the retention of members of the Board following a change in control and to offer to its non-employee members of the Board a degree of financial security in the event that their service is terminated as a result of a Change in Control of the Bank. NOW, THEREFORE, BE IT RESOLVED, that the Plan shall be implemented as of the Effective Date as follows: ARTICLE I DEFINITIONS The following words and phrases as used herein shall, for the purpose of the Plan and any subsequent amendment thereof, have the following meanings unless a different meaning is plainly required by the content: 1.1 "Board" means the Board of Directors of the Company and the Savings Bank, as constituted from time to time, and successors thereto. 1.2 "Change in Control" shall mean: (i) the sale of all, or a material portion, of the assets of the Savings Bank or its Parent; (ii) the merger or recapitalization of the Savings Bank or Parent whereby the Savings Bank or the Parent is not the surviving entity; (iii) a change in control of the Savings Bank or the Parent, as otherwise defined or determined by the Office of Thrift Supervision ("OTS") or regulations promulgated by it; or (iv) the acquisition, directly or indirectly, of the beneficial ownership (within the meaning of that term as it is used in Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder) of twenty-five percent (25%) or more of the outstanding voting securities of the Savings Bank or Parent by any person, trust, entity or group. The term "person" refers to an individual or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole 1 proprietorship, unincorporated organization or any other form of entity not specifically listed herein. The decision of the Committee as to whether a change in control has occurred shall be conclusive and binding. 1.3 "Committee" means the Board or the administrative committee as appointed by the Board pursuant to Section 6.11 herein. 1.4 "Company" means Synergy Financial Group, Inc. or any successors thereto. 1.5 "Director" means a member of the Board of Directors of the Savings Bank as of the Effective Date. 1.6 "Effective Date" means June 1, 2003. 1.7 "Parent" shall mean Synergy Financial Group, Inc. or any successor corporation thereto. 1.8 "Participant" means a Director (other than a Director that is otherwise a full-time employee of the Savings Bank as of the Effective Date) serving as a member of the Board on or after the Effective Date. A Director's participation in the Plan shall continue as long as he or she continues to serve as a Director subject to the right of termination, amendment, and modification of the Plan set forth herein. 1.9 "Plan" means the Synergy Financial Group, Inc. / Synergy Bank Directors Change in Control Severance Plan as set forth herein, and as may be amended from time to time by the Board. 1.10 "Savings Bank" means Synergy Bank, or any successor thereto. 1.11 "Service" means all years of service as a Director of the Bank and all predecessor (or successor) entities of the Bank. Years of service as a Director need not be continuous. 1.12 "Severance Benefit Amount" means the benefit payable under the Plan in accordance Section 2.2 herein. 1.13 "Termination Event" means the termination of service as a Director following the date of a Change in Control of the Savings Bank or Parent or within twenty-four (24) months thereafter. ARTICLE II BENEFITS 2.1 Severance Benefits. Upon the occurrence of a Termination Event, the Company 2 or the Savings Bank shall pay monthly to the Participant the Severance Benefit Amount, as described and in the amount set forth at Article II, Section 2.2. Payment of such Severance Benefit Amount shall begin on the first business day of the month following such Termination Event. The payments will continue to be paid monthly until all scheduled payments are made to the Participant. Except as provided at Article II, Section 2.2 upon a Participant's termination from service as a Director of the Bank prior to a Termination Event, the Bank shall have no financial obligations to the Participant under the Plan. 2.2 Severance Benefit Amount. The Severance Benefit Amount shall be calculated and payable as follows: a. A Severance Benefit Amount shall be paid for a period of months based upon service of the Participant to the Company or the Savings Bank prior to the Termination Event as follows: Years of Service Maximum Number of Monthly Payments ---------------- ---------------------------------- Less than 2 0 More than 2 but less than 5 48 5 or more 60 b. The Severance Benefit Amount shall be calculated as $2,000 per month. The Severance Benefit Amount will be reviewed by the Board annually and may be changed by the Board in its sole discretion. c. Benefits payable in accordance with the Plan are exclusive of any other benefits that may be payable to a participant under any other plan of the Bank. 2.3 Death of Participant. Upon the death of a Participant who is receiving benefit payments under the Plan prior to his death, the remaining monthly payments will continue to be paid to his spouse or estate. 2.4 Alternative Forms Of Benefit Payment. The Committee may at any time distribute the Severance Benefit Amount with respect to all future benefits payable pursuant to Article II of the Plan, in a lump sum payment equal to the present value of all future benefits payable to such Participant. The interest rate in effect for a six month U.S. Treasury Bill on the date of the lump sum payment shall be used for purposes of calculating the present value of amounts payable in accordance with Section 2.4. 2.5 No 280G Payments. Notwithstanding the forgoing, all sums payable hereunder shall be reduced in such manner and to such extent so that no such payments made hereunder when aggregated with all other payments to be made to the Participant by the Savings Bank or the Parent shall be deemed an "excess parachute payment" in accordance with Section 280G of the 3 Internal Revenue Code of 1986, as amended (the "Code") , and regulations promulgated thereunder and subject the Participant to the excise tax provided at Section 4999(a) of the Code. ARTICLE III TRUST/NON-FUNDED STATUS OF PLAN 3.1 Trust/Non-Funded Status of Plan. Except as may be specifically provided, nothing contained in this Plan and no action taken pursuant to the provisions of this Plan shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Bank and the Participant or any other person. Any funds which may be invested under the provisions of this Plan shall continue for all purposes to be a part of the general funds of the Bank. No person other than the Bank shall by virtue of the provisions of this Plan have any interest in such funds. The Bank shall not be under any obligation to use such funds solely to provide benefits hereunder, and no representations have been made to any Participant that such funds can or will be used only to provide benefits hereunder. To the extent that any person acquires a right to receive payments from the Bank under the Plan, such rights shall be no greater than the right of any unsecured general creditor of the Bank. ARTICLE IV VESTING 4.1 Vesting. All benefits under this Plan are deemed non-vested and forfeitable prior to a Termination Event. All benefits payable hereunder shall be deemed 100% vested and non- forfeitable by the Participant upon his meeting the requirements set forth at Article II upon a Termination Event. No benefits shall be deemed payable hereunder for any period prior to the time that such benefits shall be deemed 100% vested and non-forfeitable. ARTICLE V TERMINATION 5.1 Termination. All the rights of a Participant shall terminate immediately upon the Participant ceasing to be in the active service of the Bank prior to a Termination Event. A leave of absence approved by the Board shall not constitute a cessation of service within the meaning of this Section 5.1. ARTICLE VI GENERAL PROVISIONS 6.1 Other Benefits. Nothing in this Plan shall diminish or impair a Participant's eligibility, participation or benefit entitlement under any other benefit, insurance or compensation plan or agreement of the Bank now or hereinafter in effect. 4 6.2 No Effect on Employment or Service. This Plan shall not be deemed to give any Participant or other person in the employ or service of the Savings Bank any right to be retained in the employment or service of the Savings Bank, or to interfere with the right of the Savings Bank to terminate any Participant or such other person at any time and to treat him without regard to the effect which such treatment might have upon him as a Participant in this Plan. 6.3 Legally Binding. The rights, privileges, benefits and obligations under this Plan are intended to be legal obligations of the Bank and binding upon the Bank, its successors and assigns. 6.4 Modification. The Bank, by action of the Board of Directors, reserves the exclusive right to amend, modify, or terminate this Plan. Any such termination, modification or amendment shall not terminate or diminish any rights or benefits accrued by any Participant prior thereto without regard to whether such rights or benefits shall be deemed vested as of such date. The Bank shall give thirty (30) days notice in writing to any Participant prior to the effective date of any amendment, modification or termination of this Plan. 6.5 Arbitration. Any controversy or claim arising out of or relating to the Plan or the breach thereof shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, with such arbitration hearing to be held at the offices of the American Arbitration Association ("AAA") nearest to the home office of the Bank, unless otherwise mutually agreed to by the Participant and the Bank, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. 6.6 Limitation. No rights of any Participant are assignable by any Participant, in whole or in part, either by voluntary or involuntary act or by operation of law. The rights of a Participant hereunder are not subject to anticipation, alienation, sale, transfer, assignment, pledge, hypothecation, encumbrance or garnishment by creditors of the Participant. Further, a Participant's rights under the Plan are not subject to the debts, contracts, liabilities, engagements, or torts of any Participant. No Participant shall have any right under this Plan or right against any assets held or acquired pursuant thereto other than the rights of a general, unsecured creditor of the Bank pursuant to the unsecured promise of the Bank to pay the benefits accrued hereunder in accordance with the terms of this Plan. The Bank has no obligation under this Plan to fund or otherwise secure its obligations to render payments hereunder to a Participant. No Participant shall have any discretion in the use, disposition, or investment of any asset acquired or set aside by the Bank to provide benefits under this Plan. 6.7 ERISA and Code Disclaimer. It is intended that the Plan be neither an "employee welfare benefit plan" nor an "employee pension benefit plan" for purposes of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Further, it is intended that the Plan will not cause the interest of a Participant under the Plan to be includable in the gross income of such Participant prior to the actual receipt of a payment under the Plan for purposes of the Code. 5 6.8 Regulatory Matters. (a) The Participant shall have no right to receive compensation or other benefits in accordance with the Plan for any period after termination of service for Just Cause. Termination for "Just Cause" shall include termination because of the Participant's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the Plan. (b) Notwithstanding anything herein to the contrary, any payments made to a Participant pursuant to the Plan shall be subject to and conditioned upon compliance with 12 USC ss.1828(k) and any regulations promulgated thereunder. 6.9 Incompetency. If the Bank shall find that any person to whom any payment is payable under the Plan is deemed unable to care for his personal affairs because of illness or accident, any payment due (unless a prior claim therefor shall have been made by a duly appointed guardian, committee or other legal representative) may be paid to the spouse, a child, a parent, or a brother or sister, or to any person deemed by the Bank to have incurred expense for such person otherwise entitled to payment, in such manner and proportions as the Board may determine in its sole discretion. Any such payments shall constitute a complete discharge of the liabilities of the Bank under the Plan. 6.10 Construction. The Committee shall have full power and authority to interpret, construe and administer this Plan and the Committee's interpretations and construction thereof, and actions thereunder, shall be binding and conclusive on all persons for all purposes. Directors of the Bank shall not be liable to any person for any action taken or omitted in connection with the interpretation and administration of this Plan unless attributable to his own willful, gross misconduct or lack of good faith. 6.11 Plan Administration. The Board shall administer the Plan; provided, however, that the Board may appoint an administrative committee (i.e., the Committee) to provide administrative services or perform duties required by this Plan. The Committee shall have only the authority granted to it by the Board. 6.12 Governing Law. This Plan shall be construed in accordance with and governed by the laws of the State of New Jersey ("State"), except to the extent that federal law shall be deemed to apply. 6.13 Successors and Assigns. The Plan shall be binding upon any successor or successors of the Bank, and unless clearly inapplicable, reference herein to the Bank shall be deemed to include any successor or successors of the Bank. 6 6.14 Sole Agreement. The Plan expresses, embodies, and supersedes all previous agreements, understandings, and commitments, whether written or oral, between the Bank and any Participants hereto with respect to the subject matter hereof. 7 EX-10 14 ex10-10.txt 2003 STOCK BONUS PLAN AND TRUST AGREEMENT [FORM OF] Synergy Financial Group, Inc. 2003 Stock Bonus Plan and Trust Agreement Article I --------- ESTABLISHMENT OF THE PLAN AND TRUST 1.01 Synergy Financial Group, Inc. ("Company") hereby establishes the 2003 Stock Bonus Plan (the "Plan") and Trust (the "Trust") upon the terms and conditions hereinafter stated in this Restricted Stock Plan and Trust Agreement (the "Agreement"). 1.02 The Trustee hereby accepts this Trust and agrees to hold the Trust assets existing on the date of this Agreement and all additions and accretions thereto upon the terms and conditions hereinafter stated. Article II ---------- PURPOSE OF THE PLAN 2.01 The purpose of the Plan is to reward and to retain personnel of experience and ability in key positions of responsibility with the Company and its subsidiaries, by providing such personnel of the Company and its subsidiaries with an equity interest in the Company as compensation for their prior and anticipated future professional contributions and service to the Company and its subsidiaries. Article III ----------- DEFINITIONS The following words and phrases when used in this Plan with an initial capital letter, unless the context clearly indicates otherwise, shall have the meaning as set forth below. Wherever appropriate, the masculine pronoun shall include the feminine pronoun and the singular shall include the plural. "Bank" means Synergy Bank, a federal stock savings bank. "Beneficiary" means the person or persons designated by the Participant to receive any benefits payable under the Plan in the event of such Participant's death. Such person or persons shall be designated in writing on forms provided for this purpose by the Committee and may be changed from time to time by similar written notice to the Committee. In the absence of a written designation, the Beneficiary shall be the Participant's surviving spouse, if any, or if none, the Participant's estate. "Board" means the Board of Directors of the Company, or any successor corporation thereto. -1- "Cause" means the personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profits, intentional failure to perform stated duties, willful violation of a material provision of any law, rule or regulation (other than traffic violations and similar offense), or a material violation of a final cease-and-desist order or any other action which results in a substantial financial loss to the Company or its Subsidiaries. "Change in Control" shall mean: (i) the sale of all, or a material portion, of the assets of the Company or the Bank; (ii) the merger or recapitalization of the Company or the Bank whereby the Company or the Bank is not the surviving entity; (iii) a change in control of the Company or the Bank, as otherwise defined or determined by the Office of Thrift Supervision ("OTS") or regulations promulgated by it; or (iv) the acquisition, directly or indirectly, of the beneficial ownership (within the meaning of that term as it is used in Section 13(d) of the 1934 Act and the rules and regulations promulgated thereunder) of twenty-five percent (25%) or more of the outstanding voting securities of the Company by any person, trust, entity or group. This limitation shall not apply to the purchase of shares of up to 25% of any class of securities of the Company by a tax-qualified employee stock benefit plan which is exempt from the approval requirements, set forth under 12 C.F.R. ss.574.3(c)(1)(vi) as now in effect or as may hereafter be amended. The term "person" refers to an individual or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. The decision of the Committee as to whether a Change in Control has occurred shall be conclusive and binding. A Change in Control shall not include a transaction whereby MHC shall merge into the Company or the Bank and a new parent corporation of the Bank or the Company is formed. "Committee" means the Board of Directors of the Company or the Restricted Stock Plan Committee appointed by the Board of Directors of the Company pursuant to Article IV hereof. "Common Stock" means shares of the common stock of the Company, or any successor corporation or parent thereto. "Company" means Synergy Financial Group, Inc., and any successor corporation thereto. "Director" means a member of the Board of the Company or any Subsidiary. "Director Emeritus" means a person serving as a director emeritus, advisory director, consulting director, or other similar position as may be appointed by the Board of Directors of the Company or the Bank from time to time. "Disability" means any physical or mental impairment which renders the Participant incapable of continuing in the employment or service of the Company or any Subsidiary in his current capacity as determined by the Committee. "Employee" means any person who is employed by the Company or a Subsidiary. "Effective Date" shall mean the date of Board adoption of the Plan. "MHC" means Synergy, MHC, the mutual holding company of the Bank. -2- "Participant" means an Employee or Director who receives a Plan Share Award under the Plan. "Plan Shares" means shares of Common Stock held in the Trust which are awarded or issuable to a Participant pursuant to the Plan. "Plan Share Award" or "Award" means a right granted to a Participant under this Plan to earn or to receive Plan Shares. "Plan Share Reserve" means the shares of Common Stock held by the Trust pursuant to Sections 5.03 and 5.04. "Subsidiary" means those subsidiaries of the Company which, with the consent of the Board, agree to participate in this Plan. "Trustee" or "Trustee Committee" means that person(s) or entity nominated by the Committee and approved by the Board pursuant to Sections 4.01 and 4.02 to hold legal title to the Plan assets for the purposes set forth herein. Article IV ---------- ADMINISTRATION OF THE PLAN 4.01 Role of the Committee. The Plan shall be administered and interpreted by the Board of Directors of the Company or a Committee appointed by said Board, which shall consist of not less than two non-employee members of the Board, which shall have all of the powers allocated to it in this and other sections of the Plan. All persons designated as members of the Committee shall be "Non-Employee Directors" within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended ("1934 Act"). The interpretation and construction by the Committee of any provisions of the Plan or of any Plan Share Award granted hereunder shall be final and binding. The Committee shall act by vote or written consent of a majority of its members. Subject to the express provisions and limitations of the Plan, the Committee may adopt such rules, regulations and procedures as it deems appropriate for the conduct of its affairs. The Committee shall report its actions and decisions with respect to the Plan to the Board at appropriate times, but in no event less than one time per calendar year. The Committee shall recommend to the Board one or more persons or entity to act as Trustee in accordance with the provision of this Plan and Trust and the terms of Article VIII hereof. 4.02 Role of the Board. The members of the Committee and the Trustee shall be appointed or approved by, and will serve at the pleasure of the Board. The Board may in its discretion from time to time remove members from, or add members to, the Committee, and may remove, replace or add Trustees. The Board shall have all of the powers allocated to it in this and other sections of the Plan, may take any action under or with respect to the Plan which the Committee is authorized to take, and may reverse or override any action taken or decision made by the Committee under or with respect to the Plan, provided, however, that the Board may not revoke any Plan Share Award already made except as provided in Section 7.01(b) herein. -3- 4.03 Limitation on Liability. No member of the Board, the Committee or the Trustee shall be liable for any determination made in good faith with respect to the Plan or any Plan Share Awards granted. If a member of the Board, Committee or any Trustee is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by any reason of anything done or not done by him in such capacity under or with respect to the Plan, the Company shall indemnify such member against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in the best interests of the Company and its Subsidiaries and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Article V --------- CONTRIBUTIONS; PLAN SHARE RESERVE 5.01 Amount and Timing of Contributions. The Board of Directors of the Company shall determine the amounts (or the method of computing the amounts) to be contributed by the Company to the Trust established under this Plan. Such amounts shall be paid to the Trustee at the time of contribution. No contributions to the Trust by Participants shall be permitted except with respect to amounts necessary to meet tax withholding obligations. 5.02 Initial Investment. Any funds held by the Trust prior to investment in the Common Stock shall be invested by the Trustee in such interest-bearing account or accounts at the Bank as the Trustee shall determine to be appropriate. 5.03 Investment of Trust Assets. Following ratification of the Plan by the stockholders of the Company and the receipt of any other necessary regulatory approvals, as may be applicable, the Trust shall purchase Common Stock of the Company in an amount equal to up to 100% of the Trust's assets, after providing for any required withholding as needed for tax purposes, provided, however, that the Trust shall not purchase more than 9,613 shares of Common Stock, subject to adjustment. The Trustee may purchase shares of Common Stock in the open market or, in the alternative, may purchase authorized but unissued shares of the Common Stock or treasury shares from the Company sufficient to fund the Plan Share Reserve. 5.04 Effect of Allocations, Returns and Forfeitures Upon Plan Share Reserves. Upon the allocation of Plan Share Awards under Sections 6.02 and 6.05, or the decision of the Committee to return Plan Shares to the Company, the Plan Share Reserve shall be reduced by the number of Shares subject to the Awards so allocated or returned. Any Shares subject to an Award which are not earned because of forfeiture by the Participant pursuant to Section 7.01 shall be added to the Plan Share Reserve. -4- Article VI ---------- ELIGIBILITY; ALLOCATIONS 6.01 Eligibility. Employees are eligible to receive Plan Share Awards within the sole discretion of the Committee. Directors who are not otherwise Employees shall receive Plan Share Awards pursuant to Section 6.05. 6.02 Allocations. The Committee will determine which of the Employees will be granted Plan Share Awards and the number of Shares covered by each Award, provided, however, that in no event shall any Awards be made which will violate the Charter or Bylaws of the Company or its Subsidiaries or any applicable federal or state law or regulation. In the event Shares are forfeited for any reason or additional Shares are purchased by the Trustee, the Committee may, from time to time, determine which of the Employees will be granted Plan Share Awards to be awarded from forfeited Shares. In selecting those Employees to whom Plan Share Awards will be granted and the number of shares covered by such Awards, the Committee shall consider the prior and anticipated future position, duties and responsibilities of the Employees, the value of their prior and anticipated future services to the Company and its Subsidiaries, and any other factors the Committee may deem relevant. All actions by the Committee shall be deemed final, except to the extent that such actions are revoked by the Board. Notwithstanding anything herein to the contrary, in no event shall any Participant receive Plan Share Awards in excess of 25% of the aggregate Plan Shares authorized under the Plan. 6.03 Form of Allocation. As promptly as practicable after a determination is made pursuant to Section 6.02 or Section 6.05 that a Plan Share Award is to be made, the Committee shall notify the Participant in writing of the grant of the Award, the number of Plan Shares covered by the Award, and the terms upon which the Plan Shares subject to the award may be earned. The date on which the Committee makes its award determination or the date the Committee so notifies the Participant shall be considered the date of grant of the Plan Share Awards as determined by the Committee. The Committee shall maintain records as to all grants of Plan Share Awards under the Plan. 6.04 Allocations Not Required. Notwithstanding anything to the contrary at Sections 6.01, 6.02 or 6.05, no Employee shall have any right or entitlement to receive a Plan Share Award hereunder, such Awards being at the sole discretion of the Committee and the Board, nor shall the Employees as a group have such a right. The Committee may, with the approval of the Board (or, if so directed by the Board) return all Common Stock in the Plan Share Reserve to the Company at any time, and cease issuing Plan Share Awards. 6.05 Awards to Directors. Notwithstanding anything herein to the contrary, upon the Effective Date, a Plan Share Award consisting of 361 Plan Shares shall be awarded to each Director of the Company that is not otherwise an Employee. Such Plan Share Award shall be earned and non-forfeitable at the rate of one-fifth as of April 22, 2004 and an additional one-fifth following each of the next four successive years during such periods of service as a Director or Director Emeritus. Such Plan Share Award shall be immediately 100% earned and non-forfeitable in the event of the death or Disability of such Director or Director Emeritus. Such Plan Share Award shall be immediately 100% earned and non-forfeitable upon a Change in Control of the Company or the Bank. Subsequent to the Effective Date, Plan Share Awards may be awarded to newly elected or appointed Directors of the Company by the Committee, provided that total Plan Share Awards granted to non-employee Directors of the Company shall not exceed 30% of the -5- total Plan Share Reserve in the aggregate under the Plan or 5% of the total Plan Share Reserve to any individual non-employee Director. Article VII ----------- EARNINGS AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS 7.01 Earnings Plan Shares; Forfeitures. (a) General Rules. Unless the Committee shall specifically state to the contrary at the time a Plan Share Award is granted, Plan Shares subject to an Award shall be earned and non-forfeitable by a Participant at the rate of one-fifth of such Award following one year after the granting of such Award, and an additional one-fifth following each of the next four successive years; provided that such Participant remains an Employee, Director, or Director Emeritus during such period. (b) Revocation for Misconduct. Notwithstanding anything herein to the contrary, the Board shall, by resolution, immediately revoke, rescind and terminate any Plan Share Award, or portion thereof, previously awarded under this Plan, to the extent Plan Shares have not been delivered thereunder to the Participant, whether or not yet earned, in the case of a Participant who is discharged from the employ or service of the Company or a Subsidiary for Cause, or who is discovered after termination of employment or service to have engaged in conduct that would have justified termination for Cause. A determination of Cause shall be made by the Board within its sole discretion. (c) Exception for Terminations Due to Death or Disability. Notwithstanding the general rule contained in Section 7.01(a) above, all Plan Shares subject to a Plan Share Award held by a Participant whose employment or service with the Company or a Subsidiary terminates due to death or Disability, shall be deemed earned and nonforfeitable as of the Participant's last date of employment or service with the Company or a Subsidiary and shall be distributed as soon as practicable thereafter. (d) Exception for Termination after a Change in Control. Notwithstanding the general rule contained in Section 7.01 above, all Plan Shares subject to a Plan Share Award held by a Participant shall be deemed to be immediately 100% earned and non-forfeitable in the event of a Change in Control of the Company or the Bank and shall be distributed as soon as practicable thereafter. 7.02 Accrual and Payment of Dividends. A holder of a Plan Share Award, whether or not earned, shall also be entitled to receive an amount equal to any cash dividends declared and paid with respect to shares of Common Stock represented by such Plan Share Award between the date the relevant Plan Share Award was granted to such Participant and the date the Plan Shares are distributed. Such cash dividend amounts shall be held in arrears under the Trust and distributed upon the earning of the applicable Plan Share Award. Such payment shall also include an appropriate amount of earnings, if any, of the Trust assets with respect to any cash dividends so distributed. 7.03 Distribution of Plan Shares. -6- (a) Timing of Distributions: General Rule. Except as provided in Subsections (d) and (e) below, Plan Shares shall be distributed to the Participant or his Beneficiary, as the case may be, as soon as practicable after they have been earned. No fractional shares shall be distributed. Notwithstanding anything herein to the contrary, at the discretion of the Committee, Plan Shares may be distributed prior to such Shares being 100% earned, provided that such Plan Shares shall contain a restrictive legend detailing the applicable limitations of such shares with respect to transfer and forfeiture. (b) Form of Distribution. All Plan Shares, together with any shares representing stock dividends, shall be distributed in the form of Common Stock. One share of Common Stock shall be given for each Plan Share earned. Payments representing cash dividends (and earnings thereon) shall be made in cash. Notwithstanding anything within the Plan to the contrary, upon a Change in Control whereby substantially all of the Common Stock of the Company shall be acquired for cash, all earned Plan Shares associated with Plan Share Awards, together with any shares representing stock dividends associated with earned Plan Share Awards, shall be, at the sole discretion of the Committee, distributed as of the effective date of such Change in Control, or as soon as administratively feasible thereafter, in the form of cash equal to the consideration received in exchange for such Common Stock represented by such Plan Shares. (c) Withholding. The Trustee may withhold from any payment or distribution made under this Plan sufficient amounts of cash or shares of Common Stock necessary to cover any applicable withholding and employment taxes, and if the amount of such payment or distribution is not sufficient, the Trustee may require the Participant or Beneficiary to pay to the Trustee the amount required to be withheld in taxes as a condition of delivering the Plan Shares. The Trustee shall pay over to the Company or a Subsidiary which employs or employed such Participant any such amount withheld from or paid by the Participant or Beneficiary. (d) Timing: Exception for 10% Shareholders. Notwithstanding Subsection (a) above, no Plan Shares may be distributed prior to the date which is five years from the effective date of the Conversion to the extent the Participant or Beneficiary, as the case may be, would after receipt of such Shares own in excess of ten percent (10%) of the issued and outstanding shares of Common Stock held by parties other than the MHC, unless such action is approved in advance by a majority vote of disinterested directors of the Board of the Company. Any Plan Shares remaining undistributed solely by reason of the operation of this Subsection (d) shall be distributed to the Participant or his Beneficiary on the date which is five years from the effective date of the Conversion. (e) Regulatory Exceptions. No Plan Shares shall be distributed, however, unless and until all of the requirements of all applicable law and regulation shall have been fully complied with, including the receipt of approval of the Plan by the stockholders of the Company by such vote, if any, as may be required by applicable law and regulations. 7.04 Voting of Plan Shares. After a Plan Share Award has become earned and non-forfeitable, the Participant shall be entitled to direct the Trustee as to the voting of the Plan Shares which are associated with the Plan Share Award and which have not yet been distributed pursuant to Section 7.03, subject to rules and procedures adopted by the Committee for this purpose. All shares of Common Stock held by the Trust as to which Participants have not yet earned and are not entitled to direct, or have not directed, the voting of such Shares, shall be voted by the Trustee as directed by the Committee. -7- Article VIII ------------ TRUST 8.01 Trust. The Trustee shall receive, hold, administer, invest and make distributions and disbursements from the Trust in accordance with the provisions of the Plan and Trust and the applicable directions, rules, regulations, procedures and policies established by the Committee pursuant to the Plan. 8.02 Management of Trust. It is the intention of this Plan and Trust that the Trustee shall have complete authority and discretion with respect to the management, control and investment of the Trust, and that the Trustee shall invest all assets of the Trust, except those attributable to cash dividends paid with respect to Plan Shares not held in the Plan Share Reserve, in Common Stock to the fullest extent practicable, except to the extent that the Trustee determines that the holding of monies in cash or cash equivalents is necessary to meet the obligations of the Trust. In performing their duties, the Trustees shall have the power to do all things and execute such instruments as may be deemed necessary or proper, including the following powers: (a) To invest up to one hundred percent (100%) of all Trust assets in the Common Stock without regard to any law now or hereafter in force limiting investments for Trustees or other fiduciaries. The investment authorized herein may constitute the only investment of the Trust, and in making such investment, the Trustee is authorized to purchase Common Stock from the Company or from any other source, and such Common Stock so purchased may be outstanding, newly issued, or treasury shares. (b) To invest any Trust assets not otherwise invested in accordance with (a) above in such deposit accounts, and certificates of deposit (including those issued by the Bank), obligations of the United States government or its agencies or such other investments as shall be considered the equivalent of cash. (c) To sell, exchange or otherwise dispose of any property at any time held or acquired by the Trust. (d) To cause stocks, bonds or other securities to be registered in the name of a nominee, without the addition of words indicating that such security is an asset of the Trust (but accurate records shall be maintained showing that such security is an asset of the Trust). (e) To hold cash without interest in such amounts as may be in the opinion of the Trustee reasonable for the proper operation of the Plan and Trust. (f) To employ brokers, agents, custodians, consultants and accountants. (g) To hire counsel to render advice with respect to their rights, duties and obligations hereunder, and such other legal services or representation as they may deem desirable. -8- (h) To hold funds and securities representing the amounts to be distributed to a Participant or his Beneficiary as a consequence of a dispute as to the disposition thereof, whether in a segregated account or held in common with other assets. (i) As may be directed by the Committee or the Board from time to time, the Trustee shall pay to the Company earnings of the Trust attributable to the Plan Share Reserve. Notwithstanding anything herein contained to the contrary, the Trustee shall not be required to make any inventory, appraisal or settlement or report to any court, or to secure any order of a court for the exercise of any power herein contained, or to maintain bond. 8.03 Records and Accounts. The Trustee shall maintain accurate and detailed records and accounts of all transactions of the Trust, which shall be available at all reasonable times for inspection by any legally entitled person or entity to the extent required by applicable law, or any other person determined by the Committee. 8.04 Earnings. All earnings, gains and losses with respect to Trust assets shall be allocated in accordance with a reasonable procedure adopted by the Committee, to bookkeeping accounts for Participants or to the general account of the Trust, depending on the nature and allocation of the assets generating such earnings, gains and losses. In particular, any earnings on cash dividends received with respect to shares of Common Stock shall be allocated to accounts for Participants, except to the extent that such cash dividends are distributed to Participants, if such shares are the subject of outstanding Plan Share Awards, or, otherwise to the Plan Share Reserve. 8.05 Expenses. All costs and expenses incurred in the operation and administration of this Plan, including those incurred by the Trustee, shall be paid by the Company. 8.06 Indemnification. Subject to the requirements and limitations of applicable laws and regulations, the Company shall indemnify, defend and hold the Trustee harmless against all claims, expenses and liabilities arising out of or related to the exercise of the Trustee's powers and the discharge of their duties hereunder, unless the same shall be due to their gross negligence or willful misconduct. Article IX ---------- MISCELLANEOUS 9.01 Adjustments for Capital Changes. The aggregate number of Plan Shares available for issuance pursuant to the Plan Share Awards and the number of Shares to which any Plan Share Award relates shall be proportionately adjusted for any increase or decrease in the total number of outstanding shares of Common Stock issued subsequent to the effective date of the Plan resulting from any split, subdivision or consolidation of the Common Stock or other capital adjustment, change or exchange of the Common Stock, or other increase or decrease in the number or kind of shares effected without receipt or payment of consideration by the Company. 9.02 Amendment and Termination of the Plan. The Board may, by resolution, at any time, amend or terminate the Plan. The power to amend or terminate the Plan shall include the power to direct -9- the Trustee to return to the Company all or any part of the assets of the Trust, including shares of Common Stock held in the Plan Share Reserve, as well as shares of Common Stock and other assets subject to Plan Share Awards which have not yet been earned by the Participants to whom they have been awarded. However, the termination of the Trust shall not affect a Participant's right to earn Plan Share Awards and to the distribution of Common Stock relating thereto, including earnings thereon, in accordance with the terms of this Plan and the grant by the Committee or the Board. Notwithstanding the foregoing, no action of the Board may increase (other than as provided in Section 9.01 hereof) the maximum number of Plan Shares permitted to be awarded under the Plan as specified at Section 5.03, materially increase the benefits accruing to Participants under the Plan or materially modify the requirements for eligibility for participation in the Plan unless such action of the Board shall be subject to ratification by the stockholders of the Company. 9.03 Nontransferable. Plan Share Awards and rights to Plan Shares shall not be transferable by a Participant, and during the lifetime of the Participant, Plan Shares may only be earned by and paid to the Participant who was notified in writing of the Award by the Committee pursuant to Section 6.03. No Participant or Beneficiary shall have any right in or claim to any assets of the Plan or Trust, nor shall the Company, or any Subsidiary be subject to any claim for benefits hereunder. 9.04 No Employment Rights. Neither the Plan nor any grant of a Plan Share Award or Plan Shares hereunder nor any action taken by the Trustee, the Committee or the Board in connection with the Plan shall create any right, either express or implied, on the part of any Participant to continue in the employ or service of the Company, or a Subsidiary thereof. 9.05 Voting and Dividend Rights. No Participant shall have any voting or dividend rights of a stockholder with respect to any Plan Shares covered by a Plan Share Award, except as expressly provided in Sections 7.02 and 7.04 above, prior to the time said Plan Shares are actually distributed to such Participant. 9.06 Governing Law. The Plan and Trust shall be governed by and construed under the laws of the State of New Jersey, except to the extent that Federal Law shall be deemed applicable. 9.07 Effective Date. The Plan shall be effective as of the date of approval of the Plan by the Board of the Company, subject to ratification of the Plan by the stockholders of the Company and to the receipt of approval or non-objection of such Plan by the OTS or other applicable banking regulator, if applicable. 9.08 Term of Plan. This Plan shall remain in effect until the earlier of (i) termination by the Board, (ii) the distribution of all assets of the Trust, or (iii) 21 years from the Effective Date. Termination of the Plan shall not effect any Plan Share Awards previously granted, and such Plan Share Awards shall remain valid and in effect until they have been earned and paid, or by their terms expire or are forfeited. 9.09 Tax Status of Trust. It is intended that the Trust established hereby shall be treated as a grantor trust of the Company under the provisions of Section 671 et seq. of the Internal Revenue Code of 1986, as amended, as the same may be amended from time to time. -10- EX-23 15 ex23-1.txt CONSENT OF GRANT THORNTON LLP CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated February 15, 2003 accompanying the consolidated financial statements of Synergy Financial Group, Inc. and subsidiaries as contained in the Registration Statement and Prospectus on Form S-1 to be filed with the Securities and Exchange and as contained in the Application for Conversion on Form AC and the H-(e)1-S Savings and Loan Holding Company Application to be filed with the Office of Thrift Supervision. We consent to the use of the aforementioned report in the Registration Statement and Prospectus and the Form AC and the H-(e)1-S Application and to the use of our name as it appears under the caption "Experts." /s/ Grant Thornton LLP Philadelphia, Pennsylvania September 17, 2003 EX-23 16 ex23-2.txt CONSENT OF FONTANELLA AND BABITTS CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the use in the Registration Statement and Prospectus on Form S-1 to be filed with the Securities and Exchange and to the use in the Application for Conversion on Form AC and the H-(e)1-S Savings and Loan Holding Company Application to be filed with the Office of Thrift Supervision of our report dated January 31, 2002 (except for Note 14 as to which the date is May 21, 2002) on consolidated financial statements of Synergy Financial Group, Inc. and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statement of income, changes in stockholders' equity and cash flows for the years then ended. We also consent to the references to us under the heading "Experts" in the Registration Statement and Prospectus on Form S-1, the Application for Conversion on Form AC and the H-(e)1-S Application. /s/ Fontanella and Babitts Totowa Boro, NJ September 17, 2003 EX-23 17 ex23-3.txt CONSENT OF FINPRO, INC. September 15, 2002 Boards of Directors Synergy, MHC Synergy Financial Group, Inc. Synergy Bank 310 North Avenue East Cranford, NJ 07016 Dear Board Members: We hereby consent to the use of our firm's name, FinPro, Inc. ("FinPro"), in the Application for Conversion of Synergy, MHC, and any amendments thereto, and in the Registration Statement on Form S-1, and any amendments thereto, filed by Synergy Financial Group, Inc. and references to the Conversion Valuation Appraisal Report ("Report") and the valuation of Synergy, MHC provided by FinPro, and our opinion regarding subscription rights filed as an exhibit to the applications referred to above. We also consent to the use of our firm's name and the inclusion of, summary of and references to our Report in the Form S-1 Registration Statement filed by Synergy Financial Group, Inc. and any amendments thereto, and the Application for Conversion filed by Synergy, MHC and any amendments thereto. We hereby consent to being named as an expert in the prospectus under the caption "Experts", filed with the Application for Conversion and the form S-1 Registration Statement. Very Truly Yours, /s/FinPro, Inc. FinPro, Inc. EX-99 18 ex99-1.txt EX99-1 401(K) PROSPECTUS SUPPLEMENT SYNERGY [LOGO] Interests in Synergy Financial Group, Inc. 401(K) Savings Plan and Trust and Offering of 412,050 Shares of Common Stock, $.10 par value per share, of SYNERGY FINANCIAL GROUP, INC. This Prospectus Supplement relates to the offer and sale to participants in the Synergy Financial Group, Inc. 401(K) Savings Plan and Trust of participation interests and shares of Synergy Financial Group, Inc. In connection with the initial public offering of common stock of Synergy Financial Group, Inc., a New Jersey corporation, you may invest in the stock of Synergy Financial Group, Inc. You may direct the trustee of the plan to purchase the stock with plan assets which are attributable to you as a participant (other than amounts you presently have invested in the Employer Stock Fund). This prospectus supplement relates to your decision whether or not to invest all or a portion of your plan funds in Synergy Financial Group, Inc. common stock. If you direct the trustee to invest all or a portion of your plan funds in Synergy Financial Group, Inc. common stock in the initial public offering (other than amounts you presently have invested in the Employer Stock Fund), the price paid for such shares will be $10.00 per share. This price is the price that will be paid by all other persons who purchase shares of Synergy Financial Group, Inc. stock in the initial public offering. If you direct the trustee to invest all or a portion of your plan funds in Synergy Financial Group, Inc. common stock after the initial public offering, shares purchased for your account in open market transactions, and the price paid for such shares, will be the market price at the time of the purchase, which may be more or less than the initial public offering price of $10.00 per share. The prospectus of Synergy Financial Group, Inc. dated ______ __, 2003, which is attached to this prospectus supplement, includes detailed information regarding Synergy Financial Group, Inc. common stock, and the financial condition, results of operation, and business of Synergy Financial Group, Inc. and Subsidiaries. This prospectus supplement provides information regarding the plan. You should read this prospectus supplement together with the prospectus and keep both for future reference. Please refer to Risk Factors beginning on page __ of the prospectus. These securities have not been approved or disapproved by the Securities and Exchange Commission, the Office of Thrift Supervision, or any other federal agency or any state securities commission, nor has such commission, office, or other agency or any state securities commission passed upon the accuracy or adequacy of this prospectus supplement. Any representation to the contrary is a criminal offense. These securities are not deposits or savings accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The date of this prospectus supplement is __________ __, 2003. TABLE OF CONTENTS The Offering..................................................................1 Securities Offered...................................................1 Election to Purchase Stock in the Initial Offering...................1 Value of Participation Interests.....................................1 Purchase Price of Synergy Financial Group, Inc. Common Stock.........1 Method of Directing Investments......................................2 Time for Directing Investment........................................2 Irrevocability of Investment Direction...............................2 Direction to Purchase the Stock After the Initial Offering...........3 Nature of Each Participant's Interest in Synergy Financial Group, Inc. Common Stock..................3 Voting and Tender Rights of the Stock................................3 Minimum Investment...................................................3 Description of the Plan.......................................................3 General..............................................................3 Eligibility and Participation........................................4 Contributions and Benefits Under the Plan............................4 Limitations on Contributions.........................................4 Investment of Plan Assets............................................5 Performance of Previous Funds........................................7 Performance of Employer Stock Fund...................................7 Benefits Under the Plan............................................. 8 Withdrawals and Distributions From the Plan......................... 8 Administration of the Plan.......................................... 9 Reports to Plan Participants........................................10 Amendment and Termination.......................................... 10 Merger, Consolidation, or Transfer................................. 10 Federal Income Tax Consequences.....................................11 Restrictions on Resale..............................................11 SEC Reporting and Short-Swing Profit Liability......................12 Additional Information..............................................12 Legal Opinions...............................................................12 Investment Election Form.............................................Appendix-A Change of Investment Allocation Form.................................Appendix-B Special Tax Notice Regarding Plan Payments...........................Appendix-C THE OFFERING Securities Offered The securities offered in connection with this prospectus supplement are participation interests in the plan and shares of Synergy Financial Group, Inc. common stock. At September 10, 2003, there were sufficient funds in the Plan to purchase up to 412,050 shares of Synergy Financial Group, Inc. (a New Jersey corporation) common stock in the offering. This includes the new shares of Synergy Financial Group, Inc. which may be received in exchange for all of the shares of Synergy Financial Group, Inc. (a federally chartered corporation) common stock presently held in the plan. The shares of common stock currently held in the plan will be exchanged for shares of Synergy Financial Group, Inc. pursuant to an exchange ratio, as is more fully discussed in the "Conversion" section of the prospectus. Only employees of Synergy who meet the eligibility requirements under the plan may participate. Information with regard to the plan is contained in this prospectus supplement and information with regard to the stock offering and the financial condition, results of operation, and business of Synergy is contained in the attached prospectus. Election to Purchase Stock in the Initial Offering You may direct the trustee of the plan to invest all or part of the funds in your account in the Employer Stock Fund. Funds that are presently invested in the Employer Stock Fund shall be exchanged for shares in the Employer Stock Fund in accordance with the exchange of shares in the Conversion. Based upon your election, the trustees of the plan will subscribe for Synergy Financial Group, Inc. shares in the initial offering. You also will be permitted to direct ongoing purchases of the stock under the plan after the initial offering. See "Direction to Purchase Stock After the Initial Offering." The plan's trustee will follow your investment directions. Amounts not transferred to the Employer Stock Fund will remain invested in the other investment funds of the plan as directed by you. See "Investment of Plan Assets." Value of Participation Interests As of September 10, 2003, the total market value of the assets of the plan equaled $4,120,495. The plan administrator has informed each participant of the value of his or her account in the plan as of __________ __, 2003. The value of the plan assets represents your past contributions to the plan, employer matching contributions, profit-sharing contributions, plus or minus earnings or losses on contributions, less withdrawals and loans. You may direct up to 100% of the value of your account assets to invest in the Employer Stock Fund (other than amounts you presently have invested in the Employer Stock Fund). However, in connection with the initial offering of the stock, if you elect to purchase the stock, you will be required to invest a minimum amount of your account assets in the Employer Stock Fund. Purchase Price of Synergy Financial Group, Inc. Common Stock The funds transferred to the Employer Stock Fund for the purchase of the stock issued in the initial offering will be used by the trustee to purchase shares of Synergy Financial Group, Inc. common stock. The price paid for such shares of the stock will be $10.00. This price is the price that will be paid by all other persons who purchase shares of the stock in the initial offering. Your account assets directed for investment in the Employer Stock Fund after the initial offering shall be invested by the trustee to purchase shares of Synergy Financial Group, Inc. common stock in open market transactions. The price paid by the trustee for shares of the Synergy Financial Group, Inc. common 1 stock in the initial offering, or otherwise, will not exceed "adequate consideration" as defined in Section 3(18) of the Employee Retirement Income Security Act. Method of Directing Investments Appendix A of this prospectus supplement includes an investment election form for you to direct a transfer to the Employer Stock Fund in the initial offering of all or a portion of your account under the plan. Appendix B of this prospectus supplement includes Pentegra's change of investment allocation form which is to be used to direct future contributions to the Employer Stock Fund after the initial offering. If you wish to invest all or part of your account in the Employer Stock Fund in the initial offering you need to complete Appendix A. Additionally, you may indicate the directed investment of future contributions under the plan for investment in the Employer Stock Fund. If you wish to direct investment of future contributions in the Employer Stock Fund, you need to complete Appendices A and B. If you do not wish to make an investment election, you do not need to take any action and your current elections will remain in effect. Time for Directing Investment The deadline for submitting your direction to invest funds in the Employer Stock Fund in order to purchase the stock issued in the initial offering is noon on __________ __, 2003. If you want to invest in the Employer Stock Fund, you must return the attached form to Ms. Janice L. Ritz of Synergy by noon on __________ __, 2003. After the initial offering, you will still be able to direct the investment of your account under the plan in the Employer Stock Fund and in other investment alternatives. Irrevocability of Investment Direction The direction to invest your plan funds in the Employer Stock Fund in the initial offering cannot be changed after you have turned in your forms. However, you will be able to direct your account to purchase the stock after the initial offering by directing amounts in your account into the Employer Stock Fund. Direction to Purchase the Stock After the Stock Offering Following completion of the stock offering, you will be permitted to direct that a certain percentage of your interest in the trust fund (up to 100%) be transferred to the Employer Stock Fund and invested in Synergy Financial Group, Inc. common stock, or to the other investment funds available under the plan. Alternatively, you may direct that a certain percentage of your interest in the Employer Stock Fund be transferred to the trust fund to be invested in the other investment funds available in accordance with the terms of the plan. You can direct future contributions made to the plan by you or on your behalf to be invested in the Employer Stock Fund. Following your initial election, the allocation of your interest in the Employer Stock Fund may be changed daily by filing a change of investment allocation form with the plan administrator or by calling Pentegra's voice response unit at (800) 433-4422 and changing your investment allocation by phone or by Internet at www.Pentegra.com. 2 Nature of Each Participant's Interest in Synergy Financial Group, Inc. Common Stock The trustee will hold Synergy Financial Group, Inc. common stock in the name of the plan. Each participant has an allocable interest in the investment funds of the plan but not in any particular assets of the plan. Accordingly, a specific number of shares of the stock will not be directly attributable to the account of any individual participant. Dividend rights associated with the stock held by the Employer Stock Fund will be allocated to the Employer Stock Fund. Any increase (or decrease) in the value of the fund as a result of dividend rights will be reflected in each participant's allocable interest in the Employer Stock Fund. Voting and Tender Rights of the Stock You will direct the trustee of the plan about how to vote your Synergy Financial Group, Inc. shares. If you do not give voting instruction or tender instruction to the trustee, the trustee will vote or tender those shares within its discretion as a fiduciary under the plan or as directed by the plan administrator. Minimum Investment The minimum investment of assets directed by a participant for the purchase of the stock in the initial offering is $250.00, and investments must be in increments of $10.00. Funds may be directed for the purchase of the stock attributable to your account regardless of whether your account assets are 100% vested at the time of your investment election. There is no minimum level of investment after the initial offering for investment in the Employer Stock Fund. DESCRIPTION OF THE PLAN General Synergy adopted a 401(k) plan effective July 1, 1991. Effective July 1, 2002, Synergy amended and restated its old plan into the new plan in order to include the Employee Stock Fund as an investment alternative. The plan is a deferred compensation arrangement established in accordance with the requirements under Section 401(a) and Section 401(k) of the Internal Revenue Code. The plan received a determination letter from the IRS that the plan is qualified under Section 401(a) of the Internal Revenue Code and that its trust is qualified under Section 501(a) of the Internal Revenue Code. Synergy intends for the plan, in operation, to comply with the requirements under Section 401(a) and Section 401(k) of the Internal Revenue Code. Synergy expects to adopt any amendments to the plan that may be necessary to ensure the continued qualified status of the plan under the Internal Revenue Code and other federal regulations. Employee Retirement Income Security Act. The plan is an "individual ------------------------------------------ account plan" other than a "money purchase pension plan" within the meaning of the Employee Retirement Income Security Act. As such, the plan is subject to all of the provisions of Title I (Protection of Employee Benefit Rights) and Title II (Amendments to the Internal Revenue Code Relating to Retirement Plans) of the act, except the funding requirements contained in Part 3 of Title I of the act, which do not apply to an individual account plan (other than a money purchase plan). The plan is not subject to Title IV (Plan Termination Insurance) of the act. Neither the funding requirements contained in Part 3 of Title I of the act nor the plan termination insurance provisions contained in Title IV of the act will be extended to participants or beneficiaries under the plan. Federal tax law imposes substantial restrictions on your right to withdraw amounts held under the plan before your termination of employment with Synergy. Federal law may also impose a 10% excise tax on withdrawals you make from the plan before you reach the age of 59 1/2, regardless of whether the withdrawal occurs during or after your employment with Synergy. 3 Full Text of Plan. The following portions of this prospectus supplement ----------------- are summaries of provisions in the plan. They are not complete and are qualified in their entirety by the full text of the plan. You may obtain copies of the full plan by sending a request to Ms. Janice L. Ritz at Synergy. You should carefully read the full text of the plan document to understand your rights and obligations under the plan. Eligibility and Participation You may participate in the plan on the first day of January, April, July, or October after completing 1,000 hours of service during a 12-month period with Synergy. As of September 10, 2003, there were 120 employees eligible to participate in the plan and 94 employees had elected to participate. The plan year is January 1 to December 31. Contributions and Benefits Under the Plan Plan Participant Contributions. You can contribute to the plan on a -------------------------------- pretax or after-tax basis. Contributions are automatically deducted from your salary each pay period. When you contribute on a pretax basis, you pay no federal income tax on your eligible deferrals until you withdraw money from the plan. If you contribute to the plan on an after-tax basis, taxes are withheld when the contributions are deducted from your paycheck. You are permitted to contribute amounts of not less than 1% and not more than 50% of your annual base salary to the plan excluding bonuses, commissions and overtime. You may change the amount of your contributions at any time and your changes will be effective on the first day of the following calendar quarter. Synergy Contributions. Synergy may match your contribution to the plan, --------------------- but we are not obligated to match your contributions. Synergy currently matches 100% of your contributions up to 5% of your base salary. Synergy contributions are subject to revision by us. Limitation on Contributions Limitation on Employee Salary Deferral. Although you may contribute up -------------------------------------- to 50% of your pay to the plan, federal tax law limits the dollar amount of your annual contribution to $12,000 in 2003. If you are age 50 or more you can make catch-up contributions of $2,000 in 2003. The Internal Revenue Service periodically adjusts this limit for inflation. Contributions in excess of this limit and earnings on those contributions generally will be returned to you by April 15 of the year following your contribution, and they will be subject to regular federal income taxes. Limitation on Annual Additions and Benefits. Under federal tax law, ---------------------------------------------- your contributions and our contributions to the plan may not exceed the lesser of 100% of your annual pay, or $40,000. Contributions that we make to any other retirement program that we sponsor may also count against these limits. Special Rules About Highly-Paid Employees. Special provisions of the ------------------------------------------ Internal Revenue Code limit contributions by employees who receive annual pay greater than $90,000. If you are in this category, some of your contribution may be returned if your contribution, when measured as a percentage of your pay, is substantially higher than the contributions made by other employees. If your annual pay is less than $130,000, we may be required to make a minimum contribution to the plan of 3% of your annual pay if the plan is considered to be a "top heavy" plan under federal tax law. The 4 plan is considered "top heavy" if, in any year, the value of the plan accounts of employees making more than $130,000 represent more than 60 percent of the value of all accounts. Investment of Plan Assets All amounts credited to your plan account are held in trust. A trustee appointed by Synergy's Board of Directors administers the trust and invests the plan assets. The plan offers the following investment choices: S&P 500 Stock Fund: Invests in the stocks of a broad array of established U.S. companies. Its objective is long-term: to earn higher returns by investing in the largest companies in the U.S. economy. Stable Value Fund: Invests primarily in Guaranteed Investment Contracts and Synthetic Guaranteed Investment Contracts. Its objective is short-to-intermediate term: to achieve a stable return over short to intermediate periods of time while preserving the value of a participant's investment. S&P MidCap Stock Fund: Invests in the stocks of mid-sized U.S. companies. Its objective is long- term: to earn higher returns which reflect the growth potential of such companies. Money Market Fund: Invests in a broad range of high-quality short-term instruments. Its objective is short-term: to achieve competitive short-term rates of return while preserving the value of the participant's principal. Government Bond Fund: Invests in U.S. Treasury bonds with maturities of 20 years or more. Its objective is long-term: to earn a higher level of income along with the potential for capital appreciation. Income Plus Asset Allocation Fund: Invests approximately 80% of its portfolio in a combination of stable value investments and U.S. bonds. The balance is invested in U.S. and international stocks. Its objective is intermediate-term: to preserve the value of a participant's investment over short periods of time and to offer some potential for growth. Growth and Income Asset Allocation Fund: Invests in U.S. domestic and international stocks, U.S. domestic bonds, and stable value investments. Its objective is intermediate-term: to provide a balance between the pursuit of growth and protection from risk. Growth Asset Allocation Fund: Invests the majority of its assets in stocks -- domestic as well as international. Its objective is long-term: to pursue high growth of a participant's investment over time. International Stock Fund: Invests in over 1,000 foreign stocks in 20 countries. Its objective is long- term: to offer the potential return of investing in the stocks of established non-U.S. companies, as well as the potential risk-reduction of broad diversification. Russell 2000 Stock Fund: Invests in most, or all, of the same stocks held in the Russell 2000 Index. Its objective is long-term: to earn high returns in smaller U.S. companies by matching its benchmark, the Russell 2000 Index. 5 S&P 500/Growth Stock Fund: Invests in most, or all, of the stocks held in the S&P/BARRA Growth Index which are large-capitalization growth stocks. Its objective is long-term: to match its benchmark, the S&P/BARRA Growth Index. S&P 500/Value Stock Fund: Invests in most, or all, of the stocks held in the S&P/BARRA Value Index which are large-capitalization value stocks. Its objective is long-term: to match its benchmark, the S&P/BARRA Value Index. Nasdaq 100 Stock Fund: The fund is intended for long-term investors seeking to capture the growth potential of the 100 largest and most actively traded non-financial companies on the Nasdaq Stock Market. The Fund's benchmark is the Nasdaq 100 Index. Employer Stock Fund. The Employer Stock Fund consists primarily of investments in common stock of Synergy Financial Group, Inc. Synergy Financial Group, Inc., a federal corporation, is a majority- owned subsidiary of Synergy, MHC, a federally chartered mutual holding company, along with cash. Following the offering, Synergy Financial Group, Inc., a New Jersey corporation, will be 100% owned by its public shareholders, including Synergy Financial Group, Inc.'s tax-qualified plans. Shares of Synergy Financial Group, Inc. which were held in the Employer Stock Fund prior to the offering will be converted into shares of common stock of Synergy Financial Group, Inc., in accordance with the exchange ratio. The trustee will use all amounts reallocated to the Employer Stock Fund in the special election to acquire shares in the offering. After the offering, the trustee will, to the extent practicable, use all amounts held by it in the Employer Stock Fund, including cash dividends paid on common stock held in the Employer Stock Fund, to purchase shares of common stock of Synergy Financial Group, Inc. It is expected that all purchases will be made at prevailing market prices. Under certain circumstances, the trustee may be required to limit the daily volume of shares purchased. Pending investment in common stock, amounts allocated towards the purchase of shares in the offering will be held in the Employer Stock Fund in an interest-bearing account. In the event of an oversubscription, any earnings that result therefrom will be reinvested among the other funds of the plan in accordance with your then existing investment election (in proportion to your investment direction allocation percentages). 6 Performance of Previous Funds The annual percentage return on these funds for calendar years 2002, 2001 and 2000 was approximately: Fund 2002 2001 2000 ---- ---- ---- ---- Money Market Fund 1.6% 4.0% 6.2% Stable Value Fund 5.3% 5.7% 5.8% Government Bond Fund 16.4% 3.2% 21.0% S&P 500 Stock Fund (22.4%) (12.3%) (9.6%) S&P MidCap Stock Fund (15.0%) ( 0.9%) 16.8% International Stock Fund (18.5%) (22.0%) (14.7%) Income Plus Asset Allocation Fund (2.6%) 1.7% 2.2% Growth Asset Allocation Fund (18.8%) (14.0%) (11.3%) Growth & Income Asset Allocation Fund (10.3%) (5.2%) (3.9%) Russell 2000 Stock Fund (20.7%) 2.0% 1.9% S&P 500/Growth Stock Fund (24.0%) (13.3%) (19.0%) S&P 500/Value Stock Fund (21.2%) (12.2%) 11.2% Nasdaq 100 Stock Fund (37.6%) (32.7%) (35.0%) Employer Stock Fund 176.4% N/A N/A * Assumes all dividends are re-invested and does not take into effect fund expenses which would reduce average annual returns. Performance of the Employer Stock Fund The historical performance of the Employer Stock Fund is set forth on page __. Performance of the Employer Stock Fund will be dependent upon a number of factors, including the financial condition and profitability of Synergy Financial Group, Inc. and its subsidiaries and market conditions for the common stock generally. An investment in the fund is not insured or guaranteed by the FDIC or any other government agency. It is possible to lose money by investing in the fund. Please note that investment in the Employer Stock Fund is not an investment in a savings account or certificate of deposit, and such investment in Synergy Financial Group, Inc. common stock through the Employer Stock Fund is not insured by the FDIC or any other regulatory agency. Further, no assurances can be given with respect to the price at which the stock may be sold in the future. 7 Investments in the Employer Stock Fund may involve certain special risks relating to investments in the common stock of Synergy Financial Group, Inc. For a discussion of these risk factors, see "Risk Factors" beginning on page __ of the prospectus. Benefits Under the Plan Vesting. The contributions that you make in the plan are fully vested ------- and cannot be forfeited. You vest in our matching contributions according to the following schedule: Number of Full Years of Service Vested Percentage ------------------------------- ----------------- 1 20% 2 40% 3 60% 4 80% 5 or more 100% Withdrawals and Distributions From the Plan Withdrawals Before Termination of Employment. Your plan account ------------------------------------------------ provides you with a source of retirement income. But, while you are employed by Synergy, if you need funds from your account before retirement, you may be eligible to receive either an in-service withdrawal, or (from your pre-tax contributions) a hardship distribution or a loan. You can apply for a hardship distribution or a loan from the plan by contacting Ms. Janice L. Ritz at Synergy. In order to qualify for a hardship withdrawal, you must have an immediate and substantial need to meet certain expenses, like a mortgage payment or medical bill, and have no other reasonably available resources to meet your financial need. If you qualify for a hardship distribution, the trustee will make the distribution proportionately from the investment funds in which you have invested your account balance. Hardship withdrawals (except for medical expenses exceeding 7.5% of your adjusted gross income) and in-service withdrawals are subject to a 10% early distribution penalty. Loans are not subject to a 10% early distribution penalty. Distributions Upon Termination for Any Other Reason. If you terminate ---------------------------------------------------- employment with Synergy for any reason other than retirement, disability or death and your account balance exceeds $500, the trustee will distribute your benefits to you the later of the April 1 of the calendar year after you turn age 70 1/2 or when you retire, unless you request otherwise. You may elect to maintain your account balance in the plan for as long as Synergy maintains the plan or you may elect one or more of the forms of distribution available under the plan. If your account balance does not exceed $500, the trustee will generally distribute your benefits to you as soon as administratively practicable following termination of employment. Distributions Upon Disability. If you can no longer work because of a ------------------------------ disability, as defined in the plan, you may withdraw your total account balance under the plan and have that amount paid to you in accordance with the terms of the plan. If you later become reemployed after you have withdrawn some or all of your account balance, you may not repay to the plan any withdrawn amounts. Distributions Upon Death. If you die before your benefits are paid from ------------------------ the plan, your benefits will be paid to your surviving spouse or designated beneficiary. Distributions of the Stock of Synergy Financial Group, Inc. If you -------------------------------------------------------------- receive a distribution from the plan and assets under the plan have been directed by you to be invested in the Employer Stock Fund, you may have those assets distributed in kind in the form of stock of Synergy Financial Group, Inc. 8 Form of Benefits. Payment of your benefits upon your retirement, disability, or other termination of employment will be made in a lump sum payment. If you die before receiving benefits pursuant to your retirement, disability, or termination of employment, your beneficiary will receive a lump sum payment, unless the payment would exceed $500 and an election is made for annual installments up to 5 years. Your spouse can receive payments for up to 10 years. Nonalienation of Benefits. Except with respect to federal income tax -------------------------- withholding and as provided with respect to a qualified domestic relations order, as defined in the Internal Revenue Code, benefits payable under the plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to benefits payable under the plan shall be void. Plan Loans. You may borrow money from the vested portion of your ----------- account. The minimum amount you may borrow is $1,000. The maximum amount is 50% of your vested account balance. You may never borrow more than $50,000 minus the highest outstanding balance on any individual loan during the last 12 months. You may take up to five years to repay a general purpose loan. If you are using the loan to purchase your primary residence, a repayment period of 15 years is permissible. You must repay the loan through payroll deductions. If you fail to make any loan repayment when due, your loan will be in default. The full amount of the loan will be due and payable by the last day of the calendar quarter following the calendar quarter which contains the due date of the last monthly installment payment. If the outstanding balance of the loan is in default and is not repaid in the aforementioned time period, you will be considered to have received a distribution of said amount. Administration of the Plan Synergy is the plan administrator. The Bank of New York will serve as trustee and custodian for all investment funds under the plan except the Employer Stock Fund. Janice L. Ritz, Kevin A. Wenthen and John S. Fiore, will serve as trustees with respect to the Employer Stock Fund during the initial public offering by Synergy Financial Group, Inc. After the stock of Synergy Financial Group, Inc. begins trading, the Bank of New York also will be the trustee for the Employer Stock Fund. The plan administrator is responsible for the administration of the plan, interpretation of the provisions of the plan, prescribing procedures for filing applications for benefits, preparation and distribution of information explaining the plan, maintenance of plan records, books of account and all other data necessary for the proper administration of the plan, and preparation and filing of all returns and reports relating to the plan which are required to be filed with the U.S. Department of Labor and the IRS, and for all disclosures required to be made to participants, beneficiaries and others under the Employee Retirement Income Security Act. The trustee receives and holds the contributions to the plan in trust and distributes them to participants and beneficiaries in accordance with the terms of the plan and the directions of the plan administrator. The trustee is responsible for investment of the assets of the trust. The address of the plan administrator and the trustee for the Employer Stock Fund is 310 North Avenue East, Cranford, New Jersey 07016. The address of the Bank of New York is One Wall Street, New York, New York, 10286. 9 Reports to Plan Participants The plan administrator will furnish to each participant a statement at least quarterly showing: o the balance in your account as of the end of that period; o the amount of contributions allocated to your account for that period; and o the adjustments to your account to reflect earnings or losses (if any). If you invest in the Employer Stock Fund, you will also receive a copy of Synergy Financial Group, Inc.'s Annual Report to Stockholders and a proxy statement related to stockholder meetings. Amendment and Termination It is the intention of Synergy to continue the plan indefinitely. Nevertheless, Synergy, within its sole discretion, may terminate the plan at any time. If the plan is terminated in whole or in part, then regardless of other provisions in the plan, you will have a fully vested interest in your accounts. Synergy reserves the right to make, from time to time, any amendment or amendments to the plan that do not cause any part of the trust to be used for, or diverted to, any purpose other than the exclusive benefit of participants or their beneficiaries; provided, however, that Synergy may make any amendment it determines necessary or desirable, with or without retroactive effect, to comply with the Employee Retirement Income Security Act. Merger, Consolidation, or Transfer In the event of the merger or consolidation of the plan with another plan, or the transfer of the trust assets to another plan, the plan requires that each participant would (if either the plan or the other plan then be terminated) receive a benefit immediately after the merger, consolidation, or transfer that is equal to or greater than the benefit he or she would have been entitled to receive immediately before the merger, consolidation, or transfer (if the plan had then terminated). Federal Income Tax Consequences The following discussion is only a brief summary of certain federal income tax aspects of the plan. You should not rely on this summary as a complete or definitive description of the material federal income tax consequences relating to the plan. At the time you receive a distribution from the plan, you will receive a tax notice which conforms to the IRS safe harbor explanation of the distribution in accordance with IRS Notice 2002-3. The tax rules that affect your benefits under the plan change frequently and may vary based on your individual situation. This summary also does not discuss how state or local tax laws affect your plan benefits. We urge you to consult your tax advisor with respect to any distribution from the plan and transactions involving the plan. Federal tax law provides the participants under the plan with a number of special benefits: (1) you pay no current income tax on your contributions or Synergy contributions; and (2) the earnings on your plan accounts are not taxable until you receive a distribution. 10 These benefits are conditioned on the plan's compliance with special requirements of federal tax law. We intend to satisfy all of the rules that apply to the plan. However, if the rules are not satisfied, the special tax benefits available to the plan may be lost. Special Distribution Rules. If you turned 50 before 1986, you may be eligible to spread the taxes on the distribution over as much as 10 years. You should consult with your tax advisor to determine if you are eligible for this special tax benefit and whether it is appropriate to your financial needs. Synergy Financial Group, Inc. Common Stock Included in Lump Sum Distribution. If a distribution of all of your benefits includes shares of Synergy Financial Group, Inc. common stock, you will generally not be taxed on the increase in the value of the stock since its purchase until you sell the stock. You will be taxed on the amount of the distribution equal to your original cost for the stock when you receive your distribution. Distributions: Rollovers and Direct Transfers to Another Qualified Plan or to an IRA. You may roll over virtually all distributions from the plan to retirement programs sponsored by other employers or to an individual retirement account. We will provide you with detailed information on how to roll over a distribution when you are eligible to receive benefits under the plan. Restrictions on Resale If you are an "affiliate" of Synergy Financial Group, Inc. or Synergy Bank, you may be subject to special rules under federal securities laws that affect your ability to sell shares you hold in the Employer Stock Fund. Directors, officers and substantial shareholders of Synergy Financial Group, Inc. are generally considered "affiliates." Any person who may be an "affiliate" of Synergy may wish to consult with counsel before transferring any common stock they own. If you are not considered an "affiliate" of Synergy you may freely sell any shares of Synergy Financial Group, Inc. common stock distributed to you under the plan, either publicly or privately. 11 SEC Reporting and Short-Swing Profit Liability If you are an officer, director or more than 10% owner of Synergy Financial Group, Inc., you may be required to report purchases and sales of Synergy Financial Group, Inc. common stock through the plan to the Securities and Exchange Commission. In addition, you may be subject to special rules that provide for the recovery by Synergy Financial Group, Inc. of profits realized by an officer, director or a more than 10% owner from the purchase and sale or sale and purchase of the common stock within any six-month period. However, the rules except many transactions involving the plan from the reporting and profit recovery rules. You should consult with us regarding the impact of these rules on your transactions involving Synergy Financial Group, Inc. common stock. Additional Information This prospectus supplement dated ________, 2003 is part of the prospectus of Synergy Financial Group, Inc. dated ___________, 2003. This prospectus supplement shall be delivered to plan participants together with the prospectus and is not complete unless it is accompanied by the prospectus. LEGAL OPINIONS The validity of the issuance of the common stock will be passed upon by Malizia Spidi & Fisch, PC, Washington, D.C., which acted as special counsel for Synergy Financial Group, Inc. in connection with the initial public offering by Synergy Financial Group, Inc. 12 Appendix-A: Investment Election Form Appendix-A ---------- SYNERGY FINANCIAL GROUP, INC. 401(K) SAVINGS PLAN AND TRUST ----------------------------- Participant Voluntary Investment Election Form ----------------------------- Name of Plan Participant: --------------------- Social Security Number: --------------------- 1. Instructions. ------------- In connection with the initial public offering of Synergy Financial Group Inc., Synergy has adopted the Synergy Financial Group, Inc. 401(K) Savings Plan and Trust to permit plan participants to direct all, or a portion, of the assets attributable to their participant accounts into a new fund: the Employer Stock Fund. The assets attributable to a participant's account that are transferred at the direction of the participant into the Employer Stock Fund will be used to purchase shares of common stock of Synergy Financial Group, Inc. to be issued in the initial stock offering of Synergy Financial Group, Inc. To direct a transfer of all or a part of the funds credited to your account to the Employer Stock Fund, you should complete this form and return it to Janice L. Ritz, at 310 North Avenue East, Cranford, New Jersey 07016 who will retain this form and return a copy to you. If you need any assistance in completing this form, please contact Janice L. Ritz at (908) 272-3838. If you do not complete and return this form by __________ __, 2003, at noon, the funds credited to your account under the plan will continue to be invested in accordance with your prior investment direction, or in accordance with the terms of the plan if no investment direction has been provided. 2. Investment Directions. ---------------------- As a participant in the plan, I hereby voluntarily elect to direct the trustee of the plan to invest the below indicated dollar sum of my participant account balance under the plan as indicated below. I hereby voluntarily elect and request to direct investment of the below indicated dollar amount of my participant account funds for the purchase of the common stock to be issued in Synergy Financial Group, Inc.'s initial offering (minimum investment of $250.00; rounded to the nearest $10.00 increment; maximum investment permissible is 20,000 shares of common stock or $200,000): $___________. Enter your $ level of requested purchase through the plan. Such amount may not exceed the vested portion of assets held under the plan for you. Please note that the actual number of shares of common stock purchased on your behalf under the plan may be limited or reduced in accordance with the plan of stock issuance of Synergy Financial Group, Inc. based upon the total number of shares of common stock subscribed for by other parties. On the attached Appendix-B, please indicate from which funds such investments should be transferred. Only available funds may be used for purchase. All other funds in my participant account will remain invested as previously requested. All future contributions under the plan will continue to be invested as previously requested or as revised by me at a later date. 3. Acknowledgment. --------------- I fully understand that this self-directed portion of my participant account does not share in the overall net earnings, gains, losses, and appreciation or depreciation in the value of assets held by the plan's other investment funds, but only in my account's allocable portion of such items from the directed investment account invested in the common stock. I understand that the plan's trustee, in complying with this election and in following my directions for the investment of my account, is not responsible or liable in any way for the expenses or losses that may be incurred by my account assets invested in common stock under the Employer Stock Fund. I further understand that this one time election shall become irrevocable by me upon execution and submission of this Investment Form. Only ---- properly signed forms delivered to the plan trustee on or before __________ __, - -------------------------------------------------------------------------------- 2003, at noon, will be honored. - ------------------------------- The undersigned participant acknowledges that he or she has received the prospectus of Synergy Financial Group, Inc., dated _________ __, 2003, the prospectus supplement dated ___________ __, 2003, regarding the Synergy Financial Group, Inc. 401(K) Savings Plan and Trust as adopted by Synergy Financial Group, Inc. and this Investment Form. The undersigned hereby acknowledges that the shares of common stock to be purchased with the funds noted above are not savings accounts or deposits and are not insured by the Federal Deposit Insurance Corporation, Bank Insurance Fund, the Savings Association Insurance Fund, or any other governmental agency. Investment in the common stock will expose the undersigned to the investment risks and potential fluctuations in the market price of the common stock. Investment in the common stock does not offer any guarantees regarding maintenance of the principal value of such investment or any projections or guarantees associated with future value or dividend payments with respect to the common stock. The undersigned hereby voluntarily makes and consents to this investment election and voluntarily signed his (her) name as of the date listed below. If you so elect, you may choose not to make any investment decision at this time. I UNDERSTAND THAT BY EXECUTING THIS ORDER I DO NOT WAIVE ANY RIGHTS AFFORDED TO ME BY THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934. ____________________ __________ ________________________ _________ Witness Date Participant Date For the Trustee For the Plan Administrator ____________________ __________ ________________________ _________ Date Date 2 Appendix-B: Change of Investment Allocation Form Appendix-B ---------- Change of Investment Allocation Form Synergy Financial Group, Inc. CHANGE OF INVESTMENT ALLOCATION - ------------------------------- 1. Member Data ________________________________________________________________________________ Print your full name above (Last, first, middle initial) Social Security Number ________________________________________________________________________________ Street Address City Zip 2. Instructions Synergy Financial Group, Inc. 401(K) Savings Plan and Trust is giving members a special opportunity to invest their 401(k) account balances in a new investment fund - the Employer Stock Fund - which is comprised primarily of common stock issued by Synergy Financial Group, Inc. in connection with the initial stock offering of Synergy Financial Group, Inc. The percentage of a member's account transferred at the direction of the member into the Employer Stock Fund will be used to purchase shares of the common stock during the initial offering of Synergy Financial Group, Inc. Please review the prospectus and the prospectus supplement before making any decision. In the event of an oversubscription in the offering so that the total amount you allocate to the Employer Stock Fund can not be used by the trustee to purchase the common stock, your account will be reinvested in the other funds of the plan as previously directed in your last investment election. If no investment election is provided, your account will be invested in the Money Market Fund. Investing in the common stock entails some risks, and we encourage you to discuss this investment decision with your spouse and investment advisor. The plan trustee and the plan administrator are not authorized to make any representations about this investment other than what appears in the prospectus and prospectus supplement, and you should not rely on any information other than what is contained in the prospectus and prospectus supplement. For a discussion of certain factors that should be considered by each member in deciding whether to invest in the common stock, see "Risk Factors" beginning on page __ of the prospectus. Any shares purchased by the plan pursuant to your election will be subject to the conditions or restrictions otherwise applicable to the common stock, as discussed in the prospectus and prospectus supplement. 3. Investment Directions (Applicable to Accumulated Balances Only) To direct a transfer of all or part of the funds credited to your accounts to the Employer Stock Fund, you should complete and file this form with Janice L. Ritz, Vice President of Synergy Bank no later than __________ __, 2003 at noon. If you need any assistance in completing this form, please contact Ms. Ritz at (908) 272-3838. If you do not complete and return this form to Ms. Ritz by __________ __, 2003 at noon, the funds credited to your account under the plan will continue to be invested in accordance with your prior investment direction, or in accordance with the terms of the plan if no investment direction has been provided by you. Notwithstanding the election made in Appendix-A for purchases of the Employer Stock Fund, your purchase of Synergy Financial Group, Inc. Stock will be limited to the amounts available in the following funds. No purchases of the Employer Stock Fund will be made with insufficient funds in any funds. I hereby revoke any previous investment direction and now direct that the market value of the units that I have invested in the following funds, to the extent permissible, be transferred out of the specified fund and invested in the Employer Stock Fund as follows: Percentage to be Fund transferred ---- ----------- S&P 500 Stock Fund.................................... ____ % Russell 2000 Stock Fund............................... ____ % S&P 500/Growth Stock Fund............................. ____ % S&P 500/Value Stock Fund.............................. ____ % Stable Value Fund..................................... ____ % S&P MidCap Stock Fund................................. ____ % Money Market Fund..................................... ____ % Government Bond Fund.................................. ____ % International Stock Fund.............................. ____ % Income Plus Fund...................................... ____ % Growth & Income Fund.................................. ____ % Growth Fund........................................... ____ % Nasdaq 100 Stock Fund................................. ____ % Total (Important!).......................... 100 % Note: The total amount transferred may not exceed the total value of your accounts. 4. Investment Directions (Applicable to Future Contributions Only) I hereby revoke any previous investment instructions and now direct that any future contributions and/or loan repayments, if any, made by me or on my behalf by Synergy Financial Group, Inc. including those contributions and/or repayments received by Synergy Financial Group, Inc. 401(K) Savings Plan and Trust during the same reporting period as this form, be invested in the following funds (in whole percentages). If I elect to invest in the common stock of Synergy Financial Group, Inc., such future contributions or loan repayments, if any, will be invested in the Employer Stock Fund the month following the conclusion of the stock offering. Please read "Notes" on the following page before completing. 2 Fund Percentage ---- ---------- S&P 500 Stock Fund................................... ____ % Russell 2000 Stock Fund.............................. ____ % S&P 500/Growth Stock Fund............................ ____ % S&P 500/Value Stock Fund............................. ____ % Stable Value Fund.................................... ____ % S&P MidCap Stock Fund................................ ____ % Money Market Fund.................................... ____ % Government Bond Fund................................. ____ % International Stock Fund............................. ____ % Income Plus Fund..................................... ____ % Growth & Income Fund................................. ____ % Growth Fund.......................................... ____ % Employer Stock Fund.................................. ____ % Nasdaq 100 Stock Fund................................ ____ % Total (Important!)............................ 100% Notes: No amounts invested in the Stable Value Fund may be transferred directly to the Money Market Fund. Stable Value Fund amounts invested in the S&P 500 Stock Fund, Russell 2000 Stock Fund, S&P 500/Growth Stock Fund, S&P 500/Value Stock Fund, S&P MidCap Stock Fund, Government Bond Fund, International Stock Fund, Income Plus Fund, Growth & Income Fund, Growth Fund, Nasdaq 100 Stock Fund and/or Employer Stock Fund, for a period of three months may be transferred to the Money Market Fund upon the submission of a separate Change of Investment Allocation Form. The percentage that can be transferred to the Money Market Fund may be limited by any amounts previously transferred from the Stable Value Fund that have not satisfied the equity wash requirement. Such amounts will remain in either the S&P 500 Stock Fund, Russell 2000 Stock Fund, S&P 500/Growth Stock Fund, S&P 500/Value Stock Fund, S&P MidCap Stock Fund, Government Bond Fund, International Stock Fund, Income Plus Fund, Growth & Income Fund, Growth Fund, Nasdaq 100 Stock Fund and/or Employer Stock Fund and a separate direction to transfer them to the Money Market Fund will be required when they become available. 5. Participant Signature and Acknowledgment - Required By signing this Change of Investment Allocation form, I authorize and direct the plan administrator and trustee to carry out my instructions. If investing in the Employer Stock Fund, I acknowledge that I have been provided with and read a copy of the prospectus and prospectus supplement relating to the issuance of the common stock. I am aware of the risks involved in the investment in the common stock, and understand that the trustee and plan administrator are not responsible for my choice of investment. 3 MEMBER'S SIGNATURE I understand that the above directed change(s) will be processed within one to five days of the form being received by Pentegra. I further understand that if I do not complete either Section 3 or Section 4, no change will be made to my current directions for future contributions or accumulated balances, respectively. _______________________________________ ______________ Signature of Member Date Pentegra Services, Inc. is hereby authorized to make the above listed change(s) to this member's record. On behalf of the above named member, I certify that the signature above is that of the participant making this request. _______________________________________ ______________ Signature of Synergy Financial Group, Inc. Date Authorized Representative Please complete and return by noon on __________ __, 2003. 4 Appendix-C: Special Tax Notice Regarding Plan Payments Appendix-C ---------- SPECIAL TAX NOTICE REGARDING PLAN PAYMENTS This notice explains how you can continue to defer federal income tax on your retirement savings in the Synergy Financial Group, Inc. Employees' 401(K) Savings Plan and Trust (the "Plan") and contains important information you will need before you decide how to receive your Plan benefits. This notice is provided to you by Synergy Financial Group, Inc. (your "Plan Administrator") because all or part of the payment that you will soon receive from the Plan may be eligible for rollover by you or your Plan Administrator to a traditional IRA or an eligible employer plan. A rollover is a payment by you or the Plan Administrator of all or part of your benefit to another plan or IRA that allows you to continue to postpone taxation of that benefit until it is paid to you. Your payment cannot be rolled over to a Roth IRA, a SIMPLE IRA, or a Coverdell Education Savings Account (formerly known as an education IRA). An "eligible employer plan" includes a plan qualified under section 401(a) of the Internal Revenue Code, including a 401(k) plan, profit-sharing plan, defined benefit plan, stock bonus plan, and money purchase plan; a section 403(a) annuity plan; a section 403(b) tax-sheltered annuity; and an eligible section 457(b) plan maintained by a governmental employer (governmental 457 plan). An eligible employer plan is not legally required to accept a rollover. Before you decide to roll over your payment to another employer plan, you should find out whether the plan accepts rollovers and, if so, the types of distributions it accepts as a rollover. You should also find out about any documents that are required to be completed before the receiving plan will accept a rollover. Even if a plan accepts rollovers, it might not accept rollovers of certain types of distributions, such as after-tax amounts. If this is the case, and your distribution includes after-tax amounts, you may wish instead to roll your distribution over to a traditional IRA or split your rollover amount between the employer plan in which you will participate and a traditional IRA. If an employer plan accepts your rollover, the plan may restrict subsequent distributions of the rollover amount or may require your spouse's consent for any subsequent distribution. A subsequent distribution from the plan that accepts your rollover may also be subject to different tax treatment than distributions from this Plan. Check with the administrator of the plan that is to receive your rollover prior to making the rollover. If you have additional questions after reading this notice, you can contact your plan administrator at (908) 272-3838. SUMMARY There are two ways you may be able to receive a Plan payment that is eligible for rollover: (1) Certain payments can be made directly to a traditional IRA that you establish or to an eligible employer plan that will accept it and hold it for your benefit ("DIRECT ROLLOVER"); or (2) The payment can be PAID TO YOU. If you choose a DIRECT ROLLOVER: * Your payment will not be taxed in the current year and no income tax will be withheld. 1 * You choose whether your payment will be made directly to your traditional IRA or to an eligible employer plan that accepts your rollover. Your payment cannot be rolled over to a Roth IRA, a SIMPLE IRA, or a Coverdell Education Savings Account because these are not traditional IRAs. * The taxable portion of your payment will be taxed later when you take it out of the traditional IRA or the eligible employer plan. Depending on the type of plan, the later distribution may be subject to different tax treatment than it would be if you received a taxable distribution from this Plan. If you choose to have a Plan payment that is eligible for rollover PAID TO YOU: * You will receive only 80% of the taxable amount of the payment, because the Plan Administrator is required to withhold 20% of that amount and send it to the IRS as income tax withholding to be credited against your taxes. * The taxable amount of your payment will be taxed in the current year unless you roll it over. Under limited circumstances, you may be able to use special tax rules that could reduce the tax you owe. However, if you receive the payment before age 59 1/2, you may have to pay an additional 10% tax. * You can roll over all or part of the payment by paying it to your traditional IRA or to an eligible employer plan that accepts your rollover within 60 days after you receive the payment. The amount rolled over will not be taxed until you take it out of the traditional IRA or the eligible employer plan. * If you want to roll over 100% of the payment to a traditional IRA or an eligible employer plan, you must find other money to replace the 20% of the taxable portion that was withheld. If you roll over only the 80% that you received, you will be taxed on the 20% that was withheld and that is not rolled over. YOUR RIGHT TO WAIVE THE 30-DAY NOTICE PERIOD. Generally, neither a direct rollover nor a payment can be made from the Plan until at least 30 days after your receipt of this notice. Thus, after receiving this notice, you have at least 30 days to consider whether or not to have your withdrawal directly rolled over. If you do not wish to wait until this 30-day notice period ends before your election is processed, you may waive the notice period by making an affirmative election indicating whether or not you wish to make a direct rollover. Your withdrawal will then be processed in accordance with your election as soon as practical after it is received by the Plan Administrator. MORE INFORMATION I. PAYMENTS THAT CAN AND CANNOT BE ROLLED OVER II. DIRECT ROLLOVER III. PAYMENT PAID TO YOU IV. SURVIVING SPOUSES, ALTERNATE PAYEES, AND OTHER BENEFICIARIES 2 I. PAYMENTS THAT CAN AND CANNOT BE ROLLED OVER Payments from the Plan may be "eligible rollover distributions." This means that they can be rolled over to a traditional IRA or to an eligible employer plan that accepts rollovers. Payments from a plan cannot be rolled over to a Roth IRA, a SIMPLE IRA, or a Coverdell Education Savings Account. Your Plan Administrator should be able to tell you what portion of your payment is an eligible rollover distribution. The following types of payments cannot be rolled over: PAYMENTS SPREAD OVER LONG PERIODS. You cannot roll over a payment if it is part of a series of equal (or almost equal) payments that are made at least once a year and that will last for: * your lifetime (or a period measured by your life expectancy), or * your lifetime and your beneficiary's lifetime (or a period measured by your joint life expectancies), or * a period of 10 years or more. REQUIRED MINIMUM PAYMENTS. Beginning when you reach age 70 1/2 or retire, whichever is later, a certain portion of your payment cannot be rolled over because it is a "required minimum payment" that must be paid to you. Special rules apply if you own more than 5% of your employer. HARDSHIP DISTRIBUTIONS. A hardship distribution cannot be rolled over. ESOP DIVIDENDS. Cash dividends paid directly to you on employer stock held in an employee stock ownership plan cannot be rolled over. CORRECTIVE DISTRIBUTIONS. A distribution that is made to correct a failed nondiscrimination test or because legal limits on certain contributions were exceeded cannot be rolled over. LOANS TREATED AS DISTRIBUTIONS. The amount of a plan loan that becomes a taxable deemed distribution because of a default cannot be rolled over. However, a loan offset amount is eligible for rollover, as discussed in Part III below. Ask the Plan Administrator of this Plan if distribution of your loan qualifies for rollover treatment. The Plan Administrator of this Plan should be able to tell you if your payment includes amounts which cannot be rolled over. II. DIRECT ROLLOVER A DIRECT ROLLOVER is a direct payment of the amount of your Plan benefits to a traditional IRA or an eligible employer plan that will accept it. You can choose a DIRECT ROLLOVER of all or any portion of your payment that is an eligible rollover distribution, as described in Part I above. You are not taxed on any taxable portion of your payment for which you choose a DIRECT ROLLOVER until you later take it out of the traditional IRA or eligible employer plan. In addition, no income tax withholding is required for any taxable portion of your Plan benefits for which you choose a DIRECT ROLLOVER. This Plan might not let you choose a DIRECT ROLLOVER if your distributions for the year are less than $200. 3 DIRECT ROLLOVER to a Traditional IRA. You can open a traditional IRA to receive the direct rollover. If you choose to have your payment made directly to a traditional IRA, contact an IRA sponsor (usually a financial institution) to find out how to have your payment made in a direct rollover to a traditional IRA at that institution. If you are unsure of how to invest your money, you can temporarily establish a traditional IRA to receive the payment. However, in choosing a traditional IRA, you may wish to make sure that the traditional IRA you choose will allow you to move all or a part of your payment to another traditional IRA at a later date, without penalties or other limitations. See IRS Publication 590, Individual Retirement Arrangements, for more information on traditional IRAs (including limits on how often you can roll over between IRAs). DIRECT ROLLOVER to a Plan. If you are employed by a new employer that has an eligible employer plan, and you want a direct rollover to that plan, ask the plan administrator of that plan whether it will accept your rollover. An eligible employer plan is not legally required to accept a rollover. Even if your new employer's plan does not accept a rollover, you can choose a DIRECT ROLLOVER to a traditional IRA. If the employer plan accepts your rollover, the plan may provide restrictions on the circumstances under which you may later receive a distribution of the rollover amount or may require spousal consent to any subsequent distribution. Check with the plan administrator of that plan before making your decision. DIRECT ROLLOVER of a Series of Payments. If you receive a payment that can be rolled over to a traditional IRA or an eligible employer plan that will accept it, and it is paid in a series of payments for less than 10 years, your choice to make or not make a DIRECT ROLLOVER for a payment will apply to all later payments in the series until you change your election. You are free to change your election for any later payment in the series. CHANGE IN TAX TREATMENT RESULTING FROM A DIRECT ROLLOVER. The tax treatment of any payment from the eligible employer plan or traditional IRA receiving your DIRECT ROLLOVER might be different than if you received your benefit in a taxable distribution directly from the Plan. For example, if you were born before January 1, 1936, you might be entitled to ten-year averaging or capital gain treatment, as explained below. However, if you have your benefit rolled over to a section 403(b) tax-sheltered annuity, a governmental 457 plan, or a traditional IRA in a DIRECT ROLLOVER, your benefit will no longer be eligible for that special treatment. See the sections below entitled "Additional 10% Tax if You Are under Age 59 1/2" and "Special Tax Treatment if You Were Born before January 1, 1936." III. PAYMENT PAID TO YOU If your payment can be rolled over (see Part I above) and the payment is made to you in cash, it is subject to 20% federal income tax withholding on the taxable portion (state tax withholding may also apply). The payment is taxed in the year you receive it unless, within 60 days, you roll it over to a traditional IRA or an eligible employer plan that accepts rollovers. If you do not roll it over, special tax rules may apply. 4 Income Tax Withholding: MANDATORY WITHHOLDING. If any portion of your payment can be rolled over under Part I above and you do not elect to make a DIRECT ROLLOVER, the Plan is required by law to withhold 20% of the taxable amount. This amount is sent to the IRS as federal income tax withholding. For example, if you can roll over a taxable payment of $10,000, only $8,000 will be paid to you because the Plan must withhold $2,000 as income tax. However, when you prepare your income tax return for the year, unless you make a rollover within 60 days (see "Sixty-Day Rollover Option" below), you must report the full $10,000 as a taxable payment from the Plan. You must report the $2,000 as tax withheld, and it will be credited against any income tax you owe for the year. There will be no income tax withholding if your payments for the year are less than $200. VOLUNTARY WITHHOLDING. If any portion of your payment is taxable but cannot be rolled over under Part I above, the mandatory withholding rules described above do not apply. In this case, you may elect not to have withholding apply to that portion. If you do nothing, an amount will be taken out of this portion of your payment for federal income tax withholding. To elect out of withholding, ask the Plan Administrator for the election form and related information. SIXTY-DAY ROLLOVER OPTION. If you receive a payment that can be rolled over under Part I above, you can still decide to roll over all or part of it to a traditional IRA or to an eligible employer plan that accepts rollovers. If you decide to roll over, you must contribute the amount of the payment you received to a traditional IRA or eligible employer plan within 60 days after you receive the payment. The portion of your payment that is rolled over will not be taxed until you take it out of the traditional IRA or the eligible employer plan. You can roll over up to 100% of your payment that can be rolled over under Part I above, including an amount equal to the 20% of the taxable portion that was withheld. If you choose to roll over 100%, you must find other money within the 60-day period to contribute to the traditional IRA or the eligible employer plan, to replace the 20% that was withheld. On the other hand, if you roll over only the 80% of the taxable portion that you received, you will be taxed on the 20% that was withheld. EXAMPLE: The taxable portion of your payment that can be rolled over under Part I above is $10,000, and you choose to have it paid to you. You will receive $8,000, and $2,000 will be sent to the IRS as income tax withholding. Within 60 days after receiving the $8,000, you may roll over the entire $10,000 to a traditional IRA or an eligible employer plan. To do this, you roll over the $8,000 you received from the Plan, and you will have to find $2,000 from other sources (your savings, a loan, etc.). In this case, the entire $10,000 is not taxed until you take it out of the traditional IRA or an eligible employer plan. If you roll over the entire $10,000, when you file your income tax return you may get a refund of part or all of the $2,000 withheld. If, on the other hand, you roll over only $8,000, the $2,000 you did not roll over is taxed in the year it was withheld. When you file your income tax return, you may get a refund of part of the $2,000 withheld. (However, any refund is likely to be larger if you roll over the entire $10,000.) ADDITIONAL 10% TAX IF YOU ARE UNDER AGE 59 1/2. If you receive a payment before you reach age 59 1/2 and you do not roll it over, then, in addition to the regular income tax, you may have to pay an extra tax equal to 10% of the taxable portion of the payment. The additional 10% tax generally does not apply to (1) payments that are paid after you separate from service with your employer during or after the year you reach age 55, (2) payments that are paid because you retire due to disability, (3) payments that are 5 paid as equal (or almost equal) payments over your life or life expectancy (or your and your beneficiary's lives or life expectancies), (4) dividends paid with respect to stock by an employee stock ownership plan (ESOP) as described in Code section 404(k), (5) payments that are paid directly to the government to satisfy a federal tax levy, (6) payments that are paid to an alternate payee under a qualified domestic relations order, or (7) payments that do not exceed the amount of your deductible medical expenses. See IRS Form 5329 for more information on the additional 10% tax. SPECIAL TAX TREATMENT IF YOU WERE BORN BEFORE JANUARY 1, 1936. If you receive a payment from a plan qualified under section 401(a) or a section 403(a) annuity plan that can be rolled over under Part I and you do not roll it over to a traditional IRA or an eligible employer plan, the payment will be taxed in the year you receive it. However, if the payment qualifies as a "lump sum distribution," it may be eligible for special tax treatment. (See also "Employer Stock or Securities", below.) A lump sum distribution is a payment, within one year, of your entire balance under the Plan (and certain other similar plans of the employer) that is payable to you after you have reached age 59 1/2 or because you have separated from service with your employer (or, in the case of a self-employed individual, after you have reached age 59 1/2 or have become disabled). For a payment to be treated as a lump sum distribution, you must have been a participant in the Plan for at least five years before the year in which you received the distribution. The special tax treatment for lump sum distributions that may be available to you is described below. TEN-YEAR AVERAGING. If you receive a lump sum distribution and you were born before January 1, 1936, you can make a one-time election to figure the tax on the payment by using "10-year averaging" (using 1986 tax rates). Ten-year averaging often reduces the tax you owe. There are other limits on the special tax treatment for lump sum distributions. For example, you can generally elect this special tax treatment only once in your lifetime, and the election applies to all lump sum distributions that you receive in that same year. You may not elect this special tax treatment if you rolled amounts into this Plan from a 403(b) tax-sheltered annuity contract, a governmental 457 plan, or from an IRA not originally attributable to a qualified employer plan. If you have previously rolled over a distribution from this Plan (or certain other similar plans of the employer), you cannot use this special averaging treatment for later payments from the Plan. If you roll over your payment to a traditional IRA, governmental 457 plan, or 403(b) tax-sheltered annuity, you will not be able to use special tax treatment for later payments from that IRA, plan, or annuity. Also, if you roll over only a portion of your payment to a traditional IRA, governmental 457 plan, or 403(b) tax-sheltered annuity, this special tax treatment is not available for the rest of the payment. See IRS Form 4972 for additional information on lump sum distributions and how you elect the special tax treatment. EMPLOYER STOCK OR SECURITIES. There is a special rule for a payment from the Plan that includes employer stock (or other employer securities). To use this special rule, 1) the payment must qualify as a lump sum distribution, as described above, except that you do not need five years of plan participation, or 2) the employer stock included in the payment must be attributable to "after-tax" employee contributions, if any. Under this special rule, you may have the option of not paying tax on the "net unrealized appreciation" of the stock until you sell the stock. Net unrealized appreciation generally is the increase in the value of the employer stock while it was held by the Plan. For example, if employer stock was contributed to your Plan account when the stock was worth $1,000 but the stock was worth $1,200 when you received it, you would not have to pay tax on the $200 increase in value until you later sold the stock. You may instead elect not to have the special rule apply to the net unrealized appreciation. In this case, your net unrealized appreciation will be taxed in the year you receive the stock, unless you roll over the stock. The stock can be rolled over to a traditional IRA or another eligible employer plan, either in a 6 direct rollover or a rollover that you make yourself. Generally, you will no longer be able to use the special rule for net unrealized appreciation if you roll the stock over to a traditional IRA or another eligible employer plan. If you receive only employer stock in a payment that can be rolled over, no amount will be withheld from the payment. If you receive cash or property other than employer stock, as well as employer stock, in a payment that can be rolled over, the 20% withholding amount will be based on the entire taxable amount paid to you (including the value of the employer stock determined by excluding the net unrealized appreciation). However, the amount withheld will be limited to the cash or property (excluding employer stock) paid to you. If you receive employer stock in a payment that qualifies as a lump sum distribution, the special tax treatment for lump sum distributions described above (such as 10-year averaging) also may apply. See IRS Form 4972 for additional information on these rules. REPAYMENT OF PLAN LOANS. If your employment ends and you have an outstanding loan from your Plan, your employer may reduce (or "offset") your balance in the Plan by the amount of the loan you have not repaid. The amount of your loan offset is treated as a distribution to you at the time of the offset and will be taxed unless you roll over an amount equal to the amount of your loan offset to another qualified employer plan or a traditional IRA within 60 days of the date of the offset. If the amount of your loan offset is the only amount you receive or is treated as having received, no amount will be withheld from it. If you receive other payments of cash or property from the Plan, the 20% withholding amount will be based on the entire amount paid to you, including the amount of the loan offset. The amount withheld will be limited to the amount of other cash or property paid to you (other than any employer securities). The amount of a defaulted plan loan that is a taxable deemed distribution cannot be rolled over. IV. SURVIVING SPOUSES, ALTERNATE PAYEES, AND OTHER BENEFICIARIES In general, the rules summarized above that apply to payments to employees also apply to payments to surviving spouses of employees and to spouses or former spouses who are "alternate payees." You are an alternate payee if your interest in the Plan results from a "qualified domestic relations order," which is an order issued by a court, usually in connection with a divorce or legal separation. If you are a surviving spouse or an alternate payee, you may choose to have a payment that can be rolled over, as described in Part I above, paid in a DIRECT ROLLOVER to a traditional IRA or to an eligible employer plan or paid to you. If you have the payment paid to you, you can keep it or roll it over yourself to a traditional IRA or to an eligible employer plan. Thus, you have the same choices as the employee. If you are a beneficiary other than a surviving spouse or an alternate payee, you cannot choose a direct rollover, and you cannot roll over the payment yourself. If you are a surviving spouse, an alternate payee, or another beneficiary, your payment is generally not subject to the additional 10% tax described in Part III above, even if you are younger than age 59 1/2. If you are a surviving spouse, an alternate payee, or another beneficiary, you may be able to use the special tax treatment for lump sum distributions and the special rule for payments that include employer stock, as described in Part III above. If you receive a payment because of the employee's death, 7 you may be able to treat the payment as a lump sum distribution if the employee met the appropriate age requirements, whether or not the employee had 5 years of participation in the Plan. HOW TO OBTAIN ADDITIONAL INFORMATION This notice summarizes only the federal (not state or local) tax rules that might apply to your payment. The rules described above are complex and contain many conditions and exceptions that are not included in this notice. Therefore, you may want to consult with the Plan Administrator or a professional tax advisor before you take a payment of your benefits from your Plan. Also, you can find more specific information on the tax treatment of payments from qualified employer plans in IRS Publication 575, Pension and Annuity Income, and IRS Publication 590, Individual Retirement Arrangements. These publications are available from your local IRS office, on the IRS's Internet Web Site at www.irs.gov, or by calling 1-800-TAX-FORMS. 8 EX-99 19 ex99-2.txt OPINION OF FINPRO, INC. September 15, 2003 Boards of Directors Synergy, MHC Synergy Financial Group, Inc. Synergy Bank 310 North Avenue East Cranford, NJ 07016 Dear Board Members: All capitalized terms not otherwise defined in this letter have the meanings given such terms in the Plan of Conversion, as amended (the "Plan") adopted by the Board of Directors of Synergy, MHC (the "Company"). Synergy Financial Group, Inc. is offering common stock for sale in connection with the conversion of the Company from the mutual to the stock form of organization. The shares being offered represent the ownership interest in Synergy Financial Group, Inc. now owned by the Company. The existing publicly held shares of Synergy Financial Group, Inc. will be exchanged for new shares of common stock of Synergy Financial Group, Inc. All shares offered for sale are offered at a price of $10.00 per share. We understand that in accordance with the Plan, subscription rights to purchase shares of the Conversion Stock are to be issued to (i) Eligible Account Holders; (ii) Tax Qualified Plans; (iii) Supplemental Eligible Account Holders; and (iv) Other Members together collectively referred to as the "Recipients". Based solely on our observation that the subscription rights will be available to such Recipients without cost, will be legally non-transferable and of short duration, and will afford the Recipients the right only to purchase shares of Conversion Stock at the same price as will be paid by members of the general public in the Direct Community Offering, if any, but without undertaking any independent investigation of state or federal law or the position of the Internal Revenue Service with respect to this issue, we are of the belief that: (1) the subscription rights will have no ascertainable market value; and (2) the price at which the subscription rights are exercisable will not be more or less than the pro forma market value of the shares upon issuance. Changes in the local and national economy, the legislative and regulatory environment, the stock market, interest rates, and other external forces (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability and may materially impact the value of thrift stocks as a whole or the Company's value alone. Accordingly, no assurance can be given that persons who subscribe to shares of Conversion Stock in the Conversion will thereafter be able to buy or sell such shares at the same price paid in the Subscription Offering. Very Truly Yours, /s/FinPro, Inc. FinPro, Inc. -----END PRIVACY-ENHANCED MESSAGE-----