10-Q 1 f10q-033105_0207.txt FORM SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MarkOne) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended: March 31, 2005 -------------- [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to ________ SEC File Number: 000-50467 --------- SYNERGY FINANCIAL GROUP, INC. ---------------------------------------------------- (Exact name of registrant as specified in its charter) New Jersey 52-2413926 -------------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 310 North Avenue East, Cranford, New Jersey 07016 ------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (908) 272-3838 ------------------------------------------------------------ (Registrant's telephone number, including area code) Check whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Number of shares outstanding of common stock as of May 10, 2005: $0.10 Par Value Common Stock 12,385,262 ------------------------------------ ---------------- Class Shares Outstanding SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page ------ --------------------- ---- Item 1. Financial Statements Consolidated Balance Sheets as of March 31, 2005 (unaudited) and December 31, 2004 (audited).....................................................................1 Consolidated Statements of Income for the three months ended March 31, 2005 and 2004 (unaudited).............................................................2 Consolidated Statement of Changes in Stockholders' Equity for the three months ended March 31, 2005 (unaudited)...................................................3 Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004 (unaudited).............................................................4 Notes to Consolidated Financial Statements (unaudited)..............................................5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................................13 Item 3. Quantitative and Qualitative Disclosures about Market Risk.........................................21 Item 4. Controls and Procedures............................................................................22 PART II OTHER INFORMATION ------- ----------------- Item 1. Legal Proceedings..................................................................................23 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds........................................23 Item 3. Defaults Upon Senior Securities....................................................................24 Item 4. Submission of Matters to a Vote of Security Holders................................................24 Item 5. Other Information..................................................................................24 Item 6. Exhibits...........................................................................................24 Signatures.......................................................................................................25
SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands)
March 31, December 31, 2005 2004 (unaudited) (audited) ----------- --------- Assets: Cash and amounts due from banks $ 4,097 $ 4,687 Interest-bearing deposits with banks 2,286 1,759 ----------- ----------- Cash and cash equivalents 6,383 6,446 Investment securities available-for-sale, at fair value 126,290 134,360 Investment securities held-to-maturity (fair value of $116,586 and $111,154, respectively) 117,573 110,584 Federal Home Loan Bank of New York stock, at cost 11,250 10,771 Loans receivable, net 596,886 561,687 Accrued interest receivable 2,991 2,751 Property and equipment, net 17,261 16,814 Cash surrender value of bank-owned life insurance 12,760 12,637 Other assets 4,856 4,627 ----------- ----------- Total assets $ 896,250 $ 860,677 =========== =========== Liabilities: Deposits $ 566,882 $ 538,916 Federal Home Loan Bank advances 220,570 212,414 Advance payments by borrowers for taxes and insurance 1,840 1,702 Accrued interest payable on advances 412 385 Dividend payable 498 498 Other liabilities 3,232 2,720 ----------- ----------- Total liabilities 793,434 756,635 ----------- ----------- Stockholders' equity: Preferred stock; $.10 par value, 5,000,000 shares authorized; issued and outstanding - none - - Common stock; $.10 par value, 20,000,000 shares authorized; 12,452,011 shares issued; outstanding shares at March 31, 2005 - 12,385,262, and December 31, 2004 - 12,452,011 1,245 1,245 Additional paid-in-capital 86,321 86,177 Retained earnings 31,210 30,603 Unearned ESOP shares (5,792) (5,962) Unearned RSP compensation (3,189) (3,391) Treasury stock acquired for the RSP (5,109) (4,343) Treasury stock, at cost; 66,749 and -0- shares at March 31, 2005 and December 31, 2004, respectively (804) - Accumulated other comprehensive income (loss), net of taxes (1,066) (287) ----------- ----------- Total stockholders' equity 102,816 104,042 ----------- ----------- Total liabilities and stockholders' equity $ 896,250 $ 860,677 =========== ===========
The accompanying notes are an integral part of these statements. -1- SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Income (In thousands, except per share data)
For the Three Months Ended March 31, --------------- 2005 2004 (unaudited) (unaudited) ----------- ----------- Interest income: Loans, including fees $ 8,174 $ 6,700 Investment securities 2,270 1,510 Other 91 22 --------- -------- Total interest income 10,535 8,232 --------- -------- Interest expense: Deposits 2,720 2,095 Borrowed funds 1,793 476 --------- -------- Total interest expense 4,513 2,571 --------- -------- Net interest income before provision for loan losses 6,022 5,661 --------- -------- Provision for loan losses 445 368 --------- -------- Net interest income after provision for loan losses 5,577 5,293 --------- -------- Other income: Service charges and other fees on deposit accounts 509 484 Net gain on sale of loans - - Net gain on sale of investments - - Commissions 248 15 Other 208 189 --------- -------- Total other income 965 688 --------- -------- Other expenses: Salaries and employee benefits 2,643 2,255 Premises and equipment 872 981 Occupancy 524 473 Professional services 195 128 Advertising 207 176 Other operating 282 299 --------- -------- Total other expenses 4,723 4,312 --------- -------- Income before income tax expense 1,819 1,669 --------- -------- Income tax expense 699 664 --------- -------- Net income $ 1,120 $ 1,005 ========= ======== Per share of common stock: Basic earnings per share $ 0.10 $ 0.10 Diluted earnings per share $ 0.10 $ 0.10 Basic weighted average shares outstanding 11,231,081 10,086,963 Diluted weighted average shares outstanding 11,679,829 10,312,989
The accompanying notes are an integral part of these statements. -2- SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Statement of Changes in Stockholders' Equity For the Three Months Ended March 31, 2005 (Unaudited) (Dollars in thousands, except share amounts)
Common Stock ------------ Additional Unearned Unearned Shares Par paid-in- Retained ESOP RSP issued value capital earnings shares compensation ----------------------------------------------------------------------- BALANCE AT JANUARY 1, 2005 12,452,011 $1,245 $86,177 $30,603 $(5,962) $(3,391) Net income - - - 1,120 - - Other comprehensive income, net of reclassification adjustment and taxes - - - - - - ------------------------------------------------------------------------------------------------------ Total comprehensive income ------------------------------------------------------------------------------------------------------ Dividends declared - - - (513) - - Common stock held by ESOP committed to be released (24,906 shares) - - 144 - 170 - Compensation recognized under RSP Plan - - - - - 202 Common stock repurchased for RSP Plan (63,851 shares) - - - - - - Purchase of treasury stock (66,749 shares) - - - - - - ----------------------------------------------------------------------- BALANCE AT MARCH 31, 2005 12,452,011 $1,245 $86,321 $31,210 $(5,792) $(3,189) ======================================================================= Treasury Other stock accumulated acquired comprehensive for the Treasury income (loss), RSP stock net TOTAL -------------------------------------------------------------- BALANCE AT JANUARY 1, 2005 $(4,343) $ -0- $ (287) $104,042 Net income - - - 1,120 Other comprehensive income, net of reclassification adjustment and taxes - - (779) (779) --------------------------------------------------------------------------------------------- Total comprehensive income 341 --------------------------------------------------------------------------------------------- Dividends declared - - - (513) Common stock held by ESOP committed to be released (24,906 shares) - - - 314 Compensation recognized under RSP Plan - - - 202 Common stock repurchased for RSP Plan (63,851 shares) (766) - - (766) Purchase of treasury stock (66,749 shares) - (804) - (804) ---------------------------------------------------------------- BALANCE AT MARCH 31, 2005 $(5,109) $(804) $(1,066) $102,816 ================================================================
The accompanying notes are an integral part of these statements. -3- SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands)
For the Three Months Ended March 31, --------------- 2005 2004 (unaudited) (unaudited) ----------- ----------- Operating activities Net income $ 1,120 $ 1,005 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 369 369 Provision for loan losses 445 368 Deferred income taxes (450) 73 Amortization of deferred loan fees (20) (5) Amortization of premiums on investment securities 231 284 Release of ESOP shares 314 263 Compensation under RSP plan 202 60 Increase in accrued interest receivable (240) (261) Decrease in other assets 221 57 (Decrease) increase in other liabilities (715) 1,580 Increase in cash surrender value of bank-owned life insurance (123) (90) Increase in accrued interest payable on advances 27 38 ------ ------- Net cash provided by operating activities 1,381 3,741 ------ ------- Investing activities Purchase of investment securities held-to-maturity (12,536) (14,269) Purchase of investment securities available-for-sale (2,047) (38,708) Maturity and principal repayments of investment securities held-to-maturity 5,486 2,563 Maturity and principal repayments of investment securities available-for-sale 9,166 7,775 Purchase of property and equipment (815) (336) Purchase of FHLB Stock (480) (604) Loan originations, net of principal repayments (33,367) (13,687) Purchase of loans (2,257) (811) ------ -------- Net cash used in investing activities (36,850) (58,077) ------- -------- Financing activities Net increase in deposits 27,966 21,936 Increase in short-term advances from FHLB 17,522 2,796 (Decrease) increase in long-term advances from FHLB (9,366) 9,283 Increase in advance payments by borrowers for taxes and insurance 137 106 Dividends paid (498) - Decrease in stock subscriptions payable - (38,322) Net proceeds from issuance of common stock - 69,262 Purchase of common stock for ESOP - (5,628) Purchase of treasury stock for the RSP Plan (355) (759) ------ --------- Net cash provided by financing activities 35,406 58,674 ------ --------- Net (decrease) increase in cash and cash equivalents (63) 4,338 Cash and cash equivalents at beginning of year 6,446 7,292 ------ ------- Cash and cash equivalents at end of period $ 6,383 $ 11,630 ======= ======== Supplemental disclosure of cash flow information Cash paid during the period for income taxes $ 771 $ 925 ======= ======== Interest paid on deposits and borrowed funds $ 4,398 $ 2,714 ======= ========
The accompanying notes are an integral part of these statements. -4- SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 1. BASIS OF FINANCIAL STATEMENT PRESENTATION The accounting policies followed by Synergy Financial Group, Inc. (the "Company") conform to accounting principles generally accepted in the United States of America and to predominant practice within the banking industry. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Synergy Bank (the "Bank"), and its subsidiary Synergy Capital Investments, Inc, and Synergy Financial Services, Inc. All significant inter-company accounts and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements were prepared in accordance with instructions to Form 10-Q, and therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations, changes in equity and cash flows in conformity with accounting principles generally accepted in the United States of America. However, all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the consolidated financial statements have been included. These financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes thereto included in the Company's Annual Report on Form 10-K for the period ended December 31, 2004. The results for the three months ended March 31, 2005 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2005 or any other period. 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 analysis, may vary from estimated losses. Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures About Segments of an Enterprise and Related Information, establishes standards for the way business enterprises report information about operating segments in annual financial statements. The Bank has one operating segment and, accordingly, has one reportable segment, "Community Banking." All of the Bank's activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Bank supports the others. For example, commercial lending is dependent upon the ability of the Bank to fund itself with retail deposits and other borrowings and to manage interest rate and credit risk. This situation is also similar for consumer, residential, multi-family and non-residential mortgage lending. Accordingly, all significant operating decisions are based upon analysis of the Bank as one operating segment. -5- SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 2. 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 re-acquired during any period are weighted for the portion of the period that they were outstanding. The computation of both basic and diluted earnings per share includes the Employee Stock Ownership Plan ("ESOP") shares previously allocated to participants and shares committed to be released for allocation to participants and restricted stock plans ("RSP") shares that have vested or have been allocated to participants. ESOP and RSP shares that have been purchased but not committed to be released have not been considered in computing basic and diluted earnings per share. The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computation for the three months ended March 31, 2005 (dollars in thousands, except per share data):
Weighted Income average shares Per (numerator) (denominator) share amount --------------- ----------------- --------------- Basic earnings per share: Income available to common stockholders $ 1,120 11,231,081 $ 0.10 Effect of dilutive common stock equivalents 448,748 0.00 ------- ------------ ------- Diluted earnings per share: Income available to common stockholders $ 1,120 11,679,829 $ 0.10 ========= ============ ========
-6- SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computation for the three months ended March 31, 2004 (dollars in thousands, except per share data):
Weighted Income average shares Per (numerator) (denominator) share amount --------------- ----------------- --------------- Basic earnings per share: Income available to common stockholders $ 1,005 10,086,963 $ 0.10 Effect of dilutive common stock equivalents 226,026 0.00 ------- ------------ ------- Diluted earnings per share: Income available to common stockholders $ 1,005 10,312,989 $ 0.10 ======== ============ ========
3. STOCK-BASED COMPENSATION The Company's stock option plans and the restricted stock plans are accounted for in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and released Interpretations. Accordingly, no compensation expense has been recognized for the stock option plans. Expense for the restricted stock plans in the amount of the fair value of the common stock at the date of grant is recognized ratably over the vesting period. Prior to April 22, 2003, the Company did not have a stock option plan or a restricted stock plan. Had an expense for the Company's stock option plans been determined based on the fair value at the grant date for the Company's stock options consistent with the method outlined in SFAS No. 123, the Company's net income and earnings per share for all expenses related to stock options and stock granted in its restricted stock plans would have been reduced to the pro forma amounts that follow (in thousands, except per share data):
For the Three Months ended March 31, --------------- 2005 2004 (unaudited) (unaudited) ----------- ----------- Net income, as reported $ 1,120 $ 1,005 Add expense recognized for the restricted stock plans, net of related tax effect 130 36 Less total stock option plan and restricted stock plan expense, determined under the fair value method, net of related tax effect (294) (84) ------- ------- Net income, pro forma $ 956 $ 957 ======== ======== Basic earnings per share: As reported $ 0.10 $ 0.10 Pro forma $ 0.09 $ 0.09 Diluted earnings per share: As reported $ 0.10 $ 0.10 Pro forma $ 0.08 $ 0.09
-7- SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) The fair value of each option grant is estimated on the date of grant using the Black-Scholes options price model. The following weighted average assumptions were utilized for grants in 2003: dividend yield of 0.00%; expected volatility of 29.44 %; risk-free interest rate of 3.01%; and, expected life of five years. The following weighted average assumptions were utilized for grants in 2004: dividend yield of 1.60%; expected volatility of 32.85%; risk-free interest rate of 3.33%; and, expected life of five years. The Company has established an Employee Stock Ownership Plan ("ESOP") covering eligible employees with one year of service, as defined by the ESOP. The Company accounts for the ESOP in accordance with the American Institute of Certified Public Accountants' Statement of Position (SOP) No. 93-6, Employers' Accounting for Employee Stock Ownership Plans. SOP No. 93-6 addresses the accounting for shares of stock issued to employees by an ESOP. SOP No. 93-6 requires that the employer record compensation expense in the amount equal to the fair value of shares committed to be released from the ESOP to employees. Compensation expense for the ESOP is recorded at an amount equal to the shares allocated by the ESOP multiplied by the average fair market value of the shares during the year. The Company recognizes compensation expense ratably over the year for the ESOP shares to be allocated based upon the Company's current estimate of the number of shares expected to be allocated by the ESOP during each calendar year. The difference between the average fair market value and the cost of the shares allocated by the ESOP is recorded as an adjustment to additional paid-in-capital. 4. RECENT ACCOUNTING PRONOUNCEMENTS In December 2004, the Financial Accounting Standards Board (the "FASB") issued a Statement No. 123(R), Share-Based Payment an Amendment of FASB Statements No. 123 and APB No. 25, that addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise's equity instruments or that may be settled by the issuance of such equity instruments. Under FASB Statement No. 123(R), all forms of share-based payments to employees, including employee stock options, would be treated the same as other forms of compensation by recognizing the related cost in the income statement. The expense of the award would generally be measured at fair value at the grant date. Current accounting guidance requires that the expense relating to so-called fixed plan employee stock options only be disclosed in the footnotes to the financial statements. The Statement would eliminate the ability to account for share-based compensation transactions using APB Opinion No. 25, Accounting for Stock Issued to Employees. This statement is effective for public entities that do not file as small business issuers as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. The Company is currently evaluating this statement and its effects on the Company's results of operations. On March 29, 2005, the SEC released Staff Accounting Bulletin 107, Share Based Payments (SAB 107). The interpretations in SAB 107 express views of the SEC staff regarding the application of Statement No. 123(R). Among other things, SAB 107 provides interpretive guidance related to the interaction between Statement 123(R) and certain SEC rules and regulations, as well as provides the staff's views regarding the valuation of share-based payment arrangements for public companies. The Company is evaluating the impact that the implementation of SAB 107 and Statement 123(R) will have on future option grants. -8- SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) In December 2003, the American Institute of Certified Public Accountants (the "AICPA") issued Statement of Position (SOP) 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer. SOP 03-3 requires acquired loans, including debt securities, to be recorded at the amount of the purchaser's initial investment and prohibits carrying over valuation allowances from the seller for those individually-evaluated loans that have evidence of deterioration in credit quality since origination, and it is probable all contractual cash flows on the loan will be unable to be collected. SOP 03-3 also requires the excess of all undiscounted cash flows expected to be collected at acquisition over the purchaser's initial investment to be recognized as interest income on a level-yield basis over the life of the loan. Subsequent increases in cash flows expected to be collected are recognized prospectively through an adjustment of the loan's yield over its remaining life, while subsequent decreases are recognized as impairment. Loans carried at fair value, mortgage loans held for sale, and loans to borrowers in good standing under revolving credit agreements are excluded from the scope of SOP 03-3. The guidance is effective for loans acquired in fiscal years beginning after December 15, 2004. The implementation of SOP 03-3 on January 1, 2005 did not have a material impact on financial condition, results of operations, or liquidity of the Company. -9- SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 5. INVESTMENT SECURITIES The amortized cost, gross unrealized gains and losses, and fair value of the Company's investment securities available for sale and held to maturity are as follows (in thousands):
March 31, 2005 (unaudited) --------------------------------------------------------- Gross Gross Amortized unrealized unrealized Fair cost gains losses value --------------------------------------------------------- Available-for-sale ------------------ U.S. government obligations $ 1,999 $ - $ (86) $ 1,913 Mortgage-backed securities: FHLMC 77,334 48 (1,177) 76,205 FNMA 47,604 78 (489) 47,193 Equity securities 1,029 7 (57) 979 --------- ------- ------- --------- Total $ 127,966 $ 133 $ (1,809) $ 126,290 ========== ======== ======== ==========
March 31, 2005 (unaudited) --------------------------------------------------------- Gross Gross Amortized unrealized unrealized Fair cost gains losses value --------------------------------------------------------- Held-to-maturity ---------------- Mortgage-backed securities: FHLMC $ 49,333 $ 123 $ (724) $ 48,732 FNMA 64,438 144 (543) 64,039 GNMA 3,792 19 (6) 3,805 Other debt securities 10 - - 10 --------- ------- ------ --------- Total $ 117,573 $ 286 $ (1,273) $ 116,586 ========== ======== ======= ==========
December 31, 2004 --------------------------------------------------------- Gross Gross Amortized unrealized unrealized Fair cost gains losses value --------------------------------------------------------- Available-for-sale ------------------ U.S. government obligations $ 2,500 $ - $ (57) $ 2,443 Mortgage-backed securities: FHLMC 82,597 208 (475) 82,330 FNMA 48,684 123 (213) 48,594 Equity securities 1,029 9 (45) 993 --------- ------- ------ --------- Total $ 134,810 $ 340 $ (790) $ 134,360 ========== ======== ======= ==========
-10- SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited)
December 31, 2004 --------------------------------------------------------- Gross Gross Amortized unrealized unrealized Fair cost gains losses value --------------------------------------------------------- Held-to-maturity ---------------- Mortgage-backed securities: FHLMC $ 47,360 $ 229 $ (256) $ 47,333 FNMA 59,121 668 (124) 59,665 GNMA 4,093 53 - 4,146 Other debt securities 10 - - 10 --------- ------- ------ --------- Total $ 110,584 $ 950 $ (380) $ 111,154 ========== ======== ======= ==========
6. LOANS RECEIVABLE Major groupings of loans are as follows (in thousands):
March 31, December 31, 2005 2004 ------------------------------------------ Mortgages: Residential, 1-4 family $ 245,185 $ 243,772 Residential, multi-family 46,467 45,921 Construction loans 6,308 5,792 Non-residential 120,563 108,305 Automobile 168,221 146,148 Commercial 11,063 12,208 Other loans 3,522 3,720 --------- --------- Loans receivable 601,329 565,866 Deferred loan fees and costs 262 248 Allowance for loan losses (4,705) (4,427) --------- --------- Loans receivable, net $ 596,886 $ 561,687 ========== ==========
A summary of the activity in the allowance for loan losses is as follows (in thousands):
Three Months Ended -------------------------------------------- March 31, March 31, 2005 2004 -------------------------------------------- Balance, beginning of period $ 4,427 $ 3,274 Provision for loan losses 445 368 Recoveries 70 91 Loans charged-off (237) (260) --------- --------- Balance, end of period $ 4,705 $ 3,473 ========== ==========
-11- SYNERGY FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 7. DEPOSITS Deposits are summarized as follows (in thousands):
March 31, December 31, 2005 2004 -------------------------------------------- Non-interest bearing checking accounts $ 59,134 $ 52,019 Interest-bearing checking 2,732 3,946 Savings and club accounts 69,779 67,115 Money market accounts 161,589 163,091 Certificate of deposit accounts 273,648 252,745 --------- --------- $ 566,882 $ 538,916 ========== ==========
8. FEDERAL HOME LOAN BANK ("FHLB") OF NEW YORK ADVANCES 1. Short-term FHLB Advances Short-term FHLB advances generally have maturities of less than one year. The details of these advances are presented below (in thousands, except percentages):
At or For The -------------------------------------------- Three Months Twelve Months Ended Ended March 31, December 31, 2005 2004 -------------------------------------------- Average balance outstanding $ 36,190 $ 33,618 Maximum amount outstanding at any month end during the period 41,797 48,975 Balance outstanding at period end 35,922 31,025 Weighted average interest rate during the period 2.78% 1.61% Weighted average interest rate at period end 2.98% 2.42%
2. Long-term FHLB Advances At March 31, 2005, long-term advances from the FHLB totaled $184,648,000. Advances consist of fixed-rate advances that will mature within one to nine years. The advances are collateralized by FHLB stock and certain first mortgage loans and mortgage-backed securities. These advances had a weighted average interest rate of 4.23%. As of March 31, 2005, long-term FHLB advances mature as follows (in thousands): 2005 $ 40,198 2006 42,150 2007 38,000 2008 29,600 2009 12,000 Thereafter 22,700 --------- $ 184,648 ========= -12- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General Management's discussion and analysis of financial condition and results of operations is intended to provide assistance in understanding our consolidated financial condition and results of operations. The information in this section should be read with the consolidated interim financial statements and the notes thereto included in this Form 10-Q. Our results of operations are primarily dependent on our net interest income. Net interest income is a function of the balances of interest-earning assets outstanding in any one period, the yields earned on those assets and the interest paid on deposits and borrowed funds that were outstanding in that same period. To a lesser extent, our results of operations are also affected by the relative levels of our other income and other expenses. Our other income consists primarily of fees and service charges and gains (losses) on the sale of loans and investments. The other expenses consist primarily of employee compensation and benefits, occupancy and equipment expenses, data processing costs, marketing costs, professional fees, office supplies, telephone and postage costs. Our results of operations are also significantly impacted by the amount of provisions for loan and lease losses which, in turn, are dependent upon, among other things, the size and makeup of the loan portfolio, loan quality and loan trends. Forward-Looking Statements This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21 E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995, and is including this statement for the purpose of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, changes in interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area and accounting principles and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially effect the Company's financial results, is included in the Company's filings with the Securities and Exchange Commission (the "SEC"). The Company does not undertake - and specifically disclaims any obligation - to release publicly the results of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. -13- Critical Accounting Policies, Judgments and Estimates The accounting and reporting policies of the Company conform with the accounting principles generally accepted in the United States of America and general practices within the financial services industry. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. Allowance for Loan Losses. The Company recognizes 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 and lease losses may be required that would adversely impact earnings in future periods. Intangible Assets. Intangible assets, such as goodwill and the core deposit intangible associated with the January 2003 acquisition of First Bank of Central Jersey, are subject to annual impairment tests and, in the case of the core deposit intangible, amortization of the asset through a charge to expense. To the extent the outcome of the impairment tests differ from the carrying value, additional charges to expense could be required to reduce the carrying value, which would adversely impact earnings in future periods. Income Taxes. Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities. Deferred tax assets are subject to management's judgment based upon available evidence that future realization is more likely than not. If management determines that the Company may be unable to realize all or part of the net deferred tax assets in the future, a direct charge to income tax expense may be required to reduce the recorded value of the net deferred tax assets to the expected realizable amount, thereby impacting earnings. Comparison of Financial Condition at March 31, 2005 and December 31, 2004 Assets. Total assets reached $896.3 million on March 31, 2005, an increase of 4.1%, or $35.6 million, from $860.7 million on December 31, 2004. This growth is primarily attributable to increases in the loan portfolio, offset by a decrease in investment securities, during the three month period. Between December 31, 2004 and March 31, 2005, investment securities decreased $1.1 million, or 0.4%, from $244.9 million to $243.8 million. This decrease primarily reflects $14.6 million in purchases offset by $14.7 million in maturities and principal repayments, along with $1.1 million in net discount and premium amortization. Additionally, there was a $780,000 decrease in the unrealized market value associated with investment securities designated available-for-sale. Net loans increased 6.3%, or $35.2 million, to $596.9 million at March 31, 2005, from $561.7 million at December 31, 2004. This growth includes $33.4 million in originations, net of principal repayments, and $2.3 million in purchases, offset by amortization of the premium on purchased loans and deferred loan fees, along with a provision of $445,000 to the allowance for loan losses. The most significant growth during the three months ended March 31, 2005 was in automobile loans, which increased by $22.1 million, or 15.1%, to $168.2 million and multi-family and non-residential mortgage loans, which increased by $12.8 million, or 8.3%, to $167.0 million. -14- On March 31, 2005, total loans of $601.3 million were comprised of 22.0% in one-to-four family real estate loans, 18.8% in home equity loans, 27.8% in multi-family and non-residential mortgage loans, 28.6% in consumer loans, comprised mostly of direct automobile loans for both new and used vehicles, 1.8% in commercial loans and 1.0% in construction loans. The allowance for loan losses was $4.7 million at March 31, 2005, compared to $4.4 million at December 31, 2004. The ratio of allowance to total loans was 0.78% for both periods. This reflects a provision for loan losses of $445,000 for the three-month period, offset by net charge-offs of $167,000. Non-performing assets to total assets was 0.04% at March 31, 2005, compared to 0.03% at December 31, 2004. Liabilities. Total liabilities increased $36.8 million, or 4.9%, to $793.4 million at March 31, 2005, from $756.6 million at December 31, 2004. The increase in total liabilities resulted primarily from an increase of $28.0 million, or 5.2%, in deposits and an $8.2 million, or 3.8%, increase in FHLB advances. The balance of the change is attributable to increases associated with escrow payments for taxes and insurance, accrued interest payable and the establishment of an obligation as a result of the March 22, 2005 quarterly cash dividend declaration. Deposits reached $566.9 million at March 31, 2005, an increase of $28.0 million, or 5.2%, from the $538.9 million reported at December 31, 2004. Core deposits, consisting of checking, savings and money market accounts, increased $7.1 million, or 2.5 percent, and represented 51.7% of total deposits at March 31, 2005, compared to 53.1% at December 31, 2004. The majority of deposit growth consisted of an increase in certificate of deposit accounts of $20.9 million, or 8.3%, for the three months ended March 31, 2005. This increase was primarily the result of competitive pricing initiatives to attract funds with extended maturities in response to the current interest rate trend. The $8.2 million, or 3.8%, increase in FHLB advances was to fund both the purchase of investment securities and the origination of loans during this period. Equity. Stockholders' equity totaled $102.8 million on March 31, 2005, a decrease of 1.2 %, or $1.2 million, from $104.0 million on December 31, 2004. The decrease in stockholders' equity is largely attributable to the repurchase of shares to satisfy the Company's restricted stock plans and the stock repurchase program announced on January 26, 2005, as well as the accumulated effect, net of tax, of an unrealized investment portfolio market value adjustment, offset by net income for the quarter. Additionally, on March 22, 2005, the Company's Board of Directors declared a cash dividend of $0.04 per common share, consistent with the prior quarterly dividend. The dividend was payable on April 29, 2005 to stockholders of record on April 15, 2005. A $498,000 reduction in retained earnings was recorded in connection with this dividend. The repurchase of shares associated with the Company's restricted stock plans and the stock repurchase program announced on January 26, 2005 resulted in reductions in equity of $766,000 and $804,000, respectively. The decrease in accumulated other comprehensive income, net of tax effect, totaled $779,000. -15- Average Balance Sheet. The following table sets forth certain information for the three months ended March 31, 2005 and 2004. The average yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances are derived from daily average balances. The table does not include the allowance for loan losses in the average balances of loans receivable. Management does not believe that this causes any material differences in the information presented.
For the Three Months Ended March 31, --------------------------------------------------------------------------- 2005 2004 --------------------------------------------------------------------------- Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost ------- -------- ---------- ------- --------- ---------- Interest-earning assets: Loans receivable, net(1) $579,415 $8,174 5.64% $442,045 $6,700 6.06% Securities(2) 241,378 2,270 3.76 174,772 1,510 3.46 Other interest-earning assets(3) 12,894 91 2.82 3,702 22 2.38 -------- ------ -------- ------ Total interest-earning assets 833,687 10,535 5.05 620,519 8,232 5.31 Non-interest-earning assets 40,974 35,858 -------- -------- Total assets $874,661 $656,377 ======== ======== Interest-bearing liabilities: Checking accounts(4) $52,270 $13 0.10 $44,874 $2 0.02 Savings and club accounts 66,185 82 0.50 70,031 87 0.50 Money market accounts 157,082 769 1.96 145,121 605 1.67 Certificates of deposit 263,026 1,856 2.82 217,417 1,401 2.58 FHLB advances 226,889 1,793 3.16 68,158 453 2.66 Stock subscriptions payable - - 0.00 23,207 23 0.40 -------- ------ -------- ------ Total interest-bearing liabilities 765,452 4,513 2.36 568,808 2,571 1.81 ------ ------ Non-interest-bearing liabilities 4,977 3,193 -------- -------- Total liabilities 770,429 572,001 Stockholders' equity 104,232 84,376 -------- -------- Total liabilities and stockholders' equity $874,661 $656,377 ======== ======== Net interest income $6,022 $5,661 ====== ====== Interest rate spread(5) 2.69% 3.50% Net yield on interest-earning assets(6) 2.89% 3.65% Ratio of average interest-earning assets to average interest-bearing liabilities 108.91% 109.09%
_______________________________ (1) Non-accruing loans have been included in loans receivable, and the effect of such inclusion was not material. (2) Includes U.S. government obligations, mortgage-backed securities and interest-bearing deposits in banks. (3) Includes FHLB stock at cost and term deposits with other financial institutions. (4) Includes both interest-bearing and non-interest bearing checking accounts. (5) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (6) Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets. -16- Comparison of Operating Results for Three Months Ended March 31, 2005 and 2004 Net Income. Net income increased by $115,000, to $1.1 million, for the three months ended March 31, 2005, compared to $1.0 million for the same period in 2004, an 11.4% increase. The increase was attributable primarily to a $361,000 increase in net interest income and a $277,000 increase in other income, offset by a $77,000 increase in the provision for loan and lease losses, a $411,000 increase in other expenses and a $35,000 increase in income tax expense as a result of higher pre-tax earnings. Net Interest Income. Net interest income grew $361,000, or 6.4%, to $6.0 million for the three months ended March 31, 2005, compared to $5.7 million for the same period in 2004. Total interest income increased by $2.3 million, to $10.5 million, for the three months ended March 31, 2005, while total interest expense increased by $1.9 million, to $4.5 million, for the same three month period. The 28.0% increase in total interest income was primarily due to a $213.2 million, or 34.4%, increase in the average balance of interest-earning assets, offset by a 25 basis point decrease in the average yield earned on these investments when compared to the same period of the prior year. The increase in interest-earning assets was a direct result of management's growth strategy. The decrease in the average yield was primarily attributable to lower market interest rates on loans originated to replace higher yielding loans that were satisfied by the borrowers. The 75.5% increase in total interest expense resulted primarily from a $196.6 million, or 34.6%, increase in the average balance of interest-bearing liabilities with a 55 basis point increase in the average cost of funds when compared to the same period of the prior year. The increase in the average cost of interest-bearing liabilities was primarily attributable to higher market interest rates, as well as a significant increase in higher cost borrowings. The majority of the increase in average interest-bearing liabilities for the 2005 period was comprised of a $158.7 million, or 232.9%, increase in the average balance of advances from the Federal Home Loan Bank and a $45.6 million, or 21.0%, increase in the average balance of certificate of deposit accounts over the same period of the prior year. Provision for loan losses. We maintain an allowance for loan losses through provisions for loan and lease losses that are charged to earnings. 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 losses in the loan portfolio that are both probable and reasonable to estimate, management considers factors such as an internal analysis of credit quality, general levels of loan delinquencies, collateral values, the Bank's historical loan and lease loss experience, changes in loan concentrations by loan category, peer group information and economic and market trends affecting our market area. The provision established for loan and lease losses each month reflects management's assessment of these factors in relation to the level of the allowance at such time. Management allocates the allowance to various categories based on its classified assets, historical loan and lease loss experience and its assessment of the risk characteristics of each loan category and the relative balances at month end of each loan category. Management's assessment did not change either in estimation method or assumptions during either period. The provision for loan losses increased by $77,000, or 20.9%, to $445,000 for the three months ended March 31, 2005, from $368,000 for the same period in 2004. Total charge-offs amounted to $237,000 and recoveries amounted to $70,000, resulting in a net charge-off amount of $167,000 for the three months ended March 31, 2005. This represents a $2,000 decrease in net charge-offs over the same period in 2004. Other Income. Other income increased $277,000, or 40.3%, to $965,000 for the three months ended March 31, 2005, compared to $688,000 for the same period in 2004. This is primarily the result of an increase of $233,000 in commission income generated by annuity sales from Synergy Financial Services, Inc. The balance of the increase was attributable to charges and fees on deposit and loan accounts, and tax advantaged income from the Company's bank-owned life insurance investment. -17- Other Expenses. Other expenses increased $411,000, or 9.5%, to $4.7 million for the three months ended March 31, 2005, compared to $4.3 million for the same period in 2004. The increase was primarily attributable to wages and benefits associated with the Company's growth strategy, as well as to equity-based employee compensation plans. Income Tax Expense. Income tax expense increased by $35,000, or 5.3%, during the three months ended March 31, 2005 when compared to the same period in 2004, reflecting higher taxable income for the 2005 period. Liquidity The Bank maintains liquid assets at levels it considers adequate to meet liquidity needs. The liquidity of the Bank reflects its ability to provide funds to meet loan requests, accommodate possible outflows in deposits, fund current and planned expenditures and take advantage of interest rate market opportunities in connection with asset and liability management objectives. Funding of loan requests, providing for liability outflows and management of interest rate fluctuations require continuous analysis in order to match the maturities of earning assets with specific types of deposits and borrowings. Bank liquidity is normally considered in terms of the nature and mix of the Bank's sources and uses of funds. The Bank's primary sources of liquidity are deposits, scheduled amortization and prepayment of loans and mortgage-backed securities. In addition, the Bank invests excess funds in overnight federal funds investments, which provide liquidity. Its cash and cash equivalents, defined as cash and deposits in other financial institutions with original maturities of three months or less, totaled $6.4 million at March 31, 2005. To a lesser extent, the earnings and funds provided from operating activities are a source of liquidity. Liquidity management is both a daily and long-term function of business management. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan and securities prepayments are greatly influenced by general interest rates, economic conditions and competition. If the Bank requires funds beyond its ability to generate them internally, it has the ability to obtain advances from the FHLB, which provides an additional source of funds. At March 31, 2005, the Bank's borrowing limit with the FHLB was $203.8 million, excluding repurchase agreement advances. At March 31, 2005, the Bank had $220.6 million of borrowings outstanding, including $112.6 million in repurchase agreement advances. Management is not aware of any trends, events or uncertainties that will have or are reasonably likely to have a material effect on the Company's liquidity, capital or operations nor is it aware of any current recommendation by regulatory authorities, which, if implemented, would have a material effect on liquidity, capital or operations. The total amount of the Bank's commitments to extend credit for mortgage and consumer loans as of March 31, 2005 was $94.6 million, excluding commitments on unused lines of credit, which totaled $27.1 million. Management intends to expand the Bank's branch network either through opening or acquiring branch offices. During April 2005, the Bank opened a branch in Elizabeth, New Jersey. The Bank currently plans to open five additional new branch locations and relocate one branch over the next two years. The Bank also will continue to actively consider the acquisition of local financial institutions as part of expanding its banking operations. It does not, however, have any current understandings, agreements or arrangements for the expansion of its business, other than opening new branch office locations. -18- The following table discloses the Bank's contractual obligations as of March 31, 2005:
Total Less Than 1-3 Years 4-5 Years After 1 Year 5 Years ---------- ----------- ----------- ---------- --------- FHLB advances (1) $220,570 $83,120 $77,150 $37,600 $22,700 Rental under operating leases 12,841 614 2,819 1,593 7,815 ------- ------ ------ ------ ------ Total $233,411 $83,734 $79,969 $39,193 $30,515 ======= ====== ====== ====== ======
___________________ (1) At March 31, 2005, the Bank had $220.6 million of borrowings, including $112.6 million in repurchase agreement advances, outstanding with the FHLB. At March 31, 2005, the Bank's borrowing limit with the FHLB was $203.8 million, excluding repurchase agreement advances. The following table discloses the Bank's commercial commitments as of March 31, 2005:
Total Less Than 1-3 Years 4-5 Years After 1 Year 5 Years ---------- ----------- --------- --------- --------- Lines of Credit (1) $ 27,105 $ 3 $ 1 $2,274 $24,827 Other commitments to extend credit 94,634 94,634 - - - ------ ------ ------ ----- ------ Total $121,739 $94,637 $ 1 $2,274 $24,827 ======= ====== ====== ===== ======
_____________________ (1) Represents amounts committed to customers. -19- Regulatory Capital Requirements The Bank is subject to federal regulations that impose certain minimum capital requirements. Quantitative measures, established by regulation to ensure capital adequacy, require the Bank to maintain amounts and ratios of tangible and core capital to adjusted total assets and of total risk-based capital to risk-weighted assets. On March 31, 2005, the Bank was in compliance with all of its regulatory capital requirements. The following table sets forth the Bank's capital position and relativity to regulatory requirements as of March 31, 2005:
OTS Requirements --------------------------------------------------------------------------- Regulatory Minimum for classification as Bank actual capital adequacy well-capitalized ----------- ---------------- ---------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- Total risk-based capital $94,782 15.86% $47,813 8.00% $59,766 10.00% (to risk-weighted assets) Tier 1 capital 90,077 15.07% N/A N/A 35,860 6.00% (to risk-weighted assets) Tier 1 capital 90,077 10.13% 35,554 4.00% 44,443 5.00% (to adjusted total assets) Tangible capital 90,077 10.13% 13,333 1.50% N/A N/A (to adjusted total assets)
Impact of Inflation and Changes Prices The consolidated financial statements of the Company and notes thereto, presented elsewhere herein, have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time and due to inflation. The impact of inflation is reflected in the increased cost of the Company's operations, primarily those at the Bank. Unlike most industrial companies, nearly all the assets and liabilities of the Bank are financial. As a result, interest rates have a greater impact on the Bank's performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services. -20- Item 3. Quantitative and Qualitative Disclosures About Market Risk Management of Interest Rate Risk and Market Risk Qualitative Analysis. Because the majority of the Bank's interest-earning assets and interest-bearing liabilities are sensitive to changes in interest rates, a significant form of market risk for the Bank is interest rate risk, or changes in interest rates. The Bank is vulnerable to an increase in interest rates to the extent that interest-bearing liabilities mature or re-price more rapidly than interest-earning assets. Our assets include long-term, fixed-rate loans and investments, while our primary sources of funds are deposits and borrowings with substantially shorter maturities. Although having interest-bearing liabilities that re-price more frequently than interest-earning assets is generally beneficial to net interest income during a period of declining interest rates, this type of asset/liability mismatch is generally detrimental during periods of rising interest rates. The Board of Directors has established an Asset and Liability Management and Budget Committee that consists of Directors Scott (Chairman), De Perez, Fiore, Kasper and Putvinski. The Committee meets quarterly with management to review current investments: average lives, durations and re-pricing 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 management session of the Committee is held monthly with President Fiore presiding and senior management in attendance. The results of the quarterly and monthly meetings of the Committee are reported to the full Board at its regular meetings. In addition, the Committee generally meets during October and November each year with the goal of developing an annual business and operating plan for presentation to the full Board. To reduce the effect of interest rate changes on net interest income, the Bank has adopted various strategies to enable it to improve the matching of interest-earning asset maturities to interest-bearing liability maturities. The main elements of these strategies include seeking to: o originate loans with adjustable-rate features or fixed-rate loans with short maturities, such as home equity and consumer loans, comprised mostly of direct automobile loans for both new and used vehicles; o lengthen the maturities of time deposits and borrowings when it would be cost effective through the aggressive pricing and promotion of certificates of deposits and utilization of FHLB advances; o increase core deposits (i.e., checking, savings and money market accounts) which tend to be less interest rate sensitive; and o purchase intermediate and adjustable-rate investment securities that provide a stable cash flow, thereby providing investable funds in varying interest rate cycles. Quantitative Analysis. Management actively monitors its interest rate risk exposure. The Bank's objective is to maintain a consistent level of profitability within acceptable risk tolerances across a broad range of potential interest rate environments. The Bank uses the Office of Thrift Supervision Net Portfolio Value (NPV) Model to monitor its exposure to interest rate risk, which calculates changes in net portfolio value. Reports generated from assumptions provided and modified by management are reviewed by the Asset and Liability Management Committee and reported to the Board of Directors quarterly. The Interest Rate Sensitivity of Net Portfolio Value Report shows the degree to which balance sheet line items and the net portfolio value are potentially affected by a 100 to 300 basis point (1/100th of a percentage point) upward and downward shift (shock) in the Treasury yield curve. -21- Management of the Company believes that there has not been a material adverse change in market risk during the three-month period ended March 31, 2005. Item 4. Controls and Procedures Evaluation of disclosure controls and procedures. Based on his evaluation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")), the Company's principal executive and financial officer has concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q such disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Changes in internal controls. During the quarter under report, there was no change in the Company's internal control over financial reporting that has materially affected, or is reasonable likely to materially affect, the Company's internal control over financial reporting. -22- PART II - OTHER INFORMATION Item 1. Legal Proceedings. The Company and its subsidiaries, from time to time, may be a party to routine litigation, which arises in the normal course of business, such as claims to enforce liens, condemnation proceedings on properties in which the Bank, the wholly-owned subsidiary of the Company, holds security interests, claims involving the making and servicing of real property loans and other issues incident to its business. There were no lawsuits pending or known to be contemplated at March 31, 2005 that would be expected to have a material effect on the Company's operations or income. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. ISSUER PURCHASES OF EQUITY SECURITIES The following table reports information regarding repurchases of the Company's common stock during the first quarter of 2005 and the stock repurchase plans approved by the Company's Board of Directors.
----------------------------- --------------- ---------------- ------------------------- ---------------------------- Total Number of Shares Maximum Number of Shares Total Number Purchased as Part of that May Yet Be Purchased of Shares Average Price Publicly Announced Under the Plans or Period Purchased Paid per Share Plans or Programs(1)(2) Programs (1)(2) ----------------------------- --------------- ---------------- ------------------------- ---------------------------- January 1-31, 2005 - - - 686,451 ----------------------------- --------------- ---------------- ------------------------- ---------------------------- February 1-28, 2005 500 12.45 500 685,951 ----------------------------- --------------- ---------------- ------------------------- ---------------------------- March 1-31, 2005 130,100 11.90 130,100 555,851 ----------------------------- --------------- ---------------- ------------------------- ---------------------------- Total 130,600 11.94 130,600 ----------------------------- --------------- ---------------- ------------------------- ----------------------------
______________________ (1) On November 9, 2004, the Company announced the adoption of a repurchase program to fund the Company's 2004 Restricted Stock Plan. This program specified the purchase of up to 281,436 shares of common stock to be made from time to time in the open market based on availability, price and the Company's financial performance. The Company announced the completion of this repurchase program on March 30, 2005. (2) On January 26, 2005, the Company announced a share repurchase program. The program specified the purchase of up to 5.0 percent of the Company's outstanding shares of common stock (approximately 622,600 shares) in open market transactions. Such purchases are to be made from time to time in the open market, based on stock availability, price and the Company's financial performance. This program has no expiration date and has 555,851 shares yet to be purchased. -23- Item 3. Defaults Upon Senior Securities. ------------------------------- None. Item 4. Submission of Matters to a Vote of Security Holders. --------------------------------------------------- None. Item 5. Other Information. ----------------- None. Item 6. Exhibits. -------- a) Exhibits: 31 Certification pursuant to ss.302 of the Sarbanes-Oxley Act of 2002 32 Certification pursuant to ss.906 of the Sarbanes-Oxley Act of 2002 -24- SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SYNERGY FINANCIAL GROUP, INC. Date: May 10, 2005 By: /s/John S. Fiore ------------------------------------- John S. Fiore President and Chief Executive Officer (Duly Authorized Representative) Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant and in the capacities and on the date indicated. /s/John S. Fiore ------------------------------------------ John S. Fiore President, Chief Executive Officer and Chief Financial Officer (Principal Executive and Financial Officer) Date: May 10, 2005 -25-