SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2003
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-OR-
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to _____________.
Commission File Number: 000-50467
SYNERGY FINANCIAL GROUP, INC.
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(Name of Small Business Issuer in Its Charter)
New Jersey 52-2413926
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
310 North Avenue East, Cranford, New Jersey 07016
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(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (800) 693-3838
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Securities registered under Section 12(b) of the Exchange Act: None
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Securities registered under Section 12(g) of the Exchange Act: Common Stock, par value $0.10 per share
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Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). YES NO X
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The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the Registrant as of the last business day of the
Registrant's most recently completed second fiscal quarter, was $24.2 million.
As of March 26, 2004, there were 12,452,098 outstanding shares of the
Registrant's common stock.
TABLE OF CONTENTS
Page
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Part I
Item 1. Business............................................................................1
Item 2. Description of Property............................................................31
Item 3. Legal Proceedings..................................................................33
Item 4. Submission of Matters to a Vote of Security Holders................................33
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..............34
Item 6. Selected Financial Data............................................................35
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................37
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.........................47
Item 8. Financial Statements and Supplementary Data........................................50
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................................85
Item 9A. Controls and Procedures............................................................85
Part III
Item 10. Directors and Executive Officers of the Registrant.................................85
Item 11. Executive Compensation.............................................................88
Item 12. Security Ownership of Certain Beneficial Owners and Management.....................94
Item 13. Certain Relationships and Related Transactions.....................................96
Item 14. Principal Accounting Fees and Services.............................................96
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................97
-i-
PART I
Forward-Looking Statements
Synergy Financial Group, Inc. (the "Company") may from time to time
make written or oral "forward looking statements," including statements
contained in the Company's filings with the Securities and Exchange Commission
(including this Annual Report on Form 10-K and the exhibits thereto), in its
reports to stockholders and in other communications by the Company, which are
made in good faith by the Company pursuant to the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties,
such as statements of the Company's plans, objectives, expectations, estimates
and intentions, that are subject to change based on various important factors
(some of which are beyond the Company's control). The following factors, among
others, could cause the Company's financial performance to differ materially
from the plans, objectives, expectations, estimates and intentions expressed in
such forward-looking statements: the strength of the United States economy in
general and the strength of the local economies in which the Company conducts
operations; the effects of, and changes in, monetary and fiscal policies and
laws, including interest rate policies of the Board of Governors of the Federal
Reserve System, inflation, interest rates, market and monetary fluctuations; the
timely development of and acceptance of new products and services of the Company
and the perceived overall value of these products and services by users,
including the features, pricing and quality as compared to competitors' products
and services; the impact of changes in financial services' laws and regulations
(including laws concerning taxes, banking, securities and insurance);
technological changes; acquisitions; changes in consumer spending and saving
habits; and the success of the Company at managing the risks resulting from
these factors.
The Company cautions that the listed factors are not exclusive. The
Company does not undertake to update any forward-looking statement, whether
written or oral, that may be made from time to time by or on behalf of the
Company.
Item 1. Business.
General
In March 2001, Synergy Bank (the "Bank"), formerly Synergy Federal
Savings Bank, reorganized from a federally-chartered mutual savings bank into a
mutual holding company structure. As a result of the reorganization, the Bank
became a federal stock savings bank which was wholly-owned by a federal stock
corporation, Synergy Financial Group, Inc. (the "Stock Holding Company"), which
in turn, was wholly-owned by Synergy, MHC, a federally-chartered mutual holding
company. The Stock Holding Company completed a minority stock offering in
September 2002, at which time 1,454,750 shares were issued to persons other than
Synergy, MHC, representing 43.5% of the outstanding common stock of the Stock
Holding Company.
In preparation for the conversion and reorganization of Synergy Bank
and its Stock Holding Company from the mutual holding company form of
organization to a full stock corporation, a new corporation with the same name,
Synergy Financial Group, Inc., was incorporated as a New Jersey
1
corporation on August 27, 2003. Synergy Financial Group, Inc. completed its
stock offering in connection with the conversion and reorganization to a full
stock corporation on January 20, 2004. As part of the conversion and
reorganization, the Stock Holding Company and Synergy, MHC ceased to exist and
the shares formerly held by Synergy, MHC were cancelled. Synergy Financial
Group, Inc. sold 7,035,918 new shares to the public and the shares held by
stockholders of the Stock Holding Company were exchanged for 5,416,180 shares of
Synergy Financial Group, Inc., with a resulting total of 12,452,098 shares
outstanding.
The Company conducts no significant business or operations of its own
other than holding 100% of the stock of the Bank and Synergy Financial Services,
Inc. References in this Annual Report on Form 10-K to the Company or Registrant
generally refer to the Company and the Bank, unless the context indicates
otherwise. References to "we," "us," or "our" refer to the Bank or Company, or
both, as the context indicates.
We are in the business of offering financial services, including
deposit products, one- to four- family residential mortgage loans, home equity
loans, multi-family and non-residential loans, and consumer loan products,
including automobile and personal loans.
We attract deposits from the general public and borrow money from the
Federal Home Loan Bank of New York (the "FHLB") and use these deposits and FHLB
borrowings primarily to originate loans and to purchase investment securities.
Our principal sources of funds for lending and investing activities are
deposits, FHLB borrowings, the repayment and maturity of loans and the maturity,
call and occasional sale of investment securities. Our principal source of
income is interest on loans and investment securities. Our principal expense is
interest paid on deposits and FHLB borrowings.
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 the Bank's branches are mostly
growth markets, with population densities and income levels generally above the
average levels for New Jersey.
Our business of attracting deposits and making loans is primarily
conducted within our market area. A downturn in the local economy could reduce
the amount of funds available for deposit and the ability of borrowers to repay
their loans. As a result, our profitability could be hurt.
Competition
We face substantial competition in our attraction of deposits, which
are our primary source of funds for lending. 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.
2
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 and
with commercial banks and savings institutions, as well as internet-based
lenders, for consumer loans. We, further, face competition for deposits 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, as well as 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.
As a result of our recent growth, 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. Originations of
non-residential and multi-family mortgage loans totaled $36.4 million and $31.1
million during the years ended December 31, 2003 and 2002, respectively.
3
Loan Portfolio Composition. The following table analyzes the
composition of the loan portfolio by loan category at the dates indicated.
At December 31,
------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------------ ------------------ ----------------- ---------------- -----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------ ------ -------
(Dollars in thousands)
Type of Loans:
- --------------
Mortgage loans:
One- to Four-Family
Residential(1)........ $226,085 51.66% $202,325 62.92% $148,826 65.81% $127,004 66.69% $116,727 70.95%
Non-Residential and
Multi-Family.......... 90,665 20.71 48,386 15.05 19,044 8.43 2,072 1.08 - -
Automobile................ 109,277 24.97 63,796 19.83 52,206 23.08 45,812 24.06 30,171 18.34
Commercial................ 7,838 1.79 2,472 0.77 - - - - - -
Credit Card............... 71 0.02 136 0.04 30 0.01 6,969 3.66 7,260 4.41
Other Consumer(2)......... 3,745 0.86 4,454 1.39 6,033 2.67 8,594 4.51 10,363 6.30
-------- ------ -------- ------ -------- ------ -------- ------- -------- ------
Total loans.......... 437,681 100.00% 321,569 100.00% 226,139 100.00% 190,451 100.00% 164,521 100.00%
====== ====== ====== ====== ======
Deferred loan
fees and costs........ 178 85 (78) (177) (353)
Less:
Allowance for
loan losses........... (3,274) (2,231) (1,372) (1,176) (995)
-------- -------- -------- -------- --------
Total loans, net..... $434,585 $319,423 $224,689 $189,098 $163,173
======== ======== ======== ======== ========
- ----------------
(1) This category includes home equity loans.
(2) This category consists of personal loans (unsecured) and savings secured
loans.
4
Loan Maturity Schedule. The following table sets forth the maturity
or repricing of the loan portfolio at December 31, 2003. Demand loans, loans
having no stated maturity and overdrafts are shown as due in one year or less.
One- to Non-Residential
Four-Family and Credit Other
Residential(1) Multi-Family Automobile Commercial Card Consumer(2) Total
------------- ------------ ---------- ---------- ------ ----------- -----
(In thousands)
Amounts Due:
Within 1 Year................. $ 1,815 $ 1,849 $ 2,046 $1,306 $ 71 $ 371 $ 7,458
After 1 year:
1 to 3 years................ 1,223 1,798 20,902 1,592 - 1,556 27,070
3 to 5 years................ 10,316 1,422 72,935 272 - 1,818 86,763
5 to 10 years............... 29,121 11,299 13,394 1,378 - - 55,169
10 to 15 years.............. 110,287 25,684 - - - - 135,994
Over 15 years............... 73,323 48,613 - 3,290 - - 125,226
-------- ------- -------- ------ ------ ------- --------
Total due after one year. 224,270 88,816 107,231 6,531 - 3,374 430,222
-------- ------- -------- ------ ------ ------- --------
Total amount due......... $226,085 $90,665 $109,277 $7,838 $ 71 $ 3,745 $437,681
======== ======= ======== ====== ====== ======= ========
- ----------------
(1) This category includes home equity loans.
(2) This category consists of personal loans (unsecured) and savings secured
loans.
The following table sets forth the dollar amount of all loans at
December 31, 2003 that are due after December 31, 2004 that have fixed interest
rates and that have floating or adjustable interest rates.
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In thousands)
Mortgage loans:
One-to Four-Family
Residential(1).............. $199,764 $24,506 $224,270
Non-Residential and Multi-
Family...................... 17,737 71,079 88,816
Automobile........................ 107,231 - 107,231
Commercial........................ 6,531 - 6,531
Other Consumer(2)................. 3,374 - 3,374
-------- ------- --------
Total........................ $334,637 $95,585 $430,222
======== ======= ========
- ----------------
(1) This category includes home equity loans.
(2) This category consists of personal loans (unsecured) and savings secured
loans.
Residential Lending. One of our primary lending activities is 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.
5
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 securities index.
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, 2003, we sold $2.3 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 portfolio diversification and 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 annually 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
December 31, 2003, home equity loans totaled $96.3 million, or 22.0% of total
loans. Collateral value is determined through the use of an Internet-based 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 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
December 31, 2003, the average balance of a multi- family and non-residential
mortgage loan was $424,641 and $619,698, 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.
6
Consumer Loans. At December 31, 2003, consumer loans amounted to
$113.1 million, or 25.85% of the total loan portfolio. The vast majority of
these are automobile loans. At December 31, 2003, automobile loans totaled
$109.3 million.
In late 1999, we began to originate direct automobile loans over the
Internet through an independent 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 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, it is forwarded to us for consideration. 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 score via an automated computer system. If the credit score is
consistent with our criteria, the automated system sends a notice to the
borrower that he or she is conditionally approved and we make the borrower a
loan offer. The borrower then decides whether to accept the loan offer. Upon
acceptance, we disburse the funds. 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 $6.8
million, or 92.0% 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.
7
Commercial Loans. At December 31, 2003, the commercial loan portfolio
had grown to $7.8 million, representing 1.79% of the total loan portfolio at
that date. The increase is primarily the result of commercial loans acquired in
connection with our acquisition of First Bank of Central Jersey ("FBCJ").
Additionally, during the fourth quarter of 2003, we participated in a $1.1
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. Furthermore, in November 2003, we
purchased a one-third interest or $400,000 of a fixed-rate secured commercial
loan participation with a seven year maturity. This loan is secured by
non-residential occupancy leases and equipment.
In addition to these loans, we originated two commercial loans
totaling approximately $1.0 million during the year ended December 31, 2003. The
first loan carried a variable rate indexed to the prime rate of interest with a
term of 5 years and was secured by non-residential real estate. The second was a
fixed-rate loan with a ten year term, and was secured by an assignment of
non-residential occupancy leases.
Subsequent to December 31, 2003, we introduced the availability of
both commercial lines of credit and fixed term commercial loans. The commercial
lines that are unsecured are limited to $100,000, while secured are offered up
to $1.0 million. The term for the unsecured line is no more than five years with
annual renewal, while fixed term loans are offered for terms of up to ten years.
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 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 December 31, 2003, our loans to one borrower limit
was $6.5 million, and we had 48 borrowers with loan balances in excess of $1.0
million. Subsequent to December 31, 2003, we completed a second-step stock
conversion on January 20, 2004, raising approximately $69.2 million in equity
capital, which increased our loans to one borrower limit to $13.2 million.
At December 31, 2003, our largest single borrower had an aggregate
balance of $6.7 million, representing various real estate mortgage loans
collateralized primarily by multi-family residential properties. Consequently,
the Bank briefly exceeded its loan to one borrower limit in connection with this
lending relationship, however, as a result of the new equity capital raised in
the recent stock conversion, the limit increased substantially and the Bank is
now in compliance with the limit. At December 31, 2003, our second largest
single borrower had an aggregate balance of $5.7 million, representing a
mortgage loan and a commercial line of credit, secured by a multi-family and a
mixed use property, respectively, along
8
with a construction loan for a professional office building. At December 31,
2003, our third largest borrower had an aggregate balance of $5.0 million,
representing our interest in a participation loan secured by a hotel property.
At December 31, 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, our
business development officers, repeat customers, 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 loan
referral web site.
9
The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
Year Ended December 31,
---------------------------------
2003 2002 2001
---- ---- ----
(In thousands)
Loan originations and purchases:
Loan originations:
One- to Four-Family Residential............... $116,284 $110,578 $ 60,490
Non-Residential and Multi-Family.............. 36,392 31,116 19,893
Automobile.................................... 89,051 31,820 27,333
Commercial.................................... 920 2,472 -
Credit Card................................... - - -
Other......................................... 11,964 13,026 6,772
-------- -------- --------
Total loan originations........................... 254,611 189,012 114,488
Loans purchased through acquisition of FBCJ: 21,880 - -
Loan purchases:
One- to Four-Family Residential............... - - -
Non-Residential and Multi-Family.............. 5,000 - -
Automobile.................................... - 13,717 2,981
Commercial.................................... 1,486 - -
Credit Card................................... - - -
Other......................................... - - -
-------- -------- --------
Total loan purchases.............................. 28,366 13,717 2,981
Sales and loan principal repayments:
Loans sold:
One- to Four-Family Residential............... 2,307 4,852 9,336
Non-Residential and Multi-Family.............. - 500 1,000
Automobile.................................... - - -
Commercial.................................... - - -
Credit Card................................... - - 6,158
Other......................................... - - -
-------- -------- --------
Total loans sold.................................. 2,307 5,352 16,494
Loan principal repayments......................... 165,074 101,947 65,287
-------- ------- -------
Total loans sold and principal repayments..... 167,381 107,299 81,781
Decrease due to other items........................... 434 696 97
-------- -------- --------
Net increase in loan portfolio........................ $115,162 $ 94,734 $ 35,591
======== ======== ========
10
The sale of mortgage loans is part of management's strategy to
diversify the loan portfolio and mitigate interest rate risk. Approximately $2.3
million of the loan sales during 2003 consisted of residential mortgages, all of
which were 30 year fixed-rate loans. As of December 31, 2003, we serviced $5.9
million in loans for the Federal Home Loan Mortgage Corporation. We occasionally
sell participation interests in non-residential mortgage loans originated by us
that are considered large credits in order to reduce credit risk exposure and
comply with our loans to one borrower limitation. We may continue to sell loans
in the future when doing so will diversify our loan portfolio composition,
mitigate interest rate risk or reduce our credit risk exposure.
We generally sell loans on a non-recourse basis, with servicing
retained and with a loan servicing fee of 0.25% of the loan balance. At December
31, 2003, loans serviced for the benefit of other lenders totaled approximately
$2.1 million.
We occasionally purchase loans through other financial institutions'
participation programs. During the year ended December 31, 2003, we purchased an
aggregate of $6.5 million of loans. This included a $5.0 million, or 20%,
interest in a loan participation secured by a hotel property that is not in our
defined market during December 2003 and a $400,000, or 33.3%, interest in a
participation secured by fit-up leases and equipment in November 2003. Both of
these participations were purchased without recourse.
Additionally, we purchased a $1.1 million or 90% interest in a
commercial loan participation secured by a fleet of luxury automobile limousines
during December 2003. The participation was without recourse. This participation
was similar in nature to a $2.5 million, or 90% interest, in a commercial loan
secured by a fleet of luxury automobile limousines with the same borrower that
was purchased in 2002. This participation was without recourse and had a
remaining balance of $1.5 million at December 31, 2003.
As of December 31, 2003, we also had participations in three indirect
automobile loan pools (each a 90% participation interest) with a local financial
institution. Two of the three indirect automobile loan pools were purchased with
full recourse, and at December 31, 2003 had a remaining balance of $1.6 million.
The third automobile loan pool was purchased without recourse, and at December
31, 2003 had a remaining balance of $39,270. The seller retained the servicing
of each of these three automobile loan participations. We do not, however, pay a
servicing fee on these loans.
In addition, at December 31, 2003, we had two participations of
$965,000 and $588,000, both of which were non-residential mortgage loans secured
by real estate in our market area. They were purchased without recourse. We pay
a servicing fee of 0.25% of the loan balance for both participations.
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 December 31,
2003 was approximately $45.5 million, excluding commitments on unused lines of
credit of $22.7 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
11
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 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. We may be the buyer at this sale if there are no adequate offers
to satisfy the debt. Any property acquired as the result of foreclosure or by
receipt of 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 property that results from subsequent declines in value
are charged to operations in the period in which the declines occur. At December
31, 2003, we did not hold any 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 our assessment of the ultimate
collectibility of the loan. These payments are accounted for under the cash
method of accounting.
12
Non-Performing Assets. The following table provides information
regarding our non-performing loans and other non-performing assets as of the
dates indicated.
At December 31,
-------------------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(Dollars in thousands)
Loans accounted for on a non-accrual basis:
One- to Four-Family Residential(1)............ $ - $ - $ - $ 57 $ 58
Non-Residential and Multi-Family.............. - - - - -
Automobile.................................... 298 374 32 19 55
Commercial.................................... 33 - - - -
Credit Card................................... 2 5 22 32 67
Other Consumer(2)............................. 16 70 17 79 112
----- ----- ----- ----- -----
Total...................................... $ 348 $ 449 $ 71 $ 187 $ 292
===== ===== ===== ===== =====
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................. $ 348 $ 449 $ 71 $ 187 $ 292
===== ===== ===== ===== =====
Other non-performing assets..................... $ - $ - $ - $ - $ -
===== ===== ===== ===== =====
Total non-performing assets................ $ 348 $ 449 $ 71 $ 187 $ 292
===== ===== ===== ===== =====
Total non-performing loans to net loans.... 0.08% 0.14% 0.03% 0.10% 0.18%
===== ===== ===== ===== =====
Total non-performing loans to total assets. 0.06% 0.10% 0.02% 0.08% 0.13%
===== ===== ===== ===== =====
Total non-performing assets to total assets 0.06% 0.10% 0.02% 0.08% 0.13%
===== ===== ===== ===== =====
- -------------------------
(1) This category includes home equity loans.
(2) This category consists of personal loans (unsecured) and savings secured
loans.
13
For the year ended December 31, 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 and performing according to the original loan agreements for
the entire period was approximately $7,000. 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,
2003.
At December 31, 2003, there were no loans for which management had
serious doubts as to the ability of such borrowers to comply with the present
repayment terms that are not included in the table above as loans accounted for
on a non-accrual basis.
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 specific reserve equal to 100% of the loss amount is required
to be established or the loan is 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 Asset
Liability Committee on a regular basis and by the regulatory agencies as part of
their examination process. At December 31, 2003, classified loans totaled
$511,000. This amount included $232,000 of loans classified as "substandard."
Management has deemed $36,000 of the loans classified as substandard as
non-performing assets. At December 31, 2003, we had $280,000 of loans classified
as "doubtful," all of which amount is included under non-performing assets, as
shown in the table above. At December 31, 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 both
with 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.
14
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.
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 points 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 the recent year, our charge-offs were higher than past experience.
This is the direct result of the indirect automobile loans associated with our
acquisition of FBCJ.
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.
15
The following table sets forth information with respect to our
allowance for loan and lease losses at the dates indicated.
For the Year Ended
December 31,
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(Dollars in thousands)
Allowance balance (at beginning of year)........... $ 2,231 $ 1,372 $ 1,176 $ 995 $ 1,148
-------- -------- -------- -------- --------
Charge-offs:
One- to Four Family Residential(1)............... - - - - 35
Non-Residential and Multi-Family................. - - - - -
Automobile....................................... 1,146 280 61 101 27
Credit Card...................................... 11 26 108 127 135
Other Consumer(2)................................ 179 128 248 267 329
-------- -------- -------- -------- --------
Total......................................... 1,336 434 417 495 526
Recoveries:
One- to Four-Family Residential.................. - 3 2 1 5
Non-Residential and Multi-Family................. - - - - -
Automobile....................................... 292 42 39 26 36
Credit Card...................................... 25 27 49 25 25
Other Consumer(2)................................ 124 144 160 144 182
-------- -------- -------- -------- --------
Total......................................... 441 216 250 196 248
-------- -------- -------- -------- --------
Net charge-offs.................................... (895) (218) (167) (299) (278)
Acquisition of FBCJ................................ 823 - - - -
Provision for loan losses.......................... 1,115 1,077 363 480 125
-------- -------- -------- -------- --------
Allowance balance (at end of year)................. $ 3,274 $ 2,231 $ 1,372 $ 1,176 $ 995
======== ======== ======== ======== ========
Total gross loans outstanding (at end of year) $437,681 $321,569 $226,139 $190,451 $164,521
======== ======== ======== ======== ========
Allowance for loan and lease losses as a percent of
total loans outstanding............................. 0.75% 0.69% 0.61% 0.62% 0.60%
==== ==== ==== ==== ====
Net loans charged off as a percent of average
loans outstanding during the year................ 0.21% 0.07% 0.08% 0.17% 0.19%
==== ==== ==== ==== ====
- ------------------------
(1) This category includes home equity loans.
(2) This category consists of personal loans (unsecured) and savings secured
loans.
16
Allocation of Allowance for Loan and Lease Losses. The following table
sets forth the allocation of our allowance for loan and lease 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 December 31,
----------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------------- ----------------- ---------------- ------------------ ----------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
to Total to Total to Total to Total to Total
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)............ $ 921 59.60% $ 517 68.54% $ 813 68.15% $ 409 67.65% $312 70.95%
Non-Residential and
Multi-Family.............. 531 12.77 256 9.43 105 6.09 8 0.12 - -
Automobile................... 1,472 25.00 1,113 19.83 319 23.08 158 24.06 86 18.34
Commercial................... 73 1.81 9 0.77 - - - - - -
Credit Card.................. 2 0.02 - 0.04 - 0.01 268 3.66 216 4.41
Other Consumer(1)............ 275 0.81 336 1.39 135 2.67 333 4.51 381 6.30
------ ------ ------ ------ ------ ------ ------ ------ ---- ------
Total allowance........... $3,274 100.00% $2,231 100.00% $1,372 100.00% $1,176 100.00% $995 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ==== ======
- ----------------
(1) This category includes home equity loans.
(2) This category consists of personal loans (unsecured) and savings secured
loans.
17
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 enterprises (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. 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 internet-based financial data providers and tracking the
price of similar securities offered through dealers' inventory listings using
their individual web sites.
All of our 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 securities which 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. We focus primarily on mortgage-backed securities secured by one- to
four-family mortgages.
18
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 investors such as us
receiving the principal and interest payments on the mortgages. Such U.S.
government agencies and government-sponsored enterprises guarantee the payment
of principal and interest to investors. At December 31, 2003, all of our
mortgage-backed securities were issued by either U.S. government agencies or
government-sponsored enterprises.
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 Government National Mortgage Association ("GNMA" or
"GinnieMae"), Federal Home Loan Mortgage Association ("FHLMA" or "FreddieMac")
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.
Collateralized Mortgage Obligations ("CMOs") and Real Estate Mortgage
Investment Conduits ("REMICs"). We also invest in CMOs and REMICs, issued or
sponsored by GNMA, FNMA and FHLMC. CMOs and REMICs are mortgage-derivative
products that aggregate pools of mortgages and mortgage-backed securities and
create different classes of securities with varying maturities and amortization
schedules, as well as a residual interest, with each class having different risk
characteristics. The cash flows from the underlying collateral are usually
divided into "tranches," or classes, which have descending priorities with
respect to the distribution of principal and interest repayment of the
underlying mortgages and mortgage-backed securities, as opposed to pass-through
mortgage-backed securities where cash flows are distributed pro rata to all
security holders. Unlike mortgage-backed securities from which cash flow is
received and prepayment risk is shared pro rata by all securities holders, cash
flows from the mortgages and mortgage-backed securities underlying CMOs and
REMICs are paid in accordance with a predetermined priority to investors holding
various tranches of the securities or obligations. A particular tranche or class
may carry prepayment risk which may be different from that of the underlying
collateral and other tranches. Investing in CMOs and REMICs allows us to
moderate reinvestment risk resulting from unexpected prepayment activity
associated with conventional mortgage-backed securities. Management believes
these securities represent attractive alternatives relative to other investments
due to the wide variety of maturity, repayment and interest rate options
available.
Other Securities. In addition, at December 31, 2003, we held equity
investments with a fair market value of $965,000, primarily consisting of an
interest in the Community Reinvestment Act Qualified Investment Fund and a
$10,000 State of Israel bond associated with the acquisition of FBCJ. We also
held an approximate investment of $3.6 million in FHLB common stock (this amount
is not shown in the securities portfolio). As a member of the FHLB, ownership of
FHLB common stock is required.
19
Furthermore, we owned shares of two financial institutions totaling
approximately $20,000 in market value at December 31, 2003.
The following table sets forth the carrying value of our investment
securities portfolio at the dates indicated.
At December 31,
-------------------------------
2003 2002 2001
-------------- -------------- ---------
(In thousands)
Investment Securities Available-for-Sale:
U.S. Government Obligations................ $ 3,467 $ - $ -
Mortgage-Backed Securities:
FHLMC(1)........................... 64,098 21,407 24,595
FNMA .......................... 55,249 40,886 19,299
GNMA .......................... - - -
Equity Securities......................... 965 10 -
-------- ------- -------
Total Available-for-Sale.............. 123,779 62,303 43,894
Investment Securities Held-to-Maturity:
Other Debt Securities..................... $ 10 $ - $ -
U.S. Government Obligations............... - - -
Mortgage-Backed Securities:
FHLMC(2)........................... 5,623 3,249 -
FNMA .......................... 20,285 11,395 2,458
GNMA .......................... 7,296 2,763 4,695
-------- ------- -------
Total Held-to-Maturity.................... 33,214 17,407 7,153
-------- ------- -------
Total............................... $156,993 $79,710 $51,047
======== ====== =======
- ---------------
(1) At December 31, 2003, includes $69,000 of agency-issued collateralized
mortgage obligations.
(2) At December 31, 2003, includes $7.8 million of agency-issued collateralized
mortgage obligations.
20
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 December 31, 2003
-------------------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More than 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 $1,023 1.89% $ 2,444 2.91% $ - -% $ - -% $3,467 2.61% $ 3,467
Mortgage-Backed Securities:
FHLMC................... - - 32,760 3.43 2,175 3.79 29,164 3.29 64,098 3.38 64,098
FNMA.................... - - 1,158 4.38 5,873 4.14 48,217 3.17 55,249 3.30 55,249
GNMA.................... - - - - - - - - - - -
Equity Securities.......... - - - - - - 965 - 965 - 965
------ ------ ------- ------- ------- ------ ------- ------- -------- ----- --------
Total
Available-for-Sale. 1,023 36,362 8,048 78,346 123,779 123,779
Investment Securities
Held-to-Maturity:
Mortgage-Backed Securities:
FHLMC................... - - 1,301 2.91 1,911 3.08 2,411 4.14 5,623 3.74 5,559
FNMA.................... - - - - 10,058 3.86 10,227 3.99 20,285 3.92 20,256
GNMA.................... - - - - 305 5.99 6,991 4.08 7,296 4.16 7,391
Other Debt Securities...... - - 10 2.25 - - - - 10 2.25 10
------ ------ ------- ------- ------- ------ ------- ------- ------- ------ --------
Total
Held-to-Maturity... - 1,311 12,274 19,629 33,214 33,216
------ ------- ------- ------- -------- --------
Total........................ $1,023 $37,673 $20,322 $97,975 $156,993 $156,995
====== ======= ======= ======= ======== ========
21
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 mortgage-backed
securities principal repayments and proceeds from the maturity, call and sale of
mortgage-backed securities and 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 with 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 and upper 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 large percentage of our deposits are in certificates of deposit
(45.7%, or $216.4 million, at December 31, 2003 as compared to 57.1%, or $220.3
million, at December 31, 2002). 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.
22
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 Year Ended December 31,
--------------------------------------------------------------------------------------------------
2003 2002 2001
------------------------------- -------------------------------- -----------------------------
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........... $ 81,852 18.62% 1.46% $ 44,966 14.78% 1.74% $ 36,325 16.51% 2.86%
Savings and club accounts....... 71,959 16.37 0.70 62,310 20.47 1.23 53,527 24.33 1.82
Certificates of deposit and
other time deposit accounts... 236,749 53.85 3.03 160,305 52.68 3.60 101,594 46.18 5.37
Non-interest-bearing
checking accounts(1).......... 49,052 11.16 0.12 36,743 12.07 - 28,561 12.98 -
-------- ------- ----- --------- ------ ----- -------- ------ -----
Total deposits.............. $439,612 100.00% 2.03% $304,324 100.00% 2.40% $220,007 100.00% 3.39%
======== ====== ===== ======= ====== ===== ======== ====== =====
- ------------------
(1) On March 28, 2003, Synergy Bank converted interest-earning checking
accounts acquired from FBCJ into non-interest-bearing checking accounts.
23
The following table sets forth the time deposits in Synergy Bank
classified by interest rate as of the dates indicated.
At December 31,
-----------------------------------------------
2003 2002 2001
-------------- ------------ -------------
(In thousands)
Interest Rate
- -------------
Less than 2%........... $ 58,441 $ 177 $ -
2.00-2.99%............. 99,368 52,621 11,816
3.00-3.99%............. 46,439 120,057 26,303
4.00-4.99%............. 9,516 22,787 51,783
5.00-5.99%............. 2,134 5,907 25,626
6.00-6.99%............. 488 672 5,414
7.00-7.99%............. - 99 96
-------- -------- --------
Total................ $216,386 $202,320 $121,038
======== ======== ========
The following table sets forth the amount and maturities of time
deposits at December 31, 2003.
After
December 31, December 31, December 31, December 31, December 31,
Interest Rate 2004 2005 2006 2007 2007 Total
- ------------- ---- ---- ---- ---- ---- -----
(In thousands)
Less than 2%...... $50,898 $ 7,543 $ - $ - $ - $ 58,441
2.00-2.99%........ 38,671 51,343 9,292 - 62 99,368
3.00-3.99%........ 30,424 7,400 3,172 547 4,896 46,439
4.00-4.99%........ 5,028 2,338 282 1,645 223 9,516
5.00-5.99%........ 979 310 661 162 22 2,134
6.00-6.99%........ 171 213 104 - - 488
7.00-7.99%........ - - - - - -
------- -------- ------- ------ ------ --------
Total........... $12,171 $126,171 $13,511 $2,354 $5,203 $216,386
======= ======== ======= ====== ====== ========
The following table shows the amount of our certificates of deposit and
other time deposits of $100,000 or more by time remaining until maturity as of
December 31, 2003.
Certificates
Remaining Time Until Maturity of Deposits
- ----------------------------- -----------
(In thousands)
Within three months................... $ 6,008
Three through six months.............. 5,532
Six through twelve months............. 10,326
Over twelve months.................... 18,649
-------
$40,515
=======
24
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 mortgage loans and may be secured
by other assets, mainly securities. We use convertible FHLB advances for a
portion of our funding needs. These borrowings are fixed-rate advances that can
be called at the option of the FHLB. At December 31, 2003, our borrowing limit
with the FHLB was $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
Year Ended December 31,
---------------------------------
2003 2002 2001
------------ -------------- ---------
(Dollars in thousands)
FHLB Advances:
Average balance outstanding............ $35,413 $ 7,053 $ -
Maximum amount outstanding
at any month-end during the period... $69,300 $19,225 $ -
Balance outstanding at period end...... $38,229 $ 2,500 $ -
Weighted average interest rate during
the period.......................... 1.21% 1.98% -%
Weighted average interest rate at
period end.......................... 1.17% 1.35% -%
At December 31, 2003, long-term FHLB advances totaled $34.6 million.
Advances consist of fixed-rate advances that will mature within one to eight
years. The advances are collateralized by FHLB stock, certain first mortgage
loans and mortgage-backed securities. These advances had a weighted average
interest rate of 3.91%. We did not have any unused overnight lines of credit at
the FHLB at December 31, 2003.
As of December 31, 2003, long-term advances mature as follows:
(Dollars in thousands)
2004............................. $ 8,904
2005............................. 2,740
2006............................. 7,000
2007............................. 7,000
2008............................. 9,000
Thereafter....................... -
-------
Total..................... $34,644
=======
25
Subsidiary Activity
In addition to the Bank, the Company 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 the Bank and
the general public. In April 1999, Synergy Financial Services, Inc. entered into
an agreement with INVEST Financial Corporation of Tampa, Florida, one of the
nation's largest full-service providers of investment and insurance products
through financial institutions, and continues to offer services and products
through such company. At December 31, 2003, Synergy Financial Services, Inc. had
total assets of $85,000. For the year ended December 31, 2003, it had commission
income of $108,000, however, it reported a net operating loss of approximately
$96,000.
In November 2002, the Bank incorporated a wholly-owned subsidiary,
Synergy Capital Investments, Inc., under New Jersey law, as an investment
company. Its primary purpose is to hold investment securities. At December 31,
2003, Synergy Capital Investments, Inc. had total assets of $158.1 million.
Personnel
As of December 31, 2003, the Company had 113 full-time employees and 58
part-time employees. The employees are not represented by a collective
bargaining agreement. We believe our relationship with our employees is
satisfactory.
Regulation
Set forth below is a brief description of certain laws that relate to
the regulation of the Company and the Bank. The description does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.
Regulation of the Company
General. The Company, which is a federal savings and loan holding
company, is subject to regulation and supervision by the OTS. In addition, the
OTS has enforcement authority over Synergy Financial Services, 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.
Sarbanes-Oxley Act of 2002. On July 30, 2002, President Bush signed
into law the Sarbanes- Oxley Act of 2002 (the "Act"). The Securities and
Exchange Commission (the "SEC") has promulgated new regulations pursuant to the
Act and may continue to propose additional implementing or clarifying
regulations as necessary in furtherance of the Act. The passage of the Act, and
the regulations implemented by the SEC subject publicly-traded companies to
additional and more cumbersome reporting regulations and disclosure. Compliance
with the Act and corresponding regulations may increase the Company's expenses.
26
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.
Regulation of the Bank
General. As a federally chartered, SAIF-insured savings bank, the 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 and lease 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 the 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 its mortgage documents.
The 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 the Company and the
Bank and prepares reports to the 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
27
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 the Bank, is currently
0%.
In addition, all FDIC-insured institutions are required to pay
assessments to the FDIC 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.
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. At December 31, 2003 the Bank
exceeded all regulatory capital requirements and was classified as "well
capitalized."
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. The 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 and
lease 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
28
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 Consolidated Maturity Rate 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 earlier. The OTS has indefinitely postponed
implementation of the interest rate risk component, and the 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 of 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 the 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.
29
The Bank will be required to file a capital distribution notice or
application with the OTS before paying any dividend to the Company. However,
capital distributions by the Company, as a savings and loan holding company,
will not be 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.
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 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. The Bank met the QTL test as
of December 31, 2003 and in each of the prior 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 the 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 the Bank. An unsatisfactory CRA examination rating may be used
as the basis for the denial of an application by the OTS.
30
Federal Home Loan Bank ("FHLB") System. The Bank is a member of the
FHLB, 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, the Bank is required to purchase and maintain stock in the
FHLB in an amount equal to the greater of 1% of its aggregate unpaid residential
mortgage loans, including mortgage pass-through certificates secured by
residential properties (excluding CMOs and REMICs), home purchase contracts or
similar obligations at the beginning of each year or 5% of its 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.
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.
Item 2. Description of Property
Our main office is located at 310 North Avenue East, Cranford, New
Jersey. At December 31, 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 and branch
offices, the year the office was opened, the net book value of each office and
the deposits held or matured on December 31, 2003 at each office.
Month and Leased Net Book Value Deposits
Year Facility or at at
Office Location Opened Owned December 31, 2003 December 31, 2003
- --------------- ------ ----- ----------------- -----------------
Main Office
310 North Avenue East October 1991 Owned $1,679,286 $148,580,391(1)
Cranford, New Jersey
Branch Offices:
2000 Galloping Hill Road March 1989 Leased(2) - $ 26,458,949
Building K-6
Kenilworth, New Jersey
31
Month and Net Book Value Deposits
Year Facility Leased or at at
Office Locations Opened Owned December 31, 2003 December 31, 2003
- ---------------- ------------- --------- ----------------- -----------------
2000 Galloping Hill Road March 1978 Leased(2) - $ 9,537,025
Building K-2
Kenilworth, New Jersey
1011 Morris Avenue May 1952 Leased(2) - $13,210,224
Union, New Jersey
One Giralda Farms April 1983 Leased(2) - $4,297,150
Madison, New Jersey
1095 Morris Avenue May 1993 Leased(2) - $5,250,547
Union, New Jersey
2000 Galloping Hill Road February 1993 Leased(2) - $30,928,502
Building K-15
Kenilworth, New Jersey
15 Market Street November 1998 Leased(3) $ 630,553 $58,175,300
Kenilworth, New Jersey
315 Central Avenue May 1999 Leased(4) $ 354,874 $60,309,052
Clark, New Jersey
225 North Wood Avenue March 2001 Leased(5) $ 124,000 $20,803,913
Linden, New Jersey
1162 Green Street April 2002 Owned $1,959,447 $22,124,491
Iselin, New Jersey
168-170 Main Street May 2002 Owned $2,558,198 $19,117,002
Matawan, New Jersey
473 Route 79 July 2002 Owned $1,922,993 $16,108,537
Morganville, New Jersey
101 Barkalow Avenue July 2002 Owned(6) $2,143,873 $12,273,326
Freehold, New Jersey
1887 Morris Avenue November 2002 Owned $2,045,279 $11,026,966
Union, New Jersey
Renaissance Plaza December 2002 Leased(7) $1,197,143 $ 8,395,981
3665 Route 9 North
Old Bridge, New Jersey
1727 Route 130 South May 1998 Leased(8) $ - $30,680,869
North Brunswick, New Jersey
337 Applegarth Road April 2000 Leased(9) $ - $17,294,089
Monroe Township, New Jersey
- ---------------
(1) Includes deposit balances through our automated services and Call Center,
as well as Synergy Financial Group, Inc.'s checking account.
(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
32
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