SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
<TABLE>
<CAPTION>
                                   FORM 10-KSB
(Mark One)
<S> <C>
[X]  Annual report pursuant to section 13 or 15 (d) of the Securities Exchange Act of 1934
     For the fiscal year ended                  December 31, 2002
                                ------------------------------------------------

                                                       -OR-

[ ]  Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
     For the transition period from            to         .
                                    ----------    --------
</TABLE>
                         Commission File Number: 0-49980
                                                 -------

                          SYNERGY FINANCIAL GROUP, INC.
                         -------------------------------
                 (Name of Small Business Issuer in Its Charter)

          United States                                      22-3798677
-------------------------------------                   -------------------
(State or Other Jurisdiction of                         (I.R.S. Employer
 Incorporation or Organization)                         Identification No.)

310 North Avenue East, Cranford, New Jersey                    07016
-------------------------------------------             --------------------
(Address of Principal Executive Offices)                    (Zip Code)

Issuer's Telephone Number, Including Area Code:    (800) 693-3838
                                                 --------------------

Securities registered under Section 12(b) of the Exchange Act:     None
                                                                -----------

Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, par value $0.10 per share
                     ---------------------------------------
                                (Title of Class)

         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 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   .
                                                                      ---   ---

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

         State issuer's revenues for its most recent fiscal year: $25.1 million.

         The aggregate  market value of the voting stock held by  non-affiliates
of the registrant, based on the last sale price of the registrant's Common Stock
on March 24, 2003, was $22.7 million.

         As of March 24, 2003,  there were 3,344,252  outstanding  shares of the
registrant's Common Stock.

         Transitional Small Business Disclosure Format (check one): YES    NO X
                                                                        --    --

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Portions  of the Annual  Report to  Stockholders  for the Fiscal Year ended
     December 31, 2002. (Part II)
2.   Portions  of  the  Proxy   Statement   for  the  2003  Annual   Meeting  of
     Stockholders. (Part III)
<PAGE>

                                     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-KSB 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.  Description of Business.

General

         The  Company is a  federally-chartered  corporation  that was formed in
March 2001 as a wholly- owned subsidiary of Synergy,  MHC, a federally-chartered
mutual  holding   company,   in  connection  with  the  mutual  holding  company
reorganization of Synergy Bank (the "Bank"), a federally chartered stock savings
bank.  Upon  completion of the mutual holding  company  reorganization  in March
2001,the  Company  acquired  all of the capital  stock of the Bank and  acquired
Synergy Financial Services, Inc. ("SFSI") later that same year. On September 17,
2002, the Company completed a minority stock offering in which it sold 1,454,750
shares, or 43.5%, of its outstanding common stock to eligible  depositors of the
Bank  in a  subscription  offering.  The  remaining  majority  of the  3,344,252
outstanding shares of the Company are owned by Synergy, MHC.

         The Company is a unitary  savings and loan holding company and conducts
no significant  business or operations of its own other than holding 100% of the
stock of the Bank and SFSI.  References  in this Annual Report on Form 10-KSB to
the Company or Registrant generally refer to the Company and the

                                        1

<PAGE>

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 retail
banking services,  one- to four-family  residential  mortgage loans, home equity
loans,  multi-family  and  non-residential  loans,  and consumer loan  products,
including auto 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 sale,
maturity, and call of securities.  Our principal source of income is interest on
loans and  investment  securities.  Our  principal  expense is interest  paid on
deposits and FHLB 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,  and in the  origination of loans.
Many of our competitors are significantly  larger  institutions and have greater
financial and managerial  resources.  Our ability to compete  successfully  is a
significant factor affecting our profitability.

         Our competition for deposits and loans historically has come from other
insured  financial  institutions  such as local and regional  commercial  banks,
savings  institutions,  and credit unions located in our primary market area. We
also  compete with  mortgage  banking  companies  for real estate loans and with
commercial banks and savings institutions 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, and consumer loans, comprised

                                        2

<PAGE>

mostly of direct auto 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.  At December 31,
2002, a significant  percentage of our total loan  portfolio  consisted of loans
that would be considered unseasoned.

                                        3

<PAGE>

         Loan   Portfolio   Composition.   The  following   table  analyzes  the
composition of the loan portfolio by loan category at the dates indicated.

<TABLE>
<CAPTION>
                                                                            At December 31,
                                   ------------------------------------------------------------------------------------------------
                                         2002               2001                 2000                 1999              1998
                                   ----------------  ------------------    -----------------    ----------------    ---------------
                                    Amount  Percent   Amount    Percent    Amount    Percent    Amount   Percent    Amount  Percent
                                    ------  -------   ------    -------    ------    -------    ------   -------    ------  -------
                                                                           (Dollars in thousands)
<S>                             <C>         <C>    <C>          <C>    <C>          <C>     <C>         <C>     <C>        <C>
Type of Loans:
-------------

Mortgage loans:
  Residential -1-4 Family......   $202,325    62.92% $148,826     65.81% $127,004     66.68%  $116,727    70.95%  $ 91,746   68.07%
  Residential - Multi-Family...     18,070     5.62     5,281      2.34     1,841      0.97          -        -          -       -
  Non-residential..............     30,317     9.43    13,763      6.09       231      0.12          -        -          -       -
Automobile.....................     63,796    19.83    52,206     23.08    45,812     24.06     30,171    18.34     22,475   16.68
Commercial(1)..................      2,472     0.77         -         -         -         -          -        -          -       -
Other Consumer(2)..............      4,589     1.43     6,063      2.68    15,563      8.17     17,623    10.71     20,550   15.25
                                  --------   ------  --------   -------  --------    ------ ----------   ------    -------  ------
     Total loans...............    321,569   100.00%  226,139    100.00%  190,451    100.00%   164,521   100.00%   134,771  100.00%
                                             ======              ======              ======              ======             ======
Less:
  Deferred loan
    fees and costs.............         85                (78)               (177)                (353)               (257)
  Allowance for
   loan losses.................     (2,231)            (1,372)             (1,176)                (995)             (1,148)
                                  --------           --------            --------             --------            --------
     Total loans, net..........   $319,423           $224,689            $189,098             $163,173            $133,366
                                  ========           ========            ========             ========            ========
</TABLE>
----------------
(1)  These loans are  included in the  automobile  loans  classification  in the
     Annual Report to Stockholders for the fiscal year ended December 31, 2002.
(2)  This category  consists of personal loans  (unsecured)  and savings secured
     loans.

                                       4
<PAGE>

         Loan Maturity Schedule.  The following table sets forth the maturity or
repricing of the loan portfolio at December 31, 2002. Demand loans, loans having
no stated maturity and overdrafts are shown as due in one year or less.

<TABLE>
<CAPTION>
                                                        Non-
                                    Residential     residential                                Other
                                    Mortgages(1)     Mortgages   Automobile   Commercial(2)   Consumer(3)        Total
                                    ------------     ---------   ----------   -------------   -----------    ---------
                                                                    (In thousands)
<S>                                   <C>             <C>        <C>             <C>           <C>          <C>

Amounts Due:
Within 1 Year....................       $    325        $     -    $ 1,480         $    -        $  640       $  2,445
                                        --------        -------    -------         ------        ------       --------
After 1 year:

  1 to 3 years...................          4,201              -     39,595              -         2,784         46,580
  3 to 5 years...................         10,026              -     22,694          2,472         1,154         36,346
  5 to 10 years..................         34,356          1,620         26              -             -         36,002
  10 to 15 years.................         93,511         10,815          -              -             2        104,328
  Over 15 years..................         77,976         17,882          1              -             9         98,868
                                        --------        -------    -------         ------        ------       --------
     Total due after one year....        220,070         30,317     62,316          2,472         3,949        319,124
                                        --------        -------    -------         ------        ------       --------
     Total amount due............       $220,395        $30,317    $63,796         $2,472        $4,589       $321,569
                                        ========        =======    =======         ======        ======       ========
</TABLE>

----------------
(1)  This category  includes one- to  four-family  residential  mortgage  loans,
     multi-family residential mortgage loans and home equity loans.
(2)  These loans are  included in the  automobile  loans  classification  in the
     Annual Report to Stockholders for the fiscal year ended December 31, 2002.
(3)  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, 2002 that are due after  December 31, 2003 that have fixed interest
rates and that have floating or adjustable interest rates.


                                                Floating or
                           Fixed Rates        Adjustable Rates     Total
                           -----------        ----------------    --------
                                              (In thousands)
Mortgage loans:
    Residential(1)........   $166,985            $53,085          $220,070
    Non-residential.......      4,113             26,204            30,317
Other Consumer(2).........      3,949                  -             3,949
Commercial................      2,472                  -             2,472
Automobile................     62,316                  -            62,316
                             --------          ---------           -------
     Total................   $239,835            $79,289          $319,124
                              =======             ======           =======
----------------
(1)  This category  includes one- to  four-family  residential  mortgage  loans,
     multi-family residential mortgage loans and home equity loans.
(2)  This category  consists of personal loans  (unsecured)  and savings secured
     loans.

         Residential  Lending.  Our  primary  lending  activity  consists of the
origination  of one- to four-  family and  multi-family  (five or more  dwelling
units) mortgage loans,  the majority of which are 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 loan amounts exceeding this guideline, the borrower is required to
obtain private mortgage insurance.

                                        5

<PAGE>

         The majority of our  residential  loans are originated with fixed rates
and have terms of fifteen to thirty years.  Our adjustable rate loans have terms
of fifteen to thirty years and  adjustment  periods of one,  three,  five or ten
years  according to the terms of the loan.  These loans  provide for an interest
rate that is tied to a U.S. treasury security index.

         We generally  make  fixed-rate  mortgage  loans that meet the secondary
mortgage  market  standards  of  the  Federal  Home  Loan  Mortgage  Corporation
("FHLMC").  In accordance  with our interest  rate risk  management  policy,  we
occasionally  sell qualifying one- to four-family  residential  mortgages in the
secondary market to FHLMC without recourse and with servicing  retained.  During
the year  ended  December  31,  2002,  we sold  approximately  $4.9  million  of
residential mortgage loans, all of which were 30 year fixed-rate loans. The sale
of mortgage  loans is part of  management's  strategy to mitigate  interest rate
risk.  We may  continue  to sell loans in the future  when doing so will help to
mitigate interest rate risk.

         Substantially  all of our residential  mortgages  include "due on sale"
clauses,  which are provisions giving us the right to declare a loan immediately
payable if the borrower sells or otherwise transfers an interest in the property
to a third  party.  Property  appraisals  on real  estate  securing  our one- to
four-family   residential   loans  are  made  by  state  certified  or  licensed
independent  appraisers  approved  by the  Board of  Directors.  Appraisals  are
performed in accordance  with applicable  regulations  and policies.  We require
title insurance policies on all first mortgage real estate loans originated. All
property-secured  loans  require  fire and  casualty  insurance.  Loans  made on
property  located in  designated  flood zones require  minimum  flood  insurance
coverage based on the amount of the loan.

         Our residential  loan portfolio  includes home equity loans,  which are
originated  in our market area and have  maturities of up to fifteen  years.  At
December 31, 2002, home equity loans totaled $78.3 million,  or 24.34%, of total
loans.  Depending  on the  amount  of the  loan  request,  collateral  value  is
determined  through the use of: an Internet  based  on-line value  estimator,  a
drive-by appraisal or a full appraisal.  All loan requests over $250,000 require
a full appraisal and a title insurance policy.

         Non-residential   Mortgage  Loans.  In  2000,  we  began  to  originate
non-residential  mortgage loans,  including loans on  retail/service  space, and
other income-producing properties. We require no less than a 25% down payment or
equity position for  non-residential  mortgage loans.  Typically these loans are
made  with  variable  rates  of  interest  with  terms  of up to  twenty  years.
Essentially all of our non-residential  mortgage loans are on properties located
within our  market  area and all are within New  Jersey.  We  occasionally  sell
participation interests in non-residential  mortgage loans originated by us that
would otherwise exceed our loans-to-one-borrower limit.

         The  non-residential  mortgage  loans  portfolio  grew by $16.6 million
during 2002 and totaled  $30.3 million at December 31, 2002. It is our intention
to continue emphasizing the origination of non-residential  mortgage loans, with
the goal of growing  this  portfolio,  as well as the  multi-family  residential
portfolio, to approximately one-fourth of our total loans outstanding.

         The likelihood that  non-residential  mortgage loans will not be repaid
or will be late in paying is generally greater than with residential  loans. Any
failure to pay or late payments on higher loan balances with lower loan-to-value
ratios  could hurt our  earnings.  The  repayment  of these loans  typically  is
dependent on the  successful  operation and income stream of the real estate and
the borrower.  These risks can be significantly affected by economic conditions.
In   addition,   non-residential   real  estate   lending   generally   requires
substantially  greater  evaluation and oversight efforts compared to residential
real estate lending.

                                        6

<PAGE>

         Consumer and  Commercial  Loans.  At December 31, 2002,  consumer loans
amounted to approximately  $70.9 million, or 22.03% of the total loan portfolio,
the vast  majority of which are auto loans.  At December  31,  2002,  auto loans
totaled $63.8 million. Commercial loans consisted of a single loan participation
of $2.5 million, or 0.77% of the total loan portfolio.

         In late 1999, we began to originate direct auto loans over the Internet
through an independent  online loan referral web site. A bank  participating  in
the referral  program sets certain  criteria with the referral company to select
those borrowers who meet that bank's lending standards. The borrower completes a
qualification  form  online  and  submits  it via the  web  site.  The  referral
company's  automated system screens the borrower's  qualification form and if it
meets our preset  criteria,  we receive the borrower's  qualification  form. The
borrower's  qualification form is sent to no more than four of the more than two
hundred  participating banks. Once we receive a qualification form, we check the
borrower's credit report via an automated  computer system. If the credit report
is  consistent  with our criteria,  the  automated  system sends a notice to the
borrower that he or she is  pre-approved  and we make the borrower a loan offer.
The borrower then decides whether to accept the loan offer. A fee is paid to the
referral company for each  qualification  form we receive (even if that borrower
does not apply for a loan with us) and for each loan that is originated.

         Currently,  an average of $1.9  million,  or 70.7% of our monthly  auto
loan  originations are generated from this referral  source.  All of these loans
are made as  direct  loans  through  new and used  auto  dealers.  We  intend to
continue to grow the auto loan  portfolio  as part of our plan to  increase  the
non-  mortgage  loan  portfolio to  approximately  one-fourth of our total loans
outstanding.

         Consumer loans also consist of personal loans  (unsecured)  and savings
secured loans. For all secured consumer loans, we will generally lend up to 100%
of the account  balance on a savings secured loan and up to 100% of the purchase
price on a new, leased or used auto loan.

         Consumer loans  generally have shorter terms and higher  interest rates
than  residential  loans.  Consumer loans generally have maturities of up to six
years.  The consumer loan market 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.  Any late  payments  or  failure to repay  would hurt our  earnings.
Finally,  the application of various federal laws,  including  federal and state
bankruptcy and  insolvency  laws, may limit the amount which 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

                                        7

<PAGE>

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.

         During the  fourth  quarter of 2002,  the Bank  participated  in a $2.5
million secured  commercial loan without  recourse with a financial  institution
which also  operates in the state of New Jersey.  The loan is  guaranteed by the
borrower and securitized by luxury limousine automobiles. The corporate borrower
is expanding its business.

         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, 2002, our loans to one borrower limit
was  approximately  $4.9 million,  and we had 47 borrowers with loan balances in
excess of $500,000.

         At December  31,  2002,  our largest  single  borrower had an aggregate
balance of $3.3 million,  including three multi-family mortgage loans secured by
apartment  buildings  located  within  the state of New  Jersey.  The loans were
originated in March 2002 with an original  loan-to-value ratio of less than 65%.
Our second  largest  single  borrower had an aggregate  balance of $3.3 million,
including  five  separate  loans  secured  by   multi-family   real  estate  and
non-residential  properties  located  in our  market  area.  Our  third  largest
borrower had an aggregate  balance of approximately  $2.8 million,  representing
two non-residential mortgage loans secured by retail strip mall shopping centers
located  within  the  state  of New  Jersey,  of  which  we sold a $1.0  million
participation interest to a local financial  institution.  At December 31, 2002,
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  repeat  customers,  on-line
applications through the Bank's Internet site, real-estate broker referrals, and
"walk-in"  customers.  A significant source for our auto loan originations is an
independent online loan referral web site, through which we currently  originate
an average of  approximately  $1.9 million,  or 70.8%,  of our monthly auto loan
originations.

         Loan originations,  net of principal repayments,  totaled approximately
$87.4  million for the year ended  December 31,  2002.  Loan  purchases  totaled
approximately $13.7 million while new participations  totaled approximately $3.1
million. Loan sales totaled approximately $5.4 million.

         The sale of mortgage loans is part of management's strategy to mitigate
interest  rate risk.  Approximately  $4.9  million of the loan sales during 2002
consisted of residential mortgages,  all of which were 30 year fixed-rate loans.
We occasionally sell participation  interests in non-residential  mortgage loans
originated  by us that are  considered  large  credits in order to reduce credit
exposure.  We may  continue  to sell  loans  in the  future  when  doing so will
mitigate interest rate risk or reduce our credit risk exposure.

         We  generally  sell  loans  on a  non-recourse  basis,  with  servicing
retained and with an average loan servicing fee of 0.25% of the loan balance. At
December  31, 2002,  loans  serviced  for the benefit of other  lenders  totaled
approximately $13.0 million.

         We occasionally  purchase loans through other  financial  institutions'
participation  programs.  During the year ended  December 31, 2002, we purchased
approximately $3.1 million of loans through

                                        8

<PAGE>

participations.  In  addition,  we  purchased  a portfolio  of $13.7  million of
indirect auto loans from First Bank of Central Jersey. During 2002, we purchased
a 90 percent interest in a commercial loan  participation  secured by a fleet of
luxury automobile limousines.  This participation was without recourse and had a
balance of approximately  $2.5 million at December 31, 2002. We also purchased a
37.5 percent  interest in a loan  participation  secured by a first  mortgage on
non-residential property in our market area. This participation had a balance of
$592,175 as of December 31, 2002.

         At December 31, 2002, we had participations in three indirect auto loan
pools (each a 90% participation  interest).  Two of the three indirect auto loan
pools were purchased with full recourse and totaled  approximately  $3.0 million
at December 31, 2002.  The third auto loan pool was purchased  without  recourse
and at December 31, 2002 had a remaining balance of approximately  $150,396. The
seller retained servicing of each of these three auto loan participations. We do
not, however, pay a servicing fee on these loans.

         In addition,  at December 31, 2002, we had a $981,138  participation in
one non-residential mortgage loan secured by real estate in our market area that
was  purchased  without  recourse.  We pay a servicing  fee of 0.25% of the loan
balance under the terms of this agreement.

         Loan Commitments.  We give written commitments to prospective borrowers
on all  residential  and  non-residential  mortgage  loans.  The total amount of
commitments  to extend credit for mortgage and consumer loans as of December 31,
2002, was approximately $31.5 million,  excluding commitments on unused lines of
credit of $12.9 million.

         Loan Origination and Other Loan Fees. In addition to interest earned on
loans, we receive  commitment  fees, loan origination fees and points on certain
loans. We also receive other fees and charges relating to existing loans,  which
include late charges and fees collected in connection  with loan  modifications.
These fees and charges have not constituted a material source of income.

Non-Performing Loans and Problem Assets

         Collection Procedures.  The borrower is notified by mail when a loan is
ten days delinquent.  If the delinquency continues,  subsequent efforts are made
to contact the delinquent borrower and additional collection notices and letters
are sent. When a collateralized  loan is ninety days delinquent,  it is referred
to an attorney for repossession or foreclosure. All reasonable attempts are made
to collect from borrowers  prior to referral to an attorney for  collection.  In
certain instances,  we may modify the loan or grant a limited moratorium on loan
payments to enable the borrower to reorganize  his or her financial  affairs and
we attempt to work with the borrower to  establish a repayment  schedule to cure
the delinquency.

         In the case of mortgage loans, if a foreclosure action is taken and the
loan is not  reinstated,  paid in full or  refinanced,  the  property is sold at
judicial  sale at which we may be the buyer if there are no  adequate  offers to
satisfy the debt. Any property  acquired as the result of foreclosure or by deed
in lieu of  foreclosure  is  classified as real estate owned ("REO") until it is
sold or otherwise disposed of. When REO is acquired, it is recorded at the lower
of the unpaid  principal  balance of the related  loan or its fair market  value
less estimated selling costs. The initial  write-down of the property is charged
to the  allowance  for loan losses.  Adjustments  to the  carrying  value of the
properties  that  result  from  subsequent  declines  in value  are  charged  to
operations in the period in which the declines  occur.  At December 31, 2002, we
did not hold any real estate owned.

                                        9

<PAGE>

         Loans are reviewed on a regular  basis and are placed on a  non-accrual
status when they are more than ninety days delinquent.  Loans may be placed on a
non-accrual status at any time if, in the opinion of management,  the collection
of additional  interest is doubtful.  Interest  accrued and unpaid at the time a
loan is placed  on  non-accrual  status  is  charged  against  interest  income.
Subsequent  payments are either applied to the outstanding  principal balance or
recorded  as  interest  income,  depending  on the  assessment  of the  ultimate
collectibility of the loan.

         Non-Performing   Assets.  The  following  table  provides   information
regarding our  non-performing  loans and other  non-performing  assets as of the
dates indicated. As of each of the dates indicated, we did not have any troubled
debt  restructurings  within the meaning of Statement  of  Financial  Accounting
Standards ("SFAS") 15.

<TABLE>
<CAPTION>
                                                                                   At December 31,
                                                          ----------------------------------------------------------------
                                                           2002           2001           2000          1999          1998
                                                           ----           ----           ----          ----          ----
                                                                               (Dollars in thousands)
<S>                                                     <C>            <C>            <C>           <C>           <C>
Loans accounted for on a non-accrual basis:

  Residential mortgages(1).......................         $   -          $   -          $  57         $  58         $ 113
  Non-residential mortgages......................             -              -              -             -             -
  Automobile.....................................           374             32             19            55            45
  Credit Card....................................             5             22             32            67            38
  Other Consumer(2)..............................            70             17             79           112           125
                                                          -----          -----          -----         -----         -----

     Total.......................................           449             71            187           292           321
                                                          -----          -----          -----         -----         -----
Accruing loans which are contractually past
  due 90 days or more............................             -              -              -             -             -
                                                          -----          -----          -----         -----         -----

     Total non-performing loans..................           449             71            187           292           321

Other non-performing assets......................             -              -              -             -             -
                                                          -----          -----          -----         -----         -----

Total non-performing assets......................         $ 449          $  71          $ 187         $ 292         $ 321
                                                          =====          =====          =====         =====         -====

Total non-performing loans to net loans..........          0.14%          0.03%          0.10%         0.18%         0.24%
                                                          =====          =====          =====         =====         =====

Total non-performing loans to total assets.......          0.10%          0.02%          0.08%         0.13%         0.16%
                                                          =====          =====          =====         =====         =====

Total non-performing assets to total assets......          0.10%          0.02%          0.08%         0.13%         0.16%
                                                          =====          =====          =====         =====         =====
</TABLE>

----------------
(1)  This category  includes one- to  four-family  residential  mortgage  loans,
     multi-family residential mortgage loans and home equity loans.
(2)  This category  consists of personal loans  (unsecured)  and savings secured
     loans.

         For the year ended December 31, 2002, the amount of interest that would
have been recorded on loans accounted for on a non-accrual  basis if those loans
had been current according to the original loan agreements for the entire period
was approximately  $17,000.  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, 2002.

         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

                                       10

<PAGE>

classifies  a portion  of a loan as loss,  a  reserve  equal to 100% of the loss
amount is required to be established or the loan is to be charged-off.

         An asset is considered "substandard" if it is inadequately protected by
the paying capacity and net worth of the obligor or the collateral  pledged,  if
any.  Substandard assets include those characterized by the distinct possibility
that the insured  institution will sustain some loss if the deficiencies are not
corrected.  Assets classified as doubtful have all of the weaknesses inherent in
those classified substandard,  with the added characteristic that the weaknesses
present  make  collection  or  liquidation  in  full  highly   questionable  and
improbable,  on the basis of currently existing facts,  conditions,  and values.
Assets  classified as loss are those considered  uncollectible  and of so little
value that their  continuance as assets without the  establishment of a specific
loss reserve is not warranted.  Assets which do not currently expose the insured
institution to a sufficient  degree of risk to warrant  classification in one of
the  aforementioned  categories but which have credit  deficiencies or potential
weaknesses  are required to be  designated as "special  mention" by  management.
Management's  classification of assets and its estimation of the amount of known
and  inherent  loan losses in the loan  portfolio  is reviewed by the Board on a
regular  basis  and by the  regulatory  agencies  as part of  their  examination
process.  The following  table  provides  further  information  in regard to the
Bank's classified assets as of December 31, 2002.


                                                At December 31, 2002
                                                --------------------
                                                   (In thousands)
  Special mention assets...............                   $  -
  Substandard..........................                    357
  Doubtful assets......................                    440
  Loss ................................                      -
                                                          ----
     Total classified assets...........                   $797
                                                          ====

         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.

         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  factors in connection with our  determination of loss
factors  and as part of our  overall  estimation  of the  amount  of  known  and
inherent loan losses in the loan portfolio:

          o    our historical loan loss experience;

                                       11

<PAGE>

          o    internal analysis of credit quality;

          o    general levels of non-performing loans and delinquencies;

          o    changes in loan concentrations by loan category;

          o    current estimated collateral values;

          o    peer group information;

          o    analysis  of  credit   quality   conducted  in  bank   regulatory
               examinations; and

          o    economic and market trends impacting our lending area.

         In recent years, our charge-offs have been low and,  consequently,  our
estimation of the amount of known and inherent loan losses in the loan portfolio
has been more reflective of other factors.

         This estimation is inherently  subjective as it requires  estimates and
assumptions  that are susceptible to significant  revisions as more  information
becomes available or as future events change.  Future additions to the allowance
for loan losses may be necessary if economic and other  conditions in the future
differ substantially from the current operating  environment.  In addition,  the
OTS as an integral part of its  examination  process,  periodically  reviews our
loan and foreclosed  real estate  portfolios and the related  allowance for loan
losses and valuation  allowance for foreclosed real estate.  The OTS may require
the  allowance for loan losses or the valuation  allowance for  foreclosed  real
estate to be increased based on its review of information  available at the time
of the examination, which would negatively affect our earnings.

                                       12

<PAGE>



         The  following  table  sets  forth  information  with  respect  to  our
allowance for loan losses at the dates indicated:

<TABLE>
<CAPTION>
                                                                                  For the Years Ended December 31,
                                                          -------------------------------------------------------------------------
                                                            2002            2001             2000            1999            1998
                                                          --------        --------         --------         --------       --------
                                                                                      (Dollars in thousands)
<S>                                                     <C>             <C>              <C>              <C>            <C>
Allowance balance (at beginning of period)............    $  1,372        $  1,176         $    995         $  1,148       $  1,041
                                                          --------        --------         --------         --------       --------
Charge-offs:
  Residential mortgages(1)............................           -               -                -               35              -
  Non-residential mortgages...........................           -               -                -                -              -
  Automobile..........................................         281              61              101               27            141
  Credit Card.........................................          26             108              127              135            264
  Other Consumer(2)...................................         128             248              267              329            902
                                                          --------        --------         --------         --------       --------
    Total.............................................         435             417              495              526          1,307
Recoveries
  Residential mortgages(1)............................           3               2                1                5              -
  Non-residential mortgages...........................           -               -                -                -              -
  Automobile..........................................          42              39               26               36             32
  Credit Card.........................................          28              49               25               25             14
  Other Consumer(2)...................................         144             160              144              182            158
                                                          --------        --------         --------         --------       --------
    Total.............................................         216             250              196              248            204
                                                          --------        --------         --------         --------       --------
Net charge-offs.......................................        (219)           (167)            (299)            (278)        (1,103)
Provision for loan losses.............................       1,077             363              480              125          1,210
                                                          --------        --------         --------         --------       --------
Allowance balance (at end of period)..................    $  2,231        $  1,372         $  1,176         $    995       $  1,148
                                                          ========        ========         ========         ========       ========
    Total gross loans outstanding (at end of period)..    $321,569        $226,139         $190,451         $164,521       $134,771
                                                          ========        ========         ========         ========       ========
Allowance for loan losses as a percent
   of total loans outstanding.........................        0.69%           0.61%            0.62%            0.60%          0.85%
                                                          ========        ========         ========         ========       ========
Net loans charged off as a percent of average
   loans outstanding during the period................        0.08%           0.08%            0.17%            0.19%          0.87%
                                                          ========        ========         ========         ========       ========
</TABLE>

----------------
(1)  This category  includes one- to  four-family  residential  mortgage  loans,
     multi-family residential mortgage loans and home equity loans.
(2)  This category  consists of personal loans  (unsecured)  and savings secured
     loans.

                                       13

<PAGE>

         Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of our allowance for loan losses by collateral and the percent of
loans in each category to total loans  receivable,  net, at the dates indicated.
Management  determines  the allocation of our allowance for loan losses based on
its assessment of the risk characteristics of each loan category.  The change in
allocation  of the  allowance  from period to period also  reflects the relative
balances of each loan category. The portion of the loan loss allowance allocated
to each loan category  does not  represent the total  available for losses which
may occur  within the loan  category  since the total loan loss  allowance  is a
valuation  reserve  applicable to the entire loan  portfolio.  The allocation is
subject to change as management's assessment of the risk characteristics of each
loan category may change from time to time.

<TABLE>
<CAPTION>
                                                                         At December 31,
                                ----------------------------------------------------------------------------------------------
                                       2002               2001                2000               1999               1998
                                  -----------------  -----------------  -----------------  -----------------  ----------------
                                           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)
<S>                             <C>        <C>     <C>         <C>      <C>       <C>       <C>     <C>     <C>       <C>
At end of period allocated to:

  Residential mortgages(1)......  $  517     68.54%  $  813      68.15%   $ 409     67.65%    $312    70.95%  $  293    68.07%
  Non-residential mortgages.....     256      9.43      105       6.09        8      0.12        -        -        -        -
  Automobile....................   1,113     19.83      319      23.08      158     24.06       86    18.34       96    16.68
  Commercial....................       9      0.77        -          -        -         -        -        -        -        -
  Other Consumer(2).............     336      1.43      135       2.68      601      8.17      597    10.71      759    15.25
                                  ------     -----   ------     ------   ------   -------     ----   ------   ------  -------

     Total allowance............  $2,231    100.00%  $1,372     100.00%  $1,176    100.00%    $995   100.00%  $1,148   100.00%
                                  ======    ======   ======     ======   ======    ======     ====   ======   ======   ======
</TABLE>
----------------
(1)  This category  includes one- to  four-family  residential  mortgage  loans,
     multi-family residential mortgage loans and home equity loans.

(2)  This category  consists of personal loans  (unsecured)  and savings secured
     loans.

                                       14

<PAGE>

Securities Portfolio

         General. Federally chartered savings banks have the authority to invest
in various types of liquid  assets,  including  U.S.  government  and government
agency    obligations,    securities   of   various    federal    agencies   and
government-sponsored    entities   (including   securities   collateralized   by
mortgages),  certificates of deposits of insured banks and savings institutions,
municipal securities and corporate debt securities.

         SFAS No. 115,  "Accounting  for Certain  Investments in Debt and Equity
Securities,"  requires  that  securities be  categorized  as "held to maturity,"
"trading securities" or "available for sale," based on management's intent as to
the ultimate  disposition of each security.  SFAS No. 115 allows debt securities
to be classified  as "held to maturity" and reported in financial  statements at
amortized cost only if the reporting  entity has the positive intent and ability
to hold these securities to maturity.  Securities that might be sold in response
to changes in market interest rates, changes in the security's  prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity."

         We do not currently use or maintain a trading  account.  Securities not
classified as "held to maturity" are  classified as "available  for sale." These
securities are reported at fair value,  and  unrealized  gains and losses on the
securities are excluded from earnings and reported,  net of deferred taxes, as a
separate component of equity. On occasion, we sell available for sale securities
based on the evaluation of price levels obtained through multiple  dealers.  Our
analysis in selling available for sale securities includes tracking the Treasury
yield curve  through  Bloomberg  and  tracking  the price of similar  securities
offered through dealers' inventory listings using their individual web sites.

         All of our 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.

         At  December  31,  2002,  we  held   approximately   $62.3  million  in
available-for-sale  ("AFS")  securities.  These  securities  are carried at fair
value  on our  balance  sheet.  Unrealized  holding  gains  or  losses  on these
securities,  that is, the  difference  between the fair value and the  amortized
cost  of  these  securities,   net  of  deferred  taxes,  is  reflected  in  our
stockholders'  equity.  If  interest  rates  increase,  the  fair  value  of our
available-for-sale  securities generally decreases, which also decreases equity.
As of December 31, 2002, the unrealized  gain, net of tax, on the AFS securities
portfolio totaled approximately $573,000.

         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.

                                       15

<PAGE>

         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,  although we focus primarily on mortgage-backed securities secured by
one- to four-family mortgages.

         The mortgage originators use intermediaries  (generally U.S. government
agencies  and  government-  sponsored  enterprises)  to pool and  repackage  the
participation  interests in the form of  securities,  with  investors such as us
receiving  the  principal  and  interest  payments on the  mortgages.  Such U.S.
government agencies and  government-sponsored  entities guarantee the payment of
principal  and  interest  to  investors.  At  December  31,  2002,  all  of  our
mortgage-backed  securities  were issued by either U.S.  government  agencies or
government-sponsored entities.

         Mortgage-backed  securities are typically  issued with stated principal
amounts,  and the  securities  are backed by pools of mortgages  that have loans
with  interest  rates  that  are  within  a  specific  range  and  have  varying
maturities.   The  life  of  a   mortgage-backed   pass-through   security  thus
approximates the life of the underlying  mortgages.  The  characteristics of the
underlying pool of mortgages,  i.e.,  fixed-rate or adjustable-rate,  as well as
prepayment  risk,  are  passed  on to the  certificate  holder.  Mortgage-backed
securities are generally referred to as mortgage  participation  certificates or
pass-through  certificates.  Our mortgage-backed securities consist primarily of
securities  issued by the Government  National Mortgage  Association  ("GNMA" or
"Ginnie Mae"), the Federal Home Loan Mortgage  Corporation  ("FHLMC" or "Freddie
Mac") and the Federal National  Mortgage  Association  ("FNMA" or "Fannie Mae").
Mortgage-  backed  securities  generally  yield  less  than the  mortgage  loans
underlying  such  securities  because  of their  payment  guarantees  or  credit
enhancements which offer nominal credit risk to the security holder.

         Expected  maturities  will differ from  contractual  maturities  due to
scheduled  repayments and because the mortgagor may have the right to prepay the
obligation with or without prepayment penalties.

         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 whereby  tranches 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.

                                       16

<PAGE>

         At December 31,  2002,  we had  approximately  $5.0 million of CMOs and
REMICs.

         Other  Securities.  In  addition,  at  December  31,  2002  we  held an
approximate  investment  of $1.9  million in FHLB of New York common stock (this
amount is not shown in the securities portfolio). As a member of the FHLB of New
York, ownership of FHLB of New York common shares is required.

         The  following  table sets forth the carrying  value of our  securities
portfolio at the dates indicated. For additional information,  see Note C of the
Notes to the Consolidated  Financial Statements included in the Annual Report to
Stockholders for the fiscal year ended December 31, 2002.


                                                           At December 31,
                                                    ----------------------------
                                                       2002      2001      2000
                                                       ----      ----      ----
                                                           (In thousands)
Securities Available for Sale:
-----------------------------

  Equity securities..............................   $    10   $     -    $     -
  U.S. government obligations....................         -         -      5,952
  Mortgage-backed securities:
      FHLMC......................................    21,407    24,595      3,819
      FNMA.......................................    40,886    19,299     13,398
      GNMA.......................................         -         -      2,806
                                                    -------   -------    -------

        Total Securities Available for Sale......    62,303    43,894     25,975
                                                    -------   -------    -------


Securities Held to Maturity:
---------------------------

  U.S. government obligations....................         -         -      2,491
  Mortgage-backed securities:
      FHLMC......................................     3,249         -        821
      FNMA.......................................    11,395     2,458      2,374
      GNMA.......................................     2,763     4,695      6,564
                                                    -------   -------    -------
        Total Securities Held to Maturity........    17,407     7,153     12,250
                                                    -------   -------    -------
            Total................................   $79,710   $51,047    $38,225
                                                    =======   =======    =======

                                       17

<PAGE>

         Carrying Values, Yields and Maturities.  The following table sets forth
certain information  regarding the carrying values,  weighted average yields and
maturities of our investment  and  mortgage-backed  securities  portfolio at the
dates indicated.

<TABLE>
<CAPTION>
                                                                  At December 31, 2002
                             -------------------------------------------------------------------------------------------------------
                              One Year or Less   One to Five Years   Five to Ten Years  More than Ten Years   Total Securities
                             ------------------  ------------------ ------------------- ------------------ -------------------------
                                       Weighted            Weighted            Weighted          Weighted           Weighted
                             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)
<S>                            <C>       <C>     <C>        <C>    <C>          <C>   <C>        <C>    <C>         <C>    <C>
Equity Securities............    $  -         -%   $     -       -%  $     -         -% $     -       -%  $    10     3.26%  $    10

Mortgage-Backed Securities,
  Collateralized Mortgage
  Obligations and Real
  Estate Mortgage Investment
  Conduits(1)................     122      3.93     16,380    3.94    22,810      4.68   40,387    4.63    79,700     4.50    79,962
                                 ----      ----    -------    ----   -------      ----  -------    ----   -------     ----   -------

   Total.....................    $122      3.93%   $16,380    3.94%  $22,810      4.68% $40,387    4.63%  $79,710     4.50%  $79,972
                                 ====      ====    =======    ====   =======      ====  =======    ====   =======     ====   =======
</TABLE>

-----------------------
(1)  As of December 31, 2002, total adjustable rate  mortgage-backed  investment
     securities amount to approximately $28.1 million.

                                       18

<PAGE>

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  ranging in terms from
three months to ten years, and individual retirement accounts ("IRAs").  Deposit
account terms vary,  primarily as to the required  minimum balance  amount,  the
amount of time that the funds must remain on deposit and the applicable interest
rate.

         Deposits are  obtained  primarily  from within New Jersey.  Traditional
methods of advertising are used to attract new customers and deposits, including
print media, radio,  direct mail and inserts included with customer  statements.
We do not utilize the services of deposit  brokers.  Premiums or incentives  for
opening accounts are generally not offered. Periodically, we select a particular
certificate of deposit term for promotion.

         We pay interest rates on  certificates  of deposits that are toward the
high range of rates  offered  by our  competitors.  Rates on  savings  and money
market accounts are generally priced toward the middle range of rates offered in
our  market.  The  determination  of  interest  rates is based  upon a number of
factors,  including:  (1) our  need for  funds  based  on loan  demand,  current
maturities  of  deposits  and other cash flow needs;  (2) a current  survey of a
selected group of competitors' rates for similar products;  (3) our current cost
of funds and yield on assets and asset/liability position; and (4) the alternate
cost of funds on a wholesale  basis, in particular the cost of advances from the
FHLB.  Interest  rates are  reviewed by senior  management  on at least a weekly
basis.

         A significant percentage of our deposits are in certificates of deposit
(57.1% 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.

                                       19

<PAGE>

         The following table sets forth the distribution of deposits in the Bank
at the dates indicated and the weighted  average nominal interest rates for each
period on each category of deposits presented.


<TABLE>
<CAPTION>
                                                                             At December 31,
                                          -----------------------------------------------------------------------------------------
                                                      2002                          2001                        2000
                                          ----------------------------- ----------------------------- -----------------------------
                                                               Weighted                      Weighted                      Weighted
                                                     Percent   Average            Percent    Average           Percent     Average
                                                     of Total  Nominal            of Total   Nominal           of Total    Nominal
                                            Amount   Deposits    Rate    Amount   Deposits     Rate    Amount  Deposits      Rate
                                            ------   --------    ----    ------   --------     ----    ------  --------      ----
                                                                (Dollars in thousands)

<S>                                     <C>         <C>        <C>   <C>          <C>        <C>   <C>          <C>        <C>
Money market accounts..............       $ 44,966    14.78%     1.74% $ 36,325     16.51%     2.86% $ 34,305     19.15%     3.30%
Savings and club accounts..........         62,310    20.47      1.23    53,527     24.33      1.82    52,117     29.10      2.10
Certificates of deposit and
  other time deposit accounts......        160,305    52.68      3.60   101,594     46.18      5.37    65,598     36.62      5.49
Non-interest-bearing checking
  accounts.........................         36,743    12.07         -    28,561     12.98         -    27,104     15.13         -
                                          --------   ------            --------    ------            --------    ------

    Total deposits.................       $304,324   100.00%           $220,007    100.00%           $179,124    100.00%
                                          ========   ======            ========    ======            ========    ======
</TABLE>

                                       20

<PAGE>

         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, 2002.


                                                   Certificates
Remaining Time Until Maturity                      of Deposits
-----------------------------                      -----------
                                                  (In thousands)

Within one month.............................       $ 29,870
One through three months.....................          5,553
Three through six months.....................          8,862
Six through twelve months....................         16,678
Over twelve months...........................          9,894
                                                     -------
                                                     $70,857
                                                     =======

         Borrowings. As the need arises or in order to take advantage of funding
opportunities  or to  supplement  our  deposits as a source of funds,  we borrow
funds in the form of advances from the FHLB to supplement our supply of lendable
funds and to meet deposit  withdrawal  requirements.  Advances from the FHLB are
typically  secured  by the FHLB  stock we own and a portion  of our  residential
mortgage loans and may be secured by other assets,  mainly  securities which are
obligations of or guaranteed by the U.S.  government.  We use  convertible  FHLB
advances for a portion of our funding  needs.  These  borrowings  are fixed-rate
advances that can be called at the option of the FHLB. At December 31, 2002, our
unused borrowing capacity with the FHLB was approximately $84.5 million.

         At December  31, 2002,  we had a line of credit for $34.5  million from
the FHLB.  We had draws of $2.5  million on this line of credit at December  31,
2002,  and no draws at December 31, 2001 and 2000,  respectively.  See Note G of
the Notes to the Consolidated Financial Statements included in the Annual Report
to Stockholders for the fiscal year ended December 31, 2002.

         The  following  table  sets forth  certain  information  regarding  our
borrowed funds.


                                                      At or for the
                                                  Year Ended December 31,
                                               -----------------------------
                                                 2002       2001       2000
                                               -------    -------    -------
                                                  (Dollars in thousands)
FHLB Advances:
Average balance outstanding..................  $39,737    $29,385    $31,227
Maximum amount outstanding
  at any month-end during the period.........  $48,225    $34,500    $43,046
Balance outstanding at end of period.........  $36,456    $22,500    $31,500
Weighted average interest rate during the
   period....................................     4.25%      6.24%      6.83%
Weighted average interest rate at end of
   period....................................     4.20%      6.02%      6.24%


                                       21

<PAGE>

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, 2002, Synergy Financial Services, Inc. had
total assets of $79,037. For the year ended December 31, 2002, it had commission
income of $249,459,  however,  it reported a net operating loss of approximately
$33,743.

         In November  2002, the Bank  incorporated  a  wholly-owned  subsidiary,
Synergy  Capital  Investments,  Inc.,  under New Jersey  law,  as an  investment
company primarily to hold investment  securities.  This operating subsidiary was
established to mitigate the higher tax rates imposed by a revision to New Jersey
tax laws enacted during 2002 that eliminated the 3% tax rate formerly applicable
to thrift institutions  located in New Jersey and made such institutions subject
to the regular New Jersey 9% corporate tax rate.  At December 31, 2002,  Synergy
Capital Investments, Inc. had total assets of $79.8 million.

Personnel

         As of  December  31,  2002,  we  had  102  full-time  employees  and 51
part-time  employees.   The  employees  are  not  represented  by  a  collective
bargaining unit. 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 Bank and the Company.  The description does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.  The Bank and the Company operate in a highly  regulated  industry.
This  regulation  and  supervision  establishes  a  comprehensive  framework  of
activities in which a federal savings bank may engage and is intended  primarily
for the protection of the deposit insurance fund and depositors.

         Any change in applicable statutory and regulatory requirements, whether
by the OTS,  the FDIC or the  United  States  Congress,  could  have a  material
adverse impact on the Company and the Bank, and their  operations.  The adoption
of regulations or the enactment of laws that restrict the operations of the Bank
and/or the Company or impose  burdensome  requirements  upon one or both of them
could  reduce  their  profitability  and could  impair  the value of the  Bank's
franchise which could hurt the trading price of the Company's common stock.

         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 certain regulations pursuant to the Act and will 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

                                       22

<PAGE>

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.

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 losses.  The activities of federal  savings banks are subject
to extensive regulation  including  restrictions or requirements with respect to
loans to one borrower,  the percentage of  non-mortgage  loans or investments to
total  assets,  capital  distributions,   permissible  investments  and  lending
activities,  liquidity  management,  transactions  with affiliates and community
reinvestment.  Federal savings banks are also subject to reserve requirements of
the Federal  Reserve  System.  A federal  savings bank's  relationship  with its
depositors and borrowers is regulated by both state and federal law,  especially
in such matters as the ownership of savings accounts and the form and content of
the bank's mortgage documents.

         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  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 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 at an annual  rate of  approximately  .0212% of insured
deposits to fund interest payments on bonds issued by the Financing  Corporation
("FICO"),  an agency of the Federal  government  established to recapitalize the
predecessor to the SAIF.  These  assessments  will continue until the FICO bonds
mature in 2017.

         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,  2002 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.

                                       23

<PAGE>

         For  purposes  of the OTS  capital  regulations,  tangible  capital  is
defined as core capital less all intangible  assets except for certain  mortgage
servicing  rights.  Tier 1 or core  capital is  defined as common  stockholders'
equity,  non-cumulative perpetual preferred stock and related surplus,  minority
interests  in the equity  accounts  of  consolidated  subsidiaries,  and certain
non-withdrawable accounts and pledged deposits of mutual savings banks. 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 losses
not  designated  for specific loan losses and up to 45% of  unrealized  gains on
equity  securities.  The  portion  of the  allowance  for loan and lease  losses
includable  in  supplementary  capital  is  limited  to a  maximum  of  1.25% of
risk-weighted assets. Overall,  supplementary capital is limited to 100% of core
capital.  For purposes of  determining  total capital,  a savings  institution's
assets are reduced by the amount of capital instruments held by other depository
institutions  pursuant  to  reciprocal  arrangements  and by the  amount  of the
institution's  equity  investments  (other  than  those  deducted  from core and
tangible   capital)   and  its  high   loan-to-value   ratio   land   loans  and
non-residential construction loans.

         A savings  institution's  risk-based  capital  requirement  is measured
against risk-weighted assets, which equal the sum of each on-balance-sheet asset
and the  credit-equivalent  amount of each  off-balance-  sheet item after being
multiplied by an assigned risk weight. These risk weights range from 0% for cash
to 100% for delinquent loans, property acquired through foreclosure,  commercial
loans, and other assets.

         OTS rules  require a deduction  from  capital for savings  institutions
with certain levels of interest rate risk. The OTS calculates the sensitivity of
an institution's  net portfolio value based on data submitted by the institution
in a schedule to its quarterly  Thrift  Financial  Report and using the interest
rate risk measurement  model adopted by the OTS. The amount of the interest rate
risk component, if any, deducted from an institution's total capital is based on
the institution's  Thrift Financial Report filed two quarters  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 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

                                       24

<PAGE>

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.

         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, 2002 and in each of the last  twelve  months  and,  therefore,
qualifies as a QTL.

         Transactions with Affiliates.  Generally,  federal banking law requires
that  transactions  between a savings  institution or its  subsidiaries  and its
affiliates  must  be on  terms  as  favorable  to  the  savings  institution  as
comparable transactions with non-affiliates. In addition, certain types of these
transactions

                                       25

<PAGE>

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.

         Federal  Home Loan Bank  ("FHLB")  System.  The Bank is a member of the
FHLB of New York,  which is one of twelve regional FHLBs.  Each FHLB serves as a
reserve or central bank for its members within its assigned region. It is funded
primarily from funds deposited by financial  institutions  and proceeds  derived
from the sale of consolidated  obligations of the FHLB System. It makes loans to
members  pursuant  to  policies  and  procedures  established  by the  board  of
directors of the FHLB.

         As a member, the Bank is required to purchase and maintain stock in the
FHLB of New York in an amount equal to the greater of 1% of our aggregate unpaid
residential  mortgage loans, home purchase  contracts or similar  obligations at
the beginning of each year or 5% of FHLB  advances.  We are in  compliance  with
this  requirement.  The FHLB imposes  various  limitations  on advances  such as
limiting the amount of certain types of real estate related collateral to 30% of
a member's capital and limiting total advances to a member.

         The FHLBs are required to provide funds for the  resolution of troubled
savings  institutions  and to contribute to affordable  housing programs through
direct loans or interest subsidies on advances targeted for community investment
and  low-  and  moderate-income  housing  projects.   These  contributions  have
adversely  affected the level of FHLB dividends paid and could continue to do so
in the future.

         Federal  Reserve  System.  The  Federal  Reserve  System  requires  all
depository institutions to maintain  non-interest-bearing  reserves at specified
levels against their checking  accounts and non-personal  certificate  accounts.
The balances maintained to meet the reserve  requirements imposed by the Federal
Reserve System may be used to satisfy the OTS liquidity requirements.

         Savings  institutions have authority to borrow from the Federal Reserve
System "discount  window," but Federal Reserve System policy generally  requires
savings  institutions  to exhaust all other sources  before  borrowing  from the
Federal Reserve System.

Regulation of the Company

         General.  The Company is a federal  mutual holding  company  subsidiary
within the meaning of Section 10(o) of the Home Owners' Loan Act. It is required
to file reports with the OTS and is subject

                                       26

<PAGE>

to regulation and  examination by the OTS. In addition,  the OTS has enforcement
authority over the Company and any non-savings  institution  subsidiaries.  This
permits the OTS to restrict or prohibit  activities  that it  determines to be a
serious  risk  to the  Bank.  This  regulation  is  intended  primarily  for the
protection  of the  depositors  and not for the benefit of  stockholders  of the
Company.

         Activities  Restrictions.  As a savings and loan holding company formed
after May 4, 1999, the Company is not a  grandfathered  unitary savings and loan
holding company under the  Gramm-Leach-Bliley  Act (the "GLB Act"). As a result,
the  Company  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
the Company 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 the 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. The Company 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 the Company to acquire control of a savings institution, the OTS
would  consider the financial and managerial  resources and future  prospects of
the Company 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.

         Waivers of Dividends by Synergy,  MHC. OTS regulations require Synergy,
MHC to notify the OTS of any proposed  waiver of its receipt of  dividends  from
the Company The OTS reviews  dividend  waiver notices on a  case-by-case  basis,
and, in general,  does not object to any such waiver if: (i) the mutual  holding
company's board of directors determines that such waiver is consistent with such
directors' fiduciary duties to the mutual holding company's members; (ii) for as
long as the savings  association  subsidiary is controlled by the mutual holding
company, the dollar amount of dividends waived by the mutual holding company are
considered as a restriction on the retained earnings of the savings association,
which restriction,  if material, is disclosed in the public financial statements
of the savings  association  as a note to the  financial  statements;  (iii) the
amount of any dividend  waived by the mutual  holding  company is available  for
declaration  as a  dividend  solely  to the  mutual  holding  company,  and,  in
accordance  with SFAS No. 5, where the savings  association  determines that the
payment  of  such  dividend  to the  mutual  holding  company  is  probable,  an
appropriate dollar amount is recorded as a liability; and (iv) the amount of any
waived dividend is considered as having been paid by the savings  association in
evaluating any proposed dividend under OTS capital distribution regulations.

         We  anticipate  that  Synergy,  MHC will  waive  dividends  paid by the
Company,  if any. Under OTS regulations,  our public  stockholders  would not be
diluted because of any dividends  waived by Synergy,  MHC (and waived  dividends
would not be considered in  determining an  appropriate  exchange  ratio) in the
event Synergy, MHC converts to stock form.

                                       27

<PAGE>

         Conversion  of  Synergy,  MHC to Stock  Form.  OTS  regulations  permit
Synergy,  MHC to convert  from the mutual  form of  organization  to the capital
stock  form  of  organization  (a  "Conversion  Transaction").  In a  Conversion
Transaction  a new  holding  company  would be  formed as the  successor  to the
Company (the "New Holding Company"),  Synergy,  MHC's corporate  existence would
end, and certain depositors of the Bank would receive the right to subscribe for
additional shares of the New Holding Company. In a Conversion Transaction,  each
share of common stock held by  stockholders  other than Synergy,  MHC ("Minority
Stockholders")  would be  automatically  converted  into a number  of  shares of
common stock of the New Holding Company determined pursuant to an exchange ratio
that ensures that Minority  Stockholders own the same percentage of common stock
in the New Holding Company as they owned in the Company immediately prior to the
Conversion Transaction.  Under OTS regulations,  Minority Stockholders would not
be diluted because of any dividends waived by Synergy, MHC (and waived dividends
would not be considered in determining an appropriate  exchange  ratio),  in the
event  Synergy,  MHC converts to stock form.  The total number of shares held by
Minority Stockholders after a Conversion  Transaction also would be increased by
any purchases by Minority  Stockholders in the stock offering  conducted as part
of the Conversion Transaction.

Item 2.  Description of Property.

(a)      Properties.

         At December  31, 2002,  the Bank  conducted  business  through its main
office in  Cranford,  New Jersey  and 15 branch  offices  located in  Middlesex,
Monmouth,  Morris and Union  counties,  New Jersey.  The Bank's  branch  network
consists of six owned branch facilities,  and four leased branch facilities. Six
branches are located  within a corporate  facility of the Bank's  former  credit
union sponsor;  the Bank makes no rent payments for such branches.  These branch
locations  are  occupied  pursuant  to a written  agreement  that  provides  for
two-year terms that are  automatically  renewed upon  expiration  unless written
notice of termination is given by either party.

         Management considers the physical condition of the main office and each
of the branch  offices  to be good and  adequate  for the  conduct of the Bank's
business.  At December 31, 2002  property and  equipment  totaled  approximately
$17.6 million. We use an outside service company for data processing.

(b)      Investment Policies.

         See "Item 1.  Description of Business" above for a general  description
of the Bank's  investment  policy.  The Bank's  investment policy is designed to
foster  earnings and liquidity  within  prudent  interest rate risk  guidelines,
while complementing the Bank's lending activities.

         (1)  Investments in Real Estate or Interests in Real Estate.  See "Item
1.  Description of Business - Lending  Activities,"  and "Item 2. Description of
Property."

         (2) Investments in Real Estate  Mortgages.  See "Item 1. Description of
Business -- Lending Activities."

         (3)  Investments  in  Securities  of or Interests in Persons  Primarily
Engaged  in Real  Estate  Activities.  See "Item 1.  Description  of  Business -
Lending Activities."

                                       28

<PAGE>

(c)      Description of Real Estate and Operating Data.

         Not Applicable.

Item 3. Legal Proceedings

         The Company  and its  subsidiaries,  from time to time,  are a party to
routine  litigation,  which  arises in the normal  course of  business,  such as
claims to enforce  liens,  condemnation  proceedings  on properties in which the
Bank holds security interests, claims involving the making and servicing of real
property loans, and other issues incident to the business of the Bank.

         On October 11, 2002,  Synergy  entered into a definitive  agreement and
plan of merger with First Bank of Central Jersey. Subsequently, Synergy received
notice on December 27, 2002 that an order had been issued by the Superior  Court
of New Jersey, Chancery Division, Middlesex County, to enjoin the closing of the
merger,  as a result  of a  complaint  filed  on  December  26,  2002 by John E.
Pellizari and Augusto  Verissimo,  stockholders of First Bank of Central Jersey.
By order dated January 9, 2003, the injunction  preventing  consummation  of the
merger was lifted,  and the closing of the merger  occurred on January 10, 2003.
Prior to the scheduled  February 28, 2003 hearing the plaintiffs  withdrew their
suit.

Item 4. Submission of Matters to a Vote of Security Holders

         No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year.

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters

         The  information  contained  under the section  captioned  "Stock Price
Information" of the Company's  Annual Report to Stockholders for the fiscal year
ended  December  31,  2002  (the  "Annual  Report")  is  incorporated  herein by
reference.

Item 6. Management's Discussion and Analysis or Plan of Operation

         The  information  contained under the section  captioned  "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of the
Annual Report is incorporated herein by reference.

Item 7. Financial Statements

         The  Registrant's   financial  statements  listed  under  Item  13  are
incorporated herein by reference.

Item 8.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
         Financial Disclosure.

         On December 5, 2002, the Registrant  dismissed  Fontanella and Babitts,
Certified  Public  Accountants,  as the Registrant's  independent  auditors and,
through the Registrant's  Audit  Committee,  appointed Grant Thornton LLP as its
new independent auditors. The decision to change accountants was approved by the
Registrant's Board of Directors.

                                       29

<PAGE>

         Fontanella  and  Babitts'  reports  on  the  Registrant's  consolidated
financial  statements  for the two fiscal years ended  December 31, 2001 did not
contain an adverse  opinion or disclaimer of opinion,  and were not qualified or
modified as to uncertainty, audit scope or accounting principles.

         In  connection  with audits of the two fiscal years ended  December 31,
2001 and any subsequent interim period preceding the date hereof,  there were no
disagreements  or reportable  events  between the  Registrant and Fontanella and
Babitts  on  any  matters  of  accounting  principles  or  practices,  financial
statement disclosure, or auditing scope or procedure,  which, if not resolved to
the  satisfaction  of Fontanella  and Babitts,  would have caused them to make a
reference to the subject  matter of the  disagreements  or reportable  events in
connection with their reports.

         Effective   December  5,  2002,  the  Registrant,   through  its  Audit
Committee,  engaged Grant Thornton LLP as its independent  auditors.  During the
two most  recent  fiscal  years and the  subsequent  interim  period to the date
hereof, the Registrant did not consult with Grant Thornton, LLP regarding any of
the matters or events set forth in Item 304(a)(2)(i) or (ii) of Regulation S-B.

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons: Compliance
        with Section 16(a) of the Exchange Act.

         The information  contained under the sections  captioned "Section 16(a)
Beneficial  Ownership  Reporting  Compliance"  and  "Proposal  I -  Election  of
Directors"  in the  Company's  Proxy  Statement  for the 2003 Annual  Meeting of
Stockholders (the "Proxy Statement") is incorporated herein by reference.

Item 10. Executive Compensation

         The  information  contained under the section  captioned  "Director and
Executive Officer Compensation" in the Proxy Statement is incorporated herein by
reference.

Item 11. Security Ownership of Certain Beneficial Owners and Management

         (a) Security Ownership of Certain Beneficial Owners

         Information  required by this item is incorporated  herein by reference
to the first chart in the section captioned "Proposal I - Election of Directors"
in the Proxy Statement.

         (b) Security Ownership of Management

         Information  required by this item is incorporated  herein by reference
to the first chart in the section captioned  "Proposal I- Election of Directors"
in the Proxy Statement.

         (c) Management of the Registrant  knows of no  arrangements,  including
any pledge by any person of securities of the Registrant, the operation of which
may at a subsequent date result in a change in control of the Registrant.

                                       30

<PAGE>

         (d) Securities Authorized for Issuance under Equity Compensation Plans

         As of December  31, 2002,  the  Registrant  had no equity  compensation
plans to be disclosed pursuant to this item.

Item 12. Certain Relationships and Related Transactions

         The  information  required  by this  item  is  incorporated  herein  by
reference  to  the  section   captioned   "Certain   Relationships  and  Related
Transactions" in the Proxy Statement.

Item 13. Exhibits, List, and Reports on Form 8-K

         (a) Listed below are all  financial  statements  and exhibits  filed as
part of this report.

         1. The  consolidated  statements of financial  condition as of December
31, 2002 and 2001 and the related consolidated  statements of income, changes in
stockholders' equity, and cash flows for the years then ended, together with the
related notes and the report of independent certified public accountants.

         2. The following  Financial Statement Schedule is filed as part of this
report:

                    REISSUED REPORT OF PREDECESSOR ACCOUNTANT

To the Board of Directors
Synergy Financial Group, Inc. and Subsidiaries

         We have audited the accompanying  consolidated balance sheet of Synergy
Financial Group, Inc. and Subsidiaries, as of December 31, 2001, and the related
consolidated statements of income, retained earnings, and cash flows for each of
the two  years  in the  period  ended  December  31,  2001.  These  consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility is to express an opinion on the consolidated financial statements
based on our audits.

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

         In our opinion, the consolidated financial statements referred to above
present  fairly,  in all material  respects,  the financial  position of Synergy
Financial Group, Inc. and Subsidiaries, as of December 31, 2001, and the results
of their operations and their cash flows for each of the two years in the period
ended  December 31, 2001,  in  conformity  with  generally  accepted  accounting
principles.

/s/ Fontanella and Babitts

January 31, 2002


                                       31

<PAGE>

         3. The following  exhibits are included in this Report or  incorporated
herein by reference:

<TABLE>
<CAPTION>
<S>                     <C>
                  (a)      List of Exhibits:

                  3(i)     Charter of Synergy Financial Group, Inc.*
                  3(ii)    Bylaws of Synergy Financial Group, Inc.*
                   4       Specimen Stock Certificate of Synergy Financial Group, Inc.**
                  10.1     Employment Agreement between Synergy Bank and John S. Fiore**
                  10.2     Supplemental Executive Retirement Income Agreement for John S. Fiore**
                  10.3     Synergy Federal Savings Bank Supplemental Executive Retirement Plan for the
                           Benefit of Senior Officers**
                  10.4     Synergy Bank Deferred Compensation Plan for the benefit of John S. Fiore
                  13       Annual Report to Stockholders for the fiscal year ended December 31, 2002
                  16       Letter of concurrence from Fontanella and Babitts, Certified Public Accountants,
                           regarding change in certifying accountant***
                  21       Subsidiaries of the Company
                  99       Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                           906 of the Sarbanes-Oxley Act of 2002.
</TABLE>

          ---------------
          *    Incorporated  by reference to  Amendment  No. 1 to the  Company's
               Registration  Statement  on Form SB-2 (File No.  333-89384  filed
               with the SEC on July 29, 2002).
          **   Incorporated by reference to the Company's Registration Statement
               on Form SB-2 (File No.  333- 89384  filed with the SEC on May 30,
               2002). Synergy Bank changed its name from Synergy Federal Savings
               Bank after these agreements were entered into.
          ***  Incorporated by reference to the Company's Current Report on Form
               8-K dated December 5, 2002 (File No. 000-49980 filed with the SEC
               on December 11, 2002).

                  (b)      Reports on Form 8-K:

                           During the  quarter  ended  December  31,  2002,  the
                           Registrant filed reports on Form 8-K as follows:

                           Report Dated:                      Items Reported
                           -------------------------------------------------
                           September 17, 2002                 Items 5 and 7
                           October 11, 2002                   Items 5 and 7
                           October 23, 2002                   Items 5 and 7
                           December 5, 2002                   Items 4 and 7
                           December 18, 2002                  Items 5 and 7
                           December 27, 2002                  Items 5 and 7

Item 14. Controls and Procedures

         (a) Evaluation of disclosure  controls and  procedures.  Based on their
             --------------------------------------------------
evaluation  as of a date within 90 days of the filing date of this Annual Report
on Form 10-KSB,  the  Registrant's  principal  executive  officer and  principal
financial officer have concluded that the Registrant's  disclosure  controls and
procedures  (as defined in Rules  13a-14(c) and 15d-14(c)  under the  Securities
Exchange  Act of 1934  (the  "Exchange  Act"))  are  effective  to  ensure  that
information required to be disclosed by the Company

                                       32

<PAGE>

in  reports  that it  files or  submits  under  the  Exchange  Act is  recorded,
processed,  summarized  and  reported  within  the  time  periods  specified  in
Securities and Exchange Commission rules and forms.

         (b) Changes in internal controls.  There were no significant changes in
             ----------------------------
the Registrant's  internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,  including any
corrective  actions  with  regard  to  significant   deficiencies  and  material
weaknesses.

                                       33

<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended,  the registrant has duly caused this report to
be signed on its behalf by the  undersigned,  thereunto  duly  authorized  as of
March 26, 2003.

                                       SYNERGY FINANCIAL GROUP, INC.


                                       By: /s/John S. Fiore
                                           -------------------------------------
                                           John S. Fiore
                                           President and Chief Executive Officer
                                           (Duly Authorized Representative)

         Pursuant to the requirement of the Securities  Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated as of March 26, 2003.

<TABLE>
<CAPTION>
<S>                                        <C>

/s/Kenneth S. Kasper                           /s/John S. Fiore
-------------------------------------------    ---------------------------------------
Kenneth S. Kasper                              John S. Fiore
Chairman and Director                          President, Chief Executive Officer and
                                               Director

/s/Ralph A. Fernandez                          /s/Paul T. LaCorte
-------------------------------------------    ---------------------------------------
Ralph A. Fernandez                             Paul T. LaCorte
Vice President and Chief Financial Officer     Director
(Principal Financial and Accounting Officer)


/s/Nancy A. Davis                              /s/George Putvinski
-------------------------------------------    ---------------------------------------
Nancy A. Davis                                 George Putvinski
Director                                       Director


/s/W. Phillip Scott                            /s/Albert N. Stender
-------------------------------------------    ---------------------------------------
W. Phillip Scott                               Albert N. Stender
Director                                       Director


/s/David H. Gibbons, Jr.                       /s/Magdalena M. De Perez
-------------------------------------------    ---------------------------------------
David H. Gibbons, Jr.                          Magdalena M. De Perez
Director                                       Director
</TABLE>




<PAGE>

                            SECTION 302 CERTIFICATION

         I, John S.  Fiore,  President  and Chief  Executive  Officer of Synergy
Financial Group, Inc., certify that:

1.   I have  reviewed  this annual  report on Form  10-KSB of Synergy  Financial
     Group, Inc.;

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     (b)  evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     (c)  presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     (a)  all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     (b)  any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officer and I have  indicated in this
     annual report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.

Date:  March 26, 2003                      /s/John S. Fiore
                                           -------------------------------------
                                           John S. Fiore
                                           President and Chief Executive Officer




<PAGE>

                            SECTION 302 CERTIFICATION

         I, Ralph A. Fernandez,  Vice President and Chief  Financial  Officer of
Synergy Financial Group, Inc., certify that:

1.   I have  reviewed  this annual  report on Form  10-KSB of Synergy  Financial
     Group, Inc.;

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     (b)  evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     (c)  presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     (a)  all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     (b)  any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officer and I have  indicated in this
     annual report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.

Date:  March 26, 2003                 /s/Ralph A. Fernandez
                                      ------------------------------------------
                                      Ralph A. Fernandez
                                      Vice President and Chief Financial Officer